2 qfy2011 result preview 01-10-10

Preview
2QFY2011 Results Preview | October 1, 2010

Table of Contents

Strategy 2

Angel Research Model Portfolio 15

2QFY2011 Sectoral Outlook 16

Automobile 26

Banking 29

Capital Goods 32

Cement 35

FMCG 38

Infrastructure 41

Logistics 44

Metals 47

Oil & Gas 50

Pharmaceutical 53

Power 56

Real Estate 59

Retail 62

Software 65

Telecom 68

Note: Stock Prices as on October 1, 2010.

Refer to important Disclosures at the end of the report 1

Preview

Strategy
Endurance to pay... Strong surge in FII inflows, DIIs turn sellers
A quarter of handsome gains after a year... The quarter witnessed one of the strongest-ever quarterly inflows
The Indian bourses picked up significant momentum during from FIIs in the last three years. FIIs pumped in almost
2QFY2011. This resulted in markets breaking away from the US $12bn into equity markets, taking the total investments to
tight range, which they were confined to for the last three US $14bn in 1HFY2011.

quarters. The Sensex grew by 13.4% qoq during the quarter, The attractiveness of India as an investment destination can be
reporting the highest quarterly returns after an 18.2% qoq rise gauged by the fact that India accounts for ~50% of the fund
in 2QFY2010. The strong surge came on the back of strong inflows in Asia (ex-Japan) YTD in CY2010 in comparison to
inflows, which continue to chase emerging markets on account 25% during the same period in 2009. India is well on the path
of their high growth prospectus, in comparison to concerns of reverting to its high-growth orbit in the current uncertain
regarding the sustainability of the recovery underway in the global environment. Thus, India would continue to attract global
developed world. fund inflows, driven by its resilient domestic economy. Back
home, DIIs turned into net sellers, with net sales of Rs23,800cr
Exhibit 1: Rise in Sensex (qoq)
(%)
(US $5bn) in 2QFY2011, thus being net sellers of Rs20,000cr
60 in 1HFY2011.
50

40 Exhibit 3: Net fund inflows
30 60

20 50

10 40
(‘000 Rs cr)

30
0
20
4QFY2006

1QFY2007

2QFY2007

3QFY2007

4QFY2007

1QFY2008

2QFY2008

3QFY2008

4QFY2008

1QFY2009

2QFY2009

3QFY2009

4QFY2009

1QFY2010

2QFY2010

3QFY2010

1QFY2011

2QFY2011
4QFY2010

(10)
10
(20)
-
(30)
1QFY2008

2QFY2008

3QFY2008

4QFY2008

1QFY2009

2QFY2009

3QFY2009

4QFY2009

1QFY2010

2QFY2010

3QFY2010

4QFY2010

1QFY2011

2QFY2011
(10)
Source: BSE (20)
(30)
...Indian markets amongst the outperformers
FII DII

After a quarter of listless performance, the global equity markets Source: Bloomberg

rallied during 2QFY2011. Markets gained almost ~11% qoq,
Global economy on the path of recovery,
as the risk-appetite was back after concerns regarding sovereign
developing markets at the forefront
defaults in EU eased off. Developed markets, on an average,
posted qoq gains of 10%, with the exception of Japan, which The global activity is recovering at varying speed,
almost remained flat. Among the emerging markets, Indonesia tepidly in many of the advanced economies, but strongly in
continued to outperform, followed by Brazil and India. China, most emerging and developing economies. During 1HCY2010,
though witnessed a bounce back, continued to underperform the global economy grew at a faster-than-expected pace;
its peers. With this, the Indian markets grew by 17.2% yoy, ahead however, growth across economies remained uneven. While
of China (down 4.4%), while being outpaced by Russia and the advanced economies are yet to show a sustained growth
Indonesia, which gained 30.4% and 41.9% yoy, respectively. post the global financial crisis, emerging and developing
economies have expanded at a much faster rate and almost
Exhibit 2: Performance of key global markets
(%)
reached their pre-crisis levels. Overall, IMF has advanced its
50 real global GDP growth expectations to 4.6% in 2010, with
40 advanced economies expected to log in 2.6% growth, while
30
developing economies are expected to post 6.8% growth
20
(accounting for ~50% of global growth).
10

0
China
India
Brazil
Indonesia

HongKong

Korea
Singapore

US Nasdaq
Malaysia

UK FTSE

Japan

US Dow
Russia

Taiwan

(10)

(20)

yoy qoq

Source: BSE, Bloomberg


Preview

Strategy

Exhibit 4: Global GDP growth trend During the quarter, emerging and developing economies
10.0 6.0
reported a sharp recovery, post the downtrend in 2008, driving
5.1 5.2
4.9
8.0 4.8
3.6
4.5 4.6 5.0
the overall global economic growth. China and India, the key
(% yoy real growth)

(% yoy real growth)
6.0
2.9
4.0
economies in the region, surpassed their pre-crisis growth
2.3 3.0
4.0 3.0
trajectory. Although the Chinese economy's growth moderated
2.0 2.0
in 2QCY2010, the economy continues to log in double-digit
0.0 1.0
growth in spite of its high dependence on external economies.
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010E
(2.0) 0.0

(4.0) (1.0)
China is expected to end CY2010 with 10.5% GDP growth.
(0.6)

Advanced Economies Developing Economies World (RHS)
India is also back to its high growth trajectory, as indicated by
Source: IMF the 8.6% and 8.8% yoy growth rates posted by the economy in
1QCY2010 and 2QCY2010, respectively. With normal
Amongst the advanced markets, the US, which has witnessed monsoons and a broad recovery, the Indian economy is well
an uptrend since 3QCY2009 and posted strong 3.7% qoq set to end FY2011 by registering 8.5% GDP growth. Apart from
(annualised) growth in 1QCY2010, witnessed a softening in India and China, the other emerging markets have also
GDP growth to 1.6% qoq (annualised) in 2QCY2010, thus witnessed strong traction in CY2010 so far.
raising concerns of the economy heading towards a double
dip. However, a closer look at the numbers reveals that private India having the most compelling growth drivers
final demand (excluding inventory) has grown at healthy Globally, at this juncture, India unquestionably has the most
4.4% qoq (annualised), though the main beneficiaries of the compelling combination of growth drivers-favourable
same were businesses outside the US. However, given that demographics, high domestic savings, globalisation, scope for
consumption (70% of the GDP) continues to grow at ~2%, below rapid productivity improvement and sustained policy reforms.
the ~3% yoy growth before the pre-crisis levels and high This would result in a virtuous cycle of productive job
unemployment rates, the US Fed has kept the option of further creation-income growth-savings- investments, thereby leading
monetary stimulus open, if the economic condition deteriorates. to higher growth. Thus, India has all the levers to accelerate its
On the other hand, the Euro zone surprised positively in sustainable real GDP growth from 8-9% to 9-10%. For the
2QCY2010, as against expectation of moderation in growth 12th Plan, the government is targeting 10% real GDP growth,
on the back of the sovereign debt crisis. The region posted 4% which we believe is achievable.
qoq (annualised) growth on the back of strong domestic Favourable demographics
demand. However, growth in the region could moderate on
the back of the high base effect and impact of austerity measures It is a known fact that there is an undeniably strong correlation
undertaken. between consistent high growth and a combination of favourable
demographics and high domestic savings. For instance, the
Japan, on the other hand, witnessed moderation in 2QCY2010,
working population in East-Asian countries grew at a CAGR of
after posting robust growth in 1QCY2010.
2.5-3.5% between 1970 and 2005. China alone added 41cr
Exhibit 5: Growth of key economies people to its workforce during that period, at a 2.5% CAGR,
14.0
which was responsible for a corresponding portion of the
12.0
11.9
10.5 country's 8.5% CAGR in GDP .
10.3
(% yoy real growth)

9.4 9.0
10.0
8.6 8.8 8.8 India's median age stands at 25 years, which is close to where
8.0 7.1
East-Asian economies were at their respective growth inflection
6.0 4.7 5.2

4.0 3.3 3.1
4.3 points. Our working-age population is set to grow at one of the
2.4 3.0 2.4 2.4
2.0
1.9
0.8 1.0 highest rates of 1.3% CAGR over the next 40 years (and an
0.0 even faster rate of 2% until CY2025). This will lead to a
US Euro Zone Japan China India Brazil Russia staggering addition of 36cr people in the working-age bracket.
1QCY2010 2QCY2010 2010
In addition, the increasing participation of women in the
Source: Bloomberg, IMF
workforce will provide a further fillip to our growth rate. This is
in contrast to China, which is expected to witness a decline in
its working-age population by 4.8cr people, Russia by 2.6cr
people and G7 countries by 0.9cr people.


Preview

Strategy
Exhibit 6: India to witness largest workforce accretion labour pool to urban areas are further driving productivity
growth. With sustained progress on the reform front, we believe
Additional Working Additional Working
Population (Cr) Population (Cr)
40 12

a heavy mix is in place to take India's growth trajectory to the
aspired levels of over 9%.
30 9

20 6
High domestic savings and investments
10 3

Over 1970-2005, savings and investment rates averaged
0 0
30-40% of the GDP in East-Asian economies. This was the other
-10 India (LHS) China Brazil Russia USA Japan -3
important ingredient that went into their high growth, as high
2008-2015 2015-2025 2025-2050
savings and investment rates by the domestic private sector
Source:UN
supported a high capital output ratio.
Exhibit 7: Median age trend would continue to favour On an average, over FY2002-06, India received ~US $15bn
2005 2015E 2025E 2035E 2045E 2050E
in Forex inflows and still maintained real GDP growth of 6-7%.
Emerging Economies
The reason behind the same has been strong internal accruals
Brazil 27.0 31.3 35.8 39.9 43.8 45.6
in the form of gross domestic savings. India, which is amongst
China 32.1 35.6 38.9 42.8 44.9 45.2
the highest savers in the world, has seen savings increase from
India 23.7 26.5 29.9 33.5 36.9 38.4
21-22% in the 1990s to 36% in FY2008, which has set pace for
Indonesia 26.5 30.1 33.8 37.0 39.9 41.1
higher GDP growth. The high savings were on the back of
Russia 37.3 38.9 41.7 45.3 44.5 44.0
declining dependency ratio and reduction in overall government
Developed Economies
deficit. Going forward, the dependency ratio is likely to improve
USA 36.0 37.2 38.7 40.3 41.2 41.7
further, which, along with improving government finances, would
UK 38.9 40.3 40.8 42.0 42.4 42.5
continue to drive structural rise in overall savings, consequently
Japan 43.1 46.6 50.6 53.5 54.9 55.1
driving investments and overall growth by over 9%.
Germany 42.1 46.4 48.8 50.3 51.7 51.7
France 38.9 41.3 42.9 44.0 44.4 44.8 Exhibit 8: Dependency ratio and savings rate
Source: UN 64.0 40
62.0 35
Significant scope for productivity improvement 60.0 30
58.0 25

The large gap in per capita incomes between developed and 56.0 20
54.0 15
emerging economies mainly reflects differences in productivity 52.0 10
levels. For instance, per capita income in the US has grown at 50.0 5
48.0 0
an average real rate of ~2% per annum since the past
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

150 years. This can be taken as a good benchmark for
Working Population (as % of Total Population) -LHS
innovation-led growth. Emerging economies are in a position Savings Rate ( as % of GDP) - RHS

to grow at a faster rate, as they progressively catch up with Source: UN,RBI
developed economies on the productivity front, until innovation
barriers slowdown their growth rate. This has been the key driver Globalisation
behind the rapid growth rates witnessed successively in Japan, Over the last couple of decades, growing globalisation has
South Korea and, more recently, China. Of course, capitalist widened export opportunities. However, India's integration with
reforms that essentially liberalised these economies created the the global economy (which started in 1990s unlike its peers
necessary platform for successive economies to take off one where the process started in 1980s) has kept India's dependence
after the other. on exports (contributed ~23% of GDP in 2008) lower than its
In India too, productivity levels are increasing across the board peers in the emerging markets, including China and South Korea
and yet we are starting with such a small base in per capita whose exports contribute almost 37% and 53% of GDP (2008),
income (at US $1,030, less than 1/45th of US per capita income respectively. Given the disparity between the per capita income
in nominal terms and less than 1/18th in PPP terms) that even of developed markets vis-à-vis developing countries, exports
after four decades, this productivity-led growth will be far from would continue to increase. A case in point is Germany, a
losing steam. Increasing literacy levels and migration of the developed country that has witnessed a significant jump in its


Preview

Strategy

per capita income on the back of exports. Germany's GDP needs to continue to focus on implementing new reforms to
improved from 25% in 1990 to 47% in 2008. Similarly, among unleash its full potential.
the emerging markets, like China, a part of overall growth has Some of the structural reforms expected are:
been on the back of increased exports. As a matter of fact, in
Tax reforms: The proposed Direct Tax Code (DTC) on the direct
1970s, India and China were enjoying almost equal market
tax front and Goods and Services Tax (GST) on indirect taxations
shares in exports. Thereon, China's thrust on exports aided the
would widen the tax base and lead to higher tax collections.
country's high growth and it emerged a main player in the
The GST would mark a transition from the multiple rates of
exports market.
indirect taxes and different types of indirect taxes to a single
Exhibit 9: Exports as a percentage of GDP unified tax across goods and services, which would widen the
60
52.9 tax base and would result in proper allocation of resources,
50 thus improving overall productivity. On the other hand, the DTC
40
38.6
36.6 aims to broaden the tax base and reduce exemptions. DTC is
32.1 32
30 26.9
23.3
likely to be implemented by April 2012. Both these bills are
22.7
20 likely to augment tax collections by ~2% of GDP .
13.6 13.2
10.6 9.9
10
2.6 3.8
4.6 5.7 6.2 5.3 Enhanced investments in infrastructure: The 12th plan envisages
0 infrastructure investments in FY2013-17 cumulatively at US $1trn
1970 1975 1980 1985 2000 2008 compared to US $494bn in FY2008-12, taking infrastructure
Korea Rep. China India
spending to ~10% of GDP This seems possible given that
.
Source: World Bank
infrastructure spending will increase to 8.4% of GDP in FY2012
Accordingly, India has a lot of potential to increase its exports, from 7.5% of GDP in FY2009. Moreover, high savings and
as it is well below its major exporting peers in terms of per private sector participation (expected to be 50% of infrastructure
capita income. Though India's trade has accelerated post the spend) would aid the process.
liberalisation, leading to increased market share (up 0.7% Disinvestment: The government is looking at disinvestment to
during 1990-2009), India's share in total global exports boost its resources. For FY2011, government targets raising
continues to be a minuscule 1.2% (2009). Thus, India has Rs40,000cr (0.6% of GDP) from divestments, compared to an
significant potential to increase its market share and scale up estimated Rs25,000cr (0.4% of GDP) in FY2010.
its operations to accelerate growth and improve productivity,
Fiscal consolidation: The government has set a roadmap for
thus hastening overall savings and investments.
reduction in fiscal and revenue deficit over FY2010-15.
Exhibit 10: India v/s other key economies According to the roadmap, the consolidated (centre plus state
(in $)
50,000 12.0% government) fiscal deficit is expected to reduce to 7.3% of GDP
45,000

40,000
10.0% by FY2012 and 5.4% of GDP by FY2015, mainly aided by
35,000

30,000
8.0% improved tax collection. This is expected to enable the
25,000 6.0%
government to reduce its consolidated public debt to GDP to
20,000

15,000
4.0%
76.6% by FY2012 and to 67.8% by FY2015. The same would
result in reducing the crowding out, leading to improved savings
10,000
2.0%
5,000

0 0.0%
and investments.
Mexico
Russia
Italy
United States

Germany

South Korea
Canada

Brazil
Kingdom

India
France

Japan

China
United

Exhibit 11: Targeted improvements in public finances
PPP (Per Capita income, 2009) (LHS) Exports( Market Share) (RHS)
12.0 80
Source: Angel Reserach 78
9.9
10.0
76
Momentum on reforms to continue 8.3
(% to GDP)

8.0 7.3 74
6.7
6.7 5.4 72
6.0 5.4
Since 1990-91, India has stepped up on reforms, which has 5.7
4.8 4.2 3.0
70
4.0 68
accelerated the country's overall growth momentum. Recently, 3.0
66
the government showed its commitment towards reforms
2.0
3.2 2.6 2.5 2.5 64
2.4 2.4

through hiking urea prices by 10%; nutrient-based subsidy; - 62
FY2010 FY2011E FY2012E FY2013E FY2014E FY2015E
de-regulation of petrol prices and partial decontrol of diesel State Deficit (LHS) Centre Deficit (LHS) Gross Debt to GDP (RHS)
prices; and APM gas price de-regulation. Going forward, India Source: 13 Finance Commission Report
th


Preview

Strategy

Near-term macros too in fine fettle continues to exhibit strength. IIP growth in July 2010, at 13.8%,
continues to remain strong. Even after adjusting the IIP numbers
GDP growth back in high gear
for the base impact and taking a CAGR over a two-year period,
The Indian economy, after been straddled with 6-7% GDP growth IIP growth was around 10.4%, well above the 15-year average
during the last two years, is well placed to revert to its of 7.0%. Until July FY2011, IIP growth has been at around
high-growth phase of 8-9%, with all the three components 11.4%. Strong traction in auto sales—both commercial vehicles
of growth engines—agriculture, manufacturing and and passenger vehicles (over 25% growth in FY2011 until
services— contributing to its growth momentum. August); continued order inflows; and steel consumption (up
10% yoy in FY2011 until August) point towards continued
Exhibit 12: India's real GDP growth trend firmness in the manufacturing sector.
60,00,000 12

50,00,000 9.5 9.7
9.2 9.0
10 Exhibit 14: IIP growth trend (2-year rolling CAGR)
8.5
(%)
40,00,000 7.4 8
(Rs cr)

14.0

30,00,000 6.7 6 12.0

20,00,000 4 10.0

8.0
10,00,000 2
6.0
0 0
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E 4.0

Services (LHS) Manufacturing (LHS) Agriculture (LHS) YoY Growth (RHS) 2.0

Source: Bloomberg, Angel Research -

Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-99
Aug-99

Feb-04
Aug-04
Feb-05
Aug-05

Feb-09
Aug-09
Aug-96

Feb-06
Aug-06
Feb-98
Aug-98

Feb-08
Aug-08
Feb-97
Aug-97

Feb-07
Aug-07
Feb-00
Aug-00

Feb-10
The trend is already visible, as indicated by the 1QFY2011 Source: Bloomberg, Angel Research
GDP growth numbers. For 1QFY2011, India’s GDP grew by
8.8%, in line with growth posted during FY2006-10. This is the Growth in the services sector, which contributes ~57% of the
highest growth rate reported by the Indian economy since GDP is expected to remain robust despite moderation in
,
4QFY2008. Growth in 1QFY2011 was driven by strong non- government-linked community and social services. Growth in
agriculture GDP growth, which continued its strong momentum, the sector would be mainly driven by improvement in the hotel,
registering 9.9% growth, much higher than the 7.7% and 8.8% transport, communication, finance and real estate sectors (which
growth recorded in FY2009 and FY2010, respectively. Services contribute ~70% of the service sector’s GDP), all of which would
and the manufacturing sectors (non-agricultural components) expand at a faster pace as compared to that in FY2009-10 due
registered growth of 9.7% and 10.3%, respectively. Agriculture to revival in household demand and global economy.
also bounced back during the period, posting 2.8% growth,
On the expenditure front, private consumption, which posted
reporting the strongest performance in the past one year.
an improvement over the last quarter, remained lower at 3.8%
in 1QFY2011. This can be attributed to lower agricultural growth
Exhibit 13: Growth in 1QFY11 surpasses FY08-10 trend
12.0
and high inflationary pressures. Going forward, with agriculture
9.5
10.5 10.3 10.6
9.7
expected to bounce back and inflationary pressures expected
10.0 9.1
to subside, overall private consumption is expected to contribute
8.8
(% yoy Real Growth)

8.0 7.1
6.5 to growth momentum. Another key component, gross fixed
6.0
4.5 capital formation (at 7.6%) has grown at an average run rate
4.0
2.8 of 7.2% in FY2010; however, with demand picking up, high
2.0
0.9 capacity utilisation across industries (auto, cement, steel and
0.0
power, among others) and lean corporate balance sheets have
GDP Agriculture Manufacturing Services

FY2005-08 CAGR FY2008-10 CAGR 1QFY2011
led to an upturn in the capex cycle. This, along with the strong
Source: CSO order book position of capital goods and infrastructure
companies, points towards continued healthy growth of gross
Going forward, the firm trend in GDP growth is likely to continue. fixed capital formation.
Rainfalls at 104% of long-period averages (LPA) until September
22, 2010, in line with expectations, would aid agriculture growth
to bounce back. IIP the cornerstone of manufacturing activity,
,


Preview

Strategy

Exhibit 15: Investments exhibiting strength excess/normal rainfall. The East and Northeast region in India
was the only region that recorded below-normal rainfall (20%
18.0

16.0 15.3

below the LPA). However, the region accounts for ~13% of food
14.2
13.5
(% yoy Real Growth)

14.0
12.0
9.5 10.0 grain production and, thus, will not adversely affect overall
10.0 9.0

8.0 7.2
7.9 inflation. Moreover, water reservoir levels, which stood at 76%
6.4
6.0
5.6
of their full reservoir level (FRL) and at 117% of their LPA, increase
3.8
4.0
2.5 prospects of a good Rabi crop. Thus, food inflation, which
2.0
0.0 reduced to 14.6% in August 2010, would further decline with
GDP Private Consumption Government Expenditure Gross Capital formation
moderation in food prices and a high base effect.
FY2005-08 CAGR FY2008-10 CAGR 1QFY2011

Source: CSO Exhibit 17: Food inflation trending downwards
(% yoy)

Inflationary pressures cooling off 25.0
21.8%
20.0
The WPI, which averaged around 9.8% during CY2010, has
15.0
shown signs of cooling, with WPI in August 2010 at 8.5%, 14.6%

making it the fourth consecutive month of the decline from the 10.0

high of 11.0% in April 2010. The decline can be attributed to 5.0

the softening of food inflation, the key contributor to easing 0.0

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09
Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-10

Apr-10

Jun-10

Aug-10
inflationary pressures. Further, though manufacturing and fuel
inflation for FY2011 (till August 2010) has grown at 5.6% and
Source: Bloomberg, Angel Research
13.6%, respectively, the month-on-month (mom) trends for the
same are showing stability. Oil to remain range bound
Going forward, food inflation, which was exacerbated by last
As expected, crude continued to move in a narrow range of
year’s bad monsoons, is set to moderate. Further, we do not
~US $71-83/bbl during 2QFY2011. After touching the high
expect any significant jump in oil and metal prices. Thus, as we
of US $83/bbl in August 2010, it fell and remained subdued
move towards 2HFY2011, we expect inflation to ease off and
after government data showed an unexpected rise in US crude
once again come down to the manageable 6% level.
and gasoline stockpiles. Further, expectations of easing demand
Exhibit 16: Inflationary pressures to decline weighed on crude prices. On an average, crude prices fell by
15 2.5% qoq. Going forward, we maintain our stance of subdued
12 11 oil prices in the near term and expect crude to consolidate at
current levels, especially owing to the inventory overhang in
(% yoy)

9
OECD countries and increasing NGL output by OPEC.
6 6
Thus, crude price is expected to hover at US $75-85/bbl in the
3
visible future.
0
Exhibit 18: Crude price trend
(3)
(US$/bbl)
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
160
Source: Bloomberg, Angel Research 140
120
100
Food inflation headed downwards 80
60

Food prices zoomed to a high of 21.4% in May 2010 and, 40
20
directly and indirectly, contributed to the overall rise in 0

inflationary pressures. However, they are now set for a downward
Jul-10
Jan-00

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Nov-09

Mar-10

trend. Normal monsoons across India (104% above the LPA)
Crude
would set the pace for softening food prices. According to the Source: Bloomberg, Angel Research
Indian Meteorological Department (IMD), monsoons have been
in line with the forecast, with ~85% of the country receiving


Preview

Strategy

Metal prices witness moderate hike Exhibit 20: Gross central tax-to-GDP trend
12.5
12.0
12.0
Internationally, both ferrous and non-ferrous metals remained 11.5 11.3 11.8
softer during the quarter, with ferrous metals facing higher 11.0
10.5 11.1
11.5
10.8
declines. In 2QFY2011, Indian steel prices declined by 10.0 10.3
9.5 9.9
7.6% qoq to Rs34,500/tonne because of low demand due to 9.0 9.4
8.5
monsoons and cheaper imports from China. On the non-ferrous 8.0

front, policy tightening measures in China, debt problems in

FY2005

FY2006

FY2007

FY2008

FY2010
FY2009

FY2011E

FY2012E

FY2013E
the Euro zone and slowing economic activity in the US kept
base metal prices under pressure. However, copper prices were Gross Tax to Centre ( as % of GDP)

higher sequentially because of low inventory levels at LME Source: 13th Finance Commission Report, Finance Ministry

warehouses. Average LME prices remained high on a yearly We believe these targets are achievable, given that the Indian
basis, as prices bottomed out in the corresponding period last year. economy is well on track to revert to its high growth trajectory.
Going forward, we expect steel prices to witness moderate hikes These targets remain lower than the gross tax collection at 12%
because of strong domestic demand, China's measures to cut of GDP in FY2008, when GDP growth was around 9.2%. Further,
excess steel production and raw material cost push. On the during the downtrend in FY2009, gross tax-to-GDP at central
base metals front, we expect prices to remain range bound; level was ~11.3%. Thus, with the economy’s growth reverting
however, we believe significant upsides would be limited due to to the high growth trajectory and becoming more broad based,
high inventory levels at the LME warehouse. On the other hand, the targets are well within reach. Moreover, they are likely to
get a further boost on the back of proposed reforms, including
the downside for some metals seems limited as prices are near
disinvestment, GST and DTC, which are expected to improve
their marginal cost of production.
the government's revenue collection. These reforms are expected
Exhibit 19: Global metal price performance to result in the gross tax-to-GDP moving up by ~2%.
Spot US$/ Sept. 30, June 30, Sept. 30, % chg % chg
For FY2011, the fiscal deficit appears to be conforming to the
tonne 2009 2010 2010 qoq yoy
estimates made in the Union Budget for FY2010-11.
Alumina 220 335 308 (8.2) 39.8
Higher-than-expected realisations on 3G and broadband
Lead 1,684 1,726 2,258 30.9 34.1
wireless access (BWA) auctions combined with buoyant tax
Zinc 1,534 1,760 1,943 10.4 26.7
revenue (have registered growth of 30.7% till July 2010) have
Steel HR 446 685 542 (20.9) 21.5
eliminated the risk of the fiscal deficit overshooting the targeted
Copper 5,083 6,484 6,147 (5.2) 20.9
5.5%, even after the supplementary demand for grants is taken
Aluminum 1,607 1,951 1,856 (4.9) 15.5
into account. This will help stabilise market expectations of
Iron Ore 82 147 89 (39.2) 9.2
liquidity and interest rate movements.
Tin 14,665 17,380 15,595 (10.3) 6.3
Source: Bloomberg; Note: Iron ore prices as on September 25, 2010, Thus, we expect overall improvement in fiscal position, with the
Steel HR prices as on September 28, 2010 total fiscal deficit (state and centre) expected to improve from
9.9% of GDP in FY2010 to 8.2% and 8.0% by FY2011E and
Fiscal deficit on a descend
FY2012E, respectively.
After two years of being straddled by high fiscal deficit, India is Exhibit 21: Fiscal deficit trend (% of GDP)
well on the path of fiscal consolidation. The government is 12.0

targeting to reduce central fiscal deficit from the estimated 6.7% 10.0
9.9

of GDP in FY2010 to 4.1% of GDP in FY2013E, the foundation 7.2
8.5 8.2 8.0
(as % to GDP)

8.0 6.5
of which is laid on improvement in overall gross tax collections
5.1
at the centre, which is expected to improve from 10.3% as a 6.0

percentage of GDP in FY2010 to 11.8% as a percentage of
4.0
4.0

GDP in FY2013. For FY2011 and FY2012, overall gross tax 2.0

revenue (at the centre) as a percentage of GDP is expected to
0.0
be around 10.8% and 11.5%, respectively. FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E

Source: Angel Research, RBI; Note: Excluding disinvestment proceeds and
off-balance sheet items


Preview

Strategy

CAD uncomfortable; Fund inflows to keep BoP healthy Exhibit 23: Quarterly trend in external trade
($ bn)
40 .0 2.0

Over the last two years, the Indian current account deficit (CAD) 30 .0
1.0
20 .0

has been widening, touching 2.9% of GDP (2.4% of GDP in 10 .0
0.0

(1.0)

FY2009)—this level has been achieved for the first time after

(% to GDP)
0.0

(10.0) (2.0)

the balance of payment (BoP) crisis in FY1991. Over the last (20.0)

(30.0)
(3.0)

two years, the pressure on the current deficit has come upon (40.0)
(4.0)

(50.0) (5.0)

because of widening trade deficit, which moved from ~7% of

1QFY2011
4QFY2008

2QFY2010
2QFY2008

1QFY2009

2QFY2009

4QFY2009

1QFY2010

3QFY2010

4QFY2010
1QFY2008

3QFY2008

3QFY2009
GDP during FY2006-08 to a run-rate of ~9% of GDP during
FY2008 FY2009 FY2010 FY2011

FY2009-10. While higher crude prices in FY2009 were the main Trade Deficit CAD Net Accretion to Reserves CAD as % of GDP (RHS)

culprit for the same, a quick recovery in domestic economy Source: Bloomberg, Angel Research
ahead of the global economy in FY2010 resulted in keeping
In a scenario of uneven global recovery and strong domestic
the deficit high, despite lower crude prices. Further, lower
growth, a high CAD is worrisome. It is also vulnerable to the
software exports and reduction in other invisibles impacted CAD.
rise in global crude prices. Nonetheless, even though the current
Exhibit 22: Trade and CAD trend magnitude of the deficit is reaching the uncomfortable zone
350 0.0 (worse than the FY1991 levels), the external balance is more
300
(0.5) robust, with strong forex reserves of US $280bn, equivalent to
250
200 (1.0) covering 11 months imports v/s 2.5 months imports during
FY1991. Moreover, with external debt of US $273bn (with
($ bn)

150
(1.5)
short-term debt contributing almost 20% of the same
(%)

100
50 (2.0)

0
or ~4% of the GDP) and capital inflows of ~4.1% of GDP (for
(2.5)
(50) FY2007 FY2008 FY2009 FY2010 the last one year), the situation is comfortable.
(3.0)
(100)
(150) (3.5)
Exhibit 24: External balance sheet in shape
Exports (LHS) Imports (LHS) Trade Deficit (LHS) CAD as % of GDP (RHS)
(US$ bn) FY1991 FY1995 FY2000 FY2005 FY2010
Source: RBI
Forex reserves 5.8 25.2 38.0 141.5 279.1

For 1QFY2011, at ~3.7% of GDP CAD continued to widen for
, External debt 85 99 98 134 261
the fourth quarter, breaching the uncomfortable zone of 3% % of GDP 32.7 33.9 23.9 20.4 20.0
deficit. While exports grew by 37.2%, strength in overall imports Short-term debt 7.1 4.3 3.9 17.7 52.5
on the back of strong domestic demand along with a stronger % of GDP 2.7 1.5 1.0 2.7 4.0
rupee has kept the trade deficit at 9% of GDP (in line with Current account bal. (9.7) (3.4) (4.2) (2.5) (38.4)
FY2010). A higher trade deficit explains just a part of the
% of GDP (3.0) (1.2) (1.0) (0.4) (2.9)
worsening CAD. The main pressure is stemming from stagnation
Capital inflows 7.1 8.5 10.2 28.8 53.6
in service inflows for the last five quarters, mainly on the back
% of GDP 2.7 2.9 2.5 4.4 4.1
of pressure on non-software inflows, which continued to drag
Import cover # (x) 2.5 8.4 8.2 14.3 11.2
CAD. On the positive side, capital inflows continued to surge.
Source: RBI; Note: No. of months #
For the quarter, despite lower FDI and FII inflows, strong surge
in debt inflows in the form of ECBs and trade credit aided capital Going forward, while global trade has recovered from its lows,
account to remain healthy at 4.9% of GDP resulting in a
, a slow pace of global recovery could put pressure on trade
US $3.7bn accretion to forex reserves. deficit in the near term; however, the pressures should ease
over the next 12-18 months, as new capacities get commissioned
and saving rate improves. On the services front, software
exports, which posted muted growth in FY2010, should also
register improved performance in FY2011 (estimated to be ~US
$58bn in FY2011 by Nasscom). This coupled with crude prices
expected to remain stable at these levels should keep a check
on CAD. Moreover, the recent move of China to allow its currency
to appreciate would benefit the India's exports growth.


Preview

Strategy

Further, CAD has been adequately financed through strong Exhibit 25: Credit growth up; deposit growth dipped
capital inflows in the form of FDI and FII. Over the last decade,
(%)
35.0
capital inflows have averaged ~3.7% of GDP Going forward,
. 30.0

inflows to India are expected to remain healthy, as already been 25.0
20.0
witnessed during FY2010—where the country ended up 15.0
receiving around US $19.7bn and US $32.3bn in FDI and FII, 10.0

respectively. In FY2011, inflows to India continued to remain 5.0
-
strong, with FII inflows touching US $14bn in 1HFY2011.

Oct-08

Feb-09

Oct-09

Feb-10
Jan-08

Mar-08

May-08

Jul-08

Dec-08

Apr-09

Jun-09

Aug-09

Dec-09

Apr-10

Jun-10

Aug-10
Going forward, given that emerging markets, especially India,
would be at the forefront of global growth, we expect India to Advances growth Deposits growth

Source: Bloomberg
continue to attract strong foreign inflows.
Moreover, higher-than-expected 3G funds that the government
Interest rates to rise, unlikely to hurt growth momentum
received as well as the RBI's monetisation of the fiscal deficit to
On the back of improving economy, the RBI has been focusing ~Rs1.8lakh-crore in 1HFY2011 to meet the economy's liquidity
on anchoring inflationary pressures. Thus, during its maiden needs in the absence of net forex reserve accretion reduced
mid-quarter monetary policy review, it raised interest rates for liquidity pressure. Going forward, we believe the rest of the
the fifth time since mid-March 2010 with an objective to control government's budgeted borrowing programme of about
inflationary expectations. The RBI raised the repo and reverse Rs1.6lakh-crore will have to be met through market sources
repo rates by 25bp and 50bp to 6.0% and 5.0%, respectively. (banks and insurance companies).
Overall, with government market borrowing (central and state)
Inflationary pressures, though strong, are easing. In August
kicking in and incremental credit off take expected to pick up,
2010, food and textile items contributed 46% to the WPI, as
we expect the requirements for deposit mobilisation to accelerate
compared to ~63% in February 2010. Manufacturing and fuel
in 2HFY2011. Thus, to balance the disparity between credit
inflation until August 2010 was 5.6% and 13.6% and the
and deposits growth, banks raised FD rates (by 25-75bp) during
m-o-m growth trend for the same is showing stability. Thus,
the quarter. However, despite the rise, they continue to be
with food inflation set for moderation and commodity prices
unattractive to depositors, considering that real interest rates
expected to remain stable, overall inflation is expected to ease
are still in the negative territory, leading to a gap between savings
off and once again come down to the manageable 6% level.
and investments, which at present is being plugged by high
On the liquidity front, 2QFY2011witnessed some respite, with CAD. Accordingly, over the course of the year, deposit and
deposit accretion improving by marginally 1% qoq, while lending rates are expected to be on an upward trajectory.
incremental credit declined marginally by 1.5% qoq, taking the
Exhibit 26: Bond yields to remain firm
overall deposit and credit growth in September 2010 in FY2011 (%)
to 19.8% and 14.4%, respectively. Thus, with credit demand 10.0
9.5
expected to sustain at above 19%, in line with GDP and IIP 9.0

growth, deposit moblisation would have to gather pace. 8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
May-08

Jul-08

Sep-08

May-09

Jul-09

Sep-09

May-10

Jul-10

Sep-10
Jan-08

Mar-08

Nov-08

Jan-09
Mar-09

Nov-09

Jan-10
Mar-10

Source: Bloomberg


Preview

Strategy

However, the hike in interest rates is not expected to hurt the NII, which is expected to remain robust. The performance of
growth momentum. In fact, in the previous cycle, the strength the capital goods sector, which is expected to post 21%
of credit demand reflected low elasticity to the 300-400bp growth, would be driven by BHEL, which is expected to post
increase in interest rates amidst an environment of robust a 33% jump in net profit, mainly driven by top-line growth.
economic activity and opportunity, buoyed by cheap foreign L&T, on other hand, is expected to maintain its 1QFY2011
capital and strong domestic savings. Secondly, interest rates growth momentum, posting 13.5% growth.
are well below their peak levels, leaving ample scope for gradual
The FMCG and IT sectors are expected to grow broadly in
monetary tightening, without adversely affecting the
line with the expected Sensex earnings. FMCG heavyweights
growth outlook.
will deliver 15% yoy growth, mainly driven by top-line growth,
Going ahead, with global central banks holding their rates with margins remaining flat. Amongst the pack, ITC would
steady, the rising interest rate differential along with India's be the leader, while HUL is expected to register flat growth.
relatively stronger GDP growth outlook, capital inflows may The IT sector will likely post 21% yoy growth on the sales
increasingly exceed the large CAD. The potential increase in front, while net profit is expected to rise by 14%, mainly on
forex reserves may provide the much-needed respite on the M1 account of higher tax outgo. Margins, on the other hand,
front, thereby improving the liquidity situation. Moreover, the are expected to remain stable.
increasing availability of foreign risk capital would provide a
The key underperformers during the quarter would include
thrust to investment-led credit demand and M3 growth.
the auto, telecom, cement and power sectors. Auto
Indian equities companies, though would continue to deliver strong growth
(~28%) on the top-line front, would continue to reel under
Sensex earnings outlook high raw-material pressures, which are expected to dent
2QFY2011 earnings - Net profit growth to lag sales growth overall operating margins, resulting in a dip in net profitability.
Telecom companies, which have been reeling under
For 2QFY2011, performance of India Inc. is expected to be competitive pressures, would also continue to post subdued
robust on the sales front. However, net profit growth during the performance. Cement and power companies are expected
quarter would lag top-line growth. For 2QFY2011, while we to witness pressure on the operating front on the back of low
have estimated net sales of Sensex companies to increase by realisation and higher input cost, respectively.
~20% yoy, net profit is expected to post 13.5% growth. A part
of the same would be on account of a ~54bp dip in operating Cipla and DLF—the lone representatives of the
margins. Overall, OPMs are expected to be around 25.6%, pharmaceuticals and real estate sectors, respectively—are
while NPMs would decline to 14.4% for the quarter. expected to post muted performance. While Cipla is likely to
register almost flat net profit growth, DLF is expected to witness
Sector-wise key features of the 2QFY2011 earnings season a 14% dip in profitability on the back of margin pressure
during the period.
The metals, financial, oil and gas, and capital goods sectors
are expected to deliver robust numbers for 2QFY2011. The
metal pack is expected to significantly contribute to overall
earnings growth of the Sensex. Baring this pack, net profit of
Sensex companies is expected to decline by 5.5%. Higher
realisations during the quarter would aid significant
improvement in OPMs, leading to increased net profit of the
metal sector. Overall, metal companies in the Sensex are
expected to post 44% growth during the quarter. The oil and
gas pack would post yoy growth of 29%, driven by a robust
32% jump in Reliance Industries' net profit.

On the other hand, the heavyweight financial sector is
expected to post 21% yoy growth in net profit during the
period. Growth for the sector would be driven by growth in


Preview

Strategy
Exhibit 27: Quarterly earnings trend for Sensex companies
Net Sales (Rs cr) Profit
Net Profit (Rs cr) Weightage % Contribution
Company 2QFY2011E 2QFY2010 % chg 2QFY2011E 2QFY2010 % chg (%) to Sensex growth
RIL 59,654 46,848 27.3 5,095 3,852 32.3 11.3 31.6
Tata Steel 6,342 5,630 12.6 1,742 903 92.9 2.6 27.2
Sterlite 5,863 6,086 (3.7) 1,066 959 11.1 1.7 2.2
Tata Motors 11,314 7,924 42.8 496 729 (31.9) 2.3 (7.0)
ONGC 18,942 15,192 24.7 6,198 5,090 21.8 3.8 10.2
ICICIBK 3,761 3,860 (2.6) 1,143 1,040 9.9 8.1 4.8
BHEL 8,914 6,728 32.5 1,144 858 33.3 2.8 4.6
ITC 5,110 4,293 19.0 1,227 1,010 21.5 6.0 7.0
JP Associates 2,427 1,824 33.1 118 138 (14.7) 0.9 (0.5)
HDFCBK 3,564 2,963 20.3 908 687 32.1 5.8 8.2
Maruti Suzuki 8,781 7,050 24.6 516 570 (9.5) 1.3 (1.2)
TCS 8,978 7,435 20.8 1,997 1,624 22.9 3.5 5.2
Hindalco 5,830 4,893 19.2 518 344 50.4 1.7 5.6
DLF 1,968 1,751 12.4 380 440 (13.6) 1.0 (0.7)
M&M 5,351 4,465 19.8 538 570 (5.7) 1.9 (1.1)
ACC 1,679 2,005 (16.3) 189 435 (56.6) 0.6 (6.3)
Hero Honda 4,435 4,040 9.8 510 597 (14.6) 1.2 (2.0)
Wipro 8,190 6,918 18.4 1,356 1,171 15.8 1.4 1.7
Cipla 1,447 1,371 5.5 273 276 (1.1) 1.1 (0.1)
Reliance Infra 3,020 2,650 14.0 305 307 (0.5) 1.0 0.0
L&T 8,829 7,919 11.5 637 562 13.5 7.1 3.1
Infosys 6,824 5,585 22.2 1,698 1,535 10.6 9.5 6.4
Bharti Airtel 15,308 10,378 47.5 1,734 2,263 (23.3) 3.0 (8.5)
HUL 4,632 4,228 9.6 557 564 (1.2) 2.1 (0.2)
HDFC 3,564 2,963 20.3 908 687 32.1 6.1 9.2
Jindal Steel 2,641 2,445 8.0 792 808 (2.0) 1.9 (0.3)
SBI 11,086 9,134 21.4 3,031 2,490 21.7 5.8 11.3
NTPC 13,395 11,252 19.0 1,845 2,152 (14.2) 2.3 (2.8)
Tata Power 1,809 1,721 5.1 218 183 18.9 1.4 1.1
RCOM 5,215 5,703 (8.5) 211 740 (71.5) 0.8 (8.6)
Total 248,871 205,251 21.0 37,297 33,561 11.1 100.0 100
Sensex # 20.0 13.5
Source: Angel Research; Note: #Sensex sales and earnings growth based on free-float weightages


Preview

Strategy

India Inc. earnings growth momentum to sustain Exhibit 30: Share in Sensex EPS CAGR (FY2010-12E)
6.0 5.6
The earnings momentum, which gathered pace in FY2010 5.4

(% contribution to growth)
5.0
(registering 13% growth after a dip in FY2009), is expected to 4.0 3.4

accelerate as we move into FY2011 and FY2012. 3.0 2.4
2.0 1.8

For FY2011, we expect Sensex EPS of Rs1,050, up 18.4% yoy, 1.0 0.4
0.8
0.1 0.3 0.3 0.5

mainly on account of robust earnings in the metals pack, which 0.0
(0.1)
is expected to post 143.4% yoy growth, contributing 9.5% to
(1.0)
(2.0) (1.2)
overall Sensex earnings growth. Other key drivers would be the

IT

Real Est.
Oil & Gas

Pharma
Engg.

Metals
Finance
Auto

FMCG
Cement

Constru.
Power

Telecom
auto sector and the financial sector, which would contribute
around 6.0% and 4.7% to overall earnings growth, respectively.
Source: Angel Research
Major underperformance would come from the telecom sector,
which will drag earnings growth by 3.6%. Market outlook
For FY2012E, we expect Sensex EPS to grow 21.2% yoy to India - The preferred investment destination
Rs1,273 (marginally upgraded from Rs1,242 earlier on the back
of upward revision in earnings of Tata pack—Tata Motors and While the global recovery is underway, emerging markets as
Tata Steel). Further, these estimates build in an ex-commodity an asset class would continue to outperform, as these economies
space to post net profit yoy growth of 22.3%. The key would be at the forefront of global growth in the years to come.
outperformer in terms of earnings growth will be the financial In this context, India is one of the fastest growing economies
sector, which is expected to post 31.2% yoy growth, followed by across the world. Going forward, structurally, India has all the
the oil and gas sector, which is expected to register 20.5% yoy levers in the form of favourable demographics, high savings
growth, contributing 6.2% and 4.3%, respectively, to overall and investments, which would play out in the future, resulting
growth. Other significant contribution to growth would come in in India sustaining its high growth and stepping up its growth
from the IT sector, which is expected to post 18.9% growth during momentum. Thus, India, on the back of its high long-term growth
the period. The telecom sector, which has been battered down and profitability prospects, would continue to remain a preferred
due to intense competition, is expected to bounce back in
investment destination.
FY2012 and post yoy growth of 20.2%. Thus, with the expected
robust growth in EPS in FY2012E, Sensex earnings are expected Valuations - Trading near fair zone, near-term
to register a CAGR of ~20% over FY2010-12E. upsides limited
Exhibit 28: Sensex EPS estimates At the current level of 20,455, the Sensex is trading at 19.5x
(Rs)
1,300 wth
1,273 and 16x our FY2011E and FY2012E EPS, respectively, close to
gro
1,200 21
.1% its 10-year average of 15x one-year forward P/E. However,
1,100 wth 1,051
given that India has moved back to the +8% growth trajectory
ro
%g
1,000
18.
4
and is well placed to move into the high-growth orbit, we believe
owth
% gr
900
12.4 888 Indian markets should trade at a premium to their long-term
800
790 valuations. Thus, valuing the markets at 17x FY2012E, we have
a Sensex target of 21,624 by March 2011, leaving little upsides
700
FY2009 FY2010 FY2011E FY2012E in the near term.

Exhibit 29: Sectoral v/s Sensex - Net profit growth (FY10-12E)
69 65
70

47
50 44
(% growth)

28
30
15 15 13
6 10 5
10

(10)
(7)
(17)
(30)
Auto

Metals

Constru.
Power
FMCG

IT
Cement

Real Est.
Oil & Gas

Pharma
Engg.

Finance

Telecom

Sectoral growth (% CAGR) Sensex growth (% CAGR)



Preview

Strategy

Exhibit 31: One-year forward Sensex P/E Exhibit 32: Bond yield v/s earnings yield
30 1-yr forward rolling PE (x) 5-yr Avg. P/E (x) (%)
14.0

25 12.0

10.0
20
8.0

6.0
15
4.0

10 2.0

-
5 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10
Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Earnings Yield Bond Yield

Source: Angel Research Source: Angel Research, Bloomberg

Market strategy - Endurance to pay…

The strong surge in global inflows towards India bears testimony Moreover, a look back in history suggests that investors would
to the resilience of the Indian economy to the global slowdown have earned good returns even if they had invested at the earlier
and its ability to sustain high growth amidst such an environment. highs of 21,000. Most stocks that provided good alpha returns
While the liquidity gush towards India could continue to provide had high ROEs (and were not high-growth stocks) or were
a further leg-up to markets, we believe, in the near term, it is available at deep values in sectors facing challenges.
more probable that markets could consolidate at these levels.
At this juncture also, there are stocks that meet these criteria
This is because Indian equities are trading close to their fair
and would generate alpha returns for investors. RIL, Blue Star,
valuations and a correction (though limited), if any, should be
Mphasis BFL, United Phosphorus, Electrosteel Casting and
short lived, given that overall global liquidity remains
Finolex Cables are among the few stocks that can generate
comfortable (with a benign interest regime in developed
alpha for investors. (For more information, please refer to our
economies) and would continue to chase high-growth assets.
Strategy Report - Finding Alpha Returns at 20,000 Sensex, dated
Further, given the strong fundamentals (as discussed), the September 21, 2010).
bull-run in Indian equity markets is well entrenched. Thus, even
Hence, we recommend, investors to hold onto their investments
though the markets approach their earlier highs of 21,000, we
and use dips to increase their exposure in the markets to reap
believe the Indian economy and, hence, Indian equities have
benefits, as there are numerous investment opportunities that
miles to go. Hence, even though the upsides in the near term
will reward shareholders.
would be limited, we believe at this juncture, the risk-reward is
favourable for long-term investors and will eventually reward
their endurance.


Preview

Angel Research Model Portfolio

Sector Company CMP (Rs) Target Price (Rs) Weightage (%) Weightage (%) Stance
Auto & Ancillaries 6.2 3.0 Underweight
Maruti Suzuki 1,483 1,640 0.9 1.0 Equalweight
JK Tyres 192 237 0.0 2.0 Overweight
BFSI 26.5 27.0 Overweight
SBI 3,261 3,187 3.9 4.0 Equalweight
Axis Bank 1,572 1,703 1.8 7.0 Overweight
ICICI Bank 1,135 1,350 5.5 12.0 Overweight
HDFC Bank 2,499 2,514 3.9 4.0 Equalweight
Cement 1.6 0.0 Underweight
FMCG 7.7 3.0 Underweight
ITC 179 177 4.3 3.0 Underweight
Hotels 0.2 3.0 Overweight
Taj GVK 161 240 0.0 3.0 Overweight
Infra. & Cap Goods 11.5 22.0 Overweight
Bluestar 492 589 0.0 4.0 Overweight
L&T 2,099 1,842 4.9 5.0 Equalweight
LMW 2,419 2,819 0.0 3.0 Overweight
Reliance Infrastructure 1,082 1,253 0.7 3.0 Overweight
Nagarjuna Construction 158 201 0.0 2.0 Overweight
Punj Lloyd 131 156 0.1 3.0 Overweight
Jyoti Structures 137 215 0.0 2.0 Overweight
Media 0.4 2.0 Overweight
Jagran Prakashan 127 154 0.0 2.0 Overweight
Metals 8.5 5.0 Underweight
Hindalco 204 204 1.1 1.0 Equalweight
Electrosteel Castings 46 72 0.0 2.0 Overweight
Godawari Power 210 313 0.0 2.0 Overweight
Oil & Gas 14.0 10.0 Underweight
Reliance Industries 1,006 1,260 8.2 10.0 Overweight
Pharma 3.6 5.0 Overweight
Dishman Pharma 191 279 0.0 2.0 Overweight
Aurobindo Pharma 1,056 1,288 0.0 3.0 Overweight
Power 3.8 0.0 Underweight
Real Estate 1.5 3.0 Overweight
Anant Raj Industries 146 178 0.0 3.0 Overweight
Software 10.7 12.0 Overweight
Infosys 3,103 3,157 6.6 2.0 Underweight
TCS 960 1,032 2.4 2.0 Equalweight
Tech Mahindra 767 942 0.0 4.0 Overweight
Mphasis 630 872 0.0 4.0 Overweight
Telecom 3.0 0.0 Underweight
Others 0.7 5.0 Overweight
United Phosporus 182 228 0.0 2.0 Overweight
Finolex Cables 58 85 0.0 3.0 Overweight


Preview

2QFY2011 Sectoral Outlook


Preview

Sector Trend Outlook

Automobile The macro-economic scenario appeared optimistic in On the back of a positive economic scenario
FY2010 with most of the companies reporting sequential and improving consumer sentiment, we retain
spurt in volumes during the period. In 2QFY2011, most our positive outlook on the auto sector. We
auto companies continued to witness traction in volume expect the ongoing economic recovery to help
growth, albeit on a low base. Fears of price increases due the auto sector (passenger vehicles,
to the increase in raw-material costs and change in commercial vehicles and two-wheelers)
emission norms resulted in advanced buying, perking up register good growth in the domestic market
volumes in 2QFY2011. Thus, most companies are and a decent growth in export markets over
expected to post good top-line growth in 2QFY2011. FY2010-12E.
However, an uptick in commodity prices over the last six
months is expected to exert pressure on margins in We estimate overall auto volumes to register
2QFY2011. a CAGR of around 13% over FY2010-12E,
aided by improved economic environment for
Substantial 25% volume growth is expected to boost the sector. Over the longer term,
sales growth of our auto universe for 2QFY2011 to a high comparatively low penetration levels, a healthy
of 31% yoy. However, margins are expected to contract economic environment and favourable
by ~450bp yoy, reflecting higher input costs. All these demographics supported by higher per capita
factors combined would result in about 8% yoy decline in income levels are likely to help auto
earnings growth. companies in sustaining their top-line growth.

Bajaj Auto and TVS Motor are expected to report strong Among the heavyweights, we prefer Maruti
earnings growth for 2QFY2011. The relative change in Suzuki, Tata Motors and M&M.
Tata
product mix and low base would support higher earnings
growth of these companies.

Auto Ancillaries Auto Ancillaries are expected to report healthy top-line The auto component industry is expected
growth in 2QFY2011 on the back of better domestic to be on the path of recovery. Outlook for the
volume growth. industry is good largely due to strong growth
of autos in the domestic market.
Margin pressure is expected to reduce marginally, owing
to improving operating leverage. However, higher Companies with high exposure to exports
raw-material cost is expected to exert pressure on few are expected to show marginal recovery owing
ancillary companies (tyres) and would result in higher to volume recovery in some of the developed
margin contraction. markets. However, rupee appreciation on a
yoy basis would impact export realisation to a
Broadly, the sector is expected to deliver positive certain extent.
earnings growth. Losses posted by few ancillaries (with
exposure in the overseas market) during FY2010 are We maintain our positive stance on Exide,
expected to register profit aided by the cost restructuring Automotive Axles and Fag Bearings, which are
exercise implemented by them in their overseas operations available at reasonable valuations. Owing to
during 2QFY2011. the structural shift the tyre industry is going
through, we remain positive on the sector
Tyre
and maintain Buy on JK Tyre and Ceat, which
are available at attractive valuations.

Continued...


Preview


Banking In 2QFY2011, credit declined marginally by 0.6% qoq, We believe rising retail and wholesale fixed
even as incremental deposit accretion was a nominal 1.2% deposit rates may increasingly lead to NIM
qoq. During the quarter, banks had raised FD rates to compression, especially in the case of small
balance the disparity between credit and deposit growth; and mid-cap banks having relatively lower
deposit growth is still lagging credit growth by at least five CASA base. Correspondingly, larger banks
percentage points. that have high CASA ratios and robust branch
During the quarter, yields went up across the yield curve, expansion, such as SBI, ICICI Bank, HDFC
especially more so at the shorter end. Hence, we expect Bank and Axis Bank, are better placed to
most of the banks under our coverage to have moderate sustain or improve their NIMs.
MTM losses in 2QFY2011. The increase in interest rates will not have
NIMs are likely to be flattish in 2QFY2011 as higher a negative effect on the banking sector, as it
deposit rates will take a quarter or two to flow through will be outweighed by the acceleration in core
the Profit & Loss A/c. We expect asset quality divergence earnings growth on the back of improvement
between PSUs and private banks to continue in 2QFY2011 in credit growth and fee income coupled with
(with likely improvement from 2HFY2011), though, going a sharp reduction in NPA losses.
forward, the key trend to be monitored is likely to be on Considering the valuations, our top picks
the NIM front. are ICICI Bank among large-cap banks and
Federal Bank among mid- cap banks.
Amongst PSU banks, we like Union Bank, IOB
and Indian Bank on account of their relatively
better deposit franchise compared to peers.

Capital Goods The IIP numbers (released during the current fiscal this The revival in the IIP numbers backed by
far) have continued to maintain the double-digit growth the sustained improvement in the production
rate, except for June 2010, when it came in at 5.8%. The of basic as well as intermediate goods is a
better-than-expected IIP numbers for July 2010 at 13.8% pointer to the ensuing recovery in the capex
was aided by the all-round growth reported by most sectors cycle. With major sectors of the economy
especially the capital goods (CG) sector, which reported nearing peak capacity utilisation levels, we
63% yoy growth. expect the investment cycle to pick up in the
near term as robust corporate profits and
Companies in our CG universe are expected to post
favourable financing conditions fuel
cumulative top-line growth of 26% yoy. On the operating
investments.
front, we expect our CG universe companies to report
16bp expansion in OPM on the back of higher operating On the valuation front, we believe that most
efficiencies. Consequently, net profit is expected to increase of the CG companies in our universe are
by 25% yoy. presently trading at premium valuations
offering meagre upside from current levels.
In such a scenario, we prefer a stock-specific
approach. KEC, Jyoti Structures and Blue Star
figure among our preferred picks.

Continued...


Preview


Cement In 2QFY2011, all-India despatches decelerated further, We expect the demand situation for the
growing by a meager 3.7% yoy as compared to the 7% cement industry to improve and pick up from
yoy growth recorded in 1QFY2011. During the quarter, mid-3QFY2011, post the monsoons. We
despatches in the southern region continued to suffer, as expect a pick-up in rural construction activities
there was not much improvement seen in demand from in particular, as the country has experienced
good monsoons. As for the situation in the
Andhra Pradesh, which is a major cement-consuming state
southern region, we believe the demand
in the region. The northern region witnessed a slowdown
scenario would bottom out and expect growth
in demand as construction activity related to the in despatches from 3QFY2011. We expect
Commonwealth Games ended. The region also all-India capacity utilisation to bottom out at
experienced above-normal rains, which paralysed 77% in 2QFY2011. However, we expect the
construction activities in many areas. overcapacity to continue to exert pressure on
prices in all the regions, till the end of FY2011.
Despite the slowdown in demand, cement prices were
hiked twice in the southern region in September 2010. We believe this price hike is not sustainable
On an average, prices were higher by Rs60/bag post the in the southern region as it is basically an act
two rounds of the price hike. Post these hikes, price per aimed at bringing about price discipline and
bag of cement stood at Rs260 in Chennai and around has got nothing to do with demand. Cement
Rs200 in Hyderabad. The price hikes were carried out by makers had increased prices in March 2010,
but they soon rolled back the prices due to
cement manufacturers to minimise their losses, as cement
low demand. Similarly, we expect correction
prices in the region, especially Andhra Pradesh, had fallen
of Rs10-15 per bag over the next few weeks
close to the cost of production. on the back of lower utilisation.
We maintain a Buy rating on India
Cements, Madras Cements, Kesoram and JK
Kesoram
Lakshmi Cements.

FMCG For 2QFY2011, we expect our FMCG universe to post We expect the FMCG companies to sustain
steady top-line growth of 17.3% yoy (robust volume growth modest top-line growth buoyed by good
and selective price hikes) and earnings growth to slip to monsoons and return of pricing power.
16% owing to margin pressures (rising input costs) except However, rising input costs remain a near-term
for Colgate, GCPL and ITC. concern and are likely to impact margins.
Moreover, price hikes are likely to only
GCPL, ITC and GSK Consumer are expected to report
neutralise impact of rising input costs as
strongest earnings growth during the quarter. HUL is
intense competition across categories will keep
expected to report a 9.6% top-line growth, largely volume
significant price hikes under check and ad-
driven, as price cuts in the S&D segment will continue to
spends high.
drag overall growth and margins. Hence, bottom-line is
also expected to decline by1.2%. ITC is expected to witness Most FMCG companies have witnessed a
~1-2% volume decline in cigarettes impacted by the recent sharp rally in the recent past, and are currently
price hikes. We expect ITC to register a robust 19% yoy trading at peak valuations (~15-20%
growth in top-line and 21.5% growth in earnings, aided premium to their historical averages). While
by the recent price hikes in cigarettes, strong performance the long-term consumption story for the
of non-cigarette FMCG segment and rebound in its hotels FMCG industry remains intact, we expect both
business. earnings upgrades and P/E re-rating to take
a breather from current levels. Hence, we
maintain our underweight stance on the sector
and recommend selective stock approach.
Paints,
Asian Paints, Marico and GSK Consumer are
top-picks sector.
our top-picks in the sector.
Continued...


Preview

Sector 4th Quarter Trend
Trend Outlook
Outlook
Infrastructure We expect the infrastructure sector to post muted In light of the pivotal role that the
numbers for 2QFY2011 as the second quarter is usually infrastructure sector plays in enabling future
the weakest in any fiscal due to the monsoons. This year growth, we believe that the government will
India witnessed bountiful rains (4% above normal) on have to continue focusing on infrastructure
account of which we expect a delay in the pickup of development in the country. Over the next few
quarters, we expect healthy order backlogs
infrastructure projects. Moreover, order inflow in FY2010
of the companies in our universe to translate
was lop-sided with maximum share of orders bagged in
into earnings growth. We are bullish on infra
the last quarter of the fiscal, which are yet to contribute to
sector owing to recent underperformance and
revenues. Hence, we expect the quarter to be subdued on expect 2HFY2011 to be robust.
the revenue front for most of the construction companies.
Our top picks in the sector are IVRCL Infra,
NCC and Patel Engineering - in sequence of
preference. Our preference reflects our relative
comfort on execution front, order book
position, funding and valuations within the
sector.
Logistics For 2QFY2011, we expect Concor and GDL to report As per data released for FY2011 YTD
declines of 7.2% and 5.4% yoy in their revenue, (April-August 2010) by the Indian Port
respectively, due to volume slippage in the Exim segment Association (IPA), container traffic at major
on account of operations being halted at Jawaharlal Nehru ports grew moderately by 10.2% yoy. The JNPT
Port Trust (JNPT) port and heavy monsoon in the northern port, which handles ~60% of the country's
part of the country. On the other hand, we expect AGL to container volumes, registered a decline of
report strong revenue growth of 25.9% yoy on account of 14.8% yoy in August 2010. This was due to a
the low base effect and improving ECU Line numbers. complete closure of operations for five days
However, we expect AGL's PAT to remain flat as the after an oil spill, adversely affecting container
company had claimed MAT entitlement in 3QCY2009, throughput. Going ahead, we expect volumes
which resulted in lower taxes. We expect operating margins to stabilise to pre-accident levels. We expect
to remain stable for our coverage universe. Consequently, the country's overall container volumes to
we expect a 10.1% decline in PAT for our coverage register 10-12% yoy growth at 12 Indian
universe. Further, hike in haulage charges is detrimental major ports in FY2011E. OPM too has
for the rail container sector, which will impact profitability remained under pressure due to intense
in 2HFY2011. competition and inability to pass on rail freight
charges.

We continue to remain Neutral on the
logistics sector. We rate AGL as our top pick
in the sector on account of revival in ECU Line
performance in 2QCY2010 and reasonable
valuations.

Continued...


Preview


Metals For 2QFY2011, sales volume of the steel companies With the economic scenario improving and
under coverage are likely to see an uptick on a sequential low inventory levels, steelmakers are expected
basis as companies were able to liquidate their high to raise prices in October. We believe that steel
inventory. Moreover, in September 2010, companies hiked prices in India have bottomed out in
product prices by up to Rs1,000/tonne after a brief period 2QFY2011 and expect them to remain firm
of low price levels. On the negative side, margins are in the coming quarters. However, we believe
likely to be under pressure on account of high raw material the short-term outlook for iron ore remains
cost and lower realisations. We expect top-line to increase challenging due to the slowdown in Chinese
by ~5-13% yoy except for SAIL. EBITDA margins are likely iron ore imports and government restriction
to contract by 460-640bp yoy except for Tata Steel. For on illegal mining. We remain positive on Tata
Tata
the mining companies, we expect iron ore sales volumes Power
ower.
Steel and Godawari Power.
of Sesa Goa to be severely impacted in 2QFY2011 as
On the non-ferrous side, we believe
exports from Goa are significantly reduced during the
downside from current levels for some of the
monsoons and shipments from Karnataka are expected
metals is limited as the prices are near the
to be lower on account of the ban.
marginal cost of production. Moreover, base
For 2QFY2011, average LME prices of aluminium, metal prices are expected to continue their
alumina and zinc fell 0.1%, 5.3%, and 0.2% respectively, strong yearly performance, primarily due to
while copper and lead prices were up 3.6% and 4.8% on the lower base effect. We recommend
qoq basis, respectively. We expect the non-ferrous Accumulate on Hindustan Zinc.
companies (except for Sterlite) to register top-line growth
of 14-22% yoy. Further, we expect margins to expand by
150-1,570bp, except for Hindustan Zinc.

Oil & Gas RIL is likely to report GRMs of US $8.0/bbl for the We expect RIL to deliver strong performance
quarter. In petrochem, while the cracker margins have in its extant businesses driven by improved
weakened, PP and polyester margins were subdued on a refining margins. Recent acquisition of the
qoq basis. Production of gas from the KG basin is likely to shale gas assets opens up new growth vistas
average at around 61mmscmd during the quarter. and provides technological know-how to
We expect ONGC to register net realisation of US replicate the same elsewhere. We believe RIL
$62.8/bbl, a yoy increase of US $6.4/bbl. The increase has addressed the issues associated with
could be attributed to the increase in the prices of petrol, redeployment of cash-flows, which is positive.
diesel and SKO coupled with increase in natural gas prices. The huge unexplored E&P acreage with RIL
could result in significant valuation upsides
IGL's CNG volume growth is likely to slow down during
from current levels.
the quarter due to the high base effect. CNG and PNG
volumes during the quarter are expected to increase by In the upstream space, performance of the
10.2% and 73.3% yoy, respectively. We also expect EBDITA/ PSU companies, viz. ONGC and OIL, is likely
scm to improve qoq on account of the full impact of CNG improve on account of the gas price hike and
price hike taken in the previous quarter and PNG price impact of increase in the petrol, diesel and
hike taken during the quarter. kerosene prices. We expect ONGC to report
net realisation of around US $60/bbl for the
GSPL is likely to report 10.1% yoy de-growth in
fiscal. Till clarity emerges over the subsidy-
subsidy-
bottom-line despite higher volumes as we expect tariff
sharing mechanism and further oil price
adjustment, which is happening over the last few quarters
reforms, we recommend Neutral view on
will adversely impact the profitability. We expect volumes
ONGC. In the private upstream space, Cairn's
during the quarter to increase by 15.9% yoy to 36mmscmd.
performance is likely to be driven by the crude

Continued...


Preview


We expect auto fuel and cooking fuel oil movement. Given our outlook of subdued
under-recoveries to stand at Rs3,368cr and Rs9,100cr crude oil prices, we expect mute stock
respectively, during the quarter. The decline in underperformance.
recoveries is due to the increase in the price of petrol, We remain positive on the gas companies,
diesel and kerosene coupled with subdued crude oil prices. viz. GAIL, GSPL, IGL and Petronet LNG. These
GAIL, GSPL, Petronet LNG.
However, in spite of the decline in subsidy qoq, the fate of companies are the key beneficiaries of the
the OMCs will continue to depend on the issuance of oil increasing gas demand in the country.
bonds.

Pharmaceutical The Indian pharmaceutical sector is expected to post During the past one year, the BSE HC index
modest growth on the sales front. We expect our coverage has been among the best performing indices,
universe to register 4.7% yoy top-line growth, despite the rallying 36.1% and outperforming the market
3.8% yoy appreciation in the rupee against US dollar on by 19.0%. On the back of rich valuations, we
an average during the quarter. Among large caps, Lupin continue to recommend a bottom-up
and DRL are expected to post strong performance. While, approach. In the generic segment, we now
among mid caps, Cadila and Ipca Labs are expected to Lupin,
prefer Lupin, Cipla and Indoco Remedies.
post strong growth.
We continue to favour CRAMS, though the
On the OPM front, we expect modest expansion for segment is witnessing near-term hiccups
our coverage universe on the back of higher employee because of inventory rationalisation and
and SG&A expenses. However, net profit is expected to multiple mega global pharma mergers in
grow by 10.3% yoy during the quarter, as 2QFY2010 CY2009. However, most of the CRAMS
was marred by higher interest charges and one-time companies are now witnessing an uptick in
expenses. order enquiries from global innovators,
indicating an improvement in the global
scenario. In CRAMS , we recommend
CRAMS,
Dishman Pharma.

Continued...


Preview

Sector 4th Quarter Trend
Trend Outlook
Outlook

Power In 2QFY2011, we expect the power generating We expect capacity addition to gather pace
companies in our universe to report top-line growth of over the last two years of the Eleventh Plan
20% yoy driven by capacity additions and increased tariffs. period. However, the power deficit scenario is
These companies had higher operating capacities during likely to persist, as supply is not likely to keep
the quarter on a yoy basis. However, operating profit is up with demand. Thus, players with the ability
to execute projects on time would be benefitted
expected to decline by 11% on account of the increase in
by the high merchant tariffs expected to prevail
fuel costs. Net profit is expected to decline by 8.5% yoy.
over the next two years.
Spot global coal prices were substantially higher on a Hike in the spot global prices is a negative
yoy basis during the quarter. Average prices of the New for companies relying on imported coal and
Castle Mckloksey 6,700kc coal stood at around US $94/ have not tied-up for supply at fixed rates.
tonne in 2QFY2011 as against US $71/tonne recorded Increase in coal costs would increase the cost
in 1QFY2010. However, the prices were lower by around of power generation. However, the companies
5% on a qoq basis. under our coverage NTPC, CESC which use
imported coal for certain portion of their
requirements operate under the regulated
business model and hence pass-on the hike
in fuel costs.
GIPCL, PTC
We maintain a Buy on GIPCL, PTC and
CESC.

Retail Consumer confidence in India continued to remain We foresee good times ahead for the retail
robust in 2QFY2011, after rebounding in 1QFY2011, to industry, with economic growth back on track
reach its highest level since the third quarter of CY2007. along with revived consumer sentiment and
Annual sales in the form of Independence Day offers and good monsoons. Sensing the change, several
Monsoon Sale witnessed overwhelming response, further retailers have started chalking out expansion
signaling the return of buoyant times in the retail sector. plans, which further bolsters our belief. For
instance, PRIL plans to open 25 Big Bazaar,
The Future Group, in its five-day long sale promoted 15 Pantaloon and 5 Central outlets. Besides
as Mahabachat on the eve of the Independence Day, these, the company will be adding Ezone
registered same store sales growth of 30-40%. SSL, which stores and Home Town satellite stores. In
conducts biannual sales during this period, witnessed FY2011, Titan plans to invest Rs1.5bn to open
stellar response from consumers. 170 new stores, while SSL plans to open
We expect retail stocks under our coverage to report 10-12 stores at a cost of Rs1.2bn. In addition,
top-line growth of 39.7% yoy. We estimate PRIL to lead any positive news on FDI in retail will act as a
our universe, with 43.4% yoy top-line growth. big booster for the industry.

We estimate the OPM of our retail universe to dip by We expect the growth trend to continue to
30bp to 9.5% in 2QFY2011E from 9.8% in 2QFY2010, strengthen going ahead, thereby keeping the
as higher raw-material costs are expected to take a toll long-term growth prospects for the organised
on margins. We estimate net profit margin to improve by retail segment in India intact.
20bp yoy to 4.1% in 2QFY2011E. We maintain our Accumulate rating on PRIL
Target Price
with a Target Price of Rs556.

Continued...


Preview


Real Estate For 2QFY2011, we expect volumes to report flat to The risk reward ratio is turning favourable
moderate decline on a sequential basis on account of for the sector, with recovery widening towards
subdued new launches due to seasonal weakness. tier-II and tier-III cities in the residential
Revenue of real estate companies will be largely driven segment. Further, the commercial segment is
by execution of existing projects, which may be affected recovering with enquiries/leasing gaining
due to heavy rains. However, going ahead, we expect a momentum. We believe stock performances
surge in new launches, as we get into the festive season. are related to macro factors interspersed with
It would be interesting to see whether companies such as company-specific issues, such as the DLF-DAL
DLF and Unitech (through UCP) continue to see merger and group-related issues at HDIL. We
sustainability in office lease volumes on a sequential basis. are positive on the long-term outlook of the
realty sector, with growing disposable income,
Banks are currently offering competitive mortgage rates,
shortage of 25mn houses in India and
but we expect interest rates to inch up on RBI's concerns
reasonable affordability. Given the current
on real estate inflation.
scenario, we expect stability in residential
Among our universe of stocks, we expect DLF's revenue prices with an exception of certain micro
to be driven by the execution of its existing projects. We markets, where prices have overheated, and
expect HDIL to report flat to 10% qoq decline in transfer expect an uptick in the commercial segment
of development rights (TDR) volumes and prices. This is towards end-FY2011.
on account of the anticipation of Maharashtra state From our universe of stocks, we prefer
government overruling Bombay High Court's decision and companies with visibility on cash flow, low
hiking FSI from 1x to 1.33x. Further, heavy rains affected leverage and a strong project pipeline with
the execution of the airport project, thereby slowing down attractive valuations. Our top picks are HDIL
TDR generation. We expect Anant Raj's (ARIL) revenue to and ARIL, which are trading at 32.8% and
be driven by new launches and rental income. 30.4% discount to their NAVs, respectively. We
maintain a Neutral rating on DLF with
concerns of a weak operating cash flow,
increasing gearing levels and the stock trading
at 21.2% premium to our one-year forward NAV.

Software During 2QFY2011, the USD depreciated against major The IT industry continues to witness a surge
currencies like Euro, GBP & AUD by 1.5%, 3.9% and 2.5% in volumes due to the sudden spurt in demand
qoq, respectively. This will aid the tier I companies USD for discretionary spend by clients. Though the
revenues by 0.5-0.8% qoq. Also, the rupee has macro-economic data paint a hazy picture,
depreciated by 1.9% qoq against the USD, which will result clients continue to spend. The trend in
in higher rupee revenues as well as aid margins to the spending is broad-based spanning across
tune of 60-70bp qoq. industries as well as service lines and primarily
The hiring spree is likely to remain robust in 2QFY2011 by the US. The nature of spend has seen a
also. However, strong demand and abating attritions will shift since 1QFY2011 with deal discussions
help the companies to hold utilisation levels tightly. relating to change -the-business initiatives like
consulting & package implementation as well
In 2QFY2011, we expect the top-four IT companies to
as engineering and R&D spend gaining strong
report 6-8.1% qoq volume growth. Favourable
momentum.
cross-currency movement will further aid revenues.
However, revenue would track volume growth largely on We expect tier I companies to register robust
account of the higher offshore component. USD revenue growth of 20-24% over FY2010-
EBIT margins would be mixed with companies like 12. We remain positive on the Indian IT sector
Infosys and TCS expanding and holding margins, TCS
CS,
and maintain TCS, Wipro, Mphasis and Tech Tech
respectively. Wipro is expected to post a 34bp qoq decline sector.
Mahindra as our top picks in the sector.
in consolidated margins as the low-margin IT products
business is expected to register strong growth. HCL Tech
is expected to record 239bp dip in margins qoq on the
back of wage hikes and the BPO business continuing to
be loss making.
Continued...


Preview


Telecom For 2QFY2011, we expect the downward trend in We continue to maintain our cautious view
average revenue per minute (ARPM) to continue with a on the telecom sector on account of high capex
1.8-2.2% qoq decline for the top three operators-RCOM, on 3G and BWA auctions, heightened pricing
Idea and Bharti Airtel (Airtel). Also, due to the seasonality intensity, likely introduction of mobile number
effect, we expect minutes of usage (MOU) to drop by portability (MNP) and uncertain regulatory
1% qoq for Airtel and Idea, bucking the trend of secular policies (recent TRAI recommendation).
growth in MOU. RCOM has been registering a secular However, we believe Airtel, with its low-cost
decline in MOU, underperforming its peers. We expect integrated model (owned tower infrastructure),
this decline to continue even in 2QFY2011 at 4% qoq. potential opportunity from Africa, high
Hence, the average revenue per user (ARPU) for Airtel subscriber/revenue market share and
and Idea will dip by 1.5-2.5% qoq, whereas RCOM will relatively better key performance indicators
continue to register a 6.3% qoq decline. (KPIs), will emerge as the winner in the long
term. Thus, we continue to remain positive
We expect subscriber growth of 5.0-8.5% qoq for these
on Airtel.
operators, led by Idea.
We expect Airtel to report revenue growth of
25.2% qoq on the back of full quarter impact of Zain's
integration. Idea is expected to post growth of 4.8% qoq,
whereas RCOM will likely grow by 2.1% qoq.
We expect EBITDA margins of Airtel, RCOM and Idea
to fall by 60bp, 10bp and 17bp, respectively, on a qoq
basis in 2QFY2011E. Airtel's margin fall will be steep
because of the effect of Zain's integration (which has lower
EBITDA margin of ~27.5%). RCOM will be able to
overcome the negative impact of falling ARPU with good
growth in global and broadband services.


Preview

Automobile
For 2QFY2011, we expect our auto universe to post steady Auto index - Strong 14.5% gain in 2QFY2011
revenue growth of ~31% yoy, aided by strong ~25% yoy volume
The auto index registered 14.5% jump during 2QFY2011, in
growth. Revenue growth is expected to be led by CV makers,
line with the Sensex. Sentiment for auto stocks had turned positive
Tata Motors and Ashok Leyland (strong recovery in volumes on
in FY2010 on easing concerns over lower volume growth
a low base) and Bajaj Auto (BAL, new product launches and
following the various stimuli announced by the government and
low base effect). We expect Hero Honda (HH) to emerge as a
the RBI to arrest the declining volumes of the industry. The positive
key laggard in terms of revenue growth, as we model lower
upturn in volume continued in 1HFY2011 on the back of positive
growth on a high base and intensifying competition. For most
consumer sentiment and partially due to advancement of buying
companies, the focus continues to be on volume growth. Going
at dealers' desk in anticipation of healthy demand in the festive
ahead, near-term growth would be determined by festive season
season. Further, the expected increase in price owing to change
sales pick-up; while in the long run, industry growth would be
in emission norms and higher input cost boosted volume growth
aided by success of new launches, rising income levels and
during 1HFY2011. Heavyweight, Tata Motors smartly
easy availability of finance both in the two-wheeler and
outperformed the auto index by 26.5% and 21% in 2QFY2011
four-wheeler segments.
and 1HFY2011, respectively, post a substantial outperformance
…OPM pressures to increase in FY2010. However, other heavyweights such as Maruti, M&M
and HH underperformed in 2QFY2011.
Input costs have spiraled in the last six months, following the
spurt in steel, rubber and aluminum prices. Further, owing to Exhibit 1: Auto index v/s the Sensex
change in emission norms, production cost per vehilce for most 220 BSE Auto BSE_SENSEX

of the industry players has been increasing. Thus, the margin 200

180
of our auto universe is expected to contract substantially by 160
~450bp to reflect higher input costs. All these factors combined 140

would result in an ~8% yoy decline in earnings. Thus, players 120

100
are expected to register a yoy decline in net profit in 2QY2011 80

on a yoy increase in input cost. 60

40

Interest rate, fuel price and commodity price trend 20
Apr-07 Aug-07 Jan-08 May-08 Oct-08 Mar-09 Jul-09 Dec-09 May-10 Sep-10

Industry trend suggests that there is a negative correlation Source: Company; Angel Research
between auto finance rates and auto volume growth. Auto Commercial vehicles (CV) - Low base supports high growth
finance rates had moved down by 200-250bp in FY2010, which
also supported robust growth during the period. A swift revival CV sales have a direct correlation with the country's GDP and
in underlying vehicle sales volume, a benign finance IIP growth, which were caught in a cyclical downturn over
environment and an increase in finance penetration and FY2008-09. With GDP estimated to register a CAGR of ~8.5%
loan-to-value (LTV) ratio are the key factors responsible for the over FY2010-12E, we expect demand for CVs to remain
industry's growth. However, the recent change in the trend of buoyant. CV volumes witnessed good recovery in FY2010 and
monetary measures is expected to increase the cost of borrowing have registered 48.1% yoy growth YTD in FY2011. Going
for consumers over the next six months. Further, the government forward, we believe that further pick-up in domestic industrial
hiked petrol and diesel prices substantially by Rs7.21/litre and activities would support positive growth in CV demand. Thus,
Rs5.28/litre YTD in 2010, respectively. This has a direct impact CV sales are estimated to record a CAGR of 13-14% over the
on ownership cost and freight operators' profitability; and could next two years. As most of the catalysts were in favour of the CV
moderately impact auto volume growth in the medium term. industry in 2QFY2011, Tata Motors recorded substantial growth
For 1HFY2011, commodity prices in general registered an of 24% yoy in CV volumes, aided by 40.5% yoy and 13.2% yoy
upturn. On yoy basis, prices of steel and aluminium increased growth in M&HCV and LCV, respectively.
by around 15-25%; while rubber prices increased by around
70%. Although average international crude oil prices remained
more or less stable throughout the quarter, hike in domestic
petrol and diesel prices increased the cost of other key materials
and transportation for all the companies in our auto universe.


Preview

Automobile
Exhibit 2: TML, ALL - Quarterly volumes Two-wheelers - Momentum continues
Segment 2QFY11 2QFY10 % chg 1HFY11
1HFY11 1HFY10 % chg
The two-wheeler segment also registered robust 30.3% yoy
Tata Motors 198,405 150,377 31.9 380,116 273,490 39.0
growth YTD in FY2011, aided by 28% growth in the dominant
M&HCV 53,435 38,043 40.5 98,733 67,008 47.3
motorcycle segment. HH reported 8.7% yoy growth in the
LCV 65,530 57,865 13.2 127,169 105,223 20.9
Total CV
Total 118,965 95,908 24.0 225,902 172,231 31.2
domestic market in 2QFY2011, indicating strength of its market
Utility Vehicles 9,746 7,856 24.1 19,541 15,973 22.3 reach and better performance by the rural market. At the same
Cars 69,694 46,613 49.5 134,673 85,286 57.9 time, backed by a series of new launches and low base, BAL
Total PV
Total 79,440 54,469 45.8 154,214 101,259 52.3 reported 41.8% yoy jump in two-wheeler volumes in 2QFY2011.
Exports (Inc Above ) 14,455 8,002 80.6 26,698 13,222 101.9
We believe that though the substantial ownership base of two-
Leyland
Ashok Leyland 21,637 14,301 51.3 43,037 21,994 95.7
wheelers results in reduced headroom for higher growth and
MDV Passenger 6,095 4,192 45.4 11,183 6,677 67.5
MDV Goods 15,368 9,855 55.9 31,406 14,832 111.7
increases dependence on replacement demand to sustain
LCV 174 254 (31.5) 448 485 (7.6) volumes, rural markets will register better growth on demand
Export (Inc Above ) 2,255 1,695 33.0 4,195 2,598 61.5 arising from the relevant rural population. This is expected to
Source: Company; Angel Research; Note: ALL - Sept. Nos. are estimated help the two-wheeler industry to register around 12-13% CAGR
in volumes over the next couple of years.
Passenger vehicles (PV) - Maruti beats competition
Exhibit 4: BAL, HH, TVS - Quarterly volumes
YTD in FY2011, PV sales volume grew by a substantial 28.3%
1HFY11 1HFY10 % chg
yoy aided by an increase in exports and recovery in domestic
Bajaj Auto 973,779 686,823 41.8 1,902,115 1,234,485 54.1
demand. This was supported by a rebound in consumer
Motorcycles 858,957 599,737 43.2 1,687,348 1,082,464 55.9
sentiment, which was reflected in improving volumes of the
Scooters - 1,840 - 27 3,533 (99.2)
domestic PV market. Impressive volume growth, low penetration
Total 2 Wheelers 858,957 601,577 42.8 1,687,375 1,085,997 55.4
and low-cost manufacturing base have been attracting global Three Wheelers 114,822 85,246 34.7 214,740 148,488 44.6
auto majors to India, who have started launching products for Exports (Inc Above ) 305,372 224,430 36.1 629,271 402,725 56.3
the Indian market. During 9MCY2010, Volkswagen and Ford Hero Honda 1,285,944 1,183,235 8.7 2,519,983 2,302,222 9.5
launched Polo and Figo, respectively, in the dominant A2 TVS Motors 524,954 393,627 33.4 988,788 742,938 33.1

segment, thereby escalating competition for market leader Motorcycles 209,006 154,843 35.0 409,364 307,621 33.1

Maruti Suzuki. However, Maruti recorded a robust 27.4% and Scooters 124,356 86,239 44.2 219,842 153,489 43.2

26.2% yoy increase in volumes during 2QFY2011 and Mopeds 181,636 149,307 21.7 341,827 276,460 23.6

1HFY2011, respectively, supported by strong volume traction Three Wheelers 9,956 3,238 207.5 17,755 5,368 230.8
Exports (Inc Above ) 58,460 35,080 66.6 112,504 66,436 69.3
in the A2 and C segments.
Source:Company, Angel Research; Note: BAL - Sept. Nos. are estimated

Exhibit 3: Maruti, M&M - Quarterly volumes
Auto Ancillaries: To track the auto sector
1HFY11 1HFY10 % chg

Maruti Suzuki 313,654 246,188 27.4 596,978 472,917 26.2 The auto ancillaries sector, which depends on OEMs for growth,
Total Passenger Cars 277,118 208,311 33.0 517,016 404,343 27.9
was stuck in the midst of sluggish growth in the domestic market
in FY2009 and a recession-hit global export market. However,
MUV Gypsy, Vitara 818 772 6.0 3,807 2,155 76.7
revival of domestic auto volumes in FY2010 supported recovery
Domestic 277,936 209,083 32.9 520,823 406,498 28.1
of the players during the period. Growth of the Indian auto
Exports 35,718 37,105 (3.7) 76,155 66,419 14.7
component industry is directly linked to growth of the auto sector
M&M 137,637 113,892 20.8 269,879 220,146 22.6
and has more than 65% of its domestic sales to OEMs. Thus,
Domestic Auto 87,444 70,798 23.5 165,762 132,522 25.1
recovery of auto sales volume in FY2010 would help the OEM
Exports 4,685 2,612 79.4 8,460 3,757 125.2
segment to register a ~13% CAGR over FY2010-12E. Further,
Domestic Tractor 42,287 38,648 9.4 90,004 80,611 11.7 an overall increase in vehicle population (recorded a 10% CAGR
Exports 3,221 1,834 75.6 5,653 3,256 73.6 over FY2000-10E) is expected to support consistent growth in
Source: Company; Angel Research replacement demand of auto parts and register a 7-8% CAGR
over FY2010-12E. The shift in focus of the Indian auto
component industry to exports has been apparent from the rise
in its share in the overall turnover to 20% in FY2009(11% in FY1999).


Preview

Automobile

Europe and US contribute around 66% to the sector's export Over the longer term, comparatively low penetration levels, a
revenue. Economic slowdown has been adversely impacting healthy economic environment and favourable demographics
vehicle sales in these markets in the last two years. However, supported by higher per capita income levels are likely to help
with these markets now showing signs of a revival, export auto companies in sustaining their top-line growth. Core
volumes are expected to recover in FY2011-12E. At the end of business performance of auto companies improved in FY2010
FY2009, auto component players were finding it difficult to make and visibility restored, with substantial 25% yoy and 31% yoy
future projections, as two of their key markets, the OEM and growth witnessed in volumes in FY2010 and YTD FY2011,
replacement markets, had been hit by poor demand and respectively. Thus, while this quarter's performance is likely to
instability in final product prices, which were trending be robust on a yoy basis, we expect auto companies to report a
downwards. However, the industry is now recovering on sequential spurt in revenue on better volumes. Most stocks have
better-than-expected revival in the domestic market and been positive in the last one year due to better visibility for the
marginal improvement in exports. Companies in the sector. We remain positive on the long-term prospects of the
subsegments of the auto components sector (tyres, bearings Indian auto sector. However, most of the auto stocks registered
and batteries), with larger share of revenue from the replacement a sharp run up in the recent past and we advise to Accumulate
and domestic markets, have been less affected than those that the stocks at lower levels, keeping in mind long-term growth
supply exclusively to the overseas market. Broadly, the sector is prospects of the auto industry. We prefer stocks where strong
expected to deliver good yoy earnings performance in and improving fundamentals could deliver positive earnings
2QFY2011 on improved volumes and better operating leverage. surprises.

Outlook Among auto heavyweights, we prefer Maruti Suzuki, Tata Motors
and M&M. Among ancillary stocks, we maintain our positive
Going ahead, we expect economic upturn to help the auto sector,
stance on Exide, Automotive Axles and Fag Bearings, which are
which includes PVs, CVs and two-wheelers, in registering good
available at reasonable valuations. Owing to the structural shift
growth in the domestic market and decent growth in the export
the tyre industry is going through, we remain positive on the
market over FY2010-12E. We estimate overall auto volumes to
sector and maintain Buy on JK Tyre and Ceat, which are
register a CAGR of ~13% over FY2010-12E, aided by the
available at attractive valuations.
improved business environment for the sector.

Exhibit 5: Quarterly estimates - Automobile Rs cr
Company CMP Net Sales OPM (%) Profit
Net Profit EPS (Rs) EPS (Rs) P/E (x) Target Reco.
rge
(Rs) 2QFY11E % chg 2QFY11E chg bp 2QFY11E % chg 2QFY11E % chg FY10 FY11E FY12E FY10 FY11E FY12E (Rs)
Ashok Leyland 75 2,559 62.2 10.0 (53) 134.4 51.7 1.01 51.7 2.9 4.5 5.4 26.0 16.7 14.0 - Neutral
Bajaj Auto@ 1,544 3,940 41.0 19.6 (243) 608.4 51.0 21.0 51.0 58.8 79.6 93.7 26.2 19.4 16.5 - Neutral
Hero Honda 1,844 4,435 9.8 13.9 (445) 509.7 (14.6) 25.5 (14.6) 104.2 113.7 125.7 17.7 16.2 14.7 - Neutral
Maruti 1,483 8,781 24.6 9.7 (307) 516.0 (9.5) 17.9 (9.5) 83.7 82.8 102.5 17.7 17.9 14.5 1,640 Accumulate
M&M @ 714 5,351 19.8 14.9 (338) 538.0 (5.7) 9.5 (8.9) 35.1 38.3 43.6 20.3 18.6 16.4 778 Accumulate
T Motors @* 1,119
ata 11,314 42.8 10.9 (229) 496.3 (31.9) 8.7 (38.7) 18.1 123.9 135.3 61.7 9.0 8.3 1,214 Accumulate
TVS Motors 74 1,573 41.0 6.9 134 52.5 113.7 1.1 113.7 2.3 4.5 5.9 31.4 16.5 12.6 - Neutral
Source: Company, Angel Research; Note: Price as on October 1, 2010, Note: @Adjusted for extraordinary items;* FY2010-12E EPS on consolidated basis

Exhibit 6: Quarterly estimates - Auto Ancillary Rs cr
Net Profit EPS (Rs) EPS (Rs) P/E (x) Target
rge Reco.
Auto Axle^ 517 206 115.9 14.0 (151) 15.8 126.4 10.4 126.4 6.4 33.2 38.5 80.9 15.6 13.4 578 Accumulate
Bharat Forge& 371 619 47.3 24.6 62 62.3 132.1 2.8 132.1 (2.8) 12.2 17.5 - 30.4 21.2 - Neutral
Bosch India# 6,214 1,739 34.8 17.4 (223) 205.1 5.3 64.8 4.4 168 258 316 37.0 24.1 19.7 6,766 Accumulate
Exide Industries 164 1,198 26.0 21.8 (416) 161.4 7.8 1.9 1.5 6.3 7.7 8.9 26.0 21.2 18.5 171 Accumulate
FAG bearing# 847 274 34.3 18.9 643 32.4 95.6 19.5 95.6 39.4 70.9 77.6 21.5 11.9 10.9 931 Accumulate
Motherson Sumi* 185 1,893 19.2 9.7 206 62.6 318.3 1.7 297.0 6.2 8.4 11.2 29.7 22.0 16.4 - Neutral
Apollo Tyres& 84 1,143 (6.3) 10.4 (599) 42.1 (58.8) 0.8 (58.8) 13.0 7.9 10.8 6.5 10.6 7.8 - Neutral
Source: Company, Angel Research, Price as on October 1, 2010, Note: * Consolidated Results; # December year ending; ^ September year ending; @ FY2010-12E EPS on
consolidated basis and adjusted for FCCB interest after tax

Vaishali Jajoo/Yaresh Kothari
Analyst - Vaishali Jajoo/Yaresh Kothari


Preview

Banking
In 2QFY2011, credit declined marginally by 0.6% qoq, even During 2QFY2011, banking stocks rallied on the back of robust
as incremental deposit accretion was a nominal 1.2% qoq. This 1QFY2011 performance by the entire banking sector and
led to some respite in liquidity (LAF averaging Rs4,400cr positive continuance of healthy credit demand. BSE Bankex gained 32%
from mid-August to mid-September). However, with market sequentially, outperforming the Sensex by 16%. All the banks in
borrowing from the central and state governments kicking in our coverage universe, from the private as well as the PSU bank
and incremental credit offtake expected to pick up again, we space, gave robust returns between 16% and 51%. Within our
expect the requirements for deposit mobilisation to accelerate coverage universe, UCO Bank gave the highest returns of 51%
in 2HFY2011. sequentially, followed by Bank of India and South Indian Bank,
with gains of 50% and 49%, respectively.
Going forward, this is expected to necessitate further deposit
hikes (25-75bp already done in 2QFY2011). NIMs are likely to Mid-cap and small-cap banks within our coverage universe
be flattish in 2QFY2011 as higher deposit rates will take a outperformed the larger ones by 8.6% in the first half of
quarter or two to flow through the Profit & Loss A/c. Hence, 2QFY2011. At that time, we had recommended a switch to
NIM pressures are expected to increase, especially for smaller larger banks on account of the rising trend in FD rates; larger
banks, in the coming quarters. In 2QFY2011, G-sec yields also banks subsequently outperformed mid and small-cap banks
increased across the yield curve, especially at the short end by 4.8%.
(110bp for one year and 51bp for three years), reflecting higher Deposit growth yet to pick up meaningfully
government borrowing; the increase in G-sec yields is expected As per data available for the week ended September 11, 2010,
to lead to moderate MTM losses for banks. We expect asset total credit increased 19.8% yoy compared to 19.7% yoy in July
quality divergence between PSUs and private banks to continue 2010. Banks incrementally lent Rs142,500cr YTD in FY2011
in 2QFY2011 (with likely improvement from 2HFY2011), (compared to a meager Rs49,000cr during the same period
though, going forward, the key trend to be monitored is likely last year). Deposit growth stood at 14.8% yoy for the week ended
to be on the NIM front. September 11, 2010, compared to 19.8% yoy in the
Exhibit 1: 2QFY2011 - Stock performance corresponding period last year. Consequently, credit-deposit
ratio, which bottomed out during 2QFY2010 at 68.8%,
(%) Returns (qoq) Returns (yoy)
improved to 72.1% in 2QFY2011; and the investment-to-deposit
UCOBK 51 107
ratio fell to 31.3% in 2QFY2011 from the high of 33.5% in
BOI 50 27
2QFY2010.
SIB 49 98
Exhibit 2:Deposits growth continues to lag credit growth
OBC 43 96
(%) Advances growth Deposits growth
SBI 42 49 35.0
30.0
YESBK 33 74
25.0
Bankex 32 45 20.0

CRPBK 32 65 15.0
10.0
ICICIBK 32 25 5.0

IOB 31 8 -
Jan-08

Mar-08

May-08

Jul-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Apr-10

Jun-10

Aug-10

HDFCBK 31 52
AXSB 27 60 Source: RBI, Bloomberg, Angel Research
UNBK 26 64
During the telecom borrowings-led credit spurt in April-June
FEDBK 25 58
2010, absolute credit growth had exceeded deposit mobilisation
INDBK 25 73 by ~Rs90,000cr. The government had borrowed ~Rs7,000cr
PNB 25 64 during this period on account of higher-than-expected
DENABK 17 61 realisations from 3G and BWA auctions. However, in July-August
Sensex 16 19 2010, absolute credit dropped by ~Rs51,000cr (primarily due
Source: BSE, Angel Research; Prices as on Ocrober 1, 2010 to the high base effect of last quarter), while deposits increased
by more than Rs37,000cr and government borrowing came
back on expected lines, with borrowings of ~Rs45,000cr.


Preview

Banking

Going forward, credit demand is expected to sustain at least In the latter half of the quarter, capital inflows have been
above the 19% level. We expect central government's borrowings relatively strong. Going ahead, capital inflows may increasingly
to pick up momentum and state government's borrowings to exceed the large current account deficit on the back of a) global
kick in, leading to excess supply in the market, thus adding to central banks holding their rates steady, leading to the rising
the upward pressure on yields. Hence, banks will have to interest rate differential and b) India's relatively strong GDP
continue to increase deposit rates to mobilise sufficient deposits growth outlook.
to meet the expected increase in credit; this will eventually lead
Going forward, the potential increase in forex reserves may
to higher lending rates.
provide the much needed respite on the M1 front, improving
Exhibit 3: Moderately tight liquidity situation the liquidity situation. Moreover, the increasing availability of
(Rs bn)
2,000
Repo (-ve) / Reverse Repo (+ve) foreign risk capital would provide a thrust to investment-led
1,600 credit demand and M3 growth.
1,200
800
Exhibit 5: Forex reserves increasing...
400
Forex Reserves (US $bn) YoY growth rate (%, RHS)
0 290 20
(400 )
285 15
(800 )
(1,200 ) 280 10
Sep-09

Nov-09

Jan-10

May-10

Sep-10
Mar-10

Jul-10

275 5

270 0

Source: RBI, Angel Research 265 (5)

260 (10)
In 2QFY2011, most of the banks within our coverage universe
Sep-09

Feb-10

May-10

Jul-10

Sep-10
Oct-09

Nov-09

Dec-09

Jan-10

Mar-10

Apr-10

Jun-10

Aug-10
raised FD rates by 25-75bp to balance the disparity between
credit and deposit growth. Further, on the last day of the quarter, Source: RBI, Bloomberg, Angel Research
banks like SBI and PNB again raised their FD rates by
Exhibit 6: ...led by robust FII flows
25-75bp. However, FDs continue to be unattractive to depositors, US $bn
leading to a gap between savings and investments, which is 25.0
18.5 17.6 18.2
20.0
being plugged by the high current account deficit at present.
15.0 10.9
Also Axis Bank, PNB and a few other banks raised their base 10.0 6.7
8.6 8.3

rates by 25-50bp. Accordingly, over the course of the year, we 5.0 0.7
-
expect deposit and lending rates to be on an upward trajectory. (5.0)
(10.0)
Peak
Exhibit 4: Peak retail fixed deposit rates (15.0)
(12.9)
(%) 2QFY11 1QFY11 Chg. (qoq) 2QFY10 Chg. (yoy)
Chg. Chg. CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10
(YTD)
BOI 7.75 7.00 0.75 6.50 1.25 Source: RBI, Bloomberg, Angel Research
PNB 7.50 7.00 0.50 7.50 -
Large banks better placed to sustain/improve NIMs
UNBK 7.80 7.50 0.30 6.75 1.05
Though NIMs are likely to be flattish in 2QFY2011, we believe
OBC 7.50 7.00 0.50 7.75 (0.25)
rising retail and wholesale FD rates may increasingly lead to
CRPBK 7.50 7.25 0.25 7.25 0.25
NIM compression in the case of small and mid-cap banks having
IOB 7.75 7.00 0.75 7.25 0.50 relatively lower CASA base. Correspondingly, larger banks that
INDBK 7.75 7.25 0.50 7.25 0.50 have high CASA ratios and robust branch expansion, such as
ICICIBK 7.75 7.75 - 7.75 - SBI, ICICI Bank, HDFC Bank and Axis Bank, are better placed
to sustain or improve their NIMs.
HDFCBK 7.50 7.50 - 7.00 0.50
AXSB 7.35 7.35 - 7.30 0.05 Higher G-sec yields might lead to moderate MTM losses

YESBK 7.75 7.65 0.10 7.25 0.50 During the quarter, yields went up across the yield curve,
Source: Company, Angel Research especially more so at the shorter end. The benchmark 10-year


Preview

Banking

G-sec yield was up by 29bp to 7.84%, while the three-year get a licence, given the synergies in having a common platform
G-sec yield was up by 51bp and the one-year G-sec yield for life insurance and deposits, among others. We believe, while
increased by 110bp. Hence, we expect most of the banks under this will increase competition in the sector, it is unlikely to be
our coverage to have moderate MTM losses in 2QFY2011. disruptive for existing private banks due to the inherently long
gestation period required to build up a large, granular balance
Exhibit 7: Sharper increase in yields at the shorter end
sheet, especially a retail liability franchise.
(%) 30-Sep-10 30-Jun-10 31-Mar-10
8.5
Outlook
8.0
7.5 In our view, the increase in interest rates will not have a negative
7.0
effect on the banking sector, as it will be outweighed by the
6.5

6.0 acceleration in core earnings growth on the back of
5.5 improvement in credit growth and fee income coupled with a
5.0
sharp reduction in NPA losses.
4.5
12 mth T -bill 3 yr Gsec 5 yr Gsec 7 yr Gsec 10 yr Gsec Hence, on a relative basis, we prefer banks with a high CASA
Source: RBI, Bloomberg, Angel Research ratio and lower-duration investment book, given the rising
interest rate scenario. Broadly, this combination is available in
RBI releases discussion paper on new banking licenses
large banks, viz. HDFC Bank, ICICI Bank, Axis Bank and SBI.
The RBI's discussion paper on new banking licenses examined We expect these banks to outperform on account of their stronger
the pros and cons of allowing foreign banks, industrial houses core competitiveness and likelihood of credit and CASA market
and NBFCs to set up banks. We believe several aspirants would share gains, driven by strong capital adequacy and robust
be able to meet RBI's requirements, such as having Rs1,000cr branch expansion. Generally, we expect mid-size banks to
of net worth, while the intention appears to grant only limited underperform on the net interest income front from 2HFY2011
licenses at this stage. and expect stock returns to reflect the same.
If we apply the criteria of an applicant having diversified Considering the valuations, our top picks are ICICI Bank among
shareholding with market capitalisation of more than large-cap banks and Federal Bank among mid-cap banks.
Rs10,000cr (hence, strong enough to promote a bank), L&T Amongst PSU banks, we like Union Bank, IOB and Indian Bank
Finance appears to be a strong contender. In addition, LIC on account of their relatively better deposit franchise compared
Housing, based on its strong track record and parentage, could to peers.

Exhibit 8: Quarterly estimates (Rs cr)
Company CMP Operating Income Profit
Net Profit EPS (Rs) BVPS
Adj BVPS (Rs) P/E (x) P/ABV (x)
P/ABV Target Reco.
(Rs) 2QFY11E % chg 2QFY11E % chg FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E (Rs)
AXSB 1,572 2,505 13.1 706 32.8 62.1 78.0 104.3 393.8 453.1 532.3 25.3 20.2 15.1 4.0 3.5 3.0 1,703 Accum.
FEDBK 399 516 10.7 127 25.8 27.2 37.1 47.8 273.9 303.4 341.3 14.7 10.8 8.3 1.5 1.3 1.2 427 Accum.
HDFCBK 2,499 3,564 20.3 908 32.1 64.4 85.5 119.9 470.2 535.9 628.5 38.8 29.2 20.8 5.3 4.7 4.0 - Neutral
ICICIBK 1,135 3,761 (2.6) 1,143 9.9 36.1 45.1 61.9 449.8 486.9 519.8 31.4 25.2 18.3 2.5 2.3 2.2 1,350 Buy
SIB* 25 208 (9.9) 63 (13.1) 20.7 2.3 2.9 129.1 14.8 17.3 11.9 10.7 8.4 1.9 1.7 1.4 - Neutral
YESBK 357 419 34.4 138 23.5 14.1 17.0 19.7 91.0 106.4 124.6 25.4 21.0 18.1 3.9 3.4 2.9 - Neutral
BOI 524 2,321 11.3 635 96.4 33.1 52.1 62.9 215.6 274.9 322.8 15.8 10.1 8.3 2.4 1.9 1.6 - Neutral
CRPBK 692 955 18.5 303 3.9 81.6 93.1 105.6 398.3 474.0 554.5 8.5 7.4 6.5 1.7 1.5 1.2 - Neutral
DENABK 109 467 27.6 138 10.3 17.8 18.1 18.9 73.8 99.3 115.1 6.1 6.0 5.8 1.5 1.1 0.9 121 Accum.
INDBK 283 1,248 25.2 377 1.3 35.1 34.9 41.7 154.3 182.0 214.3 8.0 8.1 6.8 1.8 1.6 1.3 300 Accum.
IOB 137 1,113 (3.8) 183 4.0 13.0 15.0 20.1 96.5 123.7 143.5 10.5 9.1 6.8 1.4 1.1 1.0 158 Buy
OBC 466 1,290 48.9 402 48.3 45.3 63.8 66.9 278.0 334.8 386.5 10.3 7.3 7.0 1.7 1.4 1.2 - Neutral
PNB 1,308 3,489 26.2 1,007 8.6 123.9 134.3 151.6 509.1 621.1 740.6 10.6 9.7 8.6 2.6 2.1 1.8 - Neutral
SBI 3,261 11,086 21.4 3,031 21.7 148.0 180.3 227.6 944.5 1,140.6 1,353.3 22.0 18.1 14.3 3.5 2.9 2.4 - Neutral
UCOBK 117 1,149 53.0 165 (20.6) 18.4 16.5 23.1 63.9 88.4 106.8 6.3 7.1 5.1 1.8 1.3 1.1 - Neutral
UNBK 393 1,752 23.5 624 23.5 41.1 51.0 56.5 168.5 209.3 252.2 9.6 7.7 7.0 2.3 1.9 1.6 - Neutral
Source: Company, Angel Research; Price as on October 1 , 2010; Note: * EPS and Book Value for FY10 before face value split from Rs10 to Re1

Vaibhav
Analyst - Vaibhav Agrawal/Amit Rane/Shrinivas Bhutda


Preview

Capital Goods
Lagging
Capital goods index - Lagging behind Macro indicators showing strength
While most of the BSE indices registered double-digit growth At a time when major global economies have been struggling
during 2QFY2011, the capital goods (CG) index ended the to maintain positive growth, the Indian economy posted a GDP
quarter with a meagre growth of 8.7% and underperformed growth of 7.4% during FY2010. Notably, despite the partial
the Sensex by 4.6%. After reporting marginal negative growth withdrawal of the economic stimulus packages, the Indian
in the first two months of the quarter, the CG index bounced economy grew by 8.8% during April -June 2010, led by the
back in September with ~10% returns in absolute terms. The robust 12% growth in industrial production. Having successfully
index of industrial production (IIP) numbers released during overcome the effects of the global economic slowdown, the
September reported a sharp spike in CG production, which Indian economy is now poised to clock 8.5%+ growth for the
positively impacted the CG index stocks during the latter part current fiscal. We expect the government's focus on infrastructure
of the quarter. Despite underperforming the broad-based Sensex spending, increase in investment demand by the corporates
for a major portion of the quarter, valuation of the stocks and improved consumption to provide further fillip to industrial
comprising the CG index continue to trade at a premium to the production.
Sensex.
Exhibit 3: GDP growth to bounce back
Exhibit 1: Sensex v/s capital goods stocks (2QFY2011)
12.0
Abs. Returns Relative to Sensex
(%) (%) 10.0

BSE Sensex 13.4 0.0 8.0

BSE Cap Goods 8.7 (4.6)
(%)

6.0
ABB 6.8 (6.6)
Areva T&D 0.1 (13.3) 4.0

BHEL 0.9 (12.5) 2.0

BGR Energy Sys. 3.6 (9.8) 0.0
Crompton Greaves 21.1 7.7 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E

Jyoti Structures (11.1) (24.5) Source: CMIE, Angel Research
K E C Intl. 4.5 (8.9)
Thermax 5.1 (8.3) The IIP numbers (released during the current fiscal this far) have
Source: C-line, Angel Research continued to maintain the double-digit growth rate except for
Exhibit 2: Capital goods index: Relative returns to the Sensex June 2010, when it came in at 5.8%. The better-than-expected
60.0 IIP numbers for July 2010 at 13.8% was aided by the all-round
48.6
50.0 growth reported by most sectors especially the CG sector, which
40.0
reported 63% yoy growth. We believe that the revival in the IIP
30.0
numbers backed by the sustained improvement in the production
23.5
17.2
(%)

20.0

10.0
9.4
3.5
of basic as well as intermediate goods is a pointer to the ensuing
1.3 0.6
0.0 recovery in the capex cycle. With major sectors of the economy
(0.6)
(10.0) (6.2)
(9.7)
(7.1)
(10.7)
(4.6) nearing peak capacity utilisation levels, we expect the investment
cycle to pick up in the near term as robust corporate profit and
(20.0) (14.1)
3Q09

1Q11
1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

4Q09

1Q10

2Q10

3Q10

4Q10

2Q11

favourable financing conditions fuel investments. We also note
Source: C-line, Angel Research that the recovery in the CG sector has been more broad-based
and extended to various segments apart from the commercial
On a stock specific basis, Crompton Greaves was the top
vehicles segment such as diesel engines, industrial machinery,
performer gaining ~21% in absolute terms and outperformed
protection systems, ship building and repair, agriculture
the Sensex by ~7.7%. The company consistently gained by over
implements, power cables, electric motors, power-driven pumps
6% during July, August and September 2010. Relatively cheaper
and material handling equipment.
valuations together with the company's ability to improve its
profit margins vis-à-vis its competitors such as ABB and Areva
positively impacted the stock price. Jyoti Structures was the major
loser during the quarter. The scrip lost ~11% in absolute terms
and underperformed the Sensex by ~24%. Despite reporting
steady growth in sales and profitability, the scrip lost ground on
expected dilution in equity resulting from the Rs40cr QIP that
the Board approved in August 2010.


Preview

Capital Goods
Exhibit 4: IIP growth Key Developments
(%)
22 ABB
18
At the analyst meet held at its Neelamangala facility during the
14
quarter management indicated that the demand for automation
10
technologies has started flowing from the cement and steel
6
sectors, while other process industries such as pulp and paper,
2
chemicals and pharma are likely to place orders in the near
(2)
future. Management also informed that ~Rs2bn worth of rural
Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10
electrification (RE) projects are yet to be executed and expects
Source: Bloomberg, Angel Research to completely exit from RE projects by 1QCY2011. During the
quarter, ABB also acquired the Bangalore-based engineering
Exhibit 5: CG component growth and technical consultancy firm, Metsys Engineering and
(%)
70
Consultancy Pvt. Ltd (Metsys). Going ahead, management
57
expects the acquisition to strengthen its position in the metals
44 business and enhance its portfolio of offerings in the automation
31 segment.
18
Areva T&D India
5
Subsequent to the acquisition of Areva Global by the Alstom
(8)
and Schindier consortium, the open offer proceedings were
Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

initiated to acquire up to 20% of Areva T&D India's equity capital
Source: Bloomberg, Angel Research at Rs295/share. However, the open offer was subsequently
postponed to be announced at a later date. During the quarter,
Exhibit 6: Basic goods components growth
Areva T&D won orders totaling to Rs390cr from the GMR Group,
(%)
16 PGCIL and Indiabulls.
13
BGR Energy
10
BGR entered into joint ventures (JV's) with Hitachi, Japan and
7
Hitachi Power EuropeGmBH, Germany. The first JV with Hitachi,
4

1
Japan is for the design, manufacture, installation and
(2)
commissioning of supercritical steam turbines and generators
for thermal power plants, while the second JV with Hitachi Power
Oct-07

Jan-08

Apr-08

Oct-08

Jan-09

Apr-09

Oct-09

Jan-10

Apr-10
Jul-07

Jul-08

Jul-09

Jul-10

Europe GmbH, Germany is for the supercritical steam
Source: Bloomberg, Angel Research generators for thermal power plants.

Exhibit 7: Intermediate goods component growth Crompton Greaves
Crompton Greaves (CG) through its subsidiary, CG Holdings
(%)
30
Belgium, would be setting up a second JV company with the
23
Saudi-based EIC group to consolidate its business presence in
16

9
the EPC segment in the Middle East. In another such agreement,
2
CG has entered into a JV with ZIV Aplicaciones y Tecnologia,
(5) S.L (ZIV)., headquartered in Spain for the manufacture of
(12) substation automation systems (in EHV and UHV range).
Jul-07

Jul-08

Jul-09

Jul-10
Oct-07

Jan-08

Apr-08

Oct-08

Jan-09

Apr-09

Oct-09

Jan-10

Apr-10

KEC International
Source: Bloomberg, Angel Research KEC acquired 100% equity in SAE Towers, the largest lattice
tower manufacturing company in the Americas for US $95mn
on a cash-free, debt-free basis. We expect KEC to leverage SAE
Towers' customer base to develop relationships with the power
utilities and secure EPC contracts in the future, while ensuring


Preview

Capital Goods

that the equipment is supplied by SAE Towers. On the domestic Outlook
front, KEC acquired Jay Railway Signaling Pvt. Ltd, the railways
The revival in the IIP numbers during the past few quarters signals
signaling automation systems and technology player. With this
the strong recovery of the Indian economy in general and that
acquisition, KEC is poised to undertake the entire gamut of
of the CG industry in particular. Almost all the companies in
activities under the railway infrastructure segment - civil
our CG universe are highly dependent on the generation,
infrastructure and track works, railway electrification and
transmission and distribution segments of the power sector.
signaling works.
The generation segment has attracted increasing domestic
BHEL
competition in addition to the Chinese imports. In transmission,
BHEL bagged orders from Dainik Bhaskar Power and Visa Power
companies like ABB and Areva T&D have consistently lost ground
valued at Rs2,665cr each for installation of 2x600 MW thermal
to lower priced imports. However, with the government
sets. Another significant order was received from Abhijit Infra
mandating domestic manufacturing to be a pre-requisite to bid
valued at Rs2,525cr for setting up an 1,080MW thermal plant
for NTPC and PGCIL tenders, we expect the flow of imports to
in Jharkhand.
temporarily slow down thereby benefitting the domestic
2QFY2011 expectations companies. Foreign companies can still enter into JV's with the
local manufactures and supply equipment manufactured at
We expect the companies in our CG universe to post cumulative
Indian facilities. However, similar restrictions do not apply to
top-line growth of 25.8% yoy on improving order executions
the private sector projects, which can place direct orders with
and favourable base effect. Companies like BGR Energy,
the foreign companies. We would therefore keenly watch the
Thermax and BHEL are expected to report strong top-line growth
quantum and the prices at which the new orders get booked in
of 125%, 35% and 33%, respectively. We expect Jyoti Structures
the capital equipment industry over the next 8-10 months rather
and KEC International to maintain steady top-line growth of
than the revenues and profitability posted during the next couple
20%, while ABB is expected post subdued growth.
of quarters.
On the operating front, we expect our CG universe companies
KEC and Jyoti Structures are expected to benefit from the capex
to report 16bp expansion in OPM on the back of higher
plans of PGCIL and other state utilities. With increasing number
operating efficiencies. We expect Crompton Greaves to report
of power projects likely to be commissioned over the next couple
marginal dip in the OPM to 12.5%, while BHEL is expected to
of years, we expect the work orders for setting up transmission
report OPM of 19%. ABB and Areva T&D are likely to continue
facilities to be released over the next 6-9 months.
reporting subdued operating margins owing to increasing
competitive pressures and additional provisions on unexpired On the valuation front, we believe that most of the CG
contracts. companies in our universe are presently trading at premium
valuations offering meagre upside from current levels. In such
The expected top-line growth of 25.8% yoy coupled with margin
a scenario, we prefer a stock-specific approach. KEC, Jyoti
expansion of 16bp would result in 25% yoy growth in net profit.
Structures and Bluestar figure among our preferred picks.
BGR Energy, Thermax and BHEL are expected to report strong
profitability growth, while ABB is likely to witness erosion in
profit in 2QFY2011 as well.

Exhibit 8: Quarterly estimates Rs cr
arg Reco.
(Rs.) 2QFY11E % chg 2QFY11E chg bp 2QFY11E % chg 2QFY11E % chg FY10 FY11E FY12E FY10 FY11E FY12E (Rs)
ABB 926 1,484 1.0 7.5 (185.9) 64 (22.7) 3.0 (22.7) 16.7 23.1 30.6 55.3 40.1 30.2 - Neutral
Areva 293 851 15.0 9.5 90.8 31 38.6 1.3 38.6 8.0 5.6 9.9 36.6 51.8 29.6 218 Sell
BHEL 2,590 8,914 32.5 19.0 69.0 1,143 33.3 23.4 33.3 88.1 109.5 129.9 29.4 23.7 19.9 - Neutral
BGR 773 1,048 125.0 12.0 (30.8) 75 145.8 10.4 145.6 28.0 38.7 48.1 27.7 20.0 16.1 - Neutral
Cromp Greav 317 2,298 5.0 12.5 (151.1) 180 (7.1) 2.8 (7.1) 13.4 13.7 15.4 23.7 23.1 20.6 - Neutral
Kec Intl' 495 1,049 20.0 10.0 (36.6) 44 3.9 8.5 (0.3) 33.3 41.9 49.8 14.9 11.8 9.9 648 Buy
Jyoti Stryctures 137 568 20.0 11.5 10.0 27 29.8 3.3 29.4 11.2 13.5 16.5 12.2 10.2 8.3 215 Buy
Thermax 799 918 35.0 12.0 35.6 75 38.0 6.3 38.0 21.8 29.7 37.4 36.7 26.9 21.4 - Neutral
Source: Company; Angel Research; Note: Price as on October 1, 2010; * December year ending
Perinchery/Hemang
Analyst - John Perinchery/Hemang Thaker


Preview

Cement
Despatches slow down in 2QFY2011 Rs260 in Chennai and around Rs200 in Hyderabad. The price
hikes were carried out by cement manufacturers to minimise
In 2QFY2011, all-India despatches decelerated further, growing
their losses, as cement prices in the region, especially
by a meager 3.7% yoy as compared to the 7% yoy growth
Andhra Pradesh, had fallen close to the cost of production.
recorded in 1QFY2011. During 2QFY2011, despatches in the
However, we believe this price hike is not sustainable in the
southern region continued to suffer as there was not much
region as it is basically an act aimed at bringing about price
improvement seen in demand from Andhra Pradesh, which is
discipline and has got nothing to do with demand. Cement
a major cement-consuming state in the region. The northern
makers had increased prices in March 2010, but they soon
region witnessed a slowdown in demand as construction activity
rolled back the prices due to low demand. Similarly, we expect
related to the Commonwealth Games ended. The region also
correction of Rs10-15 per bag over the next few weeks on the
experienced above-normal rains, which paralysed construction
back of lower utilisation.
activities in many areas. The western, eastern and central regions
registered modest yoy growth of 4.5%, 6% and 7%, respectively. Prices in the west to increase in 3QFY2011

Exhibit 1: Region-wise cement despatches Cement prices have been hiked by around Rs20 per 50kg bag
July-August 2010E July-August 2009 Change (%)
July-August July-August from October 1, 2010, in Gujarat, while a similar hike is being
North 4.5 4.3 5.0 considered for Maharashtra, including the key market of
Mumbai, to cash in on the spurt in demand following the
South 8.6 8.8 (2.0)
monsoons. Cement price had cracked to around Rs150 in
West 4.4 4.2 4.5
August from Rs225 in mid-May, owing to sluggish construction
East 4.4 4.1 6.0 activity in the monsoon season and scarcity of sand. With the
Central 4.0 3.7 7.0 proposed hike, prices of the commodity will increase to around
All India 25.9 25.1 3.7 Rs180 per bag in Ahmedabad. Companies such as
Source: CMA, Angel Research UltraTech Cement, Ambuja Cements, Sanghi Industries,
Gujarat Siddhi Cement, Saurashtra Cement, Binani Cement,
Performance of top players
JK Lakshmi Cement and Jaiprakash Associates will raise their
Among the major players, JP Associates emerged the top per- cement prices. In Mumbai, the hike is being considered and
former posting a 55.7% yoy jump in sales volumes in July-Au- may be implemented in a different way by withdrawing a
gust 2010 to 2.2mn tonnes (1.4mn tonnes) on the back of sub- discount of at least Rs10 per bag, which is being offered to
stantial capacity addition. UltraTech Cement also reported a dealers, as per a city-based large cement stockist.
modest 5.1% yoy increase in despatches. However, ACC and
Prices likely to increase in northern and central regions
Ambuja Cements reported declines of 8.7% yoy and 0.6% yoy,
respectively. With regard to the central and northern regions, where prices
had declined by Rs15-25 per bag during the quarter, stockists
Exhibit 2:Cement despatches of leading players and dealers have not yet been intimated about any hike.
Company July-
July- August 2010E July-August
July-August Growth However, we expect cement players to announce some hikes in
2009 (yoy, %)
(yoy, these regions depending on the response to the hikes in the
ACC 3.1 3.4 (8.7) southern and western regions.
Ambuja Cements 2.8 2.9 (0.6)
Exhibit 3: Average cement prices (Rs/bag)
JP Associates 2.2 1.4 55.7 Market 2QFY11E 2QFY10 % chg 1QFY11 chg.
% chg.
UltraTech Cement 5.9 5.6 5.1 (yoy) (qoq)
Source: Company, Industry Mumbai 245 257 (4.7) 255 (3.9)
Delhi 215 232 (7.3) 225 (4.4)
Price situation Chennai 210 240 (12.5) 230 (8.7)

Prices increase in the south Kolkata 250 275 (9.1) 270 (7.4)
Average price (Rs) 230 251 (8.4) 245 (6.1)
Despite the slowdown in demand, cement prices were hiked Source: Angel Research
twice in the southern region in September 2010. On an average,
prices were higher by Rs60/bag post the two rounds of the
price hike. Post these hikes, price per bag of cement stood at


Preview

Cement

All-India capacity to increase by 23mt in FY2011 Performance on the bourses

ACC’s 3mtpa plant in Chanda, Maharashtra, is expected to be During 2QFY2011, all the cement stocks under our coverage
operational by 3QFY2011. India Cements' 1.5mtpa greenfield except Ambuja underperformed the Sensex. India Cements was
plant at Rajasthan, through its subsidiary the biggest loser with negative returns of 11.8%.
Indo Zinc Ltd., is also expected to be operational in the next Exhibit 6: Sensex v/s cement stocks (2QFY2011)
quarter. JP Associates too is expected to add around 3.8mtpa Abs. Returns Relative to Sensex
of capacity in 3QFY2011. However, there were no significant (%) (%)
Sensex 13.4 -
capacity additions during the 2QFY2011. Overall, we expect
ACC 4.2 (9.1)
India's cement capacity to grow by 23mt in FY2011 to 290mtpa.
Ambuja 17.6 4.2
Further, we expect all-India capacity utilisation to bottom out at India Cements (11.8) (25.2)
77% in 2QFY2011 and touch 81% in FY2011. JK Lakshmi (9.8) (23.2)
Kesoram Industries 3.1 (10.3)
Exhibit 4: All-India capacity addition
Year -end Capacity Additions during the year Madras Cements (5.1) (18.5)
FY2012E 309 19 Ultra Tech (7.7) (21.1)
FY2011E 290 23
Source: BSE, Angel Research
FY2010 267 48
FY2009 219 21
Cement universe to report a 8.6% yoy top-line decline
(mtpa)

FY2008 198 31
FY2007 167 9 We expect our cement universe (excluding Grasim Industries)
FY2006 158 4
FY2005 154 8
to report a 8.6% yoy top-line decline primarily on account of
FY2004 146 7 the 10.5% decline in realisations. However, cement despatches
0 100 200 300 400
for companies under our universe are expected to be marginally
Source: IPA, Angel Research higher by 1.9% yoy. We expect south-based players to be the
worst affected in terms of top line, despite the price hikes taken
Coal prices surge during the quarter. With the demand situation already poor in
Spot global coal prices were substantially higher on a yoy basis the region, we expect the price hike to cause further pressure
during the quarter. Average prices of the New Castle Mckloksey on the volume off-take front, thus having minimal impact on
6,700kc coal stood at around US $94/tonne in 2QFY2011, as the top-line front.
against US $71/tonne in 1QFY2010. However, prices were Exhibit 7: Realisation per tonne
lower by around 5% on a qoq basis. The rise in the price of 4,000 3,847
coal, the primary fuel in power generation, is expected to result
in higher power costs for cement manufacturers. 3,600 3,443
(Rs)

Exhibit 5: Global thermal coal prices 3,200

250
2,800
200
(US$/tonne)

2,400
150
2QFY10 2QFY11E
2QFY10 2QFY11E
100
50
Among the major players, we expect UltraTech Cement to post
0
mediocre top-line growth of 1.3%. However, we expect ACC
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10

and Ambuja Cements to report a 3.5% and 16.3% top-line
Source: IPA, Angel Research decline, respectively. JK Lakshmi Cement is expected to report
a 27% decline due to low capacity utilisation in its plant. India
Cements and Madras Cements, predominantly south-based
players, are also expected to report top-line decline of 16%
and 19%, respectively.


Preview

Cement
Exhibit 8: Top-line performance in 2QFY2011 (yoy) Outlook and valuation
(%)
10
Ambuja India JK Lakshmi Madras We expect the demand situation for the cement industry to
ACC Cem Cements Cement Cements Ultra Tech
improve and pick up from mid-3QFY2011, post the monsoons.
0
We expect a pick-up in rural construction activities in particular,
as the country has experienced good monsoons. As for the
(10)
situation in the southern region, we believe the demand scenario
(20) would bottom out and expect growth in despatches from
3QFY2011. However, we expect the overcapacity to continue
(30) to exert pressure on prices in all the regions, till the end
Source: Company, Angel Research; Note: UltraTech’s top line for 2QFY2010 of FY2011.
includes Samruddhi Cement’s numbers
We remain positive on India Cements, Madras Cements and
Operating margins to decline JK Lakshmi Cement due to their attractive valuations (based on
EV/tonne and EV/EBITDA multiples). On an EV/tonne basis,
The operating margin of our cement universe is expected to
India Cements and Madras Cements are trading at
decline by 1,596bp during the quarter. The margin decline can
US $74/tonne and US $71/tonne, which are at (18-21%)
primarily be attributed to the substantial reduction in realisations
discount to their replacement value, respectively. Hence,
and the increase in the cost of inputs such as coal and limestone.
we maintain a Buy rating on them.
India Cements is expected to report the highest decline in OPM
at 2,510bp. JK Lakshmi is also set to witness a 2,043bp decline Exhibit 10: EV/tonne analysis
in OPM to 12.7%. Company Installed Capacity EV/Tonne (US $)
EV/Tonne
(mtpa) FY10 FY10 FY11E FY12E
Exhibit 9: Margins likely to decline in 2QFY2011 ACC^ 26.2 135.1 117.9 112.7
2QFY11E (%) 2QFY10 (%) yoy (bp) 1QFY11 (%) qoq (bp)
Ambuja^ 23.5 166.6 156.5 154.0
ACC^ 19.4 35.1 (1,565) 29.4 (996) India Cements 14.0 67.6 66.0 74.0
Ambuja^ 26.0 28.1 (217) 30.8 (485) JK Lakshmi Cement 5.4 53.1 39.6 41.8
India Cements 5.3 30.4 (2,510) 10.3 (505) Madras Cements 11.0 95.8 81.0 71.0
JK Lakshmi 12.7 33.1 (2,043) 17.4 (471) UltraTech 23.1 136.8 132.9 117.6
Source: Company, Angel Research; Note: ^December year ending
Madras Cements 19.5 39.9 (2,043) 27.9 (845)
UltraTech 17.0 30.5 (1,353) 23.5 (652)
Source: Company, Angel Research; Note: ^December year ending

Company CMP Net Sales OPM (%) Net Profit
Profit EPS (Rs) EPS (Rs) P/E (x) Target
arg Reco.
(Rs.) 2QFY11E % chg 2QFY11E chg bp 2QFY11E % chg 2QFY11E % chg FY10 FY11E FY12E FY10 FY11E FY12E (Rs)
ACC 1,000 1,671 (16.7) 19 (1,565) 189 (56.6) 10 (56.6) 85.5 63.7 74.5 11.7 15.7 13.4 - Neutral
Ambuja 142 1,585 (4) 26 (217) 263 (17.6) 2 (17.7) 8.0 7.9 8.2 17.8 18.0 17.4 - Neutral
Grasim 2,233 4,397 (13) 20 (1,281) 498 (36.2) 54 (36.2) 337.6 200.2 250.6 6.6 11.2 8.9 - Neutral
India Cem. 119 836 (16) 5 (2,510) (37) (127.1) (1) (124.9) 11.5 2.8 4.2 10.3 41.9 28.0 139 Buy
JK Lakshmi 66 251 (27) 13 (2,043) 1 (97.6) 0 (97.6) 19.7 9.1 11.7 3.4 7.3 5.6 92 Buy
Kesoram Ind. 317 1,350 20 7 (1,034) 9 (88.8) 2 (88.8) 51.9 47.9 66.4 6.1 6.6 4.8 437 Buy
Madras Cem. 115 692 (19) 19 (2,043) 32 (80.9) 1 (80.9) 14.9 6.4 8.8 7.8 18.1 13.1 139 Buy
UltraT Cem.* 1,089
ech 3,267 112 17 (1,353) 268 6.9 22 6.9 87.8 59.6 74.5 12.4 18.3 14.6 - Neutral
Source: Company, Angel Research; Note: Price as on October 1, 2010; Note: ^December year ending; *Consolidated numbers; Note:* Estimates for merged entity

Analyst - Rupesh Sankhe / V Srinivasan


Preview

FMCG
For 2QFY2011, we expect our FMCG universe to post steady Input costs pose near-term concerns
top-line growth of 17.3% yoy aided by robust volume growth
and selective price hikes. While the buoyant economy, bountiful In agri-commodities, while wheat and sugar are benign others
monsoons, new product launches and sustained ad-spends are like barley and tea have witnessed sharp surge qoq. However,
expected to drive steady volume growth, selective price hikes milk and coffee are finally showing signs of cooling and tobacco
across categories to offset input cost pressures is likely to drive is down 24% yoy. Among others, all vegetable oils have
higher value growth for FMCG companies this quarter (though registered ~10-20% spike qoq (only exception being safflower
full impact of price hikes is likely to be felt only in 2HFY2011E). oil) and copra has risen a steep 21% rise qoq.
Godrej Consumer is expected to post the highest top-line growth
this quarter aided by first quarter of full consolidation of its
Exhibit 3: Input cost trend
recent acquisitions albeit growth in the domestic business is CMP yoy (%) qoq (%)

expected to remain muted. Amongst others, Dabur, Nestle, ITC Wheat (Rs/Quintal) 1,244 4 0

and GSK Consumer are expected to post strong top-line growth Barley (Rs/Quintal) 1,206 44 10

this quarter. Sugar (Rs/ Quintal) 2,560 (12) 4
Tea (Rs/Kg) 180 27 29
Exhibit 1: Revenue Growth yoy (2QFY2011E)
70.0 Coffee (US$/Ton) 3,100 36 4
60.9
60.0 Cocoa (US$/Ton) 2,877 (17) (12)
50.0 Milk Liquid (Rs/Ltr) 26 24 4
(%)

40.0
Palm Oil (MYR/Ton) 2,739 23 11
30.0
20.2 19.0 19.0 18.0 Copra (Rs/Quintal) 4,350 45 21
20.0 16.3 15.7 15.0
9.6 Safflower (Rs/ Quintal) 2,200 (6) (1)
10.0
Soyabean Oil (Rs/10Kg) 477 12 14
-
Groundnt Oil (Rs/MT) 89,000 44 20
HUL
Asian
GCPL

Nestle

Paints
Marico
ITC

GSKCHL

Colgate
Dabur

Coconut Oil (Rs/Quintal) 6,068 29 15
Source: Company; Angel Research; Note: Nestle, GSKCHL figures - 3QCY2010E Rice Bran Oil (Rs/MT) 7,300 24 14
Tobacco (Rs/Quintal) 4,239 (24) 3
Bountiful monsoon spell good times
Caustic Soda (Rs/Kg) 895 (23) 3
Bountiful monsoons (4% above normal till the third week of Soda Ash (Rs/Kg) 885 3 3
September 2010) and better spatial distribution with 31 out of Source: Bloomberg, CMIE, Angel Research
the 36 sub-divisions getting excess/normal rainfall compared
to 13 same time last year spell good times for the FMCG Going ahead, we expect agri-commodities to show signs of
companies ahead. We believe the same will positively impact easing due to good monsoons. However, prices of crude-based
agri-dependent input cost companies like Marico, Nestle and inputs tend to follow the increase in crude oil prices with a lag.
GSK Consumer as it will help stem an increase in the raw Hence, we expect vegetable oils and crude linked derivatives to
material costs. Companies like HUL, Colgate, Godrej Consumer rise going ahead.
and ITC will benefit from the increase in demand, as good
Price hikes to neutralise input cost increase
monsoons would cool food inflation, thereby increasing buying
power, especially among the low/middle income group (spend While the last several quarters witnessed FMCG companies
~60% of the earnings on groceries). undertaking price cuts to battle competition, rising input cost
Exhibit 2: Monsoon Trend for June-Sept pressures are pushing companies to re-work their pricing
50 10 strategy by resorting to price hikes and grammage cuts. We
3% 4% believe the move will help protect margins, but incremental
(No of Subdivisions)

40
0
-2%
-1% -1% margin gains are less likely.
30
(%)

20
(10)
A step back from head-to-head competition saw both HUL and
(20) P&G taking price hikes in detergents. HUL hiked Rin prices by
10 -22%
8% in Gujarat and Uttar Pradesh, while P&G indirectly hiked
0 (30)
2005 2006 2007 2008 2009 2010
prices by 12% on Tide by reducing the extra grammage (250gms
Excess Rainfall Defecient/ Scanty extra on 1kg). Reeling under the pressure of rising palm oil
Normal Rainfall Deviation from Normal rainfall (RHS)
prices, HUL undertook 4-6% price hike in select SKUs across its
Source: IMD, Angel Research


Preview

FMCG

soaps portfolio and stopped the promotional offer on Lux. wholly-owned subsidiary, CC Health Care Products Pvt Ltd
Recently, Godrej also followed suit with a 5% price hike in soaps. (manufactured toothpowder at Andhra Pradesh).
In the hair care segment, Marico raised prices of Parachute
The FMCG companies have upped the ante for acquisitions
coconut oil by ~3-5% while Dabur is contemplating a 2-3%
and are targeting both the domestic and international
price hike across Vatika shampoo and hair oils after a
companies. Hence, while Dabur has taken an in-principle
two year gap. Godrej Consumer has also hiked prices of its
approval to raise Rs2,000cr to prepare a war-chest for
hair colours. In F&B categories, ITC has undertaken grammage
acquisitions, Jyothy Labs completed its QIP raising Rs228cr to
reduction and price hikes in biscuit packs, Nestle reduced the
fund couple of domestic acquisitions likely to be completed by
grammage on Maggi Noodles by 5gm (first time in two years)
December 2010. Among others, Nestle management stated
and Marico undertook a Rs3/litre price hike in its edible oil
that it is mulling acquisitions in India with a view to expand its
brand, Saffola.
product line and Godrej Consumer is considering partnering
However, while P&G is showing signs of taking a backseat in with PE funds to acquire Kiwi from Sara Lee. However, the most
the detergents segment, it has taken a 20% price cut in Whisper speculated deal during the quarter continues to be the chase to
Choice and a 12% drop in the price of Pampers Active Baby. acquire Paras Pharma. Media reports suggest Actis (holds 60%
We believe J&J is likely to follow suit. in Paras) has put the company on the block and several notable
FMCG players like Marico, Dabur and Emami are in the fray.
Product launches continue unabated
FMCG outperforms, Heavyweights shine
2QFY2011 continues to witness steady rate of new launches by
the FMCG companies particularly in foods & beverages (F&B), During 2QFY2011, BSE FMCG Index outperformed the Sensex
personal care and household care segments. In the household marginally by 1.8% driven by sharp rally in heavyweights ITC
care category, Jyothy Labs launched new variants under its and HUL which outperformed the Sensex by ~2-4%. While ITC
mosquito repellent brand, Maxo, in the form of wet wipes and witnessed sustained buying on account of strong performance
ointments. Reckitt Benckiser also revamped its mosquito repellent by cigarettes division (expectations of a positive surprise in
under the brand name, Mortein PowerGard. In personal cigarette volumes and strong EBIT growth due to price hikes),
products, Emami launched a new range of hair colors under HUL staged a comeback after several quarters of
the brand, Emami Hair Life, Marico launched Parachute underperformance attaining near all-time high buoyed by first
Ayurvedic hair oil (test marketed in South) and P&G re-launched signs of competitive pressures easing (price hikes in detergents
Pantene. and soaps) and expectations of a better earnings growth.
Amongst other top performers, Godrej Consumer (consolidation
During the quarter, maximum action was seen in the F&B
of recent acquisitions) and Asian Paints (three rounds of price
category - GSK Consumer launched Lucozade Sport, its sports
hikes in last six months and significant capacity expansions
drink from the parent's stable; Marico entered breakfast cereals
announced by various paint companies) outperformed the
by extending Saffola to oats; HUL re-positioned its staples brand,
Sensex by ~3-4%. Amongst worst performers, were Marico
Annapurna on the health platform; Danone launched its range
(rising copra prices) and Dabur (had witnessed uptick due to
of fortified plain and flavoured yogurt, Danone Dahi; Heinz
news-flow on acquisitions which hasn't fructified) which
India launched Heinz Home Style Chutneys, Heinz Chef Styled
underperformed the Sensex by ~11-15%.
sauces, Heinz Kitchen Klassics ready-to-eat meals and instant
mixes and Heinz Golden Circle Juices; and Nestle is Exhibit 4: Relative outperformance to Sensex (2QFY11)
contemplating product launches several F&B categories Sensex 13.4
including breakfast cereals. BSE FMCG 15.1
GCPL 17.3

M&A activity heating up ITC 16.8
Nestle 15.9
While FY2011 began on a strong note with a series of Asian Paints 15.8
HUL 15.4
acquisitions by Godrej Consumer, 2QFY2011 continued the GSKCHL 12.0
momentum with the biggest deal this quarter being Dabur's Colgate 4.1

acquisition of Hobi Group of firms, a Turkish personal care Dabur
(2.1)
2.5
Marico
products firm, for a consideration of US $69mn. On a smaller
(5.0)

-

10.0

15.0

20.0
5.0

note, Marico acquired a South African OTC healthcare brand
Ingwe for Rs10-15cr, and Colgate amalgamated its Source: Angel Research


Preview

FMCG

Top-line steady, near-term pressure on margins long-term consumption story for the FMCG industry remains
intact, we expect both earnings upgrades and P/E re-rating to
For 2QFY2011, we expect our FMCG universe to post steady
take a breather from current levels. (Hence, we maintain our
Hence,
17.3% growth in top-line aided by a mix of robust volume growth
underweight stance on the sector and recommend selective
and selective price hikes. Amongst heavyweights, HUL is
stock approach Upside risks to our stance include - 1) sustained
approach).
expected to post 9.6% yoy growth in top-line (model in ~12%
demand conditions due to good monsoons, 2) signs of
volume growth aided by low base, 1% volume growth in
competitive pressures easing resulting into lower ad-spends and
2QFY2010) partially impacted by negative value growth (price
3) emergence of significant pricing power.
cuts in S&D segment, price hikes to reflect only in 2HFY2011E).
Hence, recurring earnings is expected to decline by 1.2% due ITC
Amongst heavyweights, we maintain Neutral on ITC (strong
to margin pressures (165bp contraction). In case of ITC, we earnings growth but valuations at premium) and Reduce on
have modeled in a 19% top-line growth aided by 14.6% yoy HUL (premium valuations for weak earnings growth unjustified).
growth in cigarettes (largely price led, model in ~1-2% volume Amongst others, while we have upgraded GSK Consumer
decline) and steady ~20%+growth in other businesses (except (Reduce to Accumulate) and Nestle (Reduce to Neutral) as we
paperboards). Moreover, we expect earnings to grow a robust roll over to CY2012E numbers, we maintain Reduce on Colgate
21.5% yoy driven by 47bp margin expansion (price hikes in due to weak earnings growth (sharp rise in tax rate) and
cigarettes, better margins in other businesses). downgrade Godrej Consumer to Neutral due to sharp run up
We Paints
in stock. We continue to maintain Accumulate on Asian Paints
Valuations rich, maintain underweight
(robust volume growth and strong pricing power) and Marico
Most FMCG companies have witnessed a sharp rally in the (strong earnings growth, underperformance provides a good
recent past, and are currently trading at peak valuations entry point).
(~15-20% premium to their historical averages). While the

arg Reco.
Asian Paints ^ 2,667 1,982 15.0 18.6 (13) 241.2 23.1 26.4 23.1 80.5 95.8 114.4 33.1 27.8 23.3 2,974 Accumulate
Colgate Palmolive 885 564 15.7 21.5 200 103.8 15.8 7.6 15.8 31.1 32.4 38.1 28.4 27.3 23.2 838 Reduce
Dabur India ^ 109 1,019 20.2 20.0 (74) 159.0 14.3 1.8 13.7 2.9 3.4 4.0 37.9 32.1 27.1 - Neutral
GCPL ^ 409 926 60.9 20.9 140 144.4 55.3 4.5 23.3 10.5 14.9 18.7 39.0 27.5 21.9 - Neutral
GSK Consumer * 2,005 584 18.0 16.1 18 72.4 20.7 17.2 20.7 54.7 67.4 81.5 36.6 29.7 24.6 2,118 Accumulate
HUL 310 4,632 9.6 12.8 (165) 556.8 (1.2) 2.6 (1.3) 9.6 10.3 11.8 32.2 30.1 26.3 271 Reduce
ITC 179 5,110 19.0 36.3 47 1,227.4 21.5 3.2 21.5 5.3 6.4 7.4 33.6 28.0 24.3 - Neutral
Marico ^ 129 805 16.3 13.2 (57) 73.2 17.4 1.2 17.4 3.9 4.8 5.8 32.8 26.7 22.1 135 Accumulate
Nestle * 3,346 1,550 19.0 19.9 (39) 212.1 16.1 22.0 16.1 67.9 83.3 101.3 49.3 40.2 33.0 - Neutral
Source: Company, Angel Research; Note: Price as on October 1, 2010; Note: * December year ending; ^ Consolidated

Kapur/Sreekanth .V
.V.S
Analyst: Anand Shah / Chitrangda Kapur/Sreekanth P .S


Preview

Infrastructure
Muted quarter in sight Nagarjuna Construction (NCC)

We expect the infrastructure sector to post muted numbers for We project revenue growth of 12.6% yoy for 2QFY2011.
2QFY2011 as the second quarter is usually the weakest in any Management had guided for revenue growth of ~20% for
fiscal due to the monsoons. This year India witnessed bountiful FY2011 (standalone), which implies growth of 25% in
rains (4% above normal) on account of which we expect a delay 9MFY2011, and we expect the company to deliver as per the
in the pickup of infrastructure projects. Moreover, order inflow guidance given its diversified order book. We project stable
in FY2010 was lop-sided with maximum share of the orders EBITDA margins of 10.4% and net profit growth of 16.5% for
bagged in the last quarter of the fiscal, which are yet to contribute the quarter to Rs51.1cr.
to revenues. Hence, we expect 2QFY2011 to be subdued on
the revenue front for most construction companies. Hindustan Construction Company (HCC)

Exhibit 1: Revenue trend (2QFY2011E) We project marginal ~5% yoy growth in revenues for 2QFY2011
10,000 36.0 37.7 40.0 impacted by the AP crisis and delay in pick up of the hydro
33.1
30.7
8,000 30.0 projects due to heavy rains. We project stable EBITDA margins
6,000 20.0 at 12.1%, but net profit de-growth of ~50% to Rs10.5cr for the
11.5
4,000 12.6 10.0 quarter primarily due to higher interest and depreciation costs.
2,000 5.2 4.9 -

0
(7.6)
(10.0) IRB
IRB Infra

IVRCL Infra

L&T
SEL
JAL

MPL

NCC

Simplex Infra.
HCC

We estimate revenue growth of 30.7% yoy for 2QFY2011 due
to increase in both the toll and construction revenues. However,
Top -line (Rs cr, LHS) yoy change (%, RHS) EBITDA margins are expected to decline by 424bp given lower
Source: Company, Angel Research top-line growth compared to its past performance. We project
net profit at Rs66.9cr in 2QFY2011, a yoy decline of 5.5% .
2QFY2011 expectations
Key Developments
Larsen and Toubro (L&T)
Temporary lull of awards from NHAI
We expect L&T to record revenues of Rs8,829cr, a modest yoy
jump of 11.5%. Management has guided for revenue growth There has been a lull in the award activity from NHAI over the
of 20% for FY2011, which implies growth of ~24% in last couple of months primarily due to policy and capacity issues.
9MFY2011. On the EBITDA front, we expect margins at 11.4% A majority of the projects (mainly annuity projects) have been
as against 10.1% in 2QFY2010 on the back of improved margin stalled primarily due to viability issues. We believe that NHAI is
guidance by management. We project net profit at Rs637.4cr, in the process of making changes to the concession agreement,
a modest yoy jump of 13.5%. which could potentially include suggestions from the Planning
Commission and require approvals, implying extended timeline.
IVRCL Infra (IVRCL) NHAI is also mulling over the proposal of upfront paying 40%
The company is aggressively pursuing BOT projects in the road of the annuity payment to the contractors and the balance later
segments owing to which its exposure to the road segment will in installments. Currently, in the BOT mode where payment is
increase in the overall order book. We project revenue de-growth linked to annuity, a private contractor builds the road and later
of ~8% yoy for 2QFY2011 primarily on the back of the recovers the cost from the government in installments after
slow-moving orders from Andhra Pradesh (AP). Management completion of construction. We believe that switching to the
has guided for a minimum 22% yoy growth in revenues for new model where a higher amount would be paid by the
FY2011, implying a growth of ~30% in 9MFY2011, which government initially could reduce the debt burden on the private
exceeds our expectation of ~25%. We project marginal builders and in turn enhance viability of the projects.
improvement in EBITDA margins at 9.3% and net profit Lack of a succession plan at the NHAI has also impacted the
de-growth of >30% for the quarter to Rs32.8cr mainly on award of projects. Appointment of a successor to the outgoing
account of higher interest costs and top-line de-growth. chairman, Brijeshwar Singh, is still pending. In the interim, the
ministry has asked Brijeshwar Singh, who retired on August 31,
2010, to continue for another three months till such time a new


Preview

Infrastructure

chairman is appointed. This delay in the appointment of a new Execution woes persisted due to company/project specific issues,
chairman has affected the award of new projects. For instance, viz. land acquisition, delay in financial closure, etc. However,
out of the 2,873kms of new projects awarded in FY2011, while we believe that the lull in execution is temporary, the
majority of the projects were awarded in the first two months, resulting underperformance of the sector has led to attractive
while the last three months have seen few projects getting stock valuations. Several stocks have limited downside from
awarded. We believe that NHAI requires to spruce up its current levels owing to which we recommend investors to seize
operational and execution capabilities to avoid bunching of the opportunity and increase their exposure to the infra sector.
projects.
Outlook - Execution trend to reverse
NHAI is also hampered by manpower crunch particularly with
In FY2010, order inflow was high towards the second half of
the Detailed Project Reports (DPR) for 7,000km scheduled to be
the fiscal with the average OB/sales ratio spiking from 3.0x in
received from September 2010. However, these projects will
1HFY2010 to 3.6x by the year end (TTM revenues), which will
take at least 2-3 months before reaching the awarding stage,
enter execution phase only in 2HFY2011. It is important to note
and hence we believe that the slowdown would be temporary.
here that the second half of a fiscal is a seasonally strong period
Sensex v/s infrastructure stocks for the infrastructure players and execution usually picks up
during that period. Managements of various companies have
The infrastructure stocks have taken a beating in recent times
also not reduced their top-line growth guidance for FY2011.
(barring L&T and Sadbhav Engg.) on account of the dismal
Overall, we expect execution to pick up on the back of the
performance on the execution front.
following:
Exhibit 2: Relative under performance to Sensex Robust order book position
13.3 L&T
(4.1) Simplex Infra. The order book position of most infrastructure players has been
16.8 SEL
(17.0) NCC on the rise and the average backlog ratio at 3.6x revenues
0.9 MPL (TTM) renders strong visibility on the top-line front. Thus,
JAL
(6.0)
assuming a 36-month average execution period and similar
(14.3) IVRCL Infra
(2.2) IRB Infra quantum of order inflow over the next three years as in FY2010,
(1.4) HCC the order book position is likely to be substantial and could
13.4 BSE Sensex
deliver ~20% growth on the top-line front over the mentioned
(20.0) (15.0) (10.0) (5.0) - 5.0 10.0 15.0 20.0
period. The companies have also diversified into newer segments
Source: Company; Angel Research and geographies, which would de-risk their business model in
case of a slow down in any segment or region. Further, a strong
Major C&EPC companies turned in one of their worst
backlog ratio implies that the companies are likely to retain
performances on the top-line front (yoy) in 1QFY2011 with the
their bargaining power and margins would remain stable.
average top-line standing at a mere 7.4%, which was much
below expectations.
Exhibit 4: Major C&EPC companies - Order backlog
120,000 6.0
Exhibit 3: 1QFY2011 top-line growth one of the worst 4.8
107,816

50.0 47.2 3.7 100,000 5.0
47.1
45.0 4.2
45.4 3.5 80,000 4.0
40.0 43.0
38.5 40.6 3.4
35.0 34.2
3.3 60,000 2.5 3.0
30.0 2.9
25.0 3.1 2.7
40,000 2.0
20.0 18.1 18.3 23,275
12.5 2.9 16,051 17,406
15.0 20,000 12,262 1.0
8,000
10.0 2.7
9.3
5.0 7.4 - -
5.7
- 2.5 Patel SI NCC HCC IVRCL L&T
1QFY08

2QFY08

3QFY08

4QFY08

1QFY09

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

OB (Rs cr, LHS) OB Ratio (x, RHS)
Source: Company, Angel Research; Note: The backlog ratio is calculated
Average OB/Sales (x,LHS) Average Top -line growth (%,RHS) on FY2010 revenues
Source: Company, Angel Research: Note: We have included
L&T, HCC, IVRCL Infra, NCC, Patel Engg. and Simplex Infra for calculating
the average; OB/Sales = OB/TTM revenues


Preview

Infrastructure

Funding in place Valuation - Available at lower P/E band

We believe that the other leg of execution, viz. funding is also in Majority of the infrastructure stocks are trading at reasonable
place with most companies having raised money in the last 12 valuations post the quarterly under performance. We believe
months. Many PE deals and other fund raising plans are also that improved execution (which the market has been looking
lined up. We believe that value unlocking at the subsidiary level forward to for quite some time) and fund raising at the subsidiary
would act as the next catalyst - Sadbhav Engineering is the level would act as a potential trigger for the next level of
recent example. re-rating. At current levels, most infrastructure stocks (except
L&T) are trading at P/E of 8-12x FY2012E earnings (adjusted
Tailwinds visible
for investments), which we believe are at their lower P/E band.
CY2009 was marred by uncertainty, general elections and We believe that next leg of the rally would be mainly on account
liquidity crunch, which slowed the capex to the infrastructure of execution surprises as current expectations from construction
sector. However, with the UPA government back in power, stocks are low in spite of a strong order book-to-sales position.
infrastructure is once again in limelight. Changes are particularly Besides, the infra sector still offers tremendous 'Infusion-Dilution
being witnessed in the road sector, which has the highest C&EPC Opportunity', which will lead to companies trading at 2.0-2.5x
component (~100%) and also accounts for the second largest P/BV over the longer run owing to higher growth opportunities.
share after power in the Eleventh Five-year Plan. Projects to the We prefer companies that provide a decent blend of growth
tune of ~18,000km are expected to be awarded in opportunities, strong management and relatively attractive
FY2011-12E, which is supported by positive policy changes (as valuations.
per the BK Chaturvedi report). The recent fund raising drive by
At the current juncture, we prefer mid-caps to large-caps as
the power companies would result in significant capacity
there exists some headroom for factoring in subsidiary
additions in the space creating opportunities for the players
valuations. Our top picks in the sector are IVRCL Infra,
involved in the EPC, BoP and transmission related activities. We
Patel
Nagarjuna Construction and Patel Engineering - in sequence
expect pick up in the oil and gas and private capex as well, on
of preference. Our preference reflects our relative comfort on
the back of a recovering economy.
the execution front, order book position, funding and valuations
sector.
in the sector.

Net Profit EPS (Rs) EPS (Rs) *Adj. P/E (x) Target
arg Reco.
(Rs) 2QFY11E % chg 2QFY11E chg bp 2QFY11E % chg 2QFY10 % chg FY10 FY11E FY12E FY10 FY11E FY12E (Rs)
HCC 61 823 5.2 12.1 66.7 10.5 (49.7) 0.2 (4.1) 1.3 1.6 1.8 17.4 14.8 12.7 - Neutral
IRB Infra^ 266 465 30.7 44.9 (424.0) 66.9 (5.5) 2.0 (5.5) 11.6 12.3 14.5 9.0 8.5 7.2 - Neutral
IVRCL Infra 163 1,150 (7.6) 9.3 42.6 32.8 (32.8) 2.5 (32.8) 7.8 8.8 10.9 12.8 11.4 9.1 216 Buy
Jaiprakash Asso. 124 2,427 33.1 27.2 219.4 118.0 (14.7) 0.6 (14.7) 4.7 4.5 7.6 26.6 27.5 16.3 178 Buy
MPL 149 346 36.0 9.3 (192.8) 8.5 (28.8) 1.2 (29.0) 5.8 7.7 9.8 12.5 9.5 7.4 174 Buy
NCC 158 1,201 12.6 10.4 15.3 51.1 16.5 2.0 7.7 7.8 8.6 9.8 15.3 13.9 12.2 201 Buy
Sadbhav Engg 1,490 255.0 37.7 10.7 (35.1) 10.6 186.6 8.5 186.6 43.0 77.4 89.8 15.1 8.4 7.2 1,702 Accumu.
Simplex Infra 482 1,075 4.9 10.5 11.1 34.1 22.1 6.9 22.2 25.6 33.0 40.9 18.8 14.6 11.8 573 Buy
L&T 2,099 8,829 11.5 11.4 134.5 637.4 13.5 10.4 13.5 47.4 54.9 68.7 35.6 30.7 24.6 - Neutral
Source: Company, Angel Research; Note: Price as on October 1, 2010, Note: Target prices are based on SOTP basis; ^Consolidated numbers; *(1) For HCC value of Lavasa and
Road BOT totals to Rs37.4/share; (2) For IRB, investments in BOT and real estate totals to Rs161.5/share; (3) For IVRCL, value of IVRCL Assets and BOT projects totals to
Rs63.2/share; (4) For JAL, no investments have been adjusted; (5) For Madhucon Projects, Road BOT and other investments total to Rs76/share; (6) For Nagarjuna - value of land
bank, BOT projects and investments total to Rs38.6/share;(7) For Sadbhav, its investments in BOT projects total to Rs840/share; (8)For Simplex Infra, there are no major
investments in subsidiary; and (9) For L&T, investments in subsidiaries amount to Rs376/share.

Kanani
Analyst: Shailesh Kanani / Nitin Arora


Preview

Logistics
For 2QFY2011, we expect Concor and GDL to report a decline Exhibit 2: Container traffic - Sustaining post recovery
of 7.2% and 5.4% yoy in their revenue, respectively, due to Container Volumes (LHS) YoY change (RHS)
700 654 630 649 40
volume slippage in the Exim segment on account of operations
640
607 604 608 608
600 569 555 562
538 559 553 553 554 30
being halted at Jawaharlal Nehru Port Trust (JNPT) port and 500
518

('000 TEUs)
20
heavy monsoon in the northern part of the country. On the 400

(%)
10
other hand, we expect AGL to report strong revenue growth of 300
-
200
25.9% yoy on account of the low base effect and improving 100 (10)

ECU Line numbers. However, we expect AGL's PAT to remain 0 (20)

Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
flat as the company had claimed MAT entitlement in 3QCY2009,
which resulted in lower taxes. We expect operating margins to
Source: IPA, Angel Research
remain stable for our coverage universe. Consequently, we
expect a 10.1% decline in PAT for our coverage universe. Further, Key developments
hike in haulage charges is detrimental for the rail container
sector, which will impact profitability in 2HFY2011. Hike in haulage charges will impact rail operator's margins

Exhibit1: Revenue and PAT estimates for 2QFY2011E The Indian Railways (IR) has revised haulage charges for
(%) Concor Gateway Distriparks Allcargo Logistics container operators on transportation of five commodities, viz.
30.0 25.9 cement; stone other than marble; iron and steel; alloys and
20.0 metals; and petroleum, oil and lubricants. Nearly 20% of
10.0 Concor's Exim business and around 25% of domestic business
0.7
0.0 comes from the above mentioned commodity categories. The
(10.0) (5.4)
revision shall be effective from October 1, 2010, till March 31,
(7.2) (8.7)
(20.0)
2011. As per the norms, the train operator will have to declare
(30.0)
(22.3) details of the commodities to be transported. If the declaration
Revenue PAT is found to be misleading, railways will levy four times the highest
Source: Company, Angel Research; Note: Allcargo-December year ending rate for the commodity and can cancel the operator's license in
case of repeated misdeclaration.
Oil spill and heavy rains will impact container volumes
We believe this could result in a substantial traffic moving to the
As per data released for FY2011 YTD (April-August 2010) by
road segment if the operators choose to pass on majority of the
the Indian Port Association (IPA), container traffic at major ports
hike. However, given the intense competition, the operators may
grew moderately by 10.2% yoy. The JNPT port, which handles
not be in a position to pass on the hike substantially, which
~60% of the country's container volumes, registered volume
could impact profitability for rail container operators for
growth of 4.7% yoy for April-August 2010; however, it declined
2HFY2011.
by 14.8% yoy in August 2010. This was mainly due to the
complete closure of JNPT for five days after an oil spill from an Cash infusion and additional rail sidings to boost GDL's
accident between two cargo vessels. The port operated at rail operations
50-60% capacity for nearly a week thereafter, affecting container
throughput. However, Chennai port, which handles around 17% GDL's subsidiary, Gateway Rail Freight Ltd. (GRFL) has received
of the country's container volumes, continued to record strong Rs300cr via compulsorily convertible preference shares (CCPS)
volumes, with 31.2% yoy growth in April-August 2010. issued to Blackstone under the deal entered between GDL and
Blackstone in November 2009. The deal, which valued GRFL
For 2QFY2011E, we estimate Concor to post a ~3.0% yoy at Rs600cr-800cr, entitles Blackstone to a 37.3-49.9% stake
decline in Exim volumes and GDL to report a 5.8% yoy drop in after five years, depending upon GRFL's operational
CFS volumes. However, we expect the country's overall container performance.
volumes to register 10-12% yoy growth at 12 Indian major ports
in FY2011E. GRFL plans to use ~Rs215cr for adding another 10 rakes to its
current 21 rakes over the next two years. GRFL also plans to
incur capex at its Faridabad ICD, which is expected to be
operational by 4QFY2011. Further, GDL would be paid Rs85cr


Preview

Logistics

as consideration for transferring its Garhi ICD land (~78 acres) current decade increased from 11.5% to 18.0% in FY2010,
to GRFL. GRFL constructed two new rail lines/siding at Garhi following increased private participation in handling container
Harsaru Rail Terminal during 1QFY2011 and commenced its terminals and customer preference in transporting cargo in
container train operations on these lines in September 2010. containerised form as it reduces handling costs.
This would improve turn-around time and increase per-rake-
While the slowdown in global trade in FY2009 impacted
per-month trips, thereby boosting its top line.
containerisation more than the overall cargo traffic, the trend
AGL to expand Mundra CFS reversed in 2HFY2010 and container traffic is expected to
outperform overall cargo going ahead.
AGL has undertaken expansion at its Mundra CFS by setting up
a second warehouse of 6,085 sq. mt. vis-à-vis the existing Exhibit 4: Container vol. to exceed cargo vol. in FY2011E
capacity of a single warehouse of 6,125 sq. mt. with 19,125 (%) EXIM growth YoY Container growth YoY
30
sq. mt. of paved yard. The warehouse would increase the export 3rd container terminal at JNPT came
into existence boosting volumes
25
and import handling capacity by 2,000 TEUs (double the existing
20
capacity) and 1,600 TEUs, respectively, per month. The second
warehouse would increase total handling capacity, including 15

export, import and empty handling, from 4,100 TEUs to 7,700 10
Slowdown in global trade has impacted
TEUs per month. 5 container volumes more than overall cargo

0
Competition and higher haulage charges will impact FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010

Concor's Exim growth Source: IPA, Angel Research

Concor's OPM has been declining over the years, having Bullish on the container industry on low penetration
stabilised at around 25-27% since the last two-three years. The and customer preference
fall is mainly on account of lower ground rent revenue, inability
Non-bulk cargo, which constitutes ~35% of the total cargo at
to completely pass on the hike in haulage charges due to intense
major ports, has the potential to be transported in containerised
competition and rebates to clients, all of which has pulled down
form. Earlier, only basic goods were suitable for shipment in
Exim performance. We expect Concor's Exim segment to remain
containers, but now most items can be shipped in a container.
subdued in FY2011 on account of the drop in volumes, owing
It is estimated that 75-80% of the total non-bulk cargo can be
to the closure of operations at JNPT, slowdown on northern
containerised. Currently, the level of containerisation in India is
routes owing to heavy monsoons and lower exports, leading to
at ~51%, compared to 80% globally, which indicates the scope
higher empties. In addition, the increase in haulage charges by
of growth on account of improved infrastructure. The share of
Indian Railways would further dent Exim growth.
containerisation traffic increased by around 700bp during
Exhibit 3: Concor’s quarterly Exim revenue trend FY2007-09 despite the slowdown in trade in FY2009; however,
900 20
800
it has tapered down in FY2010. We expect the share of
15
700
10
containerisation to sustain at the current level in the near term
600
as it helps to reduce handling costs. However, it is expected to
(Rs cr)

500 5
(%)

400 0 increase to 62-65% over the next five years.
300
(5)
200
100 (10) Exhibit 5: Improving levels of containerisation
0 (15) EXIM traffic at major ports -LHS Non-bulk cargo-LHS
Container share in non bulk cargo -RHS
Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

600 54.2 53.7 55
52.2
500 51.5
Exim Revenue (LHS) yoy chg (RHS)
400 50
Source: Company, Angel Research
('000 TEUs)

47.4 47.2 47.5
(%)

300 45.2 46.2

Container traffic outperforming overall cargo traffic 200 45

100

Container traffic increased from 3.4mn TEUs in FY2003 to 0 40
FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY11YTD

6.9mn TEUs in FY2010, registering an 11% CAGR during the
period. Meanwhile, cargo at major ports posted a 9% CAGR
Source: IPA, Angel Research
during the same period. The share of container traffic in the


Preview

Logistics

Sensex v/s. logistics stocks Outlook

During 2QFY2011, Sensex has posted a healthy gain of 13.4%. We believe sustained growth in the Indian economy, with GDP
However, during the quarter, GDL, Concor and AGL growth expected at 8.5-9% over the next two years, as well as
underperformed the Sensex by 1,721bp, 1,709bp and 1,822bp, emergence of India as a global outsourcing hub, will facilitate
respectively. This was mainly due to the likely impact on volumes the country's container trade. In the current decade, container
post the closure of JNPT port, intense competition suppressing traffic registered a 12% CAGR compared to the 9% CAGR posted
operating margins and continued weakness in the high-margin by the total traffic at major ports. We expect this trend to continue
export business. Markets expect the IR freight hike from October and container traffic to register an 11% CAGR over the next
to severely impact rail container operator margins and have, five years, driven by the addition of new container terminals
thus, begun discounting the same. For GDL, we expect increased and increased containerisation.
pace of capex post the cash infusion by Blackstone and PAT
Improving trade visibility has seen a re-rating of the sector,
breakeven in rail business to be the key triggers for stock
resulting in a rally in the stocks. We prefer companies that
performance. AGL's performance shall be largely driven by the
provide a decent blend of growth opportunities and are quoting
uptick in volumes and realisations at its European subsidiary
at attractive valuations. Accordingly, we maintain a Reduce
Accordingly,
ECU Line, which contributes ~70% to its revenue. This coupled
rating on Concor as the company is losing its pricing power in
with euro appreciation could boost AGL's bottom line. Going
the high-margin Exim segment, coupled with having expensive
forward, we believe Concor's ability to sustain operating margins
We
valuations. We maintain an Accumulate rating on GDL and
along with market share in rail freight will determine its stock
CAGR
expect the company to register a 14.1% EPS CAGR over
performance.
FY2010-12E on account of being present at strategic locations,
Exhibit 6: Underperforming the Sensex in 2QFY2011 break-
its ongoing expansion plans and break-even in the rail business
15.0 13.4 at the PAT level. However, we maintain a Buy rating on AGL on
PA However, AGL
improved performance by ECU Line in 2QCY2010 and as it is
10.0
currently trading at reasonable valuations.
5.0
(%)

0.0

(5.0)
(3.8) (3.7)
(4.8)
(10.0)
AGL GDL Concor Sensex


arg Reco.
Allcargo* 164 627 25.9 10.6 (106.0) 36.5 0.7 2.8 0.7 9.9 9.9 11.5 16.5 14.2 10.9 195 Buy
Concor 1,306 891 (7.2) 27.0 60.3 186.5 (8.7) 14.3 (8.7) 59.8 64.9 72.5 21.8 20.1 18.0 1,194 Reduce
Gateway Dist. 115 126 (5.4) 24.0 (22.4) 13.3 (22.3) 1.2 (22.3) 7.3 7.5 9.5 15.6 15.3 12.0 123 Accumulate
Source: Company, Angel Research; Note: Price as on October 1, 2010; Note: *Calendar year closing

Param
Analyst: Param Desai / Mihir Salot


Preview

Metals
Metals saw major turning points Exhibit 2: Declining Chinese steel exports…
6.0
During 2QFY2011, the ban on iron ore exports and denial of
5.0
transport licenses by the Karnataka Government, lower metal
4.0
demand due to monsoons, and company specific events stifled

(mn tonnes)
the industry. However, on the positive side, Chinese steel 3.0

production cuts and removal of export rebates restricted the 2.0

price fall. In September 2010, steel companies increased flat 1.0

product prices by ~Rs1,000/tonne, with more price hikes on 0.0

the anvil.
The BSE Metals Index outperformed the Sensex by 1.3% and
gained 14.7% in absolute terms. A series of industry and The decline in Chinese imports helped the domestic steel players
corporate events took place during the quarter, which dictated to liquidate their high inventory during the quarter. Moreover,
the direction for few stocks. In the ferrous space, Tata Steel the domestic companies also hiked prices by up to
topped the charts, outperforming the Sensex by 20.8%, as the Rs1,000/tonne in September 2010. The long product prices
Teesside Cast Plant (TCP) deal was consummated. JSW Steel have however been left unchanged.
outperformed the Sensex by 12.2% as the company concluded
the deal with JFE Steel. Mining stocks like Sesa Goa and NMDC, Exhibit 3: …supported the prices in September
underperformed the Sensex by 20.3% and 14.9%, respectively. 800

On the non-ferrous front, Hindalco outperformed the broader 750

700
indices by 23.0%, while Nalco, Sterlite and Hindustan Zinc
(US $/tonne)

650
underperformed the Sensex with losses of 2-20%. 600

550
Exhibit 1: Sensex v/s metal stocks (2QFY2011) 500
Metal Majors Abs. Relative to 450
Returns (%) Sensex (%) Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10

Sensex 13.4 World HRC prices China export HRC prices (FOB)

BSE Metals 14.7 1.3 Source: Bloomberg, Angel Research

SAIL 6.4 (6.9) Domestic steel demand forecast revised upwards
Tata Steel 34.2 20.8
The Indian steel ministry has raised its FY2011 forecast for steel
JSW Steel 25.6 12.2
consumption to 10% from the earlier target of 9% on account
Hindalco 36.4 23.0 of increased demand from the automobile segment. While steel
Nalco (6.3) (19.7) consumption rose 9.7% in the five months of FY2011 to 24.8mn
Sterlite Ind (1.8) (15.1) tonnes, steel output increased by a mere 2.7% during the period.
Hindustan Zinc 11.3 (2.1) Major events
NMDC (1.5) (14.9)
Karnataka ban gives miners tough time: The Karnataka
Sesa Goa (6.9) (20.3)
Government banned the export of iron ore in two orders dated
July 26 and 28, 2010, restricting the issue of mineral dispatch
Ferrous sector: Roller coaster ride permits to mining companies to curb illegal mining. As per
media reports, mining output in Karnataka has been cut by
Withdrawal of the 9% export rebate on hot-rolled coils and
~80%. We expect iron ore sales volumes of Sesa Goa to be
13% rebate on cold-rolled coils with effect from July 15, 2010
severely impacted in 2QFY2011 as exports from Goa are
by the Chinese Government led to lower steel exports from
significantly reduced during the monsoons and shipments from
China in July and August 2010. Chinese steel exports were
Karnataka are expected to be lower on account of the ban.
down by 20.5% mom to 4.2mn tonnes in July and 41.1% mom
to 2.5mn tonnes in August as against 5.3mn tonnes in June.


Preview

Metals

China shuts 57 blast furnaces: From September 4, 2010, China to utilise the proceeds to repay debt and for its expansion plans.
shut 57 blast furnaces and production lines after the government
New mining policy in limbo: The new draft mining bill approved
restricted power supply to meet its five-year energy efficiency
on September 17, 2010 by the Group of Ministers requires
targets. Approx. 25mn tonnes of steel capacity will be
miners to share 26% of revenue/profits/equity with the local
suspended, which in our view is positive as it will curb excess
people affected by their mining projects. The proposed bill is
production and restrict exports.
expected to be placed in Parliament for approval during the
Sesa Goa to invest in Cairn India: On August 16, 2010, upcoming winter session. The bill seeks to eradicate the Naxal
Vedanta, along with Sesa Goa, entered into an agreement with problems and fast-track approvals for mining rights. However,
Cairn Energy Plc to acquire a 51–60% stake in its Indian it lacks clarity on how the transfer pricing for the captive mines
subsidiary, Cairn India, at a price of Rs405 per share. Sesa will be calculated, applicability on the old captive mines where
Goa will make a 20% mandatory open offer at Rs355 per share. it is difficult to trace the affected families, and assurance of the
However, the deal is pending subject to regulatory approvals. distribution of share to the affected families.
Going ahead, we believe the company will have to leverage its
3QFY2011 raw material prices fixed slightly lower: The
balance sheet for any potential acquisitions in its iron ore
settlement of benchmark coking coal contracts for the
business given the cushion of excess cash (80% of FY2010
October-December 2010 quarter was lower by 7.1% at US
balance sheet) not available.
$209/tonne (US $225/tonne for July-September 2010). In case
Tuticorin
Vedanta Aluminium denied Niyamgiri mines; Sterlite’s Tuticorin of the iron ore negotiations, media reports suggest a cut of
smelter under trouble: On August 24, 2010, the Ministry of 10-13% than that of 2QFY2011. During the quarter, average
Environment and Forests rejected Vedanta Aluminium's (VAL) spot iron ore prices for 63% Fe grade (CFR, China) increased
application for Stage-II forest licence for its Niyamgiri mining by a substantial 55.5% yoy to US $143/tonne (US $92/tonne),
project in Orissa. VAL is a subsidiary of Vedanta Resources (71%) however it declined 13.9% sequentially.
and Sterlite (29%). In our view, the mining denial is a big Exhibit 4: Iron ore prices and inventory in China
dampener for VAL's expansion projects. Recently, on 210 90

September 29, 2010, the Madras High Court (HC) ordered the 180 75
closure of Sterlite's copper smelter at Tuticorin on grounds of 150
(US $/tonne)

(mn tonnes)
60
environmental concerns. We await more clarity as the Supreme 120
45
Court stayed the HC order on October 1, 2010. The next hearing 90
30
60
is expected on October 18, 2010.
30 15

Corus sells Teesside plant for US $500mn: After months of
Teesside 0 0

negotiation, Corus finally decided to sell the mothballed TCP to Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10

Thailand's Sahaviriya Steel. If the deal is successfully concluded, Iron ore inventory (RHS) Indian Iron ore 63% Fe, CFR China (LHS)
the company expects to restart TCP’s operations in the
1HCY2011. We believe the deal is a positive development for Outlook - Demand to recover
Tata Steel as TCP’s operations were unviable after its four key
clients walked away from a long-term contract in 2009 (~80% As per World Steel, global capacity utlisations levels have fallen
of TCP's business). Further, the decision to mothball the TCP to 73-74% in 2QF20Y11 as compared to 80-82% in 1QFY2011.
plant had sparked strong political and labour opposition as it With the economic scenario improving and low inventory levels,
had put at risk jobs of over 700 employees. steelmakers are expected to raise prices in October. We believe
that steel prices in India have bottomed out in 2QFY2011 and
JSW Steel finally concludes agreement with JFE Steel: Following
expect them to remain firm in the coming quarters.
extensive deliberations after a partnership agreement signed
on November 19, 2009, the strategic alliance between JFE Steel Iron market to remain challenging: We believe the short-term
and JSW Steel was finally concluded on July 27, 2010. JFE outlook for iron ore remains challenging due to the slowdown
Steel will make an initial investment of Rs4,800cr in JSW Steel. in Chinese iron ore imports, which fell to 44.6mn tonnes in
The deal has been innovatively structured with options available August, down 13.0% mom and 10.2% yoy. While steel
to JFE Steel to maintain/increase its stake in the event of future production cuts would lower the demand for iron ore in the
equity (warrants and FCCBs) dilution. In September 2010, JSW coming quarter, Indian iron ore output and exports may fall in
Steel issued convertible debentures to JFE Steel and it proposes 3QFY2011 because of a government crackdown on illegal


Preview

Metals

mining and a ban on exports by the Karnataka Government, Exhibit 5: Average base metal prices (US $/tonne)
thus providing support to the prices. 2QFY11 2QFY10 yoy % 1QFY11 qoq %
Copper 7,260 5,848 24.2 7,011 3.6
2QFY2011 expectations: During 2QFY2011, we expect sales Aluminium 2,090 1,806 15.8 2,092 (0.1)
volume to see an uptick qoq. While realisations are likely to be Alumina 317 270 17.7 335 (5.3)
lower sequentially following the price cuts undertaken in June Zinc 2,015 1,755 14.8 2,020 (0.2)
2010, they are expected to be higher on a yoy basis. We expect Lead 2,039 1,921 6.1 1,945 4.8
top-line of the companies under our coverage to grow by ~5- Source: Bloomberg, Angel Research
13% yoy except for SAIL. Further, due to relatively higher raw
material costs, margins of steel companies are likely to contract Exhibit 6: Base metal inventory levels (Indexed to 100)
250
by 460-640bp yoy except for Tata Steel. Given the negative
news-flow and a seasonally weak quarter for the mining 200

companies, we expect iron ore sales volume of Sesa Goa to be 150

severely hit. However, Sesa Goa is likely to benefit from increase
100
in prices and clock topline growth of 145% yoy. We remain
Tata Power
ower.
positive on Tata Steel and Godawari Power. 50

0
Non-Ferrous sector: Prices recover marginally Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10
Copper Aluminium Zinc Lead
Metal prices on the LME were weak since the beginning of the Source: Bloomberg, Angel Research
quarter on account of policy tightening measures initiated in
China and concerns over demand due to the debt problems in Outlook - Downside limited for prices
the Euro zone and slowing economic activity in the US. However, In the near term, we believe upside for prices is capped as:
in September 2010 sentiment improved slightly with a firming a) the Chinese appetite for base metals is expected to be low,
trend after a weak dollar raised commodities appeal as an and b) the surplus situation for some metals is likely to continue.
alternative investment. However, the downside from current levels for some of the metals
During the quarter, the average LME prices of aluminium, is limited as the prices are near the marginal cost of production.
alumina and zinc fell 0.1%, 5.3%, and 0.2% respectively, while We expect the non-ferrous companies (except Sterlite) to register
copper and lead prices were up 3.6% and 4.8% on qoq basis, positive growth in top-line owing to surge in the LME prices on
respectively. On YTD basis, inventory levels of copper and a yoy basis. Further, margins are expected to expand by
aluminium, at the LME warehouse, were down 25.5% and 5.9% 150-1,570bp, except for Hindustan Zinc. We recommend
respectively, but higher by 26.4% and 30.9% for zinc and lead, Accumulate on Hindustan Zinc.
respectively. However, the base metal prices continued to show
a strong yearly performance, primarily due to the lower base
effect.

arg Reco.
Hindalco* 204 5,830 19.2 14.0 157 518 50.4 2.7 33.7 20.5 18.9 20.3 10.0 10.8 10.0 - Neutral
Hind. Zinc 1,111 2,049 14.5 53.2 (525) 966 3.3 22.9 3.3 95.6 96.5 124.7 11.6 11.5 8.9 1,227 Accumulate
JSW Steel* 1,369 5,005 4.7 20.5 (465) 284 (37.2) 13.5 (43.8) 63.8 77.0 99.4 21.5 17.8 13.8 - Neutral
Nalco 407 1,394 22.0 28.1 1,568 284 77.8 4.4 77.8 12.9 15.8 18.7 31.5 25.7 21.8 316 Sell
SAIL 223 9,110 (8.4) 17.6 (640) 994 (40.3) 2.4 (40.3) 16.4 14.0 17.2 13.7 16.0 13.0 - Neutral
Sesa Goa 344 1,320 145.1 63.3 3,495 903 442.4 10.4 442.4 29.2 51.1 48.9 11.8 6.7 7.0 - Neutral
Sterlite Inds 175 5,863 (3.7) 26.3 453 1,065 11.1 3.2 11.1 11.9 14.3 19.7 14.8 12.3 8.9 196 Accumulate
Tata Steel* 668 6,342 12.6 41.1 699 1,742 92.9 19.6 89.3 (25.0) 73.1 80.7 - 9.1 8.3 702 Accumulate
Source: Company, Angel Research; Note: Price as on October 1, 2010; Full year EPS calculations based on fully diluted equity * FY2010, FY2011 and FY2012 numbers are
consolidated and quarterly estimates are standalone numbers; JSW Steel quarter EPS calculations excludes shares issue to JFE Steel

Paresh Jain/Pooja
Analyst : Paresh Jain/Pooja Jain


Preview

Oil & Gas
Prices stabilise, margins mixed On the supply side, as per the IEA's September outlook, the
OECD industry stocks rose by 19mnbbl in July 2010 to
During 2QFY2011, crude prices moved in the narrow range of
2,785mnbbl. Thus, end-July demand cover rose to 61.4 days,
around US $71-83/bbl. Natural gas prices, which were ruling
approaching the record levels of August 1998. Preliminary data
firm (at around US $4.5-5/mmbtu) in the latter part of the
points to a fifth consecutive monthly build up of 8.7mnbbl in
previous quarter, showed weakness (at around
August. The global oil supply fell by 0.25mnbpd to 86.8mnbpd
US $3.75-4.25/mmbtu) towards end of 2QFY2011.
in August as the non-OPEC output dipped to 52.4mnbpd on
Petrochemical margins weakened during the quarter following
seasonal maintenance in Canada, UK and Russia. However,
reduction in cracker margins and subdued PP margins. However,
non-OPEC projections for CY2010 and CY2011 have been
non-integrated PE margins and PVC margins improved during
raised marginally to 52.6mnbpd and 52.9mnbpd, respectively.
the quarter. Refining margins were higher on a qoq basis on
OPEC crude supplies were however lower by 60kbpd in August
account of improvement in diesel, SKO and fuel oil cracks.
to 29.2mnbpd. The 'call on OPEC crude and stock change' for
Crude steady in a narrow range 3QCY2010 has been raised to 29.3mnbpd and then lowered
Crude prices were stable in the range of US $71-83/bbl during to 28.8mnbpd for 4QCY2010 due to the downward revision in
the quarter. However, on an average, crude prices fell by 2.5%. OPEC natural gas liquids (NGLs). The CY2011 'call' is
During the first fortnight of the quarter, crude prices touched 29.2mnbpd, a yoy increase of 0.3mnbpd.
the higher end of the range, while in the second fortnight crude On the demand side, IEA has revised the global oil demand to
price touched the lower end of the range. After touching highs 86.6mnbpd in CY2010 and 87.9mnbpd in CY2011, an
of US $83/bbl around the first fortnight of August, it fell and increment of 1.9mnbpd and 1.3mnbpd, respectively. The
remained subdued after the government data showed an CY2010 forecast has been marginally revised higher due to
unexpected rise in the US crude and gasoline stockpiles. In fact, stronger data from the OECD countries. However, IEA believes
inventory increased towards mid-September, despite the week that significant downside risk persists arising from fears that
long shutdown of the biggest pipeline shipping Canadian crude the world economic recovery could stall.
to the US, reaffirming the belief that prices would mostly remain
Average gas prices flat qoq; dips towards end of quarter
range bound for the rest of the year between US $70- 80/bbl,
the preferred level for the OPEC producers. Expectations of Natural gas prices, which were ruling firm (around
easing demand growth also weighed on the prices. US $4.5-5/mmbtu) in the latter part of the previous quarter,
showed weakness (ruling around US $3.75-4.25/mmbtu)
OPEC is expected to keep its oil output targets unchanged at its
towards end of 2QFY2011. From the highs of US $4.94/mmbtu
meeting in Vienna on October 14, 2010. OPEC has not formally
registered at the beginning of August, Henry Hub natural gas
changed its output policy since agreeing on the record cut in
prices touched a low of US $3.74/mmbtu towards the end of
December 2008.
the month. Average natural gas prices however stood flat qoq
The Indian basket of crude averaged at US $75/bbl during at US $4.3/mmbtu on account of firm prices in the first half of
2QFY2011 as against the 1QFY2011 average of the current quarter. Thus, natural gas prices, which were on
US $78.4/bbl. We maintain our stance of subdued oil prices in recovery path through 1QFY2011 and in the first half of
the near term and expect crude to consolidate at current levels, 2QFY2011, have again given up much of the gains due to
especially owing to the inventory overhang in the OECD subdued demand and sufficient availability of LNG with increasing
countries and increasing NGL output by OPEC. Thus, crude is shale gas production in the US.
expected to hover at US $75-85/bbl in the visible future.
Exhibit 1: WTI Crude, Indian Basket of Crude Oil Exhibit 2: Natural gas - Henry Hub prices
14.0
150
12.0
125
10.0
(US$/mmbtu)

100
8.0
(US $/ bbl)

75 6.0
50 4.0

25 2.0
0.0
0
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07

Jan-10
Mar-10
May-10
Jul-10
Sep-10
May-07
Jul-07
Sep-07

May-08
Jul-08
Sep-08

May-09

Jul-09
Sep-09

May-10
Jul-10
Sep-10
Jan-07
Mar-07

Nov-07
Jan-08
Mar-08

Nov-08
Jan-09
Mar-09

Nov-09
Jan-10
Mar-10

WTI Crude Avg. WTI price Henry Hub Price Average Henry Hub NG Price
Indian Crude oil basket Avg. Indian Crude oil basket

Source: Bloomberg, Angel Research Source: Bloomberg, Angel Research


Preview

Oil & Gas

Spot LNG prices were subdued on a qoq basis with cargoes it will not make any counter-bid. But, it remains to be seen what
being sold at US $7.0-8.25/mmbtu. Platts LNG DES West India price the minority shareholders get in the open offer.
net forward, which adds the cost of freight to Platts LNG FOB
RIL's acquisition spree continues
Middle East assessment, has risen ranging between
US $7.23/mmbtu in mid-August to a high of US $8.11/mmbtu. Shale gas acquisition: RIL, which began its shale gas foray by
Similarly, the forward LNG rates are also trading at similar levels. acquiring 40% stake in Atlas Energy's Marcellus shale acreage
Notably, in spite of the uptick in demand, the market is expected and 45% stake in Pioneer Natural Resources' Eagle Ford shale
to remain amply supplied in 2010-11 as new production in acreage, acquired a majority 60% stake in its third shale gas
Russia, Yemen, Indonesia and Qatar comes on stream. Thus, asset deal by entering the Marcellus Shale joint venture (JV)
we expect spot LNG prices to be subdued going ahead. with the United States-based Carrizo Oil & Gas, Inc. RIL will
pay a total consideration of US $392mn, comprising cash of
Petchem margins weakened, Refining margins improve
US $340mn and US $52mn towards the drilling carry
Petrochemical margins weakened during the quarter following obligations. The drilling carry obligations provides for 75% of
reduction in cracker margins and subdued PP margins. However, Carrizo's share of development costs over an anticipated
non-integrated PE and PVC margins improved during the two-year development program. The JV has approximate
quarter. HDPE and LDPE margins improved during the quarter. 104,400 net acres to support the drilling of approximately 1,000
wells over the next 10 years, with a net resource potential of
Global refining margins were mixed during 2QFY2011 with
about 3.4Tcfe (2.0Tcfe net to RIL). We believe that this is a
gains seen in the Asia markets, while weakness was seen in the
consolidation of RIL's shale-gas position in the US, where the
US, Mediterranean and European markets. Improvement in the
market is huge and shale resources are plenty. However, the
benchmark Asian region is on account of improvement in diesel,
success will depend on how quickly they can produce and ramp
SKO and fuel oil cracks. Moreover, the margins for the complex
up and capture a share of the market.
refineries are likely to improve on account of increase in the
heavy-light spreads during the quarter. Gasoline and naphtha Hospitality foray: RIL acquired 14.12% stake in EIH by buying
cracks were largely subdued on a qoq basis. The benchmark the shares from Oberoi Hotels Pvt Ltd and certain other
Singapore margins are likely to average at around promoters of EIH at a total cost of around Rs1,021cr.
US $4.25-4.5/bbl as against US $3.75-4.0/bbl during
Oil & Gas Index underperforms Sensex
1QFY2011. Meanwhile, the BP's generic Refining Global
Indicator Margin witnessed a decline during the quarter. On the bourses, the oil & gas index underperformed the Sensex
by 17.3% during 2QFY2011. The quarter saw a remarkable
Key Developments
shift in winners, with outperformance by the OMCs and gas
Vedanta to buy majority stake in Cairn India companies (not part of the oil & gas index). Significant gains
were seen in Petronet LNG (up 36.6%), Gujarat Gas (up 32.1%)
Vedanta Resources Plc entered into an agreement with Cairn and IGL (up 18.7%). OMCs outperformed the oil & gas index
Energy Plc to acquire 40-51% stake in Cairn India. The success on subdued crude oil prices leading to check on under-recoveries
of the 20% mandatory open offer to minorities will determine and expectations of further oil reforms going ahead. HPCL,
the extent of stake sale by Cairn Energy Plc. The open offer will BPCL and IOC gained 8.3%, 13.2% and 3.9% respectively,
be made through Sesa Goa. The all-cash deal is being executed whereas ONGC moved up 6.1% during the quarter. GAIL was
at Rs405/share, wherein Rs355/share will be towards the sale however up by a mere 1.8% as subdued crude price keeps in
and purchase agreement and the balance Rs50/share check the delta that it enjoys in its petrochemical business. Cairn
constituting the non-compete fee. Currently, the deal is pending recorded robust gains of 10.6%, despite the average crude price
government clearance. losing 4.3% during the quarter, mainly on account of Vedanta's
The petroleum ministry has also indicated that it would approve bid to acquire a controlling stake in the company at
the deal only if it meets the twin criteria of protection of interests Rs355/share. However, RIL (has weightage of 56.4% in the index)
of ONGC and the minority investors, and complete compliance was the biggest drag. RIL lost a substantial 9.3% during the
with the production sharing contract (PSC) that Cairn has with quarter on account of stagnant gas production and subdued
the PSU. Vedanta's inexperience in the oil sector may also act refining and petrochemical margins.
as a hurdle when it gets down to vetting the deal. However, we
believe that the deal will sail through as ONGC has stated that


Preview

Oil & Gas
Exhibit 3: Relative performance to Sensex GAIL's performance on the qoq basis is likely to be driven by
60.0
50.0
the lower subsidy burden and higher petrochemical sales
40.0 volumes. Transmission volumes during the quarter are likely to
30.0 decline on qoq basis to 111.7mmscmd on account of shutdown
20.0
of the Panna-Mukta oil and gas fields.
(%)

10.0
0.0
Petronet LNG is expected to witness growth in volumes on a
(10.0) Q3'FY09 Q4'FY09 Q1'FY10 Q2'FY10 Q3'FY10 Q4'FY10 Q1'FY11 Q2'FY11
(20.0)
qoq basis with the company importing Spot LNG cargoes due
(30.0) to disruption in gas supply from the Panna-Mukta field. We
(40.0)
BSE Sensex BSE Oil & Gas
expect volumes during the quarter to stand at 102.7 TBTUs.
GSPL is likely to report 10.1% yoy de-growth in bottom-line
2QFY2011 expectations despite higher volumes, as we expect tariff adjustment, which is
happening over the last few quarters to adversely impact
ONGC is likely to report better performance for the quarter profitability. We expect volumes to increase by 15.9%yoy to
driven by lower subsidy burden on account of subdued crude 36mmscmd during the quarter .
oil prices and full impact of deregulation of the petrol prices
IGL's CNG volume growth is likely to slow down during the
coupled with increase in prices of diesel and kerosene.
quarter on a high base to around 2.16mmscmd. CNG and
Profitability is also likely to be boosted on account of complete
PNG volumes during the quarter are expected to increase by
impact of the gas price hike. For the current quarter, upstream
10.2% and 73.3% yoy, respectively. We also expect
companies are likely to bear 33% of the total subsidy burden,
EBDITA/scm to improve on a qoq basis during the quarter on
which lends visibility to earnings. For 2QFY2011E, ONGC is
account of the full impact of CNG price hike taken in the previous
likely to report average crude realisation of US $78.4/bbl at
quarter and PNG price hike taken during the quarter (w.e.f
the gross level; we expect the company to bear subsidy of
from July 1, 2010).
US $15.6/bbl leading to net realisation of US $62.8/bbl.
Gujarat Gas volumes will continue to be supported by subdued
RIL is likely to report lacklustre performance on a qoq basis
LNG (including 0.6mmscmd sourced from BG) LNG prices and
primarily on account of subdued margins in the petrochemical
shutdown at the Panna-Mukta field. We expect the company to
business and stagnant gas production, though offset to an extent
report volume of 3.37mmscmd for the quarter, a growth of
by an improvement in the refining margins during the quarter.
10.3% yoy and 4.4% qoq. Gross spread is expected to decline
We expect RIL to report average refining margins of
marginally qoq due to higher dependence on LNG following
US $8.0/bbl for the quarter. On the petrochemical front,
lower off-take from the Panna-Mukta field.
performance is likely to be flat qoq, with cracker margins and
margins for integrated petrochemical players declining. Overall, 2QFY2011E is likely to be mixed for our universe of
Production of gas from the KG basin is likely to average at stocks.
around 61mmscmd during the quarter.

arg Reco.
Cairn India 338 3,324 1,346.5 79.5 2,658 1,855 295.1 9.8 295.1 5.5 23.2 46.1 61.0 14.6 7.3 - Neutral
GAIL 485 6,944 12.0 21.9 554 942 32.1 7.4 32.1 24.8 29.5 33.3 19.6 16.4 14.6 534 Accumulate
GSPL 112 248 (2.5) 93.7 (222) 99 (10.1) 1.8 (10.1) 7.4 7.7 8.4 15.2 14.5 13.2 120 Accumulate
Gujarat Gas* 402 442 14.0 21.1 285 57 28.5 4.4 28.5 13.6 18.3 21.8 29.6 22.0 18.5 - Neutral
IGL 325 436 59.5 29.8 (701) 70 24.0 5.0 24.0 15.4 17.2 21.1 21.1 18.8 15.4 345 Accumulate
Petronet LNG 109 3,072 (9.8) 8.6 113 119 (1.8) 1.6 (1.8) 5.4 6.4 8.3 20.2 17.1 13.2 116 Accumulate
ONGC ^ 1,406 18,942 24.7 64.2 604 6,198 21.8 29.0 21.8 90.7 114.6 123.3 15.5 12.3 11.4 - Neutral
RIL ^ 1,006 59,654 27.3 16.6 117 5,095 32.3 15.6 32.3 48.6 69.5 87.3 20.7 14.5 11.5 1,260 Buy
Source: Company, Angel Research; Note: Price as on October 1, 2010; Note: * Calender year, ^ standalone numbers for quarter and consolidated numbers for full year

Pareek Vora
Analyst: Deepak Pareek / Amit Vora


Preview

Pharmaceutical
Pharma sector takes a breather recorded net sales of US $187mn with OPM of 19.7%. However,
pending clarity on Taro's financials (audited financials for
During 2QFY2011, the BSE healthcare (HC) index
CY2008 and CY2009 have not been filed), we have valued
underperformed the BSE Sensex for the first time in the last four
Sun Pharma's stake in Taro at Rs85 per share (1x Mcap/Sales).
quarters. The HC index surged by only 4.3% as against the
Sensex, which surged by 13.4%. The underperformance of the However, Sun Pharma announced that its wholly owned
sector was on account of its fair valuation. subsidiary, Sun Pharmaceutical Industries (SPI), has received
Exhibit 1: BSE HC index v/s Sensex warning letter from US FDA for its manufacturing facility in
50.0
Cranbury, New Jersey, US, with respect to violation of cGMP
regulations. The warning letter was issued as a follow up to the
40.0
inspection, initiated in February 2010, of the aforesaid
30.0
manufacturing facility. The facility is used for manufacturing of
20.0 controlled substances and was part of the acquisition of
Able Labs done in CY2005 by Sun Pharma. However, the
(%)

10.0

0.0 company has maintained its FY2011 top-line guidance of
(10.0)
18-20% growth, as the financial impact seems to be minimal.
4Q 'FY09 1Q 'FY10 2Q 'FY10 3Q 'FY10 4Q 'FY10 1Q 'FY11 2Q 'FY11 This is the second facility of the company to have come under
(20.0)
US FDA's scrutiny (earlier US FDA in June 2009 had seized
(30.0) BSE HC Index BSE SENSEX
drugs manufactured at Caraco's Michigan facility).
Source: C-line, Angel Research

Ranbaxy receives unexpected exclusivity for Aricept: The US
Aricept:
In our coverage universe, among large caps, Ranbaxy gained
FDA announced that Ranbaxy would have sole 180-day
21.0% on the back of expectation of US FDA and DOJ resolution
marketing exclusivity for selling generic Aricept in the US. The
in the near future. The company also received unexpected
FDA order prohibits Teva from launching Aricept during the
market exclusivity on Aricept. Sun Pharma gained 13.2% on
exclusivity period. However, the company is yet to receive final
completion of Taro Pharma’s acquisition. However DRL, Lupin
approval for the product. Further, the company has mixed
and GSK Pharma remained flat qoq during the quarter.
fortune on the FTF front (launched generic Valtrex on time and
Among midcaps, PHL gained 4.2% as the company has closed had no approval for Flomax). The product is expected to
the deal with Abbott and is likely to announce one-time special contribute Rs17 per share during the exclusivity period, in case
dividend. Orchid Chemical gained 41.1% during the quarter the company receives the final approval from the regulator.
as its promoter increased its stake in the company, while Ranbaxy
exited the stock. However, Cadila remained flat qoq. Aurobindo enters into a pact with AstraZeneca: Aurobindo
Pharma (Aurobindo) has entered into a supply agreement with
Among small caps, Alembic gained 14.0% during the quarter AstraZeneca for the supply of several solid dosage and sterile
on the back of announcement of de-merger of its pharma products for emerging markets covering therapeutic segments
business into a separate company. such as anti-infective, CVS and CNS. We believe the supply
Key developments agreement will aid margin expansion for Aurobindo, thus
leading to higher capacity utilisation for the company.
Sun Pharma-Taro saga ends: During the quarter, Sun Pharma
Pharma-T
announced its acquisition of controlling stake in Taro post the Abbott Labs to layoff 3,000 employees: On the global front,
Labs
closure of the tender offer. Consequently, Sun Pharma's stake Abbott Labs has announced the restructuring plan related to
in Taro would increase to 48.7% (36.6%) with voting rights of the acquisition of Solvay Pharma. As per the plan, it would cut
65.8% (24%). Further, directors of Sun Pharma and Taro have about 3,000 jobs, of which a vast majority would be from Solvay
settled all outstanding litigations among themselves. The Pharma. Further, Solvay's pharma unit in Marietta, GA, will be
acquisition of Levitt family's stake would result in an outflow of shut by end-CY2011, and nearly 500 positions in the
US $37.2mn for Sun Pharma, taking the total investment in Netherlands will be eliminated along with 300 jobs in Germany.
Taro to US $165mn (including warrant conversions). We view The entire plan is likely to be implemented within the next two
this as a positive development, as Sun Pharma would now get years. We view this as a positive development for the Indian
access to Taro's dermatology product portfolio in the US and CRAMS sector in the long term, especially for Dishman Pharma
new geographies, viz. Israel and Canada. For 1HCY2010, Taro as this would increase more order inflows from Abbott Labs.


Preview

Pharmaceutical

Abbott's contract (ex-Solvay) had contributed ~13% to Dishman's Lupin and DRL to outperform
FY2010 top line.
Among the large caps in our coverage universe, for
ANDA approvals for the quarter 2QFY2011E, Lupin is likely to record 11.7% top-line growth to
During the quarter, Aurobindo received four approvals, the Rs1,245cr, as the company continues to enjoy over 20% market
prominent one being the approval for injectable products share in generic product Lotrel and strong growth on the
(Ampicllin and Ampicillin Sulbactam), which would increase the domestic formulation front. However, concerns regarding the
capacity utilisation at its SSP facilities. Further, Sun Pharma, scale-up of Antara remains. On the operating front, we expect
Aurobindo and Cadila received approvals for Atomoxetine HCL OPMs to expand by 422bp to 19.0%, albeit on low base.
(Strattera), which would lead to shared exclusivity. However, due to lower other income, we expect net profit to
grow by mere 6.9% to Rs172cr (Rs161cr). In 2QFY2010, Lupin
Exhibit 2: ANDA approvals for selected companies
received Rs25cr licensing income from Salix Pharma. Excluding
Company Generic products Approvals
the one-time licensing fee, net profit is expected to grow by
Aurobindo Ranitidine HCL, Atomoxetine HCL,
23.0% yoy.
Ampicillin Sodium, Ampicillin Sulbactam 4
Cadila Pramipexole Dihydrochloride, Atomoxetine HCL 2 DRL is expected to post top-line growth of 4.9% to Rs1,897cr,
DRL Desloratadine, Mycophenolate Mofetil driven by the US market. US is expected to post sales of Rs552cr,
Orchid Chem Levetiracetam 1 up 28.8% yoy, on the back of increased market share in key
Sun Pharma Tamsulosin HCL, Atomoxetine HCL, Venlafaxine HCL 3 generic products Lotrel and Prograf. Similarly, the company is
Source: US FDA, Angel Research expected to witness strong traction in the Indian and Russian
2QFY2011 expectations formulation businesses. However, the PSAI segment is expected
to post a decline on the back of price fall. The company is
The Indian pharmaceutical sector is expected to post modest
expected to post OPM of 16.7%, up 492bp, as 2QFY2010 was
growth on the sales front. We expect our coverage universe to
affected by inventory write-downs. As a result, the company's
register 4.7% yoy top-line growth, despite the 3.8% yoy
net profit is expected to increase by 25.2% to Rs272cr.
appreciation in rupee against the US dollar on an average
during the quarter. Lupin is expected to record strong top-line Cipla is expected to post net sales growth of 5.5% to Rs1,447cr,
growth, driven by the US and domestic segments. We expect mainly driven by the domestic formulation segment. On the
DRL to surprise on the PAT level as 2QFY2010 was marred by operating front, OPM (excluding technical know-how fees) is
inventory and goodwill amortisation. DRL is likely to post strong expected to fall by 73bp to 21.8% due to higher employee
US sales on the back of increased market share in key generic expenses. Further, net profit is expected to remain flat at Rs273cr
products Lotrel and Prograf. On the mid-cap and small-cap as top-line growth is offset by the decline in OPM.
fronts, Cadila and Ipca Labs are expected to post strong net
sales and profit growth. During the quarter, we expect Sun Pharma to post muted sales
growth of 2.4% to Rs1,213cr, as 2QFY2010 was boosted by
On the OPM front, we expect modest expansion for our coverage
Protonix sales. Caraco is expected to report sales of US $65mn,
universe on the back of higher employee and SG&A expenses.
primarily driven by the launch of generic Effexor XR tablets. On
However, net profit is expected to grow by 10.3% yoy during
the domestic front, sales are expected to grow at 17.8% to
the quarter, as 2QFY2010 was marred by higher interest charges
Rs555cr. The company's OPM is expected to compress by 375bp
and one-time expenses.
to 34.0% as 2QFY2010 margins were boosted by Protonix.
Exhibit 3: Sales growth and OPM for 2QFY2011 Further, net profit is expected to decline by 25.6% to Rs338cr
40.0
34.0 on the back of low other income. In 2QFY2010, the company
30.0 reported one-time income of US $20mn from Forest Labs on
19.0
21.8
Lexapro settlement.
(%)

20.0 16.7
11.7
Ranbaxy is expected to post top-line growth of 1.8% to Rs1,746cr
10.0
2.4
5.5 4.7 4.9 on the back of its US business, as the company continues to
1.8
0.0 benefit from generic Valtrex in this quarter also, despite
Sun Pharma Lupin Cipla Ranbaxy DRL increasing competition. Ranbaxy is expected to report OPM of
Sales growth OPM
4.7%, an improvement from 3.1% recorded in 3QCY2009. The


Preview

Pharmaceutical

company is expected to report MTM profit on its forex hedges. Indoco Remedies is expected to report top-line growth of 17.9%
As a result, the company is estimated to report net profit of to Rs113cr, driven by the domestic and export segments. The
Rs281cr (Rs117cr). domestic formulation segment is expected to grow by 17.5% to
Rs78cr. The company's OPM is expected to expand by 260bp
Cadila and Ipca Labs are expected to outperform
to 15.6%, driven by top-line growth. As a result, net profit is
Cadila is expected to post strong 16.9% growth in net sales to expected to increase by 55.6% to Rs14.3cr.
Rs1,067cr on the back of robust growth on the export and
Outlook and valuation
domestic formulation fronts. The company continues to enjoy
over 25% market share in generic Flomax in the US, which is a During the past one year, the BSE HC index has been among
near-term key driver. We expect the company's OPM to expand the best performing indices, rallying 36.1% and outperforming
by 159bp to 20.5% on the back of favourable product mix. the market by 19.0%. On the back of rich valuations, we continue
Net profit is expected to increase by 17.9% to Rs156cr, driven to recommend a bottom-up approach. In the generic segment,
by top-line growth and OPM expansion. Lupin,
we now prefer Lupin, Cipla and Indoco Remedies.

We estimate Ipca Laboratories' top line to grow by 13.6% to We continue to favour CRAMS, though the segment is witnessing
Rs487cr during 2QFY2011. The company is expected to post near-term hiccups because of inventory rationalisation and
strong growth both on the export and domestic fronts. The multiple mega global pharma mergers in CY2009. However,
company is witnessing strong traction in the anti-malarial most of the CRAMS companies are now witnessing an uptick in
segment, both in the domestic and export fronts. OPMs are order enquiries from global innovators, indicating an
expected to compress by 88bp to 22.6% on the back of an improvement in the global scenario. In this segment, we
increase in employee expenses. However, net profit is expected recommend Dishman Pharma.
to rise by 13.5% to Rs73cr, driven by top-line growth and lower
interest cost.

arg Reco.
Alembic 63 297 4.6 12.8 84 18.9 41.9 1.4 41.9 3.0 5.6 6.4 21.1 11.2 9.8 74 Buy
Aventis# 1,963 285 10.3 16.1 82 43.3 (1.1) 18.8 (1.1) 68.4 80.8 92.1 28.7 24.3 21.3 1,658 Sell
Cadila 697 1,067 16.9 20.5 159 155.5 17.9 7.6 17.9 24.7 30.6 39.6 28.2 22.8 17.6 - Neutral
Cipla 324 1,447 5.5 21.8 (73) 272.7 (1.1) 3.5 (1.1) 13.5 13.8 17.1 24.1 23.5 18.9 360 Accumulate
Dishman 191 213 (2.0) 22.5 211 25.2 4.9 3.1 4.9 14.5 17.4 21.4 13.2 11.0 8.9 279 Buy
Dr. Reddys 1,476 1,897 4.9 16.7 492 272.0 25.2 16.2 25.2 20.8 59.0 78.0 70.9 25.0 18.9 - Neutral
Glaxo# 2,248 510 11.4 36.4 (69) 143.5 8.7 16.9 8.7 60.0 65.4 73.9 37.5 34.4 30.4 1,700 Sell
Indoco 419 113 17.9 15.6 260 14.3 55.6 11.6 55.6 34.2 40.4 54.1 12.2 10.4 7.7 541 Buy
Ipca Labs 307 487 13.6 22.6 (88) 72.5 13.5 5.8 13.5 16.4 19.5 23.7 18.7 15.7 13.0 - Neutral
Lupin 396 1,245 11.7 19.0 422 171.7 6.9 3.9 3.5 15.4 18.7 23.3 25.8 21.2 17.0 420 Accumulate
Orchid Chem* 267 315 3.3 18.9 (701) 5.1 - 0.7 - 48.2 13.3 17.1 5.5 20.1 15.6 - Neutral
Piramal Health 521 849 (15.1) 14.2 (349) 100.6 (5.3) 4.8 (5.3) 23.1 27.2 33.8 22.6 19.1 15.4 - Neutral
Ranbaxy Lab# 569 1,746 1.8 4.7 160 281.0 141.0 6.7 140.7 7.1 25.8 28.7 80.7 22.1 19.9 - Neutral
Sun Pharma 2,029 1,213 2.4 34.0 (375) 337.7 (25.6) 16.3 (25.6) 65.2 71.6 84.8 31.1 28.3 23.9 1,781 Reduce
Source: Company, Angel Research; Price as on October 1, 2010; Note: Our numbers include MTM on Foreign Debt; PHL estimates include the sold domestic formulation business;
Alembic estimates include the demerged pharma business; # 3QCY2010; * The quarterly numbers are standalone financials

Kour
Analyst: Sarabjit Kour Nangra / Sushant Dalmia


Preview

Power
In 2QFY2011, we expect the power generating companies in Transmission sub-stations
our universe to report top-line growth of 20% yoy driven by
During April-July 2010, total addition to the 400kV substation
capacity additions and increased tariffs. These companies had
stood at 3,150MW, which was significantly lower than the
higher operating capacities during the quarter on a yoy basis.
targeted 4,725MW. The addition to 220kV sub-station category
However, operating profit is expected to decline by 11% yoy on
stood at 6,480MW as against the targeted 9,325MW.
account of the increase in fuel costs. Net profit too is expected
to decline by 8.5% yoy. Operational highlights

Primary market activity During 5MFY2011, the amount of power generated in India
rose by 4.2% yoy to 329.7BU (316.3BU). The country's thermal
OGPL, India's leading renewable energy-based power
power generation rose by 4.0% yoy to 270.1BU. The plant load
generation company, made its IPO during the quarter. OGPL,
factor (PLF) of thermal plants for 5MFY2011 stood at 73.6%,
which has operational capacity of 213MW plans to increase
which was 159bp higher than the target of 72.0%. The hydro
capacity by more than four-folds to 1,049MW. The IPO was
power generated increased by 2.7% yoy to 50.7BU, while the
available at slightly expensive valuations of P/BV of 1.7x - 1.9x
amount of nuclear power generated grew substantially by 23.0%
on FY2012E financials (at the lower and upper price band
yoy to 8.8BU during the period.
respectively), considering the risks associated with lower PLFs.
Hence, our Neutral view on the IPO. Exhibit 2: Power generation (BU)
Capacity addition: Status check Aug’10 Aug’09 chg (%) 5MFY11 5MFY10 chg (%)

Thermal 51.3 50.6 1.3 270.1 259.7 4.0
Generation
Hydro 12.2 12.4 (1.1) 50.7 49.4 2.7
During the Eleventh Plan, the CEA expects addition of
62,488MW in the country's generation capacity. This is much Nuclear 1.9 1.0 88.8 8.8 7.2 23.0

below the target of 78,000MW set at the beginning of the Plan Total 65.4 64.0 2.2 329.7 316.3 4.2
period. Inordinate delays in the completion of projects have Source: CEA, Angel Research
led to the CEA revising its Eleventh Plan capacity estimates.
Capacity addition till August 2010 from the beginning of the Power deficit situation
Eleventh Plan period stood at 26,110MW, which is just 53% of
The country continues to face power deficit due to the delay in
the capacity targeted to be achieved during the period. Capacity
the commissioning of new capacities, fuel shortage in the existing
addition has generally been delayed due to execution issues
plants and deficiencies in the T&D system. The country's overall
relating to land acquisition and obtaining environment and other
and peak power-deficit levels during 5MFY2011 stood at 10.4%
statutory clearances.
and 13.8%, respectively.
Exhibit 1: Generation capacity addition below target
Exhibit 3: India - Power deficit scenario
20,000 100
(%)
20.0
16.6
15,000 80
16.0 13.8
12.3 12.6 13.8
12.2 11.2 11.7 12.0
(MW)

(%)

10,000 60 12.0
9.9
8.0 11.0 10.4
8.8 9.6 9.9
5,000 40 8.4
7.1 7.3
4.0

0.0
0 20
5MFY2011
FY2003

FY2007

FY2009
Fy2004

Fy2005

Fy2006

Fy2008

Fy2010

FY2003 FY2005 FY2007 FY2009 5MFY2011
Target (T) Achievement (A) A as a % of T
Overall Peak
Source: CEA, Angel Research
Transmission lines
The western region's overall deficit of 15.1% during 5MFY2011
During April-July 2010, 1,825 circuit kilometers (ckm) were
was the highest amongst all the regions. Maharashtra had an
added to the 400kV-HVDC transmission lines v/s the targeted
overall power deficit of 20.0%, while its peak deficit stood at
2,811ckm. Total addition to other categories of transmission
22.1%.
lines was at 2,514ckm, as against the targeted 2,206ckm.


Preview

Power
Exhibit 4: Region-wise power deficit Exhibit 6: Global coal prices
250
Region (%) Overall Peak Prices have firmed up post the dramatic
decline in CY08
Northern (10.1) (10.0) 200

Western (15.1) (18.8) 150
Southern (7.3) (9.8)
100
Eastern (5.6) (6.1)
North Eastern (11.4) (16.3) 50

All India (10.4) (13.8) 0

Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06

Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-05
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Source: CEA

Fuel scenario Source: CEA, Angel Research

Coal recommending gas allocation for the Twelfth Plan power
projects. The MoP had asked the CEA to prepare a list of projects
Coal-based plants account for 53% of India's total power
requesting gas allocation in accordance with the criteria. The
generation capacity. During FY2002-10, the country's coal
new policy has assigned different weightage for the conditions
consumption for power generation grew at a 6% CAGR from
to be fulfilled for getting the priority. Further, as per the new
240mn tonnes to 366mn tonnes. Thus, the availability of coal
policy, 42% of the gas would be allocated to the PSUs, and
plays a critical role in the total power generated in the country.
40% to the IPPs. Out of the remaining gas, SEZ's and CPP's
As on August 31, 2010, 25 critical thermal power stations out
would be allotted 4% and 5%, respectively.
of the 82 monitored by the CEA had critical coal stocks for less
than seven days. Coal shortage at the power plants has been Exhibit 7: Gas demand by the power sector
on account of various reasons such as delay in procuring coal 140

linkages, issues in obtaining environment clearances and other 120

regulatory approvals for developing coal blocks, hurdles in 100
(mmscmd)

expansion and logistical and infrastructural issues. 80

60
Spot global coal prices were substantially higher on a yoy basis
40
during the quarter. Average prices of the New Castle Mckloksey
20
6,700kc coal stood at around US $94/tonne in 2QFY2011 as
against US $71/tonne recorded in 1QFY2010. However, the 0
FY2008 FY2009 FY2010 FY2011E FY2012E
prices were lower by around 5% on a qoq basis.
Source: Infraline

Exhibit 5: Coal consumption for power generation Key developments
400 366
355
350 330 NTPC
302
300 278 280
(Mn tonnes)

240
253 263
NTPC has signed an MoU with the Bangladesh Power
250

200
Development Board (BPDB) for setting up two coal-based power
150 projects of 1,320MW each at Chittagong and Khulna in
100 Bangladesh. The power plants are likely to come up at an
50 investment of approximately Rs13,200cr and are likely to be
0
installed on a 50:50 equity basis. The projects will be operated
by NTPC and run on imported coal. NTPC will also provide
training and development to the employees of BPDB and help
Gas in enhancement of productivity and efficiency of its existing power
stations. Bangladesh has a power generation capacity of
In FY2010, gas-based plants contributed 12.5% to the total 5,000MW, of which 83% is gas-based. However, in the coming
amount of electricity generated in the country. Out of the present years, Bangladesh targets to increase the share of its coal-based
availability of 160mmscmd of natural gas, nearly 40% is being power plants for which it needs technology from India. Thus, a
supplied to the power sector. During the quarter, the Ministry of power plant in joint venture with NTPC will help Bangladesh
Power (MoP) announced the criteria to be fulfilled for use the former's technology.


Preview

Power

PTC 2QFY2011expectation
PTC India Financial Services (PFS), a 77.6% subsidiary of PTC We expect NTPC to grow its top-line by 19.0% yoy to Rs13,395cr
India, has been given the infrastructure financial company (IFC) during the quarter, aided by volume growth due to
status by the Reserve Bank of India (RBI). Post this development, commencement of new capacities, and increase in tariffs in
PFS would be allowed higher exposure to lending and investment line with the fuel price hike. However, the company's operating
to a single borrower or a group of borrowers. PFS would also profit is expected to decline by 12.8% yoy to Rs3,211cr. We
have better access to resources as the exposure limit for banks' estimate NTPC's net profit to dip by 14.2% yoy to Rs1,845cr, on
funding to IFCs has improved. high depreciation costs.
CESC We expect CESC to register 21.8% yoy growth in standalone
CESC has signed an agreement with Resource Generation, an top-line to Rs1,162cr aided by higher volumes due to the recent
Australian company, for purchase of 37 million tonnes of coal commissioning of the 250MW Budge-Budge plant, and higher
over 20 years from the Boikarabelo mine being developed in tariffs charged in its regulated area during the quarter. The
South Africa for meeting part of its coal requirements. company's OPM is expected to expand by 144bp yoy to 24.0%.
Reliance Power We expect CESC to record 7.9% yoy growth in net profit to
Rs125cr.
During the quarter, the boards of Reliance Power (Rpower) and
Reliance Natural Resources (RNRL) decided to merge RNRL with We expect GIPCL to register 38.6% yoy increase in revenues in
Rpower. The merger was done on share swap basis in the ratio 2QFY2011, primarily on account of higher volumes. In
of 4:1, whereby RNRL shareholders will get one share of Rpower 2QFY2011 volumes increased on a low base as the company
for every four shares of RNRL held by them. As per the deal, had a plant shut down in 2QFY2010, which resulted in lower
RNRL was valued at Rs7,157cr, i.e. 31% discount to its total volumes. Further, the company's capacity has been augmented
market capitalisation on the date of the merger announcement. by 250MW with the commissioning of Unit 3 and 4 in Surat.
This deal will result in fresh issue of 41cr shares by Rpower as OPM is expected to expand by 52bp to 22.7%, while
the total number of shares outstanding of RNRL currently stands bottom-line is set to increase by 162.4% yoy to Rs32.7cr in
at 163cr. The total outstanding shares of Rpower post the merger 2QFY2011.
would stand at 280cr. We expect PTC to record 23.7% yoy jump in standalone
PTC
top-line to Rs3,040cr. We have assumed average realisation of
Exhibit 8: Performance on the bourses in 2QFY2011
Rs4.6/unit. We expect net profit to increase by 6.3% yoy to
1.0%
Rs32.8cr.
BSE Power 2.1%
Industry Outlook
NTPC -3.8%
We expect capacity addition to gather pace over the last two
-1.6%
years of the Eleventh Plan period. However, the power deficit
-3.9%
scenario is likely to persist, as supply is not likely to keep up
PTC -10.4% with demand. Thus, players with the ability to execute projects
-12.0% -10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% on time would be benefitted by the high merchant tariffs expected
Source: BSE, Angel Research to prevail over the next two years.

GIPCL, PTC
We maintain a Buy on GIPCL, PTC and CESC.

arg Reco.
CESC 394 1,162 21.8 24.0 144 125 7.9 10.0 7.9 34.5 40.6 46.1 11.4 9.7 8.5 470 Buy
GIPCL 116 278 38.6 22.7 52 33 162.4 2.2 162.4 7.1 9.9 11.6 16.3 11.7 10.0 135 Buy
NTPC 219 13,395 19.0 24.0 (876) 1,845 (14.2) 2.2 (14.2) 10.7 9.7 11.1 20.5 22.6 19.7 230 Accumulate
PTC 117 3,040 23.7 1.2 - 33 6.3 1.1 6.3 3.2 5.1 6.5 36.7 23.0 18.1 136 Buy
Source: Company, Angel Research; Note: Price as on October 1, 2010

V.
Analyst - Rupesh Sankhe / V. Srinivasan


Preview

Real Estate
For 2QFY2011, we expect volumes to report flat to moderate NAV-accretive SRA projects through QIP issuance will act as a
decline on a sequential basis on account of subdued new positive share price catalyst.
launches due to seasonal weakness. Revenue of real estate Hike in FSI will impact TDR realisations
companies will be largely driven by execution of existing projects,
The Maharashtra state government is likely to hike FSI from
which may be affected due to heavy rains. However, going
1x to 1.33x in suburbs, which will empower BMC and overrule
ahead, we expect a surge in new launches, as we get into the
the High Court's ruling, thus affecting TDR prices. This was
festive season. It would be interesting to see whether companies
reflected in the MMRDA's recent bid for the sale of
such as DLF and Unitech (through UCP) continue to see
34,045sq. mt. of TDR at a reserve price of Rs3,000/sq. ft. for
sustainability in office lease volumes on a sequential basis. Banks
Goregaon, which failed to attract developers. We believe
are currently offering competitive mortgage rates, but we expect
developers are adopting the wait and watch policy in anticipation
interest rates to inch up on RBI's concerns on real estate inflation.
of the FSI hike. We have factored stable TDR prices of Rs2,400/
From our universe of stocks, we expect DLF's revenue to be sq. ft. for HDIL's airport project.
driven by the execution of its existing projects. We expect HDIL
to report flat to 10% qoq decline in transfer of development
ARIL increases focus on mid-income residential projects
rights (TDR) volumes and prices. This is on account of the ARIL has acquired 10,000 equity shares (representing 100% of
anticipation of Maharashtra state government overruling share capital) of Jubilant Software Services for Rs81cr. Jubilant
Bombay High Court's decision and hiking FSI from 1x to 1.33x. Software Services owns 15.58 acres of land in Gurgaon (near
Further, heavy rains affected the execution of the airport project, Dwarka expressway highway), which is eligible for a group
thereby slowing down TDR generation. We expect Anant Raj's housing project. The project is entitled for 1.75x FSI, which works
(ARIL) revenue to be driven by new launches and rental income. out to Rs682/sq. ft. of land cost. Management has indicated
that the going rate in the vicinity is Rs3,500/sq. ft., and it intends
Exhibit 1: Revenue and PAT estimates for 2QFY2011E to launch the project by end-FY2011. The company has acquired
(%) ARIL DLF HDIL
28.6 90 acres of land (~6.4mn sq. ft. of saleable area) at an average
30.0
20.8 cost of Rs375/sq. ft. in the last six months. This is in line with the
20.0 12.8 12.4
company's strategy to spend Rs1,000cr on land acquisition in
10.0
0.0
FY2011 at a cheaper cost and increasing focus on mid-income
(10.0) residential projects.
(20.0) (13.6)
Exhibit 2: Recent land acquisitions by ARIL
(30.0)
Location
ocation Acquistion Acres Saleable area Acquistion
(40.0)
(39.5) cost (Rs cr) (mn sq. ft.) cost (Rs/sq ft)
(50.0) Revenue PAT
Gurgaon-Sec 91 81 15.6 1.6 506
Neemrana 13 18.0 1.7 76
HDIL raises US $250mn through QIP
Punjab Khor 23 40.0 1.7 132
HDIL has successfully raised equity up to US $250mn through Gurgaon 85 25.0 1.6 531
a QIP at a price of Rs268.18/share. This would lead to equity Source: Company, Angel Research
dilution of 10%. The amount would be utilised to part-finance
the second phase of the airport project and for fresh land Supply can be a concern in Central Mumbai
acquisitions. As of June 2010, the company had quite
Recently IBREL won the auction for two NTC mill land parcels of
manageable net debt position of Rs3,533cr (0.47x) with unpaid
11 acres in Central Mumbai for Rs1,980cr. Central Mumbai
land cost of Rs300cr, where majority of repayment obligation
largely starts from FY2012. This is the fourth round of equity has an FSI of 1.33x, but a developer can avail FSI of 4x under
dilution since June 2009, which is quite surprising given the car parking provision norms. Assuming FSI of 4x and loading
kind of successful new launches taken place over the last year of 30%, the land cost works out to be ~Rs8,000/sq. ft. Central
and comfortable net debt position. We believe the stock price Mumbai has witnessed a number of new launches since March
to remain range bound on account of the slowdown in Mumbai's 2009, which will be completed over the next 4-5 years, and
realty market, likely hike in FSI affecting TDR volumes and has large unsold inventory. We believe the entire supply coming
overhang of equity dilution at this level. However, faster execution up through the existing projects and incremental supply through
of phase II of the airport project and winning of new NTC mill auction will be difficult to absorb at current prices.


Preview

Real Estate

Residential recovery has slowed, but not stopped Retail segment - Still some pain left
Prices in Mumbai and Delhi are 15-30% above their peak levels Vacant space in shopping centres increased during 2008-09.
in 2008, whereas prices in most other markets are still 10-15% This was primarily on account of higher real estate costs and
lower than their last peak levels. This has resulted in the tapering lower consumption, because of which many retailers started
of volumes in cities like Mumbai, where prices have gone up
shifting from their rapid expansion mode to a consolidation
substantially. Volumes slowed down in 2QFY2011, on account
mode. Consequently, the absorption of retail space fell to
of seasonal weakness. Launch activity also remained subdued
4mn sq. ft. in 2009. Retail supply is projected to be around
during this period. However, going ahead, we could see a
16.4mn sq. ft. in 2010, with an expected absorption of only
surge in new launches as we get into the festive season. Response
around 8.9mn sq. ft. Therefore, vacant spaces are likely to
to new launches and absorption trends over the next quarter
increase in the short term, given the considerable rationalisation
should provide us greater clarity on sustainability of volumes
in the supply pipeline. We believe demand is yet to pick up,
seen in FY2010, especially in Mumbai/NCR.
especially in tier-II and tier-III cities, which is not the case with
Exhibit 3: Absorption trend of top 10 Indian cities metros where catchment areas are high. We expect prices to
Absorption (LHS) yoy growth (RHS)
70,000 150 remain under pressure, as the segment has fragmented supply
60,000 dynamics. Initial recovery volumes are likely to be cornered by
100
experienced players, such as Phoenix Mills, and not necessarily
50,000
(Units)

40,000
(%)

30,000
50
large ones.
20,000
0
10,000 Exhibit 5: Pan-India retail demand
0 (50)
14
1QCY08

2QCY08

3QCY08

4QCY08

1QCY09

2QCY09

3QCY09

4QCY09

1QCY10

2QCY10

12

10
Source: Jones Lang LaSalle, Angel Research
(mn sq.ft.)

8
Commercial demand to pick up over the next 12 months 6

After witnessing a sharp drop in the past few quarters, capital 4

values have started to strengthen and have registered marginal 2

appreciation across most micro markets. Industry participants 0
2009E 2010E 2011E 2012E 2013E
have indicated that the surge in leasing enquiries is due to
renewed interest from corporates. This has already been Source: Cushman & Wakefield, Angel Research

reflected for companies like DLF that leased out 1mn sq. ft. in
Deleveraging holds key for stock performance
1QFY2011, which was higher than the entire area leased out
in FY2010. Real estate companies came out of the woods with new projects
being successfully launched and liquidity position of developers
In the IT/ITES sector, we expect net employee addition of 15%
over FY2010-12E. Accordingly, we believe demand in office improving on the back of QIPs. Despite the reduction in debt,
space will start picking up from 2HFY2011E. Cushman and interest expenses as a percentage of EBITDA remain on the
Wakefield estimates pan India cumulative demand for office higher side. This is on account of change in the product mix,
space during CY2009-13E to be 196mn sq. ft. which is in favour of the low-margin mid-income segment.
Going forward, we believe deleveraging hinges on the timely
Exhibit 4: Pan-India commercial demand
execution of projects, successful new launches and recovery in
60
the non-residential segment. DLF has allotted Rs1,100cr
50
preference shares to Lehman in the Shivaji Marg project
(Rs5.9bn) and in the DLF Southern Homes subsidiary (Rs5.6bn),
(mn sq. ft.)

40

30 which is due for redemption in 2QFY2011.
20
Sensex v/s realty stocks
10
For 2QFY2011, the BSE realty index outperformed the Sensex
0
2009E 2010E 2011E 2012E 2013E by 491bp on the back of revived investor interest, given that it
Source: Cushman & Wakefield, Angel Research is the only index to underperform the benchmark index on a


Preview

Real Estate

yoy basis. From our real estate universe, DLF outperformed the Outlook and valuation
Sensex as well as the BSE realty index by 1,764bp and 1,273bp,
The risk reward ratio is turning favourable for the sector, with
respectively, on account of sustained buying by ETFs in Sensex/
recovery widening towards tier-II and tier-III cities in the
Nifty-based stocks and gradual improvement in leasing activity.
residential segment. Further, the commercial segment is
However, we still believe that visibility on debt reduction is muted
recovering with enquiries/leasing gaining momentum. We are
on account of low visibility on asset sales and new launches.
positive on the long-term outlook of the realty sector, with
ARIL also outperformed the Sensex following news flow of
growing disposable income, shortage of 25mn houses in India
healthy land acquisition in NCR at attractive rates and with
and reasonable affordability. Given the current scenario, we
improving leasing scenario. However, HDIL underperformed
expect stability in residential prices with an exception of certain
the Sensex due to a ~10% equity dilution and likely increase in
micro markets, where prices have overheated, and expect an
FSI by the Maharashtra state government from the current level
uptick in the commercial segment towards end-FY2011.
of 1.0x to 1.33x in suburbs, thereby impacting TDR prices. Going
forward, the deployment of QIP proceeds will fasten execution Among our universe of stocks, we prefer companies with visibility
of phase II of the Mumbai airport project, and winning of new on cash flow, low leverage and a strong project pipeline with
NAV-accretive SRA projects could act as a positive share price attractive valuations. Our top picks are HDIL and ARIL, which
ARIL,
catalyst. are trading at 32.8% and 30.4% discount to their NAVs, NAVs,
respectively. We
respectively. We maintain a Neutral rating on DLF with concerns
Exhibit 6: Realty stocks outperforms the Sensex
flow,
of a weak operating cash flow, increasing gearing levels and
35.0
31.0
the stock trading at 21.2% premium to our
30.0
one-year forward NAV.
one-year NAV
25.0
20.3
20.0 18.3
(%)

15.0 13.4

10.0

5.0 3.7

0.0
DLF ARCP HDIL Sensex BSE Realty Index


arg Reco.
DLF 388 1,968 12.4 47.0 (518.9) 380.0 (13.6) 2.2 (13.6) 10.2 11.6 21.0 38.0 33.5 18.5 - Neutral
Anant Raj Ind 146 98 12.8 55.0 (3,667.7) 43.2 (39.5) 1.5 (39.5) 7.6 6.6 13.8 19.3 21.9 10.6 178 Buy
HDIL 270 427 20.8 55.0 419.4 191.1 28.6 4.6 28.6 12.9 18.9 30.1 21.0 14.3 9.0 302 Accumulate
Source: Company, Angel Research; Note: Price as on October 1 , 2010

Param
Analyst - Param Desai / Mihir Salot


Preview

Retail
Sustained consumer confidence cheers retailers Value retailing maintains positive momentum

Consumer confidence in India continued to remain robust in The value retailing segment is expected to witness decent growth
2QFY2011, after rebounding in 1QFY2011, to reach its highest in 2QFY2011, despite high food prices. Value retail formats
level since the third quarter of 2007. Annual sales in the form such as Big Bazaar, Food Bazaar, More and D'Mart tried to
of Independence Day offers and Monsoon Sale witnessed cushion the impact of inflation on demand by stepping up
overwhelming response, further signaling the return of buoyant bargains and discount offers across product categories that have
times in the retail sector. been hit hard by spiraling prices. PRIL reported 11.5% growth
in value retailing in 4QFY2010. We expect the value retailing
Indian retailers have successfully created newer shopping
format to register double-digit growth for 2QFY2011. Hence,
seasons to drive consumption by doling out eye-popping special
major players in the value retailing segment, including PRIL,
deals. Independence Day has matured to be just one of them,
Reliance Retail, Spencer's and More, stand to benefit from this
other popular ones being Republic Day, Valentine's Day and
ongoing trend.
the Christmas-New Year week. These promotions offer a
win-win situation to brands, retailers and consumers. Such deals Lifestyle retailing on a roll
ensure assured higher returns, which allow companies to offer
Stable economic conditions and a pick-up in consumer
better terms to retailers, which they pass on to consumers.
confidence resulted in consumers opening up their wallets for
Interestingly, these sales contribute 20-40% to the overall revenue
purchasing lifestyle goods. PRIL reported 19.4% growth in
of companies, including Pantaloon (PRIL), Shoppers Stop (SSL)
lifestyle retailing in 4QFY2010. We expect lifestyle retailing to
and Spencer's Retail.
witness higher double-digit growth for 2QFY2011.
The Future Group, in its five-day long sale promoted as
Proposal to ease FDI rules in the retail sector - Positive
Mahabachat on the eve of the Independence Day, registered
for the industry
same store sales growth of 30-40%. SSL, which conducts
biannual sales during this period, witnessed stellar response The concept note introduced during the previous quarter on
from consumers. allowing 51% FDI in multi-brand retail is still in the discussion
stage. The department of industrial policy and promotion (DIPP),
With the signs of the economic downturn fading over time, Indian
under the commerce ministry, is seeking comments on putting
consumers have loosened their purse, thus bringing back cheers
FDI cap in multi-brand retail, which is currently banned. The
to the Indian retail sector. Further, taking cue from August
paper, however, remains silent on the quantum of FDI cap,
Independence Day sales, retailers expect the upward trend to
even after the draft paper had proposed 51% FDI in multi-
continue in the upcoming festival season. This festival season,
brand retail.
domestic retailers expect their sales to grow 20-25% yoy. The
festival season in FY2010 failed to cheer retailers as consumers We concur with industry experts that enabling FDI would be
tightened their spending amid job losses and pay cuts. As a good for the sector, as it will result in increased employment
result, inventories piled up and retailers had to resort to heavy and a higher level of consumerism, on account of a substantial
discounts to promote sales. With demand picking up, we expect range of competitively priced products. The government also
retailers to moderate the quantum of discounts offered in this stands to benefit from this, as the exchequer would receive
festive season as compared to FY2010. increased collections, since large organised trade players are
tax-compliant, contribute robust tax revenue and are unable to
We believe the organised retail sector in India is currently at an
avail exemption limits. On the supply-chain front, we believe
inflexion point and is ready to take the next leap in its growth
wastage in farm-to-fork will reduce with the transfer of
trajectory, at a steady and stable pace. We maintain that the
technology used by global players.
segment has a tremendous growth potential, driven by positive
developments such as allowing FDI in multi-brand retail, which According to a recent research by Crisil, the entry of FDI in
could further boost growth prospects. multi-brand retail has the potential to bring down prices of
perishable goods such as fruits and vegetables over the long
term. The report states that an efficient supply chain will enable


Preview

Retail

large retailers to source fruits and vegetables directly from Exhibit 2: Retail universe sales and EBITDA estimates
co-operatives, lowering annual wastage amounting to around (Rs cr) Net Sales (LHS) EBITDA (RHS) (%)

Rs630bn. The wastage in the supply chain and commission to 5,000.0 10.5

trade intermediaries inflate the final price paid by Indian 4,000.0 10.1

consumers. They shell out almost 2x-2.5x the price a farmer 3,000.0 9.5% 9.7
9.8%
gets as compared to 1x-1.5x in developed markets, where 2,000.0 9.3
penetration of organised retail is much higher. As per the
1,000.0 8.9
research, the overall investment required to set up the
0.0 8.5
supply-chain infrastructure for fruits and vegetables would be
2QFY2010 2QFY2011E
close to Rs650bn over the medium term. This is estimated after Source: Angel Research
taking into consideration the number of cold storage facilities
and refrigerated trucks that would be required for handling On the operating margin front, we expect SSL to show a yoy
perishable goods. About 30% of the country's total production improvement of 80bp, while we expect PRIL's and Titan's margins
of fruits and vegetables is wasted every year because of to dip by 50bp and 53bp, respectively. Even though we expect
inadequate cold storage and transport facilities. the operating margins of our retail universe to dip by 20bp yoy
to 9.5%, increases in the top line and EBITDA by 39.7% yoy
Retail stocks outperform the Sensex in 2QFY2011 and 35.1% yoy, respectively, would result in improvement of
Retail sector stocks broadly outperformed the Sensex in our retail universe's net profit margins by 20bp yoy to 4.1%.
2QFY2010. Titan emerged as a clear winner by outperforming
Exhibit 3: Retail universe - Net profit estimates
the benchmark BSE Sensex by a whopping 26%. PRIL and SSL
(Rs cr) Net Profit (LHS) Net Profit Margin (RHS) (%)
outperformed the Sensex by 1% and 4% respectively. 200.0 4.5

4.3
Exhibit 1: Retail stocks outperform the Sensex 150.0
4.1%
1.5 Sensex PRIL Titan SSL 4.1
1.4 100.0 3.9%
3.9
1.3
1.2 50.0
3.7
1.1
1.0 0.0 3.5

0.9 2QFY2010 2QFY2011E
0.8 Source: Angel Research
9/7/2010
2/7/2010

6/8/2010

3/9/2010

9/9/2010
30/07/2010
16/07/2010

23/07/2010

13/08/2010

20/08/2010

27/08/2010

17/09/2010

23/09/2010

30/09/2010


Source: Angel Research We foresee good times ahead for the retail industry, with
economic growth back on track along with revived consumer
2QFY2011 - Preview sentiment and good monsoons. Sensing the change, several
retailers have started chalking out expansion plans, which further
During 2QFY2011, consumer sentiment continued to remain
bolsters our belief. For instance, PRIL plans to open
upbeat as the economic outlook looked stable, thereby providing
25 Big Bazaar, 15 Pantaloon and 5 Central outlets. Besides
the much-needed security to people. With footfalls rising and
these, more Ezone stores and Home Town satellite stores will
consumers opening up their wallets on discretionary spending,
be added by the company. In FY2011, Titan plans to invest
we expect retailers to continue to foresee good growth going
Rs1.5bn to open 170 new stores, while SSL plans to open
ahead. We expect value retailing to strengthen further, while
10-12 stores at a cost of Rs1.2bn. Any positive news on FDI in
lifestyle retailing is expected to extend its growth trajectory as
retail will act as a big booster for the industry. Going ahead, we
upbeat consumer sentiment should translate into higher demand
expect the growth trend to continue to strengthen, thereby
for lifestyle goods. We expect retail stocks under our coverage
keeping long-term growth prospects for the organised retail
to report top-line growth of 39.7% yoy. We estimate PRIL to
segment in India intact.
lead our universe, with 43.4% yoy top-line growth.


Preview

Retail

The value retailing segment is likely to witness steady growth in the retail sector. We maintain our Accumulate rating on PRIL
over the next few years, as more and more consumers are Target Price
with a Target Price of Rs556.
expected to go for value-for-money goods. However, we expect
Titan has a stable and niche business model in the jewellery
the lifestyle retailing segment to continue to post higher growth
segment. The surge in gold volumes witnessed during the
compared to the value retailing segment, driven by revival in
previous quarter indicates that consumers are adapting to rising
consumer confidence. We expect players such as PRIL, who are
gold prices. Continuance of this trend could have a positive
straddled across price and product points, to benefit in the short
impact on the company. Moreover, the company's watch
as well as in the long term. The retail sector remains one of the
segment is performing well. Further, the company has recently
fastest growing sectors in India and we remain positive on its
intensified the brand campaigning for its eyeware division. The
growth prospects.
company's precision engineering division is also expected to
PRIL continues to be our preferred pick breakeven in 2HFY2011. We expect consumer-driven segments
to perform well as there has been a revival in the demand for
PRIL's presence across price points and categories helps the
lifestyle category goods. At Rs3,316, the stock is trading at 36x
company to be in a better position than its peers. Additionally,
its FY2012E earnings and at 12x FY2012E P/BV. We remain
We
the company's ongoing restructuring initiative would enable it
Neutral on Titan, due to its rich valuations.
to enhance its focus on different segments and provide a good
opportunity for value unlocking. At Rs501, the stock is trading We expect SSL's performance to continue to improve in the
at 24.6x its FY2012E earnings and at 2.9x FY2012E P/BV. Our coming quarters on the back of pick-up in consumer demand
sum-of-the-parts target for PRIL (standalone) is Rs495, and we for lifestyle retailing. At Rs674, the stock is trading at 32.9x its
have valued its stake in FCH, HSRIL and Future Bazaar at Rs31, FY2012E earnings and at 5.2x FY2012E P/BV. Considering the
Rs12 and Rs18, respectively. PRIL continues to be our top pick recent run-up in price, we maintain our Neutral view on SSL.
SSL.

arg Reco.
Pantaloon* 501 2,548 43.4 10.2 (50) 73.5 67.8 3.6 54.9 11.2 15.6 20.4 44.8 32.2 24.6 556 Accumulate
Titan 3,316 1,601 39.6 8.9 (53) 101.0 30.1 22.7 30.1 56.5 72.5 92.0 58.7 45.7 36.0 - Neutral
Shoppers Stop 674 471 23.3 7.4 76 14.1 62.3 4.0 62.1 10.3 17.4 20.5 65.4 38.7 32.9 - Neutral
Source: Company, Angel Research; Note: Price as on October 1, 2010, Note: * June year ending, Estimates are 1QFY2010 for PRIL, Figures on standalone basis

Analyst - Viraj Nadkarni


Preview

Software
Macro picture hazy but micro upbeat BFSI vertical was largely related to the M&A activity, which is
now tapering off. However, the spending momentum in the
The global cues are painting a hazy picture with the US macro segment continues because of the surge in demand for IT
data for August being mixed (positives like capacity utilisation services relating to regulatory changes, financial compliance,
at 74.7% v/s 74.6%, manufacturing index at 56.3 v/s 55.5 job risk management, i.e. primarily compliance related work. In
change at 0.2 v/s 0.1mn and negatives like IIP 6.2% v/s 7.4%, case of the retail vertical, the IT spend is being driven by the
retail sales at 3.6% v/s 5.4%) whereas Europe's macro data is business need to tap the digital consumer behaviour, social
poor (with manufacturing index declining to 55.1 from 56.7 in media, multi-channel commerce, etc. The hi-tech and
July). Although these data point towards macroeconomic manufacturing segments are also in growth phase, whereas
uncertainty, at the micro level the IT spending continues with telecom continues to be a laggard in the western markets though
increasing intent to spend on change in the business initiatives. investments are surging in the emerging markets.
Clients are looking forward to investing in growth and plan
Exhibit 3: Trend in IT spend (service-wise for 1QFY11)
their future to emerge stronger. 25.0 Consulting Services and Package Implementation Product Engineering Services

Following are the trends observed in IT spend across various 20.0
dimensions:- % QoQ growth
15.0
Exhibit 1: Trend in IT spend (geography-wise)
10.0
% (qoq) 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

Infosys 5.0

US 1.5 (4.1) 0 4.6 7.7 4.5 6.8
-
Europe (1.2) (5.3) (3.4) (7.0) 0 11.8 (5.3) Infosys HCL Tech Wipro TCS
Tech
HCL Tech Source: Company, Angel Research
US 5.8 14.2 3.8 3.5 0.5 9.6 11.3
Europe 14.7 17.5 1.6 1.5 3.3 1.4 4.2
There is a surge in discretionary spending with the onset of
revival because companies are looking at a change in business
initiatives via IT spending. This has resulted in demand for
The US is coming forth in making technological investments consulting work gaining traction because organisations are
whereas the European clients are still in wait and watch mode looking at technological innovations to drive growth as well as
due to the prevailing high economic uncertainties. Though prune costs. On the package implementation side, incremental
spending is subdued in Europe, continental Europe is showing growth is emerging out of implementation work rather than
a structural shift by opening up to both outsourcing and sale of new licences. In fact, the need for standardisation of
off-shoring. enterprise platforms i.e. conversion of multi-version
implementation into single-version or limited-version as well
Exhibit 2: Trend in IT spend (industry-wise)
as global level roll out of the same is pacing up. Even
% (qoq) 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
engineering and R&D services are witnessing spurt in demand
Infosys
with product companies getting aggressive and trying to launch
BFSI 4.1 (9.04) (1.5) 3.3 9.4 6.7 8.8
series of new products by shortening the go-to-market cycle.
Retail 2.9 3.53 (3.1) 8.5 (0.9) 4.8 6.4
Manufacturing (3.7) 2.02 (2.2) (3.9) 5.8 11.3 1.3 Cross-currency movement favourable
Telecom (3.4) (1.2) (4.6) (5.4) 4.2 1.2 (3.1)
Exhibit 4: USD v/s AUD,GBP & Euro
Tech
HCL Tech 1.6
BFSI 13.1 (2.6) 6.8 7.3 0.4 5.5 8.3
1.4
Retail 4.4 2.4 (0.6) 7.5 16.5 1.0 19.6
Manufacturing 1.4 12.6 7.5 (8.3) (4.1) 10.5 10.4 1.2
Telecom 7.6 (12.1) 6.4 5.3 (0.9) 0.4 2.9
Source: Company, Angel Research 1

The growth witnessed in 1QFY2011 was broad-based with every 0.8

sector contributing. In 2QFY2011, the financial services and Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10

retail verticals are continuing to be the major spenders. The AUD/USD GBP/USD EUR/USD

pent up demand that was seen in the previous quarters in the Source: Bloomberg, Angel Research


Preview

Software
Exhibit 5: Trend in USD/INR Utilisation levels (including trainees) of tier I companies stood
48
at 71-78% in 1QFY2011. In 2QFY2011, almost 30-35% of the
47
gross hiring target is expected to be absorbed. Overall, on the
46
back of pent up demand for discretionary services and abating
45 attrition, we expect utiisation to remain tightly held.
44

43
Attrition blues behind
42
Exhibit 8: Trend in attrition rate (%)
Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10
22
Source: Bloomberg, Angel Research 20

18
The cross-currency movement, which had proved to be the bane
16
in 4QFY2010 and 1QFY2011 impacting USD revenues to the
14
tune of 0.8-1.5% (qoq), has turned into a boon in 2QFY2011.
12
The USD has depreciated by 3.9%, 1.5% and 2.5% against the 10
GBP Euro and AUD, respectively. This will aid USD revenues of
,

1QFY07

2QFY07
3QFY07

4QFY07

1QFY08

2QFY08

3QFY08

4QFY08

1QFY09

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11
tier I companies by 0.5-0.8% (qoq). The rupee has also
depreciated by 1.8% (qoq) against the USD, which will result in Infosys TCS HCL Tech

higher rupee revenue growth and aid operating margins by Source: Company, Angel Research

60-70bp. Attrition levels had shot up in 1QFY2011 to the pre-recessionary
Hiring spree to continue levels of FY2008 with the job markets opening up to absorb
laterals on immediate basis to map in the surge in volumes,
Exhibit 6: Trend in net addition
No of
end of annual appraisals and employees leaving for higher
employees 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 studies. However, going forward, we expect these rates to
Infosys 3,192 5,927 2,772 1,772 (945) 1,548 4,429 3,914 1,026 normalise as the strong campus hiring across companies will
TCS 4,895 5,328 8,692 13,418 (2,746) 320 7,692 10,775 3,271 create a stable bench as well as map in any surge in demand
HCL Tech 863 2,124 657 332 (184) 665 1,691 3,152 5,409 and abate poaching of laterals. Besides, the seasonality effect
Wipro 108 1,877 (587) 845 711 (630) 4,855 5,325 4,854
of appraisal as well as leaving for higher studies will not be
present over the rest of the year. Thus, we do not expect attrition
to be a spoilsport anymore causing any lapse in the billable
The IT players got into hiring mode from 3QFY2010. In
position of the companies.
1QFY2011 players raised their annual gross hiring target by
15-20% on the back of pent up demand for discretionary Cyclically a strong quarter with robust volume growth
services and to keep a bench ready to meet sudden spurt in
Exhibit 9: Trend in volume growth (qoq)
demand going ahead. We expect the hiring trend to remain 14.0
upbeat with Infosys expected to hire 14,000 and TCS around 12.0

14,850 employees in 2QFY2011. 10.0
8.0
(% QoQ)

Utilisation to be held tightly 6.0
4.0
Exhibit 7: Trend in utilisation rates 2.0
0.0
85.0
1QFY07

2QFY07
3QFY07
4QFY07

1QFY08
2QFY08
3QFY08
4QFY08

1QFY09
2QFY09

3QFY09
4QFY09
1QFY10
2QFY10

3QFY10

4QFY10
1QFY11

(2.0)
2QFY11E

80.0 (4.0)
(6.0)
75.0
(%)

(8.0) Infosys TCS HCL Tech Wipro
70.0
65.0

60.0
Traditionally 2Q is strong for the IT companies (baring
2QFY2010 due to effects of recession) because of the strong
1QFY08

2QFY08

3QFY08

4QFY08

1QFY09

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

budget flush that happens before close of the annual capex
Infosys TCS HCL Tech Wipro cycle by clients. Owing to the return of strong demand for IT
Source: Company, Angel Research services, volume growth in 1QFY2011 reverted to


Preview

Software

pre-recessionary levels of 1QFY2008. In 2QFY2011, we expect flat qoq. Wipro is expected to post a 60bp expansion qoq in its
the momentum in volume growth to persist at 6-8.1% (qoq) for IT services, but post a 34bp qoq dip on consolidated basis due
tier I companies. to strong growth in IT products, which is a thin margin business.
HCL Tech’s margins are expected to decline by 239bp qoq due
Revenues to surge
to the wage hikes taken in 2QFY2011 and continued losses in
Since the past two quarters despite strong volume growth, the the BPO business. Thus, 2QFY2011 is expected to mixed on
USD revenue growth stood lower owing to unfavourable the EBIT margin front for tier I companies.
cross-currency movements. However, in 2QFY2011, we expect
BSE IT v/s BSE Sensex relative performance
revenues to surge on robust volumes, stable pricing and
favourable currency impact. We expect USD revenue growth to During 2QFY2011, the BSE IT index gained 11.8% qoq,
span in the range of 6.8-7.8% (qoq) for tier I companies. marginally underperforming the Sensex, which gained 13.4%
during the period. This was despite developments like the ban
Exhibit 10: Trend in USD revenue growth of outsourcing-offshoring by the state of Ohio, increase in H1B
14.0
12.0
and L1 visa costs as well as the hike in MAT rate from 18% to
10.0 20%.Thus, the IT index posted a decent performance despite
8.0
6.0 the above developments on the back of the positive demand
(% QoQ)

4.0 environment witnessed during the quarter.
2.0
0.0 Exhibit 12: IT index v/s Sensex
(2.0)
1QFY09

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11E

(Rs)
(4.0) 120
(6.0)
115
(8.0) BSE IT Index: Rs104.7
110
Infosys TCS HCL Tech Wipro
105
Source: Company, Angel Research 100
95 BSE Sensex: Rs104.3
Margins to be mixed 90

13-Sep-10

28-Sep-10
30-Jun-10

15-Jul-10

30-Jul-10

14-Aug-10

29-Aug-10
Exhibit 11: Change in EBIT margins (bp)
200
150 BSE IT Index BSE Sensex

100 Source: Bloomberg, Angel Research
50
Outlook and Valuation
BP(QoQ)

0
(50) 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11E
(100) In 3QFY2010, when recovery in IT spend began, most of the
(150) recovery happened in terms of run-the-business, which is more
(200) annuity, maintenance and infrastructure contracts that drive cost
(250)
Infosys TCS HCL Tech Wipro (IT services)
efficiency, etc. Over the last two quarters, there has been an
(300)
uptick in discretionary spending instilling confidence back in
the sector. Thus, we expect 2QFY2011 to be a strong quarter
We expect Infosys to post expansion in its EBIT margins by 175bp
with 6.5-8% qoq growth in USD revenues for tier I companies
qoq as wage hikes are behind, the periodic visa cost will be
aided by buoyant demand driving volumes, favourable
lower, rupee depreciation to the tune of 2% will cushion margins
cross-currency movement and stable pricing environment. We
by 70bp and higher offshore efforts will aid them. In case of
TCS
remain positive on the IT sector with TCS and Wipro being our
TCS, the effect of promotions will sweep away gains leaving it
preferred picks amongst the tier I companies.

arg Reco.
Infosys 3,103 6,809 9.9 30.1 174.8 1,692 13.7 29.7 13.7 109.5 117.7 143.5 28.3 26.4 21.6 - Neutral
TCS 960 8,959 9.0 27.1 0.0 1,990 7.9 10.2 7.9 35.1 41.0 46.9 27.3 23.4 20.5 1,032 Accumulate
Wipro 461 8,177 13.0 19.7 (34.3) 1,352 2.5 5.6 2.5 18.9 22.7 25.7 24.4 20.3 17.9 489 Accumulate
HCL Tech.* 431 3,563 4.0 12.9 (239.4) 269 (15.3) 3.9 (15.3) 17.6 24.0 31.3 24.4 18.0 13.8 - Neutral
Source: Company, Angel Research; Note: Price as on October 1, 2010; * June ending and 1QFY2011 estimates, % chg is qoq
Analyst - Srishti Anand


Preview

Telecom
During 2QFY2011, stocks of Airtel and Idea rallied by 38% Exhibit 2: Total wireless subscriber base
and 23%, respectively. The surge in major telecom stocks Company Mar '10 Apr '10 May '10 Jun '10 July '10 Aug '10

indicated the end of the overhang related to the irrational (mn)
Airtel 127.6 130.6 133.6 136.6 139.2 141.3
pricings in the 3G auction and the bottoming out of the price
RCOM 102.4 105.2 107.9 110.8 113.3 115.3
war, as operators are now ceasing the full talk time scheme to
Vodafone Essar 100.7 103.5 106.1 108.8 111.2 113.5
gain better price points.
BSNL 63.5 64.7 65.8 66.9 68.1 70.4
The quarter also witnessed developments indicating a possible IDEA 63.8 65.3 66.7 68.9 70.7 72.7
consolidation scenario for the Indian telecom industry in the
TTSL 65.8 67.7 69.6 72.4 74.7 76.8
medium term. The Department of Telecom (DoT) is considering
Aircel Cellular 36.9 38.5 40.1 41.7 43.3 44.9
several possibilities, such as a) allowing the merger of new
MTNL 4.8 4.8 4.9 4.9 4.9 5.0
operators with larger ones, b) shortening of the three-year
BPL Mobile 2.8 2.9 2.9 2.9 2.9 3.0
lock-in period for a company's promoter to sell out its stake
HFCL 0.3 0.3 0.3 0.7 0.9 0.9
and c) relaxing rules pertaining to buyouts and mergers by
Shyam Telelink 3.8 4.2 4.7 5.1 5.5 6.0
allowing incumbents to retain airwaves held by new operators.
S Tel 0.8 0.9 1.0 1.1 1.1 1.2
On the contrary, the much talked about sell-out of RCOM's Uninor 4.3 5.0 5.0 6.0 6.9 9.1
tower business to GTL Infra failed in September 2010. This has Videocon - 1.0 2.4 3.0 3.9 4.9
again put RCOM's much-awaited deleveraging plan on hold, DB Etisalat - 0.0 0.0 0.0 0.0 0.0
though the company maintains that it is still in talks with other Source: COAI, AUSPI, Angel Research
strategic and financial investors to sell ~26% stake of its
business. Thus, a trend was spotted with most of the incumbents losing
their market share to new entrants, with Airtel leading the losing
Exhibit 1: Stock return analysis of leading Indian TSPs bandwagon. Over June-August 2010, subscriber market share
50
40 of Uninor and Videocon increased by 0.4% and 0.2%,
30 respectively. Whereas, Aircel bucked the trend of losing out its
20
10 market share to new entrants and gained 0.2% share over the
0
same period.
(10)
(20)
(30) Exhibit 3: Operator-wise subscriber market share
(40)
Company Mar '10 Apr '10 May '10 Jun '10 July '10 Aug '10
(50)
(60) Bharti Airtel RCOM Idea Cellular (%)
% Chg (3 Mths.) % Chg (1 yr.)
Airtel 22.1 22.0 21.9 21.7 21.5 21.2

Source: Bloomberg, Angel Research RCOM 17.7 17.7 17.7 17.6 17.5 17.3
Vodafone Essar 17.4 17.4 17.4 17.3 17.2 17.1
New players continue to gain subscriber market share BSNL 11.0 10.9 10.8 10.6 10.5 10.6
IDEA 11.1 11.0 10.9 10.9 10.9 10.9
Over June-August 2010, the Indian wireless subscriber base
TTSL 11.4 11.4 11.4 11.5 11.5 11.5
grew at an average rate of 2.8% mom. Incumbents such as
Airtel, RCOM, Vodafone, BSNL and Idea grew at an average Aircel Cellular 6.4 6.5 6.6 6.6 6.7 6.8

rate of 1.7-2.8% mom, whereas Aircel outperformed its peers MTNL 0.8 0.8 0.8 0.8 0.8 0.8

by growing at an average rate of 3.8% mom. New entrants, BPL Mobile 0.5 0.5 0.5 0.5 0.5 0.4

including Uninor, Videocon and Etisalat, grew at average rates HFCL 0.1 0.1 0.1 0.1 0.1 0.1
of 23.9%, 27.3% and 55.0% mom, respectively. Shyam Telelink 0.7 0.7 0.8 0.8 0.9 0.9
S Tel 0.1 0.2 0.2 0.2 0.2 0.2
Uninor 0.7 0.8 0.8 1.0 1.1 1.4
Videocon - 0.2 0.4 0.5 0.6 0.7
DB Etisalat - 0.0 0.0 0.0 0.0 0.0
Source: COAI, AUSPI, Angel Research


Preview

Telecom
Exhibit 4: Trend in wireless subscriber net additions Andhra Pradesh, Karnataka and Maharashtra; B circle, including
Company Mar '10 Apr '10 May '10 Jun '10 July '10 Aug '10 Rajasthan and West Bengal; and C circle, including Himachal
(mn) Pradesh, Bihar and Orissa. Also, Aircel launched its services in
Airtel 3.0 3.0 3.0 3.0 2.6 2.0
Gujarat, Punjab and Haryana, with an impressive net addition
RCOM 3.0 2.7 2.7 2.9 2.5 2.0
of 96,248 subscribers in Punjab. Even Loop Mobile launched
Vodafone Essar 3.6 2.9 2.6 2.7 2.4 2.3
its services in Haryana, Kolkata, Madhya Pradesh, Orissa,
BSNL 2.5 1.3 1.0 1.1 1.2 2.3 Punjab and Rajasthan, while S Tel forayed into the northeast.
IDEA 1.7 1.5 1.4 2.2 1.9 2.0
Thus, new as well as existing operators have started aggressively
TTSL 2.8 1.9 1.9 2.7 2.3 2.1
focusing on underpenetrated circles like B, C and A, which have
Aircel Cellular 2.0 1.6 1.6 1.6 1.6 1.6
attractive teledensity levels of 38%, 49% and 66%, respectively,
MTNL 0.1 0.0 0.0 0.0 0.0 0.0
to gain higher subscriber market shares.
BPL Mobile 0.1 0.0 0.0 0.0 0.0 0.0
HFCL 0.0 (0.0) (0.0) 0.3 0.2 0.1 MOU to be weak because of the seasonality effect
Shyam Telelink 0.7 0.4 0.5 0.4 0.5 0.5
In the past 2-3 quarters, Airtel and Idea witnessed a secular
S Tel 0.2 0.1 0.1 0.1 0.1 0.1
growth trend in their minutes of usage (MOU), while RCOM
Uninor 0.7 0.8 (0.0) 1.0 0.9 2.2
witnessed a drop in its MOU. The second quarter of a fiscal
Videocon - 1.0 1.4 0.6 0.9 1.0
year is generally a weak quarter, due to seasonality effect. Thus,
DB Etisalat - 0.0 0.0 0.0 0.0 0.0
in 2QFY2011, we expect MOU of Airtel and Idea to fall by 1%
Total 20.4 17.2 16.4 18.7 17.1 18.3
each and that of RCOM to drop by 4% qoq.
Source: COAI, AUSPI, Angel Research

The net addition run rate of Airtel, RCOM and Vodafone tapered Exhibit 6: Trend in MOU per month per subscriber
off significantly in the first two months of 2QFY2011, as new 550

operators such as Uninor, Etisalat and Videocon rolled out their
minutes per user

2G services across various circles. Thus, incumbents witnessed 450

a downward trend in their share of subscriber net additions.
350

Circle-wise net additions
250
In the first two months of 2QFY2011, Metro, A and C circles

2QFY11E
1QFY09

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11
posted 2.3-2.8% mom subscriber growth, while B circle posted
3% mom growth despite having the highest subscriber base. Airtel(ex-africa) Idea RCOM

In August 2010, Metro lost its share to C circle in a big way,
which stood tall with 14% market share in subscriber net VAS share to remain steady
addition. On an absolute basis, all circles (ex-metro) grew
We assume VAS share to remain steady in 2QFY2011, which
rapidly, with C circle leading at 2.5mn net addition (101% mom),
will help the downside in average revenue per minute (ARPM)
followed by B circle at 7.6mn (11% mom), while net additions
to be limited due to lower voice ARPM resulting from higher
in Metro and A circles were down by 11% and 8% mom,
growth in B and C circles.
respectively.
ARPM to continue its downward trend
Exhibit 5: Market share in subscriber addition (%)
Circle Mar '10 Apr '10 May '10 Jun '10 July '10 Aug '10 ARPM has registered a free fall of 5% CQGR over the past eight
Metro 8.2 11.0 13.2 13.3 13.1 10.9 quarters on the back of entry of new players and the price war.
A 33.2 36.1 32.3 32.9 39.1 33.6 However, the price war logged by these new entrants has turned
B 42.8 39.0 39.3 39.6 40.3 41.7 into a curse for their own sustainability. Hence, we expect
C 15.8 13.9 15.1 14.2 7.4 13.9 consolidations to happen in the Indian telecom sector, which
Source: COAI, AUSPI, Angel Research will arrest the possibility of any price war resurfacing. Also,
operators have recently reduced the talk time value on recharge
Circle-wise operator launches during 2QFY2011
cards, which will help ARPM to stabilise, thus covering up for
Various circle-specific launches were witnessed during the the decline in overall ARPM due to higher additions in B and C
quarter. Videocon launched its services in A circle, including circles. Therefore, we have built in a moderate 3% CQGR fall


Telecom

in ARPM (ex-VAS) over 1QFY2011-4QFY2011E and expect Exhibit 9: EPM trend
0.25
stabilisation in FY2012E. In fact, the persistence of VAS share
will limit the downside in ARPM, leading to a decline of
1.8-2.2% only in 2QFY2011. 0.20

Rs/min
Exhibit 7: Trend in ARPM per subscriber 0.15
0.7

0.10
ARPM(Rs/min)

0.6
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11E

Airtel(ex-africa) Idea RCOM
0.5

0.4
1QFY09

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11E

For 2QFY2011, we expect revenue growth to be driven by strong
growth in subscriber base, negating the effect of falling ARPU.
Amongst the top three operators, we expect Idea to register
ARPUs to decline, but to bottom out soon revenue growth of 4.8% qoq and RCOM to grow at 2.1% qoq.
Airtel is expected to post growth of 25.2% qoq, as this quarter
The combination of declining ARPM and MOU in 2QFY2011
will include the full quarter effect of Zain's integration. On the
will pull down average revenue per user (ARPU) by
EBITDA margin front, we expect Airtel to post a 60bp qoq dip,
1.5-3.0% qoq for Airtel and Idea; whereas for RCOM, ARPU is
as full integration of Zain (with EBITDA margin of 27.5%, which
expected to continue to fall steeply by 6.3% qoq. However, going
is much lower than Airtel's average margin) will dilute the
forward, we expect ARPUs to stabilise with steadiness in MOU
company's margins. Idea and RCOM are expected to post
and ARPM.
EBITDA margin declines of 17bp and 10bp qoq, respectively,
Exhibit 8: Trend in ARPU per month for 2QFY2011.
400
With the bottoming out of the price war, operators are looking
300 at increasing the pre-paid call cost by offering less talk time in
Rs/month

recharges. Also, they continue to focus on increasing their VAS
200 share to aid profitability, as India is still highly underpenetrated
with less than 4% of the population using broadband. Valuations
100
of telecom stocks have shot up steeply over the past three months
1QFY09

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11E

in anticipation of stable tariffs here on, launch of MNP as a non
event and 3G service roll out as an ARPM accretive.

Source: Company, Angel Research We believe there is an over optimism associated with the telecom
sector and, hence, maintain a cautious view on the same. Airtel
EPMs to remain timid
remains our preferred pick due to its low-cost integrated model
For 2QFY2011, we expect EBITDA per minute (EPM) to dip by (owned tower infrastructure), potential opportunity to scale up
2.5-5.0% qoq on the back of the decline in ARPU, cyclically in Africa, established leadership in revenue and subscriber
higher employee cost and sustained spending on advertisement market share, and relatively better KPIs.
and business promotions.

rge Reco.
Rs) 2QFY11E % chg 2QFY11E chg bp 2QFY11E % chg 2QFY11E % chg FY10 FY11E FY12E FY10 FY11E FY12E (Rs)
Bharti Airtel 365 15,308 25.2 35.5 (60.0) 1,734.5 6.5 4.6 6.5 32.0 20.3 24.6 11.4 18.0 14.8 - Neutral
RCOM 168 5,215 2.1 31.8 (10.0) 211.2 (15.8) 1.0 (15.8) 21.8 8.8 10.4 7.7 19.1 16.2 140 Sell
Idea Cellular 74 3,828 4.8 24.2 (17.0) 192.5 (4.7) 0.6 (4.7) 2.9 2.4 3.1 25.5 30.2 23.8 65 Reduce
Source: Company, Angel Research; Note: Price as on October 1 , 2010, % chg qoq

Analyst - Srishti Anand

Preview

Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment
decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are
those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading
volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources
believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for
general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or
damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not
independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or
warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to
update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that
prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed
or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other
advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have
investment positions in the stocks recommended in this report.

Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to -15%) Sell (< -15%)

71

Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800
Research Team
Fundamental:
Sarabjit Kour Nangra VP-Research, Pharmaceutical sarabjit@angeltrade.com
Vaibhav Agrawal VP-Research, Banking vaibhav.agrawal@angeltrade.com
Vaishali Jajoo Automobile vaishali.jajoo@angeltrade.com
Shailesh Kanani Infrastructure, Real Estate shailesh.kanani@angeltrade.com
Anand Shah FMCG , Media anand.shah@angeltrade.com
Deepak Pareek Oil & Gas deepak.pareek@angeltrade.com
Sushant Dalmia Pharmaceutical sushant.dalmia@angeltrade.com
Rupesh Sankhe Cement, Power rupeshd.sankhe@angeltrade.com
Param Desai Real Estate, Logistics, Shipping paramv.desai@angeltrade.com
Sageraj Bariya Fertiliser, Mid-cap sageraj.bariya@angeltrade.com
Viraj Nadkarni Retail, Hotels, Mid-cap virajm.nadkarni@angeltrade.com
Paresh Jain Metals & Mining pareshn.jain@angeltrade.com
Amit Rane Banking amitn.rane@angeltrade.com
John Perinchery Capital Goods john.perinchery@angeltrade.com
Srishti Anand IT, Telecom srishti.anand@angeltrade.com
Jai Sharda Mid-cap jai.sharda@angeltrade.com
Sharan Lillaney Mid-cap sharanb.lillaney@angeltrade.com
Amit Vora Research Associate (Oil & Gas) amit.vora@angeltrade.com
V Srinivasan Research Associate (Cement, Power) v.srinivasan@angeltrade.com
Mihir Salot Research Associate (Logistics, Shipping) mihirr.salot@angeltrade.com
Chitrangda Kapur Research Associate (FMCG, Media) chitrangdar.kapur@angeltrade.com
Pooja Jain Research Associate (Metals & Mining) pooja.j@angeltrade.com
Yaresh Kothari Research Associate (Automobile) yareshb.kothari@angeltrade.com
Shrinivas Bhutda Research Associate (Banking) shrinivas.bhutda@angeltrade.com
Sreekanth P .V.S Research Associate (FMCG, Media) sreekanth.s@angeltrade.com
Hemang Thaker Research Associate (Capital Goods) hemang.thaker@angeltrade.com
Nitin Arora Research Associate (Infra, Real Estate) nitin.arora@angeltrade.com
Technicals:
Shardul Kulkarni Sr. Technical Analyst shardul.kulkarni@angeltrade.com
Mileen Vasudeo Technical Analyst vasudeo.kamalakant@angeltrade.com
Derivatives:
Siddarth Bhamre Head - Derivatives siddarth.bhamre@angeltrade.com
Jaya Agarwal Derivative Analyst jaya.agarwal@angeltrade.com

Institutional Sales Team:

Mayuresh Joshi VP - Institutional Sales mayuresh.joshi@angeltrade.com
Abhimanyu Sofat AVP - Institutional Sales abhimanyu.sofat@angeltrade.com
Nitesh Jalan Sr. Manager niteshk.jalan@angeltrade.com
Pranav Modi Sr. Manager pranavs.modi@angeltrade.com
Sandeep Jangir Sr. Manager sandeepp.jangir@angeltrade.com
Ganesh Iyer Sr. Manager ganeshb.Iyer@angeltrade.com
Jay Harsora Sr. Dealer jayr.harsora@angeltrade.com
Meenakshi Chavan Dealer meenakshis.chavan@angeltrade.com
Gaurang Tisani Dealer gaurangp.tisani@angeltrade.com

Production Team:
Bharathi Shetty Research Editor bharathi.shetty@angeltrade.com
Simran Kaur Research Editor simran.kaur@angeltrade.com
Bharat Patil Production bharat.patil@angeltrade.com
Dilip Patel Production dilipm.patel@angeltrade.com

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

2 qfy2011 result preview 01-10-10

More Related Content

Viewers also liked (11)

Similar to 2 qfy2011 result preview 01-10-10 (15)

More from Angel Broking (20)

Recently uploaded (20)

2 qfy2011 result preview 01-10-10