Economic Research Report by Tapasije Mishra

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Economic Research Report by Tapasije Mishra

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Title: Economic Research Report by Tapasije Mishra

1
DOCUMENT FOR DISCUSSION
Bouncing at the Bottom rather than a sharp
uptick
RBI
Tapasije Mishra
Govt.
Pvt. Sector
22nd April, 2013
PRIVATE CONFIDENTIAL
2
Executive Summary

2013 is an interesting year with equity market
participants positive and corporate India very
cautious
Significant positive momentum created by Ministry
of Finance strong ETF liquidity
Both inflation and growth moderating no pickup
in private capex in 2013
Conflict between lag and lead indicators
CV sales remain poor in December stocks are
pricing in an upturn our analyst has a ive view
on current prices
Toll roads witnessing traffic declines in past 6
months
The Indian consumer to feel a big squeeze
Rise in middle class UN-employment job creation
not yet on the national agenda

3
Actionable Ideas
Price MktCap EPS (Rs) EPS (Rs) EPS (Rs) PE (x) PE (x) PE (x)
(Rs) (USbn) FY12 FY13E FY14E FY12 FY13E FY14E
Top Buy
ICICI Bank 1,086 24.06 56.1 72.7 86.4 19.4 14.9 12.6
Bharti Airtel 317 23.17 12.8 6.6 10.9 24.7 48.4 29.0
Cairn India 297 10.85 42.3 57.7 47.2 7.0 5.1 6.3
Idea Cellular 115 7.33 2.6 3.1 4.2 43.6 37.1 27.2
Cipla 384 5.92 14.2 19.6 21.0 26.9 19.6 18.2
Dr Reddy's Lab 1,808 5.88 90.5 96.3 111.9 20.0 18.8 16.2
United Spirits 1,960 4.75 18.8 36.5 44.3 104.0 53.6 44.2
Jaiprakash Associates 75 3.08 3.0 4.9 7.8 25.2 15.3 9.7
Glenmark Pharma 495 2.58 21.8 23.5 28.3 22.7 21.0 17.5
ING Vysya Bank 549 1.27 30.4 39.3 49.7 18.1 14.0 11.0
United Phosphorus 126 1.12 13.1 15.8 18.5 9.6 8.0 6.8
IRB Infra 122 0.79 14.9 15.1 14.6 8.2 8.1 8.4
Jyothy Laboratories 166 0.52 2.8 4.0 7.0 60.1 41.4 23.6
Top Sell
ITC 302 44.88 7.9 9.4 11.3 38.3 32.1 26.6
Hindustan Unilever 447 18.56 11.9 15.2 17.0 37.5 29.5 26.3
Neutral
Coal India 319 38.75 23.4 26.2 26.9 13.6 12.2 11.8
Larsen Toubro 1,495 17.52 72.1 79.8 80.2 20.7 18.8 18.6
Prices as on April 5th, 2013
4
CV Sales Dropped 30 Between Mar-12 and Jan-13,
Inventories Build Up
Decline in CV sales from 99K to 69K per month in
last 10 months
Y-o-Y CV Sales Growth
After witnessing significant upward movement in
Q3 FY13, Auto stocks are now correcting, in line
with fundamentals
11
-2
-2
-4
-8
-7
-8
-18
Annualized data based on 10M FY13 actuals
Source MOSPI, SIAM, Bloomberg
5
Toll Roads Traffic Growth Rate Flat or Negative
in 9MFY13
Declining Traffic Growth Across Key Freight
Corridors on the Golden Quadrilateral
Road Project Surat - Dahisar Mumbai Pune Indore Edlabad Jaipur Kishangarh Bharuch - Surat
Length (Kms) 239 206 203 90 65
Rate of change in growth (9MFY13/12) -81 -2 -160 -68 -50
Connectivity Surat to Dahisar section of NH 8 Mumbai to Pune section of NH 4 Part of SH-27 Jaipur to Kishangarh section of NH-8 Bharuch to Surat section of NH 8
6
Airport Passenger Traffic Down 4 in FY13
Total Pax in Mn
g-4
g13
g16
g-7
g14
g21
0
-7
-3
-6
-13
-4
-8
-8
-11
-5
-7
-9
Decline in traffic at all major airports, similar
to the trend witnessed during FY09
Annualized data based on 9M FY13 actuals
Source AAI
7
Why is IEX Power at Rs.3.70 ?
Energy supply and peak deficit ()
Short term power tariff data for January 2013
(Rs./kwh) - MoM
Elections?
Short term power rates will rise!
JSPL Buy
Source CEA
8
7.5 Average Decline in Container Traffic at
Ports in Q3 FY13
Cargo handled at Major Ports
In '000 tons Feb-13 Feb-12 yoy YTD '13 YTD '12 yoy
POL 14,087 14,830 -5 1,68,232 1,63,316 3
Iron ore 1,767 4,079 -57 25,442 56,226 -55
Fertilisers - Finished 126 500 -75 7,135 11,825 -40
Fertilisers - Raw 576 675 -15 7,055 7,438 -5
Coal - Thermal 5,460 4,584 19 53,063 45,762 16
Coal - Coking 1,850 1,998 -7 25,973 25,976 0
Containers - Tonnage 9,269 8,914 4 1,09,172 1,09,511 0
Containers - TEUs' 000s 604 564 7 7,035 7,094 -1
Other 11,105 8,151 36 1,01,898 90,775 12
Total 44,240 43,731 1.2 4,97,970     5,10,829 -3
Positive ..sustainable?
Container volumes at Major Ports Mundra
Pipavav
In '000 TEUs FY12 FY11 yoy () 9MFY13 9MFY12 yoy ()
Major ports        7,768        7,537           3.1       5,763       5,842          (1.4)
Mundra        1,520        1,228         23.8       1,262       1,099         14.9
Pipavav            639            497         28.5           405           474        (14.5)
Total of above        9,927        9,262           7.2       7,430       7,415           0.2
Source IPA
9
Significant Equity Paper Supply in Pipeline
Rs Cr. FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 (11m)
IPO/ FPO 52,219 2,034 46,941 46,182 10,464 6,019
Rights 32,519 12,622 8,321 9,594 2,375 8,225
QIP 25,770 189 43,968 24,550 1,713 10,658
110,508 14,845 99,231 80,326 14,552 24,902

No. of Issues FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 (11m)
IPO/ FPO 90 21 44 57 34 8
Rights 30 23 29 24 16 13
QIP 38 2 67 47 11 13
158 46 140 128 61 34
10
IDFC Recommended Stocks
11
Telecom Ring Out the Old, Ring in the New
Analyst Hitesh Shah

Why are we bullish on Indian Telecom sector?
Declining competitive intensity as fringe players
focusing on profitable growth number of players
down to 6-8, only marginally ahead of 5-7 in 2007
Incumbents have gained market share despite being
rational in the market place
Realization should see an uptick over the
medium-term freebies withdrawal, tariff increase
and higher data usage
Valuations (5.5 6.0x FY14E EBITDA) offer 30-40
upside over the next 12-18 months
What is yet to be addressed?
Regulatory proposals like auction roadmap,
re-farming, domestic roaming charges and MA
guidelines
Entry strategy of Reliance Infotel (Greenfield,
Brownfield or only LTE) is still a black box
In our view, Greenfield entry in a mature voice
market makes little business sense

Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks
Company IDFC Rating Price (Rs) Mkt Cap (US Bn) Target Price (Rs) FY14E (x) FY14E (x) FY12-15E CAGR () FY12-15E CAGR ()
Company IDFC Rating Price (Rs) Mkt Cap (US Bn) Target Price (Rs) EV/EBITDA P/E EBITDA EPS
Bharti Airtel OP 274 18.94 390 5.8 25.0 9.6 8.1
Idea Cellular OP 106 6.39 135 6.2 25.0 16.7 30.3
Reliance Comm. OP 63 2.36 100 6.0 13.0 8.2 9.6
Source IDFC Securities Research Note Prices as
of 4th April 2013
12
12 Market Share Critical to Break Even,
Consolidation is Imperative
TTM Revenues(Rs Bn) Market Share () Market Share () Market Share () Market Share () Market Share () Market Share () Market Share () Market Share ()
TTM Revenues(Rs Bn) 1 2 3 4 5 6 7 8
A.P. 116 41 18 11 10 9 6 3 2
Assam 26 32 22 16 16 9 2 2 0
Bihar 73 44 13 12 10 7 5 5 4
Delhi 123 37 28 11 9 8 3 3 1
Gujarat 84 38 19 18 7 7 5 5 1
Haryana 31 29 23 19 14 8 5 2 1
H.P. 11 41 15 15 9 9 7 4 0
JK 16 40 24 16 9 6 3 3 0
Karnataka 106 47 15 12 9 7 6 3 2
Kerala 63 33 23 17 14 6 4 2 1
Kolkata 38 30 27 12 12 5 4 4 3
M.P. 68 32 25 19 8 8 7 1 0
Maharashtra 121 26 24 21 10 6 6 5 1
Mumbai 97 32 21 13 11 8 6 3 3
North East 16 40 23 12 12 8 3 2 0
Orissa 30 39 15 14 11 9 7 4 2
Punjab 57 35 21 18 10 7 4 3 3
Rajasthan 74 40 22 11 8 6 5 4 4
Tamil Nadu 130 33 23 21 7 7 5 3 1
UP (E) 91 28 28 12 9 7 7 5 4
UP (W) 63 26 23 19 8 8 7 6 4
W.B. 49 33 26 12 7 6 5 4 4
Airtel
Vodafone
Idea
BSNL/MTNL
Rcom
Tata Teleservices
Uninor
Others
Aircel
13
IT Services Sentiment improving Business to
follow
Analyst Hitesh Shah

We are incrementally positive on the Indian IT
Services sector
Macro data points to recovery in the US
pipeline/ sentiment has improved
Discretionary spend returning in most verticals
in North America (excl. Investment Banks and
Telecom)
SP 500 operating EPS has turned the corner
Indian IT revenues is highly correlated with a 3-
quarter lag
However, bad news is not over yet CY13 IT
budgets to be largely flat and deal closures are
taking long
Stock picking is name of the game - we prefer
growth at reasonable price
Pick stocks where improving macro environment is
not captured in valuations
Tier1 stock returns to reflect earnings growth
some room for re-rating
Small-mid cap stocks to see valuation re-rating
and earnings growth
Prefer Infosys (OP) vs.TCS (N) Valuations to
converge as growth rates converge
Sell HCL Tech (UP) Hiring incongruent with deal
win announcement
Like KPIT (expertise in Auto-electronics,
JDEdwards and SAP) and Persistent (play on IP
driven business)

Key Recommendations Key Recommendations Key Recommendations Key Recommendations Key Recommendations Key Recommendations Key Recommendations Key Recommendations Key Recommendations
Company Rating Price (Rs) Mkt Cap (US Bn) Target Price (Rs) FY14E (x) FY14E (x) FY12-15E CAGR FY12-15E CAGR
Company Rating Price (Rs) Mkt Cap (US Bn) Target Price (Rs) EV/EBITDA PE EBITDA EPS
Infosys OP 2,880 30.00 3,200 10.2 15.6 10.4 13.6
TCS N 1508 53.81 1,430 13.2 18.23 16.6 19.1
HCL Tech UP 743 9.41 650 7.8 13.8 19.9 22.5
KPIT Cummins OP 94 0.31 150 4.1 6.7 28.3 28.3
Persistent Systems OP 541 0.39 620 4.7 9.5 20.9 23.2
Source IDFC Securities Research Note Prices as
of 4th April 2013
14
Capital Goods No Recovery in Sight
Analyst Bhoomika Nair

We remain underweight on the capital goods sector
New project announcements plummet by 74 Y-o-Y
suggesting a deteriorating capex cycle
Challenges in execution remain projects under
implementation but stalled continue to touch new
highs
Investment concerns persist on matters such as
land acquisition, environmental clearances, FSAs
etc
Overcapacity and regulatory hurdles to drive
slower recovery in areas such as Metals, cement,
refineries power
Likely to witness slower order inflows and
backlogs providing limited visibility for
earnings
Recommend selling Thermax (extremely rich
valuations and possible disappointment on order
inflows) and Voltas (EMP cycle recovery to take
time, margins continue to decline, higher
competition in unitary cooling poses a risk)
Recommend buying Havells (for their strong brand
and distribution network driving a sustainable
14 CAGR in earnings) and Crompton (since its
risk reward is quite favourable with most
negatives known and priced)

Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks
Company Price (Rs) Mkt Cap (Rs Bn) Target Price (Rs) FY14E (x) FY14E (x) FY12-14E CAGR () FY12-14E CAGR ()
Company Price (Rs) Mkt Cap (Rs Bn) Target Price (Rs) EV/EBITDA P/E EBITDA EPS
Havells India 602 75 700 9.3 15.5 9 14
Crompton 91 58 115 7.9 13.0 6 10
15
Consumption Resilience in adversity
Analyst Nikhil Vora

Positive view on consumption is not misplaced
We remain positive on consumer space given the
relatively protected consumer demand environment
and a continued premiumisation trend being
witnessed across categories
Worldwide alcohol companies have a higher market
cap than tobacco companies, but not in India.
With global players no controlling the alcohol
space, we expect this mismatch to correct going
forward.
The cable distribution space stands to be the
only structural play in the Indian media
sector.
Top Buys United Spirits, Jyothy Labs, Den
Networks, Jain Irrigation
Top Sells ITC, HUL

Company Price (Rs) Mkt Cap (US Bn) Reco Target Price (Rs) FY14E (x) FY14E (x) FY12-14E CAGR () FY12-14E CAGR ()
Company Price (Rs) Mkt Cap (US Bn) Reco Target Price (Rs) EV/EBITDA P/E EBITDA EPS
Jyothy Labs 159 0.48 OP 250 14.0 22.6 63 59.5
United Spirits 1824 4.3 OP 19.8 41.2 25 53.4
DEN Networks 188 0.5 OP 250 11.4 34.9 70 57.3
Jain Irrigation 68 0.4 OP 100 6 7.4 22 53
Company Price (Rs) Mkt Cap (US Bn) Reco Target Price (Rs) FY14E (x) FY14E (x) FY12-14E CAGR () FY12-14E CAGR ()
Company Price (Rs) Mkt Cap (US Bn) Reco Target Price (Rs) EV/EBITDA P/E EBITDA EPS
ITC 300 42.8 OP 260 18 26.5 19.5 19.9
Hindustan Unilever 470 18.7 OP 442 21.3 27.7 15 19
Source IDFC Securities Research Note Prices as
of 12th March 2013 - Target price under review,
awaiting clarity on Diageo management s
strategy for USL yoy growth in FY14
16
United Spirits Poised to be the No 1 consumer
stock in India

Indian Alcohol Beverages sector to be rerated
Diageo and Pernod Ricard, the two largest global
players, now control 60 of the Indian spirits
market
Profits and Best practices key focus for both
Diageo and Pernod, hence terms of trade will
improve significantly
Consequently, the Indian liquor industry is set
to move to a new league of growth and value
creation
Diageo deal to steer United Spirits towards
premiumisation and deleveraging
Diageo to re-instate focus towards premiumization
and value rather than volume
Premiumisation case in point With 1.6x higher
realization per case, Pernod earned 12x PBT of
UNSP s in FY12
Diageo deal would infuse capital to the tune of
Rs33bn into USL (treasury stock preferential
allotment), aiding in significant balance sheet
de-leveraging (currently 60 of balance sheet)
Alcohol vs Tobacco MCap India to revert to
global norms?
Worldwide - Aggregate market capitalization of
alcoholic beverages sector is 1.5x that of
tobacco companies. However, in India, alcoholic
beverages companies aggregate market
capitalization is at 1/5th that of tobacco
companies
We believe this gap is poised to narrow, and UNSP
will lead the same

17
DEN Networks - best proxy to play digitization!

The cable distribution space remains the only
structural play in Indian Media space
With analog signals being switched off in Delhi
and Mumbai (as per Phase-I deadline of 30th Oct
2012) without any major hiccups, the seriousness
of all stakeholders and the Ministry is well
established.
With Phase-II on the cards, DEN is adding
350,000 digital subscribers a month with a
target to reach 3.5m digital subscribers by FY13
end and leverage on its 5m subscriber universe
in Phase-II.
As India moves from a 40m digital subscriber
base to a 200m base over the next 3-4years, we
see the mix of DTHcable shifting from 9010
currently to 5050 on incremental basis. Hence,
we believe cable will lead the digitization
rollout from hereon (evident in DEN adding 1m
subs in Q4FY13 against 0.1m net addition by Dish
TV)
With digitization to improve declarations (albeit
with a lag), we see the annuity-driven model of
distribution coming to the fore and resulting in
superior financial performance for DEN Networks
(57 earnings CAGR, FY12-14E). We see merit in
investing in the space

Digitization deadlines set by the government Digitization deadlines set by the government Digitization deadlines set by the government
Phase Areas suggested Deadline
Phase I Four Metros of Delhi, Mumbai, Kolkata and Chennai 30th October 2012 (yet to be implemented in Chennai)
Phase II Cities with a Population more than one million 31st March 2013 (expected to be implemented with a 2-3 month delay)
Phase III All Urban areas (Municipal Corp/ Municipalities) 30th September 2014
Phase IV Rest of India 31st Dec 2014
18
Jain Irrigation worst is behind!

Jain Irrigation has changed its MIS business
model to counter higher working capital
requirements due to delay in subsidy recovery
from the government. While this is impacting near
term earnings, it is underpinning strong
improvement in balance sheet metrics
In the state of Maharashtra (which accounts of
45 of total MIS sales), JISL has started
recovering 100 of the capital upfront from
farmers (with 50 as post dated cheques of
180-200 days).
Further, JISL is strategically focusing on states
where the subsidy disbursements have been
relatively better. As a result, JISL has limited
its operations in the some of the southern states
and is focussing on states such as Maharashtra,
Gujarat, Karnataka and Rajasthan
Recent capital infusion of US200, will impart
JISL the much needed financial muscle to leverage
on the underlying growth in the MIS industry and
efficiently manage cash flows
NBFC, now operational, will further aid in
resolving the dependence towards government
subsidies in the longer term.
Discussions for value unlocking in the fruit
processing unit. Development would be a key
trigger and remains to be a critical monitorable

Overall receivables (in days outstanding) on a
decline
Source Company, IDFC Securities Research
19
Jyothy Laboratories The next big thing!

From a limited opportunity play
Limited opportunity play (USD500m) Presence in
only 3 mass-end categories and one flagship brand
- Ujala
Akin to GCPL in 2008 GCPL in 2008 had limited
product portfolio (low growth visibility)
Promoter-driven business for past 30 years,
without professional management
Management bandwidth scaled up.. Business
integration complete..
Spearheading the change in management is new CEO
Mr S Raghunandan, a turnaround veteran
The new team, brought in by new CEO, has 15-25
years of experience from across the top consumer
names like HUL, Marico, Colgate, Paras, Sara Lee
etc.
Re-organisation of management team as well as the
re-alignment and integration of the two
businesses (Jyothy and Henkel) is almost complete
and the management is now likely to start exploit
brand portfolio in FY14.
Poised to enter the big league JYL can
potentially be another Godrej Consumer Products,
which has grown over the last 5 years through
acquiring successfully and has increased market
cap by10x in the process

To a whole new scale!!
Post the Henkel acquisition, market opportunity
up 10x to US5bn in India
Entry into premium categories Henkel infuses
a premium brand- width into a hitherto mass
market portfolio

20
ITC Structural headwinds to catch up

Threat for a cigarette de-rate is very real
The global clampdown on cigarettes will result in
de-rate of global cigarette majors
ITCs valuation gap with global majors has
expanded to over 50 from 20 10 year back with
volume growth difference having narrowed. Expect
the global de-rate to have a rub-off effect on
ITCs cigarette valuations.
Domestic environment getting increasingly
disruptive.. FY14 cigarette volumes expected to
decline
ITCs last five year cigarette volume CAGR is
1.3 as against 6 for the five years prior to
that.
FY13 volume growth is expected to be muted at 1.
With overall tax incidence increasing by over 20
in FY14 as well, we expect decline in volumes for
the year.
As the regulatory environment continues to worsen
(potential ad valorem structure, states banning
tobacco, unprecedented VAT hikes), the perceived
volume growth story for cigarettes in India is
likely to prove illusory.
FMCG strategy flawed other businesses will
dilute return profile
Failure to get even 15 share in any category in
FMCG despite having the strongest distribution
and investing huge capital (Rs45bn) dilutes
economic benefits of this space.
ITC looks to pump in 75 of capex into segments
like Hotels and Paper, which are at best P/B
businesses and lower ITCs overall return
profile.
We believe the structural risk to the cigarette
business will weigh down on business fundamentals
and reflect in the stock underperformance in the
future.

21
Hindustan Unilever The pain is evident

Pain points evident in core portfolio
HULs volume growth is at a 3 year low and is
expected to stay muted in the medium term.
Continued pressure on Fair and Lovely, regional
issues with Wheel, and a slower rate of growth at
the premium end are impacting the core portfolio
growth profile.
Unileverisation to cap new product pipeline
HULs thrust to boost its innovation funnel is
limited to Unilever categories. Unlike other
global majors (PG, Nestle, Agrotech) the
companys global portfolio has been largely
tapped.
Of the 14 billion dollar brands in Unilever
portfolio, 9 are in India and the others are not
relevant to the Indian market!! Not Indianising
will result in the innovation funnel drying up,
thereby making it harder for HUL to achieve
relevant volume growth in the long term.
Competitive intensity and higher royalty payments
to restrict margin expansion
Competitive intensity remains high in laundry and
personal products which will keep AP spends high
in the medium term.
Further, a 30-40bp annual increase in royalty
restricts the inherent margin expansion potential
in the business.
The structural slowdown in volumes, revenues and
hence profits will take its toll on valuations.

22
Oil Gas Cairn offers value, ONGC benefits from
higher gas prices
Analyst Prakash Joshi

Industry fundamentals have improved over last few
months
Improvement of 20 in Asian benchmark GRMs to
US 7-8 / bbl levels
Recent moves on diesel pricing and differential
pricing for bulk diesel are a positive, may
reduce gross subsidies by 35 for FY14E vs FY13E
levels (assuming average price hikes of Rs4/ltr
over FY14E)
Exploration approvals for CAIRN/RIL and proposals
for increasing gas prices gaining momentum
Valuations have run up sharply, with 15 increase
in sector over last one month (BSE OG index)
However, we remain underweight
Do not see the upsurge in GRMs sustainable
prevalence of adequate supply and extremely muted
demand
For petrochemicals, the overhang of ME led supply
additions continues spreads unlikely to
compress
Government support remains significant for OMCs
(Rs 590 Bn required from Government even in
FY14E)
Gas price increase proposal remains only a
proposal, exact quantum applicability is a
crucial monitorable

Selective opportunities exist in the
infrastructure space
Reduction in interest rates and de-leveraging
through asset sales are key near term triggers
Prefer players with relatively lower fuel
tariff risks in the power sector with greater
cash flow visibility and asset monetization
potential in the infrastructure space
Valuations at 0.5x 1.0x P/B for most players
are attractive
What is yet to be addressed?
Decision on coal gas price pooling on tariff
hikes for imported coal based power plants
Expedite environment/ forest clearances for
mining and infrastructure projects
Decisions prone to litigation and may not be easy
to implement

We remain underweight on the metals
Global demand moderating after a decade of strong
growth as Chinas FAI investment growth
decelerates and risk in Europe looms large, as
macroeconomic data continues to remain weak
Rising per tonne capex costs and supply
disruptions to support global raw material
prices operating margins to compress further
Investment led demand in India to subside as
macroeconomic indicators and GFC formation
weakens. India losing its raw material cost
advantage an overcapacity-led shift in domestic
steel market to export parity pricing to hurt
realizations
Rising CWIP and lower profitability to lower
return ratios multiple de-rating not priced in.
Stocks would likely remain range-bound in near
term.
We remain positive on JSPL (for their strong cash
flow generation, higher backward integration and
superior balance sheet). Increasing power
merchant tariff and signing of Utkal B1 mining
lease can act as a huge positive trigger
We remain negative on Tata Steel, (on continuing
uncertainty on loss making European operations
declining profitability for future domestic
projects and rising leverage, led by higher capex
intensity).

Selective opportunities exist in the auto space
HCV demand extremely weak closer to bottom
moderation in demand for UVs and diesel cars
Demand pullback looks elusive in 4Q FY13 cut in
FY14 estimates certain
Preference for stocks with export tilt and
leverage
Recommend selling Tata Motors (Stock factoring in
40 premium over BMW for JLR while ignoring
competition launches and Jaguar dependence for
growth standalone business structurally weak).
Dont see upside in MM. Hero MotoCorp a value
trap. Recommend buying Maruti Suzuki post steep
fall (forex to cushion volume miss/competition),
Ashok Leyland (tactical upcycle trade) and TVS
Motor (contrarian call as best riskreward
significant launches 6 in 2013 and BMW deal).
Recommend adding Bajaj Auto and Eicher Motors on
dips (structural picks).

Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks Preferred Stocks
Company Price (Rs) Mkt Cap (US Bn) Target Price (Rs) FY14E (x) FY14E (x) FY12-14E CAGR () FY12-14E CAGR ()
Company Price (Rs) Mkt Cap (US Bn) Target Price (Rs) EV/EBITDA PE EBITDA EPS
Maruti Suzuki 1,417 8.23 1,485 6.6 14.2 32.1 36.0
Ashok Leyland 23 1.19 30 7.2 8.4 6.5 14.0
TVS Motor 40 0.37 62 3.7 5.8 13.1 14.4
- street ascribes a P/E multiple of 15x.
Source IDFC Securities Research Note Prices as
of 25th January 2013
29
Top Picks Auto
Company Key arguments
Maruti Suzuki Stock offers a good trading upside post 13 fall Gaining market share from competition as demand weakens Significant weakness in JPY provides ample cushion against volume miss/ compettition At 15x FY14 (consensus multiples) stock would be at Rs1,575
Ashok Leyland Saw correction from Rs 28 due to concerns of a earning dilutive QIP QIP called-off due to lack interest. Management has ruled out any fund raising in medium term. Current levels attractive as recovery not factored in and MHCV closer to cyclical bottom Recommend buying around Rs 23 purely a up-cycle trade
TVS Motor 6 launches to drive volumes /margins enough headroom to grow volumes/margins On course to knock-off Rs 4 Bn debt (25 of Mkt Cap) by FY14 Deal with BMW a big vote of confidence in companys capability. Attractive valuation at 5.8x/7.7x our FY14E standalone EPS/street estimates
30
Auto Front Liners Sell / Neutral
Company Key arguments
Bajaj Auto Despite multiple headwinds in the past two years company has protected its margins c.20 Diversified portfolio, export tilt, agility and cost discipline is a positive in a uncertain environment Greater visibility on forex as FY14 hedged at Rs54. RE60 not priced in if successful can re-rate stock FY14 expected to be much better, led by launches and demand recovery (2HFY14) maintain outperformer with target price of Rs 2,168. Buy on dips
Mahindra Mahindra The best in UVs behind with demand moderation and market share loss discounts creeping in No new relevant model launches in UV segment till end FY15 while competition intensifies Tractor demand recovery delayed, SsangYong profitability pushed back to 2015. 2Ws/CVs losses widen Losses outside core business restrict upside. SOTP target price of Rs 885 Neutral. Sell on rally.
Tata Motors Negative surprise from JLR likely product onslaught from competition and pricing pressure not factored in Capex of14-16/revenues at JLR rules out free cash flow till FY16 debt levels may continue to rise India business (20 of SOTP) in structural slippage with market share loss in MHCVs and PVs Current valuation steep (JLR at 41 premium over BMW EV/sales). Underperformer with TP of Rs 254
Hero MotoCorp Sustained market share loss despite dealer inventory build-up dealers increasingly jittery No product launches for the next two-three years in relevant categories make it vulnerable Threat from HMSIs aggressive India plans higher for Hero MotoCorp than Bajaj Auto Increasing incentives to arrest benefit of royalty payment phase-out in FY15 (max EPS of Rs130) See it as a value trap post correction, maintain underperformer with target price of Rs 1,565
31
Government Divestment Discount to market price
deals are attractive
Top 10 PSUs - Potential Realizable Value Top 10 PSUs - Potential Realizable Value Top 10 PSUs - Potential Realizable Value Top 10 PSUs - Potential Realizable Value Top 10 PSUs - Potential Realizable Value Top 10 PSUs - Potential Realizable Value Top 10 PSUs - Potential Realizable Value Top 10 PSUs - Potential Realizable Value
Company Mkt Cap (US Mn) Current Govt. Stake () Govt. stakes Value (US Mn) Min. stake to be held by Govt. () Realizable Value (US Mn) IDFC Reco. Buy Price (Rs)
ONGC 49,910 69.23 34,553 51 6,299 NEUTRAL 290 300
Coal India 37,107 90 33,396 51 13,024 SELL 300
NTPC 22,289 75 16,717 51 4,012 NEUTRAL 140
Indian Oil 13,801 78.92 10,892 51 3,041 SELL 260 265
NMDC 10,447 80 8,358 51 2,424 BUY 144
MMTC 5,629 99.33 5,592 51 2,702 Not Rated -
BHEL 8,879 67.72 6,013 51 1,005 SELL 180
PGCIL 9,151 69.42 6,352 51 1,170 Not Rated -
GAIL 7,932 57.34 4,548 51 288 BUY 340
SAIL 5,392 85.82 4,628 51 1,611 SELL 55
Total 1,31,048 35,578
Assumed Conversion Rate Rs 54.50 per US
32
Government Divestment Discount to market price
deals are attractive
Company Name Price (Rs) Target Price (Rs) Our Reco. Comments Buy Price (Rs)
Engineers India 160 200 BUY Favourable revenue mix Key beneficiary of any pick up in the hydrocarbon capex Rs 22 Bn cash on books 150-160
Oil India 549 519 NEUTRAL Steady improvement in natural gas business Excess cash scouting for acquisitions Proposed subsidy might improve realizations 475 480
NTPC 147 178 NEUTRAL Capacity addition increased coal supply But difficult to return to historical availability PLFs 140
BHEL 199 213 SELL -6 CAGR expected in earnings (FY12-15) Outlook on order inflows remains weak Rise in working capital intensity 180
SAIL 71 59 SELL Delay in modernisation expansion plans Delay in iron ore availability Pressure on margins expected on account of increasing employee costs 55
33
Annexure 1IDFC Securities Earnings Growth
34
Price T Price Mkt Cap Mkt Cap Reco EPS (INR) EPS (INR) EPS (INR) EPS CAGR () P/E (x) P/E (x) P/E (x) EV/EBITDA (x) EV/EBITDA (x) EV/EBITDA (x) P/B (x) P/B (x) P/B (x) RoCE () RoCE () RoCE ()
Company Name (Rs) (Rs) (US m) (Rs. bn) FY 13E FY 14E FY 15E FY14E/FY12 FY 13E FY 14E FY 15E FY 13E FY 14E FY 15E FY 13E FY 14E FY 15E FY 13E FY 14E FY 15E

Alcoholic Beverages 7,734 424 57.0 28.9 42.3 58.8 47.6 DIV/0! 23.4 20.3 6.0 4.1 11.1 12.3 -
Radico Khaitan 127 172 307 16.9 OP 6.4 8.8 - 15.0 19.7 14.4 - 11.4 9.3 - 2.2 1.9 - 11.6 13.3 -
United Breweries 739 650 3,236 177.5 UP 7.8 9.2 - 27.7 95.0 80.2 - 39.6 31.9 - 13.2 11.4 - 14.4 16.9 -
United Spirits 1,826 Under Review 4,191 229.8 OP 36.5 44.3 - 53.4 50.0 41.2 - 19.7 17.7 - 4.5 3.0 - 10.4 11.3 -
Automobiles 47,766 2,620 (16.1) 25.4 2.6 12.7 10.2 8.1 6.8 5.5 4.1 2.8 2.4 1.9 20.9 22.8 18.3
Ashok Leyland 22 30 1,065 58.4 OP 1.7 2.8 - 14.0 12.8 8.0 - 9.5 7.0 - 1.3 1.2 - 7.9 10.2 -
Bajaj Auto 1,674 2,168 8,830 484.3 OP 106.9 135.5 150.5 12.4 15.7 12.4 11.1 11.0 8.4 7.1 6.6 5.2 4.2 51.7 52.4 47.2
Eicher Motors 2,663 3,175 1,308 71.7 OP 120.1 156.6 226.8 17.1 22.2 17.0 11.7 11.5 8.5 5.3 2.6 2.3 1.8 17.4 19.8 25.1
Hero MotoCorp 1,454 1,565 5,294 290.4 UP 106.9 105.1 - (6.1) 13.6 13.8 - 7.2 6.5 - 5.5 4.7 - 38.1 38.1 -
M M 848 862 9,084 498.2 N 53.1 58.3 - 11.0 16.0 14.5 - 11.4 10.1 - 3.6 3.1 - 23.3 22.5 -
Maruti Suzuki 1,311 1,485 6,909 378.9 N 64.5 100.1 - 33.0 20.3 13.1 - 9.0 5.6 - 2.3 2.0 - 10.9 16.2 -
Tata Motors 258 254 14,982 821.7 UP 29.6 37.6 38.1 (6.4) 8.7 6.9 6.8 4.6 3.8 3.5 2.0 1.6 1.4 20.5 21.8 20.4
TVS Motor 34 62 295 16.2 OP 4.3 6.9 - 14.4 7.9 5.0 - 5.2 3.3 - 1.3 1.1 - 13.9 22.0 -
Cement 21,834 1,197 15.4 16.9 16.1 14.4 12.3 12.6 7.6 6.5 6.6 2.1 1.8 2.3 17.3 18.0 8.1
ACC 1,139 1,500 3,900 213.9 OP 68.5 78.6 89.4 18.3 16.6 14.5 12.7 9.0 7.8 6.5 2.8 2.6 2.3 17.1 17.7 18.2
Ambuja Cement 168 165 4,666 255.9 UP 10.1 11.7 13.5 22.4 16.6 14.3 12.5 9.0 7.7 6.7 2.9 2.6 2.3 20.9 21.8 21.7
Grasim Industries 2,726 3,411 4,557 249.9 OP 299.6 347.6 - 10.7 9.1 7.8 - 4.5 4.0 - 1.0 0.8 - 15.3 15.9 -
UltraTech Cement 1,743 1,600 8,711 477.7 UP 100.1 119.3 - 17.7 17.4 14.6 - 10.1 8.5 - 3.1 2.6 - 18.9 19.6 -
Construction 18,182 997 6.6 18.7 12.5 17.6 14.7 12.0 9.5 8.0 6.9 1.6 1.5 1.3 9.7 10.6 11.4
Gammon India 24 30 59 3.3 UP (26.0) (5.2) 1.5 n/a n/a n/a (7.4) 45.3 7.1 5.5 (0.1) (0.1) (0.1) (0.9) 5.8 7.7
HCC 14 19 158 8.7 UP (2.7) (1.8) (0.2) n/a n/a n/a n/a 8.9 6.8 5.6 (0.2) (0.3) (0.3) 4.1 5.8 7.5
IVRCL Infrastructures 20 48 96 5.3 OP (3.3) (1.5) (0.5) n/a n/a n/a n/a 0.8 0.9 1.2 (0.4) (0.4) (0.4) 4.3 6.7 7.3
Jaiprakash Associates 64 101 2,466 135.3 OP 4.9 7.8 11.1 61.2 13.0 8.2 5.8 9.0 7.4 6.2 0.6 0.6 0.5 8.2 9.4 10.6
Larsen Toubro 1,362 1,680 15,118 829.2 N 79.8 80.2 90.2 5.5 17.1 17.0 15.1 11.4 10.4 9.0 2.9 2.6 2.3 15.9 14.7 14.9
Madhucon Project 24 57 32 1.7 OP 5.4 6.1 - 14.0 (2.1) (1.9) - (2.8) (3.0) - (0.1) (0.1) - 12.0 11.0 -
NCC 33 56 153 8.4 OP 3.0 3.3 3.7 14.0 1.6 1.4 1.3 2.6 2.7 2.4 0.0 0.0 0.0 7.5 8.1 8.5
Simplex Infrastructures 109 170 99 5.4 N 13.9 14.2 16.9 (8.4) 7.9 7.7 6.5 5.2 4.8 4.3 0.4 0.4 0.4 9.3 9.3 9.8
35
Price T Price Mkt Cap Mkt Cap Reco EPS (INR) EPS (INR) EPS (INR) EPS CAGR () P/E (x) P/E (x) P/E (x) EV/EBITDA (x) EV/EBITDA (x) EV/EBITDA (x) P/B (x) P/B (x) P/B (x) RoCE () RoCE () RoCE ()
Company Name (Rs) (Rs) (US m) (Rs. bn) FY 13E FY 14E FY 15E FY14E/FY12 FY 13E FY 14E FY 15E FY 13E FY 14E FY 15E FY 13E FY 14E FY 15E FY 13E FY 14E FY 15E

Consumer goods 84,003 4,607 20.3 18.3 19.3 32.7 27.6 28.4 23.0 19.2 17.2 12.9 11.0 13.5 44.0 47.8 8.6
Colgate-Palmolive 1,311 1,530 3,251 178.3 OP 39.0 45.0 - 17.0 33.6 29.2 - 24.6 20.9 - 36.2 31.4 - 143.1 147.5 -
Dabur India 141 131 4,453 244.2 N 4.4 5.2 - 18.2 32.1 27.2 - 24.1 20.7 - 11.4 9.4 - 30.9 32.1 -
Godrej Consumer 785 781 4,624 253.6 OP 21.4 26.0 - 22.0 36.7 30.1 - 26.0 21.2 - 8.1 6.9 - 20.1 21.1 -
Hindustan Unilever 470 442 18,508 1,015.1 UP 15.2 17.0 - 19.5 31.0 27.7 - 24.8 21.3 - 24.3 21.2 - 98.0 97.4 -
ITC 300 260 42,264 2,317.9 UP 9.4 11.3 - 19.9 31.9 26.4 - 21.6 17.8 - 10.9 9.3 - 42.4 49.1 -
Jyothy Laboratories 159 250 468 25.7 OP 4.0 7.0 10.0 59.5 39.6 22.6 16.0 19.8 13.9 10.8 4.0 3.7 3.2 11.1 16.0 20.0
Marico Industries 217 243 2,432 133.4 OP 6.5 8.1 - 25.2 33.2 26.7 - 22.2 18.4 - 6.9 5.6 - 22.2 21.5 -
Nestle India 4,553 4,968 8,003 438.9 OP 114.2 131.1 152.8 11.4 39.9 34.7 29.8 24.5 21.0 17.9 24.4 19.9 16.7 58.4 55.9 59.5
Education 107 6 (60.5) 59.4 (20.7) 9.6 5.2 7.1 5.2 0.3 0.2 5.3 6.7 -
Educomp Solution 62 160 107 5.9 N 7.4 11.8 - (20.7) 8.3 5.2 - 7.1 5.2 - 0.2 0.2 - 5.3 6.7 -
Engineering 6,706 368 (5.0) 11.1 2.7 14.2 12.7 12.6 9.3 7.8 7.9 2.3 2.0 2.3 14.6 15.3 13.2
AIAE 314 400 539 29.6 OP 19.7 24.2 28.3 12.5 15.9 13.0 11.1 9.9 7.8 6.6 2.1 1.9 1.6 17.3 19.1 19.9
Bharat Electronics 1,180 1,300 1,721 94.4 N 98.0 108.3 - 0.0 12.0 10.9 - 6.9 4.6 - 1.5 1.4 - 5.8 7.5 -
Carborundum Universal 115 126 393 21.5 UP 5.9 7.9 - (17.6) 19.6 14.6 - 11.3 9.1 - 2.0 1.8 - 10.2 12.7 -
Engineers India 160 248 982 53.8 OP 18.0 16.1 - (7.3) 8.9 9.9 - 3.9 4.0 - 2.5 2.2 - 29.1 23.9 -
Havells India 602 700 1,370 75.1 OP 30.1 38.9 45.9 14.5 20.0 15.5 13.1 11.4 9.3 7.6 5.5 4.4 3.5 26.0 28.0 29.6
Thermax India 573 500 1,244 68.2 UP 27.7 30.4 36.8 (5.3) 20.7 18.8 15.6 13.3 12.3 10.0 3.4 2.9 2.5 18.4 16.5 18.1
Voltas 76 90 457 25.1 UP 6.3 7.7 9.0 98.0 12.0 9.9 8.4 10.4 8.0 6.6 1.5 1.3 1.2 10.9 12.6 13.5
Financial 131,586 7,217 15.9 18.9 18.0 17.4 12.6 10.6 9.0 2.0 1.7 1.5 2.0 1.7 1.5 1.2 1.2 -
Axis Bank 1,244 1,685 9,311 510.7 OP 115.3 132.9 161.4 13.6 10.8 9.4 7.7 1.7 1.5 1.3 1.7 1.5 1.3 1.6 1.7 1.7
Bank of Baroda 656 675 4,695 257.5 UP 113.0 131.9 156.7 3.0 5.8 5.0 4.2 0.9 0.8 0.7 0.9 0.8 0.7 1.0 1.0 1.0
Bank of India 306 310 3,052 167.4 UP 50.3 63.6 70.2 15.4 6.1 4.8 4.4 1.1 0.9 0.8 0.8 0.7 0.6 0.7 0.8 0.7
HDFC 792 837 21,192 1,162.3 N 31.6 37.0 43.3 15.2 25.1 21.4 18.3 5.0 4.5 3.9 4.9 4.3 3.8 2.6 2.6 2.6
HDFC Bank 616 735 26,133 1,433.2 OP 28.7 36.9 46.7 29.1 21.5 16.7 13.2 4.2 3.5 2.9 4.1 3.4 2.9 1.8 1.9 2.0
ICICI Bank 1,009 1,325 21,186 1,162.0 OP 72.8 86.4 105.4 24.1 13.9 11.7 9.6 1.8 1.6 1.5 1.8 1.6 1.4 1.7 1.8 1.9
Indusind Bank 405 455 3,442 188.8 N 22.2 28.5 36.0 28.8 18.2 14.2 11.3 5.1 5.2 5.3 5.0 5.0 5.0 1.6 1.7 1.7
36
Price T Price Mkt Cap Mkt Cap Reco EPS (INR) EPS (INR) EPS (INR) EPS CAGR () P/E (x) P/E (x) P/E (x) EV/EBITDA (x) EV/EBITDA (x) EV/EBITDA (x) P/B (x) P/B (x) P/B (x) RoCE () RoCE () RoCE ()
Company Name (Rs) (Rs) (US m) (Rs. bn) FY 13E FY 14E FY 15E FY14E/FY12 FY 13E FY 14E FY 15E FY 13E FY 14E FY 15E FY 13E FY 14E FY 15E FY 13E FY 14E FY 15E

Hospitals 2,626 144 (65.1) 300 18.1 152.2 38.1 DIV/0! 15.4 18.3 1.9 1.8 6.1 4.9 -
Apollo Hospitals 834 950 1,897 104.0 OP 21.7 25.3 - 24.4 38.4 33.0 - 19.5 16.7 - 4.2 3.7 - 11.5 11.7 -
Fortis Healthcare 99 112 729 40.0 N (4.9) 1.4 - (10.0) n/a 68.5 - 11.7 21.4 - 0.7 0.7 - 4.0 1.5 -
Infra Developers 12,557 689 (39.3) 130 18.2 32.7 15.1 10.5 15.6 10.6 8.8 1.3 1.2 1.1 4.4 6.5 7.8
Adani Enterprises 209 364 4,199 230.3 OP 9.2 24.0 31.7 12.4 22.9 8.7 6.6 16.3 9.6 8.1 1.0 0.9 0.7 3.9 6.9 8.5
Adani Port SEZ 141 164 5,141 282.0 OP 5.9 8.0 11.6 16.4 24.0 17.7 12.2 15.3 12.2 9.7 4.4 3.8 2.9 8.6 10.0 12.0
Ashoka Buildcon 194 304 186 10.2 OP 18.1 24.1 25.0 0.9 10.7 8.0 7.7 10.0 12.3 8.9 0.8 0.6 0.5 3.0 2.4 3.4
Gammon Infrastructure 11 24 151 8.3 Under Research Negative List Under Research Negative List Under Research Negative List Under Research Negative List
Gujarat Pipavav 50 65 390 21.4 OP 1.4 2.2 2.7 26.7 36.6 23.3 18.6 15.3 15.2 12.4 1.9 1.8 1.7 7.7 7.6 8.5
GMR Infrastructure 22 25 1,526 83.7 OP (1.5) (1.3) (0.6) n/a n/a n/a n/a 20.2 13.5 11.0 0.9 0.9 0.9 2.7 4.2 4.9
GVK Power 10 13 274 15.0 UP (1.0) 0.5 1.2 33.4 n/a 20.1 8.2 19.5 10.2 7.8 0.3 0.2 0.2 3.0 6.5 6.7
IRB Infra 114 171 690 37.8 OP 15.1 14.6 16.0 (1.0) 7.5 7.8 7.1 6.5 6.7 6.8 1.1 1.0 0.9 10.9 11.1 10.5
IT Services 121,019 6,637 23.8 11.7 13.7 17.6 17.3 15.5 13.6 12.2 10.4 8.9 4.5 3.7 3.1 31.0 28.8 26.7
eClerx Services 628 700 345 18.9 N 58.5 78.3 92.8 21.6 10.7 8.0 6.8 6.3 4.9 3.6 3.5 2.7 2.1 51.8 42.3 38.6
HCL Technologies 743 650 9,130 500.8 UP 51.6 53.9 65.5 23.0 14.4 13.8 11.3 8.6 7.7 6.0 3.8 3.1 2.5 32.2 28.5 28.5
Hexaware Technologies 91 90 479 26.3 N 10.9 10.6 13.9 8.9 8.3 8.5 6.5 5.5 5.3 4.0 2.3 2.1 1.9 33.8 30.5 36.5
Infinite Computer 101 Under Review 82 4.5 UP 32.4 35.7 47.2 12.9 3.1 2.8 2.1 1.3 0.9 0.5 0.7 0.6 0.6 29.5 28.8 31.9
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