ICICI Bank

Tata Steel

Tech Mahindra

Cairn India

GMDC

Exide Ind

Axis Bank

Rallis India

Pidilite

Diwali Picks
Microsec Research

 DearPatrons,

WishingyouAVeryHappyDiwaliandProsperousSamvat2070!
It is a paradoxical end to Samvat 2069 as Indian markets (Nifty) gained 9.45% between last Diwali to 29/10/13, whereas economic fundamentals have deteriorated during last one year as GDP expectations which was ~6% last year were cut down to 4.8% now for FY14. Sensex gained 2245 points between last Diwali and Diwali eve this year. However, the top 5 stocks that contributed to the maximum gains were: Infosys (568 points), TCS (517 points), ITC (243 points), Sun Pharma (228 points) and Tata Motors (225 points), hence contributing to 79% of the index gains. Contributors to losing side of Sensex in Index points were: SBI (139 points), L&T (100 points), BHEL (96 points), JSP (70 points) and Tata Steel (52 points). This study is relevant in the sense that INR that depreciated sharply helped IT and Pharmagain,whereas,laggardsdepictedthewoesoftheeconomy.DuringthesameperiodMicrosecDiwaliPicksgave areturnof12%againstNiftyreturnsof9percent. As Markets reflect the hope or expectations, so does this level of Indexes as we hope for a better India with better domestic and global macroeconomic indicators. However, past one year has seen major shift in perceptions of social and political class, which can be a stronger foundations for the year to come. As mentioned above, expectations from Samvat 2070 would centre on a better governance, the cornerstone to growth and regain lost milestone. The year ahead will be a rollercoaster ride for the markets as key events like Indias General Elections, tapering of US Bond purchases or may be further quantitative easing from US, and situations in Middle East and its relation with US and others will hog the limelight. However, currently Nifty is trading 12.70 times FY15 EPS (E) of 490, which we believe towardsnextDiwalimaytrade14times,givingtargetsof~6860forNifty. Inthiscontext,weselect9stocksasDiwaliPicks,whicharefundamentallybetterplacedandreflectsthecyclicalsectors whichwebelieveissetforanupturn.Theinvestmentobjectiveisforayear.
Company AxisBank CairnIndia ExideInd GMDC ICICIBank PidiliteInd RallisIndia TataSteel TechMahindra Nifty CMP(29/10/13) TargetPrice(1Yr) UpsidePotential(%) 1251.20 1458.00 16.53 315.90 415.00 31.37 124.00 153.00 23.39 105.00 133.00 26.67 1075.45 1204.00 11.95 265.00 330.00 24.53 153.85 185.00 20.25 326.00 410.00 25.77 1523.30 1793.00 17.70 6220.90 6860.00 10.27

WithWarmRegards&HappyInvesting, TeamMicrosecResearch

Axis Bank Ltd BUY

Sector - Banking We rate Axis Bank Limited a BUY. Axis Bank is the third largest Private Sector Bank in terms of business and profitability. As on 31st March 2013, the Banks balance sheet size crossed over INR3.4 trillions with strong distribution network of 1947 branches and 11245 ATMs spread across the country. It also has overseas offices in Singapore, Hong Kong, Shanghai, Colombo, Dubai and Abu Dhabi. Axis Bank is one of the few Indian Banks, which has smartly managed to transform itself into a true financial conglomerate with its presence in core banking besides, Insurance, Asset Management, Mutual Fund, Broking, Home Finance etc. areas of investment banking, life and non-life insurance, venture capital and asset management. Investment Rationale Growing profitability boosted Return ratios: The Banks rapid business expansion along with growing profitability (operating profit has grown at a CAGR of ~21% whereas, Profit after Tax (PAT) grew at a CAGR of ~24% over the period of FY11-13) has helped the Bank to manage its return ratio better. In FY13, its Return on Assets (ROA) was at historical high of 1.7% and Return on Equity (ROE) stood at 18.5% despite recent capital infusion of ~INR5537 crores. Moreover, it is better placed amongst its top four private peers in terms of high returns. As on H1FY14, ROA and ROE stood at 1.65% and 16.64% respectively. Improving asset quality; Strong coverage ratio: Axiss thoughtful business strategy and strong risk management with in-depth analysis of borrowers profile enabled it to manage its asset quality problems. In the current challenging environment, where the banking sector is suffering from asset quality problems, Axis Bank has been able to maintain its asset quality. Over the past few quarters, the Bank has maintained its NNPA and GNPA ratios. In Q2FY14, its GNPA and NNPA stood at 1.19% and 0.37%. It is in better placed amongst its peers in term of superior asset quality. Moreover, it is in well positioned to tame any time liabilities with 80% of its Provision Coverage Ratio (PCR). Higher CASA deposits support margin stability: Notwithstanding challenging environment, Axiss NIM has consistently been higher than the industrys average. In FY13, its NIM improved by 5bps to 3.18% against industrys decline by 8bps to ~2.5% primarily because of the Banks low cost deposits base (CASA) which has improved from ~41% in 2011 to ~44% in 2013. As on H1FY14, CASA ratio stood at 43%. Banks key priority towards healthy growth in Current & Savings account deposits has helped it to cross CASA deposit of over ~INR1.09 trillion in Q2FY14.

Analyst: Sanjeev Jain Phone: +91-33-3051-2174 Email Id: sjain@microsec.in

Source: ACE Equity, Company, Microsec Research

-130th October 2013 Microsec Research

Cairn India Limited

BUY
Market Data Current Market Price (INR) Price Objective(INR) Upside Potential(%) 52 Week High (INR) 52 Week Low (INR) Market Capitalization (In INR Mn)
Cairn UK Holdings Ltd., 10.27% DII, 11.75% Promoter & Promoter Group, 58.77% Others, 4.88%

Sector- Oil & Gas We rate Cairn India Ltd a BUY. Our rating underpins the production ramp up from its Rajasthan field coupled with escalating crude oil prices complimented with depreciating INR vs. USD and aggressive capex plans are expected to ensure strong business growth in the future. Investment Highlights Production Ramp up is the Key: The production ramp up from its Rajasthan block is the best possible trigger for the company. Currently the block is operating at the production rate of 180000bpd which is in line with the envisaged quantum and the exit production of 210000-215000bopd also looks feasible. Crude Oil Prices: Cairn India is a pure play of crude oil prices as their realization from the Rajasthan block are calculated by providing discount of ~8-13% to Brent crude oil prices. As a matter of fact higher the crude oil prices higher the realization for the company. Cairn India is the key beneficiary for the depreciating INR against USD as well as their realizations are dollar denominated. Expansion Plans: Aggressive CapEx plans have been approved by the board of the company to uplift the current production from the existing block as well as also for new exploration activities. The company has formulated a comprehensive CapEx programme of drilling > 450 wells over the period of next 3 years. The company targeted over 530 million barrels of gross recoverable risk prospective resources including gas potential. Valuation and Outlook: We valued the company on a consolidated basis using EV/EBITDA method and DCF method where we assigned 75% weightage to the EV/EBITDA methodology considering the kind of business Cairn India is in and 25% weightage to the DCF valuation given the fact of the visibility of future free cash flows. We assumed WACC of 10.97% and a terminal growth rate of 1% for DCF and based on our model we believe we believe that the projected EV/EBITDA of based on current price is reasonable. Moreover the scrip is also inexpensive against its domestic as well as international peers in terms of various valuation parameters.
Cairn India's Financial Performance (InINR crores except per share data & %)

315.90 415.00 31% 349.90 267.90 60,344.48

FII, 14.33%

Shareholding Pattern
STOCK SCAN BSE Code NSE Code Bloomberg Ticker Reuters Ticker Face Value (INR) Equity Share Capital (In INR Mn) Average P/E Beta vs Sensex Average Daily Volume Dividend Yield PEG Ratio
120.23 115.23 110.23 105.23 100.23 95.23 90.23 85.23 80.23
05-Feb-2013 30-Oct-2012 19-Feb-2013 01-Oct-2013 15-Oct-2013 14-May-2013 28-May-2013 06-Aug-2013 13-Nov-2012 27-Nov-2012 05-Mar-2013 19-Mar-2013 20-Aug-2013 02-Apr-2013 16-Apr-2013 30-Apr-2013 11-Dec-2012 25-Dec-2012 29-Oct-2013 11-Jun-2013 25-Jun-2013 09-Jul-2013 23-Jul-2013 03-Sep-2013 17-Sep-2013 08-Jan-2013 22-Jan-2013

532792 CAIRN CAIR IN CAIL.BO 10.00 4,762.20 6.09x 0.76 231,201 1.9% NA

Particulars Net Sales Operating Profit Operating Profit Margins (%) Net Profit Net Profit Margins (%) EPS BVPS P/E(x) P/BV(x) EV/EBITDA(x) RoE(%)

FY2011A
10,277.93 8,254.44 80.31% 6,334.45 61.63% 33.21 210.93 10.55 1.66 7.76 15.72%

FY2012A 11,860.64 9,254.41 78.03% 7,937.75 66.93% 41.62 252.81 8.02 1.32 5.68 16.44%

FY2013A
17,524.15 13,033.16 74.37% 11,919.74 68.02% 63.11 249.70 4.36 1.09 3.30 24.99%

FY2014E
18,915.12 15,703.15 83.02% 14,705.46 77.74% 76.98 313.32 4.10 1.01 3.85 24.57%

FY2015E
19,159.88 15,687.75 81.88% 14,953.77 78.05% 78.28 378.24 4.04 0.84 3.85 20.70%

CLOSE(Cairn India Ltd)

CLOSE(SENSEX)

Source :Ace Equity,Company data, Microsec Research

Analyst: Soumyadip Raha sraha@microsec.in

30th October, 2013

Microsec Research

Exide Industries Limited

BUY
Market Data Current Market Price (INR) Target Price Upside Potential 52 Week High/Low (INR) Market Capitalization (In INR Cr.) 124 153.00 24% 151/116 10,417

Sector- Auto Ancillary We rate Exide Industries Ltd (Exide) a BUY. Our rating underpins the companys distribution network, after sales service, usage of product in different sectors and its R&D and technological framework. However, slowdown in automobile industry impedes our optimism bit. Investment Highlights Wide distribution channels, after sales and warranty services. Exide enjoys strong distribution network in domestic as well as international markets. Currently, the company is operating from over 200 locations, which has enabled Exide to market as well as provide after sales services to customers in Tier II & III cities. The Project Kisan initiative has also enabled Exide to reach its products to all remote locations. In addition, companys performance is likely to be supported by warranty and after sales services. Strong Research and development. The company has managed to carry out the R&D activities efficiently and likely to do so in the future. The R&D activity has helped the company in many ways like development of new and cost efficient products to meet the diverse requirements of large number of applications in both automotive and industrial segments. Specific attention had been provided towards development of new raw materials for development of new formulation, development of new technique in making process improvements, Value Addition/Value Engineering on existing products through technology, design and process up-gradation. Wide usages of battery in different sectors may boost the top line growth. Apart from Automotive sector, Exide batteries are used in Railway, Telecommunications, Defense, Mining, Hospitals, lighting of coach, Airlines Signaling and Communications sectors. Strong Financial growth with sound ratios. The Company has registered a strong financial growth in FY13. Its Net sales increased by 19.73% to INR6,372 crore and PAT grew by 23.16% to INR549 crore. Its PAT margin, also, improved from 8.38% to 8.62%. ROE of the company arrived at 19.10%. The company continues to remain debt free. Exides financial ratios are strong and are very much in line with its nearest competitor Amara Raja batteries. Valuation: At the CMP of INR124, the stock is trading at a P/E of 15.5x its FY14E EPS of INR8.0 and 12.3x its FY15E EPS of INR10. The company has sound business model and ROE of 19.10%. We assigned a P/E multiple of 15.3x to its FY15E EPS to arrive at a Target price of INR153 for a time period of 12-15 months.
Exhibit 1. Exide Industries financial performance (In INR Cr.except per share data and %) Particulars FY 2010 A Net Sales (post Excise Duty) 3,979 Growth (%) EBITDA 977 EBITDA Margins (%) 24.56% Net Profit 494 Net Profit Margins (%) 12.40% Net Profit Growth (%) EPS 6.2 BVPS 23 P/E 20.0 P/BV 5.5 RoE 33.9% Source: Ace Equity, Microsec Research FY 2011 A 4,766 19.79% 956 20.06% 619 12.98% 25.39% 7.3 28 19.7 5.1 28.8% FY 2012 A 5,322 11.67% 751 14.11% 446 8.38% -27.92% 5.2 32 28.4 4.7 17.6% FY 2013 A 6,372 19.73% 859 13.47% 549 8.62% 23.16% 6.5 36 19.1 3.4 19.1% FY 2014 E 6,946 9.00% 991 14.27% 678 9.76% 23.34% 8.0 42 15.5 2.9 20.3% FY 2015 E 7,779 12.00% 1,169 15.03% 853 10.96% 25.85% 10.0 50 12.3 2.5 21.8%

Shareholding
FII 17.48%

DII 15.76%

Others 20.77% Promoter and Promoter Group 45.99%

STOCK SCAN BSE Code NSE Code Bloomberg Ticker Reuters Ticker Face Value (INR) Equity Share Capital (In INR Cr.) Beta vs Sensex Average Daily Volume Dividend Yield PEG Ratio
118.58 113.58 108.58
Price

500086 EXIDEIND EXIDE IN EXIDE.BO 1.00 85.00 0.73 1,305,925 1.27% 1.14

103.58 98.58 93.58 88.58 83.58

Period CLOSE(Exide Industries Ltd) CLOSE(SENSEX)

Analyst: Saroj Singh ssingh2@microsec.in

30th October, 2013

Microsec Research

GMDC Ltd
BUY
Market Data Current Market Price (CMP) Target Price Upside Potential 52 Week High Low Market Cap (INR in Cr)
NonInstitutions 6.87% Other Institutions 13.95%

Sector Mineral & Mining We recommend GMDC a BUY. GMDC is the largest merchant miner of lignite in India, supplying lignite to various industrial units, including textiles, chemicals, ceramics, bricks, and captive power plants. The company operates 5 lignite mines in Gujarat. Apart from lignite, it also produces bauxite, fluorspar, and manganese ore and operates a 250MW lignite-based power plant. The company also operates a 150MW wind power plant. With expected uptick in volume to bring growth in revenue, lignite based power plants operational performance to improve and wind power business to support profits, GMDC is a safe play in the mining sector. Investment Highlight Uptick in volume to bring growth in revenue: GMDCs lignite mining volume which contributes a staggering 80% to the total revenue has been growing a CAGR of 7.25% over FY08-12. However, the companys lignite volume declined by 3.88% on YoY basis in FY13 because of lower production from Tadkeshwar and Mata-no-Madh mines which together contribute ~48% to the overall lignite production. (30% from Mata-no-Madh and 18% from Tadkeshwar mine). The lignite volume has fallen since last 4 quarters due to scarcity of land for dumping of overburden waste and several mines encountering higher thickness stones resulting in lowering of speed of mining. Despite this, we believe that the companys capacity expansion via brownfield expansion at Mata-no-Madh and Bhavnagar mine, is expected to add production capacities of 1MT and 2MT, respectively, during FY2014e. Further, GMDC has got through regulatory hurdles for its upcoming Umarsar mine (production capacity 1MT). We expect the mine to start production in 2HFY14e. Lignite based power plants operational performance to improve and result in higher profitability: GMDCs 250MW lignite based power plant at Nani Chher, which had been facing operational issues in past due to lower PLF and higher fixed cost, has been outsourced to a Korean company, KEPCO at a fixed cost payout of INR320mn pa till Aug13 and thereafter payment will be performance based with PLF threshold of 75%. The KEPCO team is currently controlling plant operations and running at PLF of 50-55% and is expected to start delivering the required PLF target of 75%. We believe that with the plant likely to achieve stabilization by FY14e and PLF also expected to rise to around 75%; it would lead to gains for GMDC in FY14e and FY15e. Wind power plants continue to support profits; planning to expand it further by 250MW: Currently, wind power capacity stands at 121 MW and another 29 MW (14 towers of 2.1MW each) is expected to be onstream by H2FY14e end. 50 MW of capacity addition during FY14e is largely on track. Hence, this is likely to support growth in profits going forward. Valuation: At the CMP of INR105 per share, the stock is trading at EV/EBITDA of 4.16x its TTM EBITDA of INR789 crore. At current level, GMDC is trading at EV/EBITDA of 4.09x and 3.40x to its FY14e and FY15e earnings, respectively, which is attractive for a company with 20% expected RoE and debt-free status. Considering current attractive valuation, we recommend BUY on the stock with a target price of INR133 per share. Financial Performance of GMDC Ltd (All figures in INR Crores except % and per share data) Particulars
Net Sales FY09A 978 -0.3% 455 46.59% 231 23.67% -12.32% 8.8 4.60 38.0 1.07 20.4% 3.28 FY10A 1065 9.0% 473 44.37% 280 26.27% 20.94% 11.8 11.91 81.7 1.72 20.17% 8.93 FY11A 1421 33.4% 651 45.78% 375 26.39% 34.01% 15.3 8.95 91.0 1.51 24.5% 6.37 FY12A 1631 14.7% 760 46.59% 487 29.85% 29.78% 18.9 9.64 97.5 1.87 26.2% 6.88 FY13A 1675 2.7% 947 56.55% 601 35.88% 23.44% 18.9 8.77 79.7 2.08 26.2% 5.59 FY14E 1686 0.7% 801 47.52% 533 31.62% -11.29% 16.6 6.32 92.8 1.13 19.5% 4.09 FY15E 2020 19.8% 963 47.68% 636 31.49% 19.32% 19.8 5.30 108.7 0.97 19.8% 3.40

105 133 27% 222 / 76 3339

FIIs 5.18%

Promoters 74.00%

Stock Scan Scrip ID Scrip Code (NSE) Scrip Code (BSE) Bloomberg Ticker Reuters Ticker Industry Face Value ( INR per share) Equity Share Capital ( INR in Cr) Avg 5 years P/E (x) Avg daily volume (Last 1 Year) Beta Vs Sensex Dividend Yield
220 180 140 100 60
2-Mar-12 2-Mar-13 2-Nov-12 2-Sep-12 2-May-12 2-May-13 2-Sep-13 2-Jan-12 2-Jan-13 2-Jul-12 2-Jul-13

GMDC Ltd GMDCLTD 532181 GMDC.BO GMDC IN Mining 2.00 63.60 16.53 173,096 0.66 2.86%
22000 21000 20000 19000 18000 17000 16000 15000

Growth
EBITDA EBITDA Margin Adj Net Profit Adj Net Profit Margin Adj Net Profit Growth Adjusted EPS Adjusted P/E(x) BVPS P/BV(x) ROE EV/EBITDA(x)

GMDC Ltd

Sensex

Analyst: Neha Majithia nmajithia@microsec.in +033 30512177

Source: Microsec Research, Company Data

30th October, 2013

Microsec Research

ICICI Bank Ltd

BUY

Sector - Banking We rate ICICI Bank Limited a BUY. The Bank was promoted in 1994 by ICICI Ltd, an Indian financial institution. Presently, ICICI Bank is Indias largest Private Sector Bank with total assets of INR6.74 trillions at March 31, 2013. The Bank has a strong distribution network of 3514 branches and 11063 ATMs. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. Investment Rationale Strong Balance Sheet and improving returns: ICICI Banks continued focus on balancing growth helped it to strengthen its business size and returns. It has given more than double return on its behemoth ~INR6.74trillion worth of assets within 5 years. Return on Assets (ROA) of the Bank stood at 1.57% in FY13 as compared to 0.70% in FY09. Moreover, Banks Return on Equity (ROE) has also improved by 662bps to 14.01% over the same period. We anticipate that company to deliver ROE of more than 16% within a year, backed by healthy loan growth coupled with stable credit cost and expenses. Improving assets quality with healthy PCR: Despite the pressure on asset quality which the entire banking sector is suffering from, ICICI Bank has improved its asset quality with healthy Provision Coverage Ratio (PCR). In Q2FY14, It has improved its GNPA by 15bps QoQ and 46bps YoY to 3.08%. Moreover, the Bank is in well positioned to absorb any substantial shock with ~73% of its PCR. We believe asset quality to remain impressive going forward. Healthy CASA; improving margin: Customer convenience and high quality services backed by strong distribution and innovative use of technology coupled with focus more toward retail banking continued to be the bedrock of Banks growth strategy. In Q2FY14, the Banks low cost deposits base (CASA ratio) improved by 260bps YoY to 43.30% which has helped it to improved its Net Interest Margin (NIM) by 4bps QoQ and 31bps YoY to 3.31%. We believe, ICICI Bank may maintain its margin going forward and may be benefited more with the improving health of the Indian corporate. Valuation: At the CMP of INR1075, the stock is trading at TTM P/BV of 1.70x. The current valuation of 1.59x FY14E and 1.38x FY15E Book Value looks attractive. We recommend a BUY on the stock with a target price of INR1204 (1.55x FY15E BV) with an upside potential of ~12% from the current level with an investment horizon of 12 months.

Analyst: Sanjeev Jain Phone: +91-33-3051-2174 Email Id: sjain@microsec.in

Source: ACE Equity, Company, Microsec Research

30th October 2013

Microsec Research

Pidilite Industries Ltd Growing Consistently BUY

Market Data Current Market Price (INR) Target Price % Upside 52 Week High / Low (INR) Market Capitalization (In INR cr)
Others 11.00% DII 5.28% FIIS 13.66%

Sector Consumption
265 330 24.5% 303/ 188 13,584

We rate Pidilite Industries a BUY. Pidilite, incorporated in 1959, has been a pioneer in the Consumer and Specialities Chemicals in India. Pidilite Industries is the market leader in adhesives and sealants, construction chemicals, hobby colours and polymer emulsions in India. Its brand named Fevicol has become synonymous with adhesives to millions in India and is ranked amongst the most trusted brands in India. Investment Highlights Established Brand name: Pidilite has strong brands like Fevicol, Dr.Fixit, Fevi Kwik, m-seal, hobby ideas, moto max, Fevi stik etc. Fevicol has become the household name in india and is the largest selling white adhesive brand in india. With established brand name in the field of adhesives and construction chemical, the prospect of the company appears promising in the future. Strong Financials with Consistent Growth: The companys net sales and profit have grown at 10 year CAGR growth of 18% and 21% respectively. With Strong ROE of 28.5%,and D/E ratio of 0.03, the fundamental of the company looks strong. Strong Growth in H2FY14: The company Net Sales increased by 16.6% to INR2224 crore and its EBITDA increased by 25.9% to INR419 crore . EBITDA margin of the company increased from 17.4% to 18.8%. Adjusted PAT EX Forex increased by 20% to INR278 crore.

S har e holding

Promoters 70.06%

Valuation At the CMP of INR265, the Stock is trading at a P/E of 25.6x its FY14E EPS of INR10.0 and 22.5x its FY15E EPS of INR11.8. With Consistent financial growth, Strong ROE and innovated product line, the prospect of the company looks bright. The Stock has historically traded at a 3Yr average P/E of 28x as per Bloomberg. We Assign a P/E multiple of 28x to its FY15E EPS of INR11.8 to arrive at the target price of INR330 for the stock.

Exhibit 1. Pidilite Industries Historical Financials and Projections

160.00

140.00

120.00

100.00

80.00 30-Oct 30-Jan 30-Apr Pidilit e SENSEX 30-Jul

Particulars Net Sales Growth (%) EBITDA EBITDA Margins (%) Net Profit Net Profit Margins (%) Net Profit Growth (%) EPS BVPS P/E P/BV RoE

FY2011A 2,657

FY2012A FY2013A FY2014E FY2015E 3,127 3,678 4,311 5,078 18% 18% 17% 18% 469 493 601 750 884 17.64% 15.76% 16.33% 17.40% 17.40% 310 333 424 513 607 11.67% 10.66% 11.52% 11.90% 11.96% 8% 27% 21% 18% 6.1 6.6 8.3 10.0 11.8 21 26 32 40 50 43.2 40.3 32.0 26.5 22.5 12.6 10.2 8.3 6.6 5.3 31.7% 27.7% 28.5% 27.6% 26.2%

Source: Company, Microsec Research (In INR crore)

Analyst: Naveen Vyas Email id: nvyas@microsec.in

30th October, 2013

Microsec Research

Rallis India Limited

Sector- Agro Chemical Industry We rate Rallis India Ltd. (Rallis) a BUY. Rallis, a TATA group company, deals in Agri business & has emerged as one of the leaders in the industry. It has plants located at Akola, Ankaleshwar, Bharuch & Ratnagiri. The company is also in Institutional business providing technical knowhow & bulk of various types of molecules to companies like Bayer Cropscience, Syngenta, UPL, etc & has launched products for pests control of public health importance. Besides, the company is also having a significant presence in International Business & Contract Manufacturing. Investment Highlights

BUY

NonInstitutions 32%

Indian Promoters 50%

Institutions 18%

Untapped Domestic Agrochemical Market: Rallis India is a well placed agrochemical company in the Indian market. The company presently holds 10% market share in the industry firmly placing it to acquire the emerging opportunities in agrochemical market backed by its robust distribution network, well-known branded farm solutions & frequent launches of new products in the segment. In the current fiscal, the company has come up with few new products to strengthen its product gallery which will in turn help the company to garner new markets. Besides, newly commissioned DAHEJ SEZ facility is expected to boost exports of the company; thus making it less dependent solely upon the domestic market. Exploring Hybrid Seeds & Organic Farming: The Hybrid Seed market in India is expected to grow @10-15% CAGR in future years. The country at present has merely 2mha of the total 40mha available in hybrid seed category for paddy, which leaves the company with enough room to penetrate deep in this sector. After acquiring Bangalore based seed company Metahelix Lifescience, Rallis is well groomed to capitalize on the formers strong & impressive R&D capabilities & sturdy product pipeline. Rallis has also increased its stake to 27.75% in Zero Waste Agro Organics Ltd & is concentrating on exploring opportunities in Organic farming sector. Good Kharif season & promising Rabi season: The Company posted good Q2FY14 results owing to good Kharif season & the management is expecting the same outcome for the Rabi season which would be reflected in the Q3FY14 results. The well spread monsoon has brighten the prospects of good sowing season for the farmers for both summer & winter crops. Valuations & Outlook: Rallis India is currently trading at P/E multiple of 25x times at the current market price of INR 153.85. The TTM EPS of the company is INR 6.12. We expect the company to post healthy numbers in the future periods also with above mentioned rationales being fulfilled.
25000 23000 21000 19000 17000 15000

130.00 120.00 110.00 100.00 90.00 80.00 70.00 60.00 50.00

02-Mar-2013 02-Aug-2013 30-Nov-2012 02-Apr-2013 30-Dec-2012 02-Jun-2013 30-Oct-2012 02-May-2013 02-Sep-2013 30-Jan-2013 02-Jul-2013 02-Oct-2013

Rallis Financials at a glance (all data in INR Crores unless specified)

Rallis

Sensex

Analyst: Kapil Bhati kbhati@microsec.in

Source: Company Data, Microsec Research

30th October, 2013

Microsec Research

Tata Steel Ltd BUY

Market Data Current Market Price (CMP) Target Price Upside Potential 52 Week High Low Market Cap (INR in Cr)
Others 2.66% Promoters 31.35%

Sector Steel & Steel products We recommend a BUY on Tata Steel Ltd. The company is the worlds sixth-largest steel company with an existing annual crude steel production capacity of ~30MTPA. Post the Corus acquisition; it has diversified business spread across Europe, South East Asia and pacific-rim countries. Hence, with Greenfield and brown-field expansion to boost volume in Indian operations, turnaround in Europe operations, timely completion of capex and moves to de-leverage the balance sheet bodes well for the fortune of the company on a longer period of time. Investment Highlight Greenfield coupled with brown-field expansions to boost volume growth in Indian Operations: Tata Steel India is set to deliver strong volume growth over FY14-17e on full ramp-up of 2.9MTPA brown-field plant at Jamshedpur. Tata Steel commissioned its 2.9MTPA Jamshedpur brown field expansion project in FY13 and it is expected that full benefit will come in FY15. The company is likely to consider another 3MTPA expansion at Orissa after commissioning of this facility. Further, some of the project facilities are being constructed keeping in mind the eventual expansion to 6mtpa. The capex for the next 3mtpa phase of this project would only be 50-60% of the first 3mtpa phase. Accordingly, the highly profitable Indian operations would drive strong volume growth for several years. Turnaround in Europe Operations to be the key trigger: With the recent encouraging signs of improving economic conditions in Europe, the UK in particular, the management expects the demand in Europe (where it derives 2/3rd of its 27MT of annual capacity) to recover by the end of FY14e. Also, the companys restructuring initiatives like launching new products to boost value addition and improve product mix, write down of $1.6 bn due to weak demand, cost-cutting measures, reducing headcount, shutdown of high cost facilities, selling of non-core assets and disinvestment of non-profitable subsidiaries have already started showing positive results for last couple of quarters. We believe the company is poised to capitalize the improvement in Europe if it translates more strongly into increased demand from steel-intensive sectors. Following the above measures with the support of recovering demand, we believe the European operation to post better results in future. Managements view of timely capex completion and de-leveraging the balance-sheet a positive move: With the timely capex completion and companys strategy to de-leverage the balance sheet by going for refinancing of debt (which is expected to go record high in FY14e due to the on-going investment in Odisa phase-I expansion) and selling non-core assets is a positive move. Tata Steel Odisha unit's phase-I to start operations in Q4FY14e: The work on the first phase of Tata Steel's Kalinganagar project in Odisha, entailing an investment of the INR25,164 crore, is in full swing and operations are likely to commence in the last quarter of 2014. We believe that timely commission of the unit would improve volume growth from Q4FY14e onwards. Tata steel has a major capex programme in Odisha to set up a 6MT steel plant, which has been planned in a phased manner. Valuation: At the CMP of INR326 per share, the stock looks attractive at its forward EV/EBITDA of 6.01x its FY14e EBITDA of INR14,822 crore and EV/EBITDA of 5.44x its FY15e EBITDA of INR17,154 crore. Hence, we recommend BUY on the stock with a target price of INR410 per share.
Financial Performance of Tata Steel Ltd (All figures in INR Crores except % and per share data)
Particulars Net Sales FY09A 147329 12.0% 18113 12.29% 4951 856 0.58% -95.42% 66.3 3.11 303.3 0.68 19.1% 3.99 FY10A 102393 -30.5% 7999 7.81% -2009 -3693 -3.61% -531.23% -23.2 -27.29 257.3 2.46 -9.44% 10.68 FY11A 118753 16.0% 16747 14.10% 8983 12028 10.13% -425.69% 93.7 6.62 369.2 1.68 30.4% 6.27 FY12A 132900 11.9% 12366 9.31% 5390 8752 6.59% -27.24% 55.5 8.48 428.5 1.10 12.9% 6.78 FY13A 133417 0.4% 12321 9.23% -7058 332 0.25% -96.20% 3.4 91.32 351.9 0.89 -19.6% 6.76 FY14E 141464 6.0% 14822 10.48% 2691 2697 1.91% 711.71% 27.8 11.74 358.9 0.91 7.6% 6.01 FY15E 152781 8.0% 17154 11.23% 3470 3550 2.32% 31.63% 36.6 8.92 396.3 0.82 9.2% 5.44

326 410 26% 448 / 195 31661

NonInstitutions 26.52%

Other Institutions 26.39%

FIIs 13.08%

Stock Scan Scrip ID Scrip Code (NSE) Scrip Code (BSE) Bloomberg Ticker Reuters Ticker Industry Face Value ( INR per share) Equity Share Capital ( INR in Cr) Avg 5 years P/E (x) Avg daily volume (Last 1 Year) Beta Vs Sensex Dividend Yield
500 450 400 350 300 250 200 150
2-Mar-12 2-Mar-13 2-Nov-12 2-Sep-12 2-May-12 2-May-13 2-Sep-13 2-Jul-12 2-Jan-12 2-Jan-13 2-Jul-13

Tata Steel Ltd TATASTEEL 500470 TATA IN TISC.BO Steel/Sponge Iron/Pig Iron 10.00 971.21 5.93 4,912,400 1.25 2.45%
22000 21000 20000 19000 18000 17000 16000 15000

Growth
EBITDA EBITDA Margin

Net Profit Adj Net Profit Margin Adj Net Profit Growth
Adjusted EPS Adjusted P/E(x) BVPS P/BV(x) ROE EV/EBITDA(x) Adj Net Profit

Tata Steel Ltd

Sensex

Analyst: Neha Majithia nmajithia@microsec.in +033-30512177

Source: Microsec Research, Company Data

30th October, 2013

Microsec Research

Tech Mahindra Limited

BUY
Market Data Current Market Price (INR) Target Price Upside (%) 52 Week High / Low (INR) Market Capitalization (In INR Mn)
Sha reholding FII 32.59%

Sector Information Technology We rate Tech Mahindra Ltd (TechM) a BUY. Our rating underpins integration of Satyam in its operations, depreciation of INR versus USD, and its attractive valuations vis--vis peer group. However, uncertainty regarding US immigration bill and the companys contingent liabilities impede our optimism a bit. Investment Highlights Integration of Satyam boosts prospects: TechM completed the acquisition of Satyam Computer Services Ltd (Satyam) on 25 June 2013. Satyam, which was already contributing to the companys bottom line, helped the company to diversify its revenues at consolidated levels. As a result, the contribution from Telecom and related services to revenues reduced to just 48% in Q1 FY2014 compared with more than 80% of the pre merged entitys top line in FY2013. Furthermore, complementary services portfolio of the acquired entity will equip the company with competitive strength while bidding for the large deals. In addition, elimination of overlapping overheads and effective marketing efforts, being a combined entity, could lead to expansion of the companys operating margins, going forward. Additionally, the integration placed TechM as the fifth largest company in the Indian IT space. Depreciation of INR versus USD bodes well: Rise in treasury yields in the US and expectations to taper the bond buying under QE3 led to a sharp depreciation in INR versus USD during the latter half of Q2 FY2014. The local currency touched all time low of INR68.825 per USD during the quarter. Although, post that it rose sharply against the greenback, at current levels of over INR61 per USD, the Rupee is considerably weaker than its year earlier levels. As a weak INR results in higher Rupee realizations per USD for exporters, this factor is likely to aid TechMs top line growth. Moreover, the factor may help the company to report notable expansion in operating margins during FY2014E. Valuation remains attractive: TechM is currently trading at Price-to-Earning (PE) of 15.1x based on its FY2013 earnings compared with average peer group PE of 18.9x. Furthermore, based on FY2014E and FY2015E EPS as well, the company is attractively priced. On FY2015E EPS of INR123.84 and target PE of 14.48x, we arrived at the target price of INR1,793, upside of 17.7%, for the stock. TechM Financials at a glance (all data in INR Crores unless specified)
Particulars Net Sales Growth (%) EBITDA EBITDA Margins (%) Net Profit Net Profit Margins (%) Net Profit Growth (%) EPS BVPS P/E P/BV RoE EV/EBITDA FY2011A 5,140.20 11.13% 1,038.40 20.20% 646.20 12.57% -8.11% 51.14 266.08 12.50 3.04 20.7% 9.06 FY2012A 5,489.70 6.80% 938.40 17.09% 1,099.10 20.02% 70.09% 86.25 317.75 12.58 2.44 29.6% 10.56 FY2013A 6,873.10 25.20% 1,452.80 21.14% 1,307.40 19.02% 18.95% 100.85 423.48 9.92 2.69 27.2% 9.88 FY2014E 18,044.59 162.54% 3,926.86 21.76% 2,692.17 14.92% 105.92% 115.85 539.33 13.15 2.82 24.1% 9.21 FY2015E 20,249.40 12.22% 4,223.19 20.86% 2,877.97 14.21% 6.90% 123.84 663.17 12.30 2.30 20.6% 8.57

1,523.20 1,793.00 17.7% 1,594.00 / 865.25 353,978.03

DII 15.13%

Non Institutions 15.82% Promoter and Promoter Group 36.46%

STOCK SCAN BSE Code NSE Code Bloomberg Ticker Reuters Ticker Face Value (INR) Equity Share Capital (In INR Mn) Average P/E Beta vs Sensex Average Daily Volume Dividend Yield PEG Ratio
90

532755 TECHM TECHM IB TEML.BO 10.00 2,323.91 10.8x 0.70 125,843 0.3% 0.91

60
Return (%)

30

-30 29-Oct-12 28-Jan-13 29-Apr-13

TechM

29-Jul-13
Sensex

28-Oct-13

Analyst: Nitin Prakash Daga npdaga@microsec.in

Source: Bloomberg, Microsec Research

30th October, 2013

Microsec Research

MicrosecResearch:PhoneNo.:913330512100Email:microsec_research@microsec.in

AjayJaiswal:President,InvestmentStrategies,HeadofResearch:ajaiswal@microsec.in

FundamentalResearch Name Sectors Designation EmailID NitinPrakashDaga IT,Telecom&Entertainment VPResearch npdaga@microsec.in NaveenVyas FMCG,Midcaps,Mkt VPResearch nvyas@microsec.in SutapaRoy Economy ResearchAnalyst sroy@microsec.in SanjeevJain BFSI ResearchAnalyst sjain@microsec.in NehaMajithia Metal,Mineral&Mining ResearchAnalyst nmajithia@microsec.in SoumyadipRaha Oil&Gas ExecutiveResearch sraha@microsec.in SarojSingh Auto,cement ExecutiveResearch ssingh2@microsec.in KapilBhati Fert,Chem&Agri ExecutiveResearch kbhati@microsec.in Technical&DerivativeResearch VinitPagaria Derivatives&Technical SeniorVP vpagaria@microsec.in RanajitSaha TechnicalResearch Sr.Manager rksaha@microsec.in InstitutionalDesk PujaShah InstitutionalDesk Dealer pdshah@microsec.in AbhishekSharma InstitutionalDesk Dealer Asharma3@microsec.in PMSDivision SiddharthSedani PMSResearch VP ssedani@microsec.in KetanMehta PMSSales AVP ksmehta@microsec.in ResearchSupport SubhabrataBoral ResearchSupport Asst.ManagerTechnology sboral@microsec.in
Recommendation StrongBuy Buy Hold Underperform Sell Expectedabsolutereturns(%)over12months >20% between10%and20% between0%and10% between0%and10% <10%

MICROSECRESEARCHISALSOACCESSIBLEONBLOOMBERGAT<MCLI>

15thOctober,2013

MicrosecResearch

15thOctober,2013

MicrosecResearch

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15thOctober,2013

MicrosecResearch