ValueGuide Jan2013

Value Guide
January 2008
January 2013 For Private Circulation only www.sharekhan.com
Nifty @6000
January 2013
Difference between 2008 and 2013

Intelligent Investing Market Outlook Stock Ideas Stock Updates Switch Ideas Thematic Reports Regular Features Report Card Earnings Guide Products & Services PMS Top Equity Picks MF Picks Advisory Traders Edge Technical View Commodities and Currencies F&O Insights
January 2013
Sharekhan ValueGuide
CONTENTS
From Sharekhans Desk

Two thousand and twelve had begun amidst much gloom and had the appearance of being a difficult year for equity investors. However, a few positive events made all the difference and the benchmark indices ended the year with smart gains of 26%. The easing of the monetary cycle and the unexpected announcement of a series of reforms later in the year breathed life back into our stock market in 2012.
EQUITY FUNDAMENTALS Stock Ideas Stock Updates Sharekhan Special Sector Updates TECHNICALS Sensex ADVISORY DESK MID Trades COMMODITY 07 11 18 FUNDAMENTALS Crude Oil Gold Silver TECHNICALS Gold Silver Crude Oil CURRENCY FUNDAMENTALS INR-USD INR-EUR 36 36 INR-GBP INR-JPY 36 36 31 Copper 32 Lead 32 Zinc 34 Copper 34 Natural gas 34 Jeera 32 32 33 15 19 26 28 Viewpoint REGULAR FEATURES Report Card Earnings Guide DERIVATIVES 29 View 30 28 4 I
06 RESEARCH BASED EQUITY PRODUCTS Market Outlook Top Picks Basket Switch Ideas PMS DESK ProPrime - Top Equity ProPrime - Diversified Equity ProTech - Diversified ProTech - Nifty Thrifty ProTech - Trailing Stops MUTUAL FUNDS DESK 38 39 40 41 42
43 Derivative Ideas
43
35 35 35
Top MF Picks (equity) Top SIP Fund Picks
45 46
TECHNICALS USD-INR EUR-INR
37 GBP-INR 37 JPY-INR
37 37
Sharekhan Ltd, Regd Add: 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai 400 042, Maharashtra. Tel: 022 - 61150000. BSE Cash-INB011073351; F&OINF011073351; NSE INB/INF231073330; CD - INE231073330; MCX Stock Exchange: CD - INE261073330 DP: NSDL-IN-DP-NSDL233-2003; CDSL-IN-DP-CDSL-271-2004; PMS INP000000662; Mutual Fund: ARN 20669. Sharekhan Commodities Pvt. Ltd.: MCX10080; (MCX/TCM/CORP/0425); NCDEX -00132; (NCDEX/TCM/CORP/0142)
DISCLAIMER: This document has been prepared by Sharekhan Ltd.(SHAREKHAN) This Document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to and may contain confidential and/or privileged material and is not for any type of circulation. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report. The information contained herein is from publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. We do not represent that information contained herein is accurate or complete and it should not be relied upon as such. This document is prepared for assistance only and is not intended to be and must not alone betaken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. SHAREKHAN & affiliates may have used the information set forth herein before publication and may have positions in, may from time to time purchase or sell or may be materially interested in any of the securities mentioned or related securities. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. Any comments or statements made herein are those of the analyst and do not necessarily reflect those of SHAREKHAN.
disclaimer
January 2013
REPORT CARD
STOCK IDEAS STANDING (AS ON JANUARY 04, 2013)
COMPANY CURRENT PRICE AS ON PRICE RECO 04-JAN-13 TARGET Hold Buy Hold Buy Buy 89.6 26.7 2205.6 941.3 1545.5 11590.6 184.0 126.5 1379.0 930.6 884.3 364.6 181.3 208.2 486.2 526.9 837.7 679.4 1182.4 116.6 908.1 2486.7 277.9 489.1 14695.1 236.7 3841.2 725.0 534.7 282.4 224.8 358.4 164.2 506.1 5884.2 218.5 1224.4 634.1 2349.6 251.3 535.2 117.6 1299.2 403.7 5798.6 242.8 314.5 124.1 80.4 98.1 78.1 616.9 502.7 2032.5 11096.5 121.3 213.4 102.0 29.0 ** 1046.0 1809.0 52 WEEK HIGH LOW 102.5 33.5 2229.0 976.0 1567.8 11696.0 211.4 138.5 1396.5 984.0 899.7 408.0 184.7 235.0 540.0 571.0 882.3 705.5 1184.9 121.7 1091.1 2493.0 288.0 504.0 14743.3 248.2 4391.0 853.1 572.0 306.5 250.0 372.0 181.7 548.6 6176.5 234.1 1258.0 661.0 2981.3 324.9 544.0 175.5 1439.8 453.0 6361.4 328.4 346.5 167.3 98.6 134.4 79.6 691.0 590.5 2416.3 11615.1 169.0 224.3 61.6 18.8 1407.2 621.1 925.6 8053.0 103.0 82.7 835.1 334.0 605.6 253.3 88.7 114.5 348.0 335.0 610.5 438.7 728.0 81.4 659.0 1625.1 150.1 238.2 9525.0 96.3 2179.0 380.0 368.9 197.0 146.1 175.1 86.0 299.0 3971.8 59.8 685.0 395.1 2060.6 186.6 301.1 100.0 1038.6 295.0 5134.1 195.1 188.8 102.1 59.8 64.0 40.5 401.6 157.2 1739.0 8398.7 84.6 152.5
EQUITY
FUNDAMENTALS
ABSOLUTE PERFORMANCE 1M 3M 6M 12M 5.9 -2.6 12.7 0.3 4.4 7.4 24.2 13.2 4.3 4.3 14.6 28.5 28.8 -5.5 16.8 9.0 -0.5 -0.8 5.6 6.6 15.3 11.0 13.0 8.5 5.0 6.7 1.7 -2.0 0.2 -4.3 1.6 0.2 -1.3 10.4 -2.4 5.0 6.9 -2.2 -3.6 -9.3 6.0 -5.0 0.0 4.0 -0.9 2.2 -0.2 5.3 4.8 16.2 4.3 0.5 -4.7 1.1 -0.2 3.0 9.4 -0.7 7.9 25.2 9.6 11.1 11.1 22.2 12.0 20.9 -2.5 11.4 19.4 62.1 31.7 15.0 15.0 6.2 7.6 9.1 12.1 9.1 6.0 34.9 22.8 10.0 29.1 27.5 3.7 -1.5 2.6 10.5 8.7 8.1 20.5 5.5 9.2 9.2 8.7 -8.2 -12.9 23.2 -8.8 -1.1 5.4 -3.1 -8.8 -6.0 -6.1 3.4 10.3 9.7 10.4 28.8 -2.8 -1.7 5.5 9.0 17.0 10.2 43.3 33.3 27.4 24.5 21.5 7.0 32.4 36.4 20.9 3.1 68.5 35.8 14.1 19.2 24.0 17.5 31.0 22.8 7.3 11.8 31.0 41.4 21.4 96.0 42.1 25.4 24.9 14.7 23.9 17.6 40.4 26.5 22.6 83.7 42.4 32.5 -4.6 -12.1 36.5 -4.9 4.6 2.3 2.3 6.0 6.7 -3.0 17.5 22.2 24.4 24.5 102.1 2.0 10.3 19.4 18.2 44.8 17.0 59.2 49.9 64.0 45.6 51.3 55.7 65.2 126.9 29.2 29.2 111.7 71.3 45.2 49.6 28.9 54.4 62.5 46.2 17.0 49.2 65.8 105.2 54.7 148.5 56.2 91.2 39.6 44.2 50.5 84.7 74.9 26.9 49.8 246.0 48.1 54.4 -16.1 35.0 72.1 -1.6 13.0 -2.1 -0.3 -1.5 51.1 -3.2 5.4 8.9 91.6 50.0 213.7 11.5 31.6 49.0 37.4
1M
RELATIVE TO SENSEX 3M 6M 12M -4.5 3.7 20.4 5.4 6.8 6.8 17.4 7.7 16.2 -6.2 7.1 14.8 55.8 26.6 10.6 10.5 2.0 3.4 4.9 7.7 4.8 1.9 29.7 18.0 5.7 24.1 22.6 -0.3 -5.3 -1.4 6.2 4.5 3.9 15.9 1.4 5.0 5.0 4.5 -11.8 -16.3 18.4 -12.3 -5.0 1.3 -6.8 -12.3 -9.7 -9.8 -0.6 6.1 5.4 6.1 23.8 -6.6 -5.5 1.4 4.8 2.6 -3.3 25.7 16.9 11.7 9.2 6.5 -6.2 16.1 19.6 6.0 -9.6 47.7 19.1 0.1 4.5 8.7 3.1 14.8 7.7 -5.9 -2.0 14.9 24.0 6.4 71.9 24.6 10.0 9.6 0.6 8.6 3.1 23.1 10.9 7.5 61.1 24.9 16.1 -16.4 -23.0 19.7 -16.6 -8.3 -10.3 -10.3 -7.0 -6.4 -14.9 3.0 7.1 9.1 9.1 77.2 -10.6 -3.3 4.7 3.7 14.1 -7.8 25.5 18.1 29.3 14.8 19.3 22.8 30.2 78.9 1.9 1.9 66.9 35.1 14.5 17.9 1.6 21.8 28.1 15.2 -7.8 17.7 30.7 61.7 22.0 96.0 23.1 50.7 10.1 13.7 18.6 45.6 37.9 0.1 18.1 172.8 16.8 21.7 -33.8 6.4 35.7 -22.4 -10.9 -22.8 -21.4 -22.4 19.2 -23.7 -16.9 -14.1 51.1 18.3 147.3 -12.1 3.7 17.5 8.4
AUTOMOBILES
Apollo Tyres Ashok Leyland Bajaj Auto M&M Maruti Suzuki BSE Auto Index BANKS & FINANCE Allahabad Bank Andhra Bank Axis (UTI) Bank Bajaj Finserv Bank of Baroda Bank of India W CanFin Homes NE Capital First NEW Corp Bank Federal Bank HDFC HDFC Bank ICICI Bank IDBI Bank Punjab National Bank SBI Union Bank of India Yes Bank BSE Bank Index CONSUMER GOODS Bajaj Corp GSK Consumers Godrej Consumer Products Hindustan Unilever ITC Marico Mcleod Russel India TGBL (Tata Tea)^ Zydus Wellness BSE FMCG Index IT / IT SERVICES AGC Networks# NEW CMC NEW HCL Technologies** Infosys NIIT Technologies Persistent Systems NEW Polaris Financial Technology Tata Consultancy Services Wipro BSE IT Index CAPITAL GOODS / POWER Bharat Heavy Electricals CESC Crompton Greaves Greaves Cotton^ Kalpataru Power Transmission PTC India Thermax V-Guard Industries BSE Power Index BSE Capital Goods Index INFRASTRUCTURE / REAL ESTATE Gayatri Projects ITNL 3.5 -4.8 10.1 -2.0 2.0 5.0 21.3 10.7 1.9 1.9 12.0 25.6 25.9 -7.6 14.1 6.6 -2.7 -3.1 3.2 4.2 12.7 8.5 10.4 6.1 2.6 4.3 -0.6 -4.2 -2.1 -6.5 -0.7 -2.0 -3.5 7.9 -4.6 2.7 4.4 -4.4 -5.8 -11.3 3.6 -7.2 -2.3 1.6 -3.1 -0.1 -2.4 3.0 2.5 13.6 1.9 -1.7 -6.9 -1.2 -2.4 0.6 6.9
Buy Hold Buy Reduce Hold Hold Buy Buy Buy Buy Hold Hold Buy Hold Hold Hold Buy Buy
217.0 139.0 1570.0 892.0 924.0 376.0 220.0 260.0 541.0 610.0 882.0 712.0 1234.0 120.0 998.0 2540.0 308.0 550.0
Hold Buy Buy Hold Buy Hold Buy Hold Hold
256.0 3900.0 796.0 540.0 324.0 ** 381.0 169.0 534.0
Buy Buy Buy Hold Hold Buy Buy Hold Hold
235.0 1551.0 700.0 2440.0 280.0 600.0 163.0 1364.0 **
Hold Hold Hold Hold Buy Buy Reduce Hold
250.0 355.0 ** 86.0 125.0 82.0 588.0 540.0
Buy Buy
300.0 321.0
January 2013
EQUITY
FUNDAMENTALS
REPORT CARD
STOCK IDEAS STANDING (AS ON JANUARY 04, 2013)

CURRENT PRICE AS ON PRICE RECO 04-JAN-13 TARGET IRB Infra Buy 132.6 175.0 Jaiprakash Associates Buy 101.0 102.0 Larsen & Toubro Buy 1628.0 1788.0 Mahindra Lifespace Developers@ Buy 420.2 460.0 Orbit Corporation Buy 57.2 75.0 Pratibha Industries Buy 56.1 65.0 Punj Lloyd Hold 61.4 60.0 Unity Infraprojects Buy 46.2 72.0 CNX Infra Index 2648.5 BSE Real Estate Index 2198.4 OIL & GAS GAIL Hold 371.2 410.0 Oil India Buy 481.9 600.0 Reliance Ind Buy 861.9 915.0 Selan Exploration Technology Buy 315.4 360.0 BSE Oil and Gas Index 8856.3 PHARMACEUTICALS Aurobindo Pharma NEW Buy 201.7 247.0 Cadila Healthcare Buy 890.5 1000.0 W Dishman Pharma Buy 119.0 135.0 NE Divi's Labs Hold 1110.3 1246.0 Glenmark Pharmaceuticals Buy 524.5 600.0 Ipca Laboratories Hold 506.9 554.0 Lupin Buy 604.5 660.0 Sun Pharmaceutical Industries Buy 735.2 775.0 Torrent Pharma Buy 726.9 760.0 BSE Health Care Index 8206.0 AGRI-INPUTS Deepak Fert Buy 128.9 179.0 Tata Chemicals Buy 364.7 400.0 United Phosphorus Buy 135.9 160.0 BUILDING MATERIALS Grasim Hold 3189.5 3500.0 India Cements Hold 91.6 105.0 Madras Cements Hold 240.9 255.0 Orient Paper and Industries Hold 79.8 86.0 Shree Cement Hold 4596.4 4660.0 UltraTech Cement Hold 2041.9 2100.0 DISCRETIONARY CONSUMPTION Eros International Media Buy 208.7 267.0 Indian Hotel Company Buy 66.1 82.0 KKCL Hold 728.9 737.0 Raymond Hold 453.1 508.0 W Relaxo Footwear Hold 808.1 885.0 NE Speciality Restaurants NEW Buy 190.8 243.0 W Zee Entertainment Buy 227.1 255.0 NE DIVERSIFIED / MISCELLANEOUS Aditya Birla Nuvo Buy 1121.6 1254.0 Bajaj Holdings Buy 1032.8 1236.0 Bharti Airtel Hold 327.0 340.0 Bharat Electronics Buy 1317.5 1685.0 Gateway Distriparks Buy 137.8 163.0 Max India Buy 251.5 296.0 Opto Circuits India Hold 112.1 157.0 Ratnamani Metals and Tubes Hold 143.6 138.0 Sintex Industries Hold 70.3 85.0 BSE500 Index 7742.5 CNX500 Index 4844.0 CNXMCAP Index 8747.0
In Top Picks basket
COMPANY
52 WEEK HIGH LOW 210.5 100.1 106.8 50.4 1720.0 1046.3 453.8 243.0 68.9 30.0 59.0 32.3 65.9 39.4 56.4 31.9 2835.8 2099.7 2212.3 1378.4 401.0 552.4 881.6 351.0 8993.8 204.9 975.0 124.5 1234.4 550.7 537.1 632.0 775.9 745.1 8285.7 170.0 374.7 170.4 3511.0 119.4 253.5 102.0 5100.0 2154.2 235.1 80.0 799.0 488.9 912.0 227.0 247.0 1143.2 1058.3 401.0 1710.0 160.4 266.7 225.9 150.0 104.6 7746.4 4846.4 8750.4 302.0 430.5 673.1 228.6 7336.2 88.8 620.0 37.2 710.6 285.0 272.0 412.2 495.4 523.6 5938.8 111.0 298.0 101.6 2210.0 67.5 98.2 46.2 2032.0 1093.8 153.0 51.3 485.4 302.9 245.5 150.0 105.6 710.0 625.0 215.8 1111.0 125.0 140.2 97.3 89.0 50.2 5866.5 3651.1 6184.4
ABSOLUTE PERFORMANCE 1M 3M 6M 12M -2.4 -15.1 0.5 3.8 -0.6 11.0 31.0 87.5 -1.9 -0.4 16.0 53.9 1.1 2.0 28.7 72.2 -3.3 -10.9 -1.9 81.9 8.0 -1.8 8.8 72.6 11.6 7.3 13.0 45.8 0.4 -8.0 -0.1 45.7 0.2 2.5 7.6 21.7 7.6 13.1 24.6 55.4 5.4 5.9 4.5 5.4 5.6 2.0 4.4 -1.3 -5.2 19.9 9.0 1.7 4.5 5.8 2.7 1.3 3.4 9.6 -2.7 3.5 17.8 -7.1 9.4 3.1 -3.2 1.1 0.1 -0.5 3.9 5.8 8.5 1.7 19.0 -1.6 9.9 4.8 2.2 5.6 6.5 10.5 3.1 3.1 5.5 -5.2 -1.5 1.0 -6.0 0.9 39.4 7.2 21.8 -1.9 28.9 13.0 4.4 5.2 4.0 8.9 -4.2 11.8 3.2 -6.1 -3.7 23.5 3.3 13.0 3.0 28.8 -3.7 7.0 17.3 11.2 1.5 10.8 18.0 23.2 21.2 6.6 -2.8 13.4 -17.1 27.2 -2.1 5.8 6.0 9.4 3.9 -2.8 17.4 10.2 10.4 76.9 17.9 76.6 9.0 38.9 41.5 13.1 16.7 18.7 19.5 -3.1 19.2 7.0 20.0 9.1 55.0 34.5 50.2 33.5 18.1 7.8 31.8 10.5 52.2 -12.5 54.0 39.4 29.0 0.4 -2.6 -0.7 36.7 -29.2 32.8 6.1 15.5 15.8 17.9 -3.6 8.5 21.8 36.8 17.1 126.2 29.7 204.3 43.3 80.0 78.2 36.3 47.6 36.7 38.6 6.7 20.0 4.8 33.5 37.0 131.2 65.9 116.9 79.6 -3.8 12.9 5.1 43.6 219.5 96.2 49.7 64.1 -5.2 -5.4 11.6 81.4 -27.3 60.2 9.0 32.7 33.3 42.3
1M -4.6 -2.9 -4.1 -1.2 -5.5 5.5 9.1 -1.8 -2.1 5.2 3.0 3.5 2.1 3.0 3.2 -0.3 2.0 -3.5 -7.4 17.2 6.5 -0.6 2.1 3.4 0.4 -1.0 1.1 7.1 -4.9 1.2 15.2 -9.2 6.9 0.7 -5.4 -1.2 -2.2 -2.8 1.5 3.4 6.0 -0.6 16.3 -3.9 7.4 2.4 -0.1 3.2 4.1 8.0 0.7 0.7 3.1
RELATIVE TO SENSEX 3M 6M -18.4 -11.8 6.7 14.8 -4.2 1.8 -2.0 12.9 -14.4 -14.0 -5.6 -4.6 3.2 -0.9 -11.5 -12.4 -1.5 -5.6 8.7 9.2 -8.9 -5.3 -2.9 -9.6 -3.0 34.0 3.1 17.1 -5.7 23.9 8.7 0.3 1.1 -0.1 4.7 -7.9 7.5 -0.8 -9.8 -7.5 18.7 -0.7 8.6 -1.0 23.8 -7.5 2.8 12.8 6.9 -2.5 6.5 13.4 18.4 16.5 2.5 -6.5 9.0 -20.3 22.3 -5.9 1.7 1.9 5.2 -8.9 -14.8 2.9 -3.3 -3.2 55.2 3.4 54.9 -4.4 21.8 24.1 -0.8 2.4 4.1 4.8 -15.1 4.5 -6.1 5.2 -4.3 35.9 18.0 31.7 17.0 3.6 -5.4 15.6 -3.1 33.5 -23.3 35.0 22.2 13.1 -12.0 -14.6 -12.9 19.9 -37.9 16.5 -7.0 1.3 1.6 3.3
12M -18.2 47.8 21.3 35.8 43.4 36.1 15.0 14.9 -4.1 22.5 -24.0 -14.4 -4.0 7.9 -7.7 78.3 2.3 139.9 13.0 41.9 40.5 7.4 16.4 7.8 9.3 -15.9 -5.4 -17.4 5.2 8.0 82.3 30.8 71.0 41.6 -24.2 -11.0 -17.1 13.2 151.9 54.7 18.0 29.4 -25.3 -25.4 -12.0 43.0 -42.7 26.3 -14.1 4.6 5.1 12.2
# Price target adjusted for the bonus issue
** Price target under review
*** Price target adjusted for the demerger
REPORT CARD: STOCK IDEAS BOOKED
COMPANY Provogue India*
RECOMMENDED AT (Rs) -
RECOMMENDED ON 6-Jul10
BOOKED AT (Rs) 16
BOOKED ON 20-Dec-12
APPRECIATION (%) -
* Including value of Prozone shares, investors have not lost money.
January 2013
FROM SHAREKHANS DESK
from sharekhans desk

January 2013

Two thousand and twelve had begun amidst much gloom and had the appearance of being a difficult year for equity investors. However, a few positive events made all the difference and the benchmark indices ended the year with smart gains of 26%. The easing of the monetary cycle and the unexpected announcement of a series of reforms later in the year breathed life back into our stock market in 2012. Not only in India but financial markets the world over also stabilised in 2012 as central banks unleashed quantitative easing programmes to support their economies and avoid slipping into a recession. The world is sloshing with liquidity and global cues are supportive. In India, the macroeconomic environment is improving with the HSBC PMI Index at a six-month high and the Wholesale Price Index inflation figure likely to moderate further in the coming months. More importantly, the benchmark indices are within kissing distance of their all-time high levels seen five years back in January 2008. But alas, the mood among retail investors is completely different than what it was in early 2008. There is a complete lack of interest in equities now as compared with the euphoria seen in January 2008. The retail investors had pumped over Rs45,000 crore in equity mutual funds in the six-month period of November 2007-April 2008 whereas this time around the retail investors have been withdrawing money from the equity market on rallies. In 2012, the equity mutual funds witnessed outflows of close to Rs10,750 crore and over 20 million folios closed or were withdrawn during January-November 2012. The apathy towards the equity market is coming at a time when the market has consolidated within a broad range of 15,000-20,000 on the Sensex for 40 months. The corporate earnings have grown by close to 40% in the same period, resulting in the price/earnings multiple of the Sensex slipping to 14x one-year forward earnings (from the heady level of 25x in January 2008). Contrary to the current situation, retail investors were rushing to pour money in the equity market in late 2007 when the index had already appreciated by 500-600% since 2003. One wonders what happened to the logic of Buy low and sell high, the basic tenet of investing in the equity markets! Along with our house view on the equity market, the Fundamental research team has also put down some commonly ignored basic principles to be followed in the market with examples drawn from practical experience in 2012. Investors would do better to learn from experience rather than repeat the mistakes and miss out on an asset class that has the potential to create a huge amount of wealth. It is not difficult to do so in a growing economy like India where the nominal gross domestic product (GDP; nominal GDP = real GDP + inflation) growth rate has been close to 14% since 1978 (more than three decades). In the long term, the appreciation in the index (Sensex) has been more than the growth in the corporate earnings and the benchmark index has appreciated by 5-6 times every decade. So in the equity market there is no magic formula to generate handsome returns which tend to far exceed the returns from the fixed income instruments and other asset classes. To succeed in the equity market whats required from the investors end are three things: homework, patience and discipline. Happy new year!
EQUITY
FUNDAMENTALS
MARKET OUTLOOK
MARKET OUTLOOK
JANUARY 03, 2013
2013: Volatility to rule again

2012renewed policy activism made all the difference: Equities were at the losing end for the better part of 2012 till the government woke up from a slumber and helped the market to register a handsome gain of close to 26% for the calendar year. The foreign investors kept faith and pumped in $24.4 billion in the Indian equity market. That too in a year when Indias macro conditions were deteriorating and the leading global rating agencies had to revise the rating outlook to Negative from Stable. Moreover, India faced the threat of a sovereign rating downgrade to the Junk level on account of the ballooning twin deficits (current account and fiscal deficits) and a complete policy paralysis. On the other hand, domestic investors bailed out of equity and continued to chase the other asset classes like gold and real estate. 2013begins on a much better note but domestic investors remain sceptical: Unlike the beginning of 2012, the start of 2013 has been much better. Though there are challenges (in terms of slowing exports, rising current account deficit and ballooning external debt), but the domestic macro-economic scenario is likely to improve with the easing of the headline inflation figure and the expected re-initiation of policy rate cuts by the Reserve Bank of India (RBI) in the January-March quarter (if not in January itself). However, the domestic investors remain sceptical and have not yet participated meaningfully in the equity market. Global cues to remain supportive: The policy makers in the USA have finally managed to sign a deal to limit tax rate hikes to only the rich (above an annual income of $400,000 individually or $450,000 for a household) and also to keep spending to support the economy. The decision on the final contours of the deal has been postponed by two months and mitigates the immediate threat to the US economy and equity market. The European situation is much more unpredictable. Italy and Spain are turning out to be new pain points with the Greece exit from the European Union on the backburner now. Elections in Italy in April and in Germany in the later part of the year could be the other influencing events for the equity markets globally. Valuationsearnings upgrades key to further re-rating of multiples: In addition to liquidity, the trough of the downgrades in the earnings estimates by analysts and the potential upgrades in the earnings estimates would be the key re-rating factors for the valuation multiple of the domestic equity market. We believe that the earnings downgrade cycle is largely behind us. Most of the negatives are largely factored in the analysts estimates. Moreover, the easing of the interest rates with the expected cooling off of the energy prices (crude oil, coal etc) could support the growth in the corporate earnings. However, the earnings upgrades would depend on the follow-up policy actions and the ability of corporate India to exceed analysts expectations. Another year of volatility with positive returns from the benchmark indices: Do not expect a secular trend yet. Two thousand and thirteen is most likely to be another year of high volatility with bouts of risk aversion and liquidity driven sharp rallies. However, we expect double-digit positive returns from the benchmark indices this year too which would be largely in line with the earnings growth expected in FY2014. Those who completely missed out on the 2012 rally can look at investing systematically (in a gradual manner) and use volatility as an opportunity to enter at attractive levels. In addition, we believe that the equity market provides stock-specific attractive investment opportunities at all times and it is never too late to enter it. The themes to play in 2013 would be largely economic recovery driven consumer discretionary sectors (like media, real estate, NBFCs) and stock-specific balance sheet restructuring stories.
SENSEX P/E (BASED ON ROLLING ONE-YEAR FORWARD EPS)
25.0 22.0 19.0 16.0 13.0 10.0 7.0 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
+1 Avg PE -1
Source: Bloomberg, Sharekhan research
January 2013
MARKET OUTLOOK
LESSONS FROM 2012
#1. Bad macros do not necessarily mean bad returns from equity markets.
Despite a declining GDP growth and high inflation, the equity market provided robust returns in 2012. The equity market tends to pre-empt a cyclical revival in the economy.
GDP GROWTH VS SENSEX RETURNS
150% 100% 50% 0% -50% -100% Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 12.0%
EQUITY
FUNDAMENTALS
RUPEE VS NIFTY
7,000 6,000 60.0 55.0 50.0 5,000 4,000 Jun-11 Dec-10 Dec-11 Jun-12 Dec-12
Source: Bloomberg
45.0 40.0
10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
Nifty Index
USDINR Curency
Sens ex returns (LHS)
GDP grow th (RHS)

Source: Bloomberg
#4. Even in a falling market there are pockets of stocks that could generate handsome returns for investors (eg many fast moving consumer goods, pharmaceutical and domestic consumption driven stories in addition to the turn-around re-rating candidates).
ITC, Hindustan Unilever, GlaxoSmithKline Consumer Healthcare, Mahindra and Mahindra, Maruti Suzuki and Cipla are many liquid, quality stocks that generated more than decent returns in 2012; there are also re-rating stories like Wockhardt, Divis Laboratories, Mcleod Russel, V-Guard Industries, Bajaj Corp and AGC Networks in the mid-cap space.
#2. Returns are likely to be handsome if investors buy into the market with benchmark indices below P/E of 12x one-year forward earnings.
That valuations matter even if the macro-economic scenario is not supportive was clearly reflected in the market in 2012. On a number of occasions we have highlighted the average historical returns given by the market at various valuation levels in our Market Outlook reports.
HISTORICAL MARKET RETURNS AT VARIOUS PE LEVELS
#5. Interest rate-sensitive sectors normally tend to lead a rally in a monetary easing environment.
Banks have always been early gainers at the start of any multimonth (or for that matter multi-year) rally in the equity market.
RATE CUTS AND MARKET MOVEMENT
250% 200% 150% 100% 50% 0% -50%
215%
125% 69% 11% Below 10 10-12.5 3 year avg return 12.5-15 15-17.5 10% above 17.5
250.0% 200.0% 150.0% 100.0% 50.0% 0.0% -50.0% -100.0% Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0%
1 year avg return

Source: Bloomberg, Sharekhan research
Sensex returns BSE Auto returns
Bankex returns Repo rate

Source: Bloomberg
#3. It is practically impossible to time the market for long-term investments.

Those waiting for the 4200 level on the index or the rupee/dollar level of 60 missed out on the entire rally.
January 2013
EQUITY
FUNDAMENTALS
MARKET OUTLOOK
government has taken the initiative to cut the fiscal deficit (disinvestment, reduction in planned expenditure, hike in fuel prices) much to the comfort of the RBI. Overall, the market expects a reduction of about 100 basis points in the repo rate in CY2013.
MOVEMENT OF G-SEC YIELDS (%)
9.0 8.8 8.6 8.4 8.2 8.0 7.8 May-12 Jan-12 Jul-12 Mar-12 Nov-12 Sep-12 Jan-13
Source: Bloomberg
Cautious optimism
Unlike in 2012 when the market had entered the year with pessimism, there is optimism at the beginning of 2013 in view of the progress on reforms seen in the past few months. After being the worst performing market in early 2012, the Indian market has given a fair amount of returns (nearly 26% in 2012) reflecting the positive investor sentiment. On the macro-economy front, the economic growth seems to have bottomed out (with a 5.3% growth in Q1FY2013) and the other indicators look to be improving from here. The RBI after holding the policy rates for the past ten months (since April 17th when it had reduced the repo rate by 50 basis points) is willing to address the growth concerns which could set the ball rolling and stimulate a recovery in the economy. Of late, the government has turned assertive on the reform front which justifies the optimism but the government faces the real test ahead in view of the assembly elections in some key states in 2013 and the general election in mid 2014.
PERFORMANCE: SENSEX VS ASIAN INDICES (IN 2012)
1 Y ear
5 Y ear
10 Y ear
30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

Source: Bloomberg
Electoral considerations could overshadow policy matters

While the government has been able to push through some of the reforms in the winter session of the Parliament (foreign direct investment in the retail sector, banking laws bill etc), the road ahead would be patchy in view of the several state elections in 2013 and the general election in mid 2014. In the face of several challenges, such as a sharp rise in the current account deficit and fiscal imbalances, the Union budget is likely to be populist and the key reforms such as the implementation of the goods and services tax are unlikely to get through even in the current year. The economic growth seems to have hit a low (5.3% in Q1FY2013), but a sluggish global environment, high interest rates and weak investments are unlikely to support the recovery in any major way.
STATE ELECTIONS IN 2013 State Karnataka Madhya Pradesh Rajasthan Delhi Meghalaya Tripura Nagaland Mizoram
26.2%
22.9% 12.9% 10.7% 9.3%
3.2%
Monetary easing by RBI on the anvil

Though the RBI has surprised the market several times, but this time the expectation has built of a 25-50-basis-point rate cut in Q4FY2013. Besides, in its past two reviews the central bank had changed its hawkish stance and shown willingness to accommodate growth concerns as it expects inflation to trend down from Q4FY2013 onwards. The RBI is actively managing the liquidity via open market operations to check any abrupt rise in the interest rates. In addition, the governments vow to keep its borrowings within the budgeted limit has helped the bond yields. The
CRR AND REPO RATE TRENDS
12 10 8 6 4 2 0 Jun-09 Jun-10 Jun-11 Dec-08 Dec-09 Dec-10 Dec-11 Jun-12 Dec-12
Tenure ends on 4-Jun 2013 12-Dec 2013 31-Dec 2013 17-Dec 2013 10-Mar 2013 16-Mar 2013 26-Mar 2013 15-Dec 2013
Ruling party BJP BJP Congress Congress Congress CPI (M) Naga People's Front Congress
Slower growth rates to persist in global economy

Due to the slowdown in the developed economies and the impact of their fiscal austerity measures the global economic growth is likely to remain subdued. Now that the fiscal cliff concerns have been dealt with, the USAs focus will shift to raising the debt ceiling. Moreover, the macro-economic data released in the USA is showing some improvement which is positive for the market. In the euro area the peripheral nations such as Italy and Spain have emerged as new sore points as political crisis (the resignation of the prime minister in Italy) looms large in these countries apart from the high debt to GDP ratio and imminent banking crisis. Going ahead, Italys general election in April and Germanys election in the later part the year will be the key events to watch. Nevertheless, the Chinese gross domestic product (GDP) has shown recovery signs and is likely to show a better growth in 2013.
CRR
Repo rate
Reverse repo
Source: Bloomberg
January 2013
MARKET OUTLOOK
US HOUSING SECTOR AND IIP LOOK UP
380 370 360 350 340 330 320 Mar-12 May-12 Jan-12 Jul-12 Sep-12 Nov-11 Nov-12 1.5 1.0 0.5 (0.5) (1.0) (1.5)
EQUITY
FUNDAMENTALS
CONSENSUS FY2014 SENSEX EARNINGS (EPS) ESTIMATES

1,475 1,465 1,455 1,445 1,435 1,425 Jun-12 Aug-12 Dec-12
Source: Bloomberg
US new home sales (in '000)
IIP Y oY (% )
Source: Media reports
Corporate earnings may recover gradually

Earnings downgrades have moderated significantly due to the fiscal measures taken by the government and the increased possibility of a reduction in the interest rates. However, the corporate earnings are likely to revive materially around H2FY2014, as a slower revenue growth, margin pressure and high interest rates continue to eat into corporate profits. Going ahead, there are clear signs of peaking of the interest rates while the economic growth is mildly improving. The benefits of these would begin to flow into the earnings towards the second half of FY2014. The operating profit margins may begin to look good due to a low base and softness in commodity prices. Moreover, any improvement in the global cues over the next couple of quarters would brighten the earnings growth outlook.
inflows. This has led to an expansion in the Sensex multiple, which is now closer to the mean multiple. However, the expansion on the earnings side has yet to happen which could obstruct the momentum in the coming days. Besides, there could be some disappointments as well in 2013, such as a US debt ceiling and a deepening of the euro crisis while on the domestic front, an expenditure-oriented budget and a brake on reforms could add to the markets woes. Thus, do not expect a secular trend yet. Two thousand and thirteen is most likely to be another year of high volatility with bouts of risk aversion and liquidity driven sharp rallies. However, we expect double-digit positive returns from the benchmark indices in this year too which would be largely in line with the earnings growth expectations for FY2014. Those who completely missed out on the 2012 rally can look at investing systematically (in a gradual manner) and use volatility as an opportunity to enter at attractive levels. In addition to this, we believe that the equity market provides stockspecific attractive investment opportunities at all times and it is never too late to enter it.
Market may remain volatile

The market has made a significant upmove, buoyed by the euphoria generated by the reforms which has led to strong foreign fund
KEY MONITORABLES FOR THE EQUITY MARKET IN 2013 Supportive End of super cycle in crude oil may reduce the subsidy burden and pressure on trade deficit Low growth in developed markets to keep liquidity tap flowing and India will keep getting a fair share of the flows into the emerging markets RBI to cut policy rates by close to 100 basis points in 2013 would put pressure on the rupee Governments commitment to push forward reforms with direct cash transfers may turn out to be a game changer Corporate earnings may revert to higher growth trajectory (12-14%), up from the tepid growth of close to 7-8% CAGR in the past four years Negative Spending cuts in the USA may cause the economy to slip back into recession Contagion effect in Europe may result in another bout of risk aversion Trade deficit could remain high due to slowing exports which A possible risk of dishing out a populist budget (FY2013-14) before the state elections in 2013 and the general election in 2014 A possible early general election in case the Congress Party is unable to manage its supporting partners
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.
January 2013
10
Oct-12
EQUITY SHAREKHAN TOP PICKS
FUNDAMENTALS
EQUITY
FUNDAMENTALS
SHAREKHAN TOP PICKS
Sharekhan Top Picks

Despite the uncertainties related to the deal on fiscal cliff in the USA and the continued selling by the domestic investors, the market ended higher in the last month on the back of positive global cues, continued foreign fund flow and the ability of the government to push through some pending legislative bills in the winter session of the Parliament. The late surge enabled the equity market to end with gains of 1.3% and 1.2% in the Nifty and the Sensex respectively. Our basket of Top Picks performed better than the benchmark indices yet again and registered gains of 2.7% during the same period. Our performance was aided by an 11% gain in Federal Bank, which was introduced in the Top Picks basket in the last month itself. This month, we are replacing Axis Bank and Cadila Healthcare with Zee Entertainment Enterprises and CanFin Homes. We see a much higher potential for upside in Zee Entertainment Enterprises than Axis Bank among the large-cap stocks. The introduction of CanFin Homes is prompted by the need to maintain the weightage on the financials as well as to add some mid-cap flavour to the Top Picks basket.
ABSOLUTE OUTPERFORMANCE (RETURNS IN %)

210.0% 180.0% 150.0% 120.0% 90.0% 60.0% 30.0% 0.0% -30.0% -60.0% Sharekhan (Top Picks) Sensex CY2012 CY2011 CY2010 CY2009 Since Jan 2009 Nifty
CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS IN %)

180.0% 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Sens ex Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Nif ty
Sharekhan
NAME BHEL CanFin Homes Dishman Pharma Federal Bank GCPL ICICI Bank Larsen & Toubro M&M Relaxo Footwears Reliance Zee Entertainment Enterprises
* CMP as on January 01, 2013
CMP* (RS) 233 161 116 540 722 1,162 1,624 940 800 841 224
FY12 8.1 7.5 16.7 11.9 43.0 20.7 19.9 20.8 24.0 13.8 36.7
PER FY13E 8.6 6.2 10.8 10.6 31.1 17.2 16.5 17.9 18.5 13.7 31.1
FY14E 9.3 4.8 6.8 8.8 24.1 15.5 14.9 18.5 13.7 13.0 24.6
FY12 27.7 13.3 6.1 14.4 26.3 11.2 17.0 22.8 20.3 11.5 18.1
ROE (%) FY13E 22.2 14.3 8.7 14.4 26.8 12.3 17.5 22.3 20.4 10.4 18.8
FY14E 17.9 16.5 12.4 15.5 28.2 12.7 16.8 18.7 20.6 9.9 20.8
PRICE TARGET 250 220 135 796 1,230 1,788 1,046 885 915 255
UPSIDE (%) 8 37 16 10 6 10 11 11 9 14
11
January 2013
SHAREKHAN TOP PICKS

NAME CMP (RS) PER FY13E ROE (%) FY13E PRICE TARGET UPSIDE (%)
FY12
FY14E
FY12
FY14E
BHEL Remarks:
233
8.1
8.6
9.3
27.7
22.2
17.9
250
Bharat Heavy Electricals Ltd (BHEL) is a premier power generation equipment manufacturer and a leading engineering, procurement and construction company. BHEL has witnessed a severe downgrade in its valuation multiples in the last couple of years on account of policy inaction-driven slowdown in the demand environment. However, the proposed initiatives to restructure the debt on the books of the state electricity boards would kick-start the reforms in the power sector. In terms of the existing order book, we believe that the concern over the cancellation of the orders from the private power developers seems overplayed as the Inter Ministerial Group hasn't de-allocated any coal mine of BHELs private clients after scrutinising 29 coal mines. The company is also focusing on the non-BTG segments, like railways, logistics, and transmission and distribution (T&D), that have a significant growth potential. The relatively lower order intake in recent years would reflect on its revenue growth and result in a marginal decline in the earnings over the next two years. However, a lot of negatives are reflected in the serious de-rating of the stock over the last two years and we believe the current valuation is attractive at 9.3x its FY2014 earnings. Therefore, we have included BHEL in our Top Picks basket.
CANFIN HOMES Remarks:
161
7.5
6.2
4.8
13.3
14.3
16.5
220
37
CanFin Homes has renewed its focus on growth and the recent aggressive expansion of its branch network has put it on a high-growth path for the next few years. It has added 25 branches since March 2011 which amounts to an increase of close to 60% in its current branch network of 66 outlets. Consequently, we expect the companys disbursement to grow at about 60% CAGR resulting in a 38% CAGR in the loan book over FY2012-14. The companys branches are strategically located (outside cities) and serve customers requiring relatively smaller loans (of below Rs10 lakh), which are eligible for interest subvention. Further, the company gets refinancing from the National Housing Board at competitive rates due to lending in semi-urban rural areas (that account for about 40% of its loan book). Thus, we expect CanFins NIM to sustain at over 3% going ahead. The asset quality of the company is strong as its gross NPAs were a meagre 0.9% of the advances and its net NPAs were nil in FY2012. This is mainly possible due to stringent credit appraisals (customer referrals preferred) and efficient recoveries. The CAR as of Q2FY2013 is 15.44% (17.44% in FY2012) against the minimum requirement of 12%. According to the management, the current capital will suffice till FY2014. We believe the operational performance and return ratios of CanFin are improving which should lead to a re-rating of the stock. We value the company at 1x FY2014E BV and recommended Buy with price target of Rs220.
DISHMAN PHARMA Remarks:
116
16.7
10.8
6.8
6.1
8.7
12.4
135
16
After four years of lull, Dishman is all set to capitalise on its capabilities in the contract, manufacturing and research services (CRAMS) space and the marketable molecules (MM) business, thanks to its enhanced capacities and the up cycle in the CRAMS business. In H1FY2013, the net revenues of Dishman jumped by 19.4% YoY to Rs604.5 crore on the back of a 17.6% Y-o-Y rise in the CRAMS business and a 22.5% jump in the MM business (which includes the vitamin-D business). The oprating profit margin (OPM) improved by 925 basis points YoY to 23.5% which led the net profit to turnaround to Rs65.3 crore during H1FY2013. The up cycle in the CRAMS business and the enhanced capacities (it commercialised three new units in Q3FY2012) will help achieve a 16% revenue CAGR over FY2012-14. We expect an improvement in the operating profit margin and a reduction in the fixed costs during this period, which should lead the profit after tax (PAT) to grow at a CAGR of 55% over FY2012-14. Strong cash flows are likely to help reduce its debts significantly. We expect the debt/equity ratio to reduce to 0.5x in FY2014 from 0.9x in FY2012. Being an export-oriented player and having a substantial portion of foreign debts on its balance sheet Dishman is vulnerable to foreign exchange fluctuations. The chequered past performance and the managements inability to meet the stated guidance in the past are also causes for concern in the prevailing market where management quality and transparency carry a premium. The stock is currently trading at 6.8x FY2014E EPS, which is a 58% discount to its five-year average P/E multiple and close to a 65% discount to Divis Laboratories. We expect the valuation gap to narrow on a strong operating performance and an improved financial health. We recommend a Buy on the stock with a price target of Rs135 (8x FY2014E EPS).
January 2013
12
SHAREKHAN TOP PICKS

NAME CMP (RS) PER FY13E ROE (%) FY13E
EQUITY
FUNDAMENTALS
PRICE TARGET UPSIDE (%)
FY12
FY14E
FY12
FY14E
FEDERAL BANK Remarks:
540
11.9
10.6
8.8
14.4
14.4
15.5
Federal Bank is an old private bank with a network of 1,010 branches and a dominant presence in south India. Under a new management the bank is working on a strategy to gain pan-Indian presence, shift the loan book to better-rated corporates, increase the fee income, become more efficient and improve the asset quality. The asset quality of the bank has remained steady after showing some strain initially. The slippages from the SME and retail accounts have declined substantially while the slippages from the corporate accounts remain stable. Going forward, with the initiatives undertaken the recoveries could pick up and the NPAs may decline. Federal Banks loan growth has slowed over the past few quarters as the bank is cautious in view of the weakness in the economy. However, the loan growth is likely to be in line with the industry while risk adjusted margins may improve, thereby driving the operating performance. The banks return ratios are likely to go up led by an increase in the profits. We expect an RoE of ~15.5% and an RoA of around 1.2% by FY2014 led by a 16% CAGR in the earnings. Currently the stock is trading at an attractive valuation of 1.2x FY2014 book value. We recommend Buy.
GCPL Remarks:
722
43.0
31.1
24.1
26.3
26.8
28.2
796
10
Godrej Consumer Products Ltd (GCPL) is a major player in the Indian fast-moving consumer goods (FMCG) market with a strong presence in the personal care, hair care and home care segments in India. The recent acquisitions (in line with the 3x3 strategy) have immensely improved the long-term growth prospects of the company. On the back of strong distribution network, and advertising and promotional support, we expect GCPL to sustain the market share in its core categories of soap and hair colour in the domestic market. On the other hand, continuing its strong growth momentum, the household insecticide business is expected to grow by ~20% YoY. In the international markets, the Indonesian and Argentine businesses are expected to achieve a CAGR of around 20% and 35% respectively over FY2012-14. This along with the recently acquired Darling Group would help GCPL to post a top-line CAGR of ~23% over FY2012-14. Due to the recent domestic and international acquisitions, the companys business has transformed from a commodities soap business into the business of value-added personal care and home care products. Therefore, we expect its OPM to be in the range of 16-18% in the coming years. Overall, we expect GCPLs bottom line to grow at a CAGR of above 30% over FY2012-14. We believe the increased competitive activity in the personal care and hair care segments and the impact of high food inflation on the demand for its products are the key risks to the companys profitability. At the current market price, the stock trades at 31.1x its FY2013E EPS of Rs23.2 and 24.1x its FY2014E EPS of Rs29.0.
ICICI BANK Remarks:
1,162
20.7
17.2
15.5
11.2
12.3
12.7
1,230
ICICI Bank continues to report strong growth in advances with stable margins of 2.8%. We expect the advances of the bank to grow by 20% CAGR over FY2012-14. This should lead to a 19.5% CAGR growth in the net interest income in the same period. ICICI Banks asset quality has shown a turnaround as its NPAs have continued to decline over the last eight quarters led by contraction in slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, we expect the NPAs to decline further which will lead to lower NPA provisions and hence aid the profit growth. Led by a pick-up in the business growth and an improvement in the margins the RoEs are likely to expand to about 13% by FY14 while the RoA would improve to 1.5%. This would be driven by a 16% CAGR in profits over FY2012-14. The stock trades at 1.9x FY2014E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthy growth in the core income and improved operating metrics we recommend Buy with a price target of Rs 1,230.
LARSEN & TOUBRO Remarks:
1,624
19.9
16.5
14.9
17.0
17.5
16.8
1,788
10
Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domestic infrastructure development and industrial capital expenditure (capex) boom. L&T continues to impress us with its good execution skills, reporting decent numbers throughout this year despite the slowdown in the industrial capex cycle. Also we have seen order inflow traction in recent quarters. Despite challenges like deferral of award decisions and stiff competition, the company has given robust guidance of 15-20% growth in revenue and order inflow for FY2013. We believe the company will manage to meet its guidance. Sound execution track record, bulging order book and strong performance of its subsidiaries reinforce our faith in L&T. With the company entering new verticals, namely solar and nuclear power, railways, and defence, there appears a huge scope for growth. At the current market price, the stock is trading at 14.9x its FY2014E consolidated earnings.
13
January 2013
SHAREKHAN TOP PICKS

NAME CMP (RS) PER FY13E ROE (%) FY13E PRICE TARGET UPSIDE (%)
FY12
FY14E
FY12
FY14E
M&M Remarks:
940
20.8
17.9
18.5
22.8
22.3
18.7
1,046
11
Mahindra & Mahindra (M&M) is a strong rural India story benefiting from the rising agriculture incomes. The farm equipment sector is estimated to grow by 10% in H2FY2013 as compared with a decline in H1FY2013. Continued farm mechanisation following labour shortages and increasing non-agri uses would support the demand for tractors in the long term. The automotive sector is expected to grow by 19% in FY2013. The new launches, such as Quanto and Rexton, have expanded the existing UV portfolio. The pick-ups portfolio has benefited from the shift towards large pick-ups where M&M has a higher market share. The companys pricing power is better compared with the other OEMs because of its strong brand equity. It took price hikes aggressively to maintain the margins in both the automotive and the farm equipment division. The company is expected to launch Reva electric NXR and sub-four meter Verito in Q4FY2013. Our SOTP-based price target for M&M is Rs1046 per share as we value the core business at Rs883 a share and the subsidiaries at Rs164 a share. We recommend Buy on the stock.
RELAXO FOOTWEARS Remarks:
800
24.0
18.5
13.7
20.3
20.4
20.6
885
11
Relaxo Footwears is present in the Indian organised footwear market and is involved in the manufacturing and trading of footwear through its retail and wholesale networks. The companys top brands, namely Hawaii, Sparx, Flite and Schoolmate, have an established presence among their respective segments. The company has displayed an impressive growth rate in its top line and bottom line in the last couple of years and is expected to maintain the performance going forward. With an established distribution set-up and aggressive plans of opening own retail outlets called Relaxo Retail Shoppe, the company should be able to gain market share in the coming years. The softening rubber prices should provide a boost to the companys margins and profitability. We believe a rise in the raw material prices and a continuous slowdown in the discretionary spending remain the key risks to our volume and profitability estimates. At the current market price, the stock trades at 18.5x its FY2013E EPS of Rs43.2 and 13.7x its FY2014E EPS of Rs58.3.
RELIANCE Remarks:
841
13.8
13.7
13.0
11.5
10.4
9.9
915
Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration business. The refining division of the company is the highest contributor to the companys earnings and is operating efficiently with a better gross refining margin (GRM) compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude. However, the gas production from the Krishna-Godavari-D6 field has fallen significantly in the past one year. With the government approval for additional capex, we believe production will improve going ahead. In case of refining, the GRM, which had improved sharply in Q2FY2013, showed signs of correction in recent times. We believe the GRM is likely to be stable in the coming quarters. In the petrochemical business, the companys margins are close to bottoming out (with a sharp correction in Q1FY2013). In H2FY2013, we could see an improvement in the margin that will support the overall profitability of the company. In case of the upstream exploration business, the company has recently got the nod for further investments in exploration at the Krishna-Godavari basin, which augurs well for the company and could address the issue of falling gas output. Further, the new gas pricing formula recommended by the Rangarajan panel augurs well for the company and could provide further upside to the earnings. The key concern remains in terms of a lower than expected GRM, profitability of the petrochemical division and the companys inability to address the issue of falling gas output in the near term. At the current market price the stock is trading at PE of 13x its FY2014E EPS.
ZEE ENTERTAINMENT Remarks:
224
36.7
31.1
24.6
18.1
18.8
20.8
255
14
Among the key stakeholders of the domestic TV industry, we expect broadcasters to be the prime beneficiary of the mandatory digitisation process initiated by the government. The broadcasters would benefit from higher subscription revenues at the least incremental capex as the subscriber declaration improves in the cable industry. In the last three quarters Zee TV, the flagship channel of ZEEL, has consistently gained market share among the top four Hindi general entertainment channels. Zee TVs market share has improved from 16.5% in Q3FY2012 to 22% in Q2FY2013, with gross rating points of 237 in Q2FY2013. By FY2015, we expect ZEELs cash flow to improve significantly with a jump of around 75% from the FY2012 cash and cash equivalents of Rs1,060.7 crore. In the last three years, the dividend pay-out ratio has been around 25-30%, which will increase in the coming years. Also, in the last two years the company has initiated two share buy-back programmes acquiring shares of cumulative value of Rs290 crore. ZEELs earnings are expected to grow at a CAGR of 25% over FY2013- 15. Further, strong cash levels would drive the managements inclination to reward the shareholders which would act as a positive trigger for the stock. At the current market price of Rs223, the stock trades at 31.1x on FY2013 and 24.6x FY2014 earnings estimates.
January 2013
14
STOCK IDEA
EQUITY
FUNDAMENTALS
AUROBINDO PHARMA
BUY CMP: RS188
DECEMBER 20, 2012
A sweet pill
COMPANY DETAILS
Price target: Market cap: 52-week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs247 Rs5,485 cr Rs201/83 16.9 lakh 524804 AUROPHARMA AUROPHARMA 13.2 cr
KEY POINTS
Looking beyond concerns: Aurobindo Pharma has been reeling under pressures from various quarters including (1) the US Food and Drug Administration (USFDA) scrutiny on some of its key manufacturing facilities; (2) fluctuation in foreign currency resulting in substantial marked-to-market (MTM) losses; and (3) an enquiry by the Central Bureau of Investigation (CBI) into the promoters links with former chief minister of Andhra Pradesh, YSR Reddy. However, the situation is normalising now. The USFDA has cleared one of its manufacturing units and the management is awaiting USFDA clearance for another unit (Unit VI) that has already undergone USFDA inspection (a positive outcome could bring in incremental revenues of $25-30 million). Change in strategy to rejuvenate growth: The company envisages several changes in its business strategy to rejuvenate growth. These include (a) reduction of the dependence on partners in the developed markets (the USA and Europe) and focus on self-driven businesses (through wholly owned subsidiaries) to ensure predictable growth; (b) focus on niche segments like controlled substances in the USA; (c) focus on cost control and margin expansion; (d) investments in upgrading manufacturing units to avoid USFDA action in future; and (e) aggressive product filings in different countries. Margins and cash flows to improve going ahead: With the expected increase in the export-led business post-resolution of the USFDA issues, the favourable tilt in the revenue mix is likely to boost the margins, resulting in a relatively much better growth in earnings as compared with revenues. The company has also been able to successfully redeem its outstanding foreign currency convertible bonds (FCCBs) through external commercial borrowings in FY2012 and is well funded to meet its commitment of repaying its long-term debt (close to $80 million) in the current fiscal. Though the net debt level continues to be high (a debt-equity ratio at 1.1x) but we expect the improving operating performance and the consequent strong internal generation of cash flows to ease the stress on the balance sheet (the debtequity ratio is likely to drop to 0.5x by FY2015E). Available at a discount to its peers; initiate coverage with a Buy call: Though the stock has run up recently, it is still trading at a 30% discount to its long-term average multiple (around 13.5x one-year forward earnings) and at close to an average discount of 20% to some of its peers (like Torrent Pharmaceuticals and Ipca Laboratories) despite the fact that it has a relatively much better product pipeline. Thus, we see scope for substantial re-rating of the stock, in line with a distinct improvement in its financial performance. Consequently, we recommend Buy on the stock with a price target of Rs247 (12x average of FY2014 and FY2015 estimated earnings). Any negative development on the nod from the USFDA or any enquiry related to the promoters links with the politician is a potential risk to our prognosis.
VALUATIONS (CONSOLIDATED)
Particulars Net sales (Rs cr) PAT (Rs cr) Shares in issue (cr) EPS (Rs) Change YoY % PER (x) EV/EBIDTA (x) P/BV (x) RoCE (%) RoNW (%) FY2010 3,575.4 561.2 27.9 20.1 993.8 9.7 9.1 3.0 21.2 36.6 FY2011 4,381.5 573.8 29.1 19.7 -2.1 9.9 8.2 2.3 19.0 26.9 FY2012 4,627.4 197.7 29.1 6.8 -65.5 28.7 13.4 2.4 7.8 8.3 FY2013E 5,397.7 404.1 29.1 13.9 104.4 14.0 10.2 2.1 11.3 16.2 FY2014E 6,285.6 516.5 29.1 17.7 27.8 10.6 8.1 1.7 13.5 17.8 FY2015E 7,169.2 680.9 29.1 23.4 31.8 8.0 6.4 1.4 16.3 19.7
SHAREHOLDING PATTERN
Public and others 10%
Non-promoter corporate 6% Institutions 17% Foreign 13%
Promoters 54%
PRICE CHART
215 195 175 155 135 115 95 75 Feb-12 Dec-11 Jun-12 Aug-12 Dec-12
12m 115.7 67.4
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 7.9 1.6 3m 46.1 38.5 6m 80.9 55.3
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.
Apr-12
Oct-12
15
January 2013
EQUITY
FUNDAMENTALS
STOCK IDEA
BUY
CMP: RS190
CAPITAL FIRST
JANUARY 02, 2013
Leveraging on its new-found pedigree

COMPANY DETAILS
Price target: Market cap: 52-week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Rs260 Rs1,245 cr Rs235/115 1.8 lakh 532938 CAPF CAPF 3.9 cr
KEY POINTS
A new beginning: Capital First, the erstwhile Future Capital Holdings, has been acquired by the leading global private equity player, Warburg Pincus, from Pantaloon Retail India. As part of the transaction, Capital Firsts balance sheet has been cleaned up considerably with the assignment of some sticky advances and the infusion of additional capital of Rs100 crore by Warburg Pincus. The accounting policies are being revised to make them more conservative and reflective of the companys actual performance. Shifting gearsmoving on to a higher growth trajectory: The existing management headed by V Vaidyanathan has a well laid-out strategy to expand in the retail and SME sectors. We see the re-energised management team in a better position to tap the vast opportunity in the high-growth retail product segments like gold loans, LAP and LAS. Moreover, the company is now well capitalised with total CAR of 22.7% and tier-I CAR of 18.5% and the macro environment is likely to turn favourable as the monetary easing through policy rate cuts boosts credit demand in the retail, and SME segments. Consequently, the management expects to more than double its loan book to over Rs10,000 crore (Rs4,400 crore in Q2FY2013) in the next three years. Robust asset quality with improving return ratios: The managements strategy of de-risking the portfolio by expanding the secured retail book coupled with a stringent credit origination and monitoring process will help to sustain the asset quality at the prevailing healthy levels. The companys gross and net NPAs were around 0.18% and 0.04% respectively (as of September 2012), the lowest compared with the peer group. The companys provisioning policy is more stringent than the regulatory requirement and hence would not be affected by the 90-day NPA recognition norm proposed by the RBI. We see scope for expansion in the return ratios led by a robust growth in the earnings and the potential to improve the spreads as the companys funding cost comes down with an upgrade in its credit rating. Weak macros and potential sale of Pantaloon Retails 9% stake are risks: In addition to an unexpected deterioration in the macro-economic environment, the potential sale of residual stake held by the Future group in the open market could limit the upside in the stock in the near term. A potential re-rating candidateBuy: Capital First currently trades at about 1.2x FY2014E book value which is a significant discount to its peers like Bajaj Finance, Mahindra Financial Services and Shriram City Union Finance. The valuation discount is largely attributed to some legacy issues and a lower RoE. We believe the change in the ownership, the resolution of the legacy issues, the capital infusion and the ability to aggressively grow its loan book in the retail and SME segments could result in the re-rating of its valuation multiple. We initiate coverage on the company with a Buy recommendation and price target of Rs260 (1.5x the average of FY2014E and FY2015E book values).
Public & others 53% MF & FI 1%
Promoter 43% Foreign 3%
PRICE CHART
230 210 190 170 150 130 110 Mar-12 Jan-12 Jul-12 May-12 Nov-12 Sep-12 Jan-13
VALUATIONS
Particulars NII (Rs cr) PAT ( Rs cr) Growth (%) EPS (Rs) RoE (%) RoA (%) BV (x) P/BV (x) P/E (x) FY2011 87 49 -17.1 7.6 6.8 1.7 106.1 1.8 25.1 FY2012 157 106 115.4 16.4 13.4 2.3 128.9 1.5 11.6 FY2013E 254 101 -4.9 14.2 10.9 1.6 143.6 1.3 13.3 FY2014E 353 135 34.3 19.1 12.6 1.6 159.3 1.2 9.9 FY2015E 495 205 52.1 29.1 17.0 1.9 183.3 1.0 6.5
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -13.9 -15.0 3m 20.6 15.7 6m 24.2 9.8 12m 55.4 20.4
January 2013
16
STOCK IDEA
EQUITY
FUNDAMENTALS
SPECIALITY RESTAURANTS
BUY CMP: RS171
DECEMBER 31, 2012
Dig into it
COMPANY DETAILS
Price target: Market cap: 52-week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs243 Rs803 cr Rs227/153 1.35 lakh 534425 SPECIALITY SPECIALITY 1.8 cr
KEY POINTS
Secular high-growth opportunity in the Indian restaurant industry: With growing disposable incomes and rising consumer aspiration for quality foods, ambience and services in the country, the organised players in the domestic food services industry have a unique opportunity to grow at a healthy rate of 28-30% annually over the next many years. Along with an exponential growth in the quick service restaurants (QSR; eg KFC, Dominos and McDonalds) within the organised segment, the fine dining (full service restaurants) are also expected register a healthy high doubledigit growth rate for several years. Specialitya reputed player with leading and established brands: With a portfolio of well established brands (including core brands Mainland China, Sigree and Oh! Calcutta), Speciality Restaurants Ltd (Speciality) is a leading player in the fine dining space. Its value-for-money proposition to offer five-star quality food, ambience and services at affordable rates has enabled it to successfully expand its chain of restaurants to over 80 restaurants spread across 22 cities in India. The management aims to open around 15 restaurants annually over the next three years and is well funded to achieve the target. Consequently, we expect Specialitys revenues to grow at a compounded annual growth rate (CAGR) of 31.5% over the next three years. Focus on improving margin expansion: In addition to its expansion-driven growth strategy, the companys management is focusing on increasing the share of its flagship brand, Mainland China, which has a 30-35% operating profit margin (OPM) as compared with a blended margin of close to 20% at the consolidated level in FY2012. The company is also taking initiatives through the use of technology and centralisation of processes to improve its efficiency. Consequently, the management expects to improve the blended margin by 200-300 basis points over the next few years. Strong balance sheet with little threat of further equity dilution in the near term: Speciality has an asset-light business model as all its properties are leased and this aids optimal utilisation of capital for efficiently managing the restaurants at various locations. Its business entails services for cash and thus the business has excellent operating cash flows. With more and more of its restaurants attaining maturity, we expect Specialitys free cash generation ability to improve substantially in the coming years. This will not only take care of the future expansion plans, but also help in rewarding the investors with good dividend pay-outs. Unique secular growth opportunity; recommend Buy with price target of Rs243: Speciality is a unique investment play on the domestic consumption-driven secular growth story. In view of its expansion plans, portfolio of established brands and well capitalised balance sheet, we expect the companys revenues and earnings to grow at a CAGR of about 31% and 49% respectively over the next three years. Consequently, we recommend a Buy on the stock with a price target of Rs243 (20x its FY2015E earnings per share [EPS] of Rs12.1).
VALUATIONS
Particulars Net sales (Rs cr) Operating profit (Rs cr) Adjusted PAT (Rs cr) Diluted EPS (Rs) OPM (%) PE (x) Market cap/sales (x) EV/EBIDTA (x) RoE (%) RoCE (%) FY2011 173.1 37.9 16.0 3.4 21.9 50.1 3.5 16.2 19.5 24.3 FY2012 196.2 37.5 17.2 3.7 19.1 46.6 3.1 16.7 16.2 21.5 FY2013E 256.4 44.5 23.4 5.0 17.3 34.3 3.1 18.3 10.9 15.9 FY2014E 347.0 70.5 39.4 8.4 20.3 20.4 2.3 11.1 11.8 17.4 FY2015E 445.2 98.6 57.0 12.1 22.1 14.1 1.8 7.7 14.9 22.1
Public & Others 8%
Foreign 17% Institutions 9% Non-promoter corporate 5%
Promoters 61%
PRICE CHART
230 220 210 200 190 180 170 160 150 May-12 Jun-12 Jul-12 Oct-12 Nov-12
6m -19.8 -30.4
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -5.6 -8.6 3m -4.3 -7.9 12m -
Aug-12
Dec-12
Sep-12
17
January 2013
SWITCH IDEA
EQUITY
FUNDAMENTALS
SHAREKHAN SPECIAL FMCG

Key points
First miss after nine consecutive successful trades: We are closing the switch call from Asian Paints to GSK Consumer Healthcare with a loss of close to 10% since our recommendation in December last year. This is the first and the only miss after nine consecutive successful closures of switch trades with an average net return of 21.5% on an absolute basis. Asian Paintsvolume sales did taper down as expected: In line with our expectations, the volume sales did moderate sharply in case of Asian Paints in the past couple of quarters. However, in spite of concerns and some of the analysts turning negative, the stock price was boosted by technical factors like the induction of Asian Paints in the benchmark index Nifty and the unSWITCH PERFORMANCE
Date Dec 23, 2012 Switch from Asian Paints Reco price 2667 CMP 4300 Gain / loss (%) -61.1 Switch to GSK Consumer Reco price 2485
O CTOBER 06, 2008 D ECEMBER 11, 2012
Closure of switch call from Asian Paints to GSK Consumer

expected premium given to consumer-driven businesses by the market. Hence, Asian Paints valuation reached 31% premium to its long-term average multiple and overshadowed the handsome gain of 51% in GSK Consumer Healthcare during the same period. GSK Consumer Healthcarebuy-back and easing raw material prices to keep the stock buoyed: We maintain our positive stance on GSK Consumer Healthcare in view of the buy-back announced by its parent at Rs3,900 and the fact that the prices of some of the companys raw materials (like milk and milk powder) have eased recently. However, we are closing the switch call as almost one year has passed since it was generated.
CMP 3758
Gain / loss (%) 51.2
Net gain / loss (%) -10.0
CLOSED CALLPERFORMANCE
Sr. no. 1 2 3 4 5 6 7 8 9 10 Call date 27-Dec-11 27-Dec-11 12-Dec-11 2-Dec-11 8-Jun-12 23-Dec-11 15-Dec-11 30-Mar-12 22-Jun-12 17-Dec-11 Close date 23-Apr-12 2-May-12 4-May-12 10-Jul-12 16-Jul-12 23-Aug-12 29-Aug-12 30-Aug-12 21-Sep-12 11-Dec-12 Sell M&M Bajaj Auto Infosys HUL BoI R Power IOC Alok Ind ITNL Asian Paints Price on Call Close date date 702 1,610 2,731 395 353 72 268 20 180 2,667 715 1,593 2,441 446 335 84 246 12 183 4,300 Return % -1.9 1.1 10.6 -13.0 5.3 -16.7 8.3 39.3 -1.4 -61.2 -3.0 Buy Maruti Hero Honda TCS ITC PNB CESC Oil India Raymond IRB Infra GSK Consumer Price on Call Close date date 968 1,938 1,180 207 783 205 471 424 126 2,485 1,375 2,245 1,278 258 853 321 503 340 151 3,755 Return % 42.0 15.8 8.3 24.7 9.0 56.6 6.8 -19.8 20.0 51.1 21.5 Net returns % 40.2 16.9 18.9 11.7 14.3 39.9 15.1 19.5 18.6 -10.1
Average absolute return
18.5
Switch Ideas had a strike rate of 90% and delivered 18.5% returns on an average in 2012
For detailed report, please visit the Research section of our website, sharekhan.com. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.
January 2013
18
EQUITY
FUNDAMENTALS
SWITCH IDEA
SEA HAREKHAN SPECIAL T

Piping hot
Key points
Global demand-supply gap to widen: CY2012 began with a production shortage of 12.5 million kg. With tea production down in the key black tea exporting countries, the demandsupply gap in the international market is expected to rise further at the end of the year. As per industry data, black tea production from key tea exporting countries for the first nine months of 2012 dropped by about 3% year on year (YoY; or 41 million kg) to 1,427.5 million kg. The industry expects CY2012 to end with a production shortfall of around of 50 million kg of black tea. Domestic tea prices to remain firm, to benefit domestic tea companies: The supply shortage in the domestic and international markets has led to a spike in the tea prices in the domestic market. The raw tea prices in India are currently trading at Rs15-20 per kg, higher than last year. However, with a lower yield the sales volume has been affected for most. Hence, we dont expect any significant expansion in the margins of the domestic tea players in FY2013. With the demand-supply gap likely to expand further in the coming months, the tea prices are expected to rise higher in the next year. On the back of
O CTOBER 06, 2008 D ECEMBER 07, 2012
expectations of stable sales volume, we might see the profitability improve substantially in FY2014. Maintain Buy on Mcleod Russel, recommend Jayshree Tea as a short-term trading idea: Indian tea is gaining preference in the international markets while the domestic tea market is growing at a steady pace of 2-3% YoY. The favourable demand-supply environment would keep the Indian black tea producers in a sweet spot, as tea prices are expected to remain firm in the domestic and international markets with no signs of easing of the deficit globally. We believe companies like Mcleod Russel, Jayshree Tea India Ltd (JTIL), Harrison Malayalam, Warren Tea and Goodricke are likely to witness an improvement in profitability in the coming years. We maintain our Buy recommendation on Mcleod Russel with a revised price target of Rs381 (10x based on average FY2014-15 earnings of Rs38.1). JTIL is another key domestic player that is likely to witness a handsome improvement in its profitability in the near term. Hence, we recommend it as a short-term trading idea (with a six-month time horizon).
BAJAJ AUTO
HOLD
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs1,983 Rs56,458 cr Rs1977/1410 3.2 lakh 532977 BAJAJ-AUTO BAJAJ-AUTO 14.5 cr
CMP: RS1,951 DECEMBER 6, 2012 Price target revised to Rs1,983

KEY POINTS
Domestic motorcycle market subdued: The domestic motorcycle market remains sluggish on account of a weak economic environment. The industry remained flat in the AprilNovember 2012 period. The demand is expected to pick up in FY2014 on an improved economic outlook and a reduction in the interest rates. Bajaj Auto gaining market share: Bajaj Auto Ltd (BAL) has been gaining market share on the back of new launches. The recently launched Pulsar 200 NS and Discover ST have evoked a good response. BALs market share has increased from 23.2% in April 2012 to 28% in October 2012. Three-wheelers witnessing demand uptick: BALs three-wheeler volume recovered on the back of the opening of new three-wheeler permits and replacement demand. States like Delhi and Karnataka opened up new three-wheeler permits, thereby boosting the demand. BAL outperformed the industry with its market share going up from 38.6% in April 2012 to 42.8% in October 2012 on the back of increased sales in the diesel three-wheeler segment. Also, BAL plans to launch product upgrades in Q1FY2014 which would maintain the demand momentum. Valuation: To factor in the increased motorcycle and three-wheeler volumes, we are raising our FY2014 estimate. We are also introducing our FY2015 estimate in this note. Our revised earnings estimate for FY2014 stands at Rs139.8 per share. Our FY2015 earnings estimate stands at Rs154 per share. We are rolling over the price target on the average of FY2014 and FY2015 estimates. Our revised price target is Rs1,983 per share. We maintain our Hold recommendation on the stock.
Public & Others 16% Foreign 15% Non-promoter corporate holding 9% Institutions 10%
Promoters 50%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 3.8 0.4 3m 17.3 4.5 6m 33.0 8.7 12m 16.7 -0.6
19
January 2013
STOCK UPDATE
EQUITY
FUNDAMENTALS
BAJAJ CORP
HOLD
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs241 Rs3,304 cr Rs243/95 1.4 lakh 533229 BAJAJCORP BAJAJCORP 2.2 cr
CMP: RS224 DECEMBER 3, 2012 Price target revised to Rs241

KEY POINTS
Strong volume growth momentum to sustain: We expect Bajaj Corps sales volume growth to stay in the range of 15-18% over the next two to three years. This can be attributed to a steady shift in consumers from branded coconut oil to value-added hair oil and an improving penetration in the rural markets. Overall, we expect the companys top line growth to grow above 20% in the coming years. Stable input prices to improve profitability: The prices of liquid light paraffin have stabilised in the recent months and are trading at around Rs79 per kg. On the other hand, the prices of vegetable oil are showing a downward trend on the back of a soft demand. Thus, with the volume growth expected to remain strong, we might see the OPM improving in the coming years. However, any significant increase in the prices of the key input would have an impact on the margins, unless the company decides to pass it on to the consumers. Outlook and valuation: Since our last stock update, the stock has moved up by almost 30% in line with the strong up movement in the prices of the other FMCG stocks. We are rolling over our price target to Rs241 (valuing the stock at 17x its FY2014-15 average earnings). At the current market price, the stock is trading at 20.4x its FY2013E EPS of Rs11.0 and 17.2x its FY2014E EPS of Rs13.1. Any acquisition in the domestic personal care segment would act as an additional trigger for the stock. However, we believe the stock is currently trading at a modest premium and can be accumulated at lower levels. Hence, we maintain our Hold recommendation on the stock.
FIIs 9.5% Domestic institutions 0.5% Others 5.3%
Promoters 84.8%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 23.1 17.7 3m 27.2 14.4 6m 95.1 61.9 12m 108.9 71.1
EROS INTERNATIONAL MEDIA

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs267 Rs2,053 cr Rs235/153 3.4 lakh 533261 EROSMEDIA EROSMEDIA 2.0 cr
CMP: RS224 DECEMBER 10, 2012 Emphasis on monetisation of content

We recently attended the select analyst meet hosted by Eros International Media Ltd (EIML) to discuss the companys joint venture with HBO Asia. The highlights of the meeting are as follows.
Key terms of the venture

HBO Asia and Eros International plc, the promoter of EIML, would be launching two new premium advertising free movie channels in India: HBO DEFINED and HBO HITS. The funding and the expenses of the venture would be borne by HBO Asia. EIMLs contribution to the joint venture would be to provide exclusive satellite rights for 10-12 new releases of the year for one month and give a library of about 100 movies.
Foreign 7% Institutions 2% Public & Others 8% Non-promoter corporate 5% Promoters 78%
The impact of the venture on EIML

Positives: The company does not have to invest in the joint venture and will provide the content only for which it will be getting a fixed income irrespective of the joint ventures profit. The deal would lead to further monetisation of the content library. Negatives: The select new releases that would be showcased first on the premium channels would lower the satellite right price offered by the general entertainment channels.
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 32.1 28.5 3m 33.8 21.6 6m 27.6 8.3 12m -2.2 -16.5
Valuation: As we have highlighted in our earlier notes, EIML is a beneficiary of the digitisation era. The proposed joint venture with HBO Asia to launch premium movie channels is a step in that direction. It will help EIML to monetise its content library further and lower the dependence on the box-office revenues to some extent, though any meaningful benefit will accrue only over the longer term. We maintain our Buy rating on the stock with a price target of Rs267.
January 2013
20
EQUITY
FUNDAMENTALS
STOCK UPDATE
GLENMARK PHARMACEUTICALS
BUY
COMPANY DETAILS
Price target: Market cap: 52-week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs600 Rs13,513 cr Rs505/207 4.4 lakh 532296 GLENMARK GLENMARK 14.0 cr
CMP: RS520
KEY POINTS
DECEMBER 24, 2012
Price target revised to Rs600

Agreement with Forest Labs to fetch $9 million in revenues: Glenmark Pharma has entered into an agreement with Forest Laboratories Inc (Forest Labs) to develop novel mPGES-1 inhibitors to treat chronic inflammatory conditions, including pain. Under the terms of agreement, Forest Labs will make a $6-million upfront payment and provide an additional $3 million to support the next phase of work. Forest Labs will make other future payments in FY2014 to support the ongoing mPGES-1 inhibitors programme. This programme is currently under pre-clinical trials. We consider it an important development for the company having positive repercussions in the long term. Strong performance in branded generic business continues: Glenmark Pharma has posted an impressive growth in the domestic branded formulation business (a revenue growth of more than 25% in the 12 months ended November 2012, as per the secondary sales data), mainly boosted by the cardiovascular and the respiratory segments. Growth in other geographies is also expected to grow more than 20% on account of new product launches in the niche segments. We introduce FY2015 estimate; roll over valuation to average earnings for FY2014 and FY2015; maintain Buy with a price target of Rs600: We have fine-tuned our estimates for FY2013 and FY2014, taking cues from the recent performance of Glenmark Pharma in the domestic market and stronger research and development (R&D) pipeline. We have also introduced earnings estimate for FY2015 in this copy and rolled over our price target to average estimated earnings for FY2014 and FY2015. Our revised price target of Rs600 includes Rs89 for R&D pipeline and Rs511 for Glenmark Pharmas core business (15x average earnings for FY2014E and FY2015E).
Non-promoter corporate 2% Public and Institutions others 7% 10% Foreign 34% Promoters 47%
PRICE PERFORMANCE
HDFC BANK
HOLD
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs712 Rs163,572 cr Rs705/400 24.9 lakh 500180 HDFCBANK HDFCBANK 181.9 cr
CMP: RS693 DECEMBER 7, 2012 Price target revised to Rs712

We interacted with the management of HDFC Bank to discuss the growth outlook in the evolving macro environment. The highlights are as under.
Operating leverage to play out

Due to a sharp increase in the number of branches that too outside the top ten cities, the C/ I ratio increased to 49.0% from 48.0%. Generally, it takes around two to three years for these branches to break even and slightly lesser in case of branches located in top cities. Further, the average branch addition is likely to slow down to around 250 per year, which would aid in lowering the cost-to-income ratio to 46% levels (50-70 basis points/year) over the next two to three years.
Public & others 35% Promoter 23%
Corporate lending book to grow at ~15% while retail book to remain a key driver
Though the banks loan book grew by ~23% YoY in Q2FY2013, the bank expects the FY2013 loan growth to be around 22% YoY. Within this, the corporate loans are expected to grow at a slower rate of 10-15% YoY whereas the retail loans will continue to grow at a healthy rate of 26-28%. As the bank penetrated newer geographies, the components within the retail (vehicle loans, gold loans etc) are showing a strong traction. Further, the revised priority sector norms will facilitate lending in the sector and the bank expects to meet the requirement of the sub-heads (within overall limit of 40%) in the next 18 months.
MF & FI 10%
FII 32%
Outlook and valuation

3m 6m 34.7 12.5 12m 51.4 28.4
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 8.6 4.9 18.1 5.0
Going forward, the steady margin and a strong growth in the retail segment will drive the operating performance while the lower slippages are expected to moderate, keeping credit costs under check. Consequently, we expect the banks earnings to grow at a CAGR of 21.6% over FY2012-15. On the valuation front, the stock currently trades at 4x its FY2014 and 3.4x its FY2015 book value. We are rolling over the price target on an average book value of FY2014 and FY2015 by keeping the multiple same. Thus, our revised price target stands at Rs712 (3.8x average of FY2014/FY2015 book value). Given the limited upside, we maintain Hold rating on the stock.
21
January 2013
STOCK UPDATE
EQUITY
FUNDAMENTALS
HINDUSTAN UNILEVER
HOLD
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Under review Rs112,420 cr Rs580/375 21.4 lakh 500696 HINDUNILVR HINDUNILVR 102.7 cr
CMP: RS520 DECEMBER 13, 2012 Event Update: Unilever Indonesia hikes royalty payments to Unilever
KEY POINTS
The eventUnilever Indonesia increases royalty payment to its parent Unilever: Unilevers Indonesian subsidiary, PT Unilever Indonesia, has approved a hike in royalty payments to its parent Unilever. Unilever Indonesia has agreed to pay a 5% fee and a maximum of 3% actual cost recovery as compared with the existing 3.5% fee. Fears about similar changes in HULs royalty fee structure: The hiking of royalty fees for Unilever Indonesia has led to fears of a similar action on Hindustan Unilever Ltd (HUL). HUL currently pays a royalty fee of 1% of the net sales for using the brands and trademarks held by Unilever. It is not necessary that a similar action will be taken with respect to HUL. However, it has dented sentiments on the stock. Any adverse development on the royalty payment issue could result in an additional pressure on the margin. We believe that in the current challenging environment, with the volume growth moderating, the company may be unable to resort to price hikes to offset the impact of royalty payments.
Others 17% Promoters 53%
FIIs 21% Domestic Institutions 9%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 0.0 -3.5 3m 0.2 -7.0 6m 26.5 9.3 12m 42.7 15.0
Valuationat a premium to long-term average multiples, any negative cue creates selling pressure: At the current market price of Rs520, the stock trades at 29.9x its FY2014E earnings per share (EPS) of Rs17.4 and 26.3x its FY2015E EPS of Rs19.8. The business fundamentals remain intact but the valuation is not cheap anymore, which led to selling pressure on negative cues. However, given the strong brand equity and quality of management, we believe that the company is likely to trade at a premium. Hence, we maintain our Hold rating on the stock with price target under review.
MAHINDRA & MAHINDRA

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs1,046 Rs59,430 cr Rs973/622 13.6 lakh 500520 M&M M&M 45.8 cr
CMP: RS968
KEY POINTS
DECEMBER 19, 2012
Price target revised to Rs1,046

Automotive growth to remain strong: Mahindra & Mahindra (M&M) derives 80% of its automotive volumes from the utility vehicle (UV) and the light commercial vehicle (LCV) segments. The UV and the LCV segments managed to buck the overall slowdown in the automotive industry with a growth of 62% and 17% respectively in year-tilldate (YTD) FY2013 (April-November 2012) as compared with a flat-to-negative growth in the other segments. We expect the UV and the LCV segments to continue to witness a strong demand, thereby boosting M&Ms overall volume growth. Tractor demand to recover: The tractor demand was affected by a poor monsoon, which had an impact on the kharif crop production. M&Ms tractor volume declined 4% YoY in the April-November 2012 period. The tractor demand is expected to recover on the back of an improved rabi crop outlook. The area under rabi sowing has improved (a growth of 3% YoY) leading to better crop prospects. Further, the low base in the December 2011-March 2012 period would help in improving the tractor demand. Valuation: To factor the increased tractor volume and the consequent improvement in the margin (the margin of the tractor segment is almost double compared with the automotive margin), we are raising our FY2013 and FY1204 estimates. We are also introducing our FY2015 estimate in this note. Our revised earnings per share (EPS) estimates for FY2013 and FY2014 stand at Rs52.5 and Rs50.7 respectively. Our FY2015 estimate stands at Rs53.9 per share. We are rolling over the price target on the average of FY2014 and FY2015 estimates. Our price target stands revised at Rs1,046. We maintain Buy recommendation on the stock.
Public & Others 14%
Bodies corporate 9%
Promoters 25%
Foreign 33%
Institutions 19%
PRICE PERFORMANCE
January 2013
22
EQUITY
FUNDAMENTALS
STOCK UPDATE
PERSISTENT SYSTEMS
BUY
COMPANY DETAILS
Price target: Market cap: 52-week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs552 Rs1,925 cr Rs514/297 24,635 533179 PERSISTENT PERSISTENT 2.4 cr
CMP: RS481 DECEMBER 17, 2012 Niche offerings to drive future growth
We attended the annual analyst meet of Persistent Systems Ltd (PSL). The management remains fairly comfortable with the demand environment and indicated at improved traction in areas such as cloud computing, collaboration, analytics & mobility (40% of the revenues) and discussed the strategy for intellectual properties (IPs), which are expected to drive the incremental growth in the coming years. The management also pointed at increasing involvement of the line-of-business executives in the decision-making process which would help the company to increase its share in the clients information technology (IT) budgets.
Key takeaways
Cloud computing, collaboration, analytics and mobility to be the growth drivers: The management reiterated that its niche offerings in cloud, collaboration, analytics and mobility (currently around 40% of the revenues) will drive the incremental revenues growth in the coming years. The global IT spending is moving towards mobile applications and big data services, where PSL has a good presence. IP business to account for 20% of overall business, augurs well for margins trajectory: The company is targeting 20% revenue contribution from the IP business. The growth in the IP business would come from both organic and inorganic routes. In the last one year, the company has made at least two acquisitions in the IP space: Openwave Systems location software and R-Cloud (from Doyenz). Currently, the company has IPs like connectors, Paxpro, Openwave Systems location software, and R-Cloud (a disaster recovery solution). Valuation: At the current market price of Rs481, PSLs stock trades at 10.5x and 8.9x FY2013 and FY2014 earnings estimates. We remain confident about PSLs growth trajectory and the managements execution strength. We maintain our Buy recommendation on the stock with a price target of Rs552.
Public & Others 25% Foreign 22%
Institutions 14% Promoters 38% Non-promoter corporate 1%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 2.5 -1.0 3m 17.4 12.0 6m 41.7 21.3 12m 64.2 32.6
PROVOGUE INDIA
BOOK OUT
COMPANY DETAILS
Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs180 cr Rs36/11 4.7 lakh 532647 PROVOGUE PROVOGUE 6.1 cr
CMP: RS16 DECEMBER 20, 2012 Discontinuing coverage

KEY POINTS
Value in real estate unlocked but performance of the core retail business much below expectation: We had initiated coverage on Provogue with Buy recommendation in July 2010 with two key reasons: (1) potential revival in branded apparel retail business; and (2) huge hidden value in its real estate subsidiary, Prozone. The value in Prozone was unlocked by hiving off Prozone into a separate listed entity. The stock has almost doubled to Rs40 per share in the past couple of months since listing Prozone in October 2012. However, Provogues branded apparel business has disappointed with a sluggish growth in the volume offtake. The apparel industry itself has suffered due to implications of higher excise duty and slowdown in the discretionary spending in this segment. Moreover, Provogue has even lagged the industry performance and the growth exhibited by some of its peers like Kewal Kiran Clothing, which is under our active coverage. Exit Provogue, Hold on to Prozone: Given the weak performance of Provogues branded apparel business and a muted outlook in the near term, we believe it would be advisable to exit Provogue. However, we are more optimistic on the real estate business, Prozone, due to its attractive and sizeable land bank, comfortable debt-equity ratio, reputed strategic investors and better outlook for the retail real estate players (post hike of foreign investment in retail). Investors do not stand to lose as the value unlocking in Prozone has largely made up for the weak performance of Provogue. However, note that Prozone is not under our active coverage, though we would endeavor to provide regular update in the viewpoint section of our investors eye..
Foreign 15% Public & Others 28%
Institutions 1% Non-promoter corporate 10%
Promoters 46%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 21.1 14.1 3m -9.3 -14.0 6m 35.2 16.1 12m 199.9 132.7
23
January 2013
STOCK UPDATE
EQUITY
FUNDAMENTALS
SELAN EXPLORATION TECHNOLOGY

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs360 Rs537 cr Rs350/227 30,420 530075 SELAN SELAN 1.0 cr
CMP: RS316 DECEMBER 19, 2012 Better times ahead

KEY POINTS
Revenue growth aided by rupees depreciation: In Q2FY2013, the net revenues of Selan Exploration Technology grew by 21% YoY, backed by a 16% Y-o-Y improvement in the volume and favourable currency movement. The crude realisation in terms of dollar declined by 4% YoY and 17% QoQ, as dollar gained over the rupee by 8% over the period. OPM edged down, but other income and interest cost remained favourable: The operating profit margin (OPM) of the company was down ~73% during Q2FY2013 compared with 81% in Q2FY2012 and 78% in Q1FY2013. The operating profit per barrel declined by 6% YoY and 13% QoQ to Rs3,600 per barrel. Hence, the operating profit grew by 10% YOY and declined by 17% QoQ to Rs19.2 crore. However, the adjusted profit after tax (PAT) grew by 3% YoY and declined by 13% QoQ to Rs11.8 crore supported by a better other income and a lower interest cost. Further, the foreign exchange (forex) gain/loss adjustment PAT grew by 39% YoY and declined by 3% QoQ to Rs12.42 crore. View and valuationretain rating and price target: With the management now sounding more confident on its development programme after getting it approved by the regulator, we expect the company to embark on its next phase of growth from FY2014. We assume an improving trend in the production output from the next fiscal. We retain our Buy rating on the stock with price target of Rs360 (based on 4x EV/EBITDA FY2014E).
Institutions 0.1% Promoters 41.8%
Others 58.0% Foreign 0.1%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 5.5 -0.3 3m 6.6 1.7 6m 17.5 0.5 12m 32.3 4.0
SUN PHARMACEUTICAL INDUSTRIES

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs775 Rs74,516 cr Rs737/488 8.0 lakh 524715 SUNPHARMA SUNPHARMA 37.6 cr
CMP: RS736
KEY POINTS
DECEMBER 18, 2012
Price target revised to Rs775

Sun Pharma to acquire URL Pharma, annual revenue potential of $180-190 million: Sun Pharmaceutical (Sun Pharma)s US arm Caraco Pharmaceutical (Caraco) has entered into a definitive agreement with Takeda Pharmaceuticals (Takeda) to buy the nonColcrys business (which is mainly a generic business) of URL Pharma, Inc (URL Pharma; a wholly owned subsidiary of Takeda) for an undisclosed consideration. URL Pharmas non-Colcryl business has 288 abbreviated new drug application (ANDA) approvals from the US Food and Drug Administration (USFDA). It has the potential to generate $180-190 million in FY2013 with an annual growth rate of 8-10%. This is set to give Sun Pharma incremental revenues and strengthen its products pipeline. Acquisitions to fast track growth: This is second strategic acquisition by Sun Pharma within a span of two months in the US market, where it does business through its two major subsidiaries, namely Taro Pharmaceutical (Taro) and Caraco. The company acquired the US-based DUSA Pharmaceuticals, Inc (DUSA Pharma) in November 2012 for $230 million to strengthen its product portfolio in the dermatology segment. Both these acquisitions are set to give Sun Pharma additional revenues of $220-230 million, which will fast track its growth. Although, considering the weaker margin in generic business of URL Pharma due to the additional costs to increase the sales and distribution, the overall operating margin would tend to erode marginally, we expect the net profit to record an incremental growth of 5-6% in FY2014. We revise estimate and price target: We have revised our earnings estimate up by 4% for FY2014, to factor the impact Sun Pharma had due to the acquisition of URL Pharma. Consequently, our price target stands revised up by 4% to Rs775 (23x FY2014E). We maintain Buy rating the stock.
Public and others 5% Non-promoter corporate 5% Institutions 5% Foreign 21% Promoters 64%
PRICE PERFORMANCE
January 2013
24
EQUITY
FUNDAMENTALS
STOCK UPDATE
TATA CONSULTANCY SERVICES

HOLD
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs1,364 Rs234,867 cr Rs1,438/1,046 11.0 lakh 532540 TCS TCS 51.0 cr
CMP: RS1,211
DECEMBER 18, 2012
Expect soft Q3FY2013 but management remains confident

We attended the pre-result analyst meet of Tata Consultancy Services (TCS). The key takeaways of the meet are as follows.
Volume growth to remain soft sequentially owing to furloughs in December

The management indicated at a soft volume growth for Q3FY2013 as compared with Q2FY2013 (4.9% volume growth) on account of the furloughs in December. Impact of Hurricane Sandy would also lead to softer volume expectation by the company for the quarter.
Public & Others 5% Foreign 15% Institutions 6%
Margin to fall QoQ owing to absence of currency benefits and lower volume growth....
The management indicated at a decline in the margin on a sequential basis in Q3FY2013 on account of absence of currency benefits, higher sub-contracting costs and addition of fresher recruits in the quarter. In Q2FY2013, the average exchange rate was Rs54.8 to the dollar whereas for the December quarter it is expected to be around Rs54.4. View: The commentary from the management of TCS for the seasonally weak Q3FY2013 in terms of volume and margin is in line with the expectation. Overall, for FY2013 the management commentary on the demand environment remains intact, with the company confident of comfortably posting industry-leading growth. The commentary exhibits more confidence than some of its peers. For CY2013, the management expects stable IT budgets with more clarity emerging in January next year. We maintain our preference for TCS over Infosys. In the large-cap space, we maintain our preference for TCS and HCL Technologies while in the mid-cap space we prefer Persistent Systems and CMC. We maintain our Hold rating on the stock with a price target of Rs1,364.
Promoters 75%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -6.3 -10.9 3m -10.0 -13.4 6m -4.8 -16.9 12m 7.3 -15.1
WIPRO
HOLD
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs390 Rs94,787 cr Rs453/326 14.3 lakh 507685 WIPRO WIPRO 53.4 cr
CMP: RS380 DECEMBER 11, 2012 Strengthens international presence in consumer care business
KEY POINTS
Acquires LD Waxson at 2.1x revenues: Wipro has announced that it has signed a definitive agreement to acquire 100% shareholding of the LD Waxsons Group for an all-cash consideration of about $144 million. For FY2012, the revenues of LD Waxson Group, a Singapore-based fast moving consumer goods (FMCG) company, were about $68 million, valuing the company at 2.1x FY2012 revenues. The recent acquisitions in the consumer care space have happened in the 1.5-2x sales range. The acquisition of LD Waxson Group by Wipro is expected to be completed within the next 60 days. About LD Waxson: LD Waxson Group, headquartered in Singapore, is a leading FMCG company with a wide portfolio of brands, including leading skin care brands, Bioessence and Ginvera, and healthcare brand, Ebene. The company has manufacturing facilities in China and Malaysia, and a strong footprint in Singapore, Malaysia, China, Taiwan, Hong Kong and Thailand. Valuation: Wipro is looking at acquisitions to achieve a faster growth in its consumer care and lighting businesses and to acquire new brands. The companys plan to demerge the consumer care, lighting and other businesses into a new company has been conceived with a view to unlocking the value of the consumer care and lighting businesses. Its information technology (IT) services business continues to lag compared with its peers in terms of performance, leading to lower valuations for the business. We reiterate our view that the business demerger move would support the stock price in the medium term. However, we remain circumspect about any meaningful revival in Wipros core IT services business in the medium term. We maintain our Hold rating on the stock with a price target of Rs390.
Public & Others 6% Foreign 9% Institutions 4% Non-promoter corporate 3% Promoters 78%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 3.0 -0.8 3m 1.5 -7.3 6m -4.3 -18.4 12m -4.2 -21.4
25
January 2013
SHAREKHAN SPECIAL
EQUITY
FUNDAMENTALS
SHAREKHAN SPECIAL Monthly economy review

Economy: IIP growth surges due to base effect; inflation continues to moderate
In October 2012 the Index of Industrial Production (IIP) grew by 8.2% after declining by 0.7% in September 2012. The higher than expected growth in the IIP in October was due to a lower base effect and a strong festive season-driven rebound in the manufacturing segment (up 9.6%) during the month. The uptick in the consumer durables and capital goods segments, which grew by 13.2% and 7.5% respectively, also aided the overall surge in the IIP during October 2012. The IIP growth for September has been revised to -0.7% from the provisional estimate of -0.4%. Therefore, based on the three-monthly moving average, the IIP growth stands at 3.3% as against 0.3% in October 2011. The Wholesale Price Index (WPI)-based inflation came at 7.24% (lower than the markets expectations) in November 2012 as against 7.81% in October 2012. The month-on-month (M-oM) decline in inflation was due to a decline in the fuel group inflation and the manufactured goods inflation. However, the inflation rate for August 2012 has been revised upwards to 8.07% from 7.81% as per the provisional estimate. Indias trade deficit in November 2012 softened marginally to $19.29 billion after worsening the most in at least 17 years in October 2012 to $21.0 billion. The trade deficit increased by 21.8% year on year (YoY). The exports decreased by 4.2% YoY (down 1.6% in October 2012) to $22.30 billion while the imports increased by 6.4% YoY (up 7.4% in October 2012) to $41.59 billion.
DECEMBER 26, 2012
The credit offtake registered a growth of 17.0% YoY (as on November 30, 2012), which was higher than the 16.2% yearon-year (Y-o-Y) growth recorded in the previous month (as on November 2, 2012). The deposits registered a growth of 12.8% YoY (as on November 30, 2012), which was lower than the 13.4% Y-o-Y growth recorded in the previous month (as on November 2, 2012). The growth in the deposits has been subdued due to the higher yields offered by the other debt instruments and advance tax outflows. Consequently, the growth in the deposits has remained below the RBIs guidance of 15.0%. A slower growth in the deposits compared with the advances remains a concern for the banks. Consequently, the credit/ deposit ratio (CD) for the banks increased to 76.0% in the year till date (YTD) FY2013 from 73.9% during the same period of the previous year. The yields on government securities (G-Secs; of ten-year maturity) stood at 8.14% as on December 24, 2012, lower than the average of 8.20% maintained in November 2012. Moreover, the five-year and ten-year G-Sec yields declined by 9 to 11 basis points on an M-o-M basis. The yields declined due to the OMO of ~Rs31,000 crore (since December 4th) and expectations of the easing of the rates.
Equity market: FIIs remain net buyers

During the month-to-date (MTD) period of December 2012 (December 3-21, 2012), the foreign institutional investors (FIIs) were net buyers of equities and the domestic mutual funds were net sellers of equities. For the MTD period of December 2012 (December 3-21, 2012), the FIIs bought equities worth Rs17,310 crore while the mutual funds sold equities worth Rs2,984 crore.
Banking: RBI leaves rates unchanged; deposit growth at a record low of 12.8%
In the mid-quarter policy review, the Reserve Bank of India (RBI) surprised the markets by holding the repo and the cash reserve ratio (CRR) rates as the markets were expecting a 25basis-point cut in the CRR. According to the RBI, the recent policy initiatives taken by the government have improved sentiments in the market but the pitfalls in the global economy remain, especially the US fiscal cliff and the contagion risks to the other economies. The liquidity has tightened due to the rising government balances. The RBI expects to manage it via open market operations (OMOs). Further, the RBI expects the inflation rate to moderate in Q4FY2013. The central bank has also reiterated its guidance of an easing monetary policy by the beginning of Q4FY2013 in order to address the growth concerns.
Banking stocks outperform

In the last one month, the BSE Bankex has increased by 7.6% as compared with an increase of 4.2% in the Sensex. The outperformance of the BSE Bankex as compared with the broader index was primarily led by the rally in the public sector banks (PSBs) due to expectations of economic reforms, banking reforms [The Banking Laws (Amendment) Bill, 2011, and the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011.] and the RBIs guidance for monetary easing in Q4FY2013. Moreover, with the passage of banking bills the RBI may expedite the process of issuing new banking licences.
January 2013
26
EQUITY
FUNDAMENTALS
SHAREKHAN SPECIAL
SHAREKHAN SPECIAL Q3FY2013 IT earnings preview

Soft quarter led by seasonal weakness...
We expect the top-tier information technology (IT) companies to report a soft volume growth led by a seasonal weakness. However, cross-currency tailwinds would aid the top line growth (around 40-60 basis points). Reported revenues growth to be in the range of 2.6-3.7%. We expect the volume growth to remain weak on account of seasonal furloughs and lower billing days during the quarter coupled with a marginal impact of Hurricane Sandy. Infosys organic revenues are expected to grow by 1.3% quarter on quarter (QoQ), including Lodestone Management Consultants AG [Lodestone], 3.7%). On the other hand, revenues of Tata Consultancy Services (TCS), Wipro and HCL Technologies (HCL Tech) are expected to grow by 3.4%, 2.6% and 2.9% QoQ respectively. In the mid-cap space under our coverage universe, we expect a similar soft top line growth except for CMC, where we expect a decent top line growth of 5%. On the other hand, NIIT Technologies (NIIT Tech), Persistent Systems and Polaris Financial Technology (Polaris) are expected to report a sequential growth of 3.4%, -0.5% and 1.5% respectively for Q3FY2013. During the quarter, all the major currencies like Euro, Pound Sterling (GBP) and Australian Dollar (AUD) have further appreciated against the US dollar to the extent of 2.4%, 0.8% and 0.3% respectively. Thus, there will be positive tailwinds through the cross currencies on the reported revenues.
JANUARY 03, 2013

and CMC are likely to report a fall of 187 basis points and 109 basis points in their margins respectively. A significant depreciation in the quarter ending USD/INR rate to around 3% would lead to a jump in the translation gains, which would reflect in a sharp jump in the net profitability in the mid-cap companies like NIIT Tech, CMC, Persistent Systems and Polaris.
Infosys likely to cut its organic revenues guidance and maintain its INR EPS guidance...
We expect Infosys to lower its organic dollar revenues guidance (current guidance stood at 5%), whereas consolidation of Lodestone financials for two months (October-December 2012) would help Infosys to marginally increase its guidance to around 5.5% from the current at least 5% level. On the other hand, currency reset in the USD/INR rates from the earlier rate of Rs53 to the expected rate of Rs54.5 would help Infosys to maintain its current earnings per share (EPS) guidance of Rs160.61.
Management commentary on CY2013 IT budgets and uptick in the discretionary spending remain the key
Mixed results read through from Oracle and Accenture do not indicate secular demand uptick for the sector, whereas the market share gains among the vendors would continue to reflect in performance polarisation among the top-tier companies. The management commentary on the annual IT budgets for CY2013 (likely to finalise around January-February 2013) and an uptick in the discretionary spend (given the recent resolutions to fiscal cliff) would be helpful to get more colours on the demand outlook for the coming quarters. Valuation: Within the IT services sector, we continue to draw more comfort in the IT mid-cap space given the valuation gap and growth outperformance vis--vis larger peers. In the mid-cap space, we like some differentiated companies such as Persistent Systems (niche offerings, best-in-class margin profile) and CMC (strong revenues predictability in both the domestic and international markets and strong management pedigree). Among the large-cap space, we like HCL Tech given its proven track record in market share gains and being a key beneficiary of the vendor churn exercise. On the other hand, though valuation appears to be in the comfort zone, we continue to remain sceptical on change in fortune for Infosys and Wipro at least for the next few quarters..
Margins to decline owing to a weak volume growth and absence of currency benefits...
We expect the top four IT companies to report a decline in their margins for Q3FY2013 owing to a soft volume growth coupled with absence of currency benefits. Infosys and HCL Tech are expected to report a higher decline in their margins (142 basis points and 178 basis points respectively) owing to wage hikes (Infosys: offshore employees and consolidation of Lodestone; HCL Tech: unbilled employees and higher S&M investments on account of higher deal activity in December quarter). On the other hand, TCS and Wipro would see a marginal decline in their operating profit margin. In the midcap space, NIIT Tech would see a 166-basis-point fall in its margin on account of margin pressure in GIS and Morris Communication (Morris) joint venture (JV). Persistent Systems
27
January 2013
SECTOR UPDATE
EQUITY
FUNDAMENTALS
FMCG
DECEMBER 24, 2012 Falling palm oil prices positive for soap makers
Key points
The Malaysian palm oil stock increased by 2.6 million tonne on a Y-o-Y basis to 23.0 million tonne over the period of JanuaryNovember 2012. This was largely on account of lower exports to some of the key exporting countries. The palm oil exports were down by 3% YoY with Chinas exports declining by 14% YoY to 3.2 million tonne over the same period. The increase in inventory levels has led to a correction in the palm oil prices in the recent past. The Malaysian palm oil is currently trading close to Malaysian Ringgit 2,100 per tonne, which is 30% lower than the previous years price. The Malaysian government has decided to withdraw the taxfree export quota for crude palm oil and introduced a new export tax structure that is set to take effect from January 1, 2013. The government will set a tax rate for the export of crude palm oil for January 2013 by using the average sales price from November 10, 2012 to December 9, 2012 as the reference price. This turns out to be zero tax for importers. The government will announce the tax levy on the 15th of every month using the Malaysian Palm Oil Board prices. Palm oil accounts for around 20-30% of the raw materials for some of the FMCG companies in India. The declining palm oil prices and the revised export tax structure would improve the fundamentals of many FMCG companies (largely soap manufacturers) in India as these companies import palm oil largely from Malaysia. Large soap manufacturers such as HUL and GCPL import palm oil to meet their large requirements for production of soaps and other personal wash products. This would result in better profitability for these companies in the coming quarters. Any further decline in the prices of palm oil and the other inputs essential for manufacturing soaps and detergents would provide us an opportunity to upgrade the earnings estimates and price targets for the FMCG companies under our coverage. Further, the decline in the prices of palm oil at international levels and the increased import of Malaysian palm oil by India would affect the prices of palm oil at the domestic level. Hence, it will be beneficial for the FMCG companies that have palm oil as one their key inputs and procure the same domestically.
LIBERTY PHOSPHATE
VIEWPOINT
Key points
We interacted with the management of Liberty Phosphate, which is among the few pure single-sulphur phosphate (SSP) manufacturers in the country, to know the recent development and performance of the company. Liberty Phosphate has provided an absolute return of 249% against the Sensex return of 14% since we introduced the stock with a positive stance on September 7, 2011. We maintain our positive bias on the stock after the interaction with the management of the company. The highlights of our interaction with the management of Liberty Phosphate are given below. The declining price trend of the key raw materials (rock phosphate and sulphuric acid) internationally due to a lower demand from countries like India and China and the rupees appreciation will help the Indian fertiliser makers (non-urea) to import raw materials at a low price compared with the last year. The declining prices of the key raw materials along with a stable realisation will lead to an improvement in the margin of SSP business going ahead. An expansion in its capacity from 7.26 lakh tonne to 9.24 lakh tonne by the end of FY2013 will help Liberty Phosphate to improve its volume and register good revenues and earnings growth going ahead. Improved utilisation of current capacity would also contribute in achieving higher volume in the coming years. An increase in the capacity with minimum capex and optimum utilisation of the resources will help the company to bring operational efficiency, which will improve the margin. The company is doing a marginal capex of Rs16 crore in FY2013. Liberty Phosphate is the largest SSP manufacturer, which can grow by capitalising on its capacity addition, brand name and distribution network. Given the aggressive expansion of its manufacturing capacities, the company can potentially grow at a compounded annual growth rate of around 19.3% over the next two years. Liberty Phosphate has provided an absolute return of 249% against the Sensex return of 14% since we introduced the stock with a positive stance on September 7, 2011. We maintain our positive bias on the stock.
CMP: RS184
Timely capacity expansion augurs well
DECEMBER 5, 2012
January 2013
28
EQUITY
TECHNICALS
TREND & VIEW
6000+
* BSE - SENSEX (19,782.59, 19,797.44, 19,679.99, 19,784.08, +19.3008)
Sensex: Daily view

The Sensex has been trading in a channel pattern and also broken out of a broad range with a gap between 18,590 and 18,616, which will be a very crucial support going forward. The momentum indicator has given a positive crossover and is trading above the zero line. The key support would be around 19,400 and 19,150 while resistance would be around 20,000 and 21,206. In the short term, the index has broken out of consolidation range of 19,612-19,150. It is expected to take support around 19400 and head up till 20,000.
Short term Trend Up Trend reversal 19400 Support 19400 Resistance 20000 Target
23 KST (1.57496)
20000
19500
19000
18500
18000
17500
17000
16500
16000
15500 5 4 3 2 1 0 -1 -2 -3 -4 -5 30 7 May 14 21 28 4 11 June 18 25 2 9 July 16 23 30 6 August 13 21 27 3 10 17 24 September 1 8 October 15 22 29 5 12 19 November 26 3 10 17 December 24 31 7 2013 14 2
20000
Sensex: Weekly view

The Sensex has been forming higher tops and higher bottoms on the weekly charts with support around the previous swing low of 19,150. The leg on the upside as wave C or 3 has already started and is expected to move up till 21,205. On the weekly charts, the momentum indicator has given a positive crossover and is trading above the zero line. As the index has broken out of a narrow range between 19,150 and 18,255, it is expected to continue the positive momentum and the strategy should be to buy on declines. The key support would be around 19,150 and resistance would be around 20,000.
Aug Sep Oct Nov Dec 2011 Feb Mar Apr May Jun
W X
* BSE - SENSEX (19,422.59, 19,797.44, 19,406.17, 19,784.08, +339.240) 21500 21000 20500
C/ 3
20000
19500
19000
A/1
18500
X
18000
17500
17000
16500
16000
Y B/2
15500
15000
KST (5.20490) 10
-5
-10 Jul Aug Sep Oct Nov Dec 2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Feb Mar
Sensex: Monthly view

According to the Elliott Wave theory the index has completed wave Z and a new move on the upside has started as wave 3 or X, which can move up till 20,000/21,205. The Sensex has formed a double top around the all-time high, ie 21,207, which is a crucial resistance going forward. The Sensex has broken out of the consolidation range forming higher tops and higher bottoms which indicates that the new move on the upside has already started and the index has a very high probability of crossing the all-time high. The Sensex has taken support around the 20-monthly moving average, ie 17,662, and is expected to form a positive close again on the quarterly chart.
Medium term Trend Up Trend reversal 18250 Support 18250 Resistance 21206 Target 21206
* BSE - SENSEX (19,513.45, 19,797.44, 19,508.93, 19,784.08, +357.369)
24000 23000 22000 21000 20000 19000 18000 17000 16000 15000 14000 13000 12000 11000 10000 9000 8000
7000
6000
5000
KST (9.79031)
60 50 40 30 20 10 0 -10 -20 -30 -40
2005
2006
2007
2008
2009
2010
2011
2012
2013
29
January 2013
MONTHLY VIEW
EQUITY
DERIVATIVES
Derivative view: Roaring start to 2013

The approval of foreign direct investment in the retail sector with majority in both the houses raised hopes of reforms from the government among market participants. This positive domestic development not only helped bulls to extend the initial gains of the series but aided them to inch closer towards the mark of 6000. The Nifty traded in a broad range of 5800-6000 all through the December series as the effect of positive news flow, such as improved Index of Industrial Production at 8.2% vs -0.7%, cooling off of inflation to 7.24% vs 7.45%, were nullified by the concerns of a rise in the fiscal deficit and a status quo on all the key rates by the Reserve Bank of India. Ahead of the fiscal cliff meet in the USA, Nifty had concluded the month with a marginal gain of 0.43% whereas it had concluded the year with a spectacular gain of approximately 27% as strong fund flows from foreign investors continued.
MARKET WIDE VS NIFTY ROLL-OVER
Top five stock options with the highest OI in the current series
STOCK OPTIONS (SHAREKHAN SCRIP CODE) SBIN INFY RELIANCE TATAMOTORS MCDOWELL-N OPEN INTEREST (RS CR) 890.15 556.54 403.50 319.02 303.63
View
As the results season would kick in from the second week of January followed by the Reserve Bank of Indias Q3FY2013 monetary policy review, these are the two major factors that could trigger an upward move in the implied volatility (IV). The rising optimism among the market participants would strengthen as the events would unfold and help the Nifty to climb towards higher targets of 6100-6200. Hence, to encash and capture the move we recommend forming a Bull Call Spread.
Strategy for the month: Bull Call Spread

A bull call spread is created when a stock/market is expected to move in an upward direction. The bull call spread is created by buying slightly out-of-the-money call options and selling higher out-ofthe-money call options of the same scrip and expiry. It is a limited profit, limited loss strategy with a favourable risk: reward ratio.
TYPE CE CE BUY/SELL Buy Sell FORMATION STRIKE 6100 6200 PREMIUM 54 24 OUTFLOW 30.00
The very first series (January) of 2013 was welcomed with a positive start. The approval of a deal to avert fiscal cliff in the USA helped the bulls to finally surpass the mark of 6000 for the first time since January 2011. The January series started the month with Rs9,954 crore in Nifty futures vs Rs10,848 crore in the previous series; Rs34,416 crore in stock futures vs Rs31,800 crore in the previous series; Rs47,400 crore in index options vs Rs10,114 crore in the previous series; and Rs3,228 crore in stock options vs Rs1,536 in the previous series. The roll-over in Nifty stood at 61.58%, which is lower than the three-month roll-over of 66.29% and six-month average roll-over of 65.75%. The market-wide roll-over stood at 82.21%, which is below the three-month and six-month average roll-overs of 93.45% and 83.35% respectively. With the index finally crossing the range on the higher side, we have seen a shift of positions on the options front. On the call side, the strike of 6200 stands with the highest number of shares in open interest (OI) followed by the strike of 6300. On the put side, the OI activity is widespread in the 5900, 5800 and 5700 strikes. The overall trade set-up of the market is positive and we feel that the market would ride onto the ongoing momentum. Top five stock futures with the highest OI in the current series
STOCK FUTURES (SHAREKHAN SCRIP CODE) SBIN MCDOWELL-N INFY ICICIBANK RELIANCE OPEN INTEREST (RS CR) 1367.29 1360.81 1007.11 995.80 992.96
Strategy note
The strategy has an initial outflow of 30.00 points, which amounts to Rs3,000 (30.00*100), and maximum profit potential of Rs7,000 (70.00*100), which is 70.00 points. The break-even point for the strategy is 6130 (lower strike price [6100] + gross outflow [30.00 points]).
PAY-OFF DIAGRAM
80 60
PR O FIT /L OS S
40 20 0 5 8 50 5 9 00 5 9 50 6 0 00 6 0 50 6 1 00 6 1 50 6 2 00 6 2 50 6 3 00 6 3 50 6 4 00 6 4 50 -20 -40
January 2013
30
COMMODITY
FUNDAMENTALS
MONTHLY VIEW
Commodities: Bullions decline, industrial commodities advance Macro-economy

Key points US fiscal cliff averted, however spending cut issue lingers US budget accord seen crimping 2013 US growth without crushing it Moodys: The US budget agreement wont reduce the deficit enough to avoid a sovereign-rating downgrade AAA rating losses, bond bubble among 2013 risks, Deutsche says Low growth, low rates and substantial liquidity ahead in 2013: Fidelity ECBs Draghi says medium-term growth outlook remains challenging EU reaches deal on single bank supervisor European manufacturing continues to shrink Bundesbank sees noticeable German GDP contraction S&P upgrades Greek credit rating and sets outlook to stable Rating agency threatens to downgrade Britain's triple A status Fed to spend $45 billion a month to sustain bond purchases Fed to hold rates down until jobless rate is below 6.5% US housing likely to outperform economy in 2013, Goldman says Consumer spending in the USA increases as incomes rebound Industrial production in the USA surges on rebound from Sandy US current account deficit fell in third quarter Abes LDP wins comeback victory over Noda in Japan election rout World Bank sees Asian recovery as worst over for China Chinas manufacturing expanded at the fastest pace in 19 months in December 2012 Chinas industrial output accelerates as inflation rebounds Chinas foreign investment inflows show 12th decline in 13 months India faces one-in-three chance of rating downgrade: S&P India cuts FY2013 growth estimate to as much as 5.9% from 7.85% Indias GDP may worsen in absence of faster reforms, Fitch says
COMMODITY PRICES IN DECEMBER 2012 (IN $) Commodity Copper Zinc Lead Gold Silver Crude oil High 8162.0 2107.0 2347.0 1723.5 33.8 92.0 Low 7735.0 2008.0 2190.0 1635.8 29.6 88.8 Close 7931.0 2080.0 2330.0 1675.4 30.3 91.8 % Mon chg -0.8 1.7 3.6 -2.3 -9.2 2.6
MONTHLY CHANGE IN DOE CRUDE STOCKS (NOV-DEC 2012) Crude oil Change in (000' bbls) 30-November-12 Change in (%) 53293 317766 16.77 Dist. 4324 115069 3.76 Gasoline 10989 212115 5.18
Refinary utlisation rate was at 903% in the last week of September.
MONTHLY CHANGE IN SHFE STOCKS (NOV-DEC 2012) Copper Change (in tonne) 29-November-12 Change (in %) 7685 197088 3.90 Lead 25332 49649 51.02 Zinc 3909 306822 1.27
MONTHLY CHANGE IN LME STOCKS (NOV-DEC 2012) Copper Change (in tonne) 29-November-12 Change (in %) 7685 197088 3.90 Lead 25332 49649 51.02 Zinc 3909 306822 1.27
NoteLME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)
Crude oil: Can rise to $98 levels in short term

Key points Chinas oil demand to accelerate in 2013 Iraq seeks to boost oil output to match 1979 record Global oil market loosened vs year-earlier: the US EIA EIA: US 2013 oil output to top 7 million barrel per day for first time since 1992 Higher Chinese refinery runs to support Asia crude Energy rigs in the USA decline to the lowest level since April 2011 Coal to approach oil as top energy source by 2017, IEA says Iran to enrich high-grade uranium as much as necessary: Iranian atomic chief China oil supply declines; gasoline rises most in two years The US oil supplies estimated to be at three-month low in a survey
WTI NYMEX crude oil
CMP: $93
Positive surprises out of China and the USA helped the crude oil prices rally towards the upper end of the range. Deutsche Bank AG estimates that Chinas demand for crude oil is likely to rise 3% this year on recovering economy, refinery expansions and additions to strategic reserves. Iraq plans to boost oil production to as much as 3.8 million barrels a day in 2013. The level of oil inventories in the Organization for Economic Cooperation and Development nations is expected to hit a 21-year high, relative to demand. The level of stock cover is expected to reach 58.2 days of demand at the end of 2012the most since 1991and remain there through the end of 2013. The Energy Information Administration (EIA) estimates that the US demand is likely to rise 0.5% in 2013 from the 15-year low reached in 2012. We expect crude oil to trade between $88 and $98 with an upward bias.
31
January 2013
MONTHLY VIEW
COMMODITY
FUNDAMENTALS
Precious metals: Further downside seen before recovery

Key points Gold extends longest winning streak since 1920 on central bank stimulus Small number of Japanese pension funds buying gold for first time Global jewellery demand remains sluggish Silver demand in China has grown to a record 170.7M ounces China now the world's largest market for silver investment Brazil's gold reserves doubled since August: IMF Government considering steps to contain gold import: Chidambaram Indian government may increase import tax on gold from 4% to 6% in federal budget Indian government likely to take steps to discourage gold imports in order to curb CAD Gold, silver ETP holdings stay near record
Gold
CMP: $1,664 (spot)
Bullions failed to rally on the third round of the quantitative easing unleashed by the US Federal Reserve (Fed). The recovering US and Chinese economies, lack of bearish news flow out of the euro zone and the fact that the dollar has remained relatively unharmed despite the massive easing by the US Fed have dented the safe haven appeal of the yellow metal to a great extent. In the current scenario, the risk assets are being deemed as more attractive than gold. The Indian government is likely to take more steps to make gold imports costlier so as to address the current account deficit (CAD) issue. Should this happen, it would surely have a negative impact on gold prices as such a step would affect the demand in the nation. Gold prices are likely to remain under pressure in the near term. However, the US debt ceiling issue that can increase the possibility of the US rating downgrade is likely to support gold prices later this month. We look for a range of $1,585-1,700 and suggest buying the dips.
Silver
CMP: $30.50 (spot)
Silver underwent a sharper correction than gold as the white metal has been traditionally much more volatile. Though the expected global economic recovery is supportive for silver, but the metal continues to move in line with gold. We expect silver to trade between $28.80 and $32.
Base metals: Expected to rise amid huge volatility

Key points Chinas copper output rises to record on demand recovery optimism China's daily crude steel production inches up slightly in November Lead output exceeded refined metal usage in October, ILZSG says Refined zinc output exceeded demand in October, ILZSG says MEPS forecasts solid growth for global steel Chinas steel output to climb 5.5% to 760mn ton in 2012: MEPS Iron ore rallying most since 2010 as China rebounds China's November lead output up on firm downstream demand Copper shortage was 125,000 ton through October, WBMS says Fitch says copper demand may grow faster than supply in 2014
Copper
CMP: Rs449.50 (February contract)
Copper prices recovered sharply towards the end of the month in expectation of a satisfactory solution to the US fiscal cliff issue, encouraging economic indicators out of China and the USA, and fund allocation. The recovering US housing sector is supportive of the red metal. However, expectations of refined copper market recording a surplus of 1 lakh tonne is holding the metal back. Nevertheless, the expected surplus is miniscule compared with the total refined copper market size of 20 million tonne. We expect the metal to reach a price of $8,800 tonne this year. In the short term, copper is likely to trade between Rs433 and Rs463. We suggest buying the dips.
Lead
CMP: Rs129.30 (January contract)
Lead outperformed the base metals complex on declining London Metal Exchange inventories, seasonal demand and strong demand from Chinas lead battery sector. We expect the metal to eventually reach $2,600 levels. However, we advise caution as the rise in the prices has been very sharp and Chinas inventory has hit a record high. We expect the metal to trade between Rs125 and Rs137.
January 2013
32
COMMODITY
FUNDAMENTALS
MONTHLY VIEW
Zinc
CMP: Rs112.80 (January contract)
Zinc did well in December on a recovering steel sector, as the metal got tied up in financing deals. We expect the metal to reach $2,400 this year. In January we look for a range of Rs110-Rs120 and suggest buying the dips.
CMP as on January 03, 2013
Major economic events in January 2013

Date Region Event Manufacturing PMI Forecast 51 50.1 46.3 -Actual 50.6 50.7 46.1 46 Prior 50.6 49.5 46.3 46.3 Impact Missed the forecast but overall it shows expansion mode (ie above 50) in manufacturing activity, supportive for industrials Higher than forecast, supportive for industrial commodities Lower than the expected; European manufacturing scenario bearish for industrials, however the USA and China support German manufacturing activity shrank in December for the 10th consecutive month; well below 50 level that divides growth from contraction; bearish for euro and industrials Manufacturing PMI at 15-month high in December; supportive for industrial commodities and GBP Supportive for industrials Data can provide support to gold prices as the Fed has linked stimulus to unemployment rate Somewhat bearish for industrials, however job report offsets the impact Data is bearish for the euro. Bearish implications for the GBP Important for the euro. Important for industrial commodities, euro Crucial for the euro Important for the euro, industrial commodities; bearish data out of Germany--Euro zone growth enginewould be bearish for the euro and commodities in general Focus will be on ECB press conference; rate cut signal would weigh on the euro No change expected No change expected, however clues to possibilities would matter for the pound Decline in the index would weigh on gold Important for USD; both import and export figures need scrutiny Strong data would be bearish for the euro, gold Larger surplus would be bullish for the euro Important for the yen and industrial commodities Positive data would continue to support industrials Important for industrial commodities, especially for copper and aluminium Important for Industrial commodities, especially for copper and aluminium Higher than expected data would weigh on gold Important for the euro and industrials No change expected Important for yen as the nation's exports are shrinking Important for industrial commodities Positive data would support industrial commodities and the euro Crucial for GBP and the industrial commodities Important for GBP Better than expected data to be bearish for gold Bearish data would be negative for industrial commodities; supportive for gold Positive data would be supportive for the dollar and the industrials, though going forward growth is likely to come under pressure due to adjustments made for avoiding fiscal cliff No change in the rate is expected in the near future, but the focus would be on signals to roll back stimulus Crucial for GBP and industrial commodities Lower than forecast; will be supportive, it would increase the probability of more easing Crucial for industrial commodities Crucial for industrial commodities; both import and export figures need to be analysed to gauge the health of economy Important for industrial commodities; consensus is that the economy is bottoming out 01/01/2013 China
02/01/2013 USA ISM Manufacturing 02/01/2013 Euro zone PMI Manufacturing 02/01/2013 Germany PMI Manufacturing
02/01/2013 UK 04/01/2013 USA 04/01/2013 USA 04/01/2013 04/01/2013 04/01/2013 07/01/2013 08/01/2013 08/01/2013 08/01/2013 10/01/2013 10/01/2013 10/01/2013 11/01/2013 11/01/2013 15/01/2013 15/01/2013 15/01/2013 16/01/2013 16/01/2013 17/01/2013 18/01/2013 22/01/2013 22/01/2013 24/01/2013 25/01/2013 25/01/2013 25/01/2013 25/01/2013 28/01/2013 29/01/2013 30/01/2013 USA Euro zone UK Euro zone Euro zone Germany Germany Euro zone UK UK USA USA USA Euro Zone Japan USA USA USA USA Germany Japan Japan USA Germany UK UK USA USA USA
PMI Manufacturing Change in non-farm payrolls Unemployment rate Factory orders PMI Services PMI Services Sentix Investor Confidence Euro Zone Consumer Confidence Trade balance Factory orders MoM (sa) ECB announces interest rates BOE announces rates BOE asset purchase target Import Price Index (MoM) Trade balance Retail sales ex auto & gas Euro zone trade balance Machine tool orders (YoY) Industrial production NAHB Housing Market Index Housing starts U. of Michigan Confidence Zew Survey (current situation) BOJ target rate Adjusted merch. trade bal. New home sales MoM IFO business climate GDP (QoQ) Index of Services (MoM) Durables ex transportation Consumer confidence GDP QoQ (annualised)
49.1 145K 7.70% 0.50% 47.8 50.2 ----0.75% 0.50% 375B --------------------
51.4 155K 7.80% 0.00% 47.8 48.9 -----
49.1 146K 7.70% 0.80% 47.8 50.2 -16.8 -26.6 15.8B 3.90%
-- 0.75% -- 0.50% -375B -- -0.90% -- -$42.2B -- 0.70% -10.2B -- -21.30% -- 1.10% -47 -861K -72.9 -5.7 -- 0.10% -- -868.5B -- -0.30% -102.4 -- 0.90% -- 0.10% -- 1.60% ---- 3.10%
31/01/2013 USA 31/01/2013 UK 09-13/01/13 China 09-18/01/13 China 10-13/01/13 China 13-18/01/13 China
FOMC rate decision GFK Consumer Confidence Survey Consumer Price Index (YoY) Industrial production (YoY) Trade balance (USD) Real GDP (YoY)
-------
----
0.25% -29 2.00%
-- 10.10% -- $19.63B -7.40%
33
January 2013
TREND & VIEW
COMMODITY
TECHNICALS
Gold: Bears in control

Gold formed a deep pull-back retracing more than 66% of the previous decline. However, it couldnt extend beyond the key resistance zone of $1,790-1,800 where it had faced resistance twice in the recent past. From there gold has started falling. The fall is unfolding in a channelised manner. Recently gold touched the lower end of the channel, achieved the equality target and bounced towards the key daily moving averages (MAs). From hereon gold is expected to resume the larger downtrend. The reversal can be placed at $1,725. On the downside $1,6301,585 will be the key levels to watch out for.
Trend Down Trend reversal $1,725 Supports $1,635/ $1,600 Resistances $$1,695/ $1,710 Target
100.0% KST (-0.38335) 0
0.0%
23.6%
1725
38.2%
50.0%
61.8%
1630
78.6%
1585
$1,630/ $1,585
1830 1820 1810 1800 1790 1780 1770 1760 1750 1740 1730 1720 1710 1700 1690 1680 1670 1660 1650 1640 1630 1620 1610 1600 1590 1580 1570 1560 1550 1540 1530 1520 1510 1500 Feb
April
May
June
July
Augus t
Septem ber
Novem ber Decem ber 2013
Silver: Bearish outlook

On the way up silver had crossed a medium-term falling trendline (blue). However, it couldnt extend beyond the 38.2% retracement of the previous decline. From there the white metal has started tumbling. The third leg on the downside has achieved the equality target of $29.80. From there silver has done a minor degree pull-back till the key daily MAs. From hereon the next leg down looks around the corner. The reversal can be placed above the 40-daily exponential moving average (DEMA), ie $31.65. The targets on the downside are $28.50 and $28.00.
Trend Down Trend reversal $31.65 Supports $29.60/$29.00 Resistances $30.67/$31.20 Target
20 27 3 10 17 Septem ber 24 1 8 October 15 22 29 5 12 Novem ber 19 26 3 10 17 Decem ber 24 100.0% 78.6% 61.8% 50.0% 38.2% 23.6% KST (-2.90092) 10 5 0 -5 SILVER [CASH] (31.0300, 31.1920, 30.0110, 30.1500, -0.85700) 36.5 36.0 35.5 35.0 34.5 34.0 33.5 33.0 32.5
31.65
32.0 31.5 31.0
0.0% 30.5 30.0 29.5 29.0
28.50 28.00
31 7 2013 14 21 28 4 Febru
28.5 28.0 27.5
$28.50/ $28.00
Crude oil: Opportunity for bears

Crude oil formed a sharp pull-back after a sharp decline. It crossed the 61.8% retracement mark and a falling trendline but couldnt sustain in the higher territory. Consequently, the oil tumbled significantly from there. In the last few weeks the oil has formed a pull-back rally with which it is once again testing the falling trendlines. The weekly momentum indicator has completed the pull-back cycle. Thus, crude is expected to resume the larger downtrend from the current level. The subsequent target is $82.3, ie 78.6% retracement mark. The reversal for the view can be kept above the redrawn falling trendline ($95.00).
Trend Down Trend reversal $95.00 Supports $88.00/$84.00 Resistances $94.00/$95.00 Target
Dec KST (-0.21263) 5 0 -5 -10 -15
LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (90.4100, 93.8700, 90.0000, 92.9200, +2.12000)
100.0%
110
105
78.6% 0.0% 61.8% 23.6% 50.0% 38.2% 38.2% 50.0% 61.8% 23.6%
85 90
100
95.0
95
78.6%
82.3
80
0.0%
100.0%
75
2012
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2013
Feb
Mar
Apr
May
$82.30
January 2013
34
COMMODITY
TECHNICALS
TREND & VIEW
Copper: Triangle near completion

As can be seen from the adjacent chart, copper has formed a triangle whose last leg is in formation. The triangle is being formed in the right shoulder of a larger head and shoulders pattern. The momentum indicator is in sync with the price structure. The bearish view holds true till the time the swing high of $3.84 isnt crossed on a closing basis. On the downside the lower end of the pattern, ie $3.47, will be the initial target; below that the medium-term rising trendline ($3.30) will be on radar.
Trend Down Trend reversal $3.84 Supports $3.52/$3.40 Resistances $3.78/$3.82 Target $3.47/ $3.30
KST (1.38257) 5 0 -5 -10 HG COPPER CONTINUOUS 25000 LBS [COMEX] (3.58800, 3.75900, 3.58150, 3.71700, +0.12750) 4.20 4.15 4.10 4.05 4.00 3.95 3.90 3.85 3.80 3.75 3.70 3.65 3.60 3.55 3.50 3.45 3.40 3.35 3.30 3.25 3.20 3.15 3.10 3.05 3.00 2.95 Nov Dec 2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Feb Mar
100.0%
78.6%
3.84
61.8% 50.0% 38.2%
3.47
23.6%
3.30
0.0%
Natural Gas: Channelised play

NYMEX natural gas bounced from the lower end of the medium-term falling channel to the upper end of the channel. The rise itself was a channelised move. Natural gas faced resistance near the upper end of both the channels as well as near the weekly upper Bollinger Band. Consequently, it started traveling southward. The weekly momentum indicator is in favour of bears. Natural gas is about to break the lower end of the rising channel and overall it is expected to fall towards $2.65-2.35. The reversal can be trailed to the swing high, ie $3.51.
Trend Down Trend reversal $3.51 Supports $3.00/$2.57 Resistances Target
100.0% A S O N D 2010 A MJ J A S O N D 2011 A M J J A S O N D 2012 A MJ J A S O N D 2013 A KST (3.45505) 30 20 10 0 -10 -20 7.0 6.5 6.0 5.5 5.0 4.5 4.0
NATURAL GAS CONTINUOUS 10000 MMBTU [NYMEX] (3.45500, 3.48100, 3.05000, 3.19800, -0.27100)
0.0%
23.6% 38.2% 50.0% 61.8%
3.51
3.5
3.0
2.65
2.5
78.6%
2.35
2.0
$3.33/$3.48 $2.65/ $2.35
Jeera: Fall on the cards

NCDEX jeera formed a three-wave pull-back and retraced nearly 78.6% of the first leg of the larger fall (from Rs16,915 to Rs13,250). From there it has started the next leg down which is sub-dividing into lower-degree waves. The price is about to breach the 20-weekly moving average and the 40-weekly exponential moving average. The weekly momentum indicator is in line with the price fall. The targets on the downside are Rs13,250 (the previous low) and Rs12,500 (the equality target). The reversal has been placed above the weekly upper Bollinger Band, ie Rs15,500.
Relative Strength Index (49.6030) 60 50 40 30 JEERA QUINTAL - 1 MONTH (14,675.00, 14,845.00, 14,375.00, 14,405.00, -305.000) 17000 16500
100.0% 78.6% 61.8% 50.0% 38.2%
16000
15500
15500 15000 14500
23.6%
14000 13500
0.0%
13250
13000 12500
12500
12000 11500 11000
10500
Trend Down
Trend reversal Rs15,500
Supports Rs13,855/ Rs13,000
Resistances Rs14,845/ Rs15,300
Target
Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Feb Mar Apr
Rs13,250/ Rs12,500
35
January 2013
MONTHLY VIEW
CURRENCY
FUNDAMENTALS
Currency market : Rupee-reform rally exhausted

Key points India's current account deficit widens to 5.4% of GDP in Q2 Yen fell to two-year low on expectations of bold stimulus under new government UK economy may have no growth in 2013: the Guardian Angela Merkel says euro zone crisis far from over Fed expands QE3, adopts data-based guidance US senate and house of representatives approve fiscal cliff bill
December 2012 contract price movement
USDINR 56 JPY INR 68 67 66 55 65 54.5 64
CURRENCY LEVELS IN DECEMBER 2012 (IN RS) Currency INR-USD INR-EUR INR-GBP INR-JPY High 55.97 73.50 89.82 68.17 Low 54.22 70.22 87.10 63.76 Close 54.85 72.62 88.55 63.93 Monthly chg (%) -1.61 -0.29 0.96 5.65
December 2012 contract price movement
EURINR 73 72 71 70 27-Nov-12 29-Nov-12 1-Dec-12 3-Dec-12 5-Dec-12 7-Dec-12 9-Dec-12 11-Dec-12 13-Dec-12 15-Dec-12 17-Dec-12
GBPINR 90 89 88 87 86 19-Dec-12 21-Dec-12 23-Dec-12 25-Dec-12 27-Dec-12
55.5
54 27-Nov-12 4-Dec-12 11-Dec-12 18-Dec-12 25-Dec-12
63
INR-USD
CMP: Rs54.49 (SPOT)
The rupee fell 1.34% against the dollar in December 2012 despite a rally in the risk currencies like the euro. On the domestic front, the Reserve Bank of India (RBI) kept the key policy rates unchanged. The mid quarter policy review hinted at a shift in the central banks stance from targeting inflation to supporting growth. India's headline inflation fell to a ten-month low of 7.24% while India's Q2 current account deficit (CAD) ballooned to a record 5.4% of the gross domestic product (GDP). Due to a rise in the commodity prices and a weak global outlook, the CAD is expected to remain high which will drag the rupee lower. On the other hand, an interest rate cut from the RBI could support the rupee, though high inflation would be a sticky factor. We see the USD/INR in a range of 54 to 55.30 (spot) in the near term.
INR-GBP
CMP: Rs88.17 (SPOT)
The pound ended 1.63% higher at 1.6239 vs the dollar after the US Federal Reserve (Fed) expanded its asset purchase programme by $45 billion and adopted data based guidance. The Bank of England (BoE) left the bank rate and asset purchase programme unchanged at 0.5%. On inflation, the BoE reiterated that inflation is likely to remain above the 2% target for the next year erasing any chance of increase in the asset purchase programme in the near term. Meanwhile economists expect at least one of the three main credit rating agencies to downgrade the UK's status as experts predict a tough 2013. A rating downgrade will reverse all the safe haven flows pouring into the UK economy for the past four years. We see the GBP/INR in the range of 87.20 to 89.40.
INR-EUR
CMP: Rs71.44 (SPOT)
The single currencys rally to 1.33 levels per dollar was fuelled by the US Feds easing act and the European Union (EU)s move toward a banking union. Uncertainty further dipped after EU finance ministers agreed to release a $44-billion portion of bail-out money to Greece. Moreover, the markets cheered the fact that the EU is still intact contrary to popular opinion of a break-up in 2012. However, the crisis seems to be far from over. The European Central Bank (ECB) too lowered its 2013 growth forecast to -0.9% to +0.3% compared with the prior forecast of -0.4% to 1.4%. Though optimism is likely to prevail in the short run, the markets will eventually start factoring in the weak growth and a possibility of interest rate cut both of which are bearish for the euro. The EUR/USD is likely to trade in the range of 1.3 to 1.33. We see the EUR/INR in the range of 70.70-72.70.
INR-JPY
CMP: Rs62.58 (SPOT)
The USD/JPY rally became the talk of the town after the pair rose to a two-year high of 87.36. The yen bears are out in force these days, thanks to the new Prime Minister Abes calls for aggressive monetary stimulus. The Bank of Japan (BoJ) responded by adding 10 trillion yens to the asset purchase programme in December 2012. However, it postponed its decision regarding 2% inflation target to the January 2013 meet. It remains to be seen if the BoJ succumbs to political pressure going ahead. We see the JPY/INR in the range of 60.90-63.80. However, we note that the USD-JPY could fall to 85 as the market positioning is skewed and the US debt ceiling issue would be supportive for the yen. Hence, the JPY-INR pair carries an upside risk. CMP as on January 03, 2013
January 2013
36
CURRENCY
TECHNICALS
TREND & VIEW
USD-INR: Rolling down

The USD-INR rallied smartly. It was moving up along the rising trendline. However, the angle of ascent had started declining as the price was approaching the 78.6% retracement mark (55.88). The daily momentum indicator had also reached near the overbought level. Consequently, the USD-INR fell. The fall was a five-wave decline and that has been retraced till the 61.8% retracement mark. Thus, the next leg down has been kicked off. It has a potential to form a deep correction, ie till 50% (53.60) to 61.8% (53.10) retracement mark. The reversal has been pegged at 55.28.
MACD (0.00416) 0.0 -0.5 USDINR - INDIAN RUPEE (54.3400, 54.6000, 54.1600, 54.4900, +0.26000) 57.0
GBP-INR: Strong barrier

From the lower end of the medium-term rising channel the GBPINR moved up quite a lot. However, it faced resistance near a level where it had faced resistance multiple times in the recent past. The daily upper Bollinger Band is also putting pressure on the price. The daily momentum indicator is showing a negative divergence. Thus, unless the high of 89.82 is crossed the GBP-INR has a high probability of undergoing a sharp correction. The targets on the downside will be the recent low of 86.74 and the channel line, ie 86.00.
Relative Strength Index (48.8934) 70 60 50 40 30 GBPINR (88.8390, 89.3530, 87.9770, 88.1400, -0.67100)
56.5 56.0 55.5
90.5
89.82
90.0 89.5 89.0 88.5
0.0%
100.0% 78.6% 61.8%
55.28
55.0
23.6%
50.0%
88.0
54.5 38.2% 0.0% 50.0% 54.0
87.5
86.74 86.00
87.0 86.5
53.60 53.10
53.5 53.0
86.0 85.5 85.0
61.8%
52.5
84.5 84.0 83.5
52.0
51.5 100.0% 51.0 27 3 10 17 Septem ber 24 1 8 October 15 22 29 5 12 19 Novem ber 26 3 10 17 Decem ber 24 31 7 2013 14 21 28 4 11 February 18
June July Augus t Septem ber October Novem ber Decem ber 2013 Feb
83.0 82.5
EUR-INR: Bearish pattern

The EUR-INR has formed a larger wedge pattern. It has completed the last leg of the pattern on the upside with a mild throwover. At that level it is facing resistance from the daily as well as weekly upper Bollinger Bands. The daily momentum indicator is showing a negative divergence. Thus, unless the high of 73.07 is crossed on a closing basis the price is expected to move southward. From the medium-term perspective 70.00-69.00 will be the key level on the downside.
Relative Strength Index (47.4341) 70 60 50 40 30 EURINR (72.1780, 72.5460, 71.3400, 71.5080, -0.60899) 74.0 73.5
JPY-INR: A vertical fall

The JPY-INR has been falling sharply. It was falling in a channelised manner. However, recently it drilled through the lower end of the channel. Also, on the way down it broke a short-term as well as a medium-term rising trendline. The momentum indicator is in sync with the price fall. The immediate support for the JPY-INR is the 78.6% retracement mark (0.6200). Once that is broken on a closing basis then it can test the low of 0.5925. The reversal has been trailed to the 20-daily moving average (0.6470).
MACD (-0.009310) 0.015 0.010 0.005 0.000 -0.005 -0.010 JPYINR (0.63080, 0.63180, 0.62110, 0.62150, -0.00990) 0.730 0.725 0.720 0.715 0.710 0.705 0.700 0.695 0.690 0.685 0.680 0.675 0.670 0.665 0.660 0.655 0.650 0.645 0.640 0.635 0.630 0.625
73.07
0.0%
73.0 72.5 72.0 71.5 71.0 70.5
23.6%
70.00
70.0 69.5
38.2%
69.00
69.0 68.5 68.0 67.5 67.0 66.5 66.0 65.5 65.0 64.5 64.0 63.5
50.0%
0.6470
61.8%
78.6%
0.6200
0.620 0.615 0.610 0.605 0.600 0.595
100.0%
0.5925
2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Fe
0.590 0.585
ary March
April
May
June
July
Augus t
Septem ber
Novem ber
2013
February
Currency USD-INR GBP-INR EUR-INR JPY-INR
View Down Down Down Down
Reversal 55.28 89.82 73.07 0.6470
Supports 54.00/53.50 87.46/86.50 70.35/69.94 0.6200/0.6000
Resistances 54.67/55.00 89.00/89.50 72.50/73.00 0.6340/0.6400
Target 53.60-53.10 86.74-86.00 70.00-69.00 0.5925
37
January 2013
PMS FUNDS
PMS
DESK
Portfolio Management Service

We are pleased to introduce you to Sharekhans Portfolio Management Service (PMS) in which we completely manage your investment portfolio so that you stop worrying about the market volatility and focus your energy on things that you like to do! We have a wide range of strategies that you can choose from. Our strategies are based on fundamental research and technical analysis. We have the following strategies on offer:
ProPrime
(based on fundamental research)
Top Equity Nifty Thrifty Trailing Stoploss
Diversified Equity Diversified
ProTech (based on technical analysis)
PROPRIME - TOP EQUITY

OVERVIEW
The ProPrimeTop Equity PMS strategy is suitable for the long-term investors looking to create an equity portfolio through disciplined investments that will lead to a growth in the portfolios value with low to medium risk.
(In %) 1 month 3 month 6 month
Product performance as on December 31, 2012

Scheme 2.8 2.8 9.5 20.2 4.2 11.5 -7.7 12.4 -11.0 Sensex 0.4 3.5 11.5 25.7 8.0 11.2 -8.9 12.6 -12.7 Nifty 0.4 3.5 11.9 27.7 9.4 12.4 -9.3 14.5 -12.5
INVESTMENT STRATEGY
Disciplined investment decisions are taken in specific stocks based on thorough fundamental research. Investments are made primarily in the Nifty Fifty or the BSE 100 scrips. Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and that of minimum of 90% in the BSE 100 stocks. Endeavours to create a core portfolio of blue-chip companies with a proven track record and have partial exposure to quality companies in the mid-cap space.
1 year 3 year Since inception* Best month Worst month Best quarter Worst quarter
#16-June-11
Disclaimer: Returns are based on a clients returns since inception and may be different from those depicted in the risk disclosure document.
PRICING
Minimum investment of Rs25 lakh Charges 2% per annum; AMC fee charged every quarter 0.5% brokerage 20% profit sharing after the 12% hurdle is crossed at the end of every fiscal
Top 10 stocks
Bank of Baroda BHEL Cipla ICICI Bank Larsen & Toubro Mcleod Russel India Reliance Industries SAIL State Bank of India
Fund Manager: Gaurav Dua

FUND OBJECTIVE
Zee Entertainment
A good return on money through long-term investing in quality companies
January 2013
38
PMS
DESK
PMS FUNDS
PROPRIME - DIVERSIFIED EQUITY

OVERVIEW
The ProPrimeDiversified Equity PMS strategy is suitable for long-term investors looking to create an equity portfolio through disciplined investments that will lead to a growth in the portfolios value with medium to high risk.
INVESTMENT STRATEGY
Disciplined investment decisions are taken in specific stocks based on thorough fundamental research. A balanced mix of value and growth stocks (mid-cap and small-cap) is created that represents investment opportunities across sectors and market capitalisation. Invests in quality value and growth stocks with good earnings visibility and healthy balance sheet. The fund manager, with the help of extensive, in-house, superior research, identifies fundamentally sound companies to invest in. The fund manager strives to capture the short-term trading opportunities to maximise the potential of the swings in specific stocks.
(In %) 1 month 3 month 6 month 1 year 3 year

Scheme 4.0 4.4 14.0 42.9 -31.2 110.9 37.5 -24.1 65.0 -32.0 S&P CNX 500 1.5 5.3 13.7 31.8 9.6 224.7 34.4 -27.2 51.2 -28.6
PRICING
Minimum investment of Rs25 lakh Charges 2.5% per annum; AMC fee charged every quarter 0.5% brokerage 20% profit sharing after the 15% hurdle is crossed at the end of every fiscal
Since inception* Best month Worst month Best quarter Worst quarter
*24-Sept-04
FUND MANAGERS VIEW

Consistent foreign fund inflows and strong will of the government to push through reforms in spite of all-round political opposition lifted the market in December 2012 with stock-specific action concentrated in the banking sector. The public sector banks outperformed all the benchmarks in the last month. The government remains focused on reforms and global head winds are settling down after the signing of the deal to avert a fiscal cliff in the USA. Now the market will prepare itself for the next triggers to come from the earnings season, the Union Budget and the Reserve Bank of Indias policy review. We expect all the three events to play out in favour of the market, which is expected to move higher in the days ahead. Our strategy of increasing the weightage of the banking and metal sectors in the ProPrime Diversified Equity scheme played out well. Both the sectors outperformed the broad market in December 2012, helping the scheme to grow by 4% (post-fee) compared with the benchmark, which rose by merely 1.25% in the same period. We expect this outperformance to continue in the last quarter of FY2013 since mid-cap stocks have still to perform in order to match the valuations of the large-cap stocks. We expect the new year to be cheerful and hope to recover all the lost ground in the coming financial year. In the last month we focused on accumulating Federal Bank, Torrent Pharmaceuticals and Escorts as well as booked out of SREI Infrastructure Finance and Provogue India.
Top 10 stocks
Bank of Baroda BHEL Federal Bank IDBI Bank ITNL Reliance Industries Reliance Infrastructure Southern Petrochemicals Industries Sterlite Industries (India) Torrent Pharma
Fund Manager: Suhas Samant

FUND OBJECTIVE
A good return on money through long-term investing regardless of short-term volatility
39
January 2013
PMS FUNDS
PMS
DESK
PROTECH - DIVERSIFIED
OVERVIEW
The ProTechDiversified PMS strategy is suitable for long-term investors who desire to profit from both bullish and bearish market conditions. The strategy involves going long (buying) or going short (selling without holding) on certain investment classes by predicting the market direction based on a back-tested automated model.
INVESTMENT STRATEGY
This strategy has the potential to generate profits irrespective of the market direction by going long or short on specific indices and stocks. It invests in the Nifty and the Bank Nifty indices (via futures) and 10 stock futures. An automated basic back-testing model is used to predict the market direction for each of the indices and stocks which then decides the strategy to be deployed in terms of going long or short. The portfolio is not leveraged, ie its exposure will never exceed its value.
(In %) 1 month 3 month 6 month 1 year 3 year

Scheme 0.3 2.1 4.4 9.4 26.6 11.3 -8.1 6.3 -1.3 Sensex 0.4 3.5 11.5 25.7 14.3 11.7 -10.6 13.4 -12.7 Nifty 0.4 3.5 11.9 27.7 15.9 12.4 -10.2 14.5 -12.5
PRICING
Minimum investment of Rs25 lakh Charges AMC fees: Brokerage: Profit sharing: 0% 0.05% Flat 20% charged on a quarterly basis
Since inception* Best month Worst month Best quarter Worst quarter
*16-May-2010
FUND MANAGERS VIEW

In December of 2012 the Nifty took a breather after consecutive months of gain and finally settled with a marginal gain 0.4%. During the month metal and banking stocks took the centre-stage and outperformed the benchmark index. On the other hand, information technology and fast moving consumer goods stocks pulled the market down, indicating there was portfolio rebalancing or sector rotation in the market. The volumes were significantly lower in the later part of the month as few key events were scheduled during the period and it was the holiday season. The next series is likely to start on a positive note and should remain afloat in the early part of the series with some beating towards the end. The implied volatility has risen a little but is still low as compared with the historical average, indicating there is some caution at higher levels. The market is likely to face a stiff resistance around the 6100-6150 level whereas support shall come at around 5800. The net asset value (NAV) of ProTech Diversified increased by 0.26% in December 2012 and by 2.1% during the December quarter. The scheme has been generating positive returns consistently and there has been only one quarter of negative returns since its inception (11 quarters). In calendar year 2012 the schemes NAV increased by only 10%, as the market entered the stick zone of 5200-5400 soon after the rally in January 2012 and remained sticky within that range till August 2012. This led to some erosion in the NAV. Still, all the four quarters were positive indicating robustness of the scheme even in an extremely choppy scenario. As the market has been trending since September 2012, the NAV has been rising steadily and is likely to fare well in the coming months as well.
Investments in*
Bank Nifty DLF IDBI Bank Jaiprakash Associates LICHousing Finance Nifty Punj Llyod Ranbaxy Reliance Capital Tata Motors Tata Steel Yes Bank
*Traded stocks
Fund Manager: Abhinay Jain

FUND OBJECTIVE
Absolute returns irrespective of market conditions through a long-short strategy followed in multiple investments
January 2013
40
PMS
DESK
PMS FUNDS
PROTECH - NIFTY THRIFTY

OVERVIEW
The ProTechNifty Thrifty PMS strategy is suitable for long-term investors who desire to profit from both bullish and bearish market conditions. The strategy involves going long (buying) or going short (selling without holding) on Nifty futures by predicting the market direction based on a back-tested automated model.

(In %) 1 month 3 month FY11-12 FY10-11 FY09-10 Since inception* Best month Scheme 0.1 -0.1 13.1 9.2 14.7 148.1 28.9 -17.1 33.3 -11.7 Sensex 0.4 3.5 -10.5 10.9 80.5 91.9 28.3 -23.9 49.3 -25.0 Nifty 0.4 3.5 -9.2 11.1 73.8 95.4 28.1 -26.4 42.0 -24.5
INVESTMENT STRATEGY
The strategy has the potential to generate profits irrespective of the market direction by going long or short on Nifty futures. An automated basic back-testing model is used to predict the market direction for the Nifty which then decides the strategy to be deployed in terms of going long or short. The portfolio is not leveraged, ie its exposure never exceeds its value.
PRICING
Worst month Best quarter Worst quarter

*01-Feb-2006
Investments in
FUND MANAGERS VIEW

The returns from ProTech Nifty Thrifty remained flat in December 2012, just like those from the Nifty. There is nothing we can say about a month when the index was within a 50-point range throughout. The good news is that no false trades or whipsaws happened in the system during the month. So the sideways move did not cause a drawdown as is the case usually in such situations. The market remains in an uptrend and should extend gains in the early part of January but maybe it is coming to a point where a correction becomes necessary. So a trend reversal is a risk we face in January because of the seasonal effect as well as the fact that the market has been moving up for quite some time now and sentiment might be reaching a positive extreme.
Nifty Index
Fund Manager: Rohit Shrivastava
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
41
January 2013
PMS FUNDS
PMS
DESK
PROTECH - TRAILING STOPS

OVERVIEW
Our ProTechTrailing Stops PMS strategy is ideal for Traders and Investors looking for Regular Income from trading and desire to make profits in both bullish and bearish market conditions. It is designed to payout book profits on monthly basis.* It is also for those investors who are looking for better income than Fixed Income or Deposits. This strategy involves going Long (buying) or Short (selling without holding) on stock futures. * Terms and conditions apply
(In %) 1 month

Scheme 0.7 1.1 29.0 Sensex 0.4 3.5 -6.1 4.8 11.3 -8.9 12.6 -12.7 Nifty 0.4 3.5 -4.6 6.4 12.4 -9.3 14.52 -12.5
INVESTMENT STRATEGY
This strategy spots the winning trades based on technical analysis vs time framebased portfolios, basically the momentum calls. A risk model has been developed for stock portfolio allocation that reduces the risk and portfolio volatility through staggered building of positions. It is non-leveragedthe exposure will never exceed the value of the portfolio.
3 month FY11-12 FY10-11 FY09-10
Since Inception-RSD* 49.1 Best month Worst month 9.1 -4.4 9.9 -1.03
PRICING
Best quarter Worst quarter
*09th May 2011 (revised strategy date)
FUND MANAGERS VIEW

At 0.68% returns ProTech Trailing Stops did average in December 2012, though in the early part of the month we were up 3% and a pay-out was made. The narrow range of the market later affected the potential for further returns later. The rotation between large-caps and mid-caps made stock selection difficult and we had to wait for a clear trend to emerge which has only happened in the new year. We managed risk by remaining low on positions till the trend emerged and continue to stay light as the trend is not broad based yet. The market remains in an uptrend and should extend gains in the early part of January but maybe it is coming to a point where a correction becomes necessary. So a trend reversal is a risk we face in January because of the seasonal effect as well as the fact that the market has been moving up for quite some time now and sentiment might be reaching a positive extreme.
Investments in
Nifty Index Stock futures
Fund Manager: Rohit Shrivastava
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
January 2013
42
ADVISORY
DESK
MONTHLY PERFORMANCE
Advisory Products & Services

The Advisory Desk is a central desk consisting of a Mumbai-based expert team that runs various sample model portfolios (for illustrative purposes only) for clients of all profiles, be they traders or investors. For investors, it has the Portfolio Doctor service under which it reviews an existing portfolio on various parameters and suggests changes to improve its performance. For traders, it has four products in all: MID Intraday, MID Swing, MID Option and MID Delivery. All MID products are different from Sharekhans research-based technical and fundamental offerings as these essentially try to capture trading opportunities in liquid stocks where momentum is expected before or after some event including the announcement of results or where some news/event is probable. These calls are rolled out by the Advisory Desk based on the market pulse and before generating an MID call, all market news on the stock as well as its technical and derivative indicators are thoroughly checked. Advisory products are ideal for those who do not have time to either monitor the market tick by tick or shift through pages of research for data or pour over complex charts to catch a trend. However, all these products require perfect discipline and money management.
FOR TRADERS MID TRADES

W NE
There are four different types of MID calls. MID Swing: These are positional long/short ideas based on fundamental rationales/events/news as well as technical checks. These ideas come with proper stop losses and probable targets. MID Delivery: This is a long-only cash market delivery product where ideas are generated based on the market pulse (and not fundamental research). These ideas come with proper stop losses and probable targets for a maximum period of one month. MID performance# Product Month No. of calls Profit and loss Stop loss hit Strike rate (%) MID Swing Dec 2012 YTD FY13 20 16 4 80 260 157 103 60 MID Intraday
MID Options: These are directional calls in the options segment based on the analysis of the open interest and the put-call ratio in the market. These too come with proper stop losses and probable targets. MID Intraday: These are long/short ideas based on fund flow and technical levels. As is apparent from the name, these calls are meant for intra-day trading. All MID Intraday calls are accompanied by proper stop losses and probable targets.
MID Delivery Dec 2012 25 17 8 68 YTD FY13 291 184 107 63 722 446 276 62
MID Option Dec 2012 YTD FY13 18 12 6 67 187 108 79 58
Dec 2012 YTD FY13 78 53 25 68
DERIVATIVE TRADES
Derivative Trades are generated by the Sharekhan Derivatives Desk based on the analysis of open interest and other indicators. It is a leveraged product and ideal for aggressive futures traders.
Derivative Ideas performance# Ticket size (Rs) Month No. of calls Profit and loss (Rs) Returns (%) Dec 2012 10 -6,510 -2.2 300,000 YTD FY13 148 4,173 1.4
FOR INVESTORS
PORTFOLIO DOCTOR Portfolio Doctor evaluates an existing portfolio on various parameters and suggests recommendations on a
regular basis to improve its performance. It is targeted at long-term investors with a portfolio value of more than Rs10 lakh. The Portfolio Doctor service involves three simple steps: analysis of an existing portfolio, realignment of the portfolio with Sharekhans creation of a Model Portfolio. recommendations
#Please note there may be some deviation in the actual performance reported in TradeTiger due to a difference in the method of closure of an idea in a particular month.
For more details on any of the Advisory Desk products write to us at info@sharekhan.com READY FOR ROARING ADVICE
43
January 2013
Hi, Sharekhan is pleased to announce the launch of Option Enabler, an innovative tool that will help Nifty option traders maximise their profits. Developed in-house, by the Advisory team of Sharekhan, Option Enabler is a simple tool that will show in advance various outcomes of a trade, thereby helping the trader take the right call. For whom? Option Enabler is for all those who are keen to make money by trading Nifty options. How to use it? Option Enabler is easy to use and can be used by anyone and everyone. The product shows results on the basis of the data put in. For a bullish/bearish view, the user can know what action to take by simply defining the following fields in the Option Enabler: 1. Time frame for the view (eg 1 month, 2 months or 3 months) 2. Quantity (based on the margin availability) 3. The quantity of options of another strike to be sold in order to bring down the cost. Similarly, for strategies like Butterfly: Select the middle strike Select either CE or PE (call or put option) Select the degree/extent of movement (eg 100/200/300 points) Straddle: Select the month Select Buy or Sell Select the strike To know how to protect his portfolio, the user will have to define the following fields in the product: 1. The current Nifty level 2. The current portfolio value 3. Type of the portfolio (whether it is balanced with equal number of large-caps and mid- caps or has more of mid-caps or large-caps) 4. Time frame and the level up to which protection is required All the fields requiring inputs are highlighted in the Option Enabler and once all these are defined, the product will give all the relevant data (eg Investment/Margin, Outflow, Max Profit, Max Loss, BEP , Return/Risk etc) to allow the user to take an informed decision and get the best result for a particular view. We hope all option traders will find the Option Enabler useful. Important note: 1. 2. 3. 4. Option Enabler requires Microsoft Excel Users will have to enable Macros to use the Option Enabler tool. Users will have to download the Option Enabler tool every month. Option Enabler also comes with Entry Tips and Exit Rules which could be used as broad guidelines for entering and exiting a trade.
Warm regards, Advisory team

Disclaimer: The views expressed herein are solely of the analyst; any review, retransmission, or any other use is prohibited. The information contained herein is from publicly available data or other sources believed to be reliable. Sharekhan is not in any way promoting or criticising any policy/reform. Sharekhan does not comment on the profitability of the product/scrip mentioned herein. Each recipient of this information may take his own decisions based on his specific investment objectives and financial position, and using such independent advisors, as he believes necessary. This information is given in good faith and Sharekhan makes no representations or warranties, express or implied, as to the accuracy or completeness of the information and shall have no liability to the user or to his representative(s) resulting from use of this information. Sharekhan carries on proprietary trading.
MUTUAL FUNDS
DESK
MF PICKS
SHAREKHANS TOP MUTUAL FUND PICKS (EQUITY)

Scheme name Star rating NAV (Rs) Absolute 6 months 98.2 25.7 18.4 14.3 23.4 19,317.3 21.4 29.7 18.3 59.0 39.6 6,999.1 56.4 63.0 43.4 66.5 32.0 7,512.0 29.5 24.1 236.8 156.0 16.5 4,698.8 31.4 16.1 16.9 21.2 13.9 5,879.6 342.5 63.3 25.3 86.7 55.2 22.8 21.0 17.9 19.1 12.5 15.8 19.6 25.8 18.4 30.4 22.7 18.1 19.2 17.1 21.3 20.2 17.0 17.4 16.9 17.6 17.3 19.2 17.8 17.7 28.1 26.3 24.4 19.8 17.3 16.3 15.7 11.4 16.4 15.6 16.0 11.8
DECEMBER 19, 2012

Data as on December 14, 2012
Returns (%) Compounded annualised 1 year 3 years 5 years 30.4 30.6 23.5 34.6 21.2 21.6 36.6 39.3 31.2 44.4 32.6 28.8 37.2 28.1 39.6 32.0 24.4 25.2 27.1 38.4 24.1 30.6 28.5 25.7 39.7 39.4 27.2 32.6 27.7 23.4 20.3 21.0 29.0 23.0 25.0 18.1 7.8 8.6 10.9 7.5 10.7 4.1 13.0 12.2 15.0 23.5 15.5 2.3 12.7 10.5 15.3 12.2 10.8 3.9 11.2 11.1 10.7 9.6 9.4 3.6 17.1 15.1 7.8 10.1 12.3 4.8 8.8 13.0 10.0 6.7 11.9 5.8 4.2 2.2 0.0 1.9 0.0 -0.7 0.0 -0.1 7.6 3.8 8.9 -5.9 9.3 5.1 7.0 0.1 6.5 -2.2 0.0 3.3 4.2 4.6 -5.0 -2.1 6.5 0.0 -2.9 3.1 3.8 -0.6 6.4 9.4 8.8 3.1 3.7 2.9
Since inception 24.8 14.1 14.3 6.8 23.7 16.7 17.3 14.9 11.7 24.0 21.0 23.5 23.1 22.0 21.0 13.7 17.0 15.6 32.3 13.0 26.0 22.9 7.5 8.8 16.8 15.8 8.3 12.1 6.4 14.5 21.9 16.2 13.1 16.6 13.9 13.3
Large-cap funds Birla Sun Life Frontline Equity Fund - Plan A Birla Sun Life Top 100 Fund ICICI Prudential Focused Bluechip Equity Fund - Ret Reliance Top 200 Fund UTI Wealth Builder Fund - Series II Indices BSE Sensex Mid-cap funds IDFC Sterling Equity Fund Kotak Midcap Fund HDFC Mid-Cap Opportunities Fund SBI Magnum Sector Funds Umbrella - Emerg Buss Fund IDFC Premier Equity Fund - Plan A Indices BSE MID CAP Multi-cap funds ICICI Prudential Discovery Fund - Growth Canara Robeco Equity Diversified - Growth Reliance Equity Opportunities Fund - Growth SBI Magnum Global Fund 94 - Growth UTI Opportunities Fund - Growth Indices BSE 500 Tax saving funds Canara Robeco Equity Taxsaver - Growth Reliance Tax Saver (ELSS) Fund - Growth Franklin India Taxshield - Growth ICICI Prudential Taxplan - Growth BNP Paribas Tax Advantage Plan - Growth Indices CNX500 Thematic funds Birla Sun Life India GenNext Fund - Growth Canara Robeco FORCE Fund - Reg - Growth Sundaram Rural India Fund - Reg - Growth L&T India Special Situations Fund - Growth UTI India Lifestyle Fund - Growth Indices S&P Nifty Balanced funds Birla Sun Life 95 - Growth HDFC Balanced Fund - Growth Reliance RSF - Balanced - Growth UTI Balanced Fund - Growth ICICI Prudential Balanced - Growth Indices Crisil Balanced Fund Index
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
45
January 2013
MF PICKS
MUTUAL FUNDS
DESK
SHAREKHANS TOP SIP FUND PICKS

Investment period Total amount invested (Rs) Funds would have grown to (Rs) Large-cap funds Birla Sun Life Frontline Equity Fund - Plan A Birla Sun Life Top 100 Fund Principal Large Cap Fund Reliance Top 200 Fund SBI Magnum Bluechip Fund BSE Sensex Multi-cap funds ICICI Prudential Discovery Fund Reliance RSF - Equity Reliance Equity Opportunities Fund SBI Magnum Global Fund 94 UTI Opportunities Fund BSE 500 Mid-cap funds Franklin India Prima Fund HDFC Mid-Cap Opportunities Fund IDFC Premier Equity Fund - Plan A Kotak Midcap Fund SBI Magnum Sector Funds Umbrella-Emerg Buss Fund BSE Midcap Tax saving funds BNP Paribas Tax Advantage Plan Franklin India Taxshield HSBC Tax Saver Equity Fund ICICI Prudential Taxplan Reliance Tax Saver (ELSS) Fund S&P Nifty 16.5 236.8 16.6 156.0 24.1 5,879.6 13,566.4 13,313.2 13,959.0 13,576.0 13,474.8 13,356.1 14.4 12.1 18.0 14.5 13.5 11.9 42,629.8 41,795.5 42,182.4 41,467.5 42,226.0 39,623.2 320.8 18.3 39.6 29.7 59.0 6,999.1 14,080.3 13,385.4 13,972.0 14,169.8 14,658.6 13,684.5 19.15 12.72 18.15 19.98 24.53 14.8 43,034.2 43,127.9 44,366.4 43,369.1 50,344.9 38,144.8 56.4 33.7 43.4 66.5 32.0 7,512.0 13,602.2 14,485.3 13,822.5 13,664.3 13,313.5 13,479.6 14.7 21.9 16.8 15.3 12.1 13.0 42,905.2 42,170.3 44,439.4 43,020.2 42,802.1 39,124.2 98.2 25.7 30.6 14.3 16.4 19,317.3 13,818.8 13,695.2 13,600.2 13,556.6 13,869.4 13,288.3 16.7 15.6 14.7 14.3 17.2 11.3 41,780.3 42,138.5 40,577.7 41,439.3 41,800.2 39,177.3 NAV 1 year 12,000 Present Avg. annual value (Rs) return (%) 3 years 36,000 Present value (Rs)
DECEMBER 19, 2012

Data as on December 14, 2012
Avg. annual return (%)
5 years 60,000 Present Avg. annual value (Rs) return (%)
5.2 5.5 4.2 4.9 5.3 2.9
84,324.7 82,772.0 82,791.3 79,606.3 79,663.5 74,618.7
7.2 6.8 6.8 5.9 5.9 4.5
6.2 5.5 7.5 6.3 6.1 2.9
99,393.2 85,847.3 99,668.6 90,963.1 89,723.8 75,429.1
10.8 7.5 10.9 8.8 8.5 4.7
6.31 6.39 7.42 6.59 12.18 1.98
89,820.2 95,913.2 97,915.3 88,591.2 112,248.3 74,042.3
8.5 10.0 10.5 8.2 13.6 4.3
6.0 5.2 5.6 5.0 5.6 3.3
81,066.2 85,449.5 83,299.2 88,504.7 87,146.7 75,358.2
6.3 7.5 6.9 8.2 7.9 4.7
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
January 2013
46
EARNINGS GUIDE
EQUITY
FUNDAMENTALS
Prices as on January 04, 2013
Sharekhan Earnings Guide

Company CMP (Rs) FY12 Sales FY13E FY14E FY12 Net profit FY13E FY14E FY12 EPS FY13E (%) EPS growth FY14E FY14/FY12 PE (x) RoCE (%)
RoNW (%) FY14E
DPS
FY12 FY13E FY14E FY13E FY14E FY13E
Div yield (Rs) (%)
AUTOMOBILES
Apollo Tyres Ashok Leyland Bajaj Auto M&M Maruti Suzuki 89.6 26.7 2,205.6 941.3 1,545.5 12,153.3 12,842.0 19,759.2 31,864.2 35,895.1 14,011.9 14,491.3 20,904.9 41,782.9 43,280.4 15,619.3 16,995.9 25,651.6 48,529.4 52,678.3 441.5 566.0 3,138.1 2,770.6 1,635.1 649.3 640.3 3,167.7 3,221.2 1,891.2 789.8 727.3 4,041.9 3,114.2 2,804.1 8.2 2.1 108.5 45.1 56.6 12.9 2.4 109.5 52.5 65.4 15.7 2.7 139.8 50.7 97.0 38 13 14 6 31 10.9 12.7 20.3 20.9 27.3 6.9 11.1 20.1 17.9 25.5 5.7 9.9 15.8 18.6 15.9 19.3 11.8 49.1 26.1 14.0 19.9 13.0 49.8 22.7 19.4 18.9 14.1 40.0 22.3 11.3 18.9 14.8 39.2 18.7 14.9 0.5 1.0 45.0 12.5 7.5 0.6 3.8 2.0 1.3 0.5
BANKS & FINANCE

Allahabad Bank Andhra Bank Axis (UTI) Bank Bajaj Finserv Bank of Baroda Bank of India CanFin Homes Capital First Corp Bank Federal Bank HDFC HDFC Bank ICICI Bank IDBI Bank PNB SBI Union Bank of India Yes Bank 184.0 126.5 1,379.0 930.6 884.3 364.6 181.3 208.2 486.2 526.9 837.7 679.4 1,182.4 116.6 908.1 2,486.7 277.9 489.1 236.7 3,841.2 725.0 534.7 282.4 224.8 358.4 164.2 506.1 218.5 1,224.4 634.1 2,349.6 251.3 535.2 117.6 1,299.2 403.7 242.8 314.5 124.1 80.4 98.1 78.1 616.9 502.7 6,461.2 4,619.3 13,438.0 3,904.8 13,739.3 11,634.6 83.7 156.5 4,639.5 2,485.8 4,998.3 17,540.5 18,236.9 6,663.6 17,617.0 57,642.5 9,241.3 2,472.8 473.3 2,685.5 4,850.9 22,987.7 25,173.8 4,008.3 1,412.0 6,631.2 331.4 994.6 1,469.3 21,031.2 33,734.0 1,576.5 1,000.3 2,052.7 48,893.8 37,197.1 47,227.9 4,680.5 11,248.6 1,751.9 5,308.0 7,650.2 5,304.1 993.6 7,093.8 4,903.5 15,895.3 16,007.9 12,751.2 101.5 254.2 5,028.5 2,865.4 6,110.0 22,295.5 22,078.0 7,875.4 19,670.2 63,669.0 10,292.0 3,302.7 600.3 3,119.8 6,565.9 26,834.2 29,894.0 4,822.0 1,573.2 7,549.2 358.1 1,298.3 1,906.5 24,901.3 40,122.4 2,028.3 1,270.2 2,348.3 62,583.4 42,758.5 45,172.4 5,455.1 12,436.3 1,853.5 6,498.6 8,711.6 5,245.2 1,342.0 8,284.6 5,704.0 18,773.1 18,573.4 14,658.0 131.5 352.6 5,814.4 3,388.5 7,568.6 27,326.8 25,767.3 9,062.0 22,655.2 11,913.4 4,141.7 718.0 3,651.4 7,921.5 31,278.1 34,578.2 5,657.1 1,825.9 8,545.5 397.4 1,765.9 2,360.2 28,465.1 44,484.3 2,344.9 1,471.2 2,559.2 1,866.7 1,344.7 4,242.2 1,337.8 5,006.9 2,677.5 43.8 105.8 1,506.0 776.8 4,122.6 5,167.2 6,465.2 2,031.7 4,884.2 1,788.5 977.0 120.1 355.2 597.1 2,712.5 6,162.4 318.9 296.5 339.2 68.7 68.8 152.8 2,525.9 8,332.0 197.2 141.8 220.7 1,780.8 1,327.9 4,741.6 5,154.3 2,637.4 52.7 100.6 1,482.4 866.3 4,889.6 6,636.4 7,905.8 2,073.2 4,980.1 14,105.7 2,315.5 1,263.8 162.1 435.4 834.8 3,252.4 7,466.1 396.7 296.8 414.7 76.3 98.0 240.5 3,195.3 9,207.7 207.9 180.1 251.4 13,889.5 6,179.1 6,643.1 582.4 332.0 145.4 189.7 144.7 370.9 75.1 2,083.8 1,575.5 5,643.6 5,818.4 3,286.3 69.1 135.1 1,687.1 1,043.1 5,881.6 8,305.0 9,074.5 2,406.1 5,632.7 16,831.3 2,716.3 1,513.3 192.6 503.5 1,076.0 3,753.1 9,049.7 525.8 387.4 475.2 86.3 125.2 303.7 3,617.4 10,063.5 256.3 216.0 261.0 16,122.5 6,748.9 6,123.3 614.9 653.1 168.6 215.2 175.6 388.9 96.0 37.3 24.0 102.7 90.9 121.4 46.6 21.4 16.4 101.7 45.4 27.9 22.0 56.1 15.9 144.0 174.5 32.5 27.8 8.1 84.5 16.8 12.5 7.9 5.2 27.1 5.5 17.6 24.2 50.4 36.1 145.7 33.1 35.4 22.3 54.4 22.7 28.8 44.1 5.7 5.8 12.3 4.1 34.1 17.0 35.6 23.7 114.8 124.6 45.9 25.7 14.2 100.1 50.6 31.7 28.3 68.7 16.2 146.8 210.2 42.1 32.6 11.0 103.5 23.2 15.0 9.5 6.2 27.1 6.7 19.5 33.5 79.4 45.6 161.0 34.9 45.0 24.3 71.0 25.1 27.1 46.4 5.1 6.0 12.4 4.9 31.1 25.2 41.7 28.2 136.6 140.2 57.2 33.7 19.1 113.9 61.0 38.2 35.4 78.8 18.8 166.1 250.8 49.3 39.1 13.1 119.7 29.9 17.4 11.5 8.2 35.4 7.7 22.1 44.0 100.2 51.7 175.9 43.0 54.0 26.3 82.4 27.5 25.0 49.0 10.1 6.9 14.0 6.0 32.6 32.2 6 9 15 8 11 26 8 6 16 17 27 16 9 6 20 23 21 27 19 33 18 21 26 14 18 12 35 41 20 10 14 24 9 23 10 -7 5 33 9 7 21 -2 38 4.9 5.3 13.4 10.2 7.3 7.8 8.5 12.7 4.8 11.6 30.0 30.9 21.1 7.3 6.3 14.3 8.6 17.6 29.2 45.5 43.2 42.8 35.7 43.2 13.2 29.8 28.8 9.0 24.3 17.6 16.1 7.6 15.1 5.3 23.9 17.8 8.4 7.1 21.7 13.9 8.0 19.2 18.1 29.5 5.2 5.4 12.0 7.1 7.9 7.0 14.6 4.9 10.4 26.4 24.0 17.5 7.2 6.2 11.8 6.6 15.0 21.5 37.1 31.2 35.6 29.7 36.3 13.2 24.5 26.0 6.5 15.4 13.9 14.6 7.2 11.9 4.8 18.3 16.1 8.9 6.8 24.3 13.4 7.9 15.9 19.8 20.0 4.4 4.4 10.1 6.3 6.4 5.4 10.9 4.3 8.6 21.9 19.2 15.7 6.2 5.6 10.0 5.6 12.1 18.1 32.1 24.2 30.7 24.6 27.4 10.1 21.3 22.9 5.0 12.2 12.3 13.4 5.8 9.9 4.5 15.8 14.7 9.7 6.4 12.3 11.6 7.0 13.1 18.9 15.6 43.8 52.8 23.3 96.6 47.2 26.5 18.3 9.0 44.2 19.4 36.5 32.3 36.8 27.9 27.2 23.5 42.0 20.7 28.3 7.6 11.4 28.1 12.7 8.3 30.2 32.5 43.5 50.9 27.2 80.0 47.2 26.9 21.1 10.1 40.1 20.9 35.6 30.3 32.5 29.4 27.7 21.8 39.5 19.7 27.0 7.6 18.8 29.2 13.3 10.2 28.7 31.8 15.9 16.6 19.2 17.4 12.0 14.3 10.9 16.8 14.3 22.9 20.4 12.6 10.3 16.7 15.8 15.0 21.4 34.8 34.6 26.8 73.5 36.9 25.3 16.1 8.8 35.8 25.5 27.6 30.1 26.6 20.8 19.7 18.5 33.0 19.6 22.2 9.3 8.5 19.8 9.7 6.2 19.8 30.9 16.5 17.3 19.5 17.1 13.6 16.5 12.6 16.8 15.4 21.8 21.8 13.3 11.0 16.5 16.6 15.5 19.5 34.6 33.4 28.2 61.0 37.9 23.7 18.4 9.5 31.9 27.1 27.7 27.2 24.2 21.9 20.1 16.8 30.8 18.6 17.9 9.1 15.0 19.8 10.0 7.1 17.9 30.3 6.0 5.5 18.6 1.5 19.7 8.1 3.0 1.5 20.5 9.0 9.8 4.3 16.5 1.5 22.0 35.0 8.0 4.0 4.0 35.0 4.8 7.5 4.5 0.7 6.0 2.2 5.0 7.5 12.5 12.0 47.0 8.0 6.0 5.0 25.0 6.0 6.4 4.0 1.0 2.2 1.5 1.5 7.0 3.5 3.3 4.3 1.4 0.2 2.2 2.2 1.7 0.7 4.2 1.7 1.2 0.6 1.4 1.3 2.4 1.4 2.9 0.8 1.7 0.9 0.7 1.4 1.6 0.3 1.7 1.3 1.0 3.4 1.0 1.9 2.0 3.2 1.1 4.3 1.9 1.5 2.6 1.3 0.8 2.7 1.5 1.9 1.1 0.7
72,652.9 11,707.3
CONSUMER GOODS
Bajaj Corp GSK Consumers GCPL Hindustan Unilever ITC Marico Mcleod Russel India TGBL (Tata Tea)^ Zydus Wellness
IT / IT SERVICES
AGC Networks CMC HCL Technologies** Infosys NIIT Technologies Persistent Systems Polaris Financial TCS Wipro
72,841.2 10,638.3 47,015.8 41,047.5 5,902.1 14,090.9 2,076.0 7,723.4 10,875.3 5,559.9 1,699.9 5,573.0 7,059.2 554.3 373.6 141.9 188.7 119.8 406.9 50.8
CAPITAL GOODS / POWER

BHEL CESC Crompton Greaves Greaves Cotton^ Kalpataru Power PTC India Thermax V-Guard Industries
@Stand-alone financials
**June ending company
Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated
47
January 2013
EQUITY
Company CMP (Rs)
FUNDAMENTALS
Sales FY12 FY13E FY14E FY12 Net profit FY13E FY14E FY12 EPS FY13E (%) EPS growth FY14E FY14/FY12 PE (x) RoCE (%)
EARNINGS GUIDE
RoNW (%) FY14E DPS Div yield (Rs) (%)
FY12 FY13E FY14E FY13E FY14E FY13E
INFRASTRUCTURE / REAL ESTATE

Gayatri Projects ITNL IRB Infra Jaiprakash Asso Larsen & Toubro Mahindra Lifespace@ Orbit Corporation Pratibha Industries Punj Lloyd Unity Infraprojects 121.3 213.4 132.6 101.0 1,628.0 420.2 57.2 56.1 61.4 46.2 371.2 481.9 861.9 315.4 201.7 890.5 119.0 1,110.3 524.5 506.9 604.5 735.2 726.9 128.9 364.7 135.9 3,189.5 91.6 240.9 79.8 4,596.4 2,041.9 208.7 66.1 728.9 453.1 808.1 190.8 227.1 1,121.6 1,032.8 327.0 1,317.5 137.8 251.5 112.4 143.6 70.3 1,801.9 5,605.6 3,130.5 12,742.9 64,313.1 469.0 382.6 1,664.6 10,312.9 1,972.8 40,280.7 9,863.0 358,501.0 92.7 4,627.4 5,263.2 1,122.1 1,858.6 4,020.6 2,314.0 6,959.7 8,005.7 2,594.4 2,342.8 13,806.1 7,654.7 24,988.0 4,203.0 3,236.0 2,491.0 5,898.0 18,166.4 943.9 3,432.7 301.9 3,657.0 860.4 196.2 3,040.5 8,675.3 295.3 71,506.0 5,650.0 817.3 8,570.4 2,356.9 1,221.7 4,453.5 1,956.7 6,285.1 3,942.3 14,479.5 71,381.1 425.9 459.6 2,147.9 12,164.0 2,159.4 43,584.5 10,755.0 341,535.6 110.3 5,397.7 6,414.5 1,306.0 2,235.4 4,786.6 2,715.2 8,547.9 10,316.9 3,098.9 2,726.4 14,945.0 8,711.9 28,885.0 4,421.0 3,648.0 2,731.0 5,553.0 20,979.5 1,245.9 3,899.4 302.1 4,119.0 1,037.9 256.4 3,641.9 9,382.3 80,626.0 6,231.2 923.3 2,695.6 1,229.5 4,635.0 2,483.9 6,970.9 4,889.2 16,282.8 79,800.8 501.7 608.1 2,631.6 14,775.4 2,400.1 44,731.5 10,878.0 143.8 6,285.6 7,607.3 1,521.9 2,766.3 5,485.3 3,125.0 9,956.9 11,842.9 3,583.3 3,246.5 15,804.7 9,334.6 31,066.0 4,762.0 3,873.0 3,029.0 6,161.0 22,842.5 1,521.2 4,519.8 342.8 4,729.0 1,271.5 347.0 4,306.3 10,490.5 87,389.0 7,040.4 1,121.6 2,964.2 1,407.6 5,161.8 98.7 497.0 495.8 1,020.4 5,006.4 120.1 21.4 81.1 (150.0) 103.5 3,653.9 3,446.0 43.9 246.5 770.2 56.3 533.3 744.0 319.5 924.0 2,587.3 391.4 213.0 837.4 636.0 2,647.0 297.0 385.0 212.0 631.0 2,446.2 147.8 3.5 52.1 143.0 39.9 17.2 589.1 426.4 1,679.2 4,258.0 829.9 132.0 157.4 571.9 94.3 353.4 85.6 564.1 533.1 861.0 6,026.5 123.1 43.3 99.0 28.1 103.9 3,984.0 3,733.0 20,199.4 53.2 405.2 899.4 86.7 655.2 720.9 400.0 1,244.1 2,929.9 442.7 215.9 858.1 694.9 2,861.0 287.0 395.0 204.0 756.0 2,760.9 174.9 78.1 52.8 124.5 51.8 23.4 688.6 427.5 4,189.0 720.5 137.2 502.7 99.2 327.6 123.9 634.1 477.7 951.0 6,693.6 135.3 89.9 136.0 185.1 118.9 4,266.8 3,982.0 21,325.1 68.6 516.5 1,209.2 138.1 827.5 818.7 495.1 1,500.8 3,704.3 559.7 292.0 899.3 729.9 3,143.0 329.0 425.0 234.0 852.0 2,984.3 214.2 174.5 62.6 179.8 69.9 39.4 870.8 557.6 6,052.0 863.2 148.8 543.7 128.1 401.5 41.2 25.6 14.9 4.8 81.6 29.4 1.9 8.2 (4.5) 14.0 28.8 57.0 61.0 25.8 8.5 37.6 7.0 40.2 27.5 25.5 20.7 25.0 46.3 24.1 32.8 12.0 288.8 9.6 16.2 10.4 181.1 89.3 16.3 42.3 23.3 33.3 3.7 6.1 32.8 217.0 11.2 103.7 12.2 5.8 23.6 20.3 12.9 35.7 29.0 16.0 4.0 98.2 30.2 3.8 8.7 0.8 14.0 31.4 62.0 61.5 31.3 13.9 43.9 10.7 49.4 26.6 31.9 27.9 28.3 52.3 24.5 33.6 15.3 312.1 9.3 16.6 10.0 217.1 100.8 19.1 1.0 42.8 20.3 43.2 5.0 7.2 32.9 11.0 90.1 12.7 20.7 21.4 12.0 51.7 32.6 14.4 4.5 109.1 33.1 7.9 12.0 5.6 16.0 33.6 66.0 64.9 40.4 17.7 59.0 17.1 62.3 30.3 39.5 33.6 35.8 66.1 33.1 35.3 16.0 342.8 10.7 17.9 11.4 244.7 108.9 23.4 2.2 50.8 29.3 58.3 8.4 9.1 42.9 15.9 107.9 13.7 22.4 27.6 14.7 12 13 -2 -3 16 6 104 21 7 8 8 3 25 44 25 57 25 5 24 27 20 20 17 4 15 9 6 5 5 16 10 20 10 12 32 51 22 14 19 2 6 20% 17 7 2.9 8.3 8.9 21.1 20.0 14.3 30.1 6.8 -13.6 3.3 12.9 8.5 14.1 12.2 23.7 23.7 17.0 27.6 19.1 19.9 29.2 29.4 15.7 5.3 11.1 11.3 11.0 9.5 14.9 7.7 25.4 22.9 12.8 17.2 19.4 24.3 51.6 37.2 34.2 4.8 29.2 12.7 11.3 4.8 7.1 5.4 3.4 7.4 8.3 25.3 16.6 13.9 15.1 6.4 76.7 3.3 11.8 7.8 14.0 10.1 14.5 20.3 11.1 22.5 19.7 15.9 21.7 26.0 13.9 5.3 10.9 8.9 10.2 9.8 14.5 8.0 21.2 20.3 10.9 66.1 17.0 22.3 18.7 38.2 31.5 34.1 29.7 14.6 10.9 5.4 6.7 5.9 2.3 6.5 9.2 22.4 14.9 12.7 7.2 4.7 11.0 2.9 11.0 7.3 13.3 7.8 11.4 15.1 7.0 17.8 17.3 12.8 18.0 20.6 11.0 3.9 10.3 8.5 9.3 8.6 13.5 7.0 18.8 18.8 8.9 30.0 14.3 15.5 13.9 22.7 25.0 26.1 20.6 12.2 10.1 5.0 5.2 4.8 14.6 12.6 12.0 10.8 11.5 13.2 9.3 17.2 10.7 16.5 16.6 28.2 9.9 28.6 9.7 25.7 10.2 32.5 20.4 27.7 26.3 25.0 30.5 11.6 14.4 14.5 20.1 7.0 10.0 12.0 22.0 23.6 18.4 5.3 28.5 11.0 26.9 15.9 26.9 7.9 8.2 14.7 16.1 19.2 20.1 9.7 15.6 11.0 11.6 11.4 11.7 13.4 13.1 18.6 12.0 16.0 14.8 26.8 9.7 30.3 13.7 29.5 13.2 33.5 20.5 29.2 26.5 24.8 32.5 13.7 14.3 13.9 19.1 8.0 9.0 12.0 21.0 22.3 18.9 2.3 32.5 13.8 29.1 17.4 29.6 8.5 9.6 15.1 17.2 19.9 22.7 11.3 15.5 17.8 17.3 8.4 17.5 10.5 4.1 15.8 1.0 13.1 17.5 19.8 10.4 23.0 16.5 26.8 8.7 26.9 22.5 27.7 24.5 19.1 31.7 16.6 12.3 14.8 14.0 7.0 18.0 17.0 25.0 17.9 19.0 3.1 22.4 8.9 20.4 10.9 18.8 5.6 7.6 11.0 17.6 24.2 17.4 11.2 19.3 16.1 13.6 8.7 16.8 10.6 8.0 17.8 5.9 13.3 16.9 18.7 9.9 24.0 18.4 27.2 12.4 27.9 20.8 26.8 23.4 19.9 30.3 19.7 11.8 13.8 13.0 7.0 17.0 17.0 22.0 16.4 19.5 6.7 24.8 11.7 20.6 11.8 20.8 6.8 10.2 11.3 17.6 21.8 19.3 12.2 3.0 4.0 1.0 0.5 16.5 5.0 0.0 0.6 0.2 1.0 8.7 19.0 8.5 3.0 1.0 7.5 1.2 13.0 2.0 3.2 3.2 4.3 8.5 5.5 10.0 2.0 22.5 2.0 2.5 2.0 8.0 8.0 0.0 1.0 17.0 2.5 1.5 0.0 1.5 6.0 35.0 1.0 20.8 6.0 3.0 3.0 0.7 0.8 1.0 1.2 0.4 0.6 0.5 0.6 1.2 4.3 2.7 1.5 0.7 2.2 1.0 2.5 0.2 0.4 0.0 1.5 2.3 0.6 0.2 0.0 0.7 0.5 3.4 0.3 1.6 4.4 2.7 2.1 0.9 2.5 1.9 0.8 0.5 1.0 1.2 0.0 1.1 0.2 2.2 2.3 3.9 1.0 1.0
OIL & GAS

GAIL Oil India Reliance Ind Selan Exploration Tech
323,328.9 20,033.0
PHARMACEUTICALS
Aurobindo Pharma Cadila Healthcare Dishman Pharma Divi's Labs Glenmark Pharma Ipca Laboratories Lupin Sun Pharma Torrent Pharma
AGRI-INPUTS
Deepak Fert Tata Chemicals United Phosphorus
BUILDING MATERIALS
Grasim India Cements Madras Cements Orient Paper Shree Cement* UltraTech Cement Eros Intnl Media Indian Hotel Co KKCL Raymond Relaxo Footwear Speciality Restaurants Zee Entertainment Aditya Birla Nuvo Bajaj Holdings Bharti Airtel Bharat Electronics Gateway Distriparks Max India Opto Circuits India Ratnamani Metals Sintex Industries
DISCRETIONARY CONSUMPTION
DIVERSIFIED / MISCELLANEOUS
#UltraTech numbers are post merger of Samruddhi Cement.
*FY2012 is of 15 months, ending June 2012 as company has changed reporting year from FY to June end
48
January 2013
EARNINGS GUIDE
Remarks
EQUITY
FUNDAMENTALS
Automobiles Apollo Tyres Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. A strong demand in the OEM and replacement tyre segments coupled with the commencement of the additional capacity at its new Chennai plant is likely to see a healthy growth in its volume going forward. While the margins may improve on the back of the softening raw material prices, the QIP issue of $150 million for capacity expansion would lead to equity dilution of about 20% which may remain the key overhang. We maintain Hold recommendation with a revised price target of Rs102. Ashok Leyland, the second largest commercial vehicle (CV) manufacturer in India, is a pure CV play. The new greenfield facility in Pantnagar in Uttaranchal has provided strategic cost and diversification benefits. The company has ventured into LCV space with the launch of Dost together with Nissan and is witnessing significant ramp-up in volumes. It has also entered into construction equipment space in JV with John Deere. Bajaj Auto is a leading two-wheeler maker. It is moving up the value chain by concentrating on the executive and premium motorcycle segments. The launch of the new Pulsar and the KTM range would help it maintain its leadership in the premium bike segment as well as its domestic volume growth. Exports remain the key for the company to drive the overall volumes. M&M is a leading maker of tractors and utility vehicles in India. New product launches are likely to drive its growth going forward in the automobile segment while the company is witnessing a moderation in tractor demand. Associating with world majors in passenger cars and commercial vehicles has helped it diversify into various automobile segments. The value of its subsidiaries adds to its sum-of-the-parts valuation. Higher farm incomes, strong rural positioning, lower vulnerability to interest rates, pro-diesel policies and best diesel portfolio make M&M a proxy play on food inflation. Maruti Suzuki is Indias largest small carmaker. While the new Swift has seen unprecedented response from the market, there is considerable stress in its petrol portfolio. Recently the company successfully diversified into the MPV segment with the launch of Ertiga. Suzuki of Japan has also identified India as a manufacturing hub for small cars for its worldwide markets. Banks & Finance Allahabad Bank With a wide network of over 2,200 branches spread across India, Allahabad Bank enjoys a strong hold in north and east India. With an average RoA estimate of ~1% over FY2012-14E, coupled with a strong liability base, the bank is one of the stronger players among the public sector banks. Andhra Bank, with a wide network of over 1,700 branches across the country, has a strong presence in south India especially in Andhra Pradesh. Though it is trading at an attractive valuation, the concerns on asset quality front and political situation within the state could affect its operations. Axis bank continues to grow faster than the industry rate and is diversifying its book in favour of retail. Notably, the bank has maintained a delicate balance between balance sheet growth and profitability. Besides the core banking business, the bank has forayed into the asset management business and acquired the securities and investment banking business of Enam Securities. We expect the earnings growth to remain strong driven by a healthy operating performance. Bajaj Finserv is actively present in businesses such as vehicle finance, consumer finance, distribution etc, with insurance being the dominant contributor to its revenues. It is one of the few top players in the fast-growing life insurance segment and also has a sizeable presence in the general insurance segment. Its consumer finance business (Bajaj Finance) has shown a robust performance and is likely to boost the earning of Bajaj Finserv. Bank of Baroda is among the top public sector undertaking (PSU) banks having a sizeable overseas presence (93 offices in 24 countries) and a strong domestic network of over 3,900 branches across the country. It has a stronghold in the western and eastern parts of India. The banks performance metrics remain superior to other PSU banks. Bank of India has a network of over 4,000 branches, spread across the country and abroad, along with a diversified product and services portfolio, and steadily growing assets. The operating performance has weakened due to margin deteriorations. Further, the rising stress on asset quality and cautious growth outlook could impact the earnings growth. CanFin Homes is a housing finance company sponsored by Canara Bank. It was set up in 1987. It offers a range of products on housing, such as loans for home purchase, home construction, home improvement/extension and site purchase as well as non-housing finance. The company has 66 branches of which 65% are based in south India. The company has a loan book of over Rs3,000 crore. The companys renewed focus on growth and the recent aggressive expansion of its branch network have put it on a high growth path for the next few years. We believe the operational performance and return ratios of CanFin are improving, which should lead to a re-rating of the stock.
Ashok Leyland
Bajaj Auto
M&M
Maruti Suzuki
Andhra Bank
Axis Bank
Bajaj Finserv
Bank of Baroda
Bank of India
CanFin Homes
49
January 2013
EQUITY
FUNDAMENTALS
Remarks
EARNINGS GUIDE
Capital First
Capital First (the erstwhile Future Capital Holdings) has been acquired by the global private equity firm Warburg Pincus (70.3% stake). The present management has taken several initiatives to tap the high-growth retail product segments like gold loans, loan against property, and loan against shares. It has a strong capital adequacy ratio and a sound asset quality. Its loan book is expected to more than double to over Rs10,000 crore in the next three years. We believe the change in the ownership, the capital infusion and the ability to aggressively grow its loan book in the retail and the small and medium enterprise segments could result in the re-rating of the stock. Corporation Bank is a mid-sized PSU bank having a relatively higher presence in South India. The bank is predominantly exposed to the corporate segment constituting ~50% of its book. Due to a higher dependence on wholesale business and low current and savings account ratio, the margins operational performance lags to its peers. Federal Bank is the fifth largest private sector bank in India in terms of asset size and has traditionally been a strong player in south India, especially Kerala. Under the new management, the bank has taken several initiatives, which would improve the quality of earnings and asset book. HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. It has interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries are growing faster than HDFC, the value contributed by them would be significantly higher going forward. HDFC Bank was established in 1994 as part of the liberalisation of the Indian banking industry by the Reserve Bank of India (RBI). It was one of the first banks to receive an in-principle approval from the RBI to set up a private sector bank. Its relatively high margins (compared with its peers), strong branch network and better asset quality make HDFC Bank a safe bet. ICICI Bank is Indias largest private sector bank with a network of over 2,750 branches in India and a presence in around 18 countries. The bank has once again entered an expansionary mode after making a conscious effort to contract its advances book due to asset quality concerns. The bank offers substantial value unlocking opportunities from the insurance and securities businesses. IDBI Bank is one of leading public sector banks of India. The bank is gradually working towards improving its liability base and expanding the retail book, which is likely to reflect in the form of better margins and return ratios. Due to rising asset quality risks and slower business growth, the stock is likely to underperform in the near term. Punjab National Bank has one of the best deposit mixes in the banking space, with low-cost deposits constituting around 36% of its total deposits. This helps it to maintain one of the highest margins in the sector. A strong liability franchise and technology focus will help the bank to increase its core lending operations and fee income related-businesses. In view of the weakness in economy and relatively higher exposure to troubled sectors, the asset quality has come under stress. State Bank of India is the largest bank of India with loan assets of Rs9.5 lakh crore. The loan growth is likely to remain slightly subdued in FY2013 while the core operating performance will be healthy with a stable NIM. The successful merger of the associate banks and value unlocking from insurance business could provide further upside for the parent bank. The asset quality of the bank would remain a key monitorable. Union Bank has a strong branch network and an all-India presence. The bank aspires to become the largest retail bank. Hence, it has ramped up its manpower and infrastructure. However the banks earnings growth is likely to be subdued due to asset quality pressures. Yes Bank, a new generation private bank, started its operations in November 2004 and is the only greenfield bank approved by the RBI in the last decade. The bank is promoted by Rana Kapoor and Ashok Kapur. Yes Bank follows a unique business model based on knowledge banking, which offers product depth and a sustainable competitive edge over established banking players. Despite the adverse environment, the Bank has maintained a strong growth and impeccable asset quality. Consumer goods
Corp Bank
Federal Bank
HDFC
HDFC Bank
ICICI Bank
IDBI Bank
PNB
SBI
UBI
Yes Bank
Bajaj Corp
Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO) category with its Almond Drops hair oil. With its strong brand positioning, distribution strength and healthy balance sheet, it is well poised to ride on the strong consumer demand emerging due to the rising disposable income and growing aspirations of the Indians. Any initiative to expand its limited product portfolio or strengthen its core business would be the key upside trigger for the stock. GSK is a leading player in the MFD segment with a close to 70% share in the domestic market. Judicious new launches and brand extensions, and the expansion of its distribution reach have helped GSK to stay ahead of the competition and maintain its pricing power over the years. In a bid to de-risk its business model, GSK has expanded its product portfolio by entering into new categories such as biscuits, noodles, energy bars, sports drinks and oats in the recent years. With cash balance of Rs1,350 crore the company can invest in growth initiatives as well as reward its investors with a healthy dividend payment. The recent open offer by the promoter acted as an additional trigger for the stock, which remained firm on the bourses. We maintain our Buy recommendation on the stock.
GSK Consumers
50
January 2013
EARNINGS GUIDE
Remarks
EQUITY
FUNDAMENTALS
GCPL
Godrej Consumer Products Ltd (GCPL) is a major player in personal wash, hair colour and household insecticide market segments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies have helped the company to expand its geographic footprint. We believe the decent sales volume growth in the domestic business coupled with a strong growth in the Indonesian, African and Argentine businesses would help GCPL to achieve an above 20% CAGR top line and bottom line growth over FY2012-14. HUL is Indias largest FMCG company. It would achieve around 17% Y-o-Y top line growth driven by a mix of sales volume and a price-led growth. However, the volatile input prices are likely to sustain the pressure on the profitability in the near term. Overall, we expect HULs bottom line to grow at a CAGR of 19% over FY2012-14. In the long term, HUL will be one of the key beneficiaries of the Indian consumerism story. ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, to strengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses some of which are at a nascent stage. Thus, we believe the company will deliver a sustained and steady growth in coming years. Marico is among Indias leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footing in the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of new product categories (especially in the beauty and wellness space) and growth through acquisitions. While the domestic product portfolio is likely to achieve a steady growth in volumes, the international business is expected to post a robust growth on the back of an increase in distribution to neighbouring countries and extension of its international product portfolio over the long run. Mcleod Russel is the worlds largest tea producer with an annual tea production of close to 100 million kg. With tea estates in India and Africa, it is well poised to take advantage of the current favourable global demand-supply scenario. With the expectations of a substantial improvement in its sales realisation and a volume growth in mid to high single digits (in the domestic market and the international subsidiaries), the companys consolidated top line and earnings are expected to grow at CAGR of 14% each over FY2012-14. Over the past few years, TGBL (formerly Tata Tea) has transformed its focus from being a mere tea and coffee company to a complete beverage maker. The recent addition of Mount Everest mineral water to its product portfolio and its tie-up with Pepsico Inc to make a mark in the non-carbonated beverage space are likely to be the new growth drivers in the long run. Also, its JV with Starbucks would help it to explore opportunities in the coffee retailing space. Its intention to acquire companies in the USA, Europe and Russia also augurs well and will enhance its geographical footprint. Zydus Wellness owns three high-growth brands, Nutralite, Sugar Free and Ever Yuth, in the niche health and wellness segment. The company focuses on rampant growth by increasing the distribution of the existing products, scaling up the existing product portfolio through variants and new product launches leveraging the three brands. However the company is facing intense competition in some of its key categories which led to a muted performance in FY2012. IT/IT services
HUL
ITC
Marico
Mcleod Russel
TGBL
Zydus Wellness
AGC Networks
AGC Networks (formerly known as Avaya Global Connect) has transformed its business from a single-solution, single-partner (Avaya) relationship into a diversified business with multi-level global partners to significantly multiply the addressable market and growth opportunities in its focus area of IT network infrastructure and related services. Going forward, on the back of diversified offerings and a wider client base, we estimate an over 35% CAGR in its earnings over FY2012-14 with a 33% revenue CAGR over the same period. Over the years, CMC has gradually transformed itself from a low-margin equipment provider into a well-diversified IT services and solutions provider. Its joint-go-to-market strategy with TCS is also playing a big role in the business transformation, with CMC gaining a strong traction in the international markets. We believe CMC has already set the stage for the next level of growth and is likely to witness a much stronger growth in the coming years. HCL Tech is one of the leading Indian IT service vendors. It has performed better than its peers in terms of better financial performance in the past few quarters on the back of a ramp-up in business from large deals bagged earlier. It continues to demonstrate strong growth visibility with a robust deals backlog and successful execution with market share gains strategy through vendor churns/consolidation. We remain positive on the company and expect the valuation discount to Infosys to reduce on the back of its order wins and superior earnings visibility. Infosys is India's premier IT and IT-enabled services company. Once a bellwether, the company over the last few quarters has reported disappointing financial performance due to company-specific issues and the overall demand environment. The company has given a very sluggish outlook for FY2013, much lower than the Nasscoms expectation. Though the stock has corrected but we do not see any major upside trigger for the stock in the near to medium term.
CMC
HCL Tech
Infosys
51
January 2013
EQUITY
FUNDAMENTALS
Remarks
EARNINGS GUIDE
NIIT Tech
With its strong domain expertise in a few niche verticals and competitive advantage in terms of significant contribution from its non-linear initiatives, NIIT Tech is well placed to benefit from the overall improvement in the demand environment. The recent large deal wins give further revenue visibility for the future. However of late, the company is facing delays in one of its large deals and sluggish demand in two of its industry verticals. We expect the stock to underperform in the medium term. Persistent Systems has proven expertise in the OPD space, a strong presence in the newer technologies, strength to improve its IP base and the best-in-the-class margin profile, which set it apart from the other mid-cap IT companies. The IP-led revenue strategy of the company has started to bear some fruits. Going forward, the management is aiming to earn 20% of its revenues from the non-linear space in the next three to four years. This, we believe, will differentiate the company from the rest and help improve its margin in the coming years. Polaris Financial is one of the few integrated mid-cap IT companies having a strong foothold in the BFSI vertical and offerings in both the services and the solutions segment. We remain positive on the Intellect side of the business and expect a faster and stronger growth momentum in the coming years which would improve the margins as well. TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. It is a leader in most service offerings and has further consolidated its leadership through the inorganic route. TCS with a strong base is well placed to garner incremental deals across sectors. Its consistent quarterly performance (better than peers) coupled with the higher predictability of its earnings would keep it the Streets favourite over Infosys. Wipro is one of the leading Indian IT service companies. It has lagged the other IT biggies in terms of performance. In the medium term we expect Wipro to demonstrate a relatively weaker earnings growth as it gets back on its feet post-organisational restructuring. The de-merger of the non-IT business will give the stock near-term stability. Overall, we expect Wipros performance to lag that of its peers. Capital goods/Power
Persistent
Polaris
TCS
Wipro
BHEL
BHEL, Indias biggest power equipment manufacturer, has been the prime beneficiary of the multi-fold increase in the investments made in the domestic power sector over the last few years. The current order book of Rs122,300 crore stands at around 2.6x its FY2012 revenues providing revenue visibility for at least the next two to three years. However, the key challenge before the company now would be to maintain a robust order inflow amid rising competition in the power equipment space and a profitable execution of the order book. CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) which is a strong cash generating business. Further, it is adding 1,200MW of generation capacity which would be on stream by FY2015. Moreover, CESC has a high degree of integrated status among peers. Despite that, the stock is currently one of the cheapest in the Indian utility space, trading at a discount to its book value primarily on account of the concerns related to the losses from its retail business, Spencers. However, the retail business has started exhibiting a store-level profit in FY2011, which is a sign of revival as per the management. Nevertheless, the recent step by the company to acquire a majority stake in First Source would be an unrelated diversification (also BPO is not a high-growth area in our view) in a time where the company itself needs large cash to fund projects in the core area (power). Consequently, we revise our rating from Buy to Hold and downgrade the price target from Rs405 to Rs355. Crompton Greaves key businessesindustrial and power systemshold a huge potential in view of the investment opportunities in the domestic infrastructure sector, particularly the transmission and distribution sector. Its consumer products segment, which has done very well in the recent years, also allows it to diversify its business. The synergy from the acquisition of the ZIV Group, Pauwels, GTV, Microsol, Emotron and QEI will drive the companys consolidated earnings. However, the continuing disappointment in the recent quarterly results due to losses from the Belgian restructuring has added to the investors concerns over the slowdown and competitive margin pressure faced by the company. Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrol engines, power gensets, agro engines and pumpsets (engine segment) and construction equipment (infrastructure equipment segment). The engine business accounts for ~85% of its revenue while the rest comes from infrastructure equipment. We maintain Hold recommendation on the stock with price target of Rs86. Kalpataru Power is a leading EPC player in the transmission & distribution space in India. Opportunities in this space are likely to grow significantly, thereby providing healthy growth visibility (also current order book is 2x its FY12 sales). The OPM of the stand-alone business is likely to remain around 10%. JMC Projects (subsidiary) is experiencing margin pressure which would affect the overall margin and return ratios of the company. However, on low valuation, we retain our Buy rating with a price target of Rs125.
CESC
Crompton Greaves
Greaves Cotton
Kalpataru
52
January 2013
EARNINGS GUIDE
Remarks
EQUITY
FUNDAMENTALS
PTC India
PTC India is a leading power trading company in India with a market share of 33% in FY2012 in the short-term trading market. In the last few years, the company has made substantial investments in areas like power project financing, coal trading and power tolling which have growth potential in the future. While the poor financial health of the state electricity boards (SEBs) has elongated its working capital cycle, the recent policy push for the SEB debt restructuring programme has eased the payment delay concerns. Its valuations continue to look attractive on a sum-of-the-parts basis. The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Incs capex. Thermax group book stands at Rs4,984 crore, which is 0.95x its FY2012 consolidated revenues. This provides limited revenue visibility. Its super-critical boiler foray has yet to see some major order inflow. V-Guard is an established brand in the electrical and household goods space, particularly in South India. Over the years, it has successfully ramped up its operation and network to become a multi-product company. It has recently also forayed into non-south India and is particularly focusing on the tier-II and III cities where there is a lot of pent-up demand for its products. We expect a CAGR of 38% in its earnings over FY2012-14E. Infrastructure/Real estate
Thermax
V Guard Ind
Gayatri Proj
Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road and industrial construction businesses. The order book stands at Rs9,400 crore, which is 5.2x its FY2012 revenues. It is also expanding its power and road BOT portfolio and plans to unlock value by offloading stake to private equity. The company has potential to transform itself into a bigger player and we expect its net profit to grow at a CAGR of 15% over FY2012-14. ITNL is Indias largest player in the BOT road segment with a pan-India presence and a diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with the geographical diversification across 12 states reduce the risk to a large extent and provide comfort. Further, a strong pedigree along with the outsourcing of civil construction activity helps ITNL to scale up its portfolio faster. Thus, it is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector. IRB is the largest toll road BOT player in India and the second largest BOT operator in the country with all its projects being toll based. It has an integrated business model with an in-house construction arm which provides a competitive advantage in bidding for the larger projects and captures the entire value from the BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-free and it has presence in high-growth corridors which provides healthy cash flow. Thus, IRB is well poised to benefit from the huge opportunity in the road development projects on the back of its proven execution capability and the scale of its operations. Jaiprakash Associates, Indias leading cement and construction company, is all set to reap the benefits of Indias infrastructure spending. The company has also monetised very well on the real estate properties of Yamuna Expressway. The marked improvement in the macro environment has improved accessibility to capital and thus eased the concerns of liquidity to some extent. However, higher leverage could act as drag on the valuation. Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of the domestic infrastructure capex cycle. Strong potential from its international business, its sound execution track record, bulging order book and strong performance of subsidiaries further reinforce our faith in it. There also lies a great growth potential in some of its new initiatives. Mahindra Lifespace is the first in India to own two integrated business cities (IBC; a combination of SEZ and domestic area): one in Chennai and the other in Jaipur. Both have become operational. It has acquired land at Pune and Chennai to come up with two more IBCs. Apart from this, it has 3.77mn sq ft of residential and commercial projects under construction across various cities and an additional land bank of 18.57mn sq ft for future development. Consequently, its stand-alone net profit should grow at a CAGR of 6% over FY2012-14. Given its unique business model, Orbit is expected to cash on in the massive re-development opportunities in southern and central Mumbai. Given its presence in the luxury segment, which is less price sensitive, it will be able to revive faster once the real estate industry recovers. Pratibha Industries is a dominant player in water & irrigation and urban infrastructure segments. It has also diversified into other high-margin areas like road BOT, power and oil & gas. The current order book stands at Rs6,150 crore, which is 3.6x its FY2012 revenues. Given the governments thrust on developing these segments, we expect the net profit to grow at a CAGR of 29% over FY2012-14. The company is looking at expanding into the structural manufacturing business instead of the HSAW pipe manufacturing business (which has been an overhang for the past one year). This will improve the balance sheet and profitability.
IL&FS Trans
IRB Infra
Jaiprakash Asso
L&T
Mahindra Lifespace
Orbit Corp
Pratibha Ind
53
January 2013
EQUITY
FUNDAMENTALS
Remarks
EARNINGS GUIDE
Punj Lloyd
Punj Lloyd is the second largest EPC player in the country (first being Larsen & Toubro) with a global presence. However, since FY2009, the profitability has come under severe pressure due to cost overruns/ liquidated damages in some of Simon Carves (subsidiary) projects. Thus it has put Simon Carves under administration. Further Libyan projects will take another few quarters to begin execution. Therefore, the successful execution of its projects along with debt reduction and working capital management will drive its growth as it enjoys a robust order book. With a well-diversified order book, Unity Infrastructure is expected to be the key beneficiary of the governments thrust on infrastructure spending. The order book remains strong at Rs4,180 crore, which is 2.1x its FY2012 revenues. We expect its net profit to post a CAGR of 19% on the back of a strong order book during FY2012-14. Further, it has recently forayed into the road BOT segment and has three BOT projects under its kitty. Oil & gas GAIL India, a leading gas transmission company, is aggressively expanding its pipeline network and plans to invest more than Rs28,000 crore over FY2011-14 in a phased manner to significantly expand its gas pipeline network to over 14,000km and its transmission capacity to around 300mmscmd. On account of lower domestic gas production, we expect a subdued performance from its core gas transmission business in the next couple of years. However, the LNG trading business is likely to see an uptick in the same period. Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India. The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 505 million barrels (mmbbls) and 944mmbbls respectively as on March 2011. In addition to the huge oil reserves, the companys reservereplacement ratio is quite healthy at 1.42x which implies a comfortable level of accretion of oil reserves through new discoveries. Further it has cash of around Rs10,935 crore (Rs182 per share) as on March 2012 and offers healthy dividend pay-out (divident yield of 4.3%) which provides comfort to investors. RIL holds a great promise in E&P business with gas production from the KG basin starting from April 2009 and crude oil production commencing from September 2008. We expect the companys GRM to pick up with a likely improvement in the light-heavy crude oil price differential. The company is likely to fetch a premium over Singapore Complex GRM due to its superior refinery complexity and captive use of KG-D6 gas. We expect the petrochem margins to be maintained in the medium term on an uptick in the domestic demand. Currently the decline in gas output from the KG-D6 basin is weighing on the stock price. Selan is an oil exploration & production company with five oil fields in the oil-rich Cambay Basin of Gujarat. The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production. Further, it intends to explore its next field, Indrora, which is the most prolific one with significant reserves. Based on this, we expect it to ramp up production significantly, subject to approval for the new wells. However, due to delay in regulatory approvals, we have cut our production and earnings estimates. Nevertheless, our revised earnings estimates are likely to grow by 25% (CAGR over FY12-14). Hence, we retain our Buy rating on the stock with price target of Rs360. Pharmaceuticals
Unity Infra
GAIL
Oil India
Reliance Ind
Selan Exploration
Aurobindo Pharma
Aurobindo Pharma is set to rebound on the back of the Us Food and Drug Administration (USFDA) clearing two of its manufacturing facilities (including one greenfield facility), which will help Aurobindo Pharma to ramp-up its product list in the USA, thanks to a strong product pipeline built over a period. Although, its cephalosporin plant (Unit-VI) continues to await the USFDA clearance, a positive outcome could bring in incremental revenues of $25-30 million. With the expected increase in the export-led business after resolution of the USFDA issues, the favourable tilt in the revenue mix is likely to boost the margin, resulting in a relatively much better growth in earnings as compared with revenues. We expect the revenues and net profit to grow at a CAGR of 16% and 51% over FY2012-15 respectively. We initiate coverage on the stock with a Buy call and price target of Rs247. Cadilas improving performance in the US generic vertical and emerging markets along with steady progress in the CRAMS space (through JVs) will help it achieve its target of generating revenues of $3 billion by 2015. It acquired three entities in FY2012, namely Nesher Pharma (USA), Bremer Pharma (Germany) and Biochem Pharma (India) which should supplement the growth. It has got USFDAs clearance for its Moraiya plant, which removes one of the vital concerns for the company. However, the imposition of a new tax (Budget 2013) on partnership based units in Sikkim would be drag the earnings. Dishman Pharmaceutical and Chemicals is a key player engaged in CRAMS and specialty chemical businesses. The company has invested heavily over the past four years (over Rs1,000 crore capex during FY08-11) to establish a strong foothold in the CRAMS, API and vitamin-D businesses. After witnessing four years of sluggish performance due to a global slowdown (that affected the CRAMS business) and heavy capex (that resulted in a sharp rise in the fixed costs), the company is all set to record a strong operating performance on the back of enhanced capacities, the up cycle in the CRAMS business and a substantial reduction in the debt/equity ratio due to stronger free cash flow. We initiate coverage on the stock with a Buy call and price target of Rs135.
Cadila
Dishman Pharma
54
January 2013
EARNINGS GUIDE
Remarks
EQUITY
FUNDAMENTALS
Divis Labs
The H1FY2013 performance has re-affirmed our confidence in Divis Laboratories growth potential. The new DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for the company as it would improve economies of scale and lead to tax benefits. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuing strategic investments (biosimilars) and exploit the growth opportunities in niche segments, like oncology and steroids for contraceptives. Glenmark exhibited an impressive operating performance during H1FY2013 in the core business on key generic launches, but for higher research and development expenses and tax payments, which restricted profit growth. Through the successful development and out-licencing of six molecules in a short span of eight years, Glenmark has become Indias best play on research-led innovation. It has built a pipeline of 14 molecules and clinched six out-licencing deals worth $1,672 million (active deals worth $938). It has received $200 million as initial milestone payment. Its core business has seen stupendous success due to its focus on niche specialties. Ipca has successfully capitalised on its inherent strength in producing low-cost drugs to tap the export markets. Its ongoing efforts in the branded formulations business in the emerging economies, the revival in the UK operations, the pan-European initiatives, the likely approval of one additional product under institutional business and a significant scale-up in the US business will drive its formulation exports. It has received USFDAs approval for the Indore SEZ which would help ramp up the sales in the USA. The expected ramp-up in the launch of oral contraceptives, ophthalmic products and a robust pipeline of new launches in the domestic and overseas markets provide strong growth visibility for Lupin. Further, with an expanded field force and therapy focused marketing division, its formulation business in the domestic market has been performing better than the industry. The deal with Eli-Lilly to distribute human insulin would open an incremental revenue stream for Lupin in the Indian market. The combination of Sun Pharma and Taro offers an excellent business model. With a stronghold in the domestic formulation market, Sun Pharma has become an aggressive participant in the Para IV patent challenge space. The recent acquisition of DUSA Pharma in the USA is a strategic fit and is likely to complement the products of Taro. Recently, the USFDA cleared its Caraco plants which can gradually ramp up production and regain market share in the USA.. However, the imposition of new tax (Budget 2013) on partnership-based units in Sikkim would be a drag on earnings. A well-known name in the domestic formulation market, Torrent has been investing in expanding its international presence. With the investment phase now over, Torrent should start gaining from its international operations in Russia and Brazil. The impending turnaround of its German acquisition, Heumann, will also drive its profitability. However, the imposition of new tax (Budget 2013) on partnership-based units in Sikkim would be a drag on earnings. Agri-Inputs
Glenmark Pharma
Ipca Lab
Lupin
Sun Pharma
Torrent Pharma
Deepak Fert
DFPCL manufactures and supplies industrial chemicals and ANP fertilisers. Given the expansion in TAN capacity, introduction of new products in the fertiliser division and ability to manage cost pressures, we expect the company to report a good growth in revenue on the back of good volumes from the fertiliser segment. Going forward, the company may see pressure on margin due to an increase in the price of the key inputs for the chemical segment. With a combined capacity of 5.5mmtpa Tata Chemicals is the second largest soda ash producer in the world. It has purchased 25% stake in urea-ammonia green field project at Goban with investment of $290 million. Further changes in urea policy are likely to benefit the company further. IMACID is expected to show a strong performance on the back of a steep increase in the price of phosphoric acid, the main raw material for the production of DAP. The company is expected to show a strong performance on the back of a relatively healthy demand for soda ash and sodium bicarbonate in India compared with the rest of the world. A leading global producer of crop protection products, intermediates, specialty chemicals and other industrial chemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to crop protection products and post-harvest activities. A diversified geography and the recent acquisition of DVA Agro Brazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. It has reduced its revenue growth guidance for FY2013 (earlier 20-25% revenue growth guidance) due to the rough weather condition in different geographies. It expects a revenue growth of 15% for the year 2012-13 and will maintain 18-20% EBIDTA margin. Building materials
Tata Chemicals
United Phos
Grasim
Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet, comfortable debt/equity ratio (0.33x FY2012), attractive valuation and diversified business. The demand for VSF products remains strong in the global market and Grasim being a leading domestic player is well placed to capture the incremental demand. The company is in the process of adding another 120,000 tonne capacity in VSF by FY2013 at an investment of Rs1,690 crore.
55
January 2013
EQUITY
FUNDAMENTALS
Remarks
EARNINGS GUIDE
India Cements
India Cements installed capacity has got enhanced to 16MTPA which will result in volume growth and drive the earnings of the company. The company is also setting up a 100MW captive power plant, which is expected to come on stream by FY2013 and benefit the company in terms of coast saving. Further we believe avg. cement realisation of the company in FY13 to remain higher as compared to avg realisation of FY12. Madras Cement, one of the most cost-efficient cement producers in India, will benefit from the capacity addition carried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-needed volume growth in the future. The regional demand remains lacklustre but on account of the improvement in the realisation due to supply discipline and a likely change in the market mix its profitability will improve (marginally) in FY2013. Orient Paper has increased its cement capacity from 3.4mtpa to 5mtpa and installed a 50MW captive power plant to save on power cost. It will be able to deliver a better volume growth over FY2012-14 due to the commissioning of its new capacity and change in its market mix in favour of the western region compared with the southern region. It is also in the process of demerging its cement division which could unlock value. Shree Cements cement grinding capacity has grown to 13.5mtpa which will support its volume growth in the coming years. It has set up 300MW power plant entirely for merchant sale which is expected to support its revenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruing from the sale of surplus power will drive the earnings of the company. UltraTech is Indias largest cement company with approximately 52 million tonne cement capacity. It has benefited from an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing from the new captive power plants will improve the companys cost efficiency. Discretionary consumption
Madras Cement
Orient Paper
Shree Cement
UltraTech Cement
Eros Intl Media
Eros is one of the largest integrated film studios in India with multi-platform revenue streams and a well-established distribution network across the globe. With its proven track record, de-risked business model and aggressive ramp-up plans, we believe the company is well poised to gain from the rising discretionary spending on film entertainment driven by the countrys favourable demographics. Thus, EIML is a compelling value play on the Indian media and entertainment industry. Indian Hotels is the largest hotelier in India with a vast portfolio of hotel properties around the globe. Over the long term the company would benefit from the increase in tourism and corporate travel in India. Also, a turnaround in profitability of its overseas properties would boost its earnings.
Indian Hotels Co
KKCL
Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, has created a niche space in the minds of consumers. With a gross market turnover of over Rs300 crore, Killer is ahead of its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled with a robust balance sheet position (cash on books at ~Rs110 per share) put it in a sweet spot. Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. With the growing income, rise in aspirations to lead a luxurious life, greater discretionary spending and favourable demographics, the segment of branded apparels & fabrics presents a tremendous growth opportunity and Raymond with its brands and superior distribution set-up is very well geared to encash the same. The companys efforts to enhance focus on its power brands coupled with the benefits of a turnaround are not getting reflected in the valuations. Hence the stock is due for a re-rating. Any development with regard to the Thane land in the form of either joint development or disposal would lead to value unlocking and provide significant cash to the company. Relaxo is present in the fast-growing footwear category, wherein it caters to customers with its four top-of-themind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investment opportunity due to its growing scale, strong brand positioning and healthy financial performance. However, considering the recent upmove in the stock price, we believe the stock offers limited upside. Therefore, we have revised our recommendation on the stock to Hold with a price target of Rs885. Speciality Restaurants is a leading player in the fine-dining space with a portfolio of well-established brands such as Mainland China and Oh! Calcutta in its kitty. The company is a good proxy on the Indian consumption story as several factors such as demographics, increasing disposable income and the trend of nuclear families are playing in its favour.
Raymond
Relaxo Footwear
Speciality Rest.
56
January 2013
EARNINGS GUIDE
Remarks
EQUITY
FUNDAMENTALS
Zee Entertainment
Zee Entertainment Enterprises, part of the Essel group, is one of India's leading TV media and entertainment companies. It has a bouquet of 32 channels across Hindi, regional, sports and lifestyle genres. It is best placed to benefit from the digital addressable system regime rolled out by the government. Zee TV, its flagship channel, has gained viewership share and is at the second or close second position in the viewership share. Over FY2012-15, we expect its subscription revenues to grow at a CAGR of 25% and advertising revenues to grow at a CAGR of 17%. Diversified/Miscellaneous
Aditya Birla Nuvo
We like the strong positioning that ABNs businesses enjoy in their respective fields. ABN is amongst the top five players in the insurance, asset management and telecom (Idea Cellular is the fastest growing telecom company, third in ranking) segments. Madura Garments, with its marquee brands, and consistent and resilient growth, is a profitable set-up. We believe in the improving macro environment ABN would be well placed to grow. Bajaj Holdings is the holding company of the Bajaj group, having a 30% stake each in Bajaj Auto and Bajaj Finserv. The two-wheeler sales are expected to improve going forward with new product launches. The insurance business makes it one of the largest players in the insurance space. Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industry as well as the company focusing on the quality of revenues rather than volume, better times can be expected ahead for the sector and hence the company. The African business is also showing some signs of improvement which augurs well for the company. Overall, we maintain a cautiously optimistic view on the company. Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, is benefiting from the enhanced budgetary outlay for strengthening and modernising the countrys security. The growth in revenue is also expected to be aided by the civilian and export orders. The companys current order book of Rs25,748 crore provides revenue visibility for the next three to four years. The huge cash reserve would support the stock. With its dominant presence in the container freight station segment and recent forays into the rail freight and cold chain businesses, GDL has evolved as an integrated logistic player. Its CFS business is a cash cow while its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largest players in the CFS business and has also evolved as the largest player in the rail freight business as well as the cold storage business. The proposed capex for all the three segments will strengthen its presence in each of the segments and increase its panIndia presence. We expect GDLs revenue and net profit to grow at 22% and 13% CAGR respectively over FY2012-14. Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insurance and healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sector players, has gained the critical mass and enjoys some of the best operating parameters in the industry. With insurance penetration picking up in India and with the company entering into a tie-up with Axis Bank, we expect to see a healthy growth in the companys annual premium equivalent going ahead. As the company has turned profitable on a consolidated basis and also has treasury corpus of Rs860 crore, it plans to announce a dividend in FY13 and continue it in future. Having a strong presence in organ monitoring systems, Opto Circuits has diversified into the invasive space, supplying stents for medical use. Besides, the Criticare acquisition has further enabled it to diversify into gas monitoring system and strengthen its position in the USA. The quick turnaround in the recently acquired Cardiac Lifescience is impressive and would drive the future growth. However, the recent downgrade by ICRA due to Rs584 crore worth of working capital debts and other balance sheet concerns (like long working capital cycle and high debt/equity ratio) prompts us to change the rating to Hold and keep the price target under review. Ratnamani Metals is the largest stainless steel tube and pipe maker in India. In spite of the challenging business environment due to increasing competition, the stock is attractively valued. The management has maintained a strong outlook on the potential opportunities in the oil & gas sector. It has reported strong revenue growth but margins have been trending downwards. Going ahead, we expect the revenue growth to pick up in the later part of H2FY2013 with stable margins. A key player in the plastic specialties space, Sintex Industries has a diverse business model with presence in construction, prefabs, custom moulding and textile businesses. However, a challenging economic environment has slowed down the growth of its monolithic business leading to a low order book. We maintain a cautious stance on the company.
Bajaj Holdings
Bharti Airtel
BEL
GDL
Max India
Opto Circuits
Ratnamani Metals
Sintex Industries
57
January 2013
47
January 2013
January 2013
48
49
January 2013
January 2013
50
51
January 2013
January 2013
52
53
January 2013
January 2013
54
55
January 2013
January 2013
56

ValueGuide Jan2013

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

ValueGuide Jan2013

Hochgeladen von

Copyright:

Verfügbare Formate

Value Guide

January 2013 For Private Circulation only www.sharekhan.com

Difference between 2008 and 2013

From Sharekhans Desk

Top MF Picks (equity) Top SIP Fund Picks

TECHNICALS USD-INR EUR-INR

Hold Buy Buy Hold Buy Hold Buy Hold Hold

256.0 3900.0 796.0 540.0 324.0 ** 381.0 169.0 534.0

Buy Buy Buy Hold Hold Buy Buy Hold Hold

235.0 1551.0 700.0 2440.0 280.0 600.0 163.0 1364.0 **

Hold Hold Hold Hold Buy Buy Reduce Hold

250.0 355.0 ** 86.0 125.0 82.0 588.0 540.0

STOCK IDEAS STANDING (AS ON JANUARY 04, 2013)

# Price target adjusted for the bonus issue

** Price target under review

*** Price target adjusted for the demerger

REPORT CARD: STOCK IDEAS BOOKED

COMPANY Provogue India*

* Including value of Prozone shares, investors have not lost money.

FROM SHAREKHANS DESK

from sharekhans desk

Difference between 2008 and 2013

JANUARY 03, 2013

2013: Volatility to rule again

Source: Bloomberg, Sharekhan research

10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

Sens ex returns (LHS)

GDP grow th (RHS)

250% 200% 150% 100% 50% 0% -50%

11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0%

1 year avg return

Sensex returns BSE Auto returns

Bankex returns Repo rate

#3. It is practically impossible to time the market for long-term investments.

30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

Electoral considerations could overshadow policy matters

22.9% 12.9% 10.7% 9.3%

Monetary easing by RBI on the anvil

Slower growth rates to persist in global economy

CONSENSUS FY2014 SENSEX EARNINGS (EPS) ESTIMATES

US new home sales (in '000)

Corporate earnings may recover gradually

Market may remain volatile

EQUITY SHAREKHAN TOP PICKS

SHAREKHAN TOP PICKS

Sharekhan Top Picks

ABSOLUTE OUTPERFORMANCE (RETURNS IN %)

CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS IN %)

SHAREKHAN TOP PICKS

CANFIN HOMES Remarks:

DISHMAN PHARMA Remarks:

SHAREKHAN TOP PICKS

FEDERAL BANK Remarks:

ICICI BANK Remarks:

LARSEN & TOUBRO Remarks:

SHAREKHAN TOP PICKS

RELAXO FOOTWEARS Remarks:

ZEE ENTERTAINMENT Remarks:

DECEMBER 20, 2012

Public and others 10%

Non-promoter corporate 6% Institutions 17% Foreign 13%

JANUARY 02, 2013

Leveraging on its new-found pedigree