Sensex: 12,389

India Strategy
Nandan Chakraborty
Head Research
nandan@enam.com
(+91 22 6754 7601)

What can surprise?

Sachchidanand Shukla
Economist
sachins@enam.com
(+91 22 6754 7648)

5 October, 2006
1

Investment Summary

Bottom-up exercise conducted for Enam-covered

stocks to scan major surprise potential (+/-) on
P/E or EPS on a 3 year horizon
Additionally, database provides implied EPS growth
HURDLE rate to get a 50% stock price appreciation
in 3 years, at reasonably expected FY10 P/E
Strategy Recommendation:

Near term: Near-Prospects priced-in. Avoid yearend Momentum trap

Bottom-up: Evaluate risk-return trade-off of long
term surprise potential in each stock
Long term: India is now a 1 step back/ TWO steps
forward story !

India safest haven in

global slowdown

SEZs (& Manufactg)

take off

Infra in ports, rail

corridors, roads

Rural initiatives
Oil finds in KG Basin
Liquidity burgeons

P/E
surprise

ST worries (eg markets priced for perfection, oil

rebound, politics etc.) remain, but cant reverse LT
India story

Surprise potential for Sensex

Leading indicators strong, consumption & business

cycle on upswing. Robust capex driven by need, not
only ambition. Lower oil/ commodity prices and
INR appreciation bode well

UP elections in Feb 07 could signal end of

populist pressures, either way*
Dom Cyclical over-heating
& Interest rates rise

US/ Global slowdown

Oil prices rise again
Domestic paper supply
~USD5bn

INR appreciation
Lower oil/ commodity
prices (if due to global
demand slowdown,
affecting global equity
sentiments)
US takes off, cornering
global equity funds

EPS surprise

* Main opp to Cong policies is WITHIN UPA Govt. If Cong does badly= atleast
end of election pressure for current populist policy. If v well= bid for gen
elections= ST worry, but chance of removal of opposition WITHIN Govt

Sensex valuations at 12,389

EPS (Rs.)

PE (x)

EPS Gwth (%)

FY07E

685

18

33

FY08E

803

15

17

All figures float adjusted ; RCOM replaced Tata Power in Sensex

Domestic interest rates: Main risk at this juncture

WPI remains <5%, but CPI on the rise
Money supply growth high at 19% and Bank credit at 30%+

Consumer prices remain high

10
8

(%)

6
4
2
0
Sep-03
Nov-03
Jan-04
Mar-04
May-04
Jul-04
Sep-04
Nov-04
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06

Private sector credit risen from 34% to 54% of GDP

Corporate capex: Largely insensitive to interest rates up to 100
bps, as Capex driven by demand and healthy internal accruals

Auto (7% of Sensex): EMI increase minimal and hence demand

effect unlikely
Banking (17%): Could impact reported earnings, as banks still
highly G-Sec-leveraged: Valuations reflect this fear

Cement (5%): Housing demand fall likely to be offset by noninterest rate sensitive commercial and infra segments

40

CPI-UNME

Robust credit growth

(%)

30
20
10
0

SCBs non-food credit (YoY)

M3 (YoY)

Real interest rates

4
(%)
3
2
1
0
(1)
(2)
(3)

May-03
Aug-03
Nov-03
Feb-04
May-04
Aug-04
Nov-04
Feb-05
May-05
Aug-05
Nov-05
Feb-06
May-06
Aug-06

50

CPI-IW

Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06

Interest rate sensitive sectors: (~29% of Sensex)

WPI

Source: Bloomberg

Upto 50 bps increase, interest rates not a big worry

3

Bottom up exercise: Methodology

SURPRISE POTENTIAL:

Bottom-up exercise conducted for Enam-covered stocks to scan Surprise potential (+/-) on P/E
or earnings on a 3 year horizon: stocks where major surprise possible mentioned for each sector

Since Surprise Potential could have indeterminate probability, this exercise is meant to gauge the
stocks risk/ reward potential rather than Valuation calls

EPS GROWTH HURDLE RATE:

Additionally, Database provides hurdle rate of implied EPS growth FY 06/10, to get a 50% stock
price appreciation in 3 yrs, at reasonably expected FY 10 P/E

Summary of Bottom up exercise

EPS CAGR=HURDLE Rate: implied EPS growth FY 06/10, required to get a 50% stock price
appreciation in 3 yrs, at a reasonable expected P/E for FY10: Ref Database
Surprise Potential= Possibility of +/- surprise in EPS or PE: stocks where major surprise
possible
Sector/ Company Name
Automobile
Tata Motors
Bajaj Auto
Hero Honda
Motherson Sumi
Banking
ICICI Bk
Cement
Grasim
Energy
Reliance Energy
PTC India
Engineering
BHEL
Suzlon Energy
L&T
Siemens
BEL
GMR Infrastrusture
Crompton
Cummins
Kirloskar Bros
Thermax
Kirloskar Oil Engines
AIA Engineering
KSB Pumps
FMCG
HLL
Godrej Consumer

EPS CAGR (%)

EPS (Rs.)

P/E (x)

18
27
14
22

15

29

15
17

30
38
25
24
10
46
31
19
33
33
20
26
26

25
25

Sector / Company Name

FMCG
Tata Tea
Marico
IT Services
Infosys
TCS
Satyam
Tech Mahindra
Hexaware
Infotech Enterprises
Metals
SAIL
Nalco
Media & Retail
Zee
Pantaloon
Adlabs Films
Entertainment Network India
INOX Leisure
Telecom
Bharti Tele-venture
RCVL
VSNL
Oil & Gas
RIL
BPCL
HPCL
Maharashtra Seamless
Indraprastha Gas

Source: ENAM Research; Note: For Banking, P/BV taken as P/E

EPS CAGR (%)

EPS (Rs.)

P/E (x)

9
19

26
21
18
34
22
20

15
7

45
45
45
41
43

36
25
24

14
44
42
22
7

Auto Sector - I
Surprise potential
TAMO

Motherson
Bajaj Auto

Hero Honda

P/E
surprise

TAMO: (P/E re-rating possible, negative

earnings surprise probable)

Reducing dependence on cyclical M&HCV business.

Car portfolio (including small car) can potentially
account for 40% of sales by FY10E
Potential to emerge as a Global brand as exports
progressively ramp up to 20% of sales, and brand
TATA gains mindshare in overseas markets

EPS surprise

Tata Motors Ltd

PE
16
FY05
596
FY06
640
FY07E
756
FY08E
895
FY09E
1,056
FY10E
1,284
Upside %
43.5

18
653
702
832
989
1,170
1,426
59.4

20
710
764
909
1,083
1,284
1,569
75.4

22
766
826
986
1,177
1,398
1,712
91.3

CMP:
24
823
888
1,062
1,272
1,513
1,854
107.2

895
26
880
951
1,139
1,366
1,627
1,997
123.2

Auto Sector - II
Hero Honda: (P/E de-rating, negative
earnings surprise likely)

Historically traded at a premium to peers,

underpinned by a dominant position in the largest
segment (executive: 50% of m/cycle sales). Marketshare loss in this segment will hit profitability and
could dampen its premium valuation rating

Bajaj Auto: (P/E re-rating, positive

earnings surprise possible)

Has leveraged R&D to reduce technology gap with

Hero Honda. Gaining market share in the executive
segment as customers upgrade to 125cc where it
has strong product offerings
Exports can give a further fillip to growth and
provide the requisite scale in domestic
manufacturing

Motherson Sumi: (P/E re-rating likely,

earnings surprise probable)

Production of Maruti and Hyundai to double in the

next four years (more than the current industry sales
of 1mn units)
Nissan and Volkswagen to set up their facilities in
India MSSLs collaborator Sumitomo has strong
relationships with these companies in Europe

Hero Honda Motors Ltd

PE
12
FY05
507
FY06
595
FY07E
637
FY08E
716
FY09E
785
FY10E
903
Upside %
19.9

13
541
637
682
767
842
970
28.8

14
576
679
727
819
899
1,037
37.7

15
610
720
772
871
957
1,105
46.7

CMP:
16
644
762
817
922
1,014
1,172
55.6

753
17
678
803
863
974
1,071
1,239
64.5
3,107
26
2,369
3,015
3,287
3,942
4,753
5,778
86.0
97
21
75
82
104
130
162
211
117.3

Bajaj Auto Ltd

PE
16
FY05
1,980
FY06
2,377
FY07E
2,545
FY08E
2,948
FY09E
3,447
FY10E
4,078
Upside %
31.2

18
2,058
2,505
2,693
3,147
3,708
4,418
42.2

20
2,136
2,632
2,841
3,346
3,969
4,758
53.1

22
2,213
2,760
2,990
3,545
4,230
5,098
64.1

CMP:
24
2,291
2,887
3,138
3,743
4,491
5,438
75.0

Motherson Sumi Systems

PE
16
FY05
57
FY06
63
FY07E
79
FY08E
99
FY09E
124
FY10E
161
Upside %
65.5

Ltd
17
61
67
84
105
132
171
75.9

18
64
70
89
111
139
181
86.2

19
68
74
94
118
147
191
96.6

CMP:
20
71
78
99
124
155
201
106.9

Banking Sector - I
Surprise potential

Sector Growth trajectory remains strong

ICICI BANK
Regional/ smaller private sector banks

P/BV
surprise

10 yr G-Sec yields have fallen from the peak of 8.4%

in July-06 to 7.6% in Sept-06
Credit off take remains robust with a YoY growth of
~30%; deposits growth at 21%
No signs of deterioration in asset quality

Some private banks are re-rating

candidates - two likely themes

BV surprise

Likely re-rating for ICICI Bank as other businesses

pay off in the long term
Regional banks - takeover targets as sector opens up
for investment by foreigners in 2009

Note: No earnings surprise only P/BV re-rating candidates

ICICI Bank A potential re-rating

candidate
`
`
`
`

ICICI Bank >USD1bn of net-worth as equity

investments in subsidiaries and non-subsidiary businesses
Insurance business trump card, premiums expected to
grow at a CAGR of 30% till 2010
Increased focus on margins, core margins to improve
Rural strategy and international business to drive
earnings in the long term

ICICI Bank Ltd

P/B
FY05
FY06
FY07E
FY08E
FY09E
FY10E
Upside %

2.0
341
499
546
606
690
801
13.5

2.1
358
524
574
636
725
841
19.2

2.2
375
549
601
666
759
881
24.9

2.3
392
574
628
697
794
921
30.6

CMP:
2.4
409
599
656
727
829
961
36.2

705
2.5
426
624
683
757
863
1,001
41.9

Banking Sector - II
Regional Private Banks Likely M&A plays going forward
No. of
Branches

Promoter
holding

Foreign
Share holding

Asset
Size (Rs.mn)

Comments

Federal Bank

472

0%

59%

214,374

Retail and SME focus in lending

Karnataka Bank

387

0%

22%

149,533

95% of the business on CBS. 66% of the branches

in Karnataka

SIB

480

0%

20%

108,078

Concentration of branches in Southern India with

increasing lending focus on Retail and Agriculture

BOR

373

44%

2%

98,297

70% of the branches in Rajasthan in FY05.

LVB

227

1%

1%

49,194

Per employee profit of Rs.0.12mn. Low CASA of

23% in FY06

City Union

146

0%

0.3%

41,270

Concentrated mainly in the South

Dhanlakshmi

180

37%

2%

28,487

Concentrated mainly in Southern and Western

regions. 94% of the business on CBS

Source: Company, ENAM Research

Cement sector
Sector: Highlights

Surprise potential

Sector valuations high, hence short term

upside limited

3-6 months

P/E
surprise

15-24 months

6-15 months

EPS surprise

Grasim: (P/E re-rating, positive EPS surprise

possible)

Cement share of profits to rise to ~78%

Current sector discount may narrow
Perception of diversified conglomerate to change

Record high cement prices during monsoon

Seasonal construction activity to be stronger in the
next 6-9 months

Medium term (6-15 months): Earnings

momentum on supply tightness, but
valuations priced in
Long term (15 months+): Large lumpy
greenfield supply can result in negative
earnings surprise with contraction in
valuations
Grasim Industries Ltd
PE
FY06
FY07E
FY08E
FY09E
FY10E
Upside %

9
882
1,587
1,857
2,139
2,353
(7.6)

11
1,078
1,940
2,270
2,615
2,876
12.9

CMP:
13
1,274
2,292
2,683
3,090
3,399
33.4

2,547
15
1,470
2,645
3,096
3,566
3,922
54.0

10

Energy Sector
Surprise potential
Reliance Energy

Currently, only operational assets and

surplus cash reflected in valuations

P/E
surprise

PTC India

EPS surprise

REL: P/E re-rating likely:

Watch out for clarity/ visibility on the proposed

expansion plans

PTC India: Positive EPS surprise

Valuations of pvt sector utilities build in

significant execution risk

On-going strengthening of the power grid would

enable trading volumes to pick up and can lead to a
positive EPS surprise

Reliance Energy Ltd

PE
15
FY05
420
FY06
516
FY07E
537
FY08E
556
FY09E
584
FY10E
642
Upside %
33.1

PTC India Ltd

PE
FY05
FY06
FY07E
FY08E
FY09E
FY10E
Upside %

15
26
42
48
67
83
104
83.8

17
477
585
608
630
662
728
50.9

19
533
654
680
705
740
814
68.7

21
589
723
751
779
818
899
86.4

CMP:
23
645
792
823
853
896
985
104.2

483
25
701
860
894
927
973
1,071
121.9

17
29
48
55
76
94
118
108.3

19
32
54
61
84
106
132
132.8

21
36
59
67
93
117
146
157.3

CMP:
23
39
65
74
102
128
160
181.8

57
25
43
71
80
111
139
174
206.3

11

Engineering - I
Surprise potential

P/E
surprise

GMR
BEL
Crompton Greaves

Cummins
Thermax

L&T
Siemens
KOEL
KSB
AIA Engineering

Suzlon
BHEL
KBL

EPS surprise

Favourable competitive dynamics and strong order intake momentum likely to result in
positive earnings surprise and re-rating for L&T, Siemens, KOEL, KSB and AIA Engineering
Valuations factoring in near term earnings surprise for Suzlon, BHEL and KBL
Robust business model and long term earnings visibility likely to result in P/E re-rating for
GMR , BEL and Crompton Greaves
Cummins and Thermax: Could throw up negative margin surprises
12

Engineering - II
L&T:

Strong traction in L&Ts areas of core competence

i.e. Hydrocarbon and Metals
Also, value unlocking expected from investments in
the next 12-18 months

Siemens:

Strong traction in Power and Industrial Business on

the back of capacity addition and integration of newly
acquired businesses
IT business to sustain 30% growth

KOEL:

Higher share of outsourcing/ OE contracts to result in

strong earnings growth
Low yielding investments to get channelized into
productive assets and result in RoI expansion

Larsen & Toubro Ltd

PE
14
FY05
345
FY06
537
FY07E
668
FY08E
926
FY09E
1,232
FY10E
1,639
Upside %
29.8

16
394
613
763
1,059
1,408
1,873
48.4

18
444
690
858
1,191
1,584
2,107
66.9

20
493
767
954
1,324
1,760
2,341
85.5

CMP:
22
542
843
1,049
1,456
1,936
2,575
104.0

1,262
24
592
920
1,144
1,588
2,112
2,809
122.6

Siemens India Ltd

PE
14
FY05
251
FY06
480
FY07E
726
FY08E
962
FY09E
1,202
FY10E
1,503
Upside %
41.0

16
287
548
830
1,099
1,374
1,718
61.2

18
323
617
934
1,237
1,546
1,932
81.3

20
359
685
1,038
1,374
1,718
2,147
101.4

CMP:
22
395
754
1,142
1,512
1,889
2,362
121.6

1,066
24
431
822
1,245
1,649
2,061
2,577
141.7

Kirloskar Oil Engines

PE
12
FY05
83
FY06
127
FY07E
159
FY08E
195
FY09E
244
FY10E
305
Upside %
31.7

14
97
149
186
228
285
356
53.6

16
111
170
213
261
326
407
75.5

18
125
191
239
293
367
458
97.5

CMP:
20
139
212
266
326
407
509
119.4

232
22
153
234
292
358
448
560
141.4

13

Engineering - III
KSB Pumps:

Significant capacity expansion and modernization

We expect higher share of parent's outsourcing pie
and strong traction in domestic demand from power
and oil & gas segment

AIA Eng:

3x increase in capacity over the next 15 months;

with the first phase commissioning in Dec-06
Offers 30% earnings growth visibility for the next 3
years

KSB Pumps Ltd

PE
FY05
FY06
FY07E
FY08E
FY09E
FY10E
Upside %

12
207
262
381
508
609
719
30.7

14
242
306
445
592
711
839
52.5

16
277
349
508
677
812
958
74.2

18
311
393
572
761
914
1,078
96.0

CMP:
20
346
437
635
846
1,015
1,198
117.8

550
22
380
480
699
931
1,117
1,318
139.6

AIA Engineering Ltd

PE
12
FY05
251
FY06
359
FY07E
521
FY08E
870
FY09E
957
FY10E
1,053
Upside %
29.9

14
293
419
608
1,015
1,117
1,229
51.6

16
335
479
695
1,160
1,276
1,404
73.2

18
377
539
782
1,305
1,436
1,580
94.9

CMP:
20
419
599
868
1,450
1,596
1,755
116.6

810
22
461
659
955
1,596
1,755
1,931
138.2

14

Engineering - IV
GMR:

Near term earnings not relevant as large projects are

still under implementation
Improved visibility on timely completion of project
and higher earnings yield could result in PE rerating

BEL:

We believe market has overplayed impact of

potential private competition
BEL has a robust business model with steady 18%
earnings growth, superior return ratios of 35%+ and
healthy free cash generation

CGL:

It is transforming into an Indian MNC with exposure

to America , Europe and Asian continents
We expect positive earnings surprise with
acquisitions turning around

GMR Infrastructure
PE
22
FY05
67
FY06
68
FY07E
70
FY08E
71
FY09E
201
FY10E
289
Upside %
24.8

24
73
74
76
78
219
315
36.2

26
79
80
82
84
237
342
47.5

28
85
86
88
91
255
368
58.9

CMP:
30
91
92
95
97
274
394
70.2

232
32
97
99
101
104
292
420
81.6

Bharat Electronics Ltd

PE
10
FY05
595
FY06
730
FY07E
864
FY08E
1,018
FY09E
1,201
FY10E
1,418
Upside %
23.3

11
655
803
950
1,120
1,321
1,559
35.7

12
714
876
1,036
1,222
1,442
1,701
48.0

13
774
949
1,123
1,324
1,562
1,843
60.3

CMP:
14
833
1,022
1,209
1,425
1,682
1,985
72.7

1,149
15
893
1,095
1,296
1,527
1,802
2,126
85.0

Crompton Greaves Ltd

PE
14
FY05
56
FY06
116
FY07E
160
FY08E
207
FY09E
269
FY10E
336
Upside %
31.6

16
64
132
183
236
307
384
50.4

18
72
149
206
266
346
432
69.2

20
81
165
229
296
384
480
88.0

CMP:
22
89
182
252
325
423
528
106.8

256
24
97
198
275
355
461
576
125.6

15

Engineering - V
Suzlon:

Near term order traction likely to be strong in view of

PTC in US expiring in 2007. However, significant
capacity addition in the industry could impact
realizations beyond FY08

BHEL:

BHEL still to prove competence in Super Critical

Technology
Expect market share to decline and valuations to
contract

Suzlon Energy Ltd

PE
16
FY05
723
FY06
423
FY07E
747
FY08E
942
FY09E
1,083
FY10E
1,246
Upside %
(1.7)

18
813
476
840
1,060
1,218
1,401
10.6

20
903
529
933
1,177
1,354
1,557
22.8

22
994
582
1,027
1,295
1,489
1,713
35.1

CMP:
24
1,084
635
1,120
1,413
1,625
1,868
47.4

1,267
26
1,174
688
1,213
1,530
1,760
2,024
59.7

Bharat Heavy Electricals

PE
14
16
FY05
581
664
FY06
953
1,089
FY07E
1,263
1,443
FY08E
1,522
1,739
FY09E
1,826
2,087
FY10E
2,118
2,421
Upside %
(8.4)
4.7

18
747
1,225
1,624
1,956
2,348
2,723
17.8

20
830
1,361
1,804
2,174
2,608
3,026
30.9

CMP:
22
913
1,498
1,984
2,391
2,869
3,328
44.0

2,312
24
996
1,634
2,165
2,608
3,130
3,631
57.1

16
341
192
279
338
399
463
16.5

18
384
216
314
380
449
521
31.1

CMP:
20
427
240
349
423
499
578
45.6

397
22
470
264
384
465
549
636
60.2

KBL:

Increasing competitive intensity from construction

companies in its project business could impact
revenue growth and profitability

Kirloskar Brothers Ltd

PE
12
FY05
256
FY06
144
FY07E
209
FY08E
254
FY09E
299
FY10E
347
Upside %
(12.6)

14
299
168
244
296
349
405
2.0

16

Engineering - VI
Cummins:

Expect share of lower margin exports business to

increase from H2FY07 onwards, impacting margins
negatively
Expect revenue and earnings CAGR of 16-18%

Thermax:

We believe, timely execution of the backlog is a

challenge and might result in negative earnings
surprise

Cummins India Ltd

PE
12
FY05
78
FY06
120
FY07E
143
FY08E
169
FY09E
197
FY10E
228
Upside %
(6.1)

14
91
140
166
198
229
266
9.5

16
104
160
190
226
262
304
25.2

18
117
180
214
254
295
342
40.8

CMP:
20
130
200
238
282
328
380
56.4

243
22
143
220
262
311
360
418
72.1

Thermax Ltd
PE
FY05
FY06
FY07E
FY08E
FY09E
FY10E
Upside %

14
80
128
199
268
295
318
5.0

16
92
147
228
306
337
364
20.0

18
103
165
256
345
379
409
35.0

CMP:
20
115
183
285
383
421
455
50.0

303
22
126
202
313
421
463
500
65.0

12
69
110
171
230
253
273
(10.0)

17

FMCG Sector - I
Surprise potential
Tata Tea

HLL

P/E
surprise

GCPL
Marico

GCPL: (P/E re-rating likely)

Extending hair colour presence, widening product

portfolio and improving dom/ Intl reach.
Earnings momentum to outperform sector peers,
resulting in long term P/E re-rating

EPS surprise

Godrej Consumer Products Ltd

PE
18
19
FY05
68
72
FY06
90
95
FY07E
131
139
FY08E
169
178
FY09E
211
223
FY10E
263
278
Upside %
48.9
57.2

20
76
100
146
187
234
292
65.4

21
80
105
153
197
246
307
73.7

CMP:
22
83
110
161
206
258
322
82.0

177
23
87
115
168
215
269
336
90.3

18

FMCG Sector - II
HLL: (P/E de-rating likely)

Decline in commodity prices, alongside judicious

price increases may result in short term negative
earning surprise
Valuations exceed implied earnings growth in the
long term, expect P/E de-rating in the case of HLL

Marico: (P/E re-rating likely)

Decoupling from commodity cycle and continued

favorable RM prices to deliver earnings surprise
Consolidated hair oil positioning and new category
introductions warrant long term P/E re-rating

Tata Tea: (P/E re-rating likely)

Glaceau acquisition to increase debt burden and

dampen earnings in the short term
Entry into vibrant enhanced water market and
scalable growth therein to yield a long term
structural P/E re-rating

Hindustan Lever
PE
CY04
CY05
CY06E
CY07E
CY08E
CY09E
Upside %

Ltd
30
163
185
214
253
301
355
42.0

28
153
172
200
236
281
331
32.5

26
142
160
186
219
261
308
23.1

24
131
148
171
202
241
284
13.6

CMP:
22
120
135
157
185
221
260
4.1

250
20
109
123
143
168
201
237
(5.3)

Marico Ltd
PE
FY05
FY06
FY07E
FY08E
FY09E
FY10E
Upside %

18
212
309
400
482
545
640
24.6

19
223
327
423
509
576
676
31.6

20
235
344
445
535
606
711
38.5

21
247
361
467
562
636
747
45.4

CMP:
22
259
378
489
589
667
782
52.3

514
23
270
395
512
616
697
818
59.3

Tata Tea Ltd

PE
FY05
FY06
FY07E
FY08E
FY09E
FY10E
Upside %

10
453
527
409
591
761
895
21.5

11
498
580
450
650
837
985
33.6

12
543
633
491
709
913
1,074
45.7

13
589
685
532
768
989
1,164
57.9

CMP:
14
634
738
573
828
1,065
1,253
70.0

737
15
679
791
614
887
1,141
1,343
82.2

Note: Includes Glaceau acquisition impact (approx. fig.)

19

IT Sector - I
Surprise potential
Infosys

P/E
surprise

TCS, Satyam,
Infotech, Hexaware,
Tech Mahindra

EPS surprise

P/E - FY08E (x)

28

+
I-Flex

24

Wipro

20
16

Sector Earnings: P/E upgrade dependent on

material pricing uptake, backed by higher growth
in select horizontals like IMS, Testing, Package
Implementation etc. Select companies to benefit

Satyam
Patni

12

Hexaware

TCS

Infotech
Aztec

8
10

20
30
40
EPS CAGR - FY06-08E (%)

Infosys: P/E v/s peers to widen, backed by

higher growth in consulting, higher blended price
realizations and deployment of surplus cash for
higher RoE
Satyam: Improvement in Earnings, if supply
issues settle, signs of which are visible and not
discounted in earnings

Infosys

HCL Tech

Sector P/E: P/E would de-rate on following

events : 1) If supply challenges impact earnings
growth 2) US slowdown/ recession

Tech
Mahindra

50

Tech Mahindra: Leadership in BSS, Business

uptrend in non-BT business, BT growth to be
higher than investor expectations
TCS/ Wipro: Inorganic initiatives to impact RoE
in the medium term
20

IT Sector - II
Infosys

P/E re-rating likely if :

`
`

Pricing uptrend is higher than expectations

Consulting share increases higher than present 3% and
penetrates the incumbents market share

TCS

Earnings upgrade likely if :

`
`

Progress on large deals is better than expectations and

dent on margins subsides
Higher productivity gains in fixed price contracts than
historical average

Wipro

Earnings upgrade realistic :

`

Increase in utilization rates by 200-300 bps would take 34 quarters as the business model adjusts for higher
fresher intake
Salary hikes to impact sequential PAT growth rates in
next 2-3 quarters

Infosys Technologies Ltd

PE
18
20
FY05
615
684
FY06
804
893
FY07E
1,152
1,280
FY08E
1,435
1,594
FY09E
1,779
1,977
FY10E
2,188
2,431
Upside %
17.3
30.3

22
752
983
1,408
1,753
2,174
2,674
43.3

24
820
1,072
1,536
1,913
2,372
2,917
56.4

CMP:
26
889
1,161
1,664
2,072
2,570
3,161
69.4

1,866
28
957
1,251
1,792
2,232
2,767
3,404
82.4

Tata Consultancy Services Ltd

PE
16
18
FY05
354
398
FY06
478
538
FY07E
636
716
FY08E
804
904
FY09E
988
1,112
FY10E
1,216
1,368
Upside %
21.7
36.9

20
443
597
795
1,004
1,235
1,520
52.1

22
487
657
875
1,105
1,359
1,672
67.3

CMP:
24
531
717
955
1,205
1,483
1,824
82.5

999
26
575
777
1,034
1,306
1,606
1,976
97.8

21
232
297
407
507
628
779
49.6

23
254
326
445
555
688
853
63.8

CMP:
25
276
354
484
603
748
927
78.0

521
27
299
382
523
651
808
1,002
92.3

Wipro Ltd
PE
FY05
FY06
FY07E
FY08E
FY09E
FY10E
Upside %

17
188
241
329
410
509
631
21.1

19
210
269
368
458
568
705
35.3

21

IT Sector - III
Satyam

Earnings upside if :
`
`

Supply side issues subside at a faster pace

Attrition rates decline to 16-17%

Tech Mahindra

Earnings upside if :
`
`
`

BT revenues would be steady, backed by 21 CN initiatives

of BT, likelihood of outsourcing work from BT Global
BSS expertise hold immense promise as America has yet
to outsource the same
Other clients/ areas that have higher volume growth
potential ITO, Managed Services, AT&T

Infotech Enterprises

Earnings upside if :
`
`

EMI grows at higher than expectations (35%+)

IT Services segment in GIS records better growth,
thereby improving blended pricing

Satyam Computer Services Ltd

PE
14
16
FY05
322
368
FY06
444
507
FY07E
547
625
FY08E
645
737
FY09E
761
869
FY10E
898
1,026
Upside %
9.7
25.4

18
414
571
704
829
978
1,154
41.1

20
461
634
782
921
1,087
1,282
56.8

CMP:
22
507
698
860
1,013
1,195
1,411
72.5

818
24
553
761
938
1,105
1,304
1,539
88.1

Tech Mahindra Ltd

PE
14
FY05
141
FY06
256
FY07E
452
FY08E
547
FY09E
656
FY10E
788
Upside %
26.0

18
181
330
581
703
844
1,013
62.0

20
201
366
646
781
938
1,125
80.0

CMP:
22
221
403
710
859
1,031
1,238
98.0

625
24
242
440
775
938
1,125
1,350
116.0

12
72
132
186
216
255
301
42.8

14
84
154
217
252
298
351
66.6

CMP:
16
96
176
248
288
340
401
90.4

211
18
108
198
279
324
383
451
114.2

16
161
293
517
625
750
900
44.0

Infotech Enterprises Ltd/India

PE
8
10
FY05
48
60
FY06
88
110
FY07E
124
155
FY08E
144
180
FY09E
170
213
FY10E
201
251
Upside %
(4.8)
19.0

22

IT Sector - IV
Patni Computers

Earnings upside if :
`
`

Utilization rates consistently sustain above 70%

Efficiency gains from SG&A leverage

Hexaware

Earnings upside if :
`

Inorganic initiatives yield better profitability given higher

cash balance (Yr end Rs.3.6bn in CY06 and Rs.4.5bn in
CY07)
Improvement in operating profit from higher utilization
rates at offshore locations

Patni Computer Systems Ltd

PE
10
12
FY05
208
250
FY06
218
262
FY07E
172
206
FY08E
271
325
FY09E
335
403
FY10E
413
495
Upside %
6.1
27.3

14
291
306
240
379
470
578
48.5

16
333
349
275
433
537
660
69.7

CMP:
18
374
393
309
487
604
743
90.9

389
20
416
437
343
541
671
825
112.2

Hexaware Technologies Ltd

PE
10
12
FY05
48
58
FY06
75
90
FY07E
84
100
FY08E
107
128
FY09E
128
154
FY10E
154
184
Upside %
(6.0)
12.9

14
67
105
117
149
179
215
31.7

16
77
120
134
171
205
246
50.5

CMP:
18
86
135
151
192
231
277
69.3

163
20
96
150
167
213
256
307
88.1

23

Metals Sector - I
Surprise potential

P/E
surprise

15-24 months

6-15 months
3-6 months

EPS surprise

Sector Highlights
While non-ferrous metal prices stabilized in Jul-Sep 06 Qtr after correcting from higher
levels, ferrous metal prices remain steady
Short term (3-6 months): Earnings surprise amidst prevailing perception of weak ferrous and
non ferrous metal prices
Medium term (6-15 months): Weak metal prices on global slowdown
Long term (15-24 months): Strong volume growth (30% +), pricing recovery (following a
correction) to drive earnings and valuations upward
24

Metals Sector - II
Nalco (Positive earnings surprise likely)

Significant brownfield expansion (30%+)

One of the lowest cost producers
Cash on hand of ~ Rs.90/Sh by FY10, plus EPS
range of Rs.30-40

SAIL (Positive earnings surprise likely)

Cost of production likely to decline on captive coking

coal mining
Volume to rise 30% to 17 mn tonnes
EV/ Tonne of USD400 vis--vis replacement cost of
USD1,000

National Aluminium Co Ltd

PE
6
7
FY05
111
129
FY06
146
170
FY07E
197
230
FY08E
171
200
FY09E
180
210
FY10E
207
241
Upside %
(3.6)
12.5

8
148
194
263
228
240
275
28.6

9
166
219
296
257
269
310
44.6

CMP:
10
185
243
329
285
299
344
60.7

214
11
203
267
362
314
329
379
76.8

Steel Authority Of India

PE
5
FY05
81
FY06
49
FY07E
78
FY08E
82
FY09E
90
FY10E
99
Upside %
23.0

7
113
68
109
114
126
138
72.3

8
130
78
125
130
144
158
96.9

CMP:
9
146
87
140
147
161
178
121.5

80
10
162
97
156
163
179
197
146.1

6
97
58
94
98
108
118
47.7

25

Media & Retail I

Surprise potential
Zee

P/E
surprise

Pantaloon

Inox

EPS surprise

Zee:

Listing of the DTH, Cable and News businesses to

unlock value

Pantaloon:

ENIL Adlabs

We believe Pantaloon will manage profitable growth

and value un-locking could happen from new
businesses

Pantaloon Retail India Ltd

PE
17
19
FY05
267
298
FY06
430
481
FY07E
707
790
FY08E
1,287
1,439
FY09E
1,738
1,942
FY10E
2,346
2,622
Upside %
26.5
41.4

21
329
532
873
1,590
2,147
2,898
56.3

23
361
582
956
1,742
2,351
3,174
71.1

CMP:
25
392
633
1,040
1,893
2,556
3,450
86.0

1,855
27
424
684
1,123
2,045
2,760
3,726
100.9

26

Media & Retail II

Adlabs: (Positive earnings surprise likely)

Successful rollout of radio business and entry into

television broadcasting to lead to earnings upside

ENIL: (Positive earnings surprise likely)

High growth in outdoor media business could provide

earnings upside

Adlabs Films Ltd

PE
18
FY05
82
FY06
106
FY07E
185
FY08E
223
FY09E
312
FY10E
421
Upside %
20.1

20
91
118
206
248
347
468
33.4

Entertainment Network India Ltd

PE
20
22
FY05
(73)
(80)
FY06
93
102
FY07E
134
147
FY08E
149
164
FY09E
201
221
FY10E
251
276
Upside %
3.2
13.6

22
100
129
226
272
381
515
46.8

24
109
141
247
297
416
562
60.1

CMP:
26
119
153
267
322
451
608
73.4

351
28
128
165
288
347
485
655
86.8

24
(87)
111
161
178
241
301
23.9

26
(94)
121
174
193
261
326
34.2

CMP:
28
(102)
130
188
208
281
351
44.5

243
30
(109)
139
201
223
301
376
54.8

Inox: (P/E de-rating likely)

Delayed rollouts could dampen earnings. Valuations

exceed earnings growth, expect PE de-rating

27

Oil & Gas - I

Surprise potential
IGL

RIL

HPCL, BPCL

Maharashtra
Seamless

P/E
surprise

EPS surprise

RIL: (P/E re-rating and EPS surprise)

Short term earnings surprise from core operating

assets
P/E expansion from clarity over the E&P/ retail/ SEZ
business initiatives

Reliance Industries Ltd

PE
12
FY05
660
FY06
809
FY07E
981
FY08E
1,089
FY09E
1,361
FY10E
1,701
Upside %
47.3

14
771
944
1,145
1,270
1,588
1,985
71.9

16
881
1,079
1,308
1,452
1,815
2,269
96.4

18
991
1,214
1,472
1,633
2,042
2,552
121.0

CMP:
20
1,101
1,349
1,635
1,815
2,269
2,836
145.5

1,155
22
1,211
1,484
1,799
1,996
2,495
3,119
170.1

28

Oil & Gas - II

IGL: (P/E re-rating likely)

Increase in the FII limit could trigger the re-rating of

the cheapest oil and gas stock

HPCL, BPCL: (P/E de-rating and negative

EPS surprise)

Valuations build in aggressive reduction in the

subsidy; trade at par with regional peers
Earnings highly leveraged to (1) oil bonds issuance
(2) regulatory framework

Indraprastha Gas Ltd

PE
15
FY05
94
FY06
114
FY07E
137
FY08E
157
FY09E
173
FY10E
190
Upside %
57.2

17
107
129
155
178
196
215
78.2

19
119
144
174
199
219
241
99.2

21
132
159
192
220
242
266
120.1

CMP:
23
144
175
210
241
265
291
141.1

121
25
157
190
229
262
288
317
162.1
291
15
567
200
292
353
388
427
46.7
377
15
729
246
473
543
598
657
74.6

Hindustan Petroleum Corp Ltd

PE
5
7
FY05
189
265
FY06
67
93
FY07E
97
136
FY08E
118
165
FY09E
129
181
FY10E
142
199
Upside %
(51.1)
(31.5)

9
340
120
175
212
233
256
(12.0)

11
416
147
214
259
285
313
7.6

CMP:
13
492
173
253
306
336
370
27.1

Bharat Petroleum Corp Ltd

PE
5
7
FY05
243
340
FY06
82
115
FY07E
158
221
FY08E
181
254
FY09E
199
279
FY10E
219
307
Upside %
(41.8)
(18.5)

9
438
148
284
326
359
394
4.7

11
535
181
347
398
438
482
28.0

CMP:
13
632
213
410
471
518
570
51.3

29

Oil & Gas - III

Maharashtra Seamless: (Positive EPS
surprise likely)

Play on the heightened E&P activity in India - largest

supplier of the seamless pipes used in the E&P
Thrust on low cost capacity build ups; significantly
lower breakeven margins
Ramp up in the capacity utilization (FY06: 55% of
expanded capacity) would lead to EPS surprise

Maharashtra Seamless Ltd

PE
10
12
FY05
147
177
FY06
242
291
FY07E
376
452
FY08E
455
546
FY09E
502
602
FY10E
568
682
Upside %
45.5
74.6

14
206
339
527
637
702
795
103.8

16
236
388
602
728
803
909
132.9

CMP:
18
265
436
677
820
903
1,022
162.0

390
20
294
485
753
911
1,003
1,136
191.1

30

Pharma sector
Sun Pharma

Re-rating likely after de-merger of R&D arm

`
`

Demerger will raise EBITDA margins and reduce volatility,

providing investors with a pure generics play
Entry into global niche area of controlled substances will
help extend its growth story, post patent regime

Ranbaxy

Upsides from atorvastatin launch in March 2010 are

likely be capped by authorised generics; Pfizer will
also promote torcetrapib to cannibalize Lipitor sales
Entry into European markets through M&A at stiff
valuations will impact re-rating

GSK Pharma

Current valuations factor in launch of patented

products post CY07
PE de-rating likely if patented products are launched
through 100% subsidiary; re-rating and earnings
upside if launched through listed entity

Sun Pharmaceuticals Industries Ltd

PE
20
21
22
FY05
383
402
421
FY06
553
581
609
FY07E
701
736
771
FY08E
838
880
922
FY09E
1,048
1,100
1,152
FY10E
1,310
1,375
1,441
Upside %
39.9
46.9
53.9

23
440
636
806
964
1,205
1,506
60.9

CMP:
24
459
664
842
1,006
1,257
1,572
67.9

936
25
478
692
877
1,048
1,310
1,637
74.9

19
349
108
237
363
454
567
33.8

20
367
114
250
382
478
597
40.8

CMP:
21
386
120
262
401
501
627
47.9

424
22
404
125
275
420
525
657
54.9

GlaxoSmithkline Pharmaceuticals Ltd

PE
20
21
22
CY04
639
671
703
CY05
736
773
810
CY06E
876
919
963
CY07E
985
1,034
1,083
CY08E
1,132
1,189
1,245
CY09E
1,302
1,367
1,432
Upside %
4.8
10.1
15.3

23
735
846
1,007
1,132
1,302
1,497
20.6

CMP:
24
767
883
1,051
1,181
1,359
1,562
25.8

1,242
25
799
920
1,094
1,231
1,415
1,628
31.0

Ranbaxy Laboratories Ltd

PE
17
18
CY04
312
331
CY05
97
103
CY06E
212
225
CY07E
325
344
CY08E
406
430
CY09E
507
537
Upside %
19.7
26.8

31

Telecom Sector: I
Surprise potential
Reliance
Communications
VSNL

P/E
surprise

Bharti

Bharti: (P/E de-rating possible, earnings

surprise unlikely)

As wireless growth slows down, valuation premium

may decrease

EPS surprise

Bharti Airtel Ltd

PE
FY05
FY06
FY07E
FY08E
FY09E
FY10E
Upside %

17
137
203
286
380
494
642
39.9

18
145
215
302
402
523
680
48.1

19
154
227
319
425
552
718
56.4

20
162
239
336
447
581
756
64.6

CMP:
21
170
251
353
470
610
793
72.8

459
22
178
263
370
492
639
831
81.1

32

Telecom Sector: II
Reliance Communications: (P/E re-rating,
earnings surprise likely)

Valuation gap with Bharti could reduce with better

visibility in financials
A successful foray into consumer broadband could
change P/E

Reliance Communication Ltd

PE
17
18
FY06
140
142
FY07E
283
294
FY08E
410
428
FY09E
518
542
FY10E
643
675
Upside %
84.7
93.9

19
145
304
446
567
707
103.0

20
147
315
464
592
739
112.2

CMP:
21
150
326
482
616
771
121.4

348
22
152
337
501
641
803
130.6

CMP:
18
431
523
543
554
671
761
92.4

396
19
443
540
561
573
696
791
100.0

Note: Value of consumer broadband assumed at Rs 100/share

VSNL: (P/E re-rating, positive earnings

surprise possible)

Improvement in business metrics and successful

integration of the acquisitions could lead to a positive
earnings surprise
If VSNL manages to increase the share of valueadded services in its revenue pie, it could lead to a
re-rating
The low valuations currently factor in an extremely
competitive operating environment for VSNL and
hence a continued pressure on margins

Videsh Sanchar Nigam Ltd

PE
14
15
16
17
FY05
384
396
407
419
FY06
456
473
489
506
FY07E
471
489
507
525
FY08E
480
499
517
536
FY09E
571
596
621
646
FY10E
641
671
701
731
Upside %
62.0
69.6
77.2
84.8
Note: Value of investments asumed at Rs 220/share

33

Appendix: Database of Eco indicators

Sep-06
Current
Industrial Production Index - Jul
General
Manufacturing
Mining
Electricity
Inflation Index - Aug
WPI
CPI
Balance of payments (USDm) - Aug
Exports
Imports
Banking Trends (INRbn) - Aug
Bank Credit
Bank Deposits
Non-food credit
Money Supply(M3) % actuals

Sep-06
10Y Bond Yield (%)
Forex Reserves (USDbn)
Reverse REPO (%)

234
249
153
200

205
124

1M
0.4
0.5
(1.3)
1.1

0.5
0.0

% chg
3M
6M
3.9
4.7
(2.4)
1.2

1.8
2.5

(1.7)
(1.3)
(9.0)
0.5

4.3
4.2

Sep-06
12M
12.4
13.3
6.0
8.6

4.9
6.0

Current
Auto ('000) - Aug
Passenger Car Sales
CV-Sales
2-W Sales

Tourist arrivals (nos) - Aug

299,211
Total comm traffic at ports ('000 tonnes) - A 35,598
Cellular subscribers (mn) - Aug
87
Cement Desp (m tonnes) - Aug
Diesel Prod (HSD) ('000 tonnes) (Jul)

10,380
13,869

15,861
22,347
15,498
14.9

2.0
(1.9)

1.9
1.3
1.9
19.5

4.7
(3.9)

6.2
4.6
6.6
18.2

15.4
20.8

12.9
12.9
13.4
25.1

20.5
11.7

32.0
21.2
33.4
19.1

Actuals
Current
1M
3M
6M 12M
7.6
7.9
8.1
7.5
7.1
166.5 165.3 162.9 151.6 143.1
6.0
6.0
5.8
5.5
5.0

109
17
626

Crude Oil
Brent 38 Uk $/bbl
Dubai Fateh 32 $/bbl
LME Spot Prices ($/metric tonnes)
Zinc
Copper
Lead
Aluminium
Steel Imports Cold Rolled Coil
Bullion
Gold (Rs/ 10gm)
Silver (Rs/ kg)

13
4,516

63
57

1M

% chg
3M
6M

12M

5.8
3.3
0.8

(1.4)
8.2
(13.4)

28.5
5.7
(3.0)

13.9
15.7
3.5

(9.7)
(2.6)
5.1

13.8
9.9
15.0

(30.1)
(4.4)
32.9

2.9
8.2
77.1

0.6
5.0

(9.7)
15.0

2.3
2.0

12.1
11.0

(5.5)
(3.1)

(1.9)
1.8

(10.7) (13.6)
(13.1) (14.6)

3,360
7,601
1,425
2,572
550

0.9
(0.6)
16.7
5.5
1.4

3.1
1.3
49.2
0.8
(3.5)

24.9
37.5
17.8
2.4
13.4

138.1
92.5
46.2
38.5
(9.8)

8,905
18,105

(5.5)
(6.0)

(0.9)
8.6

4.9
4.2

31.6
62.8

Source: Bloomberg, CMIE

34

Database

35

Enam covered stocks

ENAM estimates
IBES EPS
Company Name
AUTO
Tata Motors
Bajaj Auto
Maruti Udyog
M&M#
Hero Honda
Mico
Bharat Forge
TVS Motors
Motherson Sumi
BANKING
ICICI Bk
SBI
HDFC
HDFC Bank
PNB
Canara Bank
UTI Bank
Bank of Baroda
BoI
OBC
Corporation Bank
Centurion Bank
Yes Bank
LIC Hsg.
CEMENT
Grasim
ACC
Gujarat Ambuja
UltraTech Cement

Price
(Rs.)
895
3,107
948
476
753
3,274
361
125
97

Mkt. Cap
(US$ m)
7,549
6,887
5,997
2,586
3,294
2,299
1,759
652
500

CY06E/
FY07E

FDEPS (Rs.)
CY05/ CY06E/ CY07E/
FY06
FY07E
FY08E

53
133
52
48
53
127
16
6
5

43
111
41
28
48
105
11
5
4

Adj. BV (Rs.)
240
258
627
694
179
212
166
193
283
327
155
180
97
112
206
231
84
104
163
190
227
253
6.1
7.4
21
38
135
138

705
1,039
1,453
931
539
290
388
289
167
273
413
25
100
173

13,792
11,979
7,941
6,408
3,723
2,600
2,383
2,309
1,779
1,498
1,299
811
594
321

35
103
57
37
51
33
22
27
18
30
35
0.9
6
25

2,547
983
121
879

5,115
4,025
3,594
2,397

168
57
10
52

98
20
5
18

49
128
49
32
53
137
17
5
5

176
45
8
59

RoE (%)

P/E (x)

60
159
54
38
60
170
21
7
6

CY05/ CY06E/ CY07E/

FY06
FY07E
FY08E
21
28
23
17
16
31
33
25
25

280
776
253
228
373
211
131
264
124
222
282
8.4
42
159

2.5
1.7
5.6
5.6
1.9
1.9
4.0
1.4
2.0
1.7
1.8
4.1
4.7
1.3

206
53
8
63

26
48
26
48

18
24
19
15
14
24
21
24
20
P/ABV (X)
2.3
1.5
4.7
4.8
1.6
1.6
3.5
1.3
1.6
1.4
1.6
3.4
2.6
1.2
14
22
16
15

15
20
18
13
13
19
17
19
16

FY10 P/E

Implied Implied EPS

CY06E/ expected FDEPS (Rs.)

(x)
FY10E
FY07E
29
24
23
26
46
24
26
17
51

16
16
15
16
14
20
17
16
17

2.1
1.3
4.0
4.1
1.4
1.4
3.0
1.1
1.3
1.2
1.5
3.0
2.4
1.1

13
14
31
20
17
19
20
13
17
19
15
13
10
15

P/ABV
2.5
1.5
5.0
4.0
1.8
1.5
3.0
1.5
1.5
1.5
1.5
3.0
3.0
1.3

12
19
15
14

27
29
31
42

14
14
14
14

CAGR* (%)
FY06/ FY10

84
291
95
45
81
246
32
12
9

18%
27%
23%
12%
14%
24%
31%
24%
22%

Implied Implied ABV

ABV
CAGR (%)
423
15%
1,039
13%
436
25%
349
20%
449
12%
290
17%
194
19%
289
9%
167
19%
273
14%
413
16%
13
20%
50
24%
199
10%
273
105
13
94

29%
51%
29%
51%

# We have excluded value of investments per share ie Rs.213 from CMP of Rs.689 and Market cap to reflect the valuations and upside from core business.We expect value of investments to
grow at a CAGR of 15% impling value of Rs.324 in FY10E.Translating into effective target price of Rs.1,038 from current CMP of Rs.689.
* EPS CAGR=HURDLE Rate: implied EPS growth FY 06/10E, required to get a target 50% stock price appreciation in 3 yrs, at a reasonable expected P/E for FY10E

36

Enam covered stocks

ENAM estimates
IBES EPS
Company Name
ENERGY
NTPC
Tata Power
Reliance Energy
PTC India
ENGINEERING
BHEL
Suzlon Energy
L&T
Siemens
ABB
BEL
Crompton
Cummins
Kirloskar Bros
Punj Lloyd
Thermax
BEML
Kirloskar Oil Engines
Patel Engineering
AIA Engineering
Kirloskar Pneumatics
FMCG
HLL
Nestle
Dabur
Colgate-Palmolive
Tata Tea
Godrej Consumer
Marico

Price
(Rs.)

Mkt. Cap
(US$ m)

CY06E/
FY07E

FDEPS (Rs.)

P/E (x)

CY05/ CY06E/ CY07E/

FY06
FY07E
FY08E

RoE (%)

CY05/ CY06E/ CY07E/

FY06
FY07E
FY08E

FY10 P/E

Implied Implied EPS

CY06E/ expected FDEPS (Rs.)

(x)
FY10E
FY07E

CAGR* (%)
FY06/ FY10

131
538
483
57

23,660
2,332
2,253
186

8
28
33
3

7
27
34
3

8
30
36
3

9
32
37
4

18
20
14
20

16
18
13
18

15
17
13
13

15
11
9
18

15
12
12
16

13
67
60
5

16%
26%
15%
17%

2,312
1,267
1,262
1,066
2,943
1,149
256
243
397
780
303
967
232
333
810
310

12,393
7,986
7,743
3,936
2,732
2,014
1,465
1,054
920
892
792
778
493
435
316
87

94
46
49
42
79
86
10
11
21
38
14
62
13
18
39
-

68
26
38
34
52
73
8
10
12
10
9
56
11
15
30
9

90
47
48
52
81
86
11
12
17
25
14
63
13
21
43
23

109
59
66
69
113
102
15
14
21
58
19
69
16
25
73
32

34
48
33
31
57
16
31
24
33
79
33
17
22
23
27
34

26
27
26
21
37
13
22
20
23
32
21
15
17
16
19
13

21
22
19
16
26
11
17
17
19
14
16
14
14
13
11
10

30
40
25
48
33
30
33
25
29
12
32
25
17
26
24
54

18
20
20
20
20
16
16
18
16
18
16
15
16
16
16
15

193
95
95
80
221
108
24
20
37
65
28
97
22
31
76
31

30%
38%
25%
24%
44%
10%
31%
19%
33%
60%
33%
15%
20%
21%
26%
36%

250
1,033
142
382
737
177
514

12,080
2,182
1,783
1,138
908
877
652

7
38
5
14
56
7
21

6
32
4
11
53
5
17

7
35
5
13
59
7
22

8
44
6
15
65
9
27

41
32
36
35
14
35
30

35
29
29
29
12
24
23

30
24
24
25
11
19
19

66
123
54
63
19
153
43

25
25
22
23
15
22
22

15
62
10
25
74
12
35

25%
18%
25%
23%
9%
25%
19%

Note: Tata Tea does not include Glaceau acquisition impact

* EPS CAGR=HURDLE Rate: implied EPS growth FY 06/10E, required to get a target 50% stock price appreciation in 3 yrs, at a reasonable expected P/E for FY10E

37

Enam covered stocks

ENAM estimates
IBES EPS
Price
(Rs.)

Mkt. Cap
(US$ m)

CY06E/
FY07E

FDEPS (Rs.)
CY05/ CY06E/ CY07E/
FY06
FY07E
FY08E

P/E (x)
CY05/ CY06E/ CY07E/
FY06
FY07E
FY08E

RoE (%)

FY10 P/E

Implied Implied EPS

CY06E/ expected FDEPS (Rs.)

(x)
FY10E
FY07E

CAGR* (%)
FY06/ FY10

Company Name
IT SERVICES
Infosys
1,866
22,714
64
45
64
80
42
29
23
42
25
112
TCS
999
21,415
39
30
40
50
33
25
20
51
24
63
Wipro
521
16,351
19
14
19
24
37
27
22
31
24
33
Satyam
818
5,862
40
32
39
46
26
21
18
26
20
61
HCL Tech
550
3,906
37
24
31
38
23
18
15
23
18
46
I-flex
1,435
2,406
42
29
44
54
50
33
27
22
23
94
Tech Mahindra
625
1,586
18
32
39
34
19
16
40
16
59
Patni
389
1,175
20
22
17
27
18
23
14
11
18
32
Hexaware
163
472
9
7
8
11
22
20
15
23
15
16
Infotech Enterprises
211
212
15
11
15
18
19
14
12
28
14
23
MEDIA
Zee
293
2,711
7
5
7
9
59
42
33
10
20
22
Adlabs Films
351
306
10
6
10
12
60
34
28
11
20
26
Entertainment Network India
243
253
7
5
7
8
52
36
32
11
20
18
INOX Leisure
152
200
5
3
6
8
50
26
20
15
18
13
METALS
SAIL
80
7,256
14
10
16
16
8
5
5
42
7
17
Tata Steel
537
6,515
73
56
82
85
10
7
6
41
7
115
Hindustan Zinc
591
5,474
78
35
87
73
17
7
8
71
10
89
Sterlite Ind.
442
5,406
64
27
63
58
17
7
8
59
10
66
Hindalco
173
4,382
22
13
21
24
13
8
7
23
10
26
Nalco
214
3,024
32
24
33
29
9
7
8
31
10
32
Sesa Goa
1,024
883
196
142
196
216
7
5
5
53
7
220
PETROCHEM
ONGC
1,144
35,719
132
103
136
127
11
8
9
25
12
143
RIL
1,155
35,257
72
67
82
91
17
14
13
30
15
116
IOC
539
13,780
44
42
43
46
13
12
12
12
8
101
Gail
258
4,782
28
27
27
26
9
9
10
19
10
39
BPCL
377
2,475
34
16
32
36
23
12
10
10
8
71
HPCL
291
2,163
25
13
19
24
22
15
12
6
8
55
IPCL
302
1,643
29
35
47
47
9
6
6
24
8
57
Petronet
58
951
3
3
3
3
22
19
17
21
12
7
Chennai Petro
208
679
38
32
40
48
7
5
4
20
8
39
Indraprastha Gas
121
371
9
8
9
10
16
13
12
28
18
10
* EPS CAGR=HURDLE Rate: implied EPS growth FY 06/10E, required to get a target 50% stock price appreciation in 3 yrs, at a reasonable expected P/E for FY10E
ENAM Universe: 4

26%
21%
23%
18%
18%
34%
34%
10%
22%
20%
45%
45%
41%
43%
15%
20%
26%
26%
18%
7%
11%
8%
14%
24%
9%
44%
42%
13%
29%
5%
7%

38

Enam covered stocks

ENAM estimates
IBES EPS
Company Name
PAINTS
Asian Paints
Kansai Nerolac Paints
PHARMACEUTICALS
Cipla
Sun Pharma
Ranbaxy
Dr Reddy's
Glaxo Pharma
Nicholas
Glenmark
Biocon
RETAIL
Pantaloon
Shoppers' Stop
Trent
TELECOM
Bharti Tele-venture
RCVL
VSNL
MTNL
TEXTILES
Aditya Birla Nuvo
Lakshmi Machine Works Ltd
Arvind Mills
Gokaldas Exports
TRANSPORTATION
Container Corp
Jet Airways

Price
(Rs.)

Mkt. Cap
(US$ m)

CY06E/
FY07E

FDEPS (Rs.)

RoE (%)

P/E (x)

CY05/ CY06E/ CY07E/

FY06
FY07E
FY08E

CY05/ CY06E/ CY07E/

FY06
FY07E
FY08E

683
897

1,435
501

27
45

22
34

26
45

29
53

31
27

26
20

23
17

34
26

257
936
424
712
1,242
235
297
377

4,377
3,814
3,460
2,392
2,305
1,076
773
826

10
34
15
34
42
10
20
19

8
28
6
8
37
6
6
17

10
35
12
29
44
8
15
21

13
42
19
27
49
11
21
26

32
34
74
88
34
40
46
22

26
27
34
25
28
29
20
18

20
22
22
27
25
22
14
15

29
39
20
18
35
16
44
21

1,855
590
882

1,092
447
279

43
10
28

25
8
20

42
11
28

76
15
42

73
75
43

45
55
31

24
40
21

459
348
396
158

19,062
15,288
2,471
2,176

18
12
17
10

12
2
17
13

17
11
18
13

22
18
19
14

38
148
24
12

27
32
22
12

897
26,345
68
622

1,641
714
311
234

25
1,165
5
34

39
1,533
4
44

N.A.
1,943
5
58

36
23
13
18

1,682
651

2,394
1,231

80
33

97
13

120
22

21
20

1,488
4
43
98
46

FY10 P/E

Implied Implied EPS

CY06E/ expected FDEPS (Rs.)

(x)
FY10E
FY07E
20
20

CAGR* (%)
FY06/ FY10

51
67

23%
19%

22
22
22
22
22
20
18
18

18
64
29
49
85
18
25
31

21%
23%
50%
56%
23%
32%
40%
16%

18
12
13

25
28
28

111
32
47

45%
41%
23%

21
19
21
11

29
17
8
7

17
20
15
10

41
26
40
24

36%
35%
24%
16%

23
17
19
14

N.A.
14
12
11

15
37
5
20

20
13
10
14

67
3,040
10
67

28%
27%
17%
18%

17
52

14
29

27
5

15
14

168
70

20%
21%

Source: Company, ENAM Research

Note: ICICI Bank, HDFC valuations are calculated after including the value of investments.
Note: M&M - Standalone FDEPS
Note: RCOM - CAGR is FY07/FY10
Note: Price as on October 5, 2006
* EPS CAGR=HURDLE Rate: implied EPS growth FY 06/10E, required to get a target 50% stock price appreciation in 3 yrs, at a reasonable expected P/E for FY10E

39

ENAM Securities Pvt. Ltd.

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40

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41