THE FREE FALL FALL

Dolat Research Tel: (9122) 40969700

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THE FREE FALL

The INR has depreciated by over ten percent since May 2, 2013 against the , and eleven p g US Dollar, percent against the Euro. While it has witnessed extreme volatility during the period and may take some more time to stabilise, we believe that this sharp depreciation will impact earnings for y some of the sectors materially Based on our quick estimates, we expect IT services and Pharma to benefit the most while those negatively impacted include companies in the consumer plastics and energy space. consumer, space For IT services, our current estimates are based on average of ` 54.5 to the USD for FY14, which if revised to ` 59 leads to an earnings g upgrade pg of 47% for our coverage universe. Similarly for the gas segment, the cost increases due to currency impact could lead to earnings downgrades of 38% for companies p in our coverage. g We have not made any revisions to our preferred picks list (refer our note date 12/06/2013) yet as wait for the currency to stabilise before revising our FY14 estimates and accordingly our preferred picks. picks
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HOW MUCH MORE.

USD Vs. INR
Jan-13 48 50 52 54 56 58 60 62 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jan-13 70 75 80 85 90 95

GBP Vs. INR

Feb-13 Mar-13 Apr-13 May-13 Jun-13

JPY Vs. INR

Jan-13 0.45 0.5 0.55 0.6 0.65
Prices till 20th June 2013

EUR Vs. INR

May-13 Jun-13 Jan-13 60 65 70 75 80 Feb-13 Mar-13 Apr-13 May-13 Jun-13

Feb-13

Mar-13

Apr-13

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Auto & Auto Ancillary y

Companies y Apollo Tyres & Bharat Forge Bajaj Auto Exide Inds Hero Moto M&M Comments Impact p however, mark to market losses on Gains on exports, Negative foreign loans will play a spoiler. ~75% of its exports are hedged, so a mark to market on Negative this hedge will be negative in the short-term. The advantage of softening in lead prices which is built in our assumption may no longer hold valid due to Negative significant rupee depreciation. Exports have just started and will hardly impact overall Neutral EPS. Neutral since lower commodity advantage squared off Neutral against i t depreciating d i ti rupee. Advantage of yen will continue to benefit margins. However, total imports (direct & Indirect) are roughly Positive 18-20% So the yen advantage may not come in toto. 18-20%. toto Overall, forex should be on the positive side. Should be the biggest beneficiary of the pound Positive (1GBP=90/-), ( / ), our assumption p of GBP is currently y 80/-. /

Maruti

Tata Motors

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Consumer
Companies Asian A i Paints P i t Berger Paints Dabur India Godrej G d j Consumer Hindustan Unilever ITC Marico Pidilite Industries Comments Impact p Imported RM 10% of sales. International business 15% of Negative N ti sales. Price hike likely but with a lag Imported RM 7% of sales. International business 10% of Negative sales. Price hike likely but with a lag International business 30% of sales (Namaste group Positive US). No significant imports Imported p RM 5% of sales. International business 40% of sales (South Africa and Indonesian currency has Negative depreciated against Rupee) Imported RM 4% of sales. Company has a natural hedge Neutral due to exports 3% of sales Imported RM 2.7% of sales. Exports 10% of sales. Neutral Imported p RM 4% of sales. International business 25% of N t l Neutral sales Imported RM 13% of sales. International business 10% of Negative sales. Price hike likely but with a lag

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Energy gy
Companies Astral Poly Comments Impact p p CPVC so raw material costs increase. We expect Imports Astral to pass this through price hikes. If not, FY14E Negative earnings can be impacted by around 5%. Imports base oil so raw material costs increase. Unlikely to mitigate ii this hi risk. i k Earnings E i could ld b be impacted i d by b Negative N i around 8%. Uses gas as input for Petrochemicals. Negative Due to high prices, spot volumes could reduce. Negative Neutral to impact on earnings of around 3% for FY14. Negative Raw material cost increases. We expect Gujarat Gas would ld take k price i hikes hik to negate this. hi If not earnings i can Negative N i be reduced by 5 - 6% for CY13. Raw material cost increases. We expect IGL would take price hikes to negate this. this If price hikes are delayed, delayed Negative earnings can be reduced by 4 - 5% for FY14. Spot off-take can reduce. Earnings impact can be around Negative 10%, the highest in our coverage universe.
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C t l Castrol GAIL GSPL G j Gujarat G Gas

IGL Petronet LNG

Financials
Companies ICICI Bank SBI BOB Comments International loan growth to receive a fillip Impact Neutral Gains the most amongst our universe on account of Neutral higher proportion of international business Amongst the top gainers after SBI, led by its higher than Neutral sector average global exposure

( Other (PNB, UBI, Yes, HDFC No direct impact. However, pressure on borrowers Bank, Axis, exposed to FX risk can exert some pressure on asset Neutral ING, KVB, CUB, quality of all banks including the above three banks. BOI)

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IT Services
Companies Mindtree Comments Impact We expect realisation gains of 3%/10% for Q1/Annual and sustenance of OPM at current levels of 18%. Fx Positive gains would be lowest among peers due to realtively higher hedged exposure. Would be benefited least due to highest component of INR denominated revenues among the peers. We expect Neutral moderate realisation gains of 1/5% for Q1/Annual estimates. We expect moderate realisation gains of 1.5%/7% for Q1/Annual as most of the recent wins are in India g the Fx would support pp its OPM Positive market. Though sustenance at over 14%+, leading to potential earnings upgrades Currency gains would be moderate due to wide range of F Forex d lt owing dealt, i t higher to hi h component t of f revenues coming from developing countries. We expect Neutral realisation gains in the range of 2/7% for Q1/Annual perspective.

Mphasis

NIIT Tech

OFSS

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IT Services
Companies Persistent Comments Impact We expect realisation gains would be 7 7-8% 8% as the deal size and maturity is smaller and thus quicker Positive renegotiations. OPM sustenance at about 20%+ which could lead to potential earnings upgrades of 4%. We expect realisation gains of 2%/9% for Q1/Annual and Fx support to its OPM would lead to sustenance at Positive about 27%+ which could lead to potential earnings upgrades. Currency gains would be relatively moderate due to higher GBP (up 5% YY basis) component versus peers. We expect p p reported p realisation g gains of 2%/7% Positive for Q1/Annual perspective. OPM would remain at the levels of 17%, and could lead to further earnings upgrades. We expect W t realisation li ti gains i of f 2%/8% for f Q1/Annual Q1/A l perspective. We believe weak off take in products would Positive be further extended due to likely upward revisions in prices.

TCS

Tech Mahindra

Wipro

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Midcaps p
Companies Comments Impact Supreme Industries p constitute 35-40% of the raw material costs. Imports While price hikes would happen for the piping segment on immediate basis, the other segments are likely to pass Negative on the rising input cost only after some lag. Margins thus could be negatively impacted MTM provisioning on FCCB will impact the financials largely. g y Financials of two subsidiaries - Wausaukee ( (US) ) Negative g & Nief (EU) - will get impacted positively Imports constitute 60-65% of the raw mat costs. Margins would thus be negatively g y impacted. p However increasing g N Negative i contribution of overseas subsidiaries is likely to negate the impact to some extent.

Sintex Industries

Time Technoplast

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Midcaps p
Companies Kajaria Ceramics Comments Impact , will thus result in rise in cost of gas as fuel, Uses g production. Passing on immediately looks unlikely Negative considering the current demand scenario. Margins may thus remain under pressure. Rising rupee expected to hurt margins of plywood segment. Impact on laminates segment to be neutral (due to natural hedge) g ) while for MDF segment g import p threat Negative will ease which would result in better pricing power. In all, being a net importer, margins might get impacted to a certain extent

Greenply py Industries

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Metals and Mining g

Companies Coal India Hindalco Hindustan Zinc Innoventive Industries Jindal Saw J Comments Impact g would Positive for e-auctions realisations, but earnings Neutral be impacted by higher bulk diesel prices Positive impact on profits in standalone operations as LME prices are in USD, Novelis earnings in USD , but Positive valuation l i get impacted i d due d to higher hi h USD debt d b Benefits from Re depreciation as prices are based on Positive import parity basis Net exporter, benefits from higher Re Positive

Net exporter of pipes, but has 50% of debt in foregin Neutral currency

Jindal Steel and Benefits due to higher steel realisations, have only 25% Positive foreign currency debt Power JSW Steel Have USD 2.4bn dollar of unhedged acceptances, but benefits in terms of higher realisations as prices are on Negative import parity

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Metals and Mining g

Companies Maharashtra Seamless Ratnamani Metal SAIL Sterlite Industries Tata Steel Comments Net exporter of seamless pipes, pipes no debt on balance sheet Net exporter, benefits from higher Re Impact Positive Positive

Benefits due to higher steel realisations, and have Rs debt Positive Positive for Cairn India and earnings accretive in Zinc, Aluminum and Silver operation, but would be hit by Negative higher forex debt of USD5.5bn Valuations get impacted by higher forex debt at Tata Steel Europe, benefits due to Re depreciation at Negative standalone t d l l level l

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Pharma
Companies Biocon Comments Impact g 100% of one y Hedges years and 50% of next y years net Neutral forex exposure. Forex loans of USD 150mn. No forward cover. Near term Neutral negative due to revaluation of Balance sheet in foreign currency. However H i medium in di term, we expect this hi shall h ll be more than neutralised due to higher export realisation (50% of sales) Exports constitute more than 90% of sales and are left Positive unhedged. Negligible forex loan. Outstanding cashflow hedge stood at USD 480mn (18 Positive months rate at USD/INR 56 56-59) 59) and balance sheet hedge stood at USD 400mn. No hedge on exports. Fx loans of USD 85mn to incur Neutral MTM loss. Fx hedge worth USD 100mn (12 months cover at Positive USD/INR 56-57). Forex loan of USD 70mn. Exports constitute more than 60% of sales. C dil Health Cadila H lth

Divi's Dr. Reddys y Glenmark Ipca labs

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Pharma
Companies Lupin Comments Impact Net exposure of USD 450mn on P&L while hedges stand at USD 330mn. Hedges 50-60% of its net exports for 12 Positive months Translational losses on open derivatives position is USD Negative 962mn. To realize losses on fair value of derivatives. One year cover of net exports, Negligible Debt Positive Ranbaxy Sun Pharma

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BUY ACCUMULATE REDUCE SELL Analyst Amit Khurana, CFA Amit Purohit Milind Bhangale Mayur Milak Nehal Shah Priyank Chandra Rahul J Jain Rajiv Pathak Ram Modi Prachi Save Associate Dhaval S. Shah Pranav Joshi Manish Raj Equity Sales/Trading Purvag Sh P Shah h Vikram Babulkar Kapil Yadav Parthiv Dalal Jatin Padharia J Chirag Makati Aadil R. Sethna P. Sridhar Chandrakant Ware Jitendra Tolani Sector/Industry/Coverage

Upsideabove20% Upsideabove5%andupto20% Upsideofupto 5%ordownsideofupto 15% D Downside id of fmorethan h 15% E-mail amit@dolatcapital.com amitp@dolatcapital.com milindb@dolatcapital.com mayurm@dolatcapital.com nehals@dolatcapital.com priyank@dolatcapital.com rahul@dolatcapital.com p rajiv@dolatcapital.com ram@dolatcapital.com prachi@dolatcapital.com E-mail dhaval@dolatcapital.com pranavj@dolatcapital.com manishr@dolatcapital.com E-mail purvag@dolatcapital.com @d l i l vikram@dolatcapital.com kapil@dolatcapital.com parthiv@dolatcapital.com jatin@dolatcapital.com j p chiragm@dolatcapital.com aadil@dolatcapital.com sridhar@dolatcapital.com chandrakant@dolatcapital.com jitendrat@dolatcapital com jitendrat@dolatcapital.com Tel.+91-22-4096 9700 91-22-40969745 91-22-40969724 91-22-40969731 91-22-40969749 91-22-40969753 91-22-40969737 91-22-40969754 91-22-40969750 91-22-40969756 91-22-40969733 Tel.+91-22-4096 9700 91-22-40969726 91-22-40969706 91-22-40969725 Tel.+91-22-4096 9797 91-22-40969747 91 22 40969747 91-22-40969746 91-22-40969735 91-22-40969705 91-22-40969748 91-22-40969702 91-22-40969708 91-22-40969728 91-22-40969707 91 22 40969734 91-22-40969734

Co-Head Equities and Director - Research Consumer Pharma Auto & Auto Ancillary Midcaps & Agrochem Oil & Gas IT Services Financials Metals & Mining Derivatives Sector/Industry/Coverage Capital Goods Financials Metals & Mining Designation Principal P i i l Co-Head Equities and Head of Equity Sales AVP - Institutional Sales AVP - Institutional Sales Institutional Sales - FII AVP - Sales Trading Head of Derivatives Head Sales - Trading Senior Sales Trader Sales Trader

This report contains a compilation of publicly available information, internally developed data and other sources believed to be reliable. While all reasonable care has been taken to ensure that the facts stated are accurate and the opinion given are fair and reasonable, we do not take any responsibility for inaccuracy or omission of any information and will not be liable for any loss or damage of any kind suffered by use of or reliance placed upon this information. For Pvt. Circulation & Research Purpose only.

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