Market Outlook

India Research
July 22, 2011

Dealers Diary
The market hit its lowest level in more than a week at the onset of the trading session on weak Asian shares. Key benchmark indices pared gains after regaining the positive terrain in mid-morning trade. The market once again slipped into the red in early afternoon trade. Key benchmark indices hovered in red in afternoon trade, as European markets edged lower after a positive start. Intraday volatility continued as the key benchmark indices weakened once again after trimming losses in mid-afternoon trade, tracking weak European stocks. The Sensex and Nifty closed with gains of 0.4% and 0.5%, respectively. The mid-cap index ended lower by 0.4%, while the small-cap index closed with losses of 0.5%. Among the front runners, Hero Honda, Tata Motors, Hindustan Unilever, Wipro and Infosys gained 12%, while Reliance Comm., Reliance Industries, Jaiprakash Associates, HDFC Bank and NTPC lost 14%. Among mid caps, MindTree, CRISIL, SKS Microfinance, Petronet LNG and Hexaware Tech gained 611%, while Apollo Tyres, NCC, Shree Global, Orchid Chemicals and Dish TV India lost 45%.

Domestic Indices BSE Sensex Nifty MID CAP SMALL CAP BSE HC BSE PSU BANKEX AUTO METAL OIL & GAS BSE IT Global Indices Dow Jones NASDAQ FTSE Nikkei Hang Seng Straits Times Shanghai Com Indian ADRs Infosys Wipro ICICI Bank HDFC Bank

Chg (%) -0.4% -0.5% -0.4% -0.5% -0.8% -0.3% -1.0% -0.3% -0.5% -0.8% 0.1% Chg (%) 1.2% 0.7% 0.8% 0.0% -0.1% 0.4% -1.0% Chg (%) 1.7% -0.2% 0.3% -1.0%

(Pts) (25.5) (29.9) (38.0) (51.4) (27.4) (28.7) (71.3) 8.1 (Pts) 152.5 20.2 46.1 4.5 (16.4) 12.0 (28.3) (Pts) 1.0 (0.0) 0.2 (1.8)

(Close) 5,542 6,959 8,394 6,341 8,489 8,707 9,058 5,842 (Close) 12,724 2,834 5,900 10,010 21,987 3,139 2,766 (Close) $62.7 $12.4 $47.3 $177.8

(66.2) 18,436

(125.3) 12,638 (78.2) 14,600

Markets Today
The trend deciding level for the day is 18,473/5,551 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,53018,624/5,569-5,597 levels. However, if NIFTY trades below 18,473/5,551 levels for the first half-an-hour of trade then it may correct up to 18,37918,321/5,523-5,505 levels.
Indices SENSEX NIFTY S2 18,321 5,505 S1 18,379 5,523 R1 18,530 5,569 R2 18,624 5,597

News Analysis
Punj Lloyd bags order worth `210cr 1QFY2012 Result Review Hindustan Zinc, Hero Honda, Sesa Goa, Yes Bank, DB Corp, KPIT 1QFY2012 Result Preview Axis Bank, Union Bank of India, Colgate, Allahabad bank, Thermax, FAG Bearings 2QCY2011, NIIT
Refer detailed news analysis on the following page

Advances / Declines Advances Declines Unchanged

BSE 1,187 1,643 127

NSE 503 942 69

Net Inflows (July 20, 2011) ` cr Purch FII MFs 1,881 634

Volumes (` cr)

Sales 1,912 651

Net (31) (17)

MTD 6,954 274

YTD 9,624 3,500 Open Interest 12,167 32,991

BSE NSE

2,718 10,013

FII Derivatives (July 21, 2011) ` cr Index Futures Stock Futures Gainers / Losers Gainers Company Petronet LNG Zee Entert Indiabulls Fin Amtek Auto-$ Suzlon Energy Price (`) 167 132 181 155 53 chg (%) 9.1 6.1 4.7 4.3 3.6 Company Exide Inds JSW ENERGY Lanco Infra Apollo Tyres NCC Losers Price (`) 155 71 21 75 80 chg (%) (8.8) (6.6) (6.5) (5.1) (5.0) Sebi Registration No: INB 010996539
1

Purch 1,182 2,424

Sales 1,333 2,531

Net (151) (107)

Please refer to important disclosures at the end of this report

Market Outlook | India Research

Punj Lloyd bags order worth `210cr

Punj Lloyd has bagged a civil contract for a thermal power plant from NTPC worth `210cr. The order involves undertaking balance-offloaded work for the power plant in Bongaigaon, Assam, and is expected to be completed by 2014. The scope of the work entails underground civil work; piling and foundations for over ground civil; structural and architectural work for buildings such as main plant, air washer, ESP control, service, mill, bunker and conveyor galleries; and construction of the administration building and auditorium, the O&M workshop and the CHP office-cumworkshop in the offsite area. With this order, the companys total outstanding order book stands at ~`25,409cr (3.1x FY2011 revenue). Owing to the uncertainty over receivable claims and overhangs on the stock because of lack of clarity on various issues (execution, margin and Libyan projects) and slowdown in order inflow, we maintain our Neutral view on the stock.

1QFY2012 Result Review Hindustan Zinc

For 1QFY2012, Hindustan Zincs (HZL) net revenue increased by 44.6% yoy to `2,821cr (marginally lower than our estimate of `2,941cr) on account of higher sales volume and realisation. Despite the shutdown at Rampura Agucha mine during the quarter, zinc volumes grew by 16.5% yoy to 192kt and lead sales volumes grew by 4.5% yoy to 15kt. Silver sales volume increased by 14.2% yoy to 40,908kg and lead concentrate sales stood at 10,086dmt. Average zinc, lead and silver realisation increased by 11.6%, 25.5% and 98.0% yoy, respectively. On the operating front, staff cost declined by 14.0% yoy to `127cr, which led to EBITDA margin expanding by 406bp yoy to 56.4%. Thus, EBITDA grew by 55.8% yoy to `1,592cr. Further, other income was higher by 124.3% yoy to `355cr, which resulted in net profit growing by 67.8% yoy to `1,495cr despite depreciation increasing by 19.8% yoy to `135cr and higher tax rate at 17.1% (net profit was in-line with our estimate of `1,532cr). We continue to maintain our Buy recommendation on the stock. However, our target price is under review.

Hero Honda
HH registered an in-line quarterly performance with a strong 32.3% yoy growth (5.4% qoq) to `5,683cr. The growth was primarily driven by 23.9% yoy (5.2% qoq) increase in volumes and 6.7% yoy (0.2% qoq) increase in average net realisation owing to price increases. While, domestic motorcycle sales posted a robust 23.1% yoy growth, scooter segment continued its strong traction registering a 35.8% yoy growth. Exports volumes too posted a 26.9% yoy growth. On the operating front, adjusted EBITDA margins declined 275bp yoy (84bp qoq) to 11.3% against our estimates of 12.1%. Contraction in margin can be attributed to increase in input costs which resulted in 355bp yoy increase in rawmaterial cost as a percentage of sales (74.7% as against 71.2% in 1QFY2011). However decline in other expenditure by 6.8% yoy restricted further fall in margins. Net Profit for the quarter increased by 13.5% yoy (11.2% qoq) to `558cr supported by higher other income and lower tax outgo. At `1789, HH is trading at 16.1x and 14.9x FY2012E and FY2013E earnings, respectively. We maintain our Neutral rating on the stock and shall come up with a detailed result update soon.

July 22, 2011

Market Outlook | India Research

Sesa Goa
For 1QFY2012, Sesa Goa's net sales decreased by 12.6% yoy to `2,109cr, lower than our estimate of `2,378cr on account of lower-than-expected iron ore sales volumes. The decrease in revenue was mainly on account of a 21.0% yoy decline in iron ore sales volume to 4.3mn tonnes. Iron ore realisation increased by 14.8% yoy to US$99/tonne on dry metric tonne basis (in-line with our expectations). Export duty increased by 170.7% yoy to `345cr in 1QFY2012, as the government had raised export duty on iron ore to 20% recently. EBITDA declined by 21.5% yoy to `1,146cr mainly due to a decline in net sales. EBITDA margin slipped by 616bp yoy as higher iron ore realisation was more than offset by the increase in export duty. Tax rate increased to 31.2% of PBT compared to 17.8% in 1QFY2011. Hence, PAT decreased by 35.4% yoy to `841cr (below our estimate of `1,075cr). On account of lower-than-expected 1QFY2012 results, we would lower our estimates and target price for Sesa Goa. We maintain our Buy recommendation on the stock. However, our target price is under review.

Yes Bank
For 1QFY2012, Yes Bank reported a strong performance with net profit growth of 38.2% yoy (6.2% qoq) to `216cr, marginally above our estimate of `212cr. Profit growth was driven by sequentially stable NIMs and a sharp drop in provisioning expenses (due to write-back of `15cr), which offset the lower-than-expected non-interest income. During the quarter, the bank seemed to have moderated its balance sheet growth to maintain NIMs, as evident from the sequential decline in advances of 3.7%. Consequently, deposit accretion also declined by 5.1% qoq. CASA deposits continued to grow at a brisk pace of 49.8% yoy, leading to an improvement in CASA ratio to 10.9% from 10.5% in 1QFY2011. The bank surprised positively with sequentially stable NIMs at 2.8% on the back of a 90bp rise in yield on advances, which offset the 70bp qoq increase in cost of funds. Asset quality of the bank continued to be in a sweet spot, with gross and net NPA ratios of 0.17% and 0.01%, respectively, coupled with provision coverage (excluding technical write-offs) of 95.2%. Branch expansion plans were on track, with addition of 41 branches to take the network to 255 branches. The stock is trading at of 2.0x FY2013E ABV. We maintain our Accumulate recommendation on the stock with a target price of `353.

DB Corp.
DB Corp. reported its 1QFY2012 numbers with consolidated revenue growth of 18.4% yoy/11.5% qoq to `353cr (`298cr/`317cr). Advertising revenue grew by 20.2% yoy/13.8% qoq to `283cr (`235cr/`249cr), while circulation revenue grew by 5.8% yoy/down 6.4% qoq to `56.8cr (`53.7cr/`53.4cr). Recurring consolidated earnings declined by 14.8% yoy/though grew strongly by 48% qoq to `61cr (`72cr/`36cr). Operating margin declined by 966bp yoy, though it improved by 329bp qoq. A detailed note would be released post the conference call with the management. The stock is currently under review.

KPIT Cummins Infosystems

KPIT Cummins Infosystems (KPIT) reported its 1QFY2012 results, which outperformed street as well as our expectations. Dollar revenue came in at US$70.1.9mn, up 7.0% qoq, majorly led by volume growth. In rupee terms, revenue came in at `316cr, up 6.4% qoq. EBITDA margin declined by 201bp qoq to 12.6% due to negative impact of wage hikes given from April 1, 2011 (1214% for offshore employees and 4% for onsite employees). PAT stood at `24.4cr, down 8.5% qoq due to higher tax rates. We continue to be positive on the stock and will be releasing a detailed result update shortly.
July 22, 2011 3

Market Outlook | India Research

1QFY2012 Result Preview Axis Bank

Axis Bank is slated to announce its 1QFY2012 results. We expect the bank to report healthy NII growth of 21.0% yoy to `1,832cr. NIM on a sequential basis is likely to remain flat with a downward bias. Non-interest income is expected to increase by 25.9% yoy to `1,260cr. Cost-to-income ratio is expected to increase to 45.0% from 42.3% on a yoy basis due to the recent strong branch expansion and wage inflation. Pre-provision profit of the bank is expected to register 17.4% yoy growth. However, owing to lower provisioning burden, net profit is expected to increase by 27.1% yoy to `943cr. The stock is currently trading at attractive valuations of 2.0x FY2013E ABV (more than 40% discount to HDFC Bank, despite similar earnings quality, profitability and growth expectations over FY201113). Hence, we maintain our Buy recommendation with a target price of `1,650.

Union Bank of India

Union Bank of India is scheduled to announce its 1QFY2012 results. We expect the bank to post healthy NII growth of 28.7% yoy (1.1% qoq) to `1,735cr. Non-interest income is expected to drop by 1.9% yoy and 29.0% qoq to `427cr. Pre-provision profit of the bank is expected to increase by 13.6% yoy. Net profit is expected to increase moderately by 5.0% yoy and 5.6% qoq to `631cr on account of higher provisions. At the CMP, the stock is trading at valuations of 1.1x FY2013E ABV. We maintain our Buy view on the stock with a target price of `357.

Colgate
Colgate is expected to announce its 1QFY2012 results. For the quarter, we expect the company to post modest 13.9% yoy growth in its top line to `603cr, aided by steady volume growth. Earnings for the quarter are expected to register 4.9% yoy growth to `128.0cr, primarily led by margin expansion of 152bp yoy to 24.8%. We maintain our Reduce view on the stock with a target price of `874.

Allahabad Bank
Allahabad Bank is scheduled to announce its 1QFY2012 results. NII is expected to grow by 36.5% yoy (0.8% qoq) to `1,161cr. Non-interest income is expected to grow moderately by 8.2% yoy (down 31.2% qoq) to `323cr. We expect provisioning expenses to increase substantially by 162.2% yoy to `396cr. Net profit is expected to grow marginally by 3.0% yoy (healthy 38.8% qoq) to `358cr. At the CMP, the stock is trading at valuations of 1.0x FY2013E ABV. We maintain our Accumulate view on the stock with a target price of `222.

Thermax
Thermax is scheduled to announce its 1QFY2011 results. The companys net sales are expected to increase by 14.1% yoy to `901cr. OPM is expected to contract by 115bp yoy to 11%. Net profit is expected to increase by 1.6% yoy to `67cr. The stock is currently trading at 18.2x FY2012E and 14.2x FY2013E earnings. Currently, we remain Neutral on the stock, but will revise our estimates post the conference call.

July 22, 2011

Market Outlook | India Research

FAG Bearings 2QCY2011

FAG Bearings is set to announce its 2QCY2011 results. The company is expected to deliver 19% yoy growth in revenue to `322cr. On the operating front, we expect the company to post a 37bp yoy improvement in its operating profit margin to 19.5%. Thus, net profit is expected to increase substantially by 24% yoy to `42cr. The stock rating is under review.

NIIT
NIIT is expected to announce its 1QFY2012 results. We expect the companys revenue to grow by 9.7% yoy to `305cr. Revenue for the individual learning solution (ILS-IT), school learning solution (SLS) and corporate learning solution (CLS) segments is expected to grow by 10%, 15% and 6% yoy to `100cr, `44cr and `146cr, respectively. Revenue from the new business is expected to grow at a scorching pace of 35% yoy to `15cr. We expect the companys EBITDA margin to decline by 632bp yoy to 9.8%, majorly due to an 843bp yoy decline in the EBITDA margin of the SLS segment. PAT is expected to be at `11.4cr. We maintain our Buy view on the stock with an SOTP target price of `68.

Economic and Political News

Government approves two highway projects worth `2,330cr Food inflation slips to 7.58% for July 9 week Government proposes changes in Customs Act

Corporate News
NHPC signs MoU with Orissa for 320MW units CIL to spend `30,000cr on expansion during the Twelfth Plan Biocon unit inks pact with US firm Endo Pharmaceuticals to expand collaboration
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

Events for the day Allahabad Bank Axis Bank Colgate Palmolive Ispat Inds Jet Air India NIIT Union Bank

Results Results Results Results Results Results Results

July 22, 2011

Market Outlook | India Research

Research Team Tel: 022-3935 7800 E-mail: research@angelbroking.com Website: www.angelbroking.com

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Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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July 22, 2011