4Q FY 2013 Result Preview, 4th April

4QFY2013 Results Preview | April 3, 2013
Table of Contents
Strategy 4QFY2013 Sectoral Outlook Automobile Banking Capital Goods Cement FMCG Infrastructure Information Technology Media Metals Oil & Gas Pharmaceutical Power Telecom Stock W atch Watch 11 14 19 21 23 25 28 31 32 35 38 41 43 46 2-9
Note: Stock prices as of March 28, 2013 Refer to important Disclosures at the end of the report
Strategy
Pressure on earnings to continue
For 4QFY2013, we expect Sensex as well as our coverage companies to report a similar 4.7% yoy decline in earnings. But on a sequential basis, the earnings performance for Sensex as well as our coverage companies is likely to improve by 6.1% and 8.0% qoq respectively. The decline in earnings can largely be attributed to continued slippage in margins on a yoy basis. We expect Sensex companies to report a margin contraction of 173bp yoy. Similarly, for our coverage companies, we expect margin compression of 163bp yoy during the quarter. On a sequential basis though, margins are expected to improve considerably as compared to the past few quarters, ie by 289bp qoq for Sensex companies and 219bp qoq for our coverage companies. Revenue performance is also expected to remain subdued, reflecting the slower-than-expected pick-up in economic activity. For the quarter, we expect revenue growth for Sensex companies to come in at 6.1% yoy as compared to 7.3% yoy for our coverage universe. The revenue performance is likely to be largely driven by companies in the oil and gas, IT and BFSI space.
Modest Sensex EPS growth in FY2013

We expect the Sensex EPS to post modest 5.8% growth in FY2013 with significant contribution from BFSI stocks, followed by stocks from IT and FMCG sectors. Sensex BFSI companies are estimated to post robust earnings 25.2% yoy growth, aided by strong performance of HDFC Bank and ICICI Bank. IT companies' earnings are expected to grow by a healthy 17.8% yoy, primarily aided by sharp INR depreciation and modest business growth. FMCG sector's contribution to overall growth is expected to be on account of strong earnings growth of 22.4% yoy, aided by healthy operational performance.
Outlook and Valuation

We expect Sensex EPS to grow by 14.9% to `1,366 in FY2014 and by a stronger 15.5% to `1,578 in FY2015, implying a CAGR of 15.2% over FY2013-15. We arrive at our 12 month Sensex target of 22,000, with a conservative target multiple of 14x FY2015E earnings (as against the 5-year average of 16x and 15-year average of 14.4x). Our target implies an upside of 16.8% from the present levels and is likely to be back-ended.
Exhibit 1: 4QFY2013 Angel coverage performance estimates

Sector Agriculture (2) Auto (7) Auto Anc. (6) Banks - New private (4) Banks - Old private (2) Banks - Large PSU (7) Banks - Mid PSU (14) Banks - Housing finance (2) Capital Goods (7) Cement (7) FMCG (12) Infrastructure (11) IT (13) Media (5) Metals (9) Mining (1) Oil & Gas (4) Pharmaceuticals (13) Power (2) Telecom (3) Coverage Universe (151) Source: Company, Angel Research Net Sales (%, yoy) (%, qoq) 7.0 1.5 1.3 19.5 12.6 0.9 9.0 20.2 (0.8) 74.4 14.8 2.8 20.1 10.7 (1.4) (2.6) 8.7 5.6 4.6 7.6 7.3 (4.1) 7.3 3.8 7.4 2.4 7.0 5.2 33.3 (73.2) 81.9 1.2 25.8 2.8 (6.9) 8.3 9.2 (2.5) (2.1) 7.1 1.6 (6.3) Net P rofit Profit (%, yoy) (%, qoq) 8.1 (23.5) (20.3) 24.6 0.1 (18.5) 2.6 15.3 (23.2) (13.2) 22.9 (17.6) 11.8 18.3 (0.7) (26.7) 2.7 (11.2) 8.5 (39.9) (4.7) 16.9 15.2 3.4 5.4 6.2 5.9 10.6 32.4 127.6 28.1 56.8 (2.3) (18.0) 47.4 (0.8) (14.2) 16.7 7.5 41.7 8.0 Operating (bps, yoy) 251 (65) (152) 231 109 (617) 27 18 (389) (1,181) 165 (53) (38) 451 (102) (838) (182) (61) 43 (191) (163) Margins (bps, qoq) 214 13 20 (78) (254) (418) (203) 210 1,358 (671) 41 152 (24) (38) 194 (727) (231) 184 42 (47) 219
Refer to important Disclosures at the end of the report
Strategy
Exhibit 2: 4QFY2013 Sensex performance estimates
Net Sales Sector Auto (5) Finance (4) Capital Goods (1) FMCG (2) Infrastructure (1) IT (3) Metals (4) Mining (1) Oil & Gas (3) Pharma (3) Power (2) Telecom (1) Sensex (30) Source: Company, Angel Research (%, yoy) 2.5 6.2 (4.0) 14.2 10.0 20.3 1.8 (2.6) 8.3 6.8 2.4 10.1 6.1 (%, qoq) 6.3 11.1 (81.6) 1.7 31.6 2.5 8.4 9.2 (2.6) (6.2) 4.7 1.9 (12.6) Net P rofit Profit (%, yoy) (20.8) 4.7 (23.8) 24.4 (18.3) 11.3 (3.4) (26.7) (0.7) 9.8 11.2 (47.1) (4.7) (%, qoq) 12.9 5.7 117.9 (3.5) 45.6 (2.1) 109.7 (0.8) (16.7) 7.0 7.1 87.6 6.1 Operating Margins (bps, yoy) (51) (464) (480) 311 (187) (148) (98) (838) (181) 35 80 (356) (173) (bps, qoq) 12 (332) 1,880 37 244 (33) 129 (727) (237) 145 21 (83) 289
Exhibit 3: Sensex companies' 4QFY2013 performance estimates

Net Sales (` cr) Sector Bajaj Auto Bharti Airtel BHEL Cipla Coal India Dr. Reddy HDFC HDFC Bank Hero Moto Corp Hindalco HUL ICICI Bank Infosys ITC Jindal Steel Gail India L&T M&M Maruti Suzuki NTPC ONGC RIL SBI Sterlite Sun Pharma Tata Motors Tata Power Tata Steel TCS Wipro Total W eight (%) Weight 1.6 2.4 0.9 1.2 1.2 1.4 7.9 7.4 1.0 0.8 3.1 7.5 8.8 10.6 0.9 1.0 4.7 2.5 1.2 1.8 4.2 8.6 3.5 0.9 2.1 3.2 1.0 1.3 5.7 1.7 100.0 4QFY2013E 4,664 20,631 18,805 2,057 18,918 2,409 2,369 6,002 6,020 6,959 6,354 6,063 10,788 7,949 5,235 12,038 20,303 10,150 12,680 16,947 19,938 92,008 16,510 11,334 2,800 50,305 2,133 35,323 16,457 11,212 455,363 4QFY2012 4,516 18,739 19,589 1,814 19,419 2,658 1,952 4,880 5,963 7,563 5,660 5,333 8,852 6,861 5,465 10,455 18,461 9,241 11,486 16,264 18,819 85,182 16,968 10,763 2,330 50,609 2,374 33,999 13,259 9,869 429,344 % chg 3.3 10.1 (4.0) 13.4 (2.6) (9.4) 21.4 23.0 1.0 (8.0) 12.2 13.7 21.9 15.9 (4.2) 15.1 10.0 9.8 10.4 4.2 5.9 8.0 (2.7) 5.3 20.2 (0.6) (10.2) 3.9 24.1 13.6 6.1 6.4 4QFY2013E 733 532 2,575 384 4,376 313 1,549 1,892 492 528 854 2,340 2,283 1,973 940 835 1,536 773 722 2,811 4,172 5,282 3,359 1,522 997 2,298 202 505 3,528 1,675 51,981 Net P rofit (` cr) Profit 4QFY2012 772 1,006 3,380 292 5,968 431 1,326 1,453 604 640 659 1,902 2,316 1,614 1,166 483 1,880 766 640 2,593 5,646 4,236 4,050 1,377 820 3,555 117 434 2,932 1,481 54,538 % chg (5.1) (47.1) (23.8) 31.7 (26.7) (27.4) 16.8 30.2 (18.5) (17.5) 29.6 23.1 (1.4) 22.2 (19.4) 72.9 (18.3) 0.9 12.8 8.4 (26.1) 24.7 (17.1) 10.5 21.5 (35.4) 72.6 16.4 20.3 13.1 (4.7) (0.4)
Sensex# Source: Company, Angel Research; Note: # based on free-float adjusted basis Refer to important Disclosures at the end of the report
Strategy Sectoral Analysis

Automobile - Challenging environment to weigh on earnings performance
For 4QFY2013, we expect our coverage automobile companies to report a muted revenue performance, as volumes declined by around 4.0% yoy on account of weak macroeconomic environment and poor consumer sentiments. However, growth in net average realization is expected to continue, driven largely by improving product-mix. On a sequential basis, we expect net sales to register a 7.3% qoq growth, aided by strong sequential volume growth at Maruti Suzuki and Tata Motors (mainly at Jaguar and Land Rover). Margins are expected to remain under pressure and report a decline of 65bp yoy owing to higher discounts and lower utilization levels across most of the companies. We expect net profit to decline sharply during the quarter by 23.5% yoy on account of contraction in operating margins, high levels of depreciation (primarily at Jaguar and Land Rover) and higher tax rate (mainly at Maruti Suzuki, Mahindra and Mahindra and Tata Motors). Excluding Tata Motors however, we expect earnings for our coverage automobile universe to decline by a lower 9.9% yoy and the top-line is expected to report a growth of 4.5% yoy. expected to have provided for the entire period in 4QFY2013. Hence it is likely to report a higher bottom-line de-growth of 17.1% yoy.
Cement - Margins to weigh on earnings

Despite better realization on a yoy basis, we expect most of the cement companies under our coverage to have faced margin pressure on account of higher costs including those pertaining to raw material, freight and power. Further, worsening of the cement demand scenario has put pressure on pricing. Demand from both, real estate and infrastructure sectors, failed to pick up in 4QFY2013. We expect our coverage cement companies to report a 13.2% yoy decline in earnings owing to margin slippage.
FMCG - Healthy earnings performance

We expect our coverage FMCG universe to post a healthy top-line and bottom-line growth of 14.8% and 22.9% yoy respectively. For some of these companies, margins are likely to decline owing to the increase in raw material and fuel costs. Sensex FMCG companies, ITC and HUL, are expected to post a healthy top-line growth of 12.2% and 15.9% yoy, respectively.
Infrastructure - Pain at the earnings level continues

For the infrastructure sector, there has been no respite from the several headwinds such as high interest and commodity costs and slowdown in order inflow. Our coverage infrastructure companies are likely to report a subdued 2.8% yoy growth in revenues along with pressure on margins, resulting in a 17.6% yoy decline in earnings performance. Infrastructure companies continue to reel under pressure on account of high interest cost owing to a high interest rate regime, and increased debt levels, which has resulted in a decline in the bottom-line for most of the infrastructure companies under our coverage.
Banking - New Private Banks to report robust earnings performance

We expect new private banks under our coverage to continue outperforming their nationalized counterparts and report a healthy operating performance in 4QFY2013. Amongst our coverage private banks, we expect the new ones to post a robust NII and earnings growth of 22.1% and 24.6% yoy respectively, while the older players are expected to report a healthy NII growth of 15.5% yoy and flat performance on the earnings front. On the other hand, our coverage PSU banks are expected to report a modest NII growth of 5.5% yoy, and an earnings decline of 13.1% in 4QFY2013, as these banks have found themselves subjected to higher asset quality pressures owing to relatively higher exposure to over-leveraged companies in cyclical sectors bearing the most severe brunt of slowing economic growth environment. Within PSU banks, while the mid-PSU banks are expected to report moderate NII growth of 11.6% and subdued earnings growth of 2.6% yoy, the large PSU pack is expected to report a muted NII growth of 2.3% yoy and a bottom-line decline of 18.5% yoy. During 3QFY2013, most of the PSU banks started making provisions for the impending wage hike, due from November 2012. However, State Bank of India did not do so and is therefore
Capital goods - Continued pressure on margins

We expect capital goods companies in our coverage universe to post a flat cumulative top-line growth owing to delays in execution arising largely from slowdown in investment and delays in obtaining various clearances. Continued margin pressure, due to tough competition in the sector and in some cases higher interest costs, is expected to be a drag on the companies' profitability and we expect a 23.2% yoy decline in earnings. We continue to maintain our negative stance in the BTG space owing to concerns of heightened competition and slowing of order inflows, whereas in the T&D space we are somewhat positive given the uptick in capex.
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Strategy
IT - Modest volume growth expected
We expect our coverage IT companies to report growth in revenue and earnings by 20.1% and 11.8% yoy, respectively. But sequentially earnings are likely to decline by 2.3% as 4QFY2013 is traditionally a soft quarter for the sector since budgets get closed, and discretionary, operational and capital spending ensues heavily in the following quarters. On the back of slight INR appreciation, moderate volume growth and lower other income, earnings of tier-I companies such as Wipro and HCL Technologies are expected to decline by 2.9% and 5.0% qoq, respectively. The profitability of Infosys is expected to decline by 3.6% qoq due to increase in operating costs on account of wage hikes given by the company.
Telecom - Weakness in earnings to persist

In our view, the telecom industry can improve structurally only after data revenues start picking up, which still looks far. Decisions regarding one-time excess spectrum fee, 3G roaming pact cancellations and modalities of spectrum re-farming are yet to be made. Further, exact payout towards spectrum renewals, spectrum re-farming and excess charge remains uncertain as pan-India reserve price remains undiscovered. We believe these factors will continue to be an overhang on the sector and hence we are currently Neutral on it. For 4QFY2013, we expect our coverage telecom companies to report an earnings decline of 39.9% yoy but growth of 41.7% qoq. We expect revenue growth to be modest at 7.6% yoy on the back of increase in MOU, and inch up in voice ARPM although there could be a slight decline in the subscriber base.
Metals - Earnings to remain under pressure

We expect our coverage metal companies to report an almost flat earnings performance for the quarter, owing to decline in sales as well as margins. We expect steel companies' profitability to decline by 18.4% yoy during 4QFY2013 due to decreasing prices of steel amidst slowing demand. For 4QFY2013, we expect net sales of steel companies to decline by 2.0% yoy on the back of lower steel prices. We also expect their margins to decline due to lower prices on a yoy basis. Non-ferrous companies are expected to face a double whammy of declining product prices coupled with higher input costs during 4QFY2013. But their earnings are expected to be modestly positive, supported by the performance of Sterlite Industries.
Despite concerns, expect stability in Euro area to continue

Concerns in the Euro area came to the fore, fraying market nerves globally, owing to the deadlock in Italy's parliament and Cyprus's negotiations to secure a bailout from the troika (EU, IMF, ECB). In Italy the elections led to a hung parliament as no political party secured a clear majority. The centre-left party led by Pier Bersani secured a majority in the lower house of parliament but has so far failed to find an agreement for a coalition in the upper house (Senate). Meanwhile, as a possible solution to the stand-off, the Italian President is likely to select political advisors to come up with proposals overseeing political and economic reforms that could be supported by parties in parliament. Cyprus reaches bailout deal: Cyprus clinched a Euro10bn deal and agreed to downsize its financial sector in order to avoid a collapse of its banking sector and risk exit from the 17-member common currency Euro area. As a consequence, one of its largest banks - Laiki Bank has been wound up. Insured deposits (under Euro100,000) remain secure but those over Euro100,000 in Laiki Bank as well as Bank of Cyprus (the largest bank in the country) would be frozen and used to resolve Laiki Bank's debts and recapitalize the Bank of Cyprus. Cyprus is likely to get the first tranche of the Euro10bn bailout in May but at this juncture there is no clarity on the exact haircut on the uninsured deposits. The present deal follows a politically unpalatable proposal that involved recouping Euro5.8bn from a one-time 'stability levy' on bank depositors. It was rejected with an overwhelming vote in the parliament since none of the 56 members of parliament ruled in its favor. Following its failure, the ECB compelled the country to reach an agreement by threatening to cut off emergency lending assistance to the ailing banks.
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Oil and Gas - ONGC to weigh on earnings performance

We expect ONGC to weigh on the earnings performance of our coverage as well as Sensex oil and gas companies, with its earnings expected to decline by 26.1% yoy, largely due to a yoy increase in its subsidy burden. Excluding ONGC, our coverage oil and gas companies are likely to post an improved earnings growth of 25.5% yoy, aided by improvement in revenue performance.
Pharmaceuticals - Mixed earnings performance

The Indian pharmaceutical sector is expected to post lackluster numbers for 4QFY2013 on the sales front. We expect our coverage universe to register a 5.6% yoy top-line growth. The muted top-line growth estimate for the period is largely on account of the high base of the last corresponding period. The earnings performance is expected to be mixed. Excluding the negative performance of Ranbaxy Laboratories, which is likely to post a decline in top-line and margins, our coverage pharmaceutical companies are likely to witness a decent 15.6% yoy growth in earnings.
Strategy
Cyprus had requested for financial assistance in June 2012, owing to mounting losses in the banking sector after being heavily exposed to Greek debt. The banking sector in the country is over-extended and at its peak it accounted for eight times the size of the economy. The size of the economy itself is relatively small since it accounts for merely 0.2% of the total Euro zone output, with real GDP of Euro15bn in 2011. Cyprus is the fifth Euro zone economy to receive financial assistance (following Greece, Portugal, Ireland and Spain) and the first that prescribed losses on bank depositors. We believe that such extraordinary conditions were imposed largely owing to the nature of the over-extended banking system. So far, as we had expected, policymakers have taken several concerted efforts to preserve the Euro area and we are fairly optimistic that the deal in Cyprus is unlikely to set a precedent for lending to other debt-ridden economies.
Repo rate cut fails to cheer markets as politics plays dampener

Monetary policy stance: In its Mid Quarter Monetary Policy Review on March 19, the Reserve Bank of India (RBI) eased the repo rate by 25bp from 7.75% to 7.50%, in line with our as well as market expectations. This move takes the repo rate 100bp lower since April 2012. We believe that the RBI's policy stance has shifted from a rather hawkish tone to a more balanced approach in the growth-inflation dynamic, owing largely to slower-than-expected pace of economic growth, recent moderation in WPI inflation (particularly core inflation) and the government's positive action on fiscal consolidation. At the same time, its guidance suggested that 'headroom for further monetary easing remains quite limited'. We believe the RBI maintains caution owing to 1) elevated food inflation and correction in administered fuel prices (since it has time and again underscored its commitment to anchoring inflationary expectations), 2) divergence between CPI and WPI inflation (by 407bp) 3) double-digit CPI inflation suggesting negative real interest rate for savers, and 4) high current account deficit (CAD). The monetary policy stance going forward in FY2014 would continue to be determined by the CAD, inflation and growth scenario. We expect repo rate cuts amounting to 50-75bp for FY2014. The reduction in RBI's key policy rate failed to impress the market as political concerns surfaced immediately after the policy review.
Exhibit 4: Snapshot of Euro zone economies (2011)

Unemployment GDP (Euro bn) Germany France Italy Spain Netherlands Belgium Austria Greece Finland Portugal Ireland Slovak Republic Luxembourg Slovenia Cyprus Estonia Malta Eurozone 2,448.3 1,801.6 1,425.6 1,048.1 555.8 362.5 269.7 182.1 161.2 159.4 158.7 63.9 33.7 24.4 15.2 12.0 5.5 8,727.6 (%, yoy) 3.1 1.7 0.4 0.4 1.1 1.8 2.7 (6.9) 2.7 (1.7) 1.4 3.3 1.6 0.6 0.5 7.6 2.1 1.4 rate (%) 6.0 9.6 8.4 21.7 4.4 7.2 4.2 17.3 7.8 12.7 14.4 13.5 5.7 8.2 7.8 12.5 6.5 10.2 Gross public debt (% to GDP) 80.6 86.0 120.1 69.1 65.2 97.8 72.3 165.4 49.1 107.8 106.5 43.3 18.2 46.9 71.6 6.0 71.6 88.0
Exhibit 5: Movement of key policy rates
Source: RBI, Angel Research
Exhibit 6: WPI inflation moderates to sub-7%
Source: WEO Database - IMF, Angel Research
Source: Office of Economic Advisor, Angel Research Refer to important Disclosures at the end of the report
Strategy
Exhibit 7: Real GDP growth at 4.5% in 3QFY13 Exhibit 8: Slowdown in industrial production
Source: MOSPI, Angel Research
Source: MOSPI, Angel Research
DMK pull out: The DMK, a key ally of the ruling UPA government with 18 seats in the Lok Sabha, decided to withdraw from the government as it wanted India to not only support the USsponsored resolution against Sri Lanka in the United Nation Human Rights Council but also make it tougher. Despite the
DMK's exit the government is stable, largely owing to parties extending outside support to the ruling coalition. The support from SP (22 seats), BSP (21 seats), RJD (3 seats) and JD(S) (3 seats) takes the UPA's (235 seats) tally above the majority mark of 271 seats.
Exhibit 9: Composition of Lok Sabha - working majority for UPA with outside support
P arty Party United P rogressive Alliance (UP A) Progressive (UPA) Indian National Congress(INC) Nationalist Congress Party(NCP) Rashtriya Lok Dal(RLD) Jammu and Kashmir National Conference(J&KNC) Indian Union Muslim League (IUML) Others/ Independents Supporting P arties - UP A Parties UPA Samajwadi Party(SP) Bahujan Samaj Party(BSP) Rashtriya Janata Dal(RJD) Janata Dal (Secular)(JD(S)) UP A + Outside support UPA Source: loksabha.nic.in, Angel Research Seats 235 203 9 5 3 2 13 49 22 21 3 3 284 Lok Sabha 540 Party Bharatiya Janata Party(BJP) Left Democratic Front Janata Dal (United) (JD(U)) All India Trinamool Congress(AITC) Dravida Munnetra Kazhagam(DMK) Biju Janata Dal(BJD) Shiv Sena(SS) All India Anna Dravida Munnetra Kazhagam(AIADMK) Telugu Desam Party(TDP) Shiromani Akali Dal(SAD) Others/ Independents Seats 115 25 20 19 18 14 11 9 6 4 24
We expected momentum on policy action to continue at least until September 2013, with populist bias coming to the fore, closer to the general election in May 2014. But the recent political development is likely to unnerve investors from the perspective of 1) continuity of the economically meaningful policies, 2) impact on measures taken for restraining fiscal deficit and 3) concerns on a possible sovereign ratings downgrade by credit ratings agencies. We do see some negative headwinds to the reform momentum in the parliament as the government's ability to talk tough could perhaps be constrained by its dependence on outside support. Major pending legislation pertains to land acquisition, FDI in
insurance and pension sector, mines and minerals and tax reforms. But policy action that does not require parliamentary mandate is likely to continue. For instance, the oil marketing companies in March 2013 went ahead with a 45ps diesel price hike (the third since calibrated hikes were announced on January 17) and the Cabinet Committee on Investment gave conditional clearance for 5 oil and gas blocks with investment worth `58,487cr. We also believe that there is no imminent threat to the government or risk of an early election (until CY2013 end), largely since the opposition is unlikely to be prepared for a no-confidence motion in the parliament at this juncture.
Strategy
Current Account Deficit at record high of 6.7% of GDP in 3QFY2013
As the trade deficit deteriorated further, India's CAD soared to a record-high 6.7% of GDP (US$32.6bn) in 3QFY2013 as compared to 5.4% of GDP (US$22.8 bn) in the previous quarter and 4.4% of GDP (US$20.0bn) in 3QFY2012. In the April - December 2012 period, the CAD widened to 5.4% of GDP (US$72bn) as compared to 4.1% of GDP (US$56.4bn) in the corresponding period of FY2012. 9.4% yoy, largely led by oil and gold imports, while growth in exports remained flat on a yoy basis. During the quarter crude oil imports witnessed a 26.1% yoy rise to US$44.6bn and gold imports increased by 39.4% yoy to US$17.8bn. As a proportion of GDP , the trade deficit reached 12.3% of GDP , the highest level in the past 4 years. The invisibles category including trade in services, transfers and investment income reported a 5.9% yoy decline as 1) net exports in services reported a modest 8.8% yoy growth during the quarter as compared to a growth of 36.8% yoy in the corresponding quarter of the preceding year, 2) transfers on account of remittances reported a 4.1% yoy decline, and 3) outflow from investment income went up by 67.8% yoy largely owing to rise in payment of the same. Buffer of capital flows: On a positive note, capital inflows continued to remain strong and stood at US$31.8bn as compared to US$23.6bn in the previous quarter and US$7.6bn in 3QFY2012. Robust capital flows facilitated a surplus of US$0.8bn on the balance of payments (BoP). The rise in capital inflows was led by FII inflows (US$8.8bn) followed by short-term credit, external commercial borrowings and NRI deposits; FDI inflows (US$2.5bn) however reported a 49.1% yoy decline.
Exhibit 10: CAD at 6.7% of GDP in 3QFY2013
The trade deficit widened to US$59.6bn in 3QFY2013 from US$48.7bn in 3QFY2012 as the import bill surged by
Exhibit 11: BoP marginally positive in 3QFY2013 despite elevated CAD owing to robust capital inflows
3Q2012 (USD bn) A . Current Account 1) Merchandise 2) Invisibles a) Services b) Transfers c) Income B Capital Account 1) Foreign Investment a) Foreign Direct Investment b) Foreign Portfolio Investment 2) Loans a) External Assistance b) Commercial Borrowings c) Short Term Credit to India 3) Banking Capital of which : NRI Deposits 4) Rupee Debt Service 5) Other Capital C) Errors and Omissions D) Overall Balance Source: RBI, Angel Research (20.0) (48.7) 28.7 16.2 16.4 (3.8) 7.7 6.9 5.0 1.9 1.6 1.3 (0.3) 0.6 (5.5) 3.3 4.7 (0.5) (12.8) 4Q2012 (USD bn) (21.8) (51.5) 29.8 17.5 16.8 (4.6) 16.6 15.3 1.4 13.9 2.7 0.3 2.3 0.2 2.0 4.7 (3.4) (0.6) (5.7) 1Q2013 (USD bn) (16.7) (42.4) 25.8 14.1 16.6 (4.9) 16.3 2.0 3.9 (1.9) 6.2 0.3 0.5 5.4 9.4 6.6 (1.2) 0.9 0.5 2Q2013 (USD bn) (22.8) (48.3) 25.5 15.2 15.9 (5.6) 23.6 16.6 8.9 7.7 5.3 0.2 1.0 4.1 5.5 2.8 (3.8) (1.0) (0.2) (USD bn) (32.5) (59.6) 27.1 17.6 15.7 (6.3) 31.8 11.3 2.5 8.8 10.6 1.4 3.0 6.2 5.3 2.7 4.5 1.6 0.8 64.8 (49.1) 362.6 563.5 3.4 1,025.3 978.1 196.3 (20.2) (3.4) (22.4) (5.9) 8.8 (4.1) (64.0) 3Q2013 (% , yoy) (% of GDP) 6.7 12.3 5.6 3.6 3.2 1.3 6.5 2.3 0.5 1.8 2.2 0.3 0.6 1.3 1.1 0.5 0.9
Strategy
We anticipate an improvement in trade deficit during 4QFY2013 as exports have reported a 4.2% yoy growth in February and are expected to improve further in March 2013. We also expect imports to be contained as 1)demand for gold is likely to dampen to an extent on account of the levy of import duty and 2) crude prices have moderated as compared to the previous year and are likely to result in lower imports in value terms. We expect the CAD for the whole of FY2013 to inch towards 5% of GDP , up from 4.2% of GDP in the previous fiscal. To boost exports in the interim, the Foreign Trade Policy due in April 2013 is likely to further enhance sops for export-oriented sectors, particularly in manufacturing, since non-oil and non-gold imports also continue to remain high. Overall, economic activity decelerated to a steeper-thanexpected level and we believe that economic recovery is likely to be gradual. Real GDP growth for 3QFY2013 decelerated to 4.5% yoy, as compared to 6.0% yoy growth in the corresponding quarter of the previous year, largely owing to slower pace of growth in the services sector. As per the CSO's advance estimates, real GDP growth in FY2013 is likely to come in at a decade-low 5.0% yoy, lower than consensus estimates and the RBI's GDP growth assessment of 5.5% yoy. We expect real GDP growth for FY2014 to gradually recover to 5.7% yoy, lower than the official assessment pegging it in the range of 6.1% to 6.7% yoy. Monetary policy too has shifted towards a more growthsupportive stance but we believe that in addition to the same, a recovery in economic growth crucially rests on drivers such as incentivizing investments, a pick-up in consumption and exports, removal of structural supply-side bottlenecks, etc. rates have peaked, we expect gradual easing of rates to improve credit demand and also result in subsiding of the asset quality pressures, leading to lower provisioning and, therefore, higher earnings. Metals, oil & gas and automobile sector are also expected to contribute reasonably well to the Sensex' EPS growth. Metals companies are expected to contribute 17.3% to the total Sensex EPS growth in FY2014, driven mainly by Tata Steel, whose earnings are expected to rebound, after remaining depressed in FY2013, primarily aided by higher volumes and lower input costs. Oil & gas companies are expected to contribute 12.8% to Sensex EPS growth, due to 19.6% yoy earnings growth expected in ONGC, primarily aided by lower under recoveries In FY2015, we expect Sensex EPS to grow by 15.5%, with BFSI stocks likely to continue with their domination by contributing 28.6% to the growth. Other sectors, which are expected to participate significantly in the Sensex EPS growth would be oil and gas, automobiles and metal. Sensex oil & gas companies are expected to report an overall earnings growth of 12.9% yoy, aided by healthy performance across all companies. Sensex auto companies are expected to report an earnings growth of 18.7% yoy, within which, Hero MotoCorp (aided by termination of royalty agreement) and Tata Motors (margin expansion led by better product mix due to introduction of new models) are expected to report impressive performance, with a bottom-line growth of 31.6% yoy and 22.6%, yoy, respectively. Aided by new capacities coming on stream and expected revival at European operations, Tata Steel is expected to report a strong 47.0% yoy earnings growth. This would likely result in a 21.6% yoy earnings growth for overall Sensex metal companies. We arrive at our 12-month Sensex target of 22,000, with a conservative target multiple of 14x FY2015E earnings (as against the 5-year average of 16x and 15-year average of 14.4x). Our target implies an upside of 16.8% from the present levels and is likely to be back-ended.
Sensex EPS expected to post a 15.2% CAGR over FY2013-15

We expect Sensex EPS to grow by 14.9% to `1,366 in FY2014 and by a stronger 15.5% to `1,578 in FY2015, implying a CAGR of 15.2% over FY2013-15. In FY2014, Sensex EPS is expected to grow by 14.9%, with the BFSI sector contributing 31.2% to the overall growth. As interest
Exhibit 12: Sensex EPS growth over FY2013-15
Exhibit 13: Sensex one year forward P/E
Source: Angel Research Refer to important Disclosures at the end of the report
Source: Angel Research
4QFY2013 Sectoral Outlook
10
Automobile
A challenging quarter
The domestic automotive industry witnessed a sharp slowdown in 4QFY2013 as the sales momentum, which had recovered slightly during the festival season, lost steam owing to weak macroeconomic environment and poor consumer sentiments. While the sales of medium and heavy commercial vehicles (MHCV), passenger cars (PC) and tractors declined considerably during the quarter, the pace of growth in the utility vehicle (UV) and light commercial vehicle (LCV) segments sustained momentum despite the challenging environment. The total industry volume growth slowed down to ~4% yoy YTD in FY2013 as MHCV, PC and tractor sales witnessed a decline of ~23%, ~5% and ~3% yoy respectively. However, the UV and LCV segments reported a strong growth of ~55% and ~15% yoy respectively YTD in FY2013. Going ahead, we expect the volume growth to remain sluggish in 1HFY2014 due to high inventory levels and weak consumer sentiments. We expect volumes to recover in 2HFY2014 led by further easing of interest rates, festival demand and also on account of the base effect.
Exhibit 1: 4QFY2013 - Stock price performance

Tata Motors Maruti Suzuki MM Hero MotoCorp Exide Industries Cummins India Bharat Forge(27.1) Bajaj Auto Bosch Ashok Leyland (30.0) (20.0) (10.0) 0.0 (2.1) 2.3 10.0 (8.7) (15.9) (6.2) (7.9) 1.9 (17.3) 6.6 16.3 7.6 12.1 20.0 (2.2) 7.6 1.0 0.6 10.3 7.1 16.8
Relative to Auto index (%)
Absolute
Source: Bloomberg, Angel Research
CV segment continues to be impacted by sharp decline in MHCV sales

The commercial vehicle (CV) segment continued its dismal performance in 4QFY2013 as MHCV sales continued with the downward slide following continued slowdown in industrial activity and softening of freight rates. The MHCV segment has suffered the maximum brunt of the ongoing slowdown with volumes in the segment declining significantly, ie by ~23% YTD in FY2013. The segment continues to perform poorly despite record discounts and attractive finance schemes on offer. We expect the demand scenario to remain challenging in the near term; however, we expect volumes to recover and register a growth of 6-8% in FY2014, after witnessing a decline of ~25% in FY2013. The LCV segment on the other hand, maintained its momentum, registering a strong growth of ~15% yoy, led by structural factors such as proliferation of the hub and spoke model. We expect the LCV segment to sustain its momentum going ahead and register a strong volume growth of ~15% in FY2014. We expect CV manufacturers to post an extremely poor performance for 4QFY2013. A sharp decline in MHCV volumes is expected to impact the performance of TTMT (standalone) and Ashok Leyland (AL). On a standalone basis, we expect TTMT to register a decline of ~40% yoy in its revenues following a ~30% yoy decline in volumes. The net average realization too is expected to decline by ~13% yoy on account of higher discounts and adverse product-mix. Led by lower volumes, adverse product-mix and higher levels of discounting, we expect the EBITDA margins to decline ~800bp yoy leading to a net loss of ~`490cr. However, led by Jaguar and Land Rover (expected to post a strong revenue growth of ~17% yoy driven by a ~13% yoy growth in volumes), TTMT's consolidated revenue is expected to remain flat on a yoy basis. Further, on the consolidated front, we expect TTMT's bottom-line (adjusted) to post a decline of ~35% yoy as operating margins are expected to decline by ~70bp yoy during the quarter. A higher depreciation expense and a higher tax rate are also expected to impact the bottom-line.
11
Sectors earnings growth to turn negative

For 4QFY2013, we expect automotive OEMs in our coverage universe to register a modest revenue growth of ~2% following a ~4% yoy decline in volumes on account of weak macroeconomic environment and poor consumer sentiments. However, growth in net average realization is expected to remain strong, driven largely by an improving product-mix. On a sequential basis, we expect net sales to register a strong ~7% growth, aided by strong sequential volume growth at Maruti Suzuki (MSIL) and Tata Motors (TTMT; mainly at Jaguar and Land Rover). We expect the EBITDA margin to remain under pressure and report a decline of ~60bp yoy owing to higher discounts and lower utilization levels across most of the companies. We expect net profit to decline sharply by ~23% yoy on account of contraction in operating margins, high levels of depreciation (primarily on the Jaguar and Land Rover front) and higher tax rate (mainly at MSIL, Mahindra and Mahindra and TTMT). Excluding TTMT, the earnings of our OEM universe are expected to decline by ~9% yoy, on account of EBITDA margin pressures and due to higher tax rate; however, top-line is expected to grow by ~4% yoy.
Auto index underperforms the Sensex

The BSE Auto index witnessed a significant decline of 12.5% during 4QFY2013, thereby underperforming the Sensex by 9.5%. The underperformance is largely on account of lower-than-expected volume performance by automotive OEMs amid weak economic environment, which led to a 7-19% correction in their stock prices. All the stocks in the BSE Auto index witnessed a decline in prices, with index heavyweights like Bajaj Auto, MSIL and TTMT registering a steep decline of ~16%, ~14% and ~14% respectively.
Automobile
We expect a decline of ~20% in AL's top-line, largely driven by an ~3% decline in volumes and ~17% yoy decline in net average realization following higher discounts and greater contribution of the lower priced Dost (accounting for ~32% of total volumes vs ~14% in 4QFY2012). We estimate EBITDA margins to decline by ~450bp yoy to 6.5% on account of adverse product-mix and higher discounts, which are expected to drag down the bottom-line by more than 90% yoy. ~16% yoy (~2% qoq) growth in net average realization. We expect the EBITDA margin to improve by ~130bp yoy (60bp qoq) driven by favorable currency movement and operating leverage benefits. As a result, the bottom-line is expected to register a strong growth of ~13%.
2W sales remain muted

The demand slowdown witnessed in the two-wheeler (2W) industry during 9MFY2013 continued in 4QFY2013 as well, led by the challenging macroeconomic environment. Further, deficient monsoon in 2012 also impacted the overall demand given that rural sales account for 45-50% of the overall 2W sales. Within the 2W industry, the motorcycle segment continued to be the most impacted (flat growth in YTD FY2013) with weak sales across segments (excl. 110cc-125cc segment). While sales in the 75cc-110cc segment declined by ~2% yoy, the greater than 125cc segment registered a sharp decline of ~14% yoy. However, the 110cc-125cc segment registered a strong growth of ~30% yoy, led by new launches - Discover 125ST, Ignitor, Phoenix and Hayate. The scooters segment however, sustained its growth momentum, posting a growth of 16% yoy YTD in FY2013. Going ahead, we expect the environment to remain challenging for the 2W industry in 1HFY2014 as demand remains weak due to macroeconomic concerns and sharp increase in fuel prices. For 4QFY2013, we expect Hero MotoCorp (HMCL) to register a flat top-line growth aided by ~4% yoy growth in net average realization. We expect operating margins to remain under pressure (down ~250bp yoy) due to unfavorable currency movement and higher ad spends. As a result, the bottom-line is expected to post a decline of ~18% yoy. For Bajaj Auto (BJAUT), we expect the top-line to report a muted growth of ~3% yoy driven by ~7% yoy growth in net average realization. On the operating front, we expect margins to remain under pressure and contract by ~120bp yoy. As a result, the bottom-line is likely to decline by ~3% yoy. Exhibit 4: BJAUT, HMCL and TVSL Quarterly volumes
Segment
BJA UT BJAUT Motorcycles Three-wheelers
Exhibit 2: TTMT and AL Quarterly volumes

Segment
TTMT Total CV Total PV Exports (incl. above) AL
4QFY2013 4QFY2012 % chg

196,370 156,886 39,484 11,428 34,631 279,999 (29.9) 171,130 108,869 17,865 35,688 (8.3) (63.7) (36.0) (3.0)
FY2013
810,086 581,589 228,497 50,831 114,710
FY2012 % chg
906,579 (10.6) 585,187 (0.6) 321,392 (28.9) 63,078 (19.4) 102,145 12.3
Source: Company; Angel Research
Brisk UV sales aiding PV growth

The demand for passenger vehicles (PVs) deteriorated sharply in 4QFY2013, impacted by a weak economic environment coupled with persistent consumer price inflation and higher fuel prices. The demand for PCs, which posted a flat growth in 9MFY2013, witnessed a considerable decline during the quarter (by ~5% yoy between April-February 2013). As a result, the growth momentum in the PV segment slowed down to ~4% in April-February 2013 from ~8% in 9MFY2013. While the sale of petrol PVs declined ~17% yoy despite record levels of discounts, the diesel segment recorded a strong growth of ~27% yoy driven largely by the UV segment (~55% growth between April-February 2013). However, of late, demand for diesel vehicles too is witnessing signs of moderation, which will likely impact overall growth expectations. Going ahead, we expect PC sales to remain subdued in the near term as we do not expect a significant revival in the petrol segment. We expect MSIL to post a strong operating performance for the quarter driven by better product mix, operating leverage benefits and favorable currency movement. We expect the top-line to register a growth of ~10% yoy (~16% qoq) led primarily by
4QFY2013 4QFY2012 % chg

981,242 859,695 121,547 1,017,167 897,248 119,919 347,414 1,572,027 528,102 520,382 7,720 57,260
FY2013
FY2012 % chg
(2.6) (2.0) (6.8) (2.1) (2.6) (7.5) (8.1) 21.7
Exhibit 3: MSIL and MM Quarterly volumes

Segment
MSIL Domestic Exports MM Automotive - exports Tractor - domestic Tractor - exports
(3.5) 4,237,162 4,349,560 (4.2) 3,757,105 3,834,405 1.4 480,057 515,155
4QFY2013 4QFY2012 % chg

343,709 308,871 34,838 198,895 7,766 45,897 3,767 360,334 321,424 38,910 186,777 126,090 8,634 48,211 3,842
FY2013
FY2012 % chg
4.3 5.5 (5.1) 9.6 16.9 11.2 (4.6)
(4.6) 1,051,497 1,007,743 (3.9) (10.5) 6.5 12.2 (10.1) (4.8) (2.0) 943,156 108,341 787,257 530,919 32,456 211,596 12,286 893,592 114,151 718,586 453,987 29,177 221,730
Exports (incl. above) 365,005 HMCL TVSL Two-wheelers Three-wheelers Exports (incl. above) 1,527,351 509,210 494,915 14,295 65,961
5.1 1,547,157 1,579,824 (2.8) 6,073,581 6,235,195 (3.6) 2,032,515 2,198,493 (4.9) 1,983,676 2,158,375 85.2 15.2 48,839 245,628 40,118
Automotive - domestic141,465
288,442 (14.8)
13,692 (10.3)
12
Automobile
Auto ancillaries
We expect auto ancillary companies to register weak results in 4QFY2013 (ex. Apollo Tyres and Motherson Sumi Systems) as slowdown in OEM demand and sluggish sales in the replacement segment are expected to weigh on the company's performance. Further, margin pressures due to unfavorable currency movement and lower utilization levels are also likely to impact the performance of the ancillary companies in our coverage universe. We expect Apollo Tyres (APTY) and Motherson Sumi Systems (MSS) to outperform in 4QFY2013 driven by receding cost pressures and improving utilization levels at the new plants respectively. For APTY, slowdown in domestic OEM demand is likely to result in a decline of ~4% yoy in standalone revenues. Further, European operation is also expected to register a decline of ~1%, led by an uncertain macro-economic environment. However, we expect softening of natural rubber prices to boost operating performance. Overall, we expect APTY (consolidated) to post a ~15% earnings growth despite flat top-line performance, led by margin expansion of ~105bp yoy on lower input costs. For Bharat Forge (BHFC), we expect its standalone top-line to register a significant decline of ~23% yoy. This would primarily be on account of severe weakness in the domestic as well as export markets. As a result, we expect volumes to decline ~28% yoy. Led by sharp decline in top-line and operating margin contraction (expected to decline by ~280bp) due to lower utilization levels, we expect the bottom-line to decline by ~51% yoy. We expect Bosch (BOS) to post a ~14% yoy decline in revenues during the quarter led by continued weakness in the MHCV Exhibit 5: Quarterly estimates Automobile
Company AL BJAUT HMCL MSIL MM TTMT* TVSL CMP (`) 22 1,795 1,542 1,280 861 269 32 Net Sales 4QFY13E 3,407 4,664 6,020 12,680 10,150 50,305 1,775 (19.6) 3.3 1.0 10.4 9.8 (0.6) 10.7 OPM (%) chg bp (444) (120) (251) 128 69 (71) (6) 6.5 18.6 9.4 8.6 11.0 12.5 6.0 Net P rofit Profit 4QFY13E 16 733 492 722 773 2,298 53 (93.8) (5.1) (18.5) 12.8 0.9 (35.4) (7.8) EPS (`) % chg (93.8) (5.1) (18.5) 12.8 1.1 (35.4) (7.8) 0.1 25.3 24.6 25.0 13.2 7.2 1.1 EPS (`) FY13E 1.3 103.7 103.9 62.7 54.9 28.5 4.3 FY14E 2.0 117.9 104.1 87.4 59.6 32.3 4.8 FY15E 2.7 134.3 140.3 102.9 68.3 39.0 5.8 FY13E 17.1 17.3 14.8 20.4 15.7 9.4 7.6 P/E (x) FY14E 11.1 15.2 14.8 14.6 14.5 8.3 6.7 FY15E 8.3 13.4 11.0 12.4 12.6 6.9 5.6 % chg 4QFY13E % chg 4QFY13E (`) 27 2,014 1,824 1,543 1,006 324 40 Buy Accum. Buy Buy Buy Buy Buy
and tractor industries, which are the primary drivers of company's revenues. On the operating front, we expect margins to decline by a significant ~780bp yoy led by raw-material cost pressures (due to INR depreciation) and lower operating leverage. As a result, the net profit is expected to decline by ~46% yoy during the quarter. Exide Industries (EXID) is expected to register a modest revenue growth of ~7% yoy led by steady market share gains in the replacement segment. The sluggish demand in the OEM segment, however, is expected to restrict the overall performance. We expect EBITDA margins to decline ~230bp yoy primarily on account of increase in lead prices (up ~10% yoy), leading to a ~12% yoy decline in net profit. We expect Motherson Sumi Systems (MSS) to post a ~11% yoy increase in top-line driven by improvement in domestic operations and steady ramp-up of new plants at Samvardhana Motherson Reflectec (SMR). As a result, we expect operating margins to improve ~80bp yoy leading to a ~41% yoy growth in the adjusted bottom-line.
Outlook
While the near term environment continues to remain challenging for the automotive sector, we believe the long-term structural growth drivers for the industry such as GDP growth (leading to increasing affluence of rural and urban consumers), favorable demographics, low penetration levels, entry of global players and easy availability of finance, remain intact. We continue to prefer stocks that have strong fundamentals, high exposure to rural and export markets and command superior pricing power. We maintain our positive stance on Hero MotoCorp, Maruti Suzuki, Mahindra and Mahindra and T ata Motors. Tata (` cr)
T arget Reco. Target
Source: Company, Angel Research; Note: Price as on March 28, 2013; * Consolidated numbers; ^ OPM adjusted for royalty payment
Exhibit 6: Quarterly estimates Auto Ancillary

Company Apollo Tyres* Bharat Forge& Bosch# Exide Industries CMP (`) 83 205 9,054 129 Net Sales 4QFY13E 3,228 734 1,953 1,550 326 7,035 (0.1) (23.2) (13.9) 7.2 (9.4) 10.5 OPM (%) chg bp 105 (278) (777) (226) (462) 84 12.2 22.9 13.0 12.5 12.9 7.5 Net P rofit Profit 4QFY13E 181 62 181 126 30 144 15.4 (50.6) (46.1) (11.8) (34.4) 41.2 EPS (`) % chg 15.4 (50.6) (46.1) (11.8) (34.4) 41.2 3.6 2.7 57.6 1.5 18.3 2.5 EPS (`) FY13E 12.5 12.3 305.2 5.8 95.8 9.8 FY14E 13.6 14.5 354.7 7.7 108.6 12.5 FY15E 15.9 17.3 423.3 8.9 130.7 14.8 FY13E 6.7 16.6 29.7 22.1 15.3 19.8 P/E (x) FY14E 6.1 14.1 25.5 16.7 13.5 15.4 FY15E 5.2 11.8 21.4 14.6 11.2 13.1 T arget Target (`) 103 225 146 1,569 222 Buy % chg 4QFY13E % chg 4QFY13E
(` cr)
Reco.
Accum. Neutral Accum. Accum. Accum.
FAG Bearings# 1,470 Motherson Sumi* 193
Source: Company, Angel Research; Note: Price as on March 28, 2013, * Consolidated numbers; # December ending; & Full year EPS is consolidated
Analyst - Y aresh K othari Yaresh Kothari

13
Banking
Banking stocks underperformed broader markets, on expectation of slower downward movement in interest rates
Banking stocks under our coverage underperformed the broader market during 4QFY2013, with almost all of them (barring few private banks) registering a sequential decline of more than 10%. At the beginning of the quarter, the banking stocks continued to rally on hopes of aggressive policy rate cuts. The RBI reduced rates by 50bp during the quarter, however, it reiterated that the room for further monetary easing remains limited, thereby clearly indicating that the downward movement in interest rates would be slower than earlier expected. At the shorter end of the interest rate curve, the three-month CD and CP rates have inched up slightly sequentially, reflecting the tight liquidity situation. Even at the longer end of the yield curve, many banks have recently increased their peak retail term deposit rates, which is likely to put slight pressure on margins, which are already weighed down by asset quality concerns. Overall, we expect private banks to report healthy earnings growth of 23.0% yoy, however, the PSU banks with expected earnings decline of 13.1% yoy, would drag the overall earnings performance (de-growth of 3.2% yoy). Within private banks, while the new private banks are expected to perform strongly with earnings growth of 24.6%, the older private banks are expected to post flat bottom-line performance. Dissecting the PSU banks performance, while the mid ones are expected to report marginal earnings growth of 2.6% yoy, the larger ones are expected to report bottom-line decline of 18.5% yoy.
Credit growth outlook remains tough; Deposits growth remains moderate

Credit growth for the banking system, as of March 7, 2013 stood at 15.4% yoy. Even on an incremental basis, the FY2013 YTD net credit offtake (fresh credit minus repayments) is lower by 12.9% yoy, but the situation is slightly better from the end of 1HFY2013, where the YTD net credit offtake was significantly lower by 35.8% yoy, respectively. The slight improvement in credit growth is partially due to healthy growth in the Agri loan book and renewed clamor amongst banks to shore up retail assets, as tough economic growth environment and elevated interest servicing costs have resulted in weak incremental credit demand from corporate, except for working capital needs. In our view, credit growth by the year end is likely to be around 15%, lower than the RBI's revised credit growth projection of 16%, as the pipeline for credit disbursement for banks, as indicated by their Managements, remains thin, largely comprising of sanctions already in place. Deposit growth, on the other hand, has remained moderate at 13.2% yoy as of March 7, 2013. Even on an incremental basis, the FY2013 YTD deposit growth has come off to just 10.8% yoy from 17.2% yoy growth recorded at the end of 1HFY2013. Though, retail deposit rates have been raised across select
Exhibit 1: 4QFY2013 stock performance

(%) HDFC Axis Bank Yes Bank HDFC Bank Jammu & Kashmir Bank ICICI Bank South Indian Bank Federal Bank Indian Bank Bank of India State Bank of India Syndicate Bank Bank Of Maharashtra Corp Bank Punjab National Bank Andhra Bank Central Bank Of India Union Bank of India Dena Bank Bank of Baroda Canara Bank LIC Housing Finance Indian Overseas Bank Vijaya Bank Allahabad Bank IDBI Bank Ltd Oriental Bank of Commerce UCO Bank United Bank of India Source: Bloomberg, Angel Research Returns (qoq) (0.3) (4.1) (7.6) (7.8) (8.0) (8.2) (9.9) (10.7) (11.6) (11.7) (13.1) (14.2) (14.5) (17.0) (17.6) (19.7) (20.5) (20.5) (22.0) (22.0) (22.7) (22.8) (24.1) (24.7) (25.6) (28.0) (28.1) (29.3) (29.9) Returns (yoy) 22.7 13.5 16.3 20.3 29.7 17.4 (0.8) 12.7 (27.8) (16.5) (1.1) (1.0) (5.8) (9.9) (22.4) (20.6) (33.9) (7.5) (0.6) (15.2) (19.3) (14.6) (31.0) (19.8) (32.1) (23.4) (0.3) (29.6) (22.0)
Exhibit 2: Deposits growth remains moderate
Exhibit 3: Average LAF borrowings remains higher
14
Banking
maturities, still the real interest rates for depositors remain in the negative territory (considering persistently high CPI inflation at 10%+), which is most likely to result in moderate deposit growth going ahead as well. Diesel and LPG price revisions, hikes in electricity tariffs, agricultural bottlenecks and increase in minimum support prices (MSPs) of agriculture products, are yet to fully reflect in generalized inflation and therefore pose significant upside risks to overall inflation expectation and resultant threat to savings and deposit mobilization. policy transmission and most of them reduced their base rate only by 15-30bp. The policy rate cuts announced by the RBI offered limited respite to the banks on their funding cost front, as cost of deposits remains elevated (will increase further slightly for banks which have increased their peak rates across 1-3 year tenure) on slowed deposit mobilization. The short-term borrowing cost has inched up sequentially in 4QFY2013, as reflected in the slight increase in the three-month CD and CP rates. Marginal increase in short-term funding costs, in our view, is likely to keep margins under check, however, respite would be available on repricing of bulk deposits contracted in past few quarters. Amongst our coverage universe, almost all banks reduced their base rates during the quarter, however, on an average basis, Indian Bank witnessed the highest reduction of 17bp, followed by IDBI Bank, Canara Bank and Uco Bank by 16bp each, and Vijaya Bank and Corporation Bank by 15bp each. On the deposits front, amongst the coverage banks which increased their peak retail term deposit rates (1-3 year tenure), Canara Bank and South Indian Bank witnessed the highest increase of 60bp.
Margins likely to remain under check

During 4QFY2013, nearly half of our coverage banks increased their retail term deposit rates (peak rates within 1-3 year tenure) by 15-60bp, while most others maintained their rates. Slowed deposit mobilization and asset liabilities mismatch prompted the banks to increase/maintain their peak retail deposit rates, in our view. Deposit growth has remained moderate for quite some time now, as term deposits growth remains affected by persistently negative real effective interest rates, whereas slow economic growth continues to impact CASA accretion. During the quarter, the RBI reduced its policy rates twice by 25bp each. However, the banks appeared reluctant in monetary
Exhibit 4: 3QFY2013 and 4QFY2013 Lending and deposit rates

Avg . Base rates (%) Avg. Bank INDBK IDBI UCOBK CANBK VIJAYA CRPBK BOB BOI CENTBK PNB UNBK BOM ALLBK SYNBK J&KBK IOB DENABK FEDBK HDFCBK ANDHBK UTDBK OBC SBI ICICIBK AXSB SIB YESBK 3QFY13 10.50 10.50 10.50 10.50 10.45 10.50 10.50 10.50 10.50 10.50 10.50 10.50 10.50 10.50 10.50 10.50 10.45 10.45 9.80 10.50 10.45 10.40 9.75 9.75 10.00 10.50 10.50 4QFY13 10.33 10.34 10.34 10.34 10.30 10.35 10.36 10.36 10.36 10.36 10.36 10.36 10.36 10.37 10.38 10.38 10.34 10.34 9.70 10.41 10.37 10.34 9.72 9.75 10.00 10.50 10.50 BP change (17) (16) (16) (16) (15) (15) (14) (14) (14) (14) (14) (14) (14) (13) (13) (12) (11) (11) (10) (9) (8) (6) (3) 3QFY13 14.75 15.00 15.00 14.75 14.75 15.00 14.75 14.75 15.00 14.00 15.00 15.00 14.75 14.75 15.00 15.50 15.75 17.75 18.30 14.75 14.60 14.75 14.50 18.50 17.75 19.00 19.75 Avg . BPLR rates (%) Avg. 4QFY13 14.61 14.84 14.73 14.59 14.75 15.00 14.61 14.61 15.00 14.00 14.86 15.00 14.61 14.62 14.88 15.50 15.75 17.75 18.20 14.66 14.60 14.75 14.50 18.50 17.75 19.00 19.75 BP change (14) (16) (27) (16) (14) (14) (14) (14) (13) (13) (10) (9) 0 3QFY13 9.00 9.00 9.10 8.50 9.10 8.75 9.00 9.25 8.75 9.00 9.00 9.25 9.00 8.75 8.50 9.00 9.10 9.00 8.75 9.00 8.75 9.00 8.50 8.75 9.00 9.00 9.25 FD rates* (%) 4QFY13 9.00 9.00 9.10 9.10 9.25 9.10 9.36 9.25 9.00 9.00 9.00 8.75 9.25 9.05 8.50 9.00 9.00 9.25 8.75 9.20 9.00 9.00 8.75 9.00 9.00 9.60 9.25 BP change 60 15 35 36 25 (50) 25 30 (10) 25 20 25 25 25 60 -
Source: Company, Angel Research; Note: *peak retail FD rates in1-3 year maturity bucket
15
Banking
Exhibit 5: Gross NPA trends (%) Private vs PSU
Exhibit 6: Net NPA trends (%) Private vs PSU
Source: Company, Angel Research
Exhibit 7: Gross NPA trend (%) for the banking industry
Exhibit 8: Net NPA trend (%) for the banking industry
New private banks expected to post healthy earnings performance

Overall, we expect private banks to post healthy 21.6% yoy growth in their net interest income, while PSU banks are expected to register subdued growth of 5.5% yoy. Amongst the PSU banks, the mid ones are expected to witness a growth of 11.6% yoy, compared to marginal growth of 2.3% yoy for the larger pack. On the pre-provisioning profit front, while private banks are expected to report strong growth of 24.0% yoy, the mid-PSUs are expected to register a 9.6% yoy growth. However, the large PSU banks are expected to post a decline of 9.9% yoy, dragged mainly by 20.8% yoy de-growth for SBI. While new private banks are expected to post healthy bottom-line growth of 24.6% yoy, the earnings performance of mid PSU banks is expected to be subdued, with a 2.6% yoy growth. However, the large PSU banks are expected to post a 18.5% yoy de-growth in their earnings.
Asset quality remains the key monitorable, at least in the near term
Asset quality concerns continue to plague the sector fundamentals with increased intensity in 9MFY2013, than in FY2012. NPA ratios for PSU banks have trended northwards every quarter since the beginning of FY2012, as they have found themselves to be relatively more exposed to overleveraged companies in sensitive sectors, whose financials have bore the most severe brunt of slowing economic growth environment and persisting burden of elevated interest servicing costs. Incremental stressed assets (slippages and fresh restructuring)
for the banking sector have remained elevated and much above comfort levels, for quite some time now. However, the extent of the stressed asset formation has witnessed signs of moderation in 3QFY2013. Even during 4QFY2013, incremental stressed asset formation would remain the key thing to watch out for, as mid-corporate and SME segments continue to remain vulnerable to being NPAs considering weak growth environment and with expectations of slower downward movement in interest rates, in our view. Going ahead, in 4QFY2013, as guided by their respective Managements, the restructuring pipeline appears sizeable for PSU banks such as State Bank of India (SBI), Bank of Baroda (BOB), Union Bank (UNBK), Oriental Bank of Commerce (OBC), Andhra Bank and Dena Bank. Suzlon, which was the common restructured account for Punjab National Bank (PNB) and IDBI Bank in 3QFY2013, would be the chunky addition to the restructuring book this time around in case of other exposed banks (including SBI). On the state electricity board (SEB) restructuring front, particularly on the Cabinet Committee on Economic Affairs (CCEA) approved discom bailout package, six states have evinced in-principal interest to participate, while two states - Madhya Pradesh and Punjab - have opted out of the plan. However, the participating states are yet to submit a formal proposal under the scheme, pending which the magnitude of SEB restructuring during the quarter is likely to be limited to any need based restructuring for those non-participating states. Corporate debt restructuring (CDR) referrals have also risen significantly over the last five quarters, closely tracking the
16
Banking
deteriorating economic growth environment, and hence fresh approvals of around `25,000cr through the CDR route in 3QFY2013 and the pending cases of around `23,000cr under the CDR mechanism are likely to keep the restructuring pipeline of most banks active. Private banks have continued to perform relatively much better vis--vis their PSU counterparts on the asset quality front. Though they have not been sparred with asset quality pressures, however, they have managed to keep most of their asset quality largely intact until now in a challenging economic environment, by not only reporting much lower slippages, but also performing better on the recoveries and upgrades front. Even going ahead, private banks can be expected to outperform their nationalized peers on the asset quality front.
Exhibit 11: Corporate and G-Sec bond yields
Exhibit 12: 10-year G-sec yields movement
Exhibit 9: CDR snapshot

Referred No. of cases Add. (` cr) FY10 FY11 1QFY12 2QFY12 3QFY12 9MFY12 4QFY12 FY12 1QFY13 2QFY13 3QFY13 9MFY13 31 49 18 18 23 59 28 87 41 33 25 99 20,175 22,614 4,595 21,095 19,187 44,877 23,012 67,889 20,528 18,907 20,957 60,392 266,885 Approved No. of cases 31 27 10 7 17 34 16 50 17 18 35 70 362 Add. (` cr) 17,763 6,615 8,141 2,095 21,364 31,600 8,001 39,601 17,957 18,925 24,581 61,463 211,978 Source: Bloomberg, Angel Research
Bond yields remain largely range bound, leading to limited treasury gains
During 4QFY2013, the Indian 10-year benchmark bond yields remained largely range bound, as monetary policy/budget expectations and the actual outcome drove the movement in yields. In January, the yields trended southwards in the first half of the month on increased expectations of an aggressive rate cut by the central bank (50bp), after the headline WPI inflation came at moderated levels for the third straight month and industrial activity remained subdued. However, as the RBI's policy review approached, the yields inched up factoring the limited room with the central bank in terms of its policy rate stance. Yields edged even further, when the RBI reduced rates only by 25bp. During February, the bond yields again trended southwards for most of the month, expecting some reformist content in the Union Budget. However, the budget turned out to be a non-event on the reforms front, and the yields again shot up to end the month on a nearly flat note. During March, the yields corrected slightly expecting a rate cut in the policy review. As expected, the RBI obliged with a rate cut, however it reiterated its hawkish stance for further monetary easing, and even the political events took centre stage as one of the key allies of the current majority pulled out from the coalition, threatening chances of early elections. Hence, the bond yields moved northwards in the second half of the month. Overall, the 10-year bonds ended the quarter almost flat at 7.96% (8.05% as of December 30, 2012) and hence treasury gains/losses for the banking sector are expected to be limited during 4QFY2013.
17
Outstanding 491 Source: CDR Cell, Angel Research
Exhibit 10: Industry-wise exposure to CDR

Industry Iron & Steel Infrastructure Textiles Construction Telecom Fertilizers NBFC Sugar Cements Ship-Breaking/Ship Building Petrochemicals Power Refineries Pharmaceuticals Hospitality Others Total Source: CDR Cell, Angel Research No. 47 16 71 5 10 8 8 27 11 3 3 13 1 13 7 119 362 Agg . Debt (` cr) Agg. 47,138 19,737 16,422 14,182 9,886 8,455 7,316 7,125 6,595 6,213 5,493 15,369 4,874 7,132 3,919 32,122 211,978 % 22.2 9.3 7.7 6.7 4.7 4.0 3.5 3.4 3.1 2.9 2.6 7.3 2.3 3.4 1.8 15.2 100.0
Banking
Outlook and valuation
Decelerating economic growth environment, policy woes in select sectors and elevated inflation and interest rates point towards continued economic stress and are not suggesting any conclusive trigger for improvement in asset quality in the near-term. Hence, we prefer private banks, given their favorable cyclical and structural outlook, with Axis Bank and ICICI Bank being our top picks. But with the risk of higher competitive intensity in light of higher number of likely new entrants, the upsides are expected to be relatively moderate than estimated earlier. Also, a higher number of likely new entrants in the sector, create a structural impediment for PSU banks' medium-term re-rating, as we expect them to lose market share in any case, considering their capital crunch. However, due to expectations of slower downward movement in interest rates, PSU banks are currently trading at depressed valuations. Upsides in these stocks would largely depend on an eventual economy turn-around, which would lead to lower re-pricing of high-cost deposits (relative benefit for low-CASA banks) and higher recoveries (relative benefit for banks that have experienced maximum asset quality pain, and importantly, also provided for it already). Screening for these criteria, as well as Tier-1 capital adequacy and trailing adjusted valuations, in our view, PSU banks that would stand to gain the most from an eventual turn-around include SBI and PNB among the large-caps and United Bank, Indian Overseas Bank, Corporation Bank and Indian Bank among the mid-caps.
Exhibit 14: New Private banks price band (P/ABV)*
Exhibit 13: PSU banks price band (P/ABV)*
Source:C-line, Angel Research, Note:* under our coverage Source:C-line, Angel Research, Note:* For PSU banks , excl. SBI and IDBI
Exhibit 15: Quarterly estimates

Company CMP (`) AXSB HDFCBK ICICIBK SIB YESBK BOB BOI BOM CANBK CENTBK CRPBK INDBK PNB SBI SYNBK UNBK UTDBK HDFC LICHF 1,301 624 1,045 25 429 678 303 51 384 67 384 173 718 2,073 110 218 56 826 225 Operating Income 4QFY13E 4,494 6,002 6,063 456 967 3,794 3,428 1,024 2,807 1,870 1,330 1,466 5,006 16,510 1,762 2,678 893 2,369 495 % chg 20.4 23.0 13.7 24.2 35.3 2.7 (1.2) 24.8 (0.1) 10.3 5.8 5.5 9.2 (2.7) 7.7 1.8 4.2 21.4 14.7 Net P rofit Profit 4QFY13E 1,521 1,892 2,340 136 359 1,013 760 213 778 % chg 19.1 30.2 23.1 11.5 32.1 (33.3) (20.3) 192.6 (6.2) FY13E 110.2 28.7 72.5 3.6 36.8 105.7 46.1 9.9 64.2 8.8 90.4 37.2 139.6 207.1 30.9 32.6 10.6 31.9 19.4 EPS (`) FY14E 128.5 35.5 84.1 4.0 42.1 121.4 55.9 11.6 74.8 14.9 96.3 38.3 153.4 241.2 26.4 41.0 16.0 38.4 25.1 FY15E 150.5 42.5 96.7 4.5 50.2 144.6 68.4 13.1 85.8 18.0 105.9 42.2 176.4 Adj B VPS (`) BVPS FY13E 704.7 149.7 571.4 20.9 163.4 744.8 350.8 70.6 476.8 85.6 577.7 230.6 815.7 FY14E 803.5 177.0 626.4 24.1 198.6 842.7 391.7 79.3 538.1 100.0 658.4 261.6 FY15E 918.0 209.9 688.5 27.5 239.9 959.0 449.9 89.4 612.4 118.3 755.2 297.0 FY13E 11.8 21.8 14.4 6.8 11.7 6.4 6.6 5.1 6.0 7.6 4.3 4.7 5.1 10.0 3.6 6.7 5.3 25.9 11.6 P/E (x) FY14E 10.1 17.6 12.4 6.1 10.2 5.6 5.4 4.4 5.1 4.5 4.0 4.5 4.7 8.6 4.2 5.3 3.5 21.5 9.0 P/AB V (x) P/ABV FY15E FY13E FY14E FY15E 8.6 14.7 10.8 5.5 8.5 4.7 4.4 3.9 4.5 3.7 3.6 4.1 4.1 7.4 3.8 4.6 2.7 18.2 8.0 1.8 4.2 1.8 1.2 2.6 0.9 0.9 0.7 0.8 0.8 0.7 0.8 0.9 1.6 0.7 0.9 0.5 5.2 1.8 1.6 3.5 1.7 1.0 2.2 0.8 0.8 0.6 0.7 0.7 0.6 0.7 0.8 1.3 0.6 0.8 0.4 4.7 1.5 Target (`)
( ` cr)
Reco.
1.4 1,698 3.0
Buy
- Neutral Buy Buy Buy Buy
1.5 1,278 0.9 1.8 0.7 0.7 0.6 0.6 0.6 0.5 0.6 0.6 29 516 815
337 Accum. 58 Accum. 429 Accum. 71 Accum. 453 200 889 Buy Buy Buy Buy Buy
225 (313.7) 303 359 1,317 3,359 445 588 115 1,549 274 (13.9) 3.8 (7.5) (17.1) 43.9 (24.0) (23.2) 16.8 7.8
950.0 1,111.6
280.4 1,318.9 1,550.1 1,794.2 28.7 47.8 20.8 45.3 28.2 157.4 253.2 114.4 157.8 125.1 177.4 288.0 130.3 177.3 146.3 199.7 330.4 150.0 200.4 168.4
1.2 2,567 0.6 0.7 0.4 4.1 1.3 130
248 Accum. 71 Buy
- Neutral 253 Accum.
Source: Company, Angel Research; Note: Price as on March 28, 2013
Analyst - V aibhav Agrawa l/ Sourabh T aparia Vaibhav Agrawal/ l/Sourabh Taparia

18
Capital Goods
We expect companies in our capital goods (CG) universe to post a flat cumulative top-line growth on account of execution delays due to investment slowdown as well as delays in obtaining various clearances. On the bottom-line front, continued margin pressure due to tough competition in the sector and in some cases higher interest costs, are expected to be a drag on the companies' profitability. margin to contract by ~109bp yoy to 10.1%. Consequently, the company's PAT is expected to decline by 9.5% yoy to `28cr. We maintain our Buy recommendation on the stock with a target price of `34.
KEC International (CMP/TP: `58/67) (Rating: Buy)

For 4QFY2013, KEC International (KEC) is expected to register a strong top-line growth of 16% yoy to `2,400cr on the back of strong execution of its robust order book. However, on the EBITDA front, the company's margin is expected to contract by ~199bp yoy to 6.2% on account of low margin orders in relatively new segments. Consequently, we expect PAT to decline by 20.3% yoy to `59cr on account of margin pressure and elevated interest costs. We recommend Buy on the stock with a target price of `67.
ABB (CMP/TP: `489/452) (Rating: Reduce)

For 1QCY2013, we expect ABB India (ABB) to post a flat topline growth yoy to `1,804cr. ABB's margin will continue to remain under pressure, expected at 5.1%, due to low margin orders in the power systems and process automation segments. Consequently, ABB's bottom-line is expected to decline by 10.3% yoy to `43cr. On account of high valuations, we assign Reduce rating to the stock with a target price of `452.
Thermax (CMP/TP: `569/-) (Rating: Neutral)

For 4QFY2013, we expect Thermax to report a 3% yoy decline in top-line to `1,636cr, as weak order inflow since the past few quarters will drag down the company's revenue. The company's EBITDA margin is likely to compress by ~129bp yoy to 9.7%. Falling revenue and margin contraction are expected to result in a yoy fall of 19.3% in the PAT to `105cr. We maintain our Neutral rating on the stock.
BHEL (CMP/TP: `177/-) (Rating: Neutral)

We expect Bharat Heavy Electricals (BHEL) to post a 4% yoy decline in top-line to `18,805cr for 4QFY2013 as industrial slowdown continues to delay execution. On the EBITDA front, the company's margin is expected to fall by 480bp yoy to 20.4%. Consequently, we expect PAT to decline by 23.8% yoy to `2,575cr. We maintain our Neutral recommendation on the stock as we expect tepid order inflow to continue for next year as well.
Union Budget 2013-14: Positive for the sector

Although, there was no big announcement, there were a couple of important measures announced by the government. 1) High value investments (greater than `100cr) in plant and machinery, during the period April 1, 2013 to March 31, 2015, will be eligible for deduction of investment allowance of 15% (of the total investment). This will be in addition to the current rates of depreciation. It would encourage companies to revive stalled projects and make new investments. 2) The FM reiterated the government's commitment to fast track the pending clearances for stuck-up projects via Cabinet Committee of Investments. Faster clearances are expected to reduce project delays and prevent cost escalation. BSE Capital Goods Index underperforms Sensex: The BSE Capital Goods Index posted one of its worst quarterly performances, declining by ~19% qoq, and underperforming the Sensex by ~15%. Weak industrial capex, execution delays and problems in the power sector continue to remain an overhang on capital goods stocks. All the stocks in our capital goods universe underperformed the Sensex. Jyoti Structures, ABB and BGR Energy were the worst performers, underperforming the Sensex by more than 25% on account of concerns regarding their declining order books and persistent execution issues.
19
BGR Energy (CMP/TP: `189/-) (Rating: Neutral)

We expect BGR Energy's (BGR) top-line to decline by 6.3% yoy to `1,066cr. However, the EBITDA margin is expected to be almost flat yoy at 12.1%. Interest cost is expected to remain high (owing to elevated interest rate scenario and enhanced working capital requirements), which is likely to drag the bottom-line down by 25.0% yoy to `50cr. We recommend Neutral on the stock.
Crompton Greaves (CMP/TP: `94/117) (Rating: Buy)

For 4QFY2013, we project Crompton Greaves to report a modest top-line growth of 8% yoy to `3,324cr. Weak capex cycle along with strained consumer sentiments is likely to impact the company's growth. On the EBITDA front, the company's margin is expected at 5.0%. Though we expect a modest revenue growth, however, due to stress on margins, we expect the company's P AT to fall by 19.8% yoy to `77cr .W e recommend PA 77cr. We Buy on the stock with a target price of `117.
Jyoti Structures (CMP/TP: `27/34) (Rating: Buy)

For 4QFY2013, we expect Jyoti Structures' top-line to grow by 12% yoy to `824cr. However, tough competition is expected to result in margin pressure. We expect the company's EBITDA
Capital Goods
Exhibit 1: 4QFY2013 - Sensex vs CG stocks
next few quarters as well. In tandem, the boiler turbine generator (BTG) market will witness a further dry spell as most of the planned orders have already been awarded and new orders are in preliminary stages of discussions. The finalization of these orders is likely to witness delay due to ongoing headwinds (such as fuel crisis, constraints in land acquisition and poor health of state electricity boards [SEBs]). T&D space in a better shape; although concerns loom: While T&D capex is on an uptick, given the strong traction in ordering from PGCIL, issues related to land acquisition and forest clearances pose as execution risks. On this account development of T&D infrastructure has historically been slow. Execution delays lead to delay in booking revenues, although expenditure continues to be incurred, thereby resulting in margin pressure as well as deterioration of working capital. Overall, the outlook remains challenging: A handful of positives, especially in the T&D space, do very little to warrant a change in our pessimistic view. Against the backdrop of economic slowdown, we believe the overall picture remains gloomy for market leaders (read BHEL, BGR and ABB). Although the government has initiated efforts such as forming of Cabinet Committee on Investments to fast-track projects and framing SEB restructuring policies to improve their financial condition, we believe it will take a while for the sector to witness any significant and dramatic growth. Given this, we expect the slowdown to continue for the next couple of quarters. Therefore, companies catering to the power sector will witness a high degree of discomfort unless core concerns soothe. Valuations: We prefer companies with diversified revenue streams. Hence, Crompton Greaves and KEC International are our preferred picks over medium to long term, in spite of margin pressure in the near term. In the BTG space, we continue to maintain our negative stance, owing to concerns of heightened competition and slowing of order inflows.
Exhibit 2: Growth in order inflow yoy (3QFY2013)
Source: Industry data, Angel Research

Weak order intake and margin pressure continue in BTG space
Investments across various sectors have substantially decelerated owing to the deteriorating macro environment. Although January IIP numbers indicate slight improvement in industrial growth to 2.4%, capital goods production still declined by 1.8%. Capital goods production has declined yoy for almost 17 consecutive quarters (except in October 2012 where it expanded due to an unusually low base effect), a sign of continued downturn in investment cycle. With not many orders expected to be finalized, the investment cycle is expected to remain in a downturn for the

Company ABB* BHEL BGR Energy Crompton Jyoti Structures KEC Int. Thermax CMP 489 177 189 94 27 58 569 Net Sales 1,805 18,805 1,066 3,324 824 2,400 1,636 0.8 (4.0) (6.3) 8.0 12.0 16.0 (3.0) OPM (%) 5.1 20.4 12.1 5.0 10.1 6.2 9.7 (35) (480) 18 (193) (109) (199) (129) Net P rofit Profit 43 2,575 50 77 28 59 105 (10.3) (23.8) (25.0) (19.8) (9.5) (20.3) (19.3) EPS (`) % chg (10.3) (23.8) (25.0) (19.8) (9.5) (20.3) (19.3) FY13E 6.5 24.1 22.7 2.1 7.7 5.6 26.9 2.0 10.5 7.0 1.2 3.5 2.3 8.8 EPS (`) FY14E 11.3 20.9 24.9 6.9 8.7 7.7 31.0 FY15E 17.4 19.0 28.0 9.4 10.2 9.2 34.3 FY13E 75.4 7.3 8.3 44.8 3.5 10.4 21.1 P/E (x) FY14E 43.4 8.5 7.6 13.6 3.1 7.5 18.4 FY15E 28.1 9.3 6.7 10.0 2.7 6.3 16.6 Tar get arg (`) 452 117 34 67 (`) 4QFY13E % chg 4QFY13E chg bp 4QFY13E % chg 4QFY13E
( ` cr)
Reco. Reduce Neutral Neutral Buy Buy Buy Neutral
Source: Company; Angel Research; Note: Price as on March 28, 2013; * December year ending
Analyst - Amit P atil Patil

20
Cement
Cement demand fails to pick-up
With India's macro-economic scenario continuing to remain poor, cement demand failed to pick up in 4QFY2013. Demand from both real estate and infrastructure sectors failed to revive during this period. Further, construction activity in certain regions was affected due to non-availability of sand. A weak demand scenario even during the peak season (January to July is a period conducive for carrying out construction activities) is a cause of concern for the cement industry. As per data released by the office of the Economic Advisor to PM, cement production during April 2012- January 2013 rose by a marginal 4.5%. Apart from poor macro-economic environment, construction activity in northern and central regions was impacted due to non-availability of sand as a result of the mining ban. The ban on sand mining impacted cement demand in the central region as well, particularly in the state of Uttar Pradesh. In the western region, while Maharashtra saw some pick-up in demand, the same remained weak in Gujarat. Demand scenario remained mixed in the East. In the south Tamil Nadu and Karnataka witnessed a healthy demand scenario, while demand was poor in Andhra Pradesh. has not been encouraging. In the Central region, prices have corrected in the month of March after witnessing increases in January and February.
Imported coal prices down 18.5% yoy

During 4QFY2013, average prices of New Castle Mccloskey 6,700kc coal were up by 8.7% qoq to US$91.5 per tone, after falling continuously in the last few quarters. However, coal prices still declined by 18.5% yoy. In rupee terms, coal prices were down 11.8% yoy to `4,962 per tonne.
Exhibit 2: Newcastle Mccloskey coal prices
Cement price scenario

After remaining firm in 1HFY2013, cement prices fell in 3QFY2013 due to poor demand. Cement prices were increased across the country during January and February with hopes of pick-up in demand. However, demand has failed to pick as expected resulting in no further price hikes in March. Weak demand infact resulted in price corrections in some states such as Gujarat and Andhra Pradesh. Thus, prices have remained more or less stagnant in the month of March as against the historic trend of price increases across the country during this month. Region-wise East has enjoyed the strongest pricing environment, with most of the parts reporting consistent price hikes through-out the quarter. Pricing has been steady in the South as well barring Andhra Pradesh, which witnessed price correction due to excess supply. In the western region, while prices corrected in Gujarat in February after the initial price hikes, prices in Maharashtra have been steady. In the North, the situation has been mixed with Punjab reporting a healthy pricing scenario, while in Rajasthan there has been a correction in prices. In Delhi although prices have been increased the demand scenario
Key developments
Bulk diesel prices hiked: During the quarter, the Union government allowed oil marketing companies (OMCs) to charge market rates on diesel sold in bulk to railways, transport corporations, cement companies, mining companies etc. Currently subsidized diesel is cheaper by ~`10/litre than diesel sold in the retail market. This new proposal is expected to push up power and freight costs for cement makers. Union Budget 2013-14: The budget didn't make any changes to the duty structure on cement. However, the import duty on steam coal (used in captive power plants) was increased from 1% to 4%, which is a negative for the industry. Further, the railway freight charges were increased by ~5.8%. Although cement makers would attempt to pass-on the hike in freight charges, their ability to do so is restricted considering the low demand scenario. Ultratech commissions new cement plants: During the quarter, Ultratech commissioned 3.3mtpa clinkerisation plant in Raipur (Chattisgarh) and 1.6mtpa grinding unit in Solapur. The company has a capital outlay of `12,000cr, to be spent over setting up additional clinkerization plants at Chattisgarh and Karnataka along with grinding units and bulk packaging terminals across various states. Post these expansions, the company's total capacity is expected to increase by 10.2mtpa, which is expected to be operational by FY2014. Heidelberg Cement: During the quarter, Heidelberg Cement India completed the expansion project at Damoh, (Madhya Pradesh). This expansion has increased the clinker manufacturing capacity at the companys units in Narsingarh (Damoh) from
21
Exhibit 1: Cement Prices

Region South North West East Central
Source: Industry, Angel Research Refer to important Disclosures at the end of the report
Prevailing P rices (`/50kg bag) Prices 240-325 270-300 260-315 340-390 270-310
Cement
1.2 to 3.1 million tonne per annum and the cement capacity at Imlai (Damoh) from 1.0 to 2.0 million tonne per annum.
Exhibit 4: 4QFY2013E top-line performance

25.0 21.0 20.0 15.0
(%)
Cement stocks - Performance on the bourses

During 4QFY2013, cement stocks fell steeply on account of weak demand scenario prevailing in the country. Stocks in the sector underperformed the Sensex, which fell by 3%. Amongst the stocks under our coverage Madras Cements is the lone gainer, posting a return of 2.9%. JK Lakshmi Cement corrected steeply by 39.5% during the quarter. ACC too was down by a huge 18.7%. Exhibit 3: Sensex vs Cement stocks (4QFY2013)
Cement majors Sensex ACC Ambuja India Cements JK Lakshmi Cement Madras Cements Shree Cements Ultratech Source: BSE, Angel Research Abs. Return (%) (3.0) (18.7) (13.7) (8.0) (39.5) 2.9 (12.8) (5.8) (15.7) (10.7) (4.9) (36.5) 5.9 (9.7) (2.7) Relative to Sensex (%)
18.2 12.9 10.6
17.4
11.2
10.0 5.0 0.0 ACC Ambuja Ultratech India Cements Madras Cements JK Lakshmi Shree Cement 3.4
Exhibit 5: OPM (%) performance in 4QFY2013E

Company ACC Ambuja Ultratech India Cements Madras Cements JK Lakshmi Shree Cement 4QFY2013E 4QFY2012 18.3 21.0 21.5 17.7 22.8 19.1 23.4 22.5 29.3 24.7 18.8 21.9 21.6 27.1 yoy (bps) 3QFY2013 qoq (bps) (424) (834) (318) (115) 96 (242) (375) 12.8 19.5 21.6 17.0 23.2 19.9 25.9 547 153 (6) 68 (32) (73) (253)
4QFY2013 expectations
Top-line to grow by 8.1% yoy
We expect our cement universe to report an 8.1% yoy improvement in its top-line driven more by higher realization. Among the companies under our coverage, Madras Cement is expected to post the highest top-line growth of 19.1% aided by healthy demand scenario in Tamil Nadu and strong pricing environemnt.

Cement stocks witnessed a strong rally during CY2012 buoyed by their healthy earnings performances. Earnings remained strong despite modest demand growth due to the healthy pricing scenario. However, worsening of the cement demand scenario has put pressure on pricing. We do not expect any significant improvement in the earnings profile of cement companies over . the next year . Hence we continue to remain Neutral on the sector sector. However , we have a Buy recemmendation on A CC and JK However, ACC Lakshmi Cements due to their cheap valuations.
Margins to remain under pressure

Despite better yoy realization, we expect most of the companies under coverage to face margin pressure on account of higher operating costs. Thus, we expect our cement universe to report a 12.8% de-growth in net profit during the quarter.

Company ACC^ Ambuja ^ India Cements J K Lakshmi CMP (`) 1,161 173 84 97 Net Sales 4QFY13E 3,084 2,834 1,180 531 1,086 1,510 5,731 7.8 7.6 6.4 0.9 19.1 9.7 7.4 OPM (%) chg bp (424) (834) (115) (242) 96 (375) (318) 18.3 21.0 17.7 19.1 22.8 23.4 21.5 Net P rofit Profit 4QFY13E 333 378 57 42 93 207 731 (13.2) (24.7) (15.7) (43.1) (6.3) 76.8 (15.7) EPS (`) % chg (13.2) (24.7) (15.7) (43.1) (6.3) 76.8 (15.7) FY13E 75.1 10.2 7.0 17.0 18.2 296.7 97.1 17.7 2.5 1.9 3.4 3.9 59.2 26.7 EPS (`) FY14E 78.5 10.6 8.8 16.6 21.8 338.2 105.6 FY15E 99.6 12.6 10.8 23.1 28.2 375.5 128.0 FY13E 15.5 17.0 12.0 5.7 13.9 13.7 19.2 P/E (x) FY14E 14.8 16.3 9.5 5.9 11.6 12.0 17.7 FY15E 11.7 13.8 7.7 4.2 8.9 10.8 14.6 Tar get arg (`) 1,361 143 % chg 4QFY13E % chg 4QFY13E
(` cr)
Reco. Buy Neutral Neutral Buy Neutral Neutral Neutral
Madras Cem. 252 Shree Cem.* 4,058 UltraTech 1,868
Source: Company, Angel Research; Note: Price as on March 28, 2013; ^December year ending; *June year ending
Analyst - V Srinivasan
22
FMCG
Slowdown continues in consumer space
Over the past few quarters, the consumer sector, which in general is insulated from economic slowdown, too has begun to feel the impact of the deteriorating macro-economic scenario in the country. The slowdown in the consumer sector got aggravated further in 4QFY2013, with channel checks indicating slowing down in both, the rural and urban segments. In order to counter the slowdown, FMCG companies have stepped up advertising and sales promotion activities. Price cuts have been carried out across categories to catapult demand growth. Apart from pricing action, companies have also launched 'buy one - get one' offers, gift offerings etc. On account of these measures, we expect spending on advertising and sales promotion as a percentage of sales to have gone up during the quarter. In this scenario, we expect companies under our coverage to post subdued growth on the volume front.
Key developments during the quarter

HUL announces increase in royalty payment to Unilever
Hindustan Unilever (HUL)'s Board approved a phased increase in royalty payment to Unilever on sale of certain products with effect from February 1, 2013. This will effectively increase the royalty payment from 1.4% of total turnover currently to 3.15% of total turnover by March 31, 2018. The increase in royalty cost for the February 1, 2013 to March 31, 2014 period is estimated to be 0.5% of turnover. Thereafter it is expected to be in a range of 0.3% to 0.7% of turnover in each financial year; thus translating into a total estimated royalty cost increase of 3.15% over FY2018.
Nestle India announces increase in royalty payment to Nestle SA

Nestle India's (Nestle) Board approved a staggered increase, over the next 5 years effective January 1, 2014, in the royalty paid to promoter Nestle SA from the current 0.20% per annum. The royalty paid is on third party sales and is net of tax. Post the approval, the royalty would be 4.5% of net sales. As per the company, Nestle SA had requested two years ago for a review of the two decades old royalty rate and subsequently substantiated the same by a study conducted by Mckinsey & Co. This study was subjected to a fairness review by two Indian firms which independently used different valuation methods and recommended ranges of royalty rates which were similar to that of Mckinsey & Co. This increase, approved by the Nestle India Board, is based on the lower limit of the ranges established by the two Indian firms.
Raw-material price trend mixed

During the quarter there was a mixed trend witnessed with respect to prices of raw materials. Prices of raw materials such as sugar, cocoa, and soya bean oil fell by 5.9%, 10.1% and 10.8% respectively on a sequential basis. However, prices of sugar and soya bean remained higher on a yoy basis. While the price of palm oil rose by 6.1% on a sequential basis, it was still lower by 27.5% on a yoy basis. Copra prices were higher by 10.3% on a sequential basis, but remained flat on a yoy basis.
Exhibit 1: Input cost trend during 4QFY2013

4QFY13 P rices Prices Wheat (`/quintal) Barley (`/quintal) Sugar (`/ quintal) Tea (`/kg) Coffee (US $/10 tonne) Cocoa (US$/MT) Milk Liquid (`/ltr) Palm Oil (MYR/tonne) Copra (`/quintal) Safflower (`/ quintal) Soyabean Oil (`/10kg) Groundnt Oil (`/MT) Rice Bran Oil (`/MT) Crude (US$/ barrel) Caustic Soda (`/kg) Soda Ash (`/kg) 1,581 1,366 3,357 199 2,176 2,176 27 2,323 4,674 4,276 668 125,006 5,000 113 1,793 1,165 yoy (%) 26.6 7.3 11.3 94.5 8.8 (5.7) 3.9 (27.5) 0.6 34.8 6.2 15.6 0.0 (4.8) 9.3 16.5 qoq (%) 0.2 3.4 (5.9) (2.8) 10.9 (10.1) (0.1) 6.1 10.3 2.0 (10.8) 5.1 0.0 2.3 (8.0) 0.0
Marico demerges Kaya business

During the quarter Marico announced the demerger of Kaya Skin Care Solutions (Kaya) into a separate company by the name Marico Kaya Enterprises Ltd (MaKE). As per the proposed demerger plan for Kaya, MaKE will become the holding company of Kaya Ltd (India) and Kaya entities in the Middle East region and in South East Asia.
Steep hike in excise duty and VAT on cigarettes

The Union Budget 2013-14 increased the specific excise duty (SED) on cigarettes by 18%. The hike in excise duty was steeper than expected considering that the previous Union Budget too had carried out an ~21% increase. Further, a number of states such as Gujarat, Rajasthan and Maharashtra have increased the VAT rates on cigarettes. Companies are expected to carry out price hikes to pass on the higher tax burden. We do not expect volume growth to be affected in the near term due to the proposed price hikes.
Asian Paints acquires Sleek

During the quarter, Asian Paints purchased a 51% stake in
23
Source: Bloomberg, C-Line, Angel Research Refer to important Disclosures at the end of the report
FMCG
modular kitchen maker Sleek Group (Sleek). Sleek is engaged in manufacture, sale and distribution of kitchens and kitchen components with 30 showrooms and a network of 250 dealers across the country. Asian Paints has not disclosed the deal size and the financials of Sleek. Although the entry into the under-penetrated modular kitchen category is a good move by the company as it complements its decorative business, we do not see any major financial benefits flowing from the acquisition in the short term.
We expect our FMCG universe to post top-line and bottom-line growth of 14.8% and 22.9% respectively. Top-line growth is expected to be a mix of volume growth and better realizations. While the selling and advertising expenses of companies are expected to go up during the quarter, most of them are expected to post margin expansions due to superior realizations. Sensex companies ITC and HUL are expected to post top-line growths of 15.9% and 12.2% respectively.
USL-Diageo deal gets the requisite clearances

During the quarter the United Spirits (USL)-Diageo deal got requisite clearances from SEBI after making certain modifications to the deal. The Competition Commission of India (CCI) too has cleared the way for the deal. Diageo is expected to announce the open offer in the month of April.
Exhibit 3: Top-line growth in 4QFY2013E
FMCG stocks' performance on the bourses

The BSE FMCG Index posted a flat performance during the quarter, however, it outperformed the Sensex which de-grew by ~ 3% during the quarter. Among the stocks under our coverage Asian Paints gained the most, posting returns of 11.2%. GSK Consumer too posted a healthy 9.5% yoy growth. However, Tata Global and Colgate Palmolive fell by 20% and 21% during the quarter.
Exhibit 2: FMCG stocks performance on bourses (4QFY2013)

Although the slowdown witnessed in the FMCG sector is expected to persist for the next few quarters, we believe India's long term consumption story is intact. Consumption in many categories with potential for high growth rates is still very low in urban India. In rural India, penetration of these products is even lower. With rising income levels and changing consumer behavior in the country, consumer spending on branded FMCG products is set to rise. We believe the current valuations are fair in most cases and . sector. hence maintain a Neutral view on the sector

Company CMP (`) Asian Paints ^ 4,914 Britannia 524 Colgate Palmolive 1,246 Dabur India ^ 137 GCPL HUL ITC Marico ^ Nestle * TGBL^ 779 466 309 212 4,589 128 GSK Consumer * 4,187 Net Sales 4QFY13E 3,005 1,502 809 1,581 1,711 883 6,354 7,949 1,118 2,240 1,812 2,142 18.4 14.7 17.9 15.9 29.3 8.6 12.2 15.9 21.8 9.4 5.1 15.0 OPM (%) chg bp 117 (28) (497) 11 18 (89) 55 490 212 81 (54) 205 16.0 4.9 17.3 15.9 18.9 19.0 13.4 36.5 14.1 22.5 7.4 11.5 Net P rofit Profit 4QFY13E 309 56 130 202 213 142 854 1,973 103 292 98 77 18.4 6.5 (0.8) 18.5 27.2 7.3 29.6 22.2 44.5 5.8 15.7 666.2 EPS (`) % chg 18.4 6.5 (0.8) 18.5 27.2 7.3 29.6 22.2 44.5 5.8 15.7 666.2 FY13E 122.1 16.9 37.6 4.4 20.7 103.9 15.1 9.5 6.4 110.7 6.4 28.8 32.2 4.7 9.5 1.2 6.3 33.7 3.9 2.5 1.7 30.3 1.6 5.9 EPS (`) FY14E 143.8 20.3 44.7 5.4 26.5 120.6 16.9 11.1 7.9 131.6 7.9 50.9 FY15E 170.2 25.2 51.9 6.3 31.9 146.4 18.1 13.0 9.8 159.8 8.7 74.5 FY13E 40.2 31.0 33.1 31.0 37.6 40.3 30.9 32.4 32.9 41.5 19.9 65.9 P/E (x) FY14E 34.2 25.9 27.9 25.3 29.4 34.7 27.5 27.9 26.8 34.9 16.2 37.3 FY15E 28.9 20.8 24.0 21.7 24.4 28.6 25.8 23.8 21.7 28.7 14.7 25.5 Tar get arg (`) 562 145 % chg 4QFY13E % chg 4QFY13E
(` cr)
Reco. Neutral Accum. Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Accum. Neutral
United Spirits# 1,898
Source: Company, Angel Research; Note: Price as on March 28, 2013; * December year ending; ^Consolidated; #Quaterly numbers pertains to standalone financials
Analyst - V Srinivasan
24
Infrastructure
For 4QFY2013, we expect our coverage universe to report a subdued top-line growth of 2.9% due to slowdown in execution and high base of 4QFY2012 for few companies. Although the fourth quarter is seasonally the strongest quarter for construction companies, we are factoring lower growth due to persistent headwinds such as- (a) a challenging macro environment; (b) policy paralysis; (c) stretched working capital; and (d) delays in payments, thus resulting in slowdown in execution pace. segment's share is expected to be `82cr. On the margin front, we expect ABL to post an EBITDAM of 23%, registering a growth of 295bp on a yoy basis. We expect the company to post a 3.3% yoy decline in its earnings to `45cr for the quarter.
CCCL (CMP/TP: `11/-) (Rating: Neutral)

Consolidated Construction Consortium (CCCL) is expected to continue to post poor numbers on all fronts for 4QFY2013 as well. We expect top-line to decline by 5.0% yoy to `559cr, on the back of slow-moving order book. On the EBITDA front, we expect the company to continue its dismal performance; however, its EBITDAM is expected to register an increase of 65bp qoq to 4.5% on account of low base of the sequential previous quarter. On the bottom-line front, the company is expected to post a loss of `2cr for the quarter , indicating a decline of 107.4% yoy . quarter, yoy.
Exhibit 1: Average yoy revenue growth (%)

25.0 19.7 20.0 15.0 10.0 5.0 0.0 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 13.7 16.6 16.9 12.5 10.2 8.7
2.9
IRB (CMP/TP: `114/`167) (Rating: Buy)

IRB is expected to post a good performance on quarterly basis. We expect a 27.1% yoy growth in the engineering and construction (E&C) segment to `794cr. This would come on back of healthy execution pace in under-construction build-operatetransfer (BOT) projects. On the BOT front, we expect a revenue of `310cr for 4QFY2013, leading to an overall top-line growth of 30.2% to `1,104cr. We expect blended EBITDA margin at 44.0%, a decline of 91bp yoy. Depreciation for the quarter is expected to jump 13.3% yoy, owing to completion of the e project net profit before tax and after Surat-Dahisar project. W We tax (post minority interest) at `248cr and `187cr , respectively , 187cr, respectively, after factoring a blended tax rate of 25% for the quarter . quarter.
% yoy growth
Source: Company, Angel Research; Note: For our analysis, we have selected 11 companies, as detailed in Exhibit 6
During the quarter, there has been no respite from the several headwinds (such as high interest and commodity costs and slowdown in order inflow) faced by the sector. Thus, subdued revenue performance, along with pressure on EBITDAM and high interest cost, are expected to result in a muted performance at the earnings level. Against this backdrop, we expect a decline in earnings for most of the companies under our coverage universe, with asset owners such as Ashoka Buildcon (ABL) and IRB Infrastructure Developers (IRB) being exceptions.
ITNL (CMP/TP: `178/`230) (Rating: Buy)

We expect ITNL to post a decent set of numbers for the quarter on account of healthy order book from its BOT projects. The company is expected to report consolidated revenues of `1,850cr for 4QFY2013, registering a 7.0% decline yoy. We expect the company to register an EBITDAM of 28%. On the back of high interest cost and high base for 4QFY2012, we expected ITNL's earnings to decline by 11.6% yoy to `157cr.
Exhibit 2: Average yoy earnings growth (%)

15.0 10.0 5.0 0.0 (5.0) (10.0) (15.0) (20.0) 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 (17.6) 4QFY13 7.7 5.2 3.3 10.7 6.5 2.5 (3.4)
IVRCL (CMP/TP: `19/`35) (Rating: Buy)

We expect IVRCL to continue with its poor performance in 4QFY2013. On the revenue front, it is expected to post a yoy decline of 4.9% to `1,520cr on the back of slowdown in execution. On the EBITDA margin front, we expect an expansion of 226bp yoy to 8.7%. The company is expected to post a bottom-line loss of `22cr vs a profit of `5cr in 4QFY2012, primarily on account of slowdown in execution and higher interest costs for the quarter . quarter.
% yoy growth
Source: Company, Angel Research; Note: For our analysis, we have selected 11 companies, as detailed in Exhibit 6
ABL (CMP/TP: `193/`272) (Rating: Buy)
For 4QFY2013, ABL is expected to post a revenue growth of 16.6% yoy on the consolidated revenue front to `546cr owing to under-construction captive road BOT projects, which will drive its E&C revenue. The E&C segment will continue to dominate the company's revenue by contributing `462cr while the BOT
JAL (CMP/TP: `66/`95) (Rating: Buy)

We expect Jaiprakash Associates (JAL) to post a top-line growth of `3,365cr for the quarter, indicating a decline of 17.2% yoy.
25
Infrastructure
C&EPC revenue is expected to decline by 10.5% yoy to `1,594cr. On the cement front, we expect JAL to post a revenue of `1,385cr on a volume of 3.7mt with realization of `3,745/tonne for the quarter. The company's blended EBITDA margin is expected to be at 26.4%, indicating a growth of 135bp for the quarter. The bottom-line is expected to be at `176cr, registering a yoy decline of 37.9% in 4QFY2013, owing to slowdown in construction revenue and high interest cost for the quarter.
Unity Infra (CMP/TP: `27/`45) (Rating: Buy)

Unity Infraprojects (UIP) is expected to post a 16.0% yoy growth on the top-line front to `833cr for 4QFY2013. We expect the company's EBITDA margin to fall by 74bp to 11.7%. Despite revenue growth, the company's earnings are expected to post a decline of 5.7% yoy to `36cr on account of low EBITD AM EBITDAM and higher interest cost for the quarter . quarter.
Interest cost continues to dent profitability

Infrastructure companies continue to reel under pressure on account of high interest cost (owing to a high interest rate regime) and increased debt levels. This has resulted in a decline in the bottom-line of most infrastructure companies under our coverage. In view of weakness in broader economic activity, monetary policy has adopted a more growth-supportive stance. In the present quarter (4QFY2013), the Reserve Bank of India (RBI) has eased the repo rate by 50bp and the CRR by 25bp. For the fiscal year as a whole, the repo rate has been reduced by 100bp and the CRR by 75bp. Although policy maintains caution on future rate cuts, the RBI has indicated that it is committed to ensuring adequate liquidity support. W e believe We that this is a positive for the sector and the impact of monetary easing is likely to come through by the second-half of FY2014.
L&T (CMP/TP: `1,365/`1,795) (Rating: Buy)

For 4QFY2013, we expect Larsen & Toubro (L&T) to record a revenue of `20,303cr, indicating a growth of 10.0% yoy. This growth can be attributed to the company's large order book (~`1.6trillion). On the EBITDA front, we expect the company's margin to witness a decline of 187bp yoy to 12.0%. We project net profit to decline by 18.3% yoy to `1,536cr in 4QFY2013. This is mainly due to lower-thanexpected operating performance and higher base of last year. We estimate the company's order inflow to be at ~`23,275cr for the quarter, which is in-line with the Management's guidance of 15-20% growth in order book.
NCC (CMP/TP: `33/`45) (Rating: Buy)

NCC is expected to post a modest performance for the quarter. It is expected to post a revenue growth of 7.1% yoy to `1,879cr while EBITDA margin is expected to witness an expansion of 269bp yoy to 8.5% for the quarter. On the earnings front, we , an increase of 317.6% yoy . This expect net profit of `45cr 45cr, yoy. would be primarily on account of pick up in execution and lower base of last year. We expect interest cost to jump by 4.7% yoy to `103cr owing to an elongated working capital cycle.
Exhibit 3: Interest cost as a % of sales for E&C companies

(%) 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 JAL IVRCL Unity Infra 3QFY13 NCC CCCL 3QFY12 Simplex In. Sadbhav 2QFY13 L&T
SEL (CMP/TP: `119/`153) (Rating: Buy)

We expect Sadbhav Engineering (SEL) to post weak numbers on account of high base of 4QFY2012 and lower-than-expected execution. Revenue is expected to decline by 49.6% to `456cr. However, on a sequential basis, it implies a growth of 29%. EBITDA margin is expected to witness a jump of 89bp yoy to 10.4% on account of low EBITDAM posted in 4QFY2012 due to higher sub-contracting charges. On the earnings front, the company is expected to post a dip of 74.3% yoy to `12cr . 12cr.
Order inflow remains muted

Order inflows for companies under our coverage have largely been disappointing for the last couple of quarters. Moreover, the road sector which witnessed robust awarding of projects in FY2012, has also seen significant slowdown in awarding of projects. In 9MFY2013 only ~1,200km of road projects were awarded. Also, infrastructure companies are bidding very cautiously for road projects and are looking to procure EPC (engineering, procurement and construction) contracts. The main reasons for companies going slow on road BOT projects are: 1) High interest cost and tough business environment; 2) Difficulties in achieving financial closure; and 3) Banks turning cautious against lending for road projects and demanding higher equity contribution. For 3QFY2013, SEL, Simplex Infra and L&T showed positive
26
Simplex Infra (CMP/TP: `114/`164) (Rating: Buy)

Simplex Infrastructures is expected to post a subdued performance on the revenue front, as we expect the top-line to decline by 5.8% yoy to `1,691cr for 4QFY2013 owing to slow moving order book. We expect EBITDA margin to expand by , 10bp to 8.8%. The bottom-line is expected at `21cr for the quarter quarter, indicating a decline of 19.4% yoy . This is mainly on account of yoy. lower -thanexpected revenue growth during the quarter . lower-than-than-expected quarter.
Infrastructure
growth. Most players witnessed a decline in order inflow for the quarter owing to policy paralysis at the government's end, delays arising due to land acquisition, and environmental clearance issues.

In the past 12 months, the infrastructure sector has been plagued by severe headwinds - inflationary pressures, depleting order books, high interest rates and policy paralysis, resulting in execution slowdown and shrinking bottom-lines of most infrastructure companies. Many projects could not take off due to delay in approvals and decision making. However, the infrastructure sector has seen some positive developments as well during the year. Since September 2012, the government has introduced several reforms to address key issues, including (a) the ones related to environmental clearances and land acquisition, (b) assisting with low-cost funding, etc in an effort to revive the infrastructure sector. The government has taken positive steps such as setting up the Cabinet Committee on Investment (CCI) to fast-track clearances of large investments, announcing steps to fuel projects with low-cost funds, delinking environmental clearance from forest clearance and forming a regulatory authority for the road sector. We believe that although interest rate cuts and increasing investment in the sector remain key triggers for infrastructure stocks; removal of bottlenecks such as delays in environmental clearances and land-acquisition issues are also of prime importance for the execution pace to pick up. In this report, we introduce our FY2015 numbers, which factor in 10-15% earnings growth for most companies in our coverage during the year. We prefer to remain selective: We believe that stock-specific approach would yield higher returns, given the disparity among these companies and changing dynamics affecting them positively/negatively. Hence, we remain positive on companies having 1) a comfortable leverage position; 2) superior return ratios and 3) less dependence on capital markets for raising , ITNL equity for funding projects. Hence, we recommend L&T L&T, and SEL as our top picks in the sector . sector.
( ` cr)
Exhibit 4: Order inflow yoy growth trend during 3QFY2013 (%)

24 Simplex In. NCC L&T
(95) 14
185 Sadbhav IVRCL (50) 50 100 150 200
(72) (150) (100)
IVRCL
Sadbhav
L&T
NCC
Simplex In.
Order backlog remains decent

Despite sluggish order inflow during 9MFY2013, the order book for companies under our coverage universe remained decent. Slowdown in execution pace has also kept the company's order book at higher levels. This order backlog gives comfort for growth over the next couple of years. For few companies such as NCC, IVRCL and SEL, the order book has been boosted by captive orders during the current financial year.
Exhibit 5: Decent order book provides revenue visibility

6.0 5.0 4.0 3.0 2.0 1.0 0.0 Simplex In. Sadbhav L&T IVRCL NCC 60.0 50.0 40.0 30.0 20.0 10.0 0.0 (10.0) (20.0)
OB/Sales (x), RHS
Order book growth yoy (%), LHS

Company ABL^ CCCL IRB Infra^ ITNL^ IVRCL * JAL L&T NCC SEL Simplex In. Unity Infra CMP (`) 193 11 114 178 19 66 1,365 33 119 114 27 Net Sales 4QFY13E 546 559 1,104 1,850 1,520 3,365 20,303 1,879 456 1,691 833 16.6 (5.0) 30.2 (7.0) (4.9) (17.2) 10.0 7.1 (49.6) (5.8) 16.0 OPM (%) chg bp 295 (497) (91) 501 226 135 (187) 269 89 10 (74) 23.0 4.5 44.0 28.0 8.7 26.4 12.0 8.5 10.4 8.8 11.7 Net P rofit Profit 4QFY13E 45 187 157 176 1,536 45 12 21 36 (3.3) 55.7 (11.6) (37.9) (18.3) 317.6 (74.3) (19.4) (5.7) EPS (`) % chg (3.3) 55.7 (11.6) (37.9) (18.3) 317.6 (74.3) (19.4) (5.7) 8.2 5.6 8.1 0.8 25.1 1.8 0.1 4.2 4.9 EPS (`) FY13E 24.3 (3.3) 16.8 26.3 (3.9) 3.7 63.4 3.1 1.5 14.1 12.7 FY14E 26.0 0.7 17.0 29.4 2.3 4.2 75.1 4.1 7.3 18.0 14.6 FY15E 24.4 2.0 17.2 32.4 3.0 4.3 84.8 4.8 7.8 23.4 14.9 FY13E 7.9 (3.2) 6.7 6.8 (4.9) 17.5 21.5 10.9 82.0 8.1 2.2 P/E (x) FY14E 7.4 16.0 6.7 6.0 8.2 15.6 18.2 8.2 16.5 6.3 1.8 FY15E 7.9 5.4 6.6 5.5 6.3 15.1 16.1 7.0 15.3 4.9 1.8 Tar get arg (`) 272 167 230 35 95 1,795 45 153 164 45 % chg 4QFY13E % chg 4QFY13E
Reco. Buy Neutral Buy Buy Buy Buy Buy Buy Buy Buy Buy
(2) (107.4)
(0.1) (107.4)
(22) (549.7)
(0.8) (616.9)
Source: Company, Angel Research; Note: Price as on March 28, 2013, Target prices are based on SOTP methodology; ^Consolidated numbers; *FY2013 figures are for 9 months
Analyst: Viral Shah

27
Information Technology
CY2013 IT budgets flat, but outlook positive for IT companies
Nasscom has estimated a 10.2% yoy growth in IT services exports to US$75.8bn in FY2013, ie in the mid range of its lowered guidance of 9-12% (Nasscom had lowered its growth guidance from 11-14% in February 2012 to 9-12% in November 2012). Nasscom recently issued guidance of 12-14% yoy growth for the Indian IT exports industry and estimates it to reach ~US$84-87bn in FY2014. Given the lower base of FY2013, some rebound was bound to happen in FY2014 estimates. Gartner's current US dollar growth forecast for the overall global IT spending in 2013 has been revised up slightly from 3.8% last quarter to 4.2% now, mainly due to gains in other currencies against the US dollar but in constant US dollar terms, the forecast growth for overall IT spending in CY2013 is at 3.9%. Economic indicators: For February 2013, data points for the US economy have become broadly stable. For instance, 1) non-manufacturing index accelerated to 56.0 from 55.2 in January 2013; 2) unemployment rate declined to 7.7% from 7.9% in January 2013; 3) industrial production came in at 0.7% mom as against no change in January 2013; 4) manufacturing index inched up to 54.2 from 53.1 in January 2013; 5) retail sales grew by 1.1% following a rise of 0.2% in January; and 6) factory orders fell by 2.0% mom as against 1.3% mom growth in January 2013. These stable economic data points from the US point towards some improvement in the deal pipeline from developed economies. Initial signs of divergence in commentary fading away: The commentaries given by the Managements of the top five Indian IT players suggest pockets of optimism for the sector. Initial signs show that CY2013 IT budgets are expected to remain flat. Infosys' Management indicated that the environment remains almost as same as where it was a few months back, however, Infosys signed eight large deals with TCV worth US$750mn during 3QFY2013. Infosys' Management indicated at flat to declining IT budgets for CY2013. TCS' Management sounded confident of FY2014 being a better year than FY2013 as clients seem to have a better handle on the kind of projects they want to execute, and are aware of the challenging macro environment. They have planned their IT spending considering these challenges. Cognizant has issued a CY2013 guidance of at least 17% yoy growth in revenues. Wipro's Management indicated that CY2013 IT budgets are expected to remain stable and anticipates a positive demand environment ahead with ~1.7x increase in deal pipeline yoy. HCL Technologies (HCL Tech) signed 12 multi-year, multi-million dollar deals during 3QFY2013 on top of 12 deals signed in 2QFY2013 and the Management sounded confident of sustaining revenue growth within the top-tier league.
Our take: IT stocks have traded positively post 3QFY2013 results commentary on the back of factors such as: 1) pick up in discretionary spending, 2) FY2014 deal pipeline looking better than FY2013, 3) less cautious commentary from Managements, 4) upbeat revenue by tier-I IT companies in a lull quarter and 5) revenue growth seen from BFSI industry vertical, which is the highest revenue generator for IT companies, suggesting that weakness in BFSI is abating. Early comments from Managements indicate that IT budgets will remain flattish in CY2013. 3QFY2013 witnessed slight revival in discretionary spending which has led to expectations of a demand recovery and convergence between erstwhile leaders and laggards. We believe demand for IT offshore services would continue to be strong due to the need for operational efficiency & cost rationalization and regulatory compliance & risk management.
Exhibit 1: Relative performance to the Sensex
Cyclically a muted quarter but with modest volume growth

Traditionally, 4Q is a soft quarter for IT companies as budgets get closed from January to March and decisions are taken between February and March on the kind of discretionary, operational and capital spending; the spend happens heavily in the following quarters. We expect revenue growth in 4QFY2013 to be volume driven and pricing is expected to remain stable. For 4QFY2013, volume growth is expected to be in the range of 2.5-4.5% qoq for tier-I IT companies, with Infosys leading the pack aided by recent acquisition of Lodestone. For tier-II companies, we expect growth
Exhibit 2: Trend in volume growth (qoq) Tier-I

6 5.3 5.0 4 3.3 2.0
(%)
4.5 3.0
4.5 3.5 3.2 2.5 2.0 1.3
3.8 2.7 1.8 0.8 0.8 0.2
0 (1.0) 1QFY13 2QFY13 3QFY13 4QFY13E
(2)
(1.5) 4QFY12
Infosys
TCS
HCL Tech
Wipro*
Source: Company, Angel Research; Note: *For the IT services segment
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to be modest at 1-3.5% qoq, with Tech Mahindra leading the pack aided by revenues flowing from acquisition of Hutchison Global Services and Comviva. Also, Mphasis is expected to lead the entire IT pack with 8% volume growth aided by the recent acquisition of Digital Risk.
Exhibit 5: Trend in INR revenue growth (qoq) - Tier-I

16 12.1 12 8.6 8 5.1
(%)
13.5
9.5 5.7 2.9 0.7 3.0 2.7 2.9 3.5 2.5 2.4 1.6
USD revenue to grow

The cross-currency movement, this quarter, has turned negative for the Indian IT companies. So we expect an impact of ~20-40bp qoq on USD revenue of Infosys, TCS, Wipro and HCL Tech due to this. For 4QFY2013, on the back of fair volume growth, stable pricing, and marginally negative cross-currency movement, we expect USD revenue of tier-I IT companies to grow by 2.3-4.2% qoq, with Infosys leading the pack.
4 0 (4) (8) 0.4 (0.2) 1QFY13
2.5
4QFY12 (0.6) (4.8)
2QFY13
3QFY13
4QFY13E
Infosys
TCS
HCL Tech
Wipro*
Operating margins to be a mixed bag

We expect the EBITDA margin of Infosys to decline by 91bp qoq to 27.6%, because of wage hike of 2-3% to onsite employee base as well as decline in rupee rate realization. The EBITDA margin of TCS is also expected to decline b 31bp qoq to 28.7% on the back of one-time lawsuit settlement of US$29.75mn. EBITDA margin of Wipro (IT services) is expected to grow by 38bp qoq to 23.9% on the back of improvement in utilization level. HCL Tech's operating margin is expected to decline by 30bp qoq to 22.3% due to slight impact from rupee appreciation. Exhibit 6: EBITDA margin profile Tier-I
Exhibit 3: Trend in USD revenue growth (qoq) - Tier-I

7 6 5 4
(%)
6.3
4.6 2.5 2.4 2.0 3.0 3.0 2.6 1.7 3.2 3.3
3.6 2.4
4.2 3.2 2.8 2.3
3 2 1 0 (1) (2)
4QFY12 (1.9)
1QFY13 (1.1) (1.4)
2QFY13
3QFY13
4QFY13E
Infosys
TCS
HCL Tech
Wipro*
35
33.7
32.6 30.6 29.1 29.0 28.5 23.5 22.6
For tier-II IT companies, USD revenue growth is expected to be 1.5-3.3% qoq, with Tech Mahindra leading the pack. Mphasis is expected to post a 7.8% qoq USD revenue growth, aided by Digital Risk acquisition, thereby leading the entire IT pack.
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31.0 29.5 29.1 24.0 23.9 23.8 22.0 18.4 22.2 28.4 23.7
28.7 27.6 23.9 22.3
(%)
25
20
18.5
Exhibit 4: Trend in USD revenue growth (qoq) - Tier-II

12 10 8 6
(%)
15 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13E
Infosys
TCS
HCL Tech
Wipro*
Source: Company, Angel Research; Note: *For IT services segment
4 2 0 1QFY13 (2) 2QFY13 3QFY13
3.3 2.0
2.8 2.4
2.4 1.5
4QFY13E
Tech Mahindra
Mahindra Satyam
MindTree
Persistent
Hexaware
KPIT Cummins
INR revenue growth to be lower

After almost a year of volatile sessions seen in terms of currency, 2HFY2013 saw some stability in the currency movement. On an average basis, the INR appreciated by ~0.3% qoq during 4QFY2013. For 4QFY2013, in INR terms, revenue growth is expected to be in the range of 1.6-3.5% qoq for tier-I IT companies, marginally lower than USD revenue growth, due to appreciation of INR against the USD on a qoq basis.
For tier-II IT companies under our coverage (excluding Persistent Systems), we expect EBITDA margins to remain either flat or go up marginally as hiring for FY2013 is already over and utilization level in these companies is expected to go up during 4QFY2013. EBITDA margin of Hexaware is expected to improve by 191bp qoq to 18.8%, with the company recouping partially the margin loss of ~480bp during 3QFY2013. The EBITDA margin of Persistent Systems is expected to decline by 42bp qoq to 24.3% as we expect IP led revenues (which is a high margin business) to remain flat qoq.
Earnings to decline slightly

On the back of slight INR appreciation, moderate volume growth and lower other income, profitability of tier-I companies such as Wipro and HCL Tech is expected to decline by 2.9% and 5.0% qoq, respectively. The overall profitability of Infosys is
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expected to decline by 3.6% due to increase in operating costs on account of wage hikes given by the company. Amongst mid-tier IT companies, Tech Mahindra and Mahindra Satyam are expected to post 35.0% and 290% qoq growth respectively in reported profits because of lower base effect. During 3QFY2013, Mahindra Satyam posted an exceptional loss of `294cr, which hampered the profits of Tech Mahindra and its associate company - Mahindra Satyam. On an adjusted basis, profit of Mahindra Satyam is expected to decline by 16.7% qoq. Hexaware is expected to report an 11.4% qoq growth in profits with company recouping back some of its operational losses of last quarter, which were incurred due to a large project closure. demand pressure, limited pricing power, high client concentration and limited bench sizes could restrict their profits in the coming quarters. We expect TCS and HCL Tech to lead growth in the tier-I IT pack by growing higher than the industry average in FY2014. We continue to remain positive on TCS and HCL Tech from a longer term perspective, though current valuations preclude us from taking any considerable upsides from current levels for the next couple of quarters.TCS' stock price has run up significantly and is currently trading at 20.1x FY2014E and 17.9x FY2015E EPS, which leaves little room for upside in the near term. HCL Tech is currently trading at 14.9x FY2014E and 13.6x FY2015E EPS. We maintain Accumulate rating on HCL Tech with target price of `876. The PE premium between TCS and Infosys has reduced now, given Infosys' outperformance during 3QFY2013 after six quarters of disappointing results. Infosys is currently trading at 16.5x FY2014E and 15.2x FY2015E EPS which is at a premium to the Sensex. Infosys is expected to perform better than its large-cap peers during 4QFY2013, aided by recent acquisition of Lodestone, which we believe would lead to re-rating of the stock further. We maintain Accumulate rating on Infosys as well as Wipro with target price of `3,132 and `473, respectively. Tech Mahindra remains one of our preferred picks in the entire IT space as it has recently acquired two companies which will give it inorganic boost. Also, post its merger with Mahindra Satyam, the risks which the company is facing right now such as client concentration and industry concentration will be curtailed and the company will be able to reap benefits from Mahindra Satyam's capability in enterprise services. Along with Tech Mahindra, we like KPIT Cummins among mid-caps at the current level with a target price of `130, owing to recent correction in the stock price despite industry leading revenue growth.

For FY2014, Nasscom estimates that industry growth is likely to be in the range of 12-14% and estimates it to reach US$84-87bn. While the global macro data have been steady, we believe that the demand environment for the IT sector is showing signs of revival. Revival in discretionary spending has led to expectations of demand recovery and convergence between erstwhile leaders and laggards. We believe demand for IT offshore services will continue to be strong due to the need for operational efficiency & cost rationalization and regulatory compliance & risk management at the clients' end. From a longer term perspective, IT companies are now investing in areas of cloud, mobility and analytics. We believe FY2013 might be different in terms of growth rates of tier-I IT companies, as companies will have divergent growth rates with TCS and HCL Tech growing higher than the industry's average (in mid teens) and Infosys growing in mid single digits. We expect Infosys and Wipro to be back on track during FY2014 with TCS, HCL Tech and Cognizant growing higher than industry average during the year. India's mid-sized IT companies might have a tougher and slower year ahead as factors such as

Company TCS Infosys Wipro HCL Tech* Mah. Satyam Mphasis^ Hexaware# Mindtree Persistent KPIT Cummins Infotech Entp. CMP (`) 1,572 2,890 437 796 128 392 85 912 542 96 169 Net Sales 4QFY13E 16,457 10,788 11,212 6,432 1,845 1,964 1,416 512 612 337 569 477 2.4 3.5 1.7 2.5 3.0 1.2 12.6 1.9 3.8 1.3 1.1 0.5 OPM (%) chg bp (31) (91) 14 (30) 47 9 4 191 39 (42) 19 6 28.7 27.6 20.3 22.3 21.5 21.7 18.6 18.8 20.8 24.3 15.8 18.6 Net P rofit Profit 4QFY13E 3,528 2,283 1,675 916 372 312 197 74 91 51 54 46 (0.7) (3.6) (2.9) (5.0) (7.2) (16.7) 7.1 11.4 (8.3) 3.5 (9.9) (25.9) EPS (`) % chg (0.7) (3.6) (2.9) (5.0) (7.2) (16.7) 7.1 11.4 (8.3) 3.5 (9.9) (25.9) FY13E 70.9 163.0 26.6 51.8 96.6 8.7 35.6 10.9 84.7 46.7 10.9 20.1 18.0 40.0 6.7 13.0 28.0 2.6 9.4 2.5 21.8 12.8 6.0 4.2 EPS (`) FY14E 78.0 175.5 28.2 53.3 107.0 10.6 38.1 10.4 87.2 55.5 13.1 20.1 FY15E 87.8 189.8 31.5 58.4 115.0 11.9 41.6 11.7 92.6 60.2 14.5 21.8 FY13E 22.2 17.7 16.4 15.4 11.0 14.7 11.0 7.8 10.8 11.6 8.8 8.4 P/E (x) FY14E 20.1 16.5 15.5 14.9 9.9 12.1 10.3 8.2 10.5 9.8 7.3 8.4 FY15E 17.9 15.2 13.9 13.6 9.2 10.8 9.4 7.3 9.8 9.0 6.6 7.8 Tar get arg (`) 3,132 473 876 1,230 143 105 602 130 196 % chg 4QFY13E % chg 4QFY13E
( ` cr)
Reco. Neutral Accum. Accum. Accum. Buy Accum. Neutral Buy Neutral Accum. Buy Buy
Tech Mahindra1,059
Source: Company, Angel Research; Note: Price as on March 28, 2013; *June ending so 3QFY2013 estimates; ^October ending so 2QFY2013 estimates; #December ending so 1QCY2013 estimates; Change is on a qoq basis
Analyst - Ankita Somani

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Media
Healthy top-line growth
For 4QFY2013, we expect our Media universe to post a cumulative top-line growth of 10.7% yoy. The revenue growth of print media companies for the quarter would be aided by selective hikes in cover prices taken by them throughout the year as well as uptick in advertising revenues. Sun TV Network (Sun TV)'s top-line is expected to be bolstered by increasing advertisement spend of FMCG companies. PVR is also expected to post a healthy revenue growth on the back of robust seat additions and many successful releases during the quarter. Exhibit 1: Newsprint prices up in INR terms
800 750 700
USD/tonne
digitization has been achieved across these cities. About 28 of the total 38 cities have crossed the 50% digitization mark with Hyderabad, Amritsar, Chandigarh and Allahabad achieving close to 100% digitization. Local cable operators were expected to install 16 million set-top boxes across 38 cities in 15 states by March 31, 2013. However, they are yet to achieve the same due to shortage of set-top boxes. The Minister for I&B, Manish Tewari, reiterated the government's commitment to stick to the deadline. The firm government support behind the digitization drive, apparent from the phase 1 and phase 2 implementation, augurs well for all the players across the broadcasting value chain.
Newsprint prices up yoy in INR terms
40,000 35,000 30,000 25,000 20,000 15,000

INR/tonne
650 600 550 500 450 400 Dec-05 May-07 Oct-08 USD/tonne Mar-10 INR/tonne Aug-11 Jan-13
Union Budget 2013-14 highlights: The government has reiterated its commitment to radio phase 3 auctions in FY2013-14. It proposes to add 839 new FM radio channels covering 294 cities. This announcement augurs well for the radio industry as a whole. In another announcement, the government increased custom duty on set top boxes (STBs) from 5% to 10%. Although, it is a positive development for domestic STB manufacturers, it is negative for cable and DTH operators as they mostly import STBs. Exhibit 3: Relative performance to Sensex during 4QFY2013
During 4QFY2013, the average prices of newsprint have marginally declined by 0.6% qoq and 1.2% yoy to ~$616. In INR terms, newsprint prices are almost flat qoq at `33,423. However, they are up by 6.6% yoy on account of ~8% yoy depreciation in INR vs USD.
Exhibit 2: Average Issue Readership Trends

Publications Dainik Jagran Dainik Bhaskar Hindustan Divya Bhaskar Hindustan Times 4QCY12 3QCY12 4QCY11 qoq(%) 16,370 14,416 12,246 3,531 3,820 16,474 14,491 12,242 3,576 3,786 16,410 14,602 12,045 3,738 3,791 (0.6) (0.5) 0.0 (1.3) 0.9 yoy(%) (0.2) (1.3) 1.7 (5.5) 0.8
Source: IRS data, Angel Research
Key developments during the quarter

Phase 2 Digitization: The phase 2 of digitization in 38
non-metro cities ended on March 31, 2013. According to the Information and Broadcasting (I&B) Ministry, nearly 70%
Outlook and valuation: In FY2013, print media stocks underperformed due to OPM pressure on account of higher newsprint costs and cyclical nature of ad revenue growth (sluggish due to slower GDP growth). Due to these cyclical headwinds, stocks are currently trading at cheaper valuations. However, considering the structural positives of the print business (high brand loyalty and significant entry barriers), in our view, print media stocks deserve a premium to the Sensex. Hence, we maintain our Buy rating on DB Corp and Jagran P rakshan Prakshan and Accumulate rating on HT Media.

Company Jagran D B Corp HT Media PVR Sun TV CMP (`) 93 226 103 303 392 Net Sales 4QFY13E 327 402 521 164 461 8 14 6 40 8 OPM (%) chg bp 431 556 562 1,353 144 23.7 24.9 15.4 17.1 78.3 Net P rofit Profit 4QFY13E 34 58 47 6 175 (20) 27 115 194 10 EPS (`) % chg (20) 27 115 194 10 FY13E 6.5 11.8 6.6 15.4 17.2 1.1 3.1 2.0 2.4 4.5 EPS (`) FY14E 7.4 14.5 8.0 18.3 19.3 FY15E 8.4 16.9 9.1 22.9 22.7 FY13E 14.3 19.1 15.5 19.7 22.8 P/E (x) FY14E 12.6 15.6 12.9 16.6 20.2 FY15E 11.1 13.4 11.4 13.3 17.2 Tar get arg (`) 121 272 117 % chg 4QFY13E % chg 4QFY13E
( ` cr)
Reco. Buy Buy Accum Neutral Neutral
Source: Company, Angel Research; Note: Price as on March 28, 2013
Analyst - Amit P atil Patil

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Metals
We expect steel companies' profitability to decline yoy during 4QFY2013 due to decreasing prices of steel amidst slowing demand. During 4QFY2013, global steel prices fell on slowing demand. In the US and China, steel prices declined by 3.4% and 3.6% qoq, respectively. However in the CIS, steel prices rose by 6.1% qoq. In India however prices fell during later half of March. For 1QFY2014, coking coal contract prices are likely to settle at US$165-170/tonne, compared to US$165/tonne for 4QFY2013. Iron ore contract prices for 1QFY2014 are expected to increase as spot iron ore prices have increased during 4QFY2013. Going forward, although we expect steel consumption to pick up, concerns on account of slowdown in capex cycle, high interest rates and slowdown in construction demand continue to persist. Non-ferrous companies' profitability is also likely to decline during 4QFY2013 amidst lower base metal prices coupled with rising costs. Base metal prices have remained range-bound during 4QFY2013. Going forward, we do not expect base metal prices to spike meaningfully due to subdued outlook for the global economy. The BSE Metal Index posted a negative return of 20.2% in 4QFY2013. Steel stocks under our coverage declined during 4QFY2013 on the back of poor results. Stock prices of SAIL, Tata Steel and JSW Steel declined by 30.9%, 27.0% and 17.4%, respectively. On the non-ferrous side Hindalco's stock price declined by 29.2% after the company locked out its Silvassa plant due to an illegal strike by workers. Nalco's stock price declined by 32.9% after the Government of India sold 5.0% stake in the company. Hindustan Zinc and Sterlite also declined 11.1% and 19.9%, respectively. Miners like NMDC and Coal India recorded a substantial fall in their stock prices after having reported weaker volumes.
Key events
Government imposed 20% import duty on some Chinese flat steel products
During 4QFY2013 the government imposed a 20% import duty on some flat steel products from China in order to protect domestic steel mills. During January - September 2012, total steel imports by India had increased by 46.3% yoy to 5.9mn tonne. The duty imposed is expected to be effective for a period of 200 days. However, India continues to face a threat from imports, mainly from the FTA countries. Hence, a 20% duty on Chinese steel products is unlikely to have any meaningful impact on curbing steel imports into India.
CEC recommended restarting mining in Karnataka

During the quarter, the Central Empowered Committee (CEC) recommended that the Supreme Court allow resumption of production of iron ore from category-A mines. Further, CEC recommended that mining operations for category-B mines be permitted subject to specified R&R conditions being met by miners. A speedier commencement of production from mines in Karnataka would be positive for players like JSW Steel and Sesa Goa. However, R&R compliance by miners would likely take some more time for category-B mines.
Government divests stake in Nalco and SAIL

The Government of India divested 5.0% and 5.8% stake in National Aluminium Co (Nalco) and Steel Authority of India (SAIL) respectively via an Offer for Sale (OFS), in March 2013. The OFS for Nalco comprised of 12.9cr equity shares of face value `5 each at a floor price of `40 per share. The OFS for SAIL comprised of 24cr equity shares of face value of `10 at a floor price of `63 per share. Both these issues were fully subscribed.
Ferrous sector
During the first half of 4QFY2013, global steel prices rose, led by rise in spot iron ore prices, but later in the second half of the
Exhibit 1: Metal stocks performance 4QFY2013
Exhibit 2: Global HRC trend
Source: Bloomberg, Angel Research Refer to important Disclosures at the end of the report
32
Metals
quarter steel prices fell. In the US and China, steel prices declined by 3.4% and 3.6% qoq, respectively. However in the CIS, steel prices rose by 6.1% qoq. In India however prices fell during March 2013. on mining imposed by the government in Goa and subsequent suspension of environment clearances of all the 93 mining leases issued by the Ministry of Environment and Forests.
Exhibit 5: Iron ore exports to China decline
Exhibit 3: Domestic HRC prices flat qoq
Source: Bloomberg, Angel Research Source: Bloomberg, Angel Research
Steel imports on a rise

Steel imports have continued to rise over the past one year. Indian steel players continue to face a threat of imports from FTA countries (which attract lower import duty). During April 2012 - February 2013, steel imports by India increased by 19.6% yoy to 7.5mn tonne. On the back of this, the central government in, 4QFY2013, imposed a 20% import duty on some flat steel products from China to protect domestic steel mills.
Iron ore and coking coal prices flat

Iron ore prices increased during the quarter on the back of higher demand from China. Declining supplies from India were more than offset by rising exports from Australia. Australia exported 301.1mn tonne (ie a 17.8% yoy growth in the 10-month period between April 2012-January 2013). During the quarter, average spot iron ore prices for 63.5% Fe grade (CFR, China) rose by 24.7% qoq to US$138/tonne. Hence, iron ore contract prices for 1QFY2014 are likely to rise on a qoq basis. Domestic iron ore prices have declined during 4QFY2013 on account of lower demand for steel. Decline in prices of sponge iron as well as steel hurt iron ore prices. Media reports suggest that quarterly coking coal contracts for January-March quarter are likely to be signed at US$165-170/tonne.
Exhibit 6: Production and consumption - Steel
Exhibit 4: Iron ore prices and inventory in China

Outlook
Margins to expand on a yoy basis
Current international iron ore prices are in the range of US$135-155/tonne (slightly above marginal cost of production for several Chinese iron ore miners). Hence, we do not expect any further meaningful downside from the current price levels. Contracted coking coal prices have declined gradually over the past one year. A decline in coking coal prices is expected to benefit Indian steelmakers, although INR depreciation would partially offset the decline in prices of coking coal. According to World Steel, global crude steel production increased by 0.8% to 125mn tonne in January, whereas it
33
Iron ore exports from India continued to decline

As per data from the Federation of Indian Mineral Industries (FIMI), iron ore exports from India had declined by 38.5% yoy to 62mn tonne during FY2012. Iron ore exports from April 2012 - January 2013 were at 20.8mn tonne, impacted by the ban
Metals
increased 1.2% yoy to 123mn tonne in February. Global capacity utilization levels during January and February stood at 76.7% and 80.5%, respectively. 4QFY2013 expectations: For 4QFY2013, on a yoy basis, we expect net sales of steel companies to decline on the back of lower steel prices. Thus, we expect the top-line of steel companies under our coverage to decline modestly yoy. Also, we expect their margins to decline due to lower prices on a yoy basis. For SAIL, we expect net sales to decline by 13.1% yoy and PAT to decline by 14.9% yoy due to pressure on top-line. For JSW Steel, we expect top-line to decline by 7.7% yoy due to lower realization; its PAT is expected to decline by 51.0% yoy. NMDC's PAT is expected to grow by 4.7% yoy, in line with growth in its ata Steel. top-line. We remain positive on NMDC and T Tata 40.4%, respectively. However, on a qoq basis, copper, aluminium and zinc inventories increased by 67.6%, 1.1%, and 4.4% respectively.
Exhibit 8: Inventory chart
Source: Bloomberg, Angel Research; Note: Base = 100
Non-ferrous sector
During the quarter, base metal prices remained range-bound. Domestic aluminium companies continued to suffer on account of low aluminium prices coupled with higher coal costs. On a sequential basis, average prices of copper, aluminium and zinc increased by 0.5%, 1.3% and 4.5%, respectively after a sharp decline over the last one year. On a yoy basis, average copper and aluminium prices declined by 4.4% and 7.9% respectively. Zinc prices were flat yoy.
Outlook
Non-ferrous companies are expected to face a double whammy of declining product prices coupled with higher input costs during FY2014. Base metal prices have declined over the past one year and hence realizations for companies are expected to decline during FY2014 (partially offset by INR depreciation against the USD). Further, although several aluminium companies (globally) have announced production cuts, we are yet to see any meaningful decline in actual production. Thus, lower realizations coupled with higher prices of key inputs such as imported coal, caustic soda, CP pitch and petroleum coke are expected to hit margins of non-ferrous companies during FY2014, in our view. For 4QFY2013, we expect margins of non-ferrous companies to contract yoy on account of lower LME prices. We expect non-ferrous companies to report lower bottom-lines on a yoy basis owing to a decline in LME prices coupled with sticky costs. We have a positive stance on Hindustan Zinc.
Exhibit 7: Average base metal prices (US$/tonne)

4QFY13 Copper Aluminium Zinc 7,965 2,043 2,033 4QFY12 8,329 2,219 2,028 yoy % (4.4) (7.9) 0.2 3QFY13 7,924 2,017 1,945 qoq % 0.5 1.3 4.5
On a yoy basis, inventory levels at the LME warehouse for copper, aluminium and zinc increased by 39.2%, 2.4% and

Company Coal India Hindalco Hind. Zinc JSW Steel MOIL Nalco NMDC SAIL Sterlite Inds Tata Steel CMP (`) 309 92 121 671 222 33 138 62 94 312 Net Sales 4QFY13E 18,918 6,959 3,091 8,779 236 1,656 2,659 11,640 11,334 35,323 (2.6) (8.0) (0.1) (7.7) 16.8 (5.5) 2.5 (13.1) 5.3 3.9 OPM (%) chg bp (838) 25 287 (240) 531 (133) 58 (165) (200) (111) 23.9 11.7 56.5 15.0 47.9 16.2 76.7 12.3 23.1 8.2 Net P rofit Profit 4QFY13E 4,376 528 1,663 271 113 201 1,721 725 1,522 505 (26.7) (17.5) 17.0 (51.0) 14.1 (28.7) 4.7 (14.9) 10.5 16.4 EPS (`) % chg (26.7) (17.5) 17.0 (51.0) 14.1 (28.7) 4.7 (14.9) 10.5 16.4 6.9 2.8 3.9 11.4 6.7 0.8 4.3 1.8 4.2 5.2 EPS (`) FY13E 25.8 13.4 15.1 78.7 25.8 2.1 16.6 6.5 16.8 4.2 FY14E 28.4 13.8 16.3 71.8 26.1 3.2 16.6 5.5 18.8 35.3 FY15E 30.9 15.9 17.1 86.3 29.1 3.3 19.0 8.3 20.9 51.7 FY13E 12.0 6.9 8.0 8.5 8.6 15.5 8.3 9.5 5.6 73.7 P/E (x) FY14E 10.9 6.6 7.4 9.3 8.5 10.4 8.3 11.4 5.0 8.9 FY15E 10.0 5.8 7.1 7.8 7.6 10.2 7.2 7.6 4.5 6.0 Tar get arg (`) 345 140 243 179 430 % chg 4QFY13E % chg 4QFY13E
(` c r) cr
Reco. Accum. Neutral Buy Neutral Accum. Neutral Buy Neutral Neutral Buy
Source: Company, Angel Research; Note: Price as on March 28, 2013; EPS calculation based on fully diluted equity; Denotes consolidated numbers
Analyst : Bhavesh Chauhan / Vinay Rachh

34
Oil & Gas

Brent crude oil remained in the price range of
US$108-120 during 4QFY2013. Overall, average Brent crude oil rose by 1.7% qoq during the quarter. supply from OPEC countries; which although was partially offset by higher non- OPEC production.
Petrochemical prices rose modestly qoq in 4QFY2013

Average prices of petrochemical products increased modestly on a qoq basis during 4QFY2013 in spite of the INR being flat against the USD.
The West Texas Intermediate (WTI) crude oil price also rose
6.9% qoq during the quarter, broadly reflecting an upward move in the price of Brent crude oil.
Average Henry Hub natural gas price rose by 2.2% qoq

after falling steeply over the past one year. The price of Asian spot LNG remained firm on account of demand-supply mismatch in the continent.
Exhibit 3: Petchem prices rose during 4QFY13
Prices of petrochemical products rose by 6.1% on a qoq

basis during the quarter. During November and December 2012, the Indian crude oil basket stood at US$108/bbl and US$107/bbl, respectively. Rise in international crude oil prices coupled with INR depreciation against the USD resulted in higher under-recoveries for oil marketing companies (OMCs) on account of selling diesel, kerosene and domestic LPG at subsidized rates. During the first half of March 2013, OMCs continued to lose `407cr per day. OMCs lost `8.6/liter, `33.4/liter and `439/cylinder on diesel, kerosene and domestic LPG, respectively.
Source: Industry sources, Angel Research
Exhibit 4: World oil supply improved in 4QFY2013
Exhibit 1: Indian crude basket trend
US gas prices rise; Asian gas prices also remain firm

Average Henry Hub natural gas price rose by 2.2% qoq due to winter demand in the USA. Further, Asian spot LNG prices continued to remain high on account of higher demand in Asia.
Source: PPAC, Angel Research
Brent crude remained volatile during 4QFY2013

Brent crude oil price remained higher, ie in a range of US$108-120 during 4QFY2013, mainly because of lower
Exhibit 5: US gas prices rose in 4QFY2013
Exhibit 2: Brent crude remained volatile during 4QFY2013
Source: PPAC, Angel Research Refer to important Disclosures at the end of the report
35
Oil & Gas

Exhibit 6: Asian LNG prices remain firm LPG cap raised to 9 cylinders; diesel price partially de-regulated
During 4QFY2013, the government raised the annual cap on supply of cheap cooking gas to nine cylinders from six and allowed state-run OMCs to raise the price of diesel in a staggered manner. The decision to raise the cap on cheap cooking gas would increase under-recoveries by `9,300cr for OMCs while they have been given freedom to increase the price of diesel by a small amount every month.
RIL shuts 8th well in KG-D6 basin

Reliance Industries (RIL), during January 2013, shut its eighth well on the main gas fields in KG-D6 block, leading the output to plummet to an all time low of 21mmscmd. Prior to this, in November 2012, it had shut B4, the seventh well on D1&D3 field.
Exhibit 7: Crude inventory remained high in 4QFY2013
Government of India divests 10% stake in Oil India

During 4QFY2013 the Government of India sold 10% stake in Oil India through the offer for sale (OFS) route, divesting 6.01cr equity shares of face value of `10 each at the floor price of the issue, ie at `510 per share. The issue was successfully subscribed.
Exhibit 8: Motor gasoline inventory fell in 4QFY2013
Cairn India gets approval to drill well in Rajasthan block

The Directorate General of Hydrocarbons (DGH) gave approval to Cairn India for drilling a block in its Rajasthan fields / block to raise production to 214,000bopd. The approval was delayed by over a year. Currently the company produces 170,000bopd from its Rajasthan block (Mangala).
Indraprasth Gas raises price of CNG

Indraprastha Gas (IGL), in January 2013, increased the price of CNG in Delhi by `1.55/kg to `39.9/kg due to increase in input costs. The company had been importing higher quantities of expensive natural gas due to shortage in domestic gas production.
Key developments
Government proposed to charge market price of diesel for bulk consumers
In 4QFY2013, the Oil Ministry proposed to charge market price for diesel to bulk consumers such as railways, state transport companies and industrial users including cement, steel and mining companies. These bulk buyers account for ~18% of the total diesel consumption in the country. Higher diesel prices for bulk consumers are expected to lower the government's subsidy burden by ~`13,000cr; the Oil Ministry's proposal would be beneficial for upstream (ONGC, Oil India and GAIL) and downstream companies.
Subdued 4QFY2013 performance by O&G stocks

During 4QFY2013, the BSE Oil and Gas index recorded a decline of 1.1% due to fall in the broader markets. GAIL's stock continued to decline, as has been the trend over the past several months; for the quarter it fell 6.4%. ONGC's stock also posted a 3.8% decline, in spite of diesel price being partially deregulated and bulk diesel having been made costly. Cairn India also posted a 2.4% decline due to reports that it is unable to ramp up production from its flagship Rajasthan blocks. RIL however rose moderately by 1.1% after having seen a significant decline over the past several quarters.
36
Oil & Gas

Exhibit 9: 4QFY2013 stock performance
is expected to increase by 25.0% yoy which is expected to be partially offset by decline in production from the KG D6 block. Its PAT is expected to increase by 24.7% yoy, in line with increase in operating income. For ONGC, we expect net sales to decrease by 5.9% yoy while its PAT is expected to decrease by 26.1% yoy due to yoy increase in subsidy burden.
GAIL is expected to report a top-line growth of 15.1% yoy on account of increase in volumes. Its net profit is expected to increase by 72.9% yoy due to firmer top-line growth. Cairn India's net sales are expected to increase by 20.3% yoy, mainly on account of increase in volumes. Its bottom-line is expected to increase by 17.3% mainly, due to increase in topline.
For 4QFY2013, we expect an improved performance on the profitability front for our coverage companies. For RIL, we expect the top-line to increase by 8.0% yoy on account of higher prices of petrochemicals. Its operating profit

Company Cairn India GAIL ONGC ^ RIL ^ CMP (`) 272 319 312 774 Net Sales 4QFY13E 4,393 12,038 19,938 92,008 20.3 15.1 5.9 8.0 OPM (%) chg bp (837) 629 (1,942) 121 73.3 13.3 42.1 8.9 Net P rofit Profit 4QFY13E 2,819 835 4,172 5,282 17.3 72.9 (26.1) 24.7 EPS (`) % chg 17.3 72.9 (26.1) 24.7 13.5 6.6 4.9 16.1 EPS (`) FY13E 61.9 34.9 28.7 68.1 FY14E 55.5 35.9 34.3 71.5 FY15E 51.7 41.5 39.3 80.3 FY13E 4.4 9.1 10.9 11.4 P/E (x) FY14E 4.9 8.9 9.1 10.8 FY15E 5.3 7.7 7.9 9.6 Tar get arg (`) 340 % chg 4QFY13E % chg 4QFY13E
( ` cr)
Reco. Buy Neutral Neutral
354 Accumulate
Source: Company, Angel Research; Note: Price as on March 28, 2013; ^Standalone numbers for the quarter and consolidated numbers for the full year
Analyst : Bhavesh Chauhan / Vinay Rachh

37
Pharmaceutical
Pharma sector continues its outperformance
During 4QFY2013, the BSE Healthcare (HC) index continued its outperformance. Against a decline of 3.8% in the Sensex, the BSE HC index declined by 1.9%. The performance of the sector was impacted by lackluster performance of the broader market, which reeled under the slowdown in the overall economic growth. In such a scenario, the pharmaceuticals sector, which usually tends not to be impacted much by economic slowdowns, emerged resilient and outperformed the broader indices.
Impact
It will benefit all the companies in the sector.
Announcement
15% allowance for investments in plant and machinery above `100cr by the Department of Industrial Policy & Promotion.
Impact
It will benefit all the companies in the sector.
Exhibit 1: BSE HC Index vs. the Sensex
Indian bio-pharma industry divided on USFDA draft guidance on therapeutic protein products
India's bio-pharmaceutical companies are divided in their response to the recently issued draft US Food and Drug Administration (USFDA) guidelines on Immunogenicity Assessment for Therapeutic Protein Products. The guidelines are intended to assist manufacturers and clinical investigators involved in the development of therapeutic protein products for human use.
Source: C-line, Angel Research
The decline in the pharma sector was broad based, with few stocks showing an uptrend. Among the major gainers was Alembic Pharmaceuticals, which rose 44%. Among the large-caps, Sun Pharmaceutical Industries (Sun Pharma) rose by 11.0%, while Lupin just posted a rise of 2.0%. Other large caps like Cipla, Dr Reddy's Laboratories (Dr Reddy's) and Ranbaxy Laboratories (Ranbaxy) declined by 8.0%, 3.0% and 14% respectively. Cadila Healthcare declined by 17% during the quarter. Among the mid-caps and small- caps, Aurobindo Pharmaceuticals and Dishman Pharmaceuticals were down by 25.0% and 40.0% respectively. Indoco Remedies dipped by 8.0% during the quarter. Amongst the MNC pack, Glaxo was up by 2%, whereas Aventis Pharma was up by 13.0%.
It recommends adoption of a risk-based approach to evaluate the immune responses to therapeutic proteins that may adversely affect their safety and efficacy. The USFDA is seeking comments from the industry before April 30, 2013. Therapeutic proteins are manufactured using microbial fermentation route. USFDA draft guidelines for immunogenicity of therapeutic proteins are quite comprehensive and by and large consistent with the approach followed by most advanced biotech companies like Biocon. However, the guideline do not mention anything about biosimilars, which will comprise a major portion of the approved biologics in the market in the coming decade. Therefore, biosimilars manufacturers specifically need more clarity.
Key developments
Union Budget FY2013-14
The Union Budget FY2013-14, has been positive for the pharmaceutical sector. Though most of the demands haven't been met, the allocation and focus on the sector continues.
Removal of import alert by USFDA for Unit-VI of Aurobindo Pharmaceuticals

The USFDA has lifted the import alert for non-sterile products manufactured at Unit-VI cephalosporin facility of Aurobindo Pharmaceuticals based in Hyderabad, thereby paving the way for resumption of exports of 9 products to the US market. The import alert was earlier imposed in February 2011. Prior to the import alert, the unit was having annual US sales of US$33mn for the said products. The development is positive for the company. Earlier the company had indicated that the USFDA inspection for Unit IV & VI has been completed. Unit IV had no observations and Unit VI had 2-3 minor observations, for which the company has replied to the USFDA. With this, the approvals are in place, and the company now
38
Announcement
The Health and Family Welfare Ministry has been allotted `37,330cr. Of this, the new National Health Mission that combines the rural mission and the proposed urban mission will get `21,239cr, an increase of 24.3% over the Revised Estimate. The Finance Minister also proposed an allocation of `4,727cr for medical education, training and research.
Pharmaceutical
expects to deliver on its growth targets along with improving the operating margins. For FY2014, the company expects ~US$50mn from Unit VI & IV. We expect the company's margins to be around 16.0% in FY2014 and FY2015. Thus, for FY2012-15, we expect the company to post a CAGR of 15.6% and 58.2% in sales and recurring net profit, respectively. We maintain Buy on the stock with a target price of `264. Resumption of Atrovastatin supply: Ranbaxy announced that it will be able to enter the Atrovastatin (Lipitor) market soon after its product receives a fresh go ahead from the USFDA. The company had initiated a recall from the US market after certain lots were contaminated with tiny glass particles. The recall was limited to the US market and the 10, 20 and 40mg strengths of the drug. The company has received approval to resume manufacturing of its generic product at the Ohm's Labs facility in New Jersey. Ranbaxy had launched generic Lipitor in the US market in December 2011 after the USFDA gave final approval to market it and was produced at Ohm's Labs. In April 2012, Ranbaxy commenced shipping the product from the new Mohali facility. The product recall initiated in November 2012 caused Ranbaxy's Lipitor market share to fall from a peak of 45% to less than 5%. However, now after the price erosion of the product post exclusivity, we believe that Lipitor will not make any difference to the overall numbers of the company and the improvement in the core business profitability of the company is crucial for the stock's outperformance. So we maintain our Neutral rating on the stock. Lupin launches Diovan HCT in US : Lupin achieved an important US: milestone with the launch of Valsartan and Hydrochlorothiazide Tablets, the generic version of Novartis' hypertension drug Diovan HCT, in the US. The launch marks yet another limited competition foray in the US generics market for the fourth largest pharma company in India. The market for Diovan HCT stands at $1.7bn currently with two generic players. With Lupin having already started shipping the product, it will help it in garnering market share in the current limited competition scenario. On a conservative basis, we estimate the product to contribute around $50mn on the top-line and $15mn on the bottom-line. We maintain our Buy on the stock with a price target of `780. had approached the apex court in 2009 against the order of Chennai-based Intellectual Property Appellate Board (IPAB), which had rejected its claim for patent. Novartis had applied for a patent in 2006. But its claim was opposed by Indian pharmaceutical companies, manufacturing generic drugs, as well as by health aid activists, in the apex court. They had claimed that Novartis is not entitled for a patent on Glivec and is indulging in "ever-greening" of patent by simply changing the composition of the ingredients of the drug. We believe that the event will have a neutral impact on the industry's dynamics and would not impact its growth. Although MNCs will be cautious in terms of product launches, but at the same time they will not be dithered from doing so. The development can plainly be viewed as a teething problem in terms of implementation of the Patents Law. As for Indian companies, they will be encouraged to launch me-too products. Moreover, with generics accounting for a major proportion of the overall market, the judgment might likely provide a boost to the market.
4QFY2013 result expectations

The Indian pharma sector is expected to post lackluster numbers for 4QFY2013 on the sales front. We expect our coverage universe to register a 5.6% yoy top-line growth. The muted top-line growth estimate for the period is on account of the high base of the last corresponding period. On the operating front, the margins are expected to decline by 55bp. This along with higher taxation is expected to lead to the companies in our coverage posting a decline of 11.2% in bottom-line during the period. Among large-caps, Sun Pharma is expected to post a 20.2% yoy sales growth while Cipla is expected to post a net sales growth of 13.4%. Other players, namely Lupin and Cadila Healthcare are expected to report a growth of 32.8% and 15.9%, respectively. Dr Reddy's and Ranbaxy on the other hand are expected to post a decline in their top-lines of around 9.4% and 22.9%, respectively. Among small-caps, Indoco Remedies is expected to post a 18.9% yoy growth. Among the MNC pack, Sanofi India is likely to post a 24.3% yoy growth in net sales, while Glaxo is expected to post a 17.9% yoy growth of sales.
Exhibit 2: Sales growth and OPM for 4QFY2013
Supreme Court rejects Novartis plea on Glivec

Novartis AG lost a seven-year long legal battle for getting its blood cancer drug Glivec patented in India and to restrain Indian companies from manufacturing generic drugs, with the Supreme Court rejecting its plea. In its judgment, the apex court held that 'imatinib mesylate' used in Glivec is a known substance and Novartis, on this account, can't claim for a patent. Novartis
39
Pharmaceutical
Among large-caps, Sun Pharma, Cipla and Lupin to outperform
Among the large-caps in our coverage universe, for 4QFY2013, Sun Pharma is likely to clock 20.2% yoy growth on the sales front, led by both exports and domestic sales. The OPM would decline by 200bp to around 42.9%. The net profit is likely to grow 21.5% yoy during the quarter. Lupin, on the other hand, is expected to register a strong revenue growth of 32.8%. Its OPM is expected to expand by 350bp during the period. On account of this the net profit is to increase by 89.2% in 4QFY2013. Dr. Reddys is expected to post a top-line de-growth of 9.4% to `2,409cr, on back of base impact. The company is expected to see strong traction in its Indian and Russian formulation businesses as well. The company is expected to post an OPM of 19.8%, down from 24.1%, while the expected net profit at `313cr would see a de-growth of 27.4% over the corresponding period of last year. Cipla is expected to post a growth in net sales by 13.4% to `2,057cr. On the operating front, the OPM (excluding technical know-how fees) is expected to come in at 25.3%, up by 620bp over the corresponding period of last year. This will aid the net profit to increase by 31.7% yoy to `384cr. Ranbaxy is expected to post a decline of 22.9% in sales to `2,850cr during 1QCY2013. The OPM is expected to be at 10.0% vs 21.6% in 1QCY2012. However, the net profit is likely to come in at `202cr vs `936cr as in the corresponding period of last year. Cadila Healthcare is expected to post yet another strong quarter with 15.9% growth in net sales to `1,558cr on the back of robust growth on the exports front. On the OPM front, we expect the company's OPM to expand by 220bp yoy to 19.2% on the back of favourable product mix. The net profit is expected to decrease by 14.3% yoy to `146cr, on back of higher tax outgo.
Mid-caps to report robust numbers

We estimate Ipca Laboratories' top-line to grow by 39.2% to `770cr for 4QFY2013. The OPM is expected to expand by 30bp yoy to 19.0%. The adjusted net profit is expected to grow by 58.0% yoy on back of top-line growth. Aurobindo Pharmaceuticals is expected to post a net sales growth of 5.3% yoy. The margin is likely to expand to 18.3% vs 10.2% in the corresponding period of last year, which will lead to a net profit of `194.2cr vs a net profit of `108.5cr, respectively. Indoco Remedies is expected to report a top-line growth of 18.9% to `176cr. The OPM is expected to expand by 230bp yoy to 16.9%, driven by growth in domestic formulation sales. As a result, net profit is expected to increase by 81.0% yoy to `22.7cr on back of improvement in OPM.
Outlook and Valuation

With an expected earnings CAGR of ~20% over FY2012-15 for our universe of stocks, we remain overweight on the sector maintaining a positive future outlook for earnings growth. In the generic segment, we prefer Cipla, Lupin, Cadila Healthcare, Aurobindo Pharmaceuticals, Ipca Laboratories and Indoco Remedies. In CRAMS, though the segment is currently witnessing some pressure, there have been indications of gradual recovery and ramp up from most of the CRAMS players. Thereby, with the valuations rendering attractive, we recommend Dishman Pharma in this segment.

Company CMP (`) Alembic Pharma 104 Aurobindo Cadila Cipla Dr. Reddys Glaxo # Indoco Rem. Ipca Lab. Lupin 146 741 380 1,766 2,189 58 527 629 Net Sales 4QFY13E 349 1,233 1,558 2,057 358 2,409 734 176 770 2,500 2,850 401 2,800 2.4 5.3 15.9 13.4 2.2 (9.4) 17.9 18.9 39.2 32.8 (22.9) 24.3 20.2 OPM (%) chg bp 300 810 220 620 (60) (434) (100) 230 30 350 (1,160) (70) (200) 14.6 18.3 19.2 25.3 22.9 19.8 30.4 16.9 19.0 21.1 10.0 14.6 42.9 Net P rofit Profit 4QFY13E 18.8 194.3 146.4 384.2 28.6 313.0 141.4 22.7 121.0 294.4 201.8 50.1 996.8 (7.4) 78.4 (14.3) 31.7 (8.6) (27.4) (24.3) 81.0 58.0 89.2 (78.4) 25.0 21.5 EPS (`) % chg (7.4) 78.4 (14.3) 31.7 (8.6) (27.4) (24.3) 81.0 58.0 89.2 (78.4) 25.0 21.5 FY13E 7.4 12.4 26.3 20.2 12.1 83.7 80.1 5.7 29.9 26.9 31.2 77.0 28.9 1.0 6.6 7.2 4.8 3.5 18.4 16.7 2.5 9.6 6.6 4.8 21.8 9.6 EPS (`) FY14E 9.5 15.2 39.5 21.6 15.4 92.9 78.1 7.8 37.3 32.3 21.6 92.4 29.8 FY15E 12.2 19.2 48.1 23.2 20.6 103.9 86.7 9.0 45.1 39.0 22.5 99.1 35.5 FY13E 14.1 11.8 28.2 18.8 5.7 21.1 27.3 10.1 17.6 23.4 14.1 33.5 28.3 P/E (x) FY14E 11.0 9.6 18.8 17.6 4.5 19.0 28.0 7.4 14.1 19.5 20.4 27.9 27.5 FY15E 8.5 7.6 15.4 16.4 3.4 17.0 25.3 6.4 11.7 16.1 19.6 26.1 23.1 Tar get arg (`) 122 264 962 463 206 2,078 90 676 780 888 % chg 4QFY13E % chg 4QFY13E
(` cr)
Reco. Buy Buy Buy Buy Buy Buy Neutral Buy Buy Buy Neutral Neutral Accum.
Dishman Pharma 69
Ranbaxy Lab. # 440 Sanofi India # 2,582 Sun Pharma 818
Source: Company, Angel Research; Note: Price as on March 28, 2013; Our numbers do not include MTM on foreign debt. # 1QCY2013
Analyst: Sarabjit K our Nangra Kour

40
Power
All-India power generation highlights
During 11MFY2013, the overall power generation in India rose by 4.1% yoy to 831.4BU, aided by a 12.6% yoy increase in installed capacity to 214,630MW. During this period, thermal power generation grew by 7.7% yoy to 691.6BU while hydro power generation declined by14.0% yoy to 104.9BU. The decline in hydro power generation is due to decline in water levels at reservoirs feeding hydroelectric stations. Nuclear power generation posted a growth of 2.5% yoy to 30.2BU. Exhibit 1: Operational Performance (PLF)
(MW) 100.0 80.0 60.0 40.0 20.0 0.0 NTPC GIPCL All India PLF
6,700kc coal were up by 8.7% qoq to US$91.5 per tonne, after falling continuously in the last few quarters. However, the coal prices still declined by 18.5% yoy. In rupee terms, the coal prices were down 11.8% yoy to `4,962 per tonne. Exhibit 2: New Castle Mccloskey coal prices
Source: CEA, Angel Research
Capacity addition
During 11MFY2013, 13,595MW of capacity was added compared to targeted capacity of 16,049MW. Private companies added 7,832MW, higher than the targeted capacity of 7,115MW; but Central and State utilities fell short of their target. State utilities added only 1,365MW compared to the targeted capacity of 3,396MW while Central utilities added 4,397MW compared to the targeted capacity of 5,538MW. The Planning Commission has set a power capacity addition target of 88,425MW for the current Five-Year Plan period ending March, 2017 to bridge the widening demand-supply gap for electricity. However, we believe the target is over-ambitious in the wake of multiple headwinds facing the power sector such as shortage in domestic fuel availability, land acquisition delays etc.
11MFY2013
11MFY2012
Source: CEA, Angel Research
The all-India plant load factor (PLF) of thermal power plants during 11MFY2013 stood at 70.0% vs 72.8% in the corresponding period last year, due to fuel availability constraints. Although NTPC reported a 590bp yoy decline in PLF from 92.1% to 86.2%, its PLF was much higher than the all-India PLF during the same period. Gujarat Industries Power Company (GIPCL) reported a robust 1,690bp yoy expansion in PLF from 65.7% to 92.1%.
Generation for companies under coverage:

During 11MFY2013, NTPC's power generation increased by 5.0% yoy to 2112.5BU while GIPCL's generation (excluding 145MW Baroda plant) rose by 11.0% yoy to 36.9BU.
Exhibit 3: Generation capacity addition: Targeted vs achieved

(MW) 25,000 20,000 15,000 60.0 10,000 40.0 5,000 0 FY03 FY05 Target (T) LHS FY07 FY09 FY11 11MFY13 Achievement (A) LHS A as a % of T (RHS) 20.0 0.0 (%) 120.0 100.0 80.0
Fuel availability position

As on March 17, 2013; 27 thermal power stations have coal stocks for less than seven days which include 14 power stations having coal stocks for less than 4 days. The western region is the worst affected with it having 10 of the 27 stations having coal stocks for less than seven days. However, the current fuel availability position is much better than in December 2012, when 35 thermal power stations had coal stocks for less than seven days, including 22 power stations having coal stocks for less than 4 days. The main reason for lower coal stocks can be attributed to lower domestic production as well as transportation constraints.
Source:CEA, Angel Research
Transmission lines and substations

As of February 2013, 13,938 circuit kilometers (ckm) were added to the transmission lines, as against the targeted 16,611ckm. In the same period, total addition to the transmission sub-station category was 52,030MVA, as against the targeted 27,565MVA.
Imported coal prices down 18.5% yoy

During 4QFY2013, average prices of New Castle Mccloskey
41
Power
Power-deficit situation
The country continues to face a power deficit due to delays in capacity addition on account of domestic fuel shortage, holdup in clearances as well as deficiencies in the transmission & distribution (T&D) system. India's overall and peak power-deficit levels during 11MFY2013 stood at 8.8% and 9.0% respectively, as against 8.3% and 11.2% reported in 11MFY2012.
Generation-based incentive for wind energy projects:

Government has announced generation-based incentive scheme for wind energy projects and proposed allocation of `800cr to Ministry of Non-Renewable Energy for the same. It is expected to be positive for companies in wind power generation. Hike in basic customs duty: Basic customs duty on steam coal has been increased from nil to 2%. Counter veiling duty on steam coal has been increased from 1% to 2%. It is negative for imported coal based power plants, since it will increase the cost of imported coal.
Exhibit 4: India - Power-deficit scenario

(%)
20.0 16.6 16.0 12.2 12.0 8.0 8.8 4.0 0.0 7.1 7.3 8.4 11.2 11.7 12.3 13.8 12.0 12.7 9.8 9.6 9.9 11.0 10.1 8.5 10.6 9 8.5 8.8
NTPC-CIL logjam on FSA continues

The logjam between NTPC and Coal India (CIL) over FSA pact is yet to be resolved. Although most of the issues are addressed, the disagreement between the two companies is on account of quality of coal. NTPC is inclined to procure higher grade coal and seeks assurance from CIL on the same. NTPC also believes, incentives to CIL should be based on quality of coal, rather than just the quantity of coal supplied. CIL however disagrees with NTPC's demand and hence, the two are yet to sign a FSA.
FY 2012
Overall
Peak
Source:CEA, Angel Research
Exhibit 5: Region-wise power deficit (11MFY2013)

Region (%) Northern Western Southern Eastern Northeastern All India Source: CEA, Angel Research Overall (9.4) (3.5) (15.3) (4.8) (7.2) (8.8) Peak (8.9) (1.5) (16.3) (7.4) (6.7) (9.0)
11MFY2013
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
Exhibit 6: Performance on the bourses in 4QFY2013
Key developments
Union Budget 2013-14 highlights:
Although, there was no big announcement, there were a couple of important measures announced by the government. Extension of tax exemption under Section 80-IA for power generation companies until FY2014: As per Section 80-IA, power plants are eligible for a tax holiday of 10 years from the year of commissioning. The exemption under this section was applicable to power plants commencing operations before FY2013; the same has now been extended to FY2014. However, companies have to pay tax under MAT provisions. Extension of 80-IA benefits would have a positive impact on power generation companies.
Source: BSE, Angel Research
Outlook: The power sector is currently facing many headwinds such as fuel shortage, delay in land acquisition, and environmental clearances among others. The government has shown its intent on reforms with restructuring plans for state electricity boards (SEBs) and setting up Cabinet Committee on Investment (CCI) to fast track projects. If the government continues with its emphasis on implementation of policies such as Captive Coal Allocation Policy and Land Acquisition Policy along with focus on other supportive measures, then it will be a positive for the sector in the medium to long term. We recommend Accumulate rating on GIPCL and NTPC.
( ` cr)

Company GIPCL NTPC CMP (`) 74 142 Net Sales 4QFY13E 341 16,947 28.3 4.2 OPM (%) chg bp (783) 51 37.1 25.8 Net P rofit Profit 4QFY13E 55 2,811 39.4 8.4 EPS (`) % chg 39.4 8.4 FY13E 11.4 12.2 3.6 3.4 EPS (`) FY14E 13.1 13.6 FY15E 14.1 14.9 FY13E 6.5 11.7 P/E (x) FY14E 5.7 10.5 FY15E 5.3 9.5 Tar get arg (`) 78 163 % chg 4QFY13E % chg 4QFY13E
Reco. Accum Accum
Source: Company, Angel Research; Note: Price as on March 28, 2013; * Consolidated; #Quaterly numbers pertains to standalone financials
Analyst - V . Srinivasan / Amit P atil V. Patil

42
Telecom
During February 2012, in a major blow to various telecom players, the Supreme Court, in its judgment on the 2G case, cancelled 122 licenses issued to telecom firms since January 2008. After this move, as expected, some telecom players (DB Etisalat and S Tel) stated their intentions to shut down operations in India. Post this, the Telecom Regulatory Authority of India (TRAI) came out with its recommendation on spectrum auction during April 2012 and recommended a reserve price of ~`18,000cr for 5MHz pan India 1800MHz band. However, broader discussions in the market pointed that the reserve price set by TRAI was high. Thus the cabinet finally decided for a reserve price of `14,000cr for 5MHZ pan India 1800MHz band (22% lower than the TRAI's recommendation), but that too yielded a lackadaisical auction. The 2G auction conducted in November 2012 ended in just two days and fetched the government just `9,400cr. Not only that, the CDMA auctions could not happen at all as none of the companies participated in it. Delhi, Mumbai, Karnataka and Rajasthan circles, which accounted for 51% of reserve price, did not receive any bid. Keeping this in notice, the Cabinet approved a 30% cut in the reserve price of mobile phone airwaves in the aforesaid four circles, which turned out to be positive for the incumbent players whose license renewals are scheduled to come up from 2014. The Cabinet also approved a ministerial panel's proposal to set the auction's reserve price of more efficient 900MHz band airwaves at twice that of the basic phone airwaves in the 1800MHz band. During March 2013, the government again aimed to conduct auction for 1800MHZ, 900MHz (GSM bands) and 800MHz (CDMA band) bands, but auction for GSM bands (1800MHz and 900MHZ) got cancelled due to low interest amongst telecom companies; Sistema Shyam TeleServices (SSTL) was the only bidder for CDMA spectrum in eight circles which fetched the government `3,640cr. The matter regarding no auction in GSM spectrum is being forwarded to the EGoM before a final view can be taken to work out a way and head forward. All these events have led to consolidation in the overcrowded telecom industry, and the total number of players operating in the industry has come down from 15 to 7-8. Decisions regarding one-time excess spectrum fee, 3G roaming pact cancellations and modalities of spectrum refarming are yet to be made, which in our view, will continue to be an overhang on the sector. The recent set of developments again advocates the challenging regulatory outlook for industry players.
VLR data points favorable for tier-I companies

As per the recent visitor location register (VLR) data released for January 2013, of the total 872mn subscribers, 82.08%, ie 716mn subscribers were active subscribers on the date of peak VLR. Service-provider wise, Idea Cellular (Idea) leads the tally with a share of 98.6%, followed by Vodafone with 95.2%, Bharti Airtel (Bharti) with 95.1% and Reliance Communications (RCom) with 86.6%, whereas MTNL stood at the bottom with 39.9%. Idea has shown noteworthy enhancement in its peak VLR data from 92.8% in July 2012 to 98.6% in January 2013 which indicates that almost all the subscribers in Idea's portfolio are active subscribers. RCom has shown substantial improvement in its peak VLR data from 66.6% in June 2012 to 86.6% in January 2013 as the company removed inactive customers (subscribers who have not had any usage in the last 60 days) from its subscriber base, focusing on the quality of its subscribers and removing free minutes from the network. All the other incumbent players have also reported considerable improvement in peak VLR data in the past six months keeping in notice the regulatory requirements regarding inactive SIM users (SIM not recharged since last six months).
Exhibit 2: VLR data of incumbents

110 100 91.7 90
(%)
98.6 95.1 90.9 86.6 76.9 63.6 61.1 53.9 Bharti Vodafone Idea Rcom 54.2 95.2 95.4
80 70 60 50
BSNL
Aircel
Oct-12
Nov-12
Dec-12
Jan-13
Exhibit 1: Stock return analysis of leading Indian TSPs
Source: TRAI, Angel Research
Exhibit 3: Active subscribers (January 2013)

Active subscribers (mn) Bharti Vodafone Idea RCom BSNL Aircel MTNL 175.2 140.6 114.7 103.6 52.7 39.2 2.0 Active subscribers' market share (%) 24.47 19.64 16.02 14.47 7.36 5.47 0.29 Active subscribers' Reported subscribers' market share (%) market share - October 2012 (%) 24.05 19.58 15.52 14.64 7.30 5.74 0.28 21.12 16.93 13.34 13.71 11.14 7.06 0.59
Source: Bloomberg, Angel Research Refer to important Disclosures at the end of the report
43
Telecom
RMS vs. SMS
As per revenue market share (RMS) data for 3QFY2013, Bharti leads at 30.5% with a subscriber market share (SMS) of 21.1%, whereas Idea has its RMS and SMS at 15.1% and 13.3%, respectively. The RMS for Bharti and Idea is higher than SMS, which indicates that the quality of subscribers added by these companies is good. On the contrary, in case of RCom, SMS is at 13.7%, which is much ahead of RMS that is only at 7.1%. This is evident from the average revenue per user (ARPU) profile of these companies; also, even though RCom's peak VLR has improved but it still stood at 86.4% (in December 2013) which is less as compared to its peers Bharti, Idea and Vodafone - the peak VLR of these vary from 94-98% (for December 2012). The recent step by RCom to remove inactive customers from its subscriber base has led to some improvement in its overall ARPU profile and the same will reduce the difference between its RMS and SMS. Amongst unlisted companies, Vodafone is also part of the Bharti-Idea clan with higher RMS at 22.3% and SMS at 16.9%, whereas incumbents such as BSNL and Aircel are part of RCom's clan with SMS higher than RMS. operations in Jammu & Kashmir, North-East and Assam circles. Tata Teleservices was followed by Aircel and Uninor whose subscriber bases declined by 3.8mn and 1.8mn respectively. TRAI indicated that during January, the share of urban wireless subscribers has decreased from 62.68% in October 2012 to 61.87% whereas the share of rural wireless subscribers has increased from 37.32% in October 2012 to 38.13% in January 2013. The overall wireless teledensity in the country has reached 73.07% at the end of January 2013. DB Etisalat, S Tel and Loop (except Mumbai) have already decided to shut shop in India while Uninor has scaled down its operations to nine circles. We believe this decline has been led by a general slowdown in incremental gross additions and aggressive churn policy by a few operators in response to stringent norms for allocation of new number series.
Exhibit 5: Total subscriber base

Company (mn) Bharti RCom Vodafone BSNL Idea TTSL Aug -12 Aug-12 186.9 134.6 153.4 96.3 116.0 90.4 66.0 5.1 3.1 1.6 16.8 42.1 4.8 Sept -12 Sept-12 185.9 134.9 152.7 96.3 115.5 90.6 66.6 5.1 3.0 1.6 16.6 42.1 4.5 Oct -12 Oct-12 186.4 134.0 153.1 96.3 115.7 89.5 66.8 5.1 3.0 1.6 16.1 41.0 4.4 Nov-12 183.6 134.1 150.8 97.2 114.1 85.3 65.3 5.1 3.0 1.6 15.7 40.6 4.0 900.5 Dec-12 181.9 118.5 147.5 97.2 113.9 82.0 63.3 5.1 3.0 1.7 14.9 41.5 3.6 874.2 Jan-13 184.2 118.3 147.7 97.2 116.4 80.4 61.6 5.1 3.0 1.6 14.4 40.1 2.3 872.2
Exhibit 4: RMS vs SMS of incumbents (as of 3QFY2013)

35 30.5 30 25 20
(%)
21.1
22.3 16.9
Aircel
15.1 13.3 7.1 13.7 11.1 6.8 7.1 5.2
MTNL Loop Mobile HFCL Shyam Telelink S Tel Uninor Videocon DB Etisalat
15 10 5 0 Bharti Vodafone
Idea
Rcom
BSNL
Aircel
RMS
SMS
Subdued momentum in net subscriber addition

The Indian mobile subscriber base fell to 872.2mn in January 2013 from 900.5mn in November 2012, thus continuing with the declining momentum in subscriber base from June 2012. This is due to large-scale disconnection by some of the service providers to meet the regulatory requirements of ruling out inactive subscribers (no activity since last six months) from their subscriber bases. The highest dip of ~16mn from November 2012 to January 2013 was in the subscriber base of RCom, reducing its user base to 118.3mn. Bharti and Idea were the only two telecom operators which posted 0.6mn and 2.3mn subscriber additions during the November 2012 to January 2013 period. Vodafone lost 3.1mn subscribers during the aforementioned period. Tata Teleservices lost ~5mn subscribers as the company has already announced its plans to shut down
Total 917.0 915.4 913.1 Source: COAI, AUSPI, Angel Research
MOU to inch up
In 3QFY2013, Bharti (excluding Africa), Idea as well as RCom posted sequential increase in minutes of usage (MOU) on the back of gains due to festive season and removal of inactive subscribers from the system. For 4QFY2013, we expect the overall MOU profile for Bharti (excluding Africa), Idea and RCom to increase by 1.0%, 0.5% and 0.5% qoq to 439min, 386min and 272min, respectively. This is because 4Q is a seasonally good quarter in terms of MOU for telecom players and minutes volume might increase due to sharp 3G tariff cuts executed by telecom companies.
44
Telecom
Exhibit 6: Trend in MOU per month per subscriber
500 419 400 379 379 359 271 224 200 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13E 227 228 236 272 384 386
( ` /month)
(min)
Exhibit 8: Trend in ARPU per month

200 187 189 185 177 180 160 160 140 120 119 100 101 80 3QFY12 4QFY12 100 98 1QFY13 101 2QFY13 3QFY13 4QFY13E 120 160 156 148 158 159 185 189
431
433
435 417
439
369 300
Bharti (ex-Africa)
Idea
RCom
Bharti (ex-Africa)
Idea
RCom
ARPM to recover
Average revenue per minute (ARPM), which has been seeing a declining trend since the past four quarters, is expected to improve going ahead as telecom companies have substantially reduced discounts and promotional vouchers, which would lead to improvement in realized tariffs. During 4QFY2013, we expect ARPM for Bharti, Idea and RCom to be at `0.43/min, `0.41/min and `0.44/min, respectively.

For 4QFY2013, we expect revenue growth to be modest on the back of increase in MOU and inch up in voice ARPM, although there could be a slight decline in subscriber base. We expect Bharti and Idea to post a revenue growth of 1.9% and 3.0% qoq, respectively. RCom is expected to post 0.7% qoq decline in revenues. On the EBITDA margin front, we expect the margin of Idea and RCom to grow by 34bp and 15bp qoq to 26.7% and 31.3%, respectively, led by some improvement in domestic KPIs. The EBITDA margin of Bharti is expected to decline by 83bp qoq to 29.7%. Industry dynamics are currently pointing towards a possible consolidation in the near term and we expect few operators, ie Bharti, Vodafone, RCom, Idea, BSNL, Aircel and Tata Teleservices to continue with their operations. During the past two quarters, policy uncertainty regarding one-time spectrum fee and 2G auction were partially addressed but exact payout towards spectrum renewals, spectrum re-farming and excess charge remains uncertain as pan India reserve price remains undiscovered. In our view, the telecom industry can improve structurally only after data revenues start picking up, which still looks far. Telecom stocks are currently trading at close-to-moderate valuations, which we believe, is justified given the low business returns and partially uncertain environment, which might pose huge risk to the overall profitability of these companies. We are currently neutral on the telecom sector and will refrain from taking any call till financial clarity on the stocks emerges. Bharti continues to be our preferred pick amongst telcos due to its low-cost integrated model (owned tower infrastructure), potential opportunity to scale up in Africa, established leadership in revenue and subscriber market share, relatively better KPIs and upside in stock price on account of listing of Bharti Infratel.
Exhibit 7: Trend in ARPM

0.46 0.45 0.44 0.44
( ` /min)
0.45 0.44 0.43 0.43 0.43 0.43
0.44
0.44
0.42 0.42
0.43
0.43 0.43
0.41 0.40 3QFY12 4QFY12 1QFY13
0.41
0.41 3QFY13
0.41
2QFY13
4QFY13E
Bharti (ex-Africa)
Idea
RCom
ARPU to improve
For 4QFY2013, we expect the combination of increase in MOU and ARPM with a moderate decline in subscriber base to push up the APRU of Bharti (excluding Africa), Idea as well as RCom by 2.0%, 1.0% and 0.5% qoq to `189/month, `159/month and `120/month, respectively.

Company Bharti Idea Rcom CMP (`) 292 113 55 Net Sales 4QFY13E 20,631 5,747 5,265 1.9 3.0 (0.7) OPM (%) chg bp (83) 34 15 29.7 26.7 31.3 Net P rofit Profit 4QFY13E 532 248 95 87.6 8.5 (10.1) EPS (`) % chg 87.6 8.5 (10.1) 1.4 0.8 0.5 EPS (`) FY13E 6.0 2.9 2.2 FY14E 10.3 3.7 4.3 FY15E 15.7 4.7 6.4 FY13E 48.5 39.3 24.7 P/E (x) FY14E 28.4 30.4 12.7 FY15E 18.6 24.1 8.6 Targ et rge (`) 325 % chg 4QFY13E % chg 4QFY13E
( ` cr)
Reco. Accum. Neutral Neutral
Source: Company, Angel Research; Note: Price as on March 28, 2013; Change is on a qoq basis
Analyst - Ankita Somani

45
Stock Watch
46
Stock W atch | April 3, 2013 Watch

Company Name Reco CMP (`) 115 117 274 83 22 295 1,795 205 9,054 94 129 1,470 1,542 102 861 1,280 193 23 269 32 127 95 1,301 678 303 51 384 67 384 89 481 826 624 1,045 80 173 65 Target Price (`) 170 326 103 27 2,014 225 155 146 1,569 1,824 154 1,006 1,543 222 30 324 40 155 1,698 815 337 58 429 71 453 101 526 1,278 96 200 78 Mkt Cap (` cr) 2,243 5,187 4,674 4,204 5,840 446 51,938 4,768 28,430 321 10,982 2,442 30,790 417 52,873 36,972 11,355 139 71,783 1,542 6,325 5,288 60,863 28,553 18,026 3,001 17,031 6,988 5,690 3,130 8,216 127,689 148,500 120,586 10,259 7,452 6,025 Sales (` cr) FY14E FY15E 1,466 8,421 3,418 14,401 13,833 934 22,552 6,198 9,717 5,403 7,026 1,619 25,351 7,972 44,550 48,078 28,442 1,479 206,341 7,714 7,137 5,285 18,901 16,318 14,284 4,289 11,673 8,079 5,397 3,334 2,916 8,928 26,559 26,371 9,309 6,276 8,205 1,686 9,263 3,892 15,841 16,192 1,103 25,498 6,793 11,092 6,057 8,026 1,879 28,047 8,754 50,260 55,133 31,493 1,685 227,695 8,532 7,907 5,937 22,625 18,682 16,295 4,670 13,208 9,086 5,973 3,700 3,389 10,684 32,720 31,618 10,541 6,968 9,048 OPM (%) FY14E FY15E 14.8 16.5 15.1 11.4 9.6 10.2 18.6 14.6 16.2 8.3 14.2 16.0 13.9 7.1 11.4 9.1 7.5 10.0 12.8 6.1 2.8 2.9 3.3 2.4 2.3 2.9 2.2 2.6 2.2 2.7 3.3 3.6 4.4 3.0 2.1 3.1 2.6 14.8 16.5 14.9 11.5 9.7 10.7 18.6 14.9 17.0 8.3 14.2 16.6 13.8 7.0 11.7 9.3 7.8 9.9 13.5 6.3 2.8 2.9 3.3 2.4 2.3 2.8 2.3 2.6 2.2 2.7 3.3 3.6 4.4 3.0 2.2 3.1 2.5 EPS (`) FY14E FY15E 7.0 15.0 19.8 13.6 2.0 24.5 117.9 14.5 354.7 36.4 7.7 108.6 104.1 37.5 59.6 87.4 12.5 5.5 32.3 4.8 32.3 21.2 128.5 121.4 55.9 11.6 74.8 14.9 96.3 23.6 50.1 38.4 35.5 84.1 20.1 38.3 16.4 8.1 17.0 21.7 15.9 2.7 34.3 134.3 17.3 423.3 41.3 8.9 130.7 140.3 44.0 68.3 102.9 14.8 7.5 39.0 5.8 36.0 23.4 150.5 144.6 68.4 13.1 85.8 18.0 105.9 26.5 59.4 45.3 42.5 96.7 23.4 42.2 20.3 PER (x) FY14E FY15E 16.5 7.8 13.8 6.1 11.1 12.0 15.2 14.1 25.5 2.6 16.7 13.5 14.8 2.7 14.5 14.6 15.4 4.2 8.3 6.7 3.9 4.5 10.1 5.6 5.4 4.4 5.1 4.5 4.0 3.8 9.6 21.5 17.6 12.4 4.0 4.5 4.0 14.2 6.9 12.6 5.2 8.3 8.6 13.4 11.8 21.4 2.3 14.6 11.2 11.0 2.3 12.6 12.4 13.1 3.1 6.9 5.6 3.5 4.0 8.6 4.7 4.4 3.9 4.5 3.7 3.6 3.4 8.1 18.2 14.7 10.8 3.4 4.1 3.2 P/BV (x) FY14E FY15E 3.5 1.1 3.3 1.0 1.9 1.5 5.5 1.8 4.4 0.4 2.8 2.4 5.0 0.4 3.0 1.9 3.8 0.5 1.8 1.1 0.6 0.6 1.6 0.8 0.8 0.6 0.7 0.7 0.6 0.6 1.2 4.7 3.5 1.7 0.5 0.7 0.5 3.0 1.0 2.7 0.9 1.7 1.4 4.4 1.6 3.8 0.3 2.4 2.0 4.0 0.4 2.5 1.7 3.0 0.4 1.4 0.9 0.5 0.6 1.4 0.7 0.7 0.6 0.6 0.6 0.5 0.5 1.1 4.1 3.0 1.5 0.4 0.6 0.4 RoE (%) FY14E FY15E 22.6 15.6 27.1 18.4 12.1 13.2 40.2 13.6 17.2 15.3 18.0 18.8 36.7 16.4 22.3 14.1 27.5 11.1 23.1 16.5 14.2 13.4 17.0 15.2 13.9 15.7 13.7 12.2 14.6 15.5 12.8 32.5 21.7 15.8 12.8 15.2 11.6 22.5 15.5 23.7 18.2 15.2 16.9 36.6 14.7 17.5 16.6 17.9 19.1 40.4 16.6 21.6 14.6 25.8 13.7 23.2 17.5 14.2 13.4 17.5 16.0 15.1 15.6 14.1 13.3 14.4 15.3 13.7 32.4 22.0 16.5 13.5 14.9 13.1 EV/Sales (x) FY14E FY15E 1.6 0.8 1.4 0.4 0.5 0.5 1.9 0.9 2.6 0.2 1.3 1.3 1.0 0.3 0.9 0.6 0.5 0.4 0.4 0.1 1.4 0.7 1.2 0.4 0.4 0.4 1.6 0.8 2.2 0.2 1.0 1.1 0.9 0.3 0.8 0.5 0.5 0.3 0.4 0.1 -
Agri / Agri Chemical Rallis Neutral United Phosphorus Buy Auto & Auto Ancillary Amara Raja Batteries Buy Apollo Tyres Buy Ashok Leyland Buy Automotive Axle# Neutral Bajaj Auto Accumulate Bharat Forge Accumulate Bosch India* Neutral CEAT Buy Exide Industries Accumulate FAG Bearings* Accumulate Hero Motocorp Buy JK Tyre Buy Mahindra and Mahindra Buy Maruti Buy Motherson Sumi Accumulate Subros Buy Tata Motors Buy TVS Motor Buy Financials Allahabad Bank Buy Andhra Bank Neutral Axis Bank Buy Bank of Baroda Buy Bank of India Accumulate Bank of Maharashtra Accumulate Canara Bank Accumulate Central Bank Accumulate Corporation Bank Buy Dena Bank Accumulate Federal Bank Accumulate HDFC Neutral HDFC Bank Neutral ICICI Bank Buy IDBI Bank Buy Indian Bank Buy IOB Buy
Please refer to important disclosures at the end of this report.
47

Company Name J & K Bank LIC Housing Finance Oriental Bank Punjab Natl.Bank South Ind.Bank St Bk of India Syndicate Bank UCO Bank Union Bank United Bank Vijaya Bank Yes Bank Capital Goods ABB* BGR Energy BHEL Blue Star Crompton Greaves Jyoti Structures KEC International Thermax Cement ACC Ambuja Cements India Cements J K Lakshmi Cement Madras Cements Shree Cement^ UltraTech Cement Construction Ashoka Buildcon Consolidated Co IRB Infra ITNL IVRCL Infra Buy Neutral Buy Buy Buy 193 11 114 178 19 272 167 230 35 1,018 201 3,772 3,453 589 2,013 2,281 4,152 7,177 6,287 2,293 2,492 4,624 7,772 6,836 22.5 5.9 44.4 27.4 8.5 22.5 6.9 45.0 28.9 8.5 26.0 0.7 17.0 29.4 2.3 24.4 2.0 17.2 32.4 3.0 7.4 16.0 6.7 6.0 8.2 7.9 5.4 6.6 5.5 6.3 0.8 0.4 1.0 0.9 0.3 0.7 0.3 0.9 0.8 0.3 11.7 2.3 16.2 16.5 3.3 9.9 6.5 14.6 15.9 4.2 2.1 0.4 3.3 2.7 0.5 1.9 0.3 3.4 2.7 0.5 Buy Neutral Neutral Buy Neutral Neutral Neutral 1,161 173 84 97 252 4,058 1,868 1,361 143 21,802 26,754 2,573 1,146 5,997 14,137 51,217 12,262 10,699 4,777 2,313 4,293 6,706 22,456 13,902 12,295 5,276 2,728 4,855 7,751 25,656 20.8 24.7 17.3 19.8 27.4 28.7 23.2 22.6 24.8 17.1 20.7 28.6 27.7 23.2 78.5 10.6 8.8 16.6 21.8 338.2 105.6 99.6 12.6 10.8 23.1 28.2 375.5 128.0 14.8 16.3 9.5 5.9 11.6 12.0 17.7 11.7 13.8 7.7 4.2 8.9 10.8 14.6 2.7 2.8 0.7 0.8 2.1 3.0 2.9 2.4 2.5 0.7 0.7 1.7 2.5 2.5 19.0 17.9 7.5 13.6 19.6 28.5 17.8 21.5 19.4 8.8 16.5 21.3 25.2 18.6 1.5 2.0 0.9 1.0 1.9 1.5 2.3 1.4 1.6 0.8 0.8 1.5 1.1 2.0 Reduce Neutral Neutral Buy Buy Buy Buy Neutral 489 189 177 158 94 27 58 569 452 230 117 34 67 10,367 1,363 43,310 1,419 6,011 222 1,486 6,776 8,073 4,114 43,757 2,896 13,790 3,074 7,750 5,931 9,052 4,886 40,934 3,087 15,095 3,355 8,631 6,592 5.5 11.3 17.3 5.6 6.4 9.0 6.8 9.6 7.2 10.7 16.9 6.1 7.4 8.8 7.0 9.7 11.3 24.9 20.9 9.3 6.9 8.7 7.7 31.0 17.4 28.0 19.0 11.7 9.4 10.2 9.2 34.3 43.4 7.6 8.5 16.9 13.6 3.1 7.5 18.4 28.1 6.7 9.3 13.5 10.0 2.7 6.3 16.6 3.8 1.0 1.9 2.8 1.5 0.3 1.1 3.2 3.4 0.9 1.7 2.4 1.4 0.3 1.0 2.8 8.9 25.2 23.7 17.5 11.7 10.4 20.8 18.6 12.8 22.6 18.8 19.1 14.5 11.1 20.8 17.9 1.3 0.6 0.9 0.6 0.5 0.3 0.3 1.0 1.1 0.6 0.8 0.5 0.4 0.2 0.3 0.8 Reco CMP (`) 225 250 718 25 2,073 110 56 218 56 47 429 Target Price (`) 1,323 253 270 889 29 2,567 130 248 71 516 Mkt Cap (` cr) 5,773 11,352 7,306 25,362 3,286 139,091 6,618 4,196 12,005 2,113 2,324 15,369 Sales (` cr) FY14E FY15E 3,032 2,127 6,791 21,161 1,826 67,091 7,340 6,126 11,226 3,597 2,600 4,260 3,118 2,498 7,478 24,166 2,081 76,746 8,212 6,665 12,769 4,008 2,946 5,344 OPM (%) FY14E FY15E 3.8 2.2 2.7 3.2 3.0 3.2 2.9 2.6 2.7 2.6 2.0 3.0 3.5 2.2 2.7 3.3 2.9 3.1 2.8 2.5 2.7 2.7 2.1 3.0 EPS (`) FY14E FY15E 218.1 25.1 56.7 153.4 4.0 241.2 26.4 12.2 41.0 16.0 9.7 42.1 200.9 28.2 63.4 176.4 4.5 280.4 28.7 14.4 47.8 20.8 11.0 50.2 PER (x) FY14E FY15E 5.5 9.0 4.4 4.7 6.1 8.6 4.2 4.6 5.3 3.5 4.8 10.2 5.9 8.0 3.9 4.1 5.5 7.4 3.8 3.9 4.6 2.7 4.3 8.5 P/BV (x) FY14E FY15E 1.0 1.5 0.6 0.8 1.0 1.3 0.6 0.7 0.8 0.4 0.6 2.2 0.9 1.3 0.5 0.6 0.9 1.2 0.6 0.6 0.7 0.4 0.5 1.8 RoE (%) FY14E FY15E 19.9 18.3 12.9 16.1 17.6 16.5 15.8 11.8 14.8 12.5 11.4 23.3 16.0 17.9 13.1 16.3 17.1 17.0 15.2 12.6 15.3 14.7 11.7 22.9 EV/Sales (x) FY14E FY15E -
Accumulate 1,191 Accumulate Accumulate Buy Buy Buy Buy Neutral Accumulate Buy Neutral Buy
48

Company Name Jaiprakash Asso. Larsen & Toubro Nagarjuna Const. Punj Lloyd Sadbhav Engg. Simplex Infra Unity Infra FMCG Asian Paints Britannia Colgate Dabur India GlaxoSmith Con* Godrej Consumer HUL ITC Marico Nestle* Tata Global IT HCL Tech^ Hexaware* Infosys Infotech Enterprises KPIT Cummins Mahindra Satyam Mindtree Mphasis& NIIT Persistent TCS Tech Mahindra Wipro Media D B Corp HT Media Jagran Prakashan PVR Sun TV Network Reco Buy Buy Buy Neutral Buy Buy Buy Neutral Accumulate Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Accumulate CMP (`) 66 1,365 33 55 119 114 27 4,914 524 1,246 137 4,187 779 466 309 212 4,589 128 Target Price (`) 95 1,795 45 153 164 45 564 145 876 105 3,132 196 130 143 30 602 1,230 473 272 117 121 Mkt Cap (` cr) 14,535 83,994 858 1,832 1,802 564 197 47,139 6,267 16,951 23,887 17,608 26,520 100,785 244,246 13,685 44,250 7,906 55,313 2,533 165,949 1,888 1,852 15,081 3,787 8,237 341 2,167 307,636 13,553 107,665 4,151 2,420 2,930 1,202 15,428 Sales (` cr) FY14E FY15E 14,914 69,586 6,576 1,338 2,511 6,824 2,455 13,319 6,417 3,588 7,183 3,617 7,801 28,974 33,506 5,352 9,739 7,998 28,540 2,137 45,463 1,994 2,458 8,456 2,587 6,096 1,144 1,433 71,548 7,699 47,122 1,787 2,205 1,698 1,343 2,293 15,699 79,247 7,264 1,542 2,736 7,563 2,734 15,805 7,446 4,130 8,340 4,260 9,017 32,970 39,067 6,204 11,307 8,798 32,098 2,350 49,792 2,039 2,729 9,385 2,823 6,646 1,267 1,591 81,428 8,315 51,460 1,974 2,380 1,908 1,521 2,571 OPM (%) FY14E FY15E 26.2 11.2 8.2 10.2 10.6 9.2 13.4 15.7 5.1 21.1 16.8 16.1 17.0 13.5 36.8 14.0 21.5 9.7 20.8 18.8 28.6 18.1 15.5 19.3 19.4 17.6 9.0 24.7 28.5 19.3 19.8 25.4 15.1 23.9 18.8 68.7 26.4 11.1 8.2 10.2 10.6 9.4 13.0 15.7 5.5 21.6 16.8 16.4 17.0 13.5 37.0 14.0 22.2 9.8 19.5 19.2 28.4 18.5 15.2 19.1 19.4 17.4 9.1 24.6 28.1 18.1 19.5 26.4 15.6 24.5 18.9 68.7 EPS (`) FY14E FY15E 4.2 75.1 4.1 3.0 7.3 18.0 14.6 143.8 20.3 44.7 5.4 120.6 26.5 16.9 11.1 7.9 131.6 7.9 53.3 10.4 175.5 20.1 13.1 10.6 87.2 38.1 4.3 55.5 78.0 107.0 28.2 14.5 8.0 7.4 18.3 19.3 4.3 84.8 4.8 4.7 7.8 23.4 14.9 170.2 25.2 51.9 6.3 146.4 31.9 18.1 13.0 9.8 159.8 8.7 58.4 11.7 189.8 21.8 14.5 11.9 92.6 41.6 5.4 60.2 87.8 115.0 31.5 16.9 9.1 8.4 22.9 22.7 PER (x) FY14E FY15E 15.6 18.2 8.2 18.6 16.5 6.3 1.8 34.2 25.9 27.9 25.3 34.7 29.4 27.5 27.9 26.8 34.9 16.2 14.9 8.2 16.5 8.4 7.3 12.1 10.5 10.3 4.8 9.8 20.1 9.9 15.5 15.6 12.9 12.6 16.6 20.2 15.1 16.1 7.0 11.6 15.3 4.9 1.8 28.9 20.8 24.0 21.7 28.6 24.4 25.8 23.8 21.7 28.7 14.7 13.6 7.3 15.2 7.8 6.6 10.8 9.8 9.4 3.8 9.0 17.9 9.2 13.9 13.4 11.4 11.1 13.3 17.2 P/BV (x) FY14E FY15E 1.0 2.6 0.3 0.6 2.1 0.4 0.2 10.7 8.8 25.1 9.9 10.7 6.6 17.5 9.0 5.5 17.6 2.0 3.4 1.8 3.5 1.2 1.5 2.7 2.2 1.5 0.5 1.8 5.9 2.1 2.8 3.2 1.4 3.2 1.6 5.0 1.0 2.3 0.3 0.6 1.8 0.4 0.2 8.4 7.0 18.7 7.7 8.6 5.4 13.2 7.4 4.5 12.6 1.9 2.8 1.6 3.1 1.0 1.2 2.2 1.8 1.3 0.5 1.5 4.9 1.8 2.4 2.8 1.2 2.8 1.7 4.4 RoE (%) FY14E FY15E 6.8 15.2 4.2 3.4 13.3 6.8 12.3 35.0 37.4 100.0 43.9 33.7 26.5 74.3 35.5 22.8 58.8 9.5 23.0 22.6 21.5 13.8 20.9 22.4 21.8 14.2 10.3 18.4 29.5 21.7 18.2 22.4 11.2 26.7 10.6 26.1 6.6 15.0 4.7 5.2 12.7 8.3 11.3 32.7 37.3 89.1 39.9 33.4 25.9 58.3 34.1 22.9 69.5 9.8 21.1 22.1 20.0 13.1 18.8 20.1 18.8 13.6 11.9 16.8 27.4 19.1 17.6 22.2 11.4 26.8 12.3 27.3 EV/Sales (x) FY14E FY15E 2.3 1.4 0.5 5.6 0.9 0.5 0.4 3.5 0.9 4.5 3.3 4.5 3.5 3.3 6.9 2.5 4.4 0.9 1.8 1.0 3.0 0.5 0.6 1.3 1.1 0.9 0.1 1.1 4.1 1.7 1.9 2.2 0.7 1.8 0.9 6.2 2.2 1.2 0.5 5.3 0.8 0.4 0.4 2.9 0.7 3.9 2.8 3.8 3.0 2.8 5.9 2.1 3.8 0.8 1.5 0.9 2.6 0.4 0.5 1.1 0.9 0.7 0.0 0.9 3.5 1.5 1.6 1.9 0.6 1.6 0.8 5.3
Accumulate 796 Buy 85 Accumulate 2,890 Buy 169 Buy 96 Accumulate 128 Neutral 912 Neutral 392 Buy 21 Accumulate 542 Neutral 1,572 Buy 1,059 Accumulate 437 Buy Accumulate Buy Neutral Neutral 226 103 93 303 392
49

Company Name Metal Bhushan Steel Coal India Electrosteel Castings Hind. Zinc Hindalco JSW Steel MOIL Monnet Ispat Nalco NMDC SAIL Sesa Goa Sterlite Inds Tata Steel Sarda Prakash Industries Godawari Power Oil & Gas Cairn India GAIL ONGC Reliance Industries Gujarat Gas* Indraprastha Gas Petronet LNG Gujarat State Petronet Pharmaceuticals Alembic Pharma Aurobindo Pharma Aventis* Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma* Indoco Remedies Ipca labs Lupin Ranbaxy* Sun Pharma Reco CMP (`) 458 309 16 121 92 671 222 228 33 138 62 156 94 312 94 36 83 272 319 312 774 240 275 135 67 Target Price (`) 345 26 140 243 291 179 191 430 153 48 118 340 354 174 122 264 962 463 2,078 206 90 676 780 888 Mkt Cap (` cr) 10,374 195,270 536 51,190 17,518 14,964 3,729 1,453 8,544 54,535 25,751 13,528 31,523 30,331 339 486 265 51,987 40,483 266,546 249,802 3,075 3,856 10,155 3,762 1,963 4,249 5,946 15,179 30,491 29,985 558 18,544 533 6,644 28,152 18,608 84,616 Sales (` cr) FY14E FY15E 13,794 72,174 2,074 13,759 88,987 39,524 954 2,883 8,187 10,329 53,685 3,742 45,864 141,775 1,494 2,668 2,425 17,071 55,815 157,962 380,031 3,707 3,700 41,362 1,079 1,714 6,279 1,682 7,386 9,130 11,662 1,536 2,993 784 3,474 11,410 11,400 12,563 17,335 76,311 2,176 14,506 94,163 42,064 1,062 3,181 8,416 12,540 64,183 4,426 46,970 151,672 1,568 2,834 2,552 17,034 63,013 175,367 407,721 3,850 4,218 40,852 983 1,976 7,033 1,917 8,863 10,543 13,101 1,739 3,319 902 4,168 13,661 12,060 14,698 OPM (%) FY14E FY15E 30.7 33.3 10.4 50.8 9.2 17.1 45.5 21.7 14.5 73.8 9.3 32.9 23.8 10.5 19.1 10.0 13.7 69.3 15.3 35.1 9.9 11.7 23.4 5.8 91.8 17.1 16.0 16.6 18.0 24.8 21.0 20.2 30.4 15.2 21.0 21.1 12.5 42.6 34.8 28.4 11.3 50.4 9.7 16.9 47.4 23.6 14.7 75.0 12.2 32.8 25.3 11.3 20.3 10.0 14.8 55.5 15.2 36.2 71.5 12.4 22.8 6.5 91.9 19.0 16.0 16.6 18.0 23.0 20.8 20.9 30.2 15.2 21.0 21.1 12.5 42.6 EPS (`) FY14E FY15E 48.9 28.4 1.9 16.3 13.8 71.8 26.1 40.3 3.2 16.6 5.5 31.3 18.8 35.3 31.3 4.6 33.5 55.5 35.9 34.3 71.5 23.7 26.6 15.6 8.7 9.5 15.2 92.4 39.5 21.6 92.9 15.4 78.1 7.8 37.3 32.3 21.6 29.8 83.6 30.9 2.3 17.1 15.9 86.3 29.1 57.7 3.3 19.0 8.3 31.2 20.9 51.7 36.5 5.2 45.3 51.7 41.5 39.3 80.3 25.7 30.4 17.4 7.8 12.2 19.2 99.1 48.1 23.2 103.9 20.6 86.7 9.0 45.1 39.0 22.5 35.5 PER (x) FY14E FY15E 9.4 10.9 8.2 7.4 6.6 9.3 8.5 5.7 10.4 8.3 11.4 5.0 5.0 8.9 3.0 7.8 2.5 4.9 8.9 9.1 10.8 10.1 10.3 8.7 7.6 11.0 9.6 27.9 18.8 17.6 19.0 4.5 28.0 7.4 14.1 19.5 20.4 27.5 5.5 10.0 6.8 7.1 5.8 7.8 7.6 4.0 10.2 7.2 7.6 5.0 4.5 6.0 2.6 7.0 1.8 5.3 7.7 7.9 9.6 9.3 9.1 7.8 8.5 8.5 7.6 26.1 15.4 16.4 17.0 3.4 25.3 6.4 11.7 16.1 19.6 23.1 P/BV (x) FY14E FY15E 1.0 3.0 0.1 1.3 0.5 0.8 1.2 0.5 0.7 1.6 0.6 0.7 0.6 0.7 0.3 0.2 0.3 0.8 1.4 1.6 1.1 2.8 2.2 1.9 1.3 2.9 1.3 3.9 4.2 2.9 3.6 0.5 8.5 1.1 3.3 4.4 3.9 4.9 0.8 2.6 0.1 1.2 0.5 0.7 1.1 0.5 0.7 1.4 0.6 0.6 0.5 0.6 0.3 0.2 0.2 0.7 1.2 1.4 1.0 2.5 1.8 1.6 1.1 2.2 1.1 3.9 3.5 2.5 3.1 0.4 7.6 0.9 2.7 3.6 3.4 4.1 RoE (%) FY14E FY15E 11.2 37.6 3.7 19.7 7.6 8.6 15.1 10.1 6.8 20.6 5.4 14.8 11.7 7.6 11.8 3.2 11.2 17.1 17.0 18.2 11.8 29.6 22.6 24.1 17.8 30.2 19.2 15.7 24.8 17.6 20.8 11.6 31.6 15.6 26.4 25.4 20.6 19.2 16.7 36.2 4.3 17.7 8.1 9.6 15.2 13.0 6.7 20.2 7.7 12.9 11.8 10.3 12.4 3.4 13.1 14.0 17.1 18.6 11.9 28.2 21.7 22.5 14.1 29.8 18.0 14.8 24.7 16.2 19.6 13.7 31.9 15.8 25.3 24.5 18.5 19.3 EV/Sales (x) FY14E FY15E 2.4 1.9 0.5 1.7 0.5 0.7 1.4 1.4 0.5 3.1 0.8 4.4 0.6 0.5 0.6 0.5 0.5 1.8 0.6 1.4 0.6 0.7 1.1 0.3 3.2 1.2 1.2 3.2 2.3 3.0 2.7 1.0 5.4 0.9 2.1 2.5 1.6 6.1 1.9 1.7 0.2 1.2 0.5 0.6 1.1 1.1 0.5 2.4 0.8 3.6 0.6 0.5 0.5 0.4 0.4 1.4 0.4 1.3 0.5 0.6 0.9 0.3 3.5 1.0 1.0 2.6 1.9 2.5 2.4 0.8 4.8 0.8 1.7 2.0 1.4 5.0
Neutral Accumulate Buy Buy Neutral Neutral Accumulate Buy Neutral Buy Neutral Buy Neutral Buy Buy Buy Buy Buy Neutral Accumulate Neutral Neutral Neutral Buy Neutral
Buy 104 Buy 146 Neutral 2,582 Buy 741 Buy 380 Buy 1,766 Buy 69 Neutral 2,189 Buy 58 Buy 527 Buy 629 Neutral 440 Accumulate 818
50

Company Name Power GIPCL NTPC Real Estate DLF MLIFE Telecom Bharti Airtel Idea Cellular Rcom Others Abbott India Bajaj Electricals Cera Sanitaryware Cravatex Finolex Cables Force Motors Goodyear India Hitachi Honeywell Automation* IFB Agro ITD Cementation Jyothy Laboratories MRF Page Industries Relaxo Footwears Siyaram Silk Mills S. Kumars Nationwide Styrolution ABS India* Tata Sponge Iron TTK Healthcare Tree House TVS Srichakra United Spirits Vesuvius India Reco CMP (`) 74 142 235 381 292 113 55 Target Price (`) 78 163 288 446 325 1,634 237 620 566 68 570 304 213 2,842 198 238 14,331 3,637 785 312 744 371 553 275 226 355 Mkt Cap (` cr) 1,123 117,086 39,860 1,556 110,812 37,518 11,393 2,866 1,721 561 78 696 433 597 355 2,272 121 203 2,672 5,086 3,706 704 223 245 973 459 314 828 135 24,825 636 Sales (` cr) FY14E FY15E 1,535 81,951 9,699 888 86,933 24,959 22,221 1,926 3,929 596 308 2,559 2,299 1,559 1,053 2,117 456 1,430 979 12,422 1,046 1,148 1,157 6,765 1,069 814 435 110 1,591 11,886 591 1,570 92,264 12,010 1,002 96,121 27,232 24,253 2,152 4,480 743 351 2,893 2,621 1,676 1,169 2,491 495 1,573 1,164 13,767 1,281 1,360 1,320 7,393 1,223 849 516 150 1,739 13,491 623 OPM (%) FY14E FY15E 31.9 24.1 37.0 26.7 30.2 27.1 32.0 13.1 7.4 16.2 7.0 9.8 4.7 7.1 6.3 8.1 11.4 12.1 14.9 12.9 19.6 11.7 11.9 18.1 9.7 17.0 6.2 53.4 7.1 14.4 17.5 31.6 24.3 36.8 25.9 31.2 27.5 32.2 13.5 7.7 16.1 7.0 9.8 4.9 7.3 7.1 7.8 12.7 12.1 15.1 12.8 19.7 11.9 12.0 18.0 9.7 17.6 7.1 52.6 7.4 14.0 17.2 EPS (`) FY14E FY15E 13.1 13.6 6.0 36.3 10.3 3.7 4.3 79.0 15.5 45.0 39.6 9.8 46.3 27.5 13.8 137.9 29.9 21.8 6.0 1,661.0 127.3 55.5 66.6 6.4 40.0 64.6 24.3 9.1 39.4 50.9 29.0 14.1 14.9 8.4 40.6 15.7 4.7 6.4 90.8 19.7 56.3 47.2 11.3 57.0 30.5 17.7 157.9 29.3 30.6 7.7 1,791.4 158.1 71.4 77.9 7.5 46.5 69.2 33.3 12.8 56.5 74.5 29.6 PER (x) FY14E FY15E 5.7 10.5 39.3 10.5 28.4 30.4 12.7 17.1 11.1 9.9 7.6 4.7 7.2 9.4 9.3 18.6 5.1 8.1 27.5 7.2 26.1 10.6 3.6 1.3 13.8 4.6 16.6 25.4 4.5 37.3 10.8 5.3 9.5 27.9 9.4 18.6 24.1 8.6 14.9 8.7 7.9 6.4 4.0 5.8 8.5 7.3 16.3 5.2 5.8 21.5 6.7 21.0 8.2 3.1 1.1 11.9 4.3 12.1 18.0 3.1 25.5 10.6 P/BV (x) FY14E FY15E 0.7 1.3 1.5 1.1 2.0 2.5 0.3 3.7 1.9 2.4 1.7 0.7 0.4 1.5 1.3 2.8 0.9 0.5 3.4 1.4 12.5 2.5 0.6 0.1 2.0 0.6 2.7 2.1 0.9 3.1 1.6 0.6 1.2 1.4 1.0 1.8 2.2 0.3 3.1 1.6 1.9 1.3 0.6 0.3 1.3 1.1 2.4 0.7 0.4 3.1 1.2 9.1 1.9 0.5 0.1 1.7 0.6 2.3 1.8 0.7 2.7 1.5 RoE (%) FY14E FY15E 12.4 13.0 3.8 10.8 7.0 8.1 2.4 23.7 17.4 27.8 21.8 14.1 4.9 16.9 15.0 16.0 19.8 6.1 10.1 22.0 54.9 26.3 18.3 6.1 15.1 14.5 17.6 8.1 20.6 10.6 16.0 12.2 13.1 5.1 11.0 9.7 9.2 3.4 22.8 18.7 26.9 21.0 14.0 5.8 16.7 16.7 15.8 15.4 7.7 11.8 19.4 50.0 26.2 18.2 6.7 15.3 13.8 20.8 10.0 25.0 11.4 14.5 EV/Sales (x) FY14E FY15E 1.0 2.1 5.5 2.0 2.0 1.9 2.0 1.2 0.4 1.0 0.3 0.2 0.1 0.2 0.4 1.0 0.2 0.6 2.8 0.5 3.6 0.7 0.4 0.6 0.9 0.2 0.5 6.9 0.3 2.4 0.9 0.8 2.0 4.5 1.8 1.7 1.7 1.7 1.1 0.4 0.8 0.3 0.2 0.1 0.1 0.3 0.8 0.4 0.5 2.4 0.5 3.0 0.6 0.4 0.6 0.8 (0.0) 0.5 5.1 0.3 2.1 0.8
Accumulate Accumulate Buy Buy Accumulate Neutral Neutral
Buy 1,349 Buy 173 Buy 444 Buy 302 Buy 46 Buy 333 Buy 259 Buy 129 Accumulate 2,569 Buy 151 Buy 176 Neutral 166 Buy 11,993 Accumulate 3,322 Buy 587 Buy 238 Neutral 8 Buy 553 Buy 298 Buy 404 Buy 230 Buy 177 Neutral 1,898 Accumulate 314
Source: Company, Angel Research, Note: *December year end; #September year end; &October year end; ^June year end; Price as on March 28, 2012
51
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Ratings (Returns) :
Buy (> 15%) Reduce (-5% to -15%)
Accumulate (5% to 15%) Sell (< -15%)
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52

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Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production Incharge tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com viralk.shah@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com shareen.batatawala@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com
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4Q FY 2013 Result Preview, 4th April

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4Q FY 2013 Result Preview, 4th April

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4QFY2013 Results Preview | April 3, 2013

4QFY2013 Results Preview | April 3, 2013

Modest Sensex EPS growth in FY2013

Outlook and Valuation

Exhibit 1: 4QFY2013 Angel coverage performance estimates

Refer to important Disclosures at the end of the report

4QFY2013 Results Preview | April 3, 2013

Exhibit 3: Sensex companies' 4QFY2013 performance estimates

4QFY2013 Results Preview | April 3, 2013

Strategy Sectoral Analysis

Cement - Margins to weigh on earnings

FMCG - Healthy earnings performance

Infrastructure - Pain at the earnings level continues

Banking - New Private Banks to report robust earnings performance

Capital goods - Continued pressure on margins

4QFY2013 Results Preview | April 3, 2013

Telecom - Weakness in earnings to persist

Metals - Earnings to remain under pressure

Despite concerns, expect stability in Euro area to continue

Oil and Gas - ONGC to weigh on earnings performance

Pharmaceuticals - Mixed earnings performance

4QFY2013 Results Preview | April 3, 2013

Repo rate cut fails to cheer markets as politics plays dampener

Exhibit 4: Snapshot of Euro zone economies (2011)

Exhibit 5: Movement of key policy rates

Source: RBI, Angel Research

Exhibit 6: WPI inflation moderates to sub-7%

Source: WEO Database - IMF, Angel Research

4QFY2013 Results Preview | April 3, 2013

Source: MOSPI, Angel Research

Source: MOSPI, Angel Research

Refer to important Disclosures at the end of the report

4QFY2013 Results Preview | April 3, 2013

Exhibit 10: CAD at 6.7% of GDP in 3QFY2013

Source: RBI, Angel Research

Refer to important Disclosures at the end of the report

4QFY2013 Results Preview | April 3, 2013

Sensex EPS expected to post a 15.2% CAGR over FY2013-15

Exhibit 12: Sensex EPS growth over FY2013-15

Exhibit 13: Sensex one year forward P/E

Source: Angel Research

4QFY2013 Results Preview | April 3, 2013

4QFY2013 Sectoral Outlook

Refer to important Disclosures at the end of the report

4QFY2013 Results Preview | April 3, 2013

Exhibit 1: 4QFY2013 - Stock price performance

Relative to Auto index (%)

Source: Bloomberg, Angel Research

CV segment continues to be impacted by sharp decline in MHCV sales

Sectors earnings growth to turn negative

Auto index underperforms the Sensex

4QFY2013 Results Preview | April 3, 2013

2W sales remain muted

Exhibit 2: TTMT and AL Quarterly volumes

4QFY2013 4QFY2012 % chg

Source: Company; Angel Research

Brisk UV sales aiding PV growth

4QFY2013 4QFY2012 % chg

Exhibit 3: MSIL and MM Quarterly volumes

(3.5) 4,237,162 4,349,560 (4.2) 3,757,105 3,834,405 1.4 480,057 515,155

4QFY2013 4QFY2012 % chg

Source: Company; Angel Research

Source: Company; Angel Research

Refer to important Disclosures at the end of the report