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Market Outlook

India Research
July 20, 2011

Dealers Diary
The market regained the positive terrain after slipping into the red for a brief period after a positive start. The market pared gains after hitting fresh intraday high in morning trade. Intraday volatility continued as the key benchmark indices recovered after slipping into red to hit fresh intraday lows in early afternoon trade. The market surged in afternoon trade as European stocks rose at the onset of the trading session. A bout of volatility was witnessed in mid-afternoon trade as the key benchmark indices pared gains after hitting fresh intraday highs. Volatility continued in late trade as the market pared gains after hitting a fresh intraday high. The Sensex and Nifty closed with gains of 0.8% each. The mid-cap index ended higher by 0.4%, while the small-cap index closed with gains of 0.8%. Among the front runners, DLF, Sterlite Industries, Tata Power, SBI and Infosys gained 12%, while Tata Motors, Hero Honda, Maruti Suzuki, HDFC Bank and Hindustan Unilever lost 13%. Among mid caps, Prestige Estates, COX KINGS, JM Financial, Jyothy Labs and Delta Corp. gained 67%, while Zydus Wellness, Himadri Chemicals, GTL, Shree Global and SKF lost 58%.

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

Chg (%) 0.8% 0.8% 0.4% 0.8% 0.6% 0.4% 0.7% -0.4% 0.9% 0.9% 1.2% Chg (%) 1.6% 2.2% 0.7% -0.9% 0.5% 0.6% -0.7% Chg (%) 2.3% 2.5% 2.7% 2.2%

(Pts) 46.5 28.5 69.0 38.3 31.9 (38.7) 81.3 67.8 (Pts) 202.3 61.4 37.2 (84.8) 97.7 17.2 (19.7) (Pts) 1.4 0.3 1.3 4.0

(Close) 5,614 7,051 8,463 6,504 8,594 8,862 9,173 5,877 (Close) 12,587 2,827 5,790 9,890 21,902 3,096 2,797 (Close) $62.0 $13.0 $47.7 $181.6

146.8 18,654

91.1 12,936 132.1 14,812

Markets Today
The trend deciding level for the day is 18,609/5,599 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,736 18,817/5,642 5,670 levels. However, if NIFTY trades below 18,609/5,599 levels for the first half-an-hour of trade then it may correct up to 18,527 18,400/5,571 5,529 levels.
Indices SENSEX NIFTY S2 18,400 5,529 S1 18,527 5,571 R1 18,736 5,642 R2 18,817 5,670

News Analysis
Sun Pharma announces USFDA approval for generic Uroxatral ER Tablets 1QFY2012 Result Review HDFC Bank, Cadila Healthcare, Crompton Greaves, Ashok Leyland, Greenply Industries 1QFY2012 Result Preview Wipro, DRL, Exide, IRB Infra, Infotech Ent.
Refer detailed news analysis on the following page

Advances / Declines Advances Declines Unchanged

BSE 1,652 1,219 133

NSE 900 545 68

Net Inflows (July 18, 2011) ` cr Purch FII MFs 1,970 382

Volumes (` cr)

Sales 2,022 303

Net (53) 80

MTD 6,568 399

YTD 9,238 3,626 Open Interest 12,076 32,791


2,863 9,900

FII Derivatives (July 19, 2011) ` cr Index Futures Stock Futures Gainers / Losers Gainers Company Zee Entertainment Shree Renuka Mundra Port HCC Bosch Price (`) 127 72 160 34 7,254 chg (%) 3.6 3.5 3.4 3.2 2.9 Company Crompton Greav. GTL Sun TV Network Glenmark Pharma Tata Motors Losers Price (`) 208 81 331 316 984 chg (%) (14.2) (5.9) (5.3) (3.2) (3.2) Sebi Registration No: INB 010996539

Purch 1,490 1,870

Sales 2,365 1,889

Net (874) (19)

Please refer to important disclosures at the end of this report

Market Outlook | India Research

Sun Pharma announces USFDA approval for generic Uroxatral ER Tablets

Sun Pharma announced that USFDA has granted its subsidiary an approval for its Abbreviated New Drug Application (ANDA) to market a generic version of Uroxatral ER, alfuzosin hydrochloride extended release tablets. Sun Pharma, being the first-to-file an ANDA for generic Uroxatral ER with a Para IV certification, has received a 180-day marketing exclusivity. These alfuzosin hydrochloride 10mg tablets are therapeutically equivalent to Uroxatal Extended Release tablets from sanofi-aventis. Alfuzosin hydrochloride extended release tablets have annual sales of approximately US$250mn in the US. Though a niche opportunity, the product is expected to contribute US$31mn and US$16mn to the companys sales and net profit, respectively. We are currently not changing our estimates. At the CMP, the stock trades at 28.3x FY2012E and 21.6x FY2013E earnings, respectively. We remain Neutral on the stock.

1QFY2012 Result Review HDFC Bank

For 1QFY2012, HDFC Bank clocked a healthy net profit growth of 33.7% yoy to `1,085cr marginally above our estimates of `1,073cr. Lower provisions continued to aid the profit growth for the bank with provisioning expenses declining by 20.1% yoy and came in 18.6% below our estimates. Adjusting for short term one-off wholesale loans in 1QFY2011, gross advances of the bank registered healthy growth of 29.1% yoy and 9.7% qoq. Deposit accretion was moderate at 15.4% yoy (1.2% qoq). Pace of CASA deposits accretion moderated further to 15.1% yoy, with growth in saving account deposits continuing to decline (down from 40.0% as of 1QFY2011 to 20.3% as of 1QFY2012). However CASA ratio continues to remain best-in-class at 49.1% (49.2% in 1QFY2011). The bank was able to sustain its reported NIM at 4.2% sequentially despite the sharp rise in cost of funds for the system as a whole. The bank had hiked its base rate quite aggressively (average base rate for the bank stood at 9.0% in 1QFY2012 as compared to 8.0% in 4QFY2011). The bank delivered reasonable growth in other income in which fees and commission income grew by 15.9% yoy (adjusted) and forex and derivative income which rose by 33.9% yoy. Asset quality of the bank continued to be largely stable. Gross and net NPAs sequentially rose by 8.2% and 7.5%, respectively. The gross and net NPA ratios improved further to 1.0% and 0.2%, respectively. Provision coverage ratio (excluding technical write-offs) remained healthy at 82.6%. We expect the bank to deliver a healthy earnings CAGR of ~30% over FY2011-FY2013E aided by sustained NIMs underpinned by the banks strong CASA deposit franchise and healthy asset quality. However at the CMP the stock is fairly priced (at 3.5x FY2013E ABV), in our view. Hence, we maintain our Neutral recommendation on the stock. We may revise our estimates post interaction with the management.

Cadila Healthcare
For 1QFY2012, Cadila Healthcare (Cadila) reported net sales of `1,174cr (`1,169cr), registering an increase of 11.2% yoy, slightly below our estimates of `1,280cr. Domestic and exports sales increased by 4.8% and 18.7%, respectively. The companys gross margin came in at 69.1%, almost flat during the quarter. However, OPM decreased to 19.6% yoy (20.7%) on the back of 29.5% growth in other expenses at `419.8cr (`324.3cr). Employee expenses grew by 26.5% to `161.5cr (`127.7cr). Adjusted net profit increased by 17% yoy to `187cr (`159cr), lower than our estimates of `179cr, on the back of lower OPM and higher interest outgo than expected. At the CMP, the stock trades at 24.3x FY2012E and 17.8x FY2013E earnings. We recommend Accumulate with a target price of `1,053.
July 20, 2011 2

Market Outlook | India Research

Crompton Greaves
For 1QFY2012, Crompton Greaves reported 6% yoy growth in its top line to `2,438cr, which was broadly in-line with our expectation of `2,486cr. Led by high raw-material costs, EBITDA margin for the quarter witnessed a steep decline of 546bp yoy to 7.5%, which was well below our estimate of 12.5%. The margin erosion was mainly attributable to the power systems segment, which posted a steep contraction of around 800bp yoy to 2.6%. The industrial segment also suffered margin erosion of ~470bp, possibly due to the execution of Nelcos low-margin orders. The operational weakness resulted into EBITDA decreasing by 38.8% yoy to `182cr yoy (`297cr). Disappointing operational performance coupled with higher depreciation and interest expense resulted into PAT declining sharply by 58.4% yoy to `79cr (`191cr). At the CMP of `208, the stock is trading at 13.7x and 11.2x its FY2012E and FY2013E earnings, respectively. Currently, the stock is under review. We will revise our estimates and recommendation post the conference call.

Ashok Leyland
Ashok Leyland (ALL) reported a mixed performance for 1QFY2012, with revenue and operating margin coming in-line with our estimates. The bottom line, however, came in lower than our estimates due to higher finance and depreciation cost. ALL reported modest 6.3% yoy growth in its top line to `2,496cr, driven by an 18% yoy increase in average net realisation. Volume performance, however, was subdued during the quarter, reporting a 9.9% yoy decline. Average net realisation improved to `1,294,551 on account of price increases to mitigate raw-material cost pressures and emission norm changes. On a sequential basis, revenue declined by 34.8% as volumes were lower by 23.4%. During 1QFY2012, ALL lost 500bp of market share in the M&HCV segment and its share currently stands at 22.2%. The companys EBITDA margin came in at 9.8%, registering marginal decline of 22bp as compared to 10% in 1QFY2011 and 30bp ahead of our estimates of 9.5%. Sequentially, operating margins declined by 352bp from 13.3%, largely due to the decline in volumes, which negatively affected the companys operating leverage. The operating margin on a yoy basis was supported mainly due to the price increases carried out by the company. ALL reported a 29.7% yoy decline in net profit to `86cr as against our estimate of `102cr on account of higher-than-expected interest and depreciation expenses. While interest cost increased by 69% yoy and 19% qoq, depreciation expense jumped by 38% yoy and 10% qoq. Interest cost increased mainly due to increased working capital requirements. At `51, the stock is trading at 11.1x FY2012E and 8.9x FY2013E earnings. We currently have a Buy rating on the stock with a target price of `60. We shall revise our numbers and release a detailed note post the earnings conference call with management.

Greenply Industries
For 1QFY2012, Greenply reported strong top-line growth of 34.4% yoy to `353cr. EBITDA margin declined by 92bp yoy to 10.8% mainly on account of forex loses of `5cr. However, on a qoq basis, EBITDA margin improved by 269bp qoq from 8.1%. EBITDA grew by 23.9% yoy to `38cr due to higher revenue during the quarter. PAT increased by 24.7% yoy and 119% qoq to `13cr mainly due to higher revenue and margin expansion qoq. PAT margin fell by 29bp yoy to 3.7% during the quarter on the back of a decline in EBITDA margin. But, on a qoq basis, margin improved by 198bp on the back of higher contribution from the new MDF segment and lower forex loss.

July 20, 2011

Market Outlook | India Research

Outlook and valuation: We believe the company is well placed to benefit from 1) its laminates capacity expansion (which increased nearly two-folds in FY2010) and is expected to achieve 100% utilisation in FY2012; 2) commencement of the new MDF plant at Uttarakhand, which will achieve around 50% capacity utilisation in FY2012; as well as 3) expansion of its plywood capacity by 3.75mn sq. ft., which is expected to contribute around `45cr to FY2012 top line. At `234, the stock trades at 5.7x FY2013E earnings. We maintain our Buy rating with a target price of `270. We may revise our numbers and target price post interaction with the management.

1QFY2012 Result Preview Wipro

Wipro is set to announce its 1QFY2012 results. We expect the companys IT services segment to post revenue of US$1,416mn, up merely 1.1% qoq. Volume growth is expected to be flat qoq. At the consolidated level, we expect the company to record revenue of `8,335cr, up merely 0.4% qoq. The company is expected to record a 49bp qoq decline in its EBIT margin to 21.6% for the IT services segment due to wage hike given from June 1, 2011. At a consolidated level, Wipro is expected to record flat EBIT margin qoq at 17.8%. PAT is expected to come in at `1,363cr. We maintain our Buy rating on the stock with a target price of `483.

Dr. Reddy's Laboratories

For 1QFY2012, Dr. Reddy's Laboratories (DRL) is expected to report net sales and profit of `1,851cr and `245cr, registering growth of 10% and 16.9%, respectively. On the operating front, OPM is expected to expand by 71bp to end the period at 15.2%. At the CMP, the stock trades at 18.2x FY2012E and 16.7x FY2013E earnings, respectively. We maintain our Buy recommendation with a target price of `1,920.

Exide Industries
Exide Industries is slated to announce its 1QFY2012 results today. We expect the companys top line to grow strongly by 16% yoy to `1,336cr. The companys EBITDA margin is expected to decline by 354bp yoy to 19.3% due to a yoy increase in average lead price. However, the bottom line is expected to post a 13% yoy increase to `187cr. The stock rating is under review.

July 20, 2011

Market Outlook | India Research

IRB Infrastructure
IRB Infrastructure (IRB) is expected to continue its robust performance on a quarterly basis. We expect 61.6% and 14.5% yoy growth in C&EPC (`533.5cr) and BOT (`233.1cr) revenue, respectively, leading to overall top-line (`766.5cr) growth of 49.7% for the quarter. The C&EPC segment is expected to get a boost from Surat-Dahisar and Kolhapur road projects, which are nearing completion. On the BOT front, Mumbai-Pune expressway has witnessed a toll hike of 18% effective from April 2011, which will drive growth for the quarter. We expect EBITDA margin at 42.3%, registering a yoy decline of 250bp, mainly on account of change in revenue mix and contraction of C&EPC margins as compared to last year's blockbuster C&EPC margin of 28.8%. We project net profit before tax and after tax (and minority interest) at `168.1cr and `117.8cr, respectively, factoring a tax rate of 27.9% for the quarter. Our valuation of `191/share for the consolidated business uses NPV/EV/EBITDA based valuation for BOT assets and the C&EPC arm, respectively. We factor in CoE of 14% and a traffic growth rate of 5/6/7% for its BOT assets. Owing to the recent run-up in the stock (IRBs stock has increased by ~14.0% in the last one month as against a return of 4.4% by the Sensex), we recommend Neutral on the stock.

Infotech Enterprises
Infotech Enterprises is set to announce its 1QFY2012 results. We expect the company to post revenue of US$75.5mn, up 5.0% qoq, on the back of strong volume growth momentum of 6.0% qoq in its ENGG business segment. In rupee terms, revenue is expected to come in at `337cr, up 3.5% qoq. EBITDA margin is expected to decline by 237bp qoq to 12.0% due to impact of wage hikes (10% to offshore employees and 2% to onsite employees) given in 1QFY2012. PAT is expected to come in at `11cr. We maintain our Neutral view on the stock.

July 20, 2011

Market Outlook | India Research

Economic and Political News

India achieved record output of wheat and pulses in FY2011 Government approves 31 FDI proposals worth `3,845cr Government holds consultation with exporters on DEPB Finance Minister to meet Indian corporate on steps to rejuvenate economy

Corporate News
ABB wins US$15mn water order in Saudi Arabia Diamond Power bags orders worth `115cr Oberoi Realty's deal to buy Centaur Hotel terminated Ashok Leyland to introduce passenger van with Nissan
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

Events for the day CRISIL Dr. Reddys Laboratories Exide Industries Infotech Enterprises IRB Infrastructure LIC Housing Finance Polaris Software Wipro

Results Results Results Results Results Results Results Results

July 20, 2011

Market Outlook | India Research

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

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Ratings (Returns):

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

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

Neutral (-5 to 5%)

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July 20, 2011