Thematic Report

Aditya Birla Money

Mid cap Ideas for value and growth investing

25th January 2012

Commentary
Dear All,

Aditya Birla Money

After the disastrous year of 2011, our equity markets have begun the new year 2012 with a bang, moving up ~11.5% in less than a month. Our markets have not done anything on an inflation adjusted basis over the last five years. Lumpiness in returns and non-linearity is the basic characteristic of an equity market. If history is anything to go by then we could be heading for a recovery over the next few quarters as we have already had three quarters of deceleration in growth and very high interest rates. However, the speed and returns from equities would largely be a function of foreign money moving towards risk capital and the magnitude of reversal in the monetary stance. We have had a good start in the CY2012 from the FII perspective. Small and mid corporates are the ones which are hit the hardest during extreme volatility in the financial and currency markets and it is no different this time around. 350bps+ rise in interest rates and 20%+ currency depreciation has made a lot of balance sheets look ugly and worrisome. Investors and opportunists have been brutal and have deserted these. The extreme movement creates opportunity once in every 3-4 years for long term investors to make some serious money. India being an emerging market growth story -- predicated upon (1) favourable demographics (implying rising incomes and consumption), (2) relatively high national savings rate, (3) large size of the market and (4) the scope for industrial and infrastructure growth investing in growth stocks is a quintessential part of equity investing in India. At the same time, given the heightened global uncertainties, embodied in the Eurozone sovereign debt crisis and anaemic growth in developed economies, and our domestic issues that threaten to slow growth the high twin deficits of fiscal and current account and considerable infrastructure bottlenecks-- its important that value stocks be an integral part of ones equity investment strategy. Therefore, taking a balanced approach, we have selected a range of mid-cap stocks, both from value and growth perspectives.
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Selection basis
Market leadership Competitive Advantage Quality of Management

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Corporate Governance Practices

VALUE INVESTING

GROWTH INVESTING

Price to book

Future growth prospects

Investments / cash as a % of market cap

Historical earnings growth

EV to replacement cost

RoE trajectory

Yield from dividends

Healthy BS for growth capital

RETURN EXPECTATIONS - We expect our selected VALUE picks to generate 20% 25% annualised returns with lower downside risk, while we expect our GROWTH picks to deliver 30 % - 40% annualised returns.
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Aditya Birla Money

Value Investing

Value Investing
Company Heidelberg Cement Tube Investments of India EID Parry The Paper Products Tata Global CCCL P/BV 0.97 2.20 3.09 1.46 2.84 0.50 Dividend yield 2.5 2.4 3.2 2.1 2.9 Key Asset Metrics

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EV per tonne/ replacement cost per tonne ratio of 0.22 Investments & cash as a % of market cap 48% Investments & cash as a % of market cap 95.3% Investments & cash as a % of market cap 40% -

Value Investing
Heidelberg Cement India Ltd (HCIL) CMP 33.5

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Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

500292 HEIDELBERG 2266.2 10 7251.5 104375 54.0/25.1

HCIL is a cement player that mainly caters to central and western India. The company has total capacity of 3.1 mn tonnes as of CY11, with plants spread across MP, UP, Karnataka and Maharashtra. The company belongs to MNC major Heidelberg Cement which is among the top 3 cement and RMC manufacturers globally. Added capacity to boost volume growth: HCIL is doubling its cement capacity to 6 mn tonnes by March 2012 from the present installed capacity of 3.1 mn tonnes. The expansion is being funded via a mix of debt and internal accruals. The benefit of increased capacity will be visible in CY12 and CY13 and is likely to take the company to the next level of growth Demand traction to come from increased spend by govt on infra in 12th plan: Govt is likely to double its spend on infrastructure in its12th Five Year Plan (FY13-FY18) to ~9.5% of GDP (~$ 1 tn). In addition, GDP growth is likely to trough by FY12 end or 1HFY13 on peaking of the interest rate hike cycle and may hit 8-9% level soon. Historically, cement industry has grown at an average of 1.2-1.3x the GDP growth and due to increase in spend on infrastructure and strong demand for housing, this ratio may rise to 1.5x Pricing to stabilise as capacity addition tapers off: Indian cement industry has added 34.3 mt, 30.7 mt, and 32.5 mt capacity in FY10, FY11 and FY12E, which has lead to decline in CU from 85-90% in FY09 to 75% in FY12E. Capacity addition is likely to taper off with likely addition of 24.9 mt, 20.6mt and 8.0 mt in FY13E, FY14E and FY15E respectively. This is likely to lead to a gradual increase in CU to 85% in the next 2 yrs, resulting in pricing power Valuations: At CMP, on an EV/tonne basis, the stock at trading at valuation of $ 51.4/tonne (excl. additional 3.0 mn tonne capacity) and $26.1/tonne (incl. additional 3.0 mn tonne capacity) as compared to the replacement cost of ~$120/tonne, a discount of more than 50%. We, thus, believe the stock is trading at an attractive valuations and recommend investors to buy the stock with a potential upside of 20-40%

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) CY09 9363.9 1595.1 17.0 1389.6 5.7 5.9 20.2 CY10 8655.4 989.3 11.4 629.5 2.8 12.1 8.6

Source: ABML Research, company data

Chart: HCIL vs. Sensex

140 Relative Performance 110 80 50 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

HeidelbergCement Return

Sensex Return

Source: Capitaline

Value Investing
Tube Investments of India Ltd. CMP 119.7

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Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

504973 TUBEINVEST 371.3 2 21.9 74875 170.3/97.6

Tube Investments of India Ltd. (TI) is a company with multiple businesses ranging from diversified auto-ancillary products, bicycle retailing, and financial services. It belongs to the South India based business group Murugappa. Market leader in various businesses: Within its diversified auto-ancillary products business, TI is a market leader in precision welded tubes and roll formed car doorframes, with a market share of 50% and 60% respectively. It is one of the major bicycle retailers owning the BSA and Hercules brands, with a market share of 50% in the special segment bicycles (50%) business Sizeable market share in other product segments: TI also enjoys sizeable market share in other businesses like automotive chains (40%), industrial chains (40%), railway wagon sections and bicycle retailing (30-35%). In the industrial chains business, it has acquired a French company Sedis to get a foothold in the European market and strengthen its product profile in India Holding company of Murugappa groupss financial services: TI is also the promoter of the Muruguppa groups financial services businesses, which are gaining significant traction. It holds ~60% stake in the listed NBFC Cholamandalam Investment & Finance Company Ltd and 74% stake in a general insurance JV with the Mitsui Sumitomo Insurance Group of Japan, the largest general insurance company in Japan and 5th largest insurance group globally. Vehicle financing, which comprises 70% of Cholamandalam Investment and Finances loan book, has grown over 50% in H1FY12 Strong growth prospects - All of TIs businesses have shown significant growth in revenues and profits over the past 1 and years. Its has strong growth prospects on account of its diversified businesses in high growth sectors of automobiles, consumer and financial services, market leadership across product segments and capacity expansion plans. Within its diversified auto-ancillary products business and bicycles business, TI has a capex plan of Rs6-7bn over FY12-FY13 to augment existing capacities and introduce new products like large diameter tubes. Valuations: Recent steep correction in its stock price has made TIs valuations quite attractive. It now trades at an annualised standalone P/E of ~11x FY12E (excluding earnings from its majority stakes in its financial services business). If we value TIs stake in Cholamandalam Investment and Finance company at 20% discount to its market value and its stake in general insurance JV Chola MS at 1x book value, its investments in financial subsidiaries amounts to ~48% of TIs current market cap. Given its strong growth prospects and attractive valuations, TI is worth investing both from value as well as growth perspective. We expect TI to provide an upside of 20-40%.

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) FY10 23,589 2,620 11.1 812 4.40 27.2 10% FY11 29,811 3,395 11.4 1,697 9.14 12.9 18%

Source: ABML Research, company data

Chart: Tube Invest. vs. Sensex

120 Relative Performance 105 90 75 60 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

Tube Investments Return

Sensex Return

Source: Capitaline

Value Investing
EID Parry
nutraceuticals. The company belongs to the reputed and diversified business group Murugappa One of the leading sugar players in South India; To benefit from likely upturn in sugar cycle from SY13: As of FY11, EID Parry has total crushing capacity of 32500 TCD, sugar refinery of 2000 TPD, distillery capacity of 230 KLPD and Co-gen capacity of Rs 146 MW, spread across Karnataka, AP and TN. Due to increasing sugarcane arrears in UP in SY12, we believe pan India sugar production will decline in SY13, leading to an upturn in the sugar cycle and thereby ensure high sugar prices in SY13 and SY14. Lower production in India may boost sugar prices in the international market too. Hence, we believe EID Parrys sugar division is well placed to take advantage of any upturn in sugar cycle Deregulation likely post state election in the month of March 2012: Sugar industry has placed its demand for doing away of levy sugar quota, removal of monthly sale quota, linking sugar price to sugarcane cost and fixing ethanol pricing formula. Approval of any of these measures will be positive for the whole industry and is likely to lead to a re-rating of the industry Holding company for Coromandel International: EID Parry holds 62.9% stake in Coromandel International, which is the leading integrated complex fertiliser manufacturer in India. With increasing MSP of crops, farmers are realising benefits of applying key nutrients to soil and are gradually shifting to non-urea fertilisers. Hence, we believe volumes for NPK fertilisers will gain traction and will be beneficial for a leading player like Coromandel International Valuations: Currently, the market cap of Coromandel International is Rs 76.88 bn and 62.9% stake of EID Parry come to Rs 33.85 bn.(after considering 30% holding company discount). This implies that, at CMP, investors are getting the main sugar business almost free. We recommend investor to take benefit of this likely mispricing and buy
Relative Performance

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CMP 206.9

Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

500125 EIDPARRY 173.60 1 35501.22 81380 279.0/176.0

EID Parry is one of the leading sugar producers in South India and also has presence in fertilisers, pesticides and

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) FY10 11473.2 2058.6 17.9 1979.3 11.9 17.1 20.0 FY11 12556.9 37.2 0.3 536.8 4.91 42.1 4.8

Source: ABML Research, company data

Chart: EID Parry vs. Sensex

130 110 90 70 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

the stock with potential upside of 20-30%

EID Parry Return

Sensex Return

Source: Capitaline

Value Investing
The Paper Products Ltd (PPL) CMP 68.0

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Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

509820 PAPERPROD 125.4 2 4260.5 118402 93.15/50.35

PPL is one of the market leaders (market share - ~15%) in the Indian organised flexible packaging industry. The company offers packaging solutions that include Flexible Packaging, Labelling Technologies and Specialised Cartons. The company is majority owned by the Finland based Huhtamaki Oyj group, which is one of the top 10 consumer packaging companies in the world and is testimony of best corporate practices. Tremendous growth opportunity due to a hugely untapped packaging market and multiple growth drivers in end user industry: The flexible packaging market in India accounts for 20% of the overall packaging market with a size of ~$3 bn (~30% is organised). The end user flexi-pack market is largely concentrated around the FMCG and Pharma sector. Going forward, due to favourable demographics and growth in organised retailing, FMCG and Pharma are expected to post robust growth and hence flexi-pack industry is expected to benefit from it. In addition, the shift from unpacked to packaged products (only 15-20% of the total consumption is in packed form) will increase the demand for packaging PPL aims to accelerate topline growth to 15% from the current 10-12%: As of CY10, the company had a laminate capacity of 35590 tonnes and is increasing its capacity by 10% in CY11. The new line is coming at its Rudrapur plant and commercial operation has started in mid 4QCY11, benefits of which will be visible in CY12. In the long run, the company aims to expand capacity at a CAGR of 8-10%. Along with pricing growth of 4-5%, the company aims to accelerate topline growth to 15%, as compared to the CAGR growth of 11.0% witnessed during the CY06-CY10 period Stable margin profile leads to consistency in cash flow and good earnings visibility: PPL operates on a cost plus margin business model and hence the company has had a consistent margin profile with an average EBITDA margin of 10.4% during the last 4 yrs

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) CY09 5947.4 712.2 12.0 366 5.45 12.5 14.9 CY10 7253.4 681.5 9.4 356.5 7.32 9.3 13.0

Source: ABML Research, company data

Chart: PPL vs. Sensex

170 Relative Performance 150 130 110 90 70 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

Valuations: At CMP, the stock is trading at P/E of 12.5x and 9.3x CY09 and CY10 earnings and with dividend yield of 3.2%. We believe that PPLs stable earnings growth model is likely to lead to its re-rating and recommend investors to buy a good value stock with potential upside of 20-30%.

PPL Return

Sensex Return

Source: Capitaline

Value Investing
Tata Global Beverages Ltd (TGBL) CMP 95.3

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Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

500800 TATAGLOBAL 618.4 1 57820.4 1125735 119.5/80.0

TGBL is an emerging player in the global beverage market. The company has made a strategic shift from being a local tea company to a global beverage company through various acquisitions and strategic partnerships with global beverage giants like PepsiCo and Starbucks. The companys product portfolio comprises leading global brands like Tetley, Eight O Clock and local brands like Tata Tea. Margins likely to expand in FY11-FY13E: TGBLs focus on volume growth along with selective price increases and stable ad spends will aid in margin improvement by ~150 bps during FY11-FY13E period. Also, with higher tea production, prices of tea have stabilised, thereby providing a relief to the company from heightened input cost pressure Strong investment portfolio not accounted by the street: As of FY11, TGBL has total investment book of Rs 22.90 bn. This accounts for ~40% of the current market cap. The investment books consists of majority of investments in Tata group companies, which are both listed and non-listed Valuations: We believe TGBLs strategy to enter into non-carbonated health based beverages and coffee retailing (thru JV with Starbucks in Tata Coffee) will reward investors in the long run. We believe the company is well poised to enter healthy earnings growth trajectory and recommend investors to buy the stock with a potential upside of 2025%.

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) FY10 57829.5 5136.1 8.9 3820.2 6.0 15.9 8.4 FY11 59824.2 5134.4 8.6 2494.1 3.8 25.2 6.0

Source: ABML Research, company data

Chart: Tata Global vs. Sensex

110 Relative Performance 100 90 80 70 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

Tata Global Return

Sensex Return

Source: Capitaline

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Value Investing
Consolidated Construction Consortium Ltd (CCCL)

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CMP 16.7

Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

532902 CCCL 369.5 2 3104.6 72,633 57.8/13.7

Diversified and Quality order book : CCCL is a pure cash contactor with a strong order book of ~Rs.60 bn (2.7x FY11 sales) spread across verticals. CCCL undertakes construction contracts directly from end customers (not from developers) which further increases its chances of repeat orders and strengthens the credibility of its order book visibility. Run away commodity and labour prices and higher competitive intensity has taken a toll on its order book and margins. The current order book (~5% margin book) is likely to get phased out over the next few quarters.

Improvement in policy environment and peaking of interest rate cycle: Infrastructure companies with good balance sheets are likely to get a good share of the incremental business. CCCL has a decent execution history and comfortable leverage

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) FY10 19,759 1,847 9.3 970 5.0 3.3 16.6 FY11 21,987 1,530 7.0 590 2.5 6.7 7.7

Strong & Reputed Management team - helping the company to scale new heights : CCCL is promoted by a team of professionals who have vast experience and worked with top tier companies like Larsen & Toubro (L&T). The management since inception has adopted a very conservative policy of not aggressively bidding for projects and building the order book. It places more emphasis on execution rather than top-line growth. It has won many prestigious and back to back projects in a variety of market segments from APGenco, Infosys Airport Authority of India (AAI),

Comfortable D/E - probability of equity dilution miniscule: CCCL is one of the very few companies in the infrastructure space with a comfortable D/E of 0.85x. CCCL, since inception has been conservative in its approach thereby avoiding stress on the BS. Majority of the companys debt is short term - working capital debt which will eventually come down with an upturn in the economy. Given the execution history, quality management and historic low valuation (<0.5Xbook) , CCCL, is worth investing both from value as well as growth perspective. We expect CCCL to provide an upside of 20-40%.

Source: ABML Research, company data

Chart: CCCL vs. Sensex

120 Relative Performance 100 80 60 40 20 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

CCCL Return

Sensex Return

Source: Capitaline

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Growth Investing

Growth Investing
Company Adj EPS CAGR FY08-FY11 yrs Avg 3 yr RoE Comments on Industry

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Exide

36.0

28.2

Battery demand growth linked to Automobile industry growth (OEM + Replacement), which is expected to pick up with the peaking of interest rates Secular 2-3% demand growth with stagnant production to keep tea prices at elevated levels. Volume growth mainly through inorganic route. Entertainment and Media industry to grow at CAGR of 15-20% in next 5 yrs Sanitaryware industry growth linked to Real Estate industry growth, which is likely to turn up due to peaking of interest rates. Container glass growth linked to growth in FMCG, Pharma segment, with strong entry barriers Strong growth prospects on account of its diversified businesses in high growth sectors of automobiles, consumer and financial services, market leadership across product segments and capacity expansion plans. Robust infrastructure spending (Rs.1tn over the next 5 yrs), stabilizing of commodity prices and peaking out of interest rate cycles is expected to bring interest in quality infrastructure companies.

Mcleod Russel

69.5

25.6

Eros

25.0

37.6

HSIL

37.3

16.4

Tube Investments of India

44.1

13.0

CCCL

17.4

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Growth Investing
Exide Industries CMP 128.9

Aditya Birla Money

Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

500086 EXIDEIND 850.0 1 108.63 1690577 188.2/98.7

Exide Industries is the leading automotive batteries manufacturer in India. The company serves clients across various segments such as automotive, industrial, infrastructure development and defence sectors. It dominates the branded automotive and industrial battery market with over ~70% market share & ~45% share respectively. It has seven factories strategically located across the country. In addition, it has two smeltering facilities that supply a significant amount of the companys lead requirement. The company also has a 50% stake in ING Vysya Life Insurance. Recently, it entered into technical collaboration and assistance with US based East Penn Manufacturing for automotive, motive power, standby, telecom, UPS, solar and traction batteries Main beneficiary of strong automobile demand (OEMs & Replacement): Auto sales are forecast to grow at ~12% for the next 5 years and the country is becoming a global hub for auto manufacturers. Thus, automotive batteries are likely to see strong growth both in OEMs & Replacement Market. Its position as a preferred battery supplier to OEMs and an unmatched pan-India network in the replacement market makes Exide the best player in this space Improving Sales Mix: Typically, Exide used to sell 150 replacement batteries for every 100 OEM batteries. However, this has gradually reduced to the low of ~100 replacement batteries for every 100 OEMs in Q2FY12, due to robust OEM demand and supply constraints. Now, dampness in OEM demand has aided the replacement market to pick up in Q3FY12 (124 units to 100 OEM units) and expected to remain healthy, on account of robust OEM demand for the last 36 months. The recent tie-up for inverter manufacturing would help them to sell 30-40k inverters per month. There is shift in strategy towards higher inverter/UPS and lower telecom battery sales. Recent price cut would enable Exide to win back and increase market share gradually. Margins set to improve: Going forward, we expect operating margins to improve driven by a) increase in sourcing

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) FY10 39789 9771 24.6% 4935 6.83 18.9x 33.99 FY11 47661 9559 20.1% 6188 7.28 17.7x 28.77

Source: ABML Research, company data

Chart: Exide vs. Sensex

150 Relative Performance 130 110 90 70 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

from captive smelters from current ~50% to 70% in FY13E, which would lead to cost savings and b) improvement in sales mix, with the higher margin replacement market expected to grow faster pace than OEMs and c) lower lead prices. Valuations: Currently, Exide is trading at a consensus PE of 14.7x on its FY13E EPS of `8.7. We believe that Exide would be the major gainer of its strong OEMs relationship, distribution network for replacement market and brand influence. It would also benefit from higher sourcing from captive smelters and lower lead prices. Its market leadership, strong business outlook and nearly debt-free position makes Exide a safe bet for investors in the medium to long term. We expect Exide to provide annualised returns of 20-30%

Exide Industries Return

Sensex Return

Source: Capitaline

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Growth Investing
Mcleod Russel India Ltd (MRIL) CMP 181.0

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Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

532654 MCLEODRUSS 547.3 5 19631.7 420816 289.6/165.5

Mcleod Russel India Ltd (MRIL) is the largest Indian producer of black tea (75 mn Kgs in FY11), accounting for ~8% and 2% of Indian and global tea production respectively. The area under its cultivation exceeds 38,000 hectares spread across India (Assam and West Bengal), Vietnam, Rwanda and Uganda, which reduces country risk and improves pricing and operational flexibility Tea prices to remain buoyant: Tea production in India is expected to be higher this year (FY12) at ~1000 mn kg against ~967 mn kg in FY11. The increase in production is expected on the back of increased plantation in North India due to favourable weather conditions. However, lower inventory levels and a strong consumption growth (23% secular growth) have led to stable tea prices during the year. Further, with the major tea exporting country, Kenya, experiencing a shortfall (~37 mn kg till September, 2011) in production during the year, we expect tea prices to remain elevated High operating leverage: MRILs business model has a high degree of operating leverage. Increase in production combined with buoyant realizations would have a magnifying impact on profits Consistent deleveraging has led to a healthy balance sheet and improvement in return ratios: MRILs debtequity ratio has reduced from 1.31x in FY06 to 0.41x in FY11. At the same time, RoE has improved from 1.9% in FY06 to 28.4% in FY11. Valuations: At CMP, the stock is trading at P/E of 6.9x and 6.7x FY12E and FY13E earnings (Bloomberg estimates). We believe the recent stock correction has made valuations attractive and recommend investors to buy the stock with a potential upside of 30-40%.

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) FY10 10768.2 3286.2 30.5 2410.6 21.29 8.5 34.6 FY11 10731.3 2815.7 26.2 2308.6 20.4 8.9 26.6

Source: ABML Research, company data

Chart: Mcleod Russel vs. Sensex

150 Relative Performance 130 110 90 70 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

Mcleod Russel Return

Sensex Return

Source: Capitaline

15

Growth Investing
Eros International Media Ltd. (EIML) CMP 205.0

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Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

526299 EROSMEDIA 914.1 10 18.8 294944 277.0/124.3

Eros International Media Ltd. (EIML) is in the business of sourcing Indian film content (mainly Hindi films) through coproduction and acquisition and exploiting it through multiple formats such as theatres, television syndication, home entertainment (principally in the form of DVDs, VCDs and audio CDs), and new media like mobile ringtones, IPTV, other internet channels, etc. within India, Nepal and Bhutan and worldwide through its promoter company Eros plc and Eros Worldwide. De- risked and scalable business model: Licensing of international rights of sourced content to Eros plc and Eros Worldwide helps EIML to recover ~40% of the cost of the film upfront. Other pre-sales through licensing of broadcasting rights help recover another ~30% of the cost of the film, leaving only the balance 30% of cost recovery from theatrical performance of the film. This reduces Eros risk and frees capital for further sourcing of content through acquisition or co-production. Thus, the management takes a call on the history of production house, music, cast, and timing and does not ride on hits & misses. The licensing of international rights, pre-sales through monetization of different and emerging distribution channels, product diversification and its strategy of sourcing content mainly through co-production and acquisition helps EIML to build scale and ensure sustainable cash flows. The 40%+ average ROE over FY06-FY10 for EIML vindicates its business model Strong growth prospects: We expect strong growth in the Indian film industry through higher consumer spending and increased distributional reach from multiplexes and digitisation of existing and new platforms. We believe that EIML is strongly placed to capitalise on this growth through its strong brand image, its long-standing relationships which results in sustained access to talent and content, its scalable and increasingly stable business model, valuable film library and its strong distribution network Valuations: The stock has fallen by 26% from its 52 week high, leaving a reasonable scope for upside. At CMP, the

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) FY10 6408.821 1110.044 17.3 827.946 9.1 22.6 41.9 FY11 7069.7 1561.4 22.1 1172.3 12.8 16.0 25.8

Source: ABML Research, company data

Chart: Eros vs. Sensex

190 Relative Performance 160 130 100 70 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

stock is trading at P/E of 12.4x and 9.7x FY12E and FY13E earnings respectively (Bloomberg consensus). We expect Eros to provide a potential upside of 30-40%.

Eros Return

Sensex Return

Source: Capitaline

16

Growth Investing
HSIL CMP - 135.7

Aditya Birla Money

Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

500187 HSIL 132.1 2 8797.9 106593 245.8/116.5

HSIL is the market leader in sanitaryware industry in India with 40% share of organized market and second largest player in container glass segment with 17% market share. The company sells sanitaryware products under well established brands like Hindware, Raasi, etc., The company has strong distribution network with 1550+ direct dealers and 14000+ retailers. Key investment arguments are: Across the board capacity expansion to help in strong volume growth: HSIL has total capex plan of Rs 6.5 bn over FY11-14E of which Rs 2.25bn has already been completed upto 1HFY12. In Oct11, sanitaryware overall capacity has increased by 25% to 3.5 mn pieces. In 3QFY12, the company has also completed brown field expansion in faucet plant at Bhiwadi, Rajasthan, adding 66.7% capacity to 0.5 million pieces. In container glass, Bhongir capacity will be augmented by 425 TPD taking total glass capacity to ~1,550tpd by Jan 2012. Further capex in the next 2 yrs will lead to increase in sanitaryware capacity by additional 0.3 mn pieces and faucet capacity by 2.5 mn pieces. Margins likely to remain in the range of 19-20% during FY11-FY13E period: Currently, sanitaryware division and Container Glass division contributes ~50:50 of the total revenue. We expect margins to improve going forward, led by reduced share of outsourcing, modest price hikes and savings in power and fuel cost due to shift to natural gas (for Sanathnagar glass plant) from Dec11 onwards. On overall basis, we expect EBITDA margin to expand by 100 bps during FY11-FY13E period and remain in the range of 19-20%. Earnings to grow at CAGR of 34% during FY11-FY13E period: As per the consensus estimates, sales and PAT are likely to grow at a CAGR of 29% and 34% respectively in FY11-FY13E period. RoE is likely to improve from 14.4% in FY11 to 16.4% and 20.7% in FY12E and FY13E respectively. Valuations: At CMP, the stock is trading at P/E of 7.7x and 5.9x FY12E and FY13E earnings (Bloomberg provides investors an opportunity to buy a high growth stock with potential upside of 30-50%.

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) FY10 7887.4 1088.9 13.8 527.1 9.18 14.8 14.2 FY11 10353.2 1961 18.9 863.3 12.82 10.6 14.7

Source: ABML Research, company data

Chart: HSIL vs. Sensex

190 170 150 130 110 90 70 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

Relative Performance

consensus estimates). The stock has corrected nearly 50% from its peak and we believe the recent stock correction

HSIL Return

Sensex Return

Source: Capitaline

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Growth Investing
Tube Investments of India Ltd. CMP 119.7

Aditya Birla Money

Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

504973 TUBEINVEST 371.3 2 21.9 74875 170.3/97.6

Tube Investments of India Ltd. (TI) is a company with multiple businesses ranging from diversified auto-ancillary products, bicycle retailing, and financial services. It belongs to the South India based business group Murugappa Market leader in various businesses: Within its diversified auto-ancillary products business, TI is a market leader in precision welded tubes and roll formed car doorframes, with a market share of 50% and 60% respectively. It is one of the major bicycle retailers owning the BSA and Hercules brands, with a market share of 50% in the special segment bicycles (50%) business Sizeable market share in other product segments: TI also enjoys sizeable market share in other businesses like automotive chains (40%), industrial chains (40%), railway wagon sections and bicycle retailing (30-35%). In the industrial chains business, it has acquired a French company Sedis to get a foothold in the European market and strengthen its product profile in India Holding company of Murugappa groupss financial services TI is also the promoter of the Muruguppa groups financial services businesses, which are gaining significant traction. It holds ~60% stake in the listed NBFC Cholamandalam Investment & Finance Company Ltd and 74% stake in a general insurance JV with the Mitsui Sumitomo Insurance Group of Japan, the largest general insurance company in Japan and 5th largest insurance group globally. Vehicle financing, which comprises 70% of Cholamandalam Investment and Finances loan book, has grown over 50% in H1FY12 Strong growth prospects - All of TIs businesses have shown significant growth in revenues and profits over the past 1 and years. Its has strong growth prospects on account of its diversified businesses in high growth sectors of automobiles, consumer and financial services, market leadership across product segments and capacity expansion plans. Within its diversified auto-ancillary products business and bicycles business, TI has a capex plan of Rs6-7bn over FY12-FY13 to augment existing capacities and introduce new products like large diameter tubes. Valuations: Recent steep correction in its stock price has made TIs valuations quite attractive. It now trades at an annualised standalone P/E of ~11x FY12E (excluding earnings from its majority stakes in its financial services business). If we value TIs stake in Cholamandalam Investment and Finance company at 20% discount to its market value and its stake in general insurance JV Chola MS at 1x book value, its investments in financial subsidiaries amounts to ~48% of TIs current market cap. Given its strong growth prospects and attractive valuations, TI is worth investing both from value as well as growth perspective. We expect TI to provide an upside of 20-40%.

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) FY10 23,589 2,620 11.1 812 4.40 27.2 10% FY11 29,811 3,395 11.4 1,697 9.14 12.9 18%

Source: ABML Research, company data

Chart: Tube Invest. vs. Sensex

120 Relative Performance 105 90 75 60 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

Tube Investments Return

Sensex Return

Source: Capitaline

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Growth Investing
CCCL

Aditya Birla Money

CMP 16.7

Company Data BSE Code NSE Code Equity Capital (` mn) Face Value (`) Market Cap (` mn) Avg Daily Volume (Qtly) 52 week H/L (`)
Source: NSE, BSE

532902 CCCL 369.5 2 3104.6 72,633 57.8/13.7

Diversified and Quality order book : CCCL is a pure cash contactor with a strong order book of ~Rs.59,360mn (2.7x FY11 sales) spread across verticals. CCCL undertakes construction contracts directly from end customers (not from developers) which further increases its chances of repeat orders and strengthens the credibility of its order book visibility. Run away commodity and labour prices and higher competitive intensity has taken a toll on its order book and margins. The current order book(~5% margin book) is likely to get phased out over the next few quarters.

Improvement in policy environment and peaking of interest rate cycle - Infrastructure companies with good Balance Sheet are likely to do get good share of the incremental business. CCCL has a decent execution history and comfortable leverage

Financial Snapshot (` mn)

In ` mn Sales EBITDA EBITDA (%) PAT EPS(`) PE RoE(%) FY10 19,759 1,847 9.3 970 5.0 3.3 16.6 FY11 21,987 1,530 7.0 590 2.5 6.7 7.7

Strong & Reputed Management team - helping the company to scale new heights : CCCL is promoted by a team of professionals who have vast experience and worked with top tier companies like Larsen & Toubro. The management since inception has adopted a very conservative policy of not aggressively bidding for projects and building the order book. It places more emphasis on execution rather than top-line growth. It has won many prestigious and back to back projects in a variety of market segments from Airport Authority of India, APGenco, Infosys

Comfortable D/E - probability of equity dilution miniscule: CCCL is one of the very few companies in the infrastructure space with a comfortable D/E of 0.85x. CCCL, since inception has been conservative in its approach thereby avoiding stress on the BS. Majority of the companys debt is short term - working capital debt which will eventually come down with an upturn in the economy. Given the execution history, quality management and historic low valuation (<0.5Xbook) , CCCL, is worth investing both from value as well as growth perspective. We expect CCCL to provide an upside of 20-40%.

Source: ABML Research, company data

Chart: CCCL vs. Sensex

120 Relative Performance 100 80 60 40 20 Mar-11 Apr-11 Aug-11 Nov-11 Jan-11 Jun-11 Oct-11 Jul-11 Jan-12

CCCL Return

Sensex Return

Source: Capitaline

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Aditya Birla Money

Research Team
Vivek Mahajan Head of Research 022-42333522 vivek.mahajan@adityabirla.com Hemant Thukral Head Derivatives Desk 022-42333483 hemant.thukral@adityabirla.com

Fundamental Team
Avinash Nahata Akhil Jain Sunny Agrawal Sumit Jatia Shreyans Mehta Dinesh Kumar Pradeep Parkar Head of Fundamental Desk Metals & Mining FMCG/Cement Banking & Finance Construction/Real Estate Information Technology/Auto Database/Production 022-42333459 022-42333540 022-42333458 022-42333460 022-42333544 022-42333531 022-42333597 avinash.nahata@adityabirla.com akhil.jain@adityabirla.com sunny.agrawal@adityabirla.com sumit.jatia@adityabirla.com shreyans.m@adityabirla.com dinesh.kumar.k@adityabirla.com pradeep.parkar@adityabirla.com

Quantitative Team
Rizwan Khan Jyoti Nangrani Raghuram Rahul Tendolkar Amit Somani Technical and Derivative Strategist Sr. Technical Analyst Technical Analyst Derivatives Analyst Derivative Analyst 022-42333454 022-42333454 022-42333537 022-42333532 022-42333532 rizwan.khan@adityabirla.com jyoti.nangrani@adityabirla.com raghuram.p@adityabirla.com rahul.tendolkar@adityabirla.com amit.somani@adityabirla.com

Advisory Support
Indranil Dutta Suresh Gardas Sandeep Pandey Advisory Desk HNI Advisory Desk Advisory Desk 022-42333494 022-42333535 022-30442104 indranil.dutta@adityabirla.com suresh.gardas@adityabirla.com sandeep.pandey@adityabirla.com

ABML research is also accessible in Bloomberg at ABMR

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Aditya Birla Money

Our Rating Methodology

Stock Ratings Absolute Returns (R) Buy R > 15% Accumulate 5% < R 15% Neutral -5% < R 5% Reduce -10% < R 5% Sell R -10%

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