India Daily, April 10, 2012 · Reinitiate coverage with a SELL rating and a target price of Rs230...

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

INDIA DAILYApril 10, 2012 India 9-Apr 1-day1-mo 3-mo

Sensex 17,222 (1.5) (1.6) 6.5

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Global/Regional indices

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Value traded – India

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Forex/money market

Change, basis points

9-Apr 1-day 1-mo 3-mo

Rs/US$ 51.2 (8) 114 (64)

10yr govt bond, % 8.7 2 40 39

Net investment (US$mn)

4-Apr MTD CYTD

FIIs 26 353 9,219

MFs (9) (5) (282)

Top movers -3mo basis

Change, %

Best performers 9-Apr 1-day 1-mo 3-mo

IVRC IN Equity 72.0 1.3 30.7 100.7

JPA IN Equity 82.3 (4.3) 5.2 49.4

RPWR IN Equity 117.8 (2.6) (10.1) 47.7

RELI IN Equity 580.4 (3.4) (9.2) 45.4

BPCL IN Equity 680.5 (2.7) 2.4 41.0

Worst performers

MMTC IN Equity 794.6 (0.3) (4.0) (19.2)

CIPLA IN Equity 310.6 1.6 1.0 (10.2)

ESOIL IN Equity 54.3 (4.3) (6.0) (9.7)

EDSL IN Equity 199.6 (2.4) (0.2) (9.4)

UNTP IN Equity 133.7 (0.6) (2.2) (8.0)

Contents

Special Reports

Reinitiating coverage

Bharat Heavy Electricals: Reinitiate coverage with a SELL on potential earnings decline

Daily Alerts

Sector

Cement: 4QFY12E: Accruing the benefits of seasonal price actions

Energy: The hangover

News Round-up

ONGC Ventures won USD 1bn Kuwait Oil Spill Contract. (BSTD)

Coal India (COAL IN) to invest USD 14.6bn to raise output in five years. (ECNT)

L&T (LT IN) has commissioned India’s largest Solar Photo Voltaic (SPV) based power plant owned by Reliance Power in Rajasthan. (BSTD)

BGR Energy (BGRL IN) won NTPC's (NTPC IN) order to supply two super critical boilers valued at USD 364mn. (BSTD)

Indraprasth Gas (IGL IN) gets USD 196mn hit from regulator. The gas board orders cuts in rates, charges for CNG and PNG to Delhi consumers. (BSTD)

Tata Steel (TATA IN) has reported that its crude steel production rose 2.6% to 1.82 MT in the March quarter. (THBL)

PFC Consulting, an arm of Power Finance Corporation (POWF IN), has invited expression of interest from foreign companies to form a JV to expand its operations. (BSTD)

McNally Bharat Engineering (MCNA IN) said it has bagged a USD 27mn order from BHEL (BHEL IN) for carrying out civil, structural and architectural works for a project at Begusarai in Bihar. (BSTD)

Maruti (MSIL IN) to launch Ertiga to take on Toyota’s Innova. With 25% sales growth in the multi-utility vehicle segment, other car makers rushing in, too. (BSTD)

Marico (MRCO IN) will sell 4.56% stake in the company to two foreign investors for up to USD 100 mn to fund acquisition of the personal care business of Paras from Reckitt Benckiser. (ECNT)

ITC (ITC IN) has acquired Technico Pty Ltd (TPL), an Australian incorporated agri-biotechnology company from Russel Credit. (THBL)

Thomas Cook (TC IN) is learnt to have put a price of USD 336mn on the 77.1% stake it holds in the India business. It has pegged the asking price at INR 105 a share, in a bid to cut the mounting debt of its UK-based parent company. (BSTD)

Bajaj Electricals (BJE IN) has merged all its overseas operations into itself from the sister-firm Bajaj International, which has now been transformed into an investment company. (BSTD)

Source: ECNT= Economic Times, BSTD = Business Standard, FNLE = Financial Express, THBL = Business Line.

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Reinitiate coverage with a SELL rating and a target price of Rs230

We reinitiate our coverage on BHEL with a SELL rating and a target price of Rs230, based on 9X FY2013E earnings. Our SELL rating is based on (1) a potential lull in incremental order wins on near-term sectoral issues (coal allocations) and accumulated ordering, which more than meets XIIth Plan requirements, (2) rising domestic competition with credible JV partners to put further pressure on incremental order wins, and (3) potential for margin contraction as incremental orders may be won at lower realizations with stiffer competition.

EPS may decline on stagnant sales and rising fixed costs, even with flat contribution margins

We expect BHEL’s earnings to decline over FY2012-14 from about Rs28 in FY2012E to Rs26.2 in FY2013E and Rs22.9 in FY2014E. Revenues may remain stagnant over the next few years at about Rs500 bn as inflows are likely to remain sedate. We build an average annual inflow of about 8 GW over FY2013-15E (includes about 5 GW from bulk tenders). Margins are also likely to face pressure due to negative operating leverage; we build relatively flat contribution margin. Stiff competition in a limited demand environment would potentially drive down contribution margins, as well.

Flash results broadly in line with estimates; low inflows of Rs257 bn but were anticipated

BHEL reported broadly in line FY2012 gross revenues of Rs493 bn. This implies yoy growth of 13-14% over FY2011 reported revenues and implies 4QFY12 revenues of Rs200 bn, up 7.6% yoy. BHEL reported net PAT of Rs69 bn in FY2012, (in line), up 14% yoy. This implies 4QFY12 PAT of Rs32 bn, up 14.6% yoy (versus PAT of Rs28 bn in 4QFY11).

Bulk tender reflects fairly aggressive bidding; over 125 GW of orders placed for XII Plan

NTPC recently completed its last tranche of bulk tender bidding (11X660 MW boiler) in which BGR Energy was declared as the lowest bidder at an average realization of about Rs14 mn/MW. The pricing appears more aggressive than previous bids won by Doosan for the 9X800 MW boiler bulk tender (ordered in Sept-11 at an average realization of Rs17.5 mn/MW).

We also note that equipment orders for over 125 GW have been placed, out of which about 98 GW are under construction, limiting scope for near-term order revival.

sfixed cost

Bharat Heavy Electricals (BHEL)

Industrials

Reinitiate coverage with a SELL on potential earnings decline. We reinitiate coverage on BHEL with a SELL due to (1) a likely lull in incremental inflows with sectoral issues and large accumulated ordering (125 GW already placed for XII Plan), (2) strong competition and (3) likely pressure on margins. Earnings may decline (EPS of Rs22) over the next 2-3 years as revenues remain stagnant and fixed costs increase; contribution margins decline would exacerbate the pressure.

Bharat Heavy ElectricalsStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 28.1 26.2 22.9Market Cap. (Rs bn) 640.9 EPS growth (%) 14.6 (6.8) (12.6)

Shareholding pattern (%) P/E (X) 9.3 10.0 11.4Promoters 67.7 Sales (Rs bn) 474.2 472.9 457.9FIIs 12.2 Net profits (Rs bn) 68.9 64.2 56.1MFs 5.9 EBITDA (Rs bn) 89.0 83.0 69.4

Price performance (%) 1M 3M 12M EV/EBITDA (X) 6.6 6.7 7.3Absolute (6.1) 1.4 (40.5) ROE (%) 30.3 23.2 17.4Rel. to BSE-30 (5.3) (6.6) (32.0) Div. Yield (%) 2.3 2.1 1.9

Company data and valuation summary

450-223

SELL

APRIL 09, 2012

RE-INITIATING COVERAGE

Coverage view: Cautious

Price (Rs): 262

Target price (Rs): 230

BSE-30: 17,222

Bharat Heavy Electricals Industrials

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Reinitiate coverage with a SELL rating and target price of Rs230

We reinitiate our coverage on BHEL with a SELL rating and a target price of Rs230, based on 10X FY2014E earnings of Rs22.9.

Our SELL rating is based on

Potential lull in incremental inflows. This is because (1) several sectoral issues (coal/fuel linkages) hamper ordering activity, (2) a large part of XIIth Plan ordering may already be complete (over 100 GW of projects, for which BTG already placed and are likely to be commissioned during the XII Plan), (3) upcoming domestic competition (L&T, Bharat Forge-Alstom and Thermax) appears credible: JVs with global equipment players and (4) industry (transportation, renewable, transmission) spares/R&M, and exports are unlikely to counterbalance shortfall in power. Order inflows have already stagnated at about 15 GW a year over the past 3-4 years. Even this would be difficult to maintain.

Potential margin contraction. Incremental orders may be won at lower realizations with increased competition (part of this has already been witnessed in a bulk tender, which saw relatively aggressive bids).

Changes to market dynamics reduce incumbent advantages. The changes include (1) a shift to supercritical technology, (2) increasing share of the private sector in capacity addition and (3) rising supply-side capacities.

Earnings may decline over 3-4 years on stagnant revenues and rising fixed costs

We believe BHEL’s net earnings may decline over the next 3-4 years as revenues are expected to remain stagnant (on sedate order inflows) and potential margin contraction due to rising fixed costs, even as contribution margins remain relatively flat.

Stagnant inflows to impact revenue growth; potential for cancellations in backlog

BHEL’s inflows are likely to remain under pressure going forward as most of XII Plan orders may already have been placed (equipment order for 125 GW of projects already placed with about 98 GW under construction). Besides, rising domestic competition would eat into market share in a limited demand environment. We presently build order inflows of about 8 GW a year over the next 2-3 years (FY2013-15E) which includes about 5 GW of inflows from the recent NTPC bulk tender.

Order inflow slowdown would materially squeeze BHEL’s revenue growth prospects in the medium term. We believe revenues may remain flat at about Rs500 bn over FY2013-15E despite assuming (1) reasonably optimistic success for BHEL in winning utility orders in the remaining XIIth Plan activity and (2) improvement in execution days as order book matures.

We note that BHEL’s order inflows have remained flat over the past four years (FY2008-11) at about 15 GW a year. The inflow is likely to have been even lower in FY2012 at 2-3 GW.

Industrials Bharat Heavy Electricals

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Segment-wise inflow and execution for BHEL, March fiscal year-ends, 2008-15E (Rs bn)

2008 2009 2010 2011 2012E 2013E 2014E 2015EPowerUtility order inflow (GW) 14.6 17.0 16.5 15.1 2.4 8.0 8.0 11.0Realization (Rs mn / MW) 26.6 26.1 24.3 29.4 27.0 27.0 28.0 28.0Utility order inflow 387 444 401 443 66 216 224 308Spare orders 24 28 19 21 24 28 34 41International orders 23 33 36 37 30 33 36 40Order inflows 434 504 456 502 119 277 294 389

% growth 46.4 16.3 (9.7) 10.3 (76.3) 12.0 10.0 10.0Revenues 159 213 269 348 405 394 373 369

% growth 14.9 34.1 25.8 29.5 16.4 (2.6) (5.4) (1.1)Order backlog 770 1,074 1,271 1,440 1,154 1,037 958 978Bill to book ratio (%) 23 21 21 23 27 31 32 32IndustryOrder inflows 79 103 135 104 88 97 106 117

% growth 19.9 30.5 31.5 (23.1) (15.4) 10.0 10.0 10.0Revenues 60 72 79 92 96 105 111 113

% growth 11.8 20.6 8.7 16.6 4.6 9.5 5.2 2.1Order backlog 106 141 200 216 211 207 207 216Bill to book ratio (%) 50 46 38 36 37 41 43 43TotalOrder inflows 512 607 590 606 207 374 400 506

% growth 41.6 18.4 (2.7) 2.7 (65.8) 80.5 7.1 26.2Revenues 219 286 347 440 501 500 484 482

% growth 14.0 30.4 21.5 26.6 13.9 (0.3) (3.2) (0.4)Order backlog 876 1,215 1,471 1,656 1,366 1,244 1,166 1,194

Bill to book ratio (%) 27 24 23 25 28 32 33 34EBITDA marginNet revenues 193 262 329 416 474 473 458 456Direct costs (113) (168) (201) (234) (291) (292) (285) (284)Gross profit 80 94 128 182 183 180 172 172

Contribiution margin (%) 41.6 32.9 36.7 41.3 36.6 36.1 35.6 35.6Employee expenses (26) (30) (52) (54) (55) (61) (65) (68)Other fixed costs (21) (27) (22) (48) (39) (37) (38) (40)EBITDA 33 37 54 79 89 83 69 64EBITDA margin (%) 17.2 14.1 16.5 19.0 18.8 17.6 15.2 14.0Net profitOther income 14 15 16 17 19 20 22 26Depreciation (3) (3) (5) (5) (7) (9) (9) (10)PBT 44 48 66 90 101 94 82 79Tax expenses (16) (17) (23) (30) (32) (30) (26) (25)Net PAT 29 31 43 60 69 64 56 54EPS (Rs) 11.7 12.8 17.6 24.6 28.1 26.2 22.9 22.2

Build average 8-9 GW inflows over the next three years (inflows include about 5 GW inflows from NTPC bulk tender)

Expect revenues to stagnate at about Rs500 bn over the next 3 years on sedate order inflows

Inflows have remained stagnant at about 15 GW for the past 4 years

FY2012E inflows of Rs207 bn is net of cancellation to the tune of about Rs50 bn

Estimates already build improved execution rate

Expect EBITDA margin contraction on rising fixed costs even as contribution margins remains relatively flat

Stagnant revenues and margin contraction to lead to declining EPS over FY2013-15E

Source: Company, Kotak Institutional Equities estimates

Potential for cancellations, not presently built into estimates

We note that BHEL’s backlog may face further cancellations due to issues in certain orders (4-5 GW or Rs80-100 bn) such as limited progress and coal linkages. This would dampen BHEL’s order inflow outlook and revenues. The exhibit below shows a list of the domestic thermal power sector orders announced by BHEL since FY010. The rows highlighted depict orders with potential for cancellation.



Details of BHEL's domestic thermal power project announcements since FY2010

Order, Client (MW) Configuration (Rs mn) Nature of work DateAbhijeet Infra Ltd 300 1X 300 6,300 BTG package with C&I and other auxiliaries Mar-12Singareni Collieries, Adilabad district , AP 1,200 2X 600 40,710 BTG Oct-11Dainik Bhaskar Power Ltd, Singrauli Project, MP 1,320 2X 660 37,829 BTG Oct-11SIDCL for Dishergarh Power 540 2X 270 12,580 BTG 4QFY11Nuclear Power Corporation of India Ltd 1,400 2X 700 8,800 Steam turbine and generators Apr-11Bihar Electricity State Board (Barauni extn) 500 2X 250 11,000 Main plant package FY11Q4Korba West Power Co. Ltd. 600 1X 600 13,200 Main plant package FY11Q4NTPC bulk tender 1,320 2X 660 16,500 Turbine generators FY11Q4Bajaj Hindustan (Lalitpur Power Generation Co.) 1,980 3X 660 54,500 Main plant package Mar-11Andhra Pradesh Power Generation Co. Ltd (Rayalseema) 600 1X 600 14,450 Main plant package Mar-11West Bengal Power Development Co. Ltd (Sagardighi St.-II) 1,000 2X 500 32,200 Main plant package Mar-11India Bulls Amravati 1,350 5X 270 28,750 BTG, auxiliaries, electrostatic precipitator Mar-10India Bulls Nasik 1,350 5X 270 28,830 BTG, auxiliaries, electrostatic precipitator Mar-10Karnataka Power Corporation Ltd (Bellary U-III) 700 1X 700 37,000 EPC Oct-10Visa Power Ltd 1,200 2X 600 26,650 Main plant package Sep-10Abhijeet Infra Ltd 1,080 4X 270 25,250 Main plant package at Jharkhand Aug-10Dainik Bhaskar Power Limited 1,200 2X 600 26,650 Main plant package Jul-10Raichur Power Co. Ltd, KPCL-BHEL JV (Edlapur) 800 1X 800 31,500 EPC NARaichur Power Co. Ltd, KPCL-BHEL JV (Yerasmus) 1,600 2X 800 63,000 EPC Apr-10BECL, Bhavnagar 500 2X 250 18,650 4QFY10KBUNL (NTPC), Muzaffarpur St.-II 390 2X 195 10,770 4QFY10Jhabua Power Ltd, Seoni, MP U-I (Avantha Group) 600 1X 600 12,870 BTG package 4QFY10Surana Power Ltd, Raichur TPS 420 2X 210 11,400 4QFY10DPL, Durgapur Unit 8, WBPDCL 250 1X 250 12,430 4QFY10Hinduja National Power Corporation, Vizag 1,040 2X 520 41,800 4QFY10India Bulls Amravati 1,350 5X 270 28,890 BTG, auxiliaries, electrostatic precipitator Mar-10India Bulls Nasik 1,350 5X 270 28,890 BTG, auxiliaries, electrostatic precipitator Mar-10Pipavav, Gujarat (Videocon Power Ltd) 1,200 2X 600 24,860 BTG package Jan-10Jharkhand, Adhunik Power, Saraikela, Padampur, U-II 270 1X 270 6,400 Main plant package (repeat order) Dec-09Bara project, Prayagraj, UP, Jaiprakash Associates 1,980 3X 660 56,000 Main plant package Nov-09Raigarh Extn, Jindal Power Limited, Chattisgarh 1,200 2X 600 25,200 Thermal Power Project Oct-09Raigarh Extn, Jindal Power Limited, Chattisgarh 1,200 2X 600 25,200 Thermal Power Project Oct-09Vallur TPP, NTPC-Tamil Nadu Energy Company Ltd 500 1X 500 13,000 BTG package Sep-09Angul TPP in Orissa, Monnet Power Company Ltd 1,050 2X 525 26,300 BTG package Aug-09Angul TPP in Orissa, Jindal India Thermal Power Ltd 1,200 2X 600 26,000 Main plant package Aug-09Jharkhand, Adhunik Power, Saraikela, Padampur, U-I 270 1X 270 6,400 Main Plant Package Jul-09Bela, Ideal Energy Projects Ltd, Butibori, Maharashtra U-I 270 1X 270 7,030 Main Plant Package May-09Bela, Ideal Energy Projects Ltd, Butibori, Maharashtra, U-II 270 1X 270 7,030 Main Plant Package May-09Avantha Bhandar, Chattisgarh, Korba West Power Co, Ltd 600 1X 600 14,750 Main Plant Package May-09

Source: Company, Kotak Institutional Equities

Potential margin contraction on negative operating leverage and rising competition

We expect BHEL’s EBITDA margin to contract to about 17.6% in FY2013 from present levels of 19%. Margins are expected to further contract to 14-15% in FY2015. This is primarily due to negative operating leverage (rising fixed costs as a proportion of sales) on stagnant revenues over FY2013-15E. Our estimates build broadly flat contribution margin of about 36% over FY2013-15E which itself may face a potential downside risk.

Furthermore, the current scenario of increasing competition in a limited demand environment would potentially put pressure on margins of incremental order wins (partly demonstrated in a recent bulk tender bidding).



BHEL income statement, balance sheet and cash flow, March fiscal year-ends, 2008-15E (Rs mn)

2008 2009 2010 2011 2012E 2013E 2014E 2015EIncome StatementTotal net revenues 193,046 262,123 328,614 415,661 474,236 472,895 457,880 456,105Cost of goods sold (159,868) (225,078) (274,348) (336,609) (385,190) (389,855) (388,442) (392,418)EBIDTA 33,178 37,046 54,266 79,052 89,046 83,040 69,438 63,687Other income 14,448 14,974 16,483 17,011 19,090 19,514 22,133 26,162Interest (354) (307) (335) (547) (196) (196) (196) (196)Depreciation (2,972) (3,343) (4,580) (5,441) (7,371) (8,612) (9,464) (10,394)Pre-tax Profit 44,299 48,370 65,834 90,074 100,568 93,747 81,910 79,259Tax (15,711) (17,106) (22,800) (29,945) (31,679) (29,530) (25,802) (24,967)PAT 28,589 31,263 43,034 60,130 68,889 64,217 56,108 54,292Balance sheetShareholders' equity 107,742 129,388 159,174 201,538 253,205 301,368 343,449 384,168Loan funds 952 1,494 1,278 1,634 1,634 1,634 1,634 1,634Total source of funds 108,694 130,882 160,451 203,172 254,839 303,001 345,083 385,802Net block 9,813 14,704 24,154 34,009 52,260 53,648 56,184 57,789WIP 6,580 11,570 15,296 17,622 5,000 5,000 5,000 5,000Investments 83 523 798 4,392 4,392 4,392 4,392 4,392Net current assets (excl cash) (5,021) (17,465) 7,030 29,212 121,595 134,030 123,649 117,214Cash and bank balance 83,860 103,147 97,901 96,302 49,957 84,297 134,223 179,771Deferred Tax Assets 13,379 18,403 15,272 21,636 21,636 21,636 21,636 21,636Total applications 108,694 130,882 160,451 203,172 254,839 303,001 345,083 385,802Cash flow statementNet cashflow from operating activites 40,894 42,026 26,250 37,026 (16,122) 60,394 75,953 71,121Net cashflow from investing activites (6,639) (13,244) (17,554) (20,616) (13,000) (10,000) (12,000) (12,000)Free cash flow 34,255 28,782 8,696 16,410 (29,122) 50,394 63,953 59,121Net cashflow from financing activites (8,670) (9,194) (13,465) (17,391) (17,222) (16,054) (14,027) (13,573)Cash generated /utilised 25,584 19,707 (4,768) (999) (46,345) 34,340 49,926 45,548Net cash at end of year 83,860 103,147 97,901 96,302 49,957 84,297 134,223 179,771Ratios (%)EBITDA margin 17.2 14.1 16.5 19.0 18.8 17.6 15.2 14.0PAT margin 14.8 11.9 13.1 14.5 14.5 13.6 12.3 11.9RoE 29.2 26.4 29.8 33.3 30.3 23.2 17.4 14.9RoCE 29.2 26.3 29.7 33.3 30.1 23.1 17.4 14.9Net current assets (excl cash) as days of sales (9.5) (24.3) 7.8 25.7 93.6 103.4 98.6 93.8EPS (Rs) 11.7 12.8 17.6 24.6 28.1 26.2 22.9 22.2


Reverse DCF implies average annual inflow requirement of 8 GW over 6-7 years

The reverse DCF exercise, below, attempts to figure out assumptions underlying our target price for BHEL, of Rs230.

Methodology:

The model takes our target price (Rs230) as an input and calculates revenue growth requirement from the price.

Assumptions related to margins, capex, working capital etc. are built in the model as per our present understanding. Cells in dark red background with white font text are the results.

From the revenue growth requirement, the model also attempts to calculate the order inflow requirements for the company (in GW terms).

Key takeaways

Target price of Rs230 is pricing in relative flat revenue growth over FY2014-22E (an EPS decline of 2-3% a year during this period) and 5% thereafter perpetually.



Price also implies an average order inflow of about 8 GW over 6-7 years (FY2014-22E)

Key assumptions include

Average revenue realization of about Rs28 mn/MW over FY2014-22E (broadly the same level as expected in FY2013E).

EBIT margin starting from about 19% in FY2013E and dropping to 14% post FY2019E and staying at that level thereafter.

Other segments (including spares and exports) revenue growth average of 6% over FY2014-22E and 5% thereafter.

Working capital of about 100 days of sales.

We have built long-term growth of 5% over FY2023-31E and 4% perpetual (terminal growth rate) thereafter; used WACC of 12.5%.

Reverse DCF valuation BHEL’s target price, March fiscal year-ends, 2011-31E (Rs bn)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031GW inflows 15 6 8 8 8 8 10 7 11 5 10 4 13 13 14 Per GW realization 28 27 28 27 26 26 26 27 28 29 30 30 31 35 40 Domestic power execution 289 330 324 314 304 292 278 270 261 252 242 231 243 295 358 Other segment revenues 144 170 183 197 212 227 244 257 270 283 297 312 328 398 484 Total gross revenues 433 500 507 511 515 519 523 527 531 535 539 543 570 693 842 EBIT 85 98 93 88 84 80 75 73 71 72 72 73 77 93 113 EBIT*(1-tax rate) 56 66 62 59 56 53 50 49 48 48 49 49 51 62 76 Depreciation / Amortisation 5 7 8 8 8 9 9 9 9 9 9 9 9 10 12 (Incr)/Decr in Working Capital (22) (69) (8) (14) (1) (15) (1) (1) (1) (1) (1) (1) (7) (9) (11)

Capital Expenditure (15) (10) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (4) (5) (6) Free Cash Flows 25 (6) 61 53 63 47 57 56 55 55 56 56 49 59 71 Years discounted - - 1 2 3 4 5 6 7 8 9 10 11 15 19 Discounted cash flow 25 (6) 57 44 47 31 34 29 26 23 20 18 14 11 8

Near-term growth (FY2014-22) 0.8 NPV calculationLong-term growth (FY2023-31) 5.0 Sum of free cash flow 428 Avg. annual GW inflows (FY2014-22) 8 Terminal value 99

Enterprise value 527 WACC used (%) 12.5 Add Investments 4 Terminal gorwth rate (%) 4.0 Net debt (32) Capitalisation rate (%) 8.5 Net present value-equity 563 Terminal value Shares o/s (mn) ####Terminal value 871 NPV /share(Rs) 230 Discounted value 99

Key assumptionsIncrease in per GW realization (%) (3.5) 3.5 (3.0) (3.0) (3.0) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Bill to book ratio (%) 23.0 25.0 26.5 28.0 29.5 30.0 31.0 31.0 31.0 31.0 31.0 31.0 31.0 31.0 EBIT margin (%) 20.5 19.0 18.0 17.0 16.0 15.0 14.5 14.0 14.0 14.0 14.0 14.0 14.0 14.0 Capex as % of change in revenues 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 Depreciation as a % of Net fixed assets 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 Net WCap excl. cash (days of sales) 75 80 90 90 100 100 100 100 100 100 100 100 100 100




FY2012E provisional results: Revenues and PAT just about meet expectations

Revenue Rs493 bn, up 13.6% (up 21%, adjusted for accounting changes last year)

BHEL reported full-year gross revenues of Rs493 bn broadly in line with our expectation of Rs497 for FY2012. This implies growth of 13-14% versus FY2011 reported revenues of Rs433 bn and about 21% over FY2011 adjusted revenue of Rs406 bn (FY2011 had an accounting policy change that contributed to increased revenue by Rs24.6 bn). This implies revenue of Rs200 bn in 4QFY12, up 7.6% yoy from Rs186 bn in 4QFY11 (adjusted growth of over 22% yoy for 4Q). The company cited commissioning of projects of 8,410 MW in FY2012.

PAT at Rs69 bn, up 14% yoy, also in line with estimates

BHEL reported PAT of Rs69 bn in FY2012, broadly in line with our estimate of Rs70 bn, and recording 14% growth. Implied 4QFY12 PAT of Rs32 bn was up 14.6% yoy (versus reported PAT of Rs28 bn in 4QFY11). FY2012 EPS was Rs28.1 (versus our estimate of Rs28.5).

BHEL 4QFY12 flash results - key numbers (Rs mn)

4QFY11P 4QFY12E 4QFY11 3QFY12 vs est. yoy qoq FY2012P FY2012E FY2011 vs est. yoyGross Sales 200,319 204,335 186,234 110,783 (2.0) 7.6 80.8 493,010 497,025 433,799 (0.8) 13.6 Less: Excise duty (7,236) (7,410) (7,020) (5,303) (2.3) 3.1 36.4 (20,204) (20,378) (18,011) (0.9) 12.2 Net Sales 193,084 196,925 179,214 105,480 (2.0) 7.7 83.1 472,806 476,647 415,788 (0.8) 13.7 PBT 47,624 50,840 42,881 20,758 (6.3) 11.1 129.4 100,010 103,480 90,057 (3.4) 11.1 Tax (17,219) (17,846) (14,901) (6,432) (3.5) 15.6 167.7 (33,003) (33,631) (29,945) (1.9) 10.2 PAT 32,078 32,994 27,980 14,326 (2.8) 14.6 123.9 68,680 69,849 60,112 (1.7) 14.3

Key ratios (%)PBT margin 24.7 25.8 23.9 19.7 21.2 21.7 21.7 Effective tax rate 36.2 35.1 34.7 31.0 33.0 32.5 33.3 PAT margin 16.6 16.8 15.6 13.6 14.5 14.7 14.5

Orders (Rs bn)Order backlog 1,350 1,610 1,465 (16.1) (7.8) 1,350 1,393 1,610 (16.1) (16.1) Order inflow 68 179 216 10 (61.8) (68.4) 586.4 221 332 604 (63.4) (63.4)

%change % change


Inflow of Rs257 bn significantly misses target; was partly expected

BHEL reported subdued order inflows of Rs257 bn (Rs140 bn from power, Rs88 bn from industry) in FY2012, significantly lower than its initial guidance of about Rs660 bn. However, part of this disappointment was anticipated, given weak ordering activity in the sector.

The BHEL management said BHEL received about 75% of the orders placed in the power sector in FY2012. The company is also in advanced stages of discussions for orders worth Rs70-80 bn and expects them to be finalized by the end of1QFY13.

BHEL reported an order backlog of Rs1.35 tn at the end of FY2012, which provides visibility of about three years, based on forward four-quarter inflows.



Order backlog provides visibility of three years, based on forward four-quarter revenues Order booking, order backlog & visibility trend for BHEL

-

300

600

900

1,200

1,500

1,800

2Q04

4Q04

2Q05

4Q05

2Q06

4Q06

2Q07

4Q07

2Q08

4Q08

2Q09

4Q09

2Q10

4Q10

2Q11

4Q11

2Q12

4Q12

(Rs bn)

-

1.0

2.0

3.0

4.0

(# of years)Order booking (Rs bn, LHS)Order backlog (Rs bn, LHS)Years of visibility (RHS)


Bulk tender: BGR scores; bid appears aggressive, may be negative for the sector

BGR Energy has emerged as the lowest bidder for the boiler component of the 11X660 MW NTPC bulk tender. The company is slated to get 6-7 of the 11 units and the remaining 4-5 units would be ordered out to BHEL, provided it matches the L1 bid.

All the seven units cumulatively would be at a total order size of about Rs65 bn, implying average realization of about Rs14 mn/ MW. The pricing appears more aggressive than previous bids won by Doosan for the 9X800 MW boiler bulk tender (ordered in Sept-11 at an average realization of Rs17.5 mn/MW). The bid was over 25% lower than BGR’s own bid for the 9X800 MW boiler bulk tender, at an average realization of Rs18.9 mn/MW.

The management attributed the lower bid in this round of bidding to the following factors. It (1) cited a price difference of about 30% in absolute cost of a 800 MW boiler unit versus 660 MW (on consultation with its JV partner Hitachi); this implies that a 660 MW unit would be about 10% cheaper to manufacture than an 800 MW unit on a per MW basis and (2) has been over six months since the previous bid over which the JV has also matured, leaving BGR in a better position to bid for the projects.



Bid levels for the two phases of the bulk tender

Price Capacity RealizationProject (Rs bn) (MW) (Rs mn/MW) DateNTPC bulk tender

Doosan (winning bid) 70 4,000 17.5

L&T (L2) 18.2 BGR Energy (L3) 18.9 Thermax (L4) 21.9 BHEL (L5)BGR (winning bid) 35 4,000 8.8

L&T 10.4 BHEL 12.5

26.3 Bharat Forge 41 3,300 12.4

BHEL (L2) 13.6 JSW-Toshiba (L3) 17.9 BGR (winning bid) 55 3,960 14.0

BHEL (L2) 15.8 L&T (L3)

26.4

63 1,600 39 Apr-1056 1,980 28 Nov-0944 1,320 33 FY2009

65 1,980 33 Aug-10 69 1,980 35 Nov-09

Jaiprakash Group - Karchana (L&T) - BTGMahagenco - Koradi power plant

L&T supercritical orders

Raichur Power Co. Ltd, KPCL-BHEL JVBara project, Jaiprakash (BHEL) - BTGBarh II, NTPC Ltd ( BHEL) - BTG

BHEL, L&T supercritical orders

11X660 MW boiler Feb-12

11X660 MW tender - total BTG

9X800 MW tender - total BTG

11X660 MW turbine Nov-10

9X800 MW boiler Sep-11

9X800 MW turbine Sep-11

Source: Company, Industry, Kotak Institutional Equities

Bids remain aggressive in the sector; may be negative for incumbents (BHEL, L&T)

We believe strong competition will continue and bids will remain aggressive in the sector. This development may be negative for sector leaders as the value of business may be lost to competitive dynamics. This is particularly possible for BHEL as it may stand to lose market share, margins as well as somewhat preferential relationship with public utilities (Central and State utilities having invited competitors once would possibly have to keep the door open). Break in power capacity addition momentum in the near-term would also remain a negative overhang on the sector.

Equipment order for 125 GW of projects placed; 98 GW under construction

We note that 98 GW of power projects are being constructed (including about 10 GW of slippages from the XI Plan), and are due to be commissioned in the XII Plan period. Equipment orders for about 125 GW have been placed, and are due for commissioning in the XII Plan period (includes 9X800 MW and 11X660 MW bulk tender orders).



Total ordering activity for projects scheduled to be commissioned in the XII Plan period (MW)

XII plan projects for which BTG already awarded, (MW)

Supercritical Subcritical Total

Centre 18,420 11,590 30,010 726 30,736

NTPC 18,420 7,890 26,310 — 26,310

NHPC — — — — —

DVC — 2,200 2,200 — 2,200

Others — 1,500 1,500 726 2,226

State 6,680 17,041 23,721 1,111 24,832

Private 35,620 35,410 71,030 — 71,030

Total 60,720 64,041 124,761 1,837 126,598

Thermal TotalCoal

Gas

Total projects under construction in the XIIth Plan, (MW)


Centre 3,960 11,590 15,550 726 16,276

NTPC 3,960 7,890 11,850 — 11,850

NHPC — — — — —

DVC — 2,200 2,200 — 2,200

Others — 1,500 1,500 726 2,226

State 6,680 17,041 23,721 1,111 24,832

Private 27,660 30,010 57,670 — 57,670

Total 38,300 58,641 96,941 1,837 98,778

Thermal TotalCoal

Gas

Source: CEA, News flows, Kotak Institutional Equities estimates

Demand may remain slow; does not bode well for power equipment makers especially in rising domestic competition

We believe demand/ordering in the sector is likely to remain slow as most of the orders for XII Plan period are likely to have been already placed. Part of this has already been reflected in FY2012. Only two major equipment orders have been placed in FY2012 . This does not bode well for power equipment manufacturers, especially given the increasing domestic supply capacity. We believe strong competition would continue to prevail and bids would remain aggressive in the sector. This development may be negative for sector leaders as the value of business may be lost to competitive dynamics.

XI Plan: 8-10 GW capacity under construction, ~22 GW may slip into XII Plan

CEA has revised the likely generation capacity addition in the XI Plan from 78-80 GW originally to 58-59 GW. Thermal capacity addition target has reduced from 60-62 GW to 47-50 GW, implying about 15 GW of slippages into the XII Plan period. Of the total envisaged capacity addition, 50 GW of capacity was commissioned until Feb 2012 and 8-10 GW of capacity is under construction, due for completion by the end of FY2012 (or slipping into the XIIth Plan timeline).



Projects under construction/ commissioned for XI Plan period (MW), as of Feb-2012

Originally planned capacity addition in XIth plan (FY2007-08 to FY2011-12), (MW)


Centre 1,980 16,980 18,960 740 3,380 23,080

NTPC 1,980 10,230 12,210 740 — 12,950

NHPC — — — — — —

DVC — 6,000 6,000 — — 6,000

Others — 750 750 — — 750

State — 15,935 15,935 3,437 — 19,372

Private 7,540 12,840 20,380 2,531 — 22,911

Total 9,520 45,755 55,275 6,708 15,627 3,380 80,990

CoalGas

Thermal Hydro Nuclear Total

Revised plan for capacity addition in the XI plan (MW)


Centre 1,320 10,730 12,050 740 2,922 3,380 19,092

NTPC 1,320 6,980 8,300 740 — — 9,040

NHPC — — — — — — —

DVC — 3,250 3,250 — — — 3,250

Others — 500 500 — — — 500

State — 12,395 12,395 2,135 2,854 — 17,384

Private 2,120 15,224 17,344 2,531 2,461 — 22,336

Total 3,440 38,349 41,789 5,406 8,237 3,380 58,812

Thermal Hydro Nuclear TotalCoal

Gas

Total projects commissioned in the XIth Plan so far (FY2007-08 to FY2011-12), (MW)


Centre 1,320 10,730 12,050 740 1,350 880 15,020

NTPC 1,320 6,980 8,300 740 — — 9,040

NHPC — — — — — — —

DVC — 3,250 3,250 — — — 3,250

Others — 500 500 — — — 500

State — 12,145 12,145 1,885 2,579 — 16,609

Private 660 15,224 15,884 2,531 192 — 18,607

Total 1,980 38,099 40,079 5,156 4,121 880 50,236


Gas

Total projects slipped to the XIIth Plan, (MW)


Centre 660 6,250 6,910 — — 3,988

NTPC 660 3,250 3,910 — — 3,910

NHPC — — — — — —

DVC — 2,750 2,750 — — 2,750

Others — 250 250 — — 250

State — 3,540 3,540 1,302 — NA

Private 5,420 NA 3,036 — — 575

Total 6,080 7,406 13,486 1,302 7,390 — 22,178


Gas

Source: CEA, News flows, Kotak Institutional Equities estimates


Strong quarter, driven by robust pricing environment and demand uptick

We estimate a strong 29% sequential (16% yoy) jump in profitability for our coverage universe driven by (1) 5% sequential increase in realizations as average cement prices increase by ~Rs9-10/bag sequentially, (2) strong volume growth (14% qoq, 6% yoy) driven by a demand uptick witnessed since November 2011, and (3) reduction in total input cost (-1% qoq) primarily on account of leverage benefits from higher volumes. We note that post monsoon months, the industry has witnessed a healthy demand trend (including South India) clocking an average growth of 14% yoy in the four-month period from November 2011 to February 2012. In our view, the demand uptick has been primarily driven by (1) low base effect, (2) commencement of construction activity in South India (especially AP), and (3) state assembly elections concluded in February 2012.

Prices hiked yet again, though pricing action traditionally peaks by March

Cement prices were hiked by Rs18-20/bag in March 2012 across regions with South India witnessing the maximum increase of Rs20-25/bag. The price rise comes in wake of (1) increase in railway freight by Indian Railways, and (2) healthy demand trend witnessed in the past few months. We however note that pricing action has historically been maximized in the March quarter (see Exhibit 3). We further highlight that the underutilization of capacities is likely to continue even in FY2013E despite factoring 8% consumption growth. A weak demand environment coupled with a continued capacity overhang could test once again the pricing discipline currently maintained by the industry, besides potentially inviting the ire of the regulatory authorities.

Cost pressures unlikely to abate in near term – full impact likely by 1QFY13E

Cost pressures from coal, freight and raw material costs ate into the aggressive pricing gains in FY2012 and continue to threaten profitability in FY2013E. Indian Railways has recently increased rail freight by ~20-25% while the impending revision in diesel prices and rising prices of coal (domestic as well as imported) could further weigh on input costs. We note that the full impact of hike in railway freight would likely be apparent in 1QFY13E.

Valuations not reflecting underlying risk, maintain our cautious stance

Cement stocks have outperformed the benchmark BSE Sensex by 11% in the past three months. In our view, the current multiples do not factor the potential earnings pitfalls from (1) prolonged demand-supply imbalance which could hurt the pricing discipline, and (2) impending hike in diesel prices. We remain cautious on ACC, Ambuja and UltraTech though like India Cements on account of steep valuation discounts compared to peers. We note that ICEM at 5.1X FY2013E EBITDA and US$103/ton FY2013E production is trading at 45% and 43% discount respectively to average trading multiples of ACC, Ambuja and UltraTech.

Cement India

4QFY12E: Accruing the benefits of seasonal price actions. Cement companies will improve profitability by Rs240/ton sequentially, benefiting from (1) higher realizations as average cement prices improve ~Rs10/bag, (2) improved volumes as we step into the peak construction season, and (3) lower impact of cost pressures that will likely impact fully by 1QFY13E. Cement stocks are building a very optimistic scenario for improvement in profitability (+Rs400/ton) over the next 12 months, preventing us from taking a constructive view at current levels.

NEUTRAL

APRIL 09, 2012

UPDATE

BSE-30: 17,222

India Cement


Strong sequential jump in profitability, leverage benefits from higher volumes

4QFY12E will likely see a 5% sequential increase in realizations (~Rs10/bag) and 14% sequential increase in volumes. We discuss below our key assumptions for 4QFY12E.

Volumes. We estimate volumes to increase 7% yoy driven by healthy demand trend witnessed over the past two quarters. In our view, the demand uptick has been primarily driven by (1) lower base last year, (2) commencement of construction activity in South India (especially AP), and (3) state assembly elections concluded in February 2012.

Realization. We factor a 5% sequential increase (~Rs9-10/bag) in average realization driven by a sharp hike in prices in March. The price hike was sharpest in South India.

Power and fuel cost. We estimate a 6% sequential increase in power and fuel cost primarily on account of (1) revision in pricing structure by Coal India (and corresponding inflation in e-auction rates), and (2) lag impact of weaker Rupee flowing in 4QFY12.

Freight cost. We build a 5% sequential increase in freight cost to factor the increase in rail freight rates by 25% in March 2012. We note that truck freight rates have remained fairly stable during the quarter. We expect the full impact of increase in rail fright rates to flow in 1QFY13E.

Overheads. We estimate a 9% sequential decline in per ton overhead cost primarily on account of leverage benefits of higher volumes in 4QFY12.

Exhibit 1: Sharp jump in profitability Operational estimates of cement companies under KIE coverage for 4QFY12E

ACC Ambuja Cements

Mar 2012 Mar 2011 Dec 2011 % (yoy) % (qoq) Mar 2012 Mar 2011 Dec 2011 % (yoy) % (qoq)Sales, mn tons 6.7 6.2 6.0 9 13 6.1 5.6 5.2 8 16Realization (Rs/ton) 4,440 3,893 4,206 14 6 4,644 3,913 4,444 19 5Operating costs (Rs/ton) 3,463 2,993 3,552 16 (3) 3,440 2,829 3,641 22 (6)Profitability (Rs/ton) 977 900 654 9 49 1,204 1,084 803 11 50

UltraTech Cement India Cements

Mar 2012 Mar 2011 Dec 2011 % (yoy) % (qoq) Mar 2012 Mar 2011 Dec 2011 % (yoy) % (qoq)Sales, mn tons 11.2 10.7 10.0 5 12 2.7 2.7 2.2 (3) 22Realization (Rs/ton) 4,756 4,196 4,563 13 4 4,525 3,642 4,309 24 5Operating costs (Rs/ton) 3,638 3,242 3,600 12 1 3,585 2,990 3,419 20 5Profitability (Rs/ton) 1,118 954 963 17 16 939 652 890 44 6

Source: Kotak Institutional Equities estimates

Exhibit 2: Healthy demand uptick in 4QFY12 Estimated cement volumes in 4QFY12E (mn tons)

Mar-12E Mar-11 Dec-11 (yoy) (qoq)ACC 6.7 6.2 6.0 9.1 13.0Ambuja Cements 6.1 5.6 5.2 8.2 16.4India Cements Ltd 2.7 2.7 2.2 (2.5) 22.2Jaiprakash Associates 4.8 4.2 4.3 16.4 13.9Shree Cement Ltd 3.0 2.9 2.8 5.3 7.1UltraTech Cement 11.2 10.7 10.0 4.6 11.7Total 34.6 32.3 30.5 7.1 13.4

Growth (%)


Cement India


Exhibit 3: Bulk of pricing action happens in first quarter of the calendar year Absolute mom increase in cement prices (Rs/bag)

(20)

(10)

0

10

20

30

Dec

-04

Mar

-05

Jun-

05Se

p-05

Dec

-05

Mar

-06

Jun-

06Se

p-06

Dec

-06

Mar

-07

Jun-

07Se

p-07

Dec

-07

Mar

-08

Jun-

08Se

p-08

Dec

-08

Mar

-09

Jun-

09Se

p-09

Dec

-09

Mar

-10

Jun-

10Se

p-10

Dec

-10

Mar

-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

MoM increase (Rs/bag)


Exhibit 4: Impact of pricing action in first quarter tends to be fully visible in second quarter of the calendar year Absolute qoq increase in cement prices (Rs/bag)

(30)

(20)

(10)

0

10

20

30

Dec

-04

Mar

-05

Jun-

05Se

p-05

Dec

-05

Mar

-06

Jun-

06Se

p-06

Dec

-06

Mar

-07

Jun-

07Se

p-07

Dec

-07

Mar

-08

Jun-

08Se

p-08

Dec

-08

Mar

-09

Jun-

09Se

p-09

Dec

-09

Mar

-10

Jun-

10Se

p-10

Dec

-10

Mar

-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

QoQ increase (Rs/bag)


Exhibit 5: Strong quarter, driven by robust pricing environment and demand uptick 4QFY12E estimates of cement companies under KIE coverage universe (Rs mn)

Mar-11 Dec-11 Mar-12E yoy qoqACCNet sales 23,982 25,027 29,839 24.4 19.2 EBITDA 5,542 3,893 6,569 18.5 68.7 EBIT 4,417 2,623 5,291 19.8 101.7 PBT 4,834 3,414 5,937 22.8 73.9 PAT 3,507 2,425 4,156 18.5 71.4 Extraordinaries — 2,280 — — (100.0) PAT-reported 3,507 4,704 4,156 18.5 (11.7) Ambuja CementsNet sales 22,071 23,291 28,328 28.4 21.6 EBITDA 6,116 4,211 7,342 20.1 74.4 EBIT 5,055 2,973 6,071 20.1 104.2 PBT 5,592 3,811 6,663 19.1 74.8 PAT 4,075 2,594 4,597 12.8 77.2 Extraordinaries — 430 — - (100.0) PAT-reported 4,075 3,024 4,597 12.8 52.0 Grasim IndustriesNet sales 63,903 62,601 69,937 9.4 11.7 EBITDA 15,380 13,090 15,218 (1.1) 16.3 EBIT 12,387 10,202 12,218 (1.4) 19.8 PBT 13,747 12,154 14,599 6.2 20.1 PAT 10,329 8,852 10,121 (2.0) 14.3 Extraordinaries 1,151 — — (100.0) —PAT-reported 8,646 6,691 6,959 (19.5) 4.0 India CementsNet sales 9,979 9,415 12,082 21.1 28.3 EBITDA 1,787 1,946 2,509 40.4 28.9 EBIT 1,172 1,324 1,848 57.6 39.6 PBT 763 758 1,274 66.9 68.1 PAT 545 701 953 75.1 36.0 Extraordinaries 8 (138) — (100.0) (100.0) PAT-reported 553 563 953 72.5 69.3 Shree CementNet sales 10,701 12,586 13,905 29.9 10.5 EBITDA 2,959 3,324 4,105 38.7 23.5 EBIT 309 974 1,730 459.5 77.7 PBT (1) 622 1,424 (127,472.7) 128.8 PAT 444 592 1,117 151.3 88.6 Extraordinaries 213 0 - (100.0) (100.0) PAT-reported 657 592 1,117 69.9 88.6 UltraTech CementNet sales 44,901 45,719 53,234 18.6 16.4 EBITDA 10,210 9,649 12,517 22.6 29.7 EBIT 7,943 7,413 10,178 28.1 37.3 PBT 8,208 8,672 10,738 30.8 23.8 PAT 6,116 6,169 7,904 29.2 28.1 Extraordinaries 1,151 — (100.0) —PAT-reported 7,268 6,169 7,904 8.8 28.1

Change (%)


India Cement


Exhibit 6: Sharp price hike in March Cement prices, North, West and All India average (Rs/bag)

125

145

165

185

205

225

245

265

285

305

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

North West All India average

Source: CMA, Kotak Institutional Equities estimates

Exhibit 7: Price increase highest in South India Cement prices, South, Central and East India (Rs/bag)

120

145

170

195

220

245

270

295

320

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Central East South

Source: CMA, Kotak Institutional Equities estimates

Exhibit 8: Industry volumes have registered an average growth of 14% yoy in the 4-month period from November 2011 to February 2012 Monthly dispatch and growth, March fiscal year-ends, 2011-12 (mn tons, %)

12

13

14

15

16

17

18

19

20

21

22

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep-

10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb-

11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep-

11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

(8)

(4)

0

4

8

12

16

20

24Dispatch (mn tons, LHS) yoy growth (%, RHS)

Source: CMA, Kotak Institutional Equities

Cement India


Exhibit 9: Imported coal prices have remained fairly stable Coal prices at Richard Bay and INR-USD rate (US$/ton, Rs/US$)

0

30

60

90

120

150

180

210

Sep-

07

Dec

-07

Mar

-08

Jun-

08

Sep-

08

Dec

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Mar

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Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

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Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

35

40

45

50

55

INR (Rs/US$) Richard Bay (US$/ton)

Source: Bloomberg, Kotak Institutional Equities

Exhibit 10: Comparative valuation summary

Market cap. CMP (Rs) Target EPS (Rs) P/E (X)Company (US$ mn) 9-Apr price (Rs) Rating 2009 2010 2011E 2012E 2013E 2009 2010 2011E 2012E 2013EACC 4,866 1,312 1,060 SELL 56 83 53 57 72 23 16 25 23 18Ambuja Cements 5,091 169 150 SELL 7.2 8.0 7.9 7.8 10.6 24 21 21 22 16Grasim Industries 4,711 2,603 2,900 BUY 239 301 232 276 282 11 9 11 9 9India Cements 659 109 130 ADD 18 10 2 12 13 6 11 57 9 8Jaiprakash Associates 3,452 82 97 BUY 2.0 1.8 6.0 6.4 6.9 41 45 14 13 12Shree Cement 2,063 3,000 2,085 REDUCE 175 208 57 80 119 17 14 52 37 25UltraTech Cement 8,131 1,503 1,220 REDUCE 79 88 45 80 89 19 17 34 19 17

EV/EBITDA (X) EV/ton of production (US$) EV/ton of capacity (US$)Company 2009 2010 2011E 2012E 2013E 2009 2010 2011E 2012E 2013E 2009 2010 2011E 2012E 2013EACC 14.3 9.6 14.7 13.1 9.6 218 211 209 183 165 213 198 163 151 145Ambuja Cements 15.6 14.1 12.9 12.1 8.9 279 256 227 210 190 252 238 209 181 175Grasim Industries 6.9 5.2 6.7 5.5 4.9 211 190 138 107 99 197 165 109 94 96India Cements 5.6 7.0 18.0 6.0 5.1 107 100 119 116 103 98 83 90 76 71Jaiprakash Associates 19.4 21.1 12.2 9.1 8.0 NA NA NA NA NA NA NA NA NA NAShree Cement 11.2 7.0 12.2 9.3 8.1 248 200 207 188 179 229 205 175 172 173UltraTech Cement 12.4 9.9 16.3 10.7 9.3 213 180 234 202 189 202 156 170 162 162



PNGRB slashes IGL’s tariffs; move expected to be a big disappointment for the Street

Our interaction with investors suggests that the sharp reduction to IGL’s network tariffs and compression charges will likely come as a big disappointment for the market. Investors were largely of the view that the regulator would not reduce IGL’s tariffs and that marketing margins were outside the purview of the regulator.

Significant negative impact on IGL’s profitability and profits

Exhibit 1 shows the proposed network tariffs and compression charges of the regulator and compares them with those proposed by IGL. We note that the new tariffs will be applicable from April 1, 2008 and consequently IGL will have to make large refunds to its customers. Exhibit 2 shows our computations of the impact on IGL’s gross margins (based on FY2011 reported figures); we use FY2011 data since we do not cover the IGL stock. We have been concerned about the sustainability of IGL’s profitability and have highlighted this over the past several years and as recently as a month ago (see our March 9, 2012 comment, The regulator wants to regulate).

Other gas stocks may de-rate, pending clarity on the regulator’s next moves

We would not be surprised to see the whole gas sector getting de-rated as the regulator’s move would come as a big disappointment for investors who generally believed in continued regulatory leniency in interpreting and applying regulations. We note that most companies in the gas sector earn very high returns on investment (CRoCI, RoAE, or RoACE), a result of regulatory oversight in the past, in our view. Thus, we note that gas companies are vulnerable to potential stricter applications of extant regulations and ensuing negative impact on their financials. Exhibit 3 shows the returns over FY2006-11 for GAIL (pipeline segment only), GGAS, IGL and PLNG.

GAIL may be the best play in the gas sector

In our view, GAIL may be the best play in the gas transmission and distribution sector, given potential relatively lower risks to its earnings compared with those of its peers and lower Street expectations of its prospects. (1) GAIL derives 60-65% of its EBIT from gas transmission and trading (see Exhibit 4) and (2) concerns about low gas transmission volumes over the next 2-3 years are largely known (see Exhibit 5, which gives our key assumptions for GAIL’s earnings model).

Energy India

The hangover. We see a big negative impact on the profitability and profit of city gas distributors from a decision by the Petroleum and Natural Gas Regulatory Board (PNGRB) to cut IGL’s network tariffs significantly. We have long highlighted concerns about sustainability of tariffs of CGD networks, given their high returns on investment. We will look for potential negative developments in other parts of the gas sector.

NEUTRAL

APRIL 09, 2012

UPDATE

BSE-30: 17,222

Energy India


PNGRB has determined significantly lower network tariffs and compression charges Comparison of network tariffs and compression charges determined by PNGRB with that proposed by IGL

Proposed Determined Varianceby IGL by PNGRB (%)

Network tariff (Rs/mn BTU) 104.05 38.58 (63) Compression charge (Rs/kg) 6.66 2.75 (59)

Source: PNGRB, Kotak Institutional Equities

We see a large negative impact on IGL's earnings from tariffs announced by the PNGRB Impact on IGL from reduction in network tariffs and compression charges, March fiscal year-ends, 2009-12YTD (` bn)

FY2009 FY2010 FY2011 9MFY12Contribution from regulated network tariffs and compression chargesPNG sales volume (mcm) 54 87 180 204 CNG sales volume (mcm) 605 695 818 696 CNG sales volume (mn kgs) 460 523 610 519 Total gas sales volume (mcm) 660 782 998 900 Contribution from regulated network tariffs (A) 0.9 1.1 1.4 1.3 Contribution from regulated compression charges (B) 1.3 1.4 1.7 1.4

Total computed contribution (A+B) 2.2 2.5 3.1 2.7 IGL's reported contribution 4.5 5.9 7.8 7.2

Key financials of IGLEBITDA 3.0 3.8 4.9 4.7 PBT 2.6 3.2 3.9 3.3 Net income 1.7 2.2 2.6 2.3

Source: Company, PNGRB, Kotak Institutional Equities estimates

Financial returns earned by CGD companies are high and above regulated levels Trends of returns for gas companies, March fiscal year-ends, 2006-11 (%)

2006 2007 2008 2009 2010 2011ROACEGAIL gas transmission segment 44 34 23 18 19 18 Gujarat Gas 25 20 29 23 22 30 Indraprastha Gas 27 30 32 26 28 24 Petronet LNG 14 20 31 33 20 26 ROAEGujarat Gas 26 21 29 23 22 30 Indraprastha Gas 28 30 32 26 28 27 Petronet LNG 20 24 28 25 17 22 CROCIGujarat Gas 24 20 32 27 30 40 Indraprastha Gas 31 35 37 30 28 24 Petronet LNG 17 22 32 29 18 25

Notes:(a) Data for Gujarat Gas is calendar year-ending; FY2006 represents CY2005 data.


India Energy


GAIL derives a major portion of its profitability from gas transmission and trading Segment breakdown of GAIL India's EBIT, March fiscal year-ends, 2011-12YTD (` mn)

FY2011 9MFY12Segment-wise EBITGas transportation/trading 33,562 27,518 LPG transportation 3,076 2,187 LPG production 4,858 8,861 Petrochemicals 11,883 10,349 Others (1,056) (1,589) Total 52,322 47,326


Energy India


We model an increase in gas volumes in FY2014E, led by higher LNG imports Key assumptions behind GAIL model, March fiscal year-ends, 2007-2014E

2007 2008 2009 2010 2011 2012E 2013E 2014EVolumesNatural gas transportation, gross (mcm/day) HVJ pipeline 32 32 32 32 32 32 32 32 Dahej-Vijaypur-GREP upgradation 2 2 4 Dadri-Bawana-Nangal (transmitted and sold) 1 2 3 3 3 Dadri-Bawana-Nangal (transmitted) 1 2 2 2 Chainsa-Jhajjar-Hissar (transmitted and sold) 2 3 3 3 Chainsa-Jhajjar-Hissar (transmitted) 1 2 2 2 Other pipelines (transmitted) 16 16 12 13 Other pipelines 39 40 39 49 39 37 37 35Regassified LNG Dahej-Vijaipur pipeline (transmitted and sold) 6 9 9 15 13 13 13 13 Dahej-Vijaipur pipeline (transmitted) 4 6 6 10 13 12 12 12 Dahej-Uran pipeline (transmitted and sold) 6 9 12 6 6 6 6 Dahej-Uran pipeline (transmitted) 6 6 6 6 Panvel-Dabhol pipeline (transmitted and sold) 4 6 8 3 3 3 3 Panvel-Dabhol pipeline (transmitted) 5 5 5 5 Dabhol-Bangalore pipeline 4 6 Kochi-Bangalore/Mangalore pipeline 2 8 Elimination of double-counted volumes (a) (3) (15) (18) (21) (20) (24) (26) (26)Total gas transmission 77 82 83 107 118 118 118 127Total gas sales 83 84 88 96LPG (000 tons) Sold 1,037 1,039 1,092 1,101 1,073 1,135 1,165 1,165 Transported 2,490 2,754 2,744 3,160 3,337 3,350 3,350 3,350 Petrochemicals (000 tons)Polyethylene Domestic sales 337 381 423 410 420 440 445 480 Exports 10 10 — — — — — —Total petrochemicals 347 391 423 410 420 440 445 480 PricesNatural gas (Rs/cubic meter)Natural gas ceiling price 4.21 4.21 4.59 5.75 7.55 7.71 7.71 7.71 Regassified LNG including transportation 6.93 6.44 7.05 11.09 12.59 16.67 22.15 25.85 Transmission plus marketing charges HBJ pipeline, Dahej-Vijaipur pipeline (from FY2007) 0.99 0.96 1.05 0.99 0.99 0.99 0.99 0.99 Dahej-Vijaypur-GREP upgradation 1.95 1.95 1.95 1.95 1.95 Dadri-Bawana-Nangal 1.16 1.16 1.16 1.16 1.16 Chainsa-Jhajjar-Hissar 0.71 0.71 0.71 0.71 0.71 Dahej-Vijaipur, Dahej-Uran, Panvel-Dabhol pipeline 0.99 1.03 1.04 1.04 0.95 0.89 0.89 0.89 Dabhol-Bangalore pipeline 2.04 2.04 Kochi-Bangalore/Mangalore pipeline 1.38 1.38 Other pipelines 0.40 0.42 0.44 0.44 0.46 0.46 0.48 0.48 LPGLPG (US$/ton) 531 702 685 612 749 865 888 849 Transmission charges (Rs/ton) Jamnagar-Loni 1,522 1,522 1,522 1,522 1,522 1,522 1,522 1,522 Vizag-Secunderabad 1,450 1,450 1,450 1,450 1,450 1,450 1,450 1,450Other assumptionsPolyethylene, HDPE (US$/ton) 1,315 1,500 1,360 1,340 1,415 1,525 1,425 1,435 Import tariff, Polyethylene 5% 5% 5% 5% 5% 5% 5% 5%Import tariff, LPG 0% 0% 0% 0% 0% 0% 0% 0%Exchange rate (Rs/US$) 45.3 40.3 45.8 47.4 45.6 48.0 50.5 50.0 Subsidy losses 14,880 13,137 17,812 13,267 21,112 29,132 32,414 29,110

Note:(a) Gas transported through the HVJ or DV pipeline and then to smaller pipelines.


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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

9-Apr-12 Mkt cap.O/S

shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) RoE (%)Target price Upside ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E (Rs) (%) (US$ mn)

Automobiles

Apollo Tyres 85 BUY 42,646 834 504 7.4 10.0 12.0 (15.4) 34.6 20.5 11.4 8.5 7.0 6.0 4.7 4.0 1.4 1.2 1.0 0.5 0.7 0.8 14.4 16.8 17.2 90 6.4 4.1

Ashok Leyland 30 ADD 80,353 1,571 2,661 1.7 2.8 3.5 (26.8) 58.6 27.2 17.4 11.0 8.6 9.8 7.3 5.9 1.7 1.6 1.5 3.3 3.3 3.3 14.6 21.5 24.1 33 9.3 4.4

Bajaj Auto 1,651 SELL 477,727 9,338 289 106.6 122.3 137.2 18.0 14.7 12.2 15.5 13.5 12.0 11.6 10.4 9.2 7.0 5.3 4.1 2.4 2.4 2.4 52.5 44.7 38.5 1,715 3.9 17.5

Bharat Forge 313 REDUCE 74,358 1,453 237 17.5 20.0 23.6 39.2 14.6 17.7 17.9 15.7 13.3 9.1 8.0 6.9 2.8 2.4 2.1 0.3 — — 14.6 15.6 15.5 315 0.5 3.1

Exide Industries 142 SELL 120,488 2,355 850 5.1 6.5 7.6 (32.1) 28.4 16.6 28.0 21.8 18.7 18.2 14.5 12.7 4.0 3.5 3.0 0.9 0.9 0.9 14.9 17.0 17.3 105 (25.9) 3.9

Hero Motocorp 1,975 SELL 394,308 7,707 200 118.0 131.8 135.7 18.8 11.7 2.9 16.7 15.0 14.6 12.0 10.6 9.4 7.3 6.2 5.3 3.5 3.5 3.5 66.1 59.5 49.6 1,850 (6.3) 21.0

Mahindra & Mahindra 684 BUY 419,730 8,204 614 41.6 44.4 48.9 (0.2) 6.7 10.0 16.4 15.4 14.0 12.4 11.3 9.9 3.3 2.9 2.5 1.4 1.4 1.4 22.0 20.1 19.0 815 19.2 37.5

Maruti Suzuki 1,283 SELL 370,760 7,247 289 52.3 89.9 106.8 (33.9) 71.7 18.8 24.5 14.3 12.0 16.8 8.8 6.8 2.4 2.1 1.8 0.6 0.6 0.6 10.3 15.8 16.2 1,250 (2.6) 22.2

Tata Motors 276 REDUCE 916,370 17,912 3,325 34.3 38.7 44.7 26.2 12.8 15.6 8.0 7.1 6.2 5.3 4.5 3.8 3.1 2.2 1.7 1.0 1.0 1.0 46.8 37.0 31.3 285 3.4 80.0

Automobiles Neutral 2,896,739 56,621 10.4 17.7 14.1 12.8 10.9 9.5 8.2 6.7 5.8 3.5 2.8 2.3 1.6 1.6 1.6 27.4 25.7 23.7

Banks/Financial Institutions

Andhra Bank 120 ADD 66,870 1,307 560 23.7 23.1 25.8 4.5 (2.3) 11.5 5.0 5.2 4.6 — — — 1.0 0.9 0.8 4.8 4.7 5.2 19.0 16.4 16.2 150 25.5 2.0

Axis Bank 1,146 ADD 486,259 9,505 424 94.3 97.6 105.6 14.3 3.4 8.2 12.1 11.7 10.9 — — — 2.2 2.0 1.8 1.4 1.4 1.6 19.4 17.3 16.4 1,350 17.8 60.8

Bajaj Finserv 709 ADD 102,622 2,006 145 63.2 62.9 71.8 (19.2) (0.4) 14.1 11.2 11.3 9.9 — — — 2.1 1.7 1.5 1.8 1.8 1.8 21.9 16.8 15.9 650 (8.4) 2.2

Bank of Baroda 794 BUY 311,732 6,093 393 114.5 121.6 125.5 6.1 6.2 3.2 6.9 6.5 6.3 — — — 1.4 1.2 1.1 2.6 2.7 2.8 21.3 19.2 17.2 1,050 32.3 10.0

Bank of India 365 BUY 199,462 3,899 547 42.9 60.4 68.6 (5.7) 40.8 13.7 8.5 6.0 5.3 — — — 1.3 1.1 1.0 2.1 3.0 3.4 13.9 17.3 17.1 450 23.5 6.3

Canara Bank 457 BUY 202,451 3,957 443 73.4 91.4 117.7 (19.3) 24.5 28.8 6.2 5.0 3.9 — — — 1.1 1.0 0.8 2.6 2.6 2.6 15.2 16.6 18.4 550 20.4 8.0

Corporation Bank 426 BUY 63,089 1,233 148 103.4 107.3 119.8 8.4 3.8 11.7 4.1 4.0 3.6 — — — 0.8 0.7 0.6 5.1 5.3 5.9 19.9 17.9 17.5 600 40.9 0.8

Federal Bank 434 BUY 74,243 1,451 171 42.1 50.5 57.9 22.7 19.9 14.7 10.3 8.6 7.5 — — — 1.4 1.2 1.1 2.4 2.9 3.3 13.4 14.5 15.0 500 15.2 3.7

HDFC 666 REDUCE 1,013,507 19,811 1,522 27.7 31.8 38.6 14.9 14.7 21.4 24.1 21.0 17.3 — — — 5.0 4.0 3.5 1.5 1.8 2.2 22.0 21.4 21.5 725 8.9 80.7

HDFC Bank 522 ADD 1,213,658 23,723 2,326 22.1 28.0 35.2 31.0 26.6 25.7 23.6 18.6 14.8 — — — 4.1 3.5 3.0 0.8 1.0 1.3 18.8 20.4 21.8 560 7.3 31.7

ICICI Bank 867 BUY 998,686 19,521 1,152 53.5 56.4 62.8 19.6 5.4 11.4 16.2 15.4 13.8 — — — 1.7 1.6 1.5 1.9 2.0 2.2 10.8 10.6 11.0 1,100 26.9 101.2

IDFC 132 ADD 199,221 3,894 1,509 10.6 12.8 14.6 20.6 20.8 14.5 12.5 10.3 9.0 — — — 1.6 1.4 1.3 1.6 2.0 2.2 13.9 14.6 14.9 155 17.4 27.9

India Infoline 64 SELL 20,954 410 327 4.0 4.3 5.1 (45.5) 5.7 19.9 15.9 15.1 12.6 — — — 1.2 1.0 1.0 1.1 1.1 1.4 6.7 7.3 7.9 70 9.2 1.5

Indian Bank 232 BUY 99,685 1,948 430 42.5 46.0 50.5 9.5 8.2 9.7 5.5 5.0 4.6 — — — 1.1 1.0 0.8 3.4 3.7 4.1 20.6 19.1 18.2 300 29.3 2.3

Indian Overseas Bank 94 BUY 57,977 1,133 619 13.7 27.0 34.8 (21.2) 97.8 29.0 6.9 3.5 2.7 — — — 0.7 0.6 0.5 2.1 4.1 5.8 8.7 15.5 17.4 140 49.4 1.9

IndusInd Bank 329 ADD 153,489 3,000 466 16.8 17.8 21.9 35.9 5.8 23.0 19.6 18.5 15.0 — — — 3.6 3.2 2.7 0.8 0.9 1.1 19.4 17.3 18.4 330 0.2 5.1

J&K Bank 814 ADD 39,473 772 48 157.5 162.4 177.7 24.2 3.1 9.4 5.2 5.0 4.6 — — — 1.0 0.9 0.8 4.0 4.1 4.5 20.3 18.1 17.3 950 16.7 0.6

LIC Housing Finance 260 ADD 131,211 2,565 505 18.2 28.8 31.6 (11.3) 58.4 9.5 14.3 9.0 8.2 — — — 2.3 1.9 1.7 1.5 2.4 2.6 18.7 23.4 21.7 290 11.6 18.5

Mahindra & Mahindra Financial 674 BUY 69,073 1,350 102 55.6 71.9 84.8 23.0 29.3 17.8 12.1 9.4 8.0 — — — 2.4 2.0 1.7 1.8 2.3 2.8 21.1 23.1 23.0 825 22.4 1.9

Muthoot Finance 131 BUY 48,692 952 371 23.1 27.5 31.7 46.4 19.3 15.0 5.7 4.8 4.1 — — — 1.6 1.2 0.9 — — — 38.7 28.4 25.0 240 83.1 —

Oriental Bank of Commerce 252 BUY 73,553 1,438 292 42.4 55.8 55.1 (17.7) 31.6 (1.3) 5.9 4.5 4.6 — — — 0.8 0.7 0.6 3.4 4.5 4.4 10.7 12.9 11.7 370 46.8 3.1

PFC 188 BUY 247,824 4,844 1,320 22.7 29.3 33.2 (0.5) 29.0 13.3 8.3 6.4 5.7 — — — 1.2 1.1 1.1 2.4 3.1 3.5 16.7 17.4 17.2 225 19.8 14.9

Punjab National Bank 911 BUY 288,695 5,643 317 149.0 167.3 196.5 6.5 12.3 17.4 6.1 5.4 4.6 — — — 1.3 1.2 1.0 3.3 3.7 4.4 21.6 20.7 20.7 1,270 39.4 9.7

Reliance Capital 388 ADD 95,399 1,865 246 8.4 22.6 26.1 (10.2) 170.0 15.5 46.4 17.2 14.9 — — — 1.3 1.3 1.2 0.9 2.3 2.7 2.9 7.6 8.5 470 21.3 39.4

Rural Electrification Corp. 218 BUY 214,807 4,199 987 28.7 33.7 36.4 10.5 17.2 8.2 7.6 6.5 6.0 — — — 1.6 1.5 1.4 3.8 4.4 4.8 20.7 21.1 19.9 230 5.7 12.9

Shriram Transport 597 BUY 133,293 2,605 223 57.9 67.7 79.0 5.0 16.9 16.7 10.3 8.8 7.6 — — — 2.3 1.9 1.6 1.9 2.3 2.6 23.9 23.3 22.8 710 18.9 4.7

SKS Microfinance 121 RS 9,061 177 75 (89.1) (27.5) (29.0) (667.7) (69.1) 5.4 (1.4) (4.4) (4.2) — — — 0.8 0.9 1.2 — — — (44.7) (19.3) (24.8) — — 2.6

State Bank of India 2,100 BUY 1,409,495 27,551 671 176.6 208.5 237.6 35.7 18.1 14.0 11.9 10.1 8.8 — — — 2.3 2.0 1.7 1.7 1.8 1.9 16.1 16.0 16.1 2,450 16.6 149.6

Union Bank 236 BUY 123,769 2,419 524 29.0 43.1 47.4 (26.5) 48.7 10.0 8.1 5.5 5.0 — — — 1.2 1.0 0.9 2.5 3.7 4.1 13.1 17.3 16.7 340 44.0 7.4

Yes Bank 373 ADD 129,347 2,528 347 27.2 32.0 39.5 29.7 17.9 23.3 13.7 11.6 9.4 — — — 2.8 2.3 1.9 0.9 1.0 1.3 22.5 21.9 22.3 375 0.6 26.1

Banks/Financial Institutions Attractive 8,277,596 161,798 11.6 19.7 14.9 12.1 10.1 8.8 — — — 1.9 1.6 1.4 1.8 2.1 2.3 15.3 16.0 16.2

Cement

ACC 1,312 SELL 246,517 4,819 188 57.1 72.5 79.3 7.8 26.9 9.5 23.0 18.1 16.5 13.1 9.6 8.3 3.2 2.9 2.5 2.5 1.8 1.8 16.9 18.1 17.5 1,060 (19.2) 10.9

Ambuja Cements 169 SELL 257,890 5,041 1,522 7.8 10.6 11.6 (1.2) 36.5 9.4 21.8 15.9 14.6 12.5 9.2 8.4 3.0 2.7 2.5 1.3 1.6 2.3 14.6 18.2 17.9 150 (11.5) 9.7

Grasim Industries 2,603 BUY 238,706 4,666 92 275.8 281.7 292.3 18.9 2.2 3.7 9.4 9.2 8.9 5.5 4.9 4.4 1.4 1.3 1.1 1.3 1.3 1.3 16.2 14.5 13.3 2,900 11.4 4.4

India Cements 109 ADD 33,375 652 307 12.1 12.8 15.2 541.0 5.6 19.0 9.0 8.5 7.1 5.8 5.0 4.1 0.7 0.7 0.6 2.9 2.9 2.9 8.9 8.7 9.6 130 19.7 4.2

Shree Cement 3,017 REDUCE 105,114 2,055 35 80.2 119.4 123.2 40.3 48.9 3.2 37.6 25.3 24.5 9.3 8.1 7.9 5.0 4.4 3.9 0.5 0.7 0.7 13.9 18.4 16.9 2,085 (30.9) 0.8

UltraTech Cement 1,503 REDUCE 411,882 8,051 274 79.7 89.4 99.9 77.7 12.2 11.7 18.9 16.8 15.1 10.7 9.3 7.9 2.8 2.4 2.1 0.4 0.5 0.5 18.7 17.7 16.9 1,220 (18.8) 5.6

Cement Neutral 1,293,485 25,283 31.2 15.7 8.5 17.0 14.7 13.5 8.9 7.5 6.6 2.4 2.1 1.9 1.2 1.2 1.3 14.0 14.4 13.9

Price/BV (X) Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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Consumer products

Asian Paints 3,279 SELL 314,526 6,148 96 94.4 106.9 132.3 16.8 13.3 23.8 34.7 30.7 24.8 23.6 19.1 15.6 11.8 9.6 7.7 0.9 1.1 1.1 39.9 35.6 34.9 2,500 (23.8) 6.2

Colgate-Palmolive (India) 1,115 SELL 151,686 2,965 136 32.5 39.1 44.1 9.9 20.3 12.6 34.3 28.5 25.3 29.5 23.8 20.8 40.2 32.0 27.8 2.5 2.5 3.0 116.1 124.9 117.3 900 (19.3) 2.2

Dabur India 105 ADD 182,043 3,558 1,740 3.7 4.4 5.1 12.1 19.2 17.0 28.6 24.0 20.5 21.8 18.7 16.0 10.8 8.5 6.8 1.2 1.5 1.7 43.2 40.2 37.5 115 9.9 3.3

GlaxoSmithkline Consumer (a) 2,751 ADD 115,688 2,261 42 84.5 105.4 122.6 18.5 24.8 16.4 32.6 26.1 22.4 24.7 20.2 17.3 10.5 8.7 7.3 1.3 1.6 1.8 33.8 35.2 34.3 3,000 9.1 1.2

Godrej Consumer Products 499 ADD 161,423 3,155 324 16.8 21.8 25.6 13.1 29.8 17.3 29.6 22.8 19.5 22.3 16.8 13.9 7.0 5.7 4.9 0.6 0.6 0.8 27.6 28.9 30.9 500 0.2 2.3

Hindustan Unilever 405 REDUCE 873,492 17,074 2,159 11.8 14.2 16.3 19.7 19.7 15.3 34.2 28.6 24.8 28.2 22.5 19.0 28.5 24.5 21.0 2.4 2.9 3.4 89.8 92.4 92.0 420 3.8 20.5

ITC 224 ADD 1,720,855 33,637 7,681 8.0 9.0 10.5 24.1 13.8 15.6 28.2 24.8 21.4 19.3 16.7 14.3 8.8 7.7 6.2 1.7 2.0 1.4 35.3 34.5 33.2 250 11.6 37.8

Jubilant Foodworks 1,168 SELL 76,634 1,498 66 16.3 24.0 33.1 45.4 47.3 38.2 71.7 48.7 35.2 39.8 27.4 20.1 25.7 16.8 11.4 — — — 43.6 41.7 38.5 800 (31.5) 22.9

Jyothy Laboratories 160 ADD 12,444 243 78 8.4 10.8 12.6 (18.8) 28.0 17.0 19.1 14.9 12.7 29.4 22.0 16.4 1.8 1.7 1.6 2.9 3.6 3.6 9.7 11.7 12.8 190 18.5 0.5

Nestle India (a) 4,579 SELL 441,488 8,630 96 104.6 125.1 146.3 20.5 19.6 16.9 43.8 36.6 31.3 28.9 23.5 19.5 34.7 20.7 15.9 1.1 1.3 1.5 94.7 70.7 57.3 3,600 (21.4) 3.0

Tata Global Beverages 117 BUY 72,322 1,414 618 5.3 6.6 7.5 35.1 23.0 14.1 21.9 17.8 15.6 11.9 9.7 8.4 1.3 1.3 1.2 1.5 1.9 2.1 8.2 9.5 10.2 110 (5.9) 8.8

Titan Industries 243 ADD 215,332 4,209 888 6.5 7.9 9.8 32.5 20.7 24.4 37.2 30.8 24.8 26.4 21.3 16.4 15.7 12.1 8.4 0.9 1.2 0.4 48.0 44.4 40.1 260 7.2 17.6

United Spirits 721 BUY 90,604 1,771 126 36.6 42.7 45.9 3.5 16.9 7.5 19.7 16.9 15.7 11.9 10.9 9.9 2.0 1.8 1.6 0.3 0.4 0.5 10.5 11.1 10.8 900 24.8 27.8

Consumer products Attractive 4,533,925 88,622 19.9 18.0 16.8 31.4 26.6 22.8 22.0 18.4 15.5 10.0 8.5 7.0 1.5 1.8 1.7 31.7 31.8 30.8

Constructions

IVRCL 72 ADD 19,211 376 267 2.9 3.9 7.1 (50.5) 33.6 81.2 24.6 18.4 10.1 9.5 8.2 6.7 0.9 0.9 0.8 0.6 0.6 0.6 3.9 5.0 8.5 70 (2.7) 16.9

Nagarjuna Construction Co. 55 BUY 14,151 277 257 1.8 3.7 5.5 (71.1) 100.8 49.6 29.9 14.9 10.0 9.5 8.0 7.2 0.6 0.6 0.6 3.6 3.6 3.6 2.0 4.0 5.8 65 17.9 2.2

Punj Lloyd 56 REDUCE 18,966 371 340 5.1 6.6 9.3 (442.7) 28.9 42.2 11.0 8.5 6.0 9.3 6.5 5.5 0.6 0.6 0.5 0.8 1.0 1.5 5.7 6.9 9.1 60 7.4 5.4

Sadbhav Engineering 150 BUY 22,451 439 150 10.0 10.0 11.5 28.5 0.5 14.2 15.0 14.9 13.1 9.2 8.9 7.7 2.9 2.4 2.1 0.4 0.4 1.1 19.2 16.3 16.1 180 20.2 0.6

Construction Attractive 74,779 1,462 15.6 27.8 43.2 16.7 13.1 9.1 9.4 7.4 6.3 0.9 0.8 0.8 1.2 1.2 1.5 5.4 6.5 8.6

Energy

Aban Offshore 428 BUY 18,608 364 44 71.5 92.4 96.0 (46.7) 29.1 3.9 6.0 4.6 4.5 7.6 6.7 6.5 1.1 0.9 0.8 0.9 1.1 1.2 20.8 21.4 18.1 615 43.8 13.8

Bharat Petroleum 681 RS 246,028 4,809 362 42.3 53.5 58.8 8.8 26.3 10.0 16.1 12.7 11.6 8.6 8.1 7.4 1.5 1.4 1.3 2.0 2.6 2.8 9.3 11.0 11.2 — — 7.5

Cairn india 341 SELL 649,008 12,686 1,903 45.5 58.1 49.0 36.6 27.8 (15.8) 7.5 5.9 7.0 5.8 4.0 4.2 1.4 1.2 1.2 — 4.4 5.9 19.6 22.0 17.0 330 (3.2) 20.2

Castrol India (a) 540 SELL 133,581 2,611 247 19.5 21.0 22.3 (1.8) 7.8 6.4 27.8 25.8 24.2 19.1 17.5 16.4 24.4 22.7 21.1 2.8 3.1 3.2 90.4 91.4 90.5 400 (26.0) 1.0

GAIL (India) 363 ADD 460,649 9,004 1,268 32.4 30.0 30.1 15.1 (7.6) 0.5 11.2 12.1 12.1 7.9 8.4 7.4 1.9 1.7 1.5 2.3 2.2 2.2 17.5 14.1 12.6 445 22.5 10.8

GSPL 77 ADD 43,150 843 563 9.2 8.5 9.0 3.2 (7.4) 6.0 8.3 9.0 8.5 5.2 5.3 4.9 1.6 1.4 1.2 1.8 2.8 4.7 20.5 16.1 15.2 87 13.4 3.1

Hindustan Petroleum 286 RS 96,889 1,894 339 11.0 28.8 31.1 (73.2) 162.9 8.0 26.1 9.9 9.2 2.7 3.2 2.9 0.6 0.6 0.6 1.2 3.1 3.4 2.2 5.7 5.8 — — 5.6

Indian Oil Corporation 257 RS 622,769 12,173 2,428 30.1 29.8 33.9 (7.2) (0.9) 13.7 8.5 8.6 7.6 6.9 6.3 5.4 1.0 1.0 0.9 0.7 3.5 4.0 12.2 11.1 11.7 — — 2.9

Oil India 482 BUY 289,442 5,658 601 66.9 73.7 79.0 39.5 10.2 7.2 7.2 6.5 6.1 2.7 2.2 1.8 1.5 1.3 1.1 4.2 4.7 5.1 19.7 18.9 17.8 680 41.2 3.0

Oil & Natural Gas Corporation 269 BUY 2,299,723 44,952 8,556 33.7 35.2 36.8 36.5 4.5 4.6 8.0 7.6 7.3 3.4 2.9 2.5 1.4 1.2 1.1 4.5 4.5 4.7 17.3 16.1 15.1 325 20.9 23.2

Petronet LNG 165 SELL 123,600 2,416 750 14.9 13.6 11.8 83.4 (8.2) (13.6) 11.1 12.1 14.0 7.8 8.4 7.8 3.2 2.6 2.2 1.8 1.8 1.8 31.1 22.5 16.2 140 (15.0) 6.5

Reliance Industries 742 REDUCE 2,212,349 43,244 2,981 61.3 56.1 58.1 (1.1) (8.5) 3.7 12.1 13.2 12.8 6.1 6.5 5.7 1.2 1.1 1.0 1.1 1.1 1.1 11.7 9.7 9.3 800 7.8 84.7

Energy Neutral 7,195,796 140,653 15.3 3.8 2.3 9.3 9.0 8.8 5.1 4.6 4.1 1.3 1.2 1.1 2.3 3.0 3.3 14.4 13.5 12.6

Industrials

ABB 819 SELL 173,447 3,390 212 11.7 22.7 24.9 291.5 94.5 9.7 70.1 36.0 32.8 46.5 23.4 21.0 6.7 5.8 5.0 0.4 0.4 0.4 9.9 17.3 16.4 515 (37.1) 2.0

BGR Energy Systems 363 REDUCE 26,218 512 72 29.4 27.2 33.4 (34.4) (7.4) 22.7 12.4 13.4 10.9 6.4 5.6 5.3 2.4 2.1 1.8 1.6 1.5 1.8 20.5 16.5 17.8 260 (28.4) 11.0

Bharat Electronics 1,502 REDUCE 120,152 2,349 80 88.3 116.1 124.8 (17.7) 31.5 7.4 17.0 12.9 12.0 11.0 5.6 4.3 2.1 1.9 1.7 1.7 1.7 1.7 13.1 15.5 14.8 1,500 (0.1) 2.1

Crompton Greaves 139 ADD 88,848 1,737 642 6.4 10.3 12.3 (55.2) 60.0 19.8 21.6 13.5 11.3 10.5 7.4 6.1 2.5 2.1 1.9 1.0 1.1 1.3 12.0 17.0 17.7 170 22.7 9.0

Cummins India 485 REDUCE 134,553 2,630 277 21.6 25.9 29.8 (2.9) 19.8 15.3 22.5 18.8 16.3 20.3 16.0 13.4 6.5 5.7 5.0 2.1 2.6 3.0 29.7 31.2 31.5 475 (2.1) 3.0

KEC International 66 BUY 16,852 329 257 6.7 8.1 10.0 (16.5) 21.6 22.8 9.8 8.1 6.6 6.8 5.9 4.8 1.5 1.3 1.1 2.0 1.9 2.3 16.2 17.2 18.2 65 (0.8) 0.5

Larsen & Toubro 1,298 REDUCE 790,500 15,452 609 78.1 85.1 96.4 15.4 8.9 13.3 16.6 15.3 13.5 11.5 10.3 9.3 2.5 2.2 1.9 1.1 1.1 1.1 16.5 15.3 15.0 1,380 6.3 74.9

Maharashtra Seamless 379 BUY 26,752 523 71 42.1 46.8 50.9 (12.6) 11.0 8.8 9.0 8.1 7.5 5.1 4.3 3.5 1.0 0.9 0.8 2.2 2.5 2.7 11.1 11.5 11.6 460 21.3 0.2

Siemens 770 SELL 262,163 5,124 340 22.3 27.9 31.4 (12.7) 25.5 12.4 34.6 27.6 24.5 22.0 17.4 15.3 5.9 5.1 4.4 0.6 0.7 0.8 18.2 19.7 19.1 550 (28.6) 3.1

Suzlon Energy 24 REDUCE 42,591 833 1,746 (0.9) 3.8 4.2 (85.7) (539.2) 12.4 (28.3) 6.5 5.7 7.7 5.2 4.7 0.7 0.6 0.6 0.8 0.8 0.8 (2.2) 9.7 10.0 32 31.1 20.7

Tecpro Systems 188 ADD 9,464 185 50 28.2 24.4 27.6 4.3 (13.5) 13.4 6.7 7.7 6.8 5.4 5.3 4.6 1.2 1.1 1.0 — — — 19.7 15.0 15.2 220 17.3 0.3

Thermax 470 REDUCE 56,006 1,095 119 33.3 33.1 36.3 5.4 (0.7) 9.7 14.1 14.2 12.9 9.4 9.1 7.8 3.5 3.0 2.6 2.0 1.9 2.0 27.4 22.9 21.5 500 6.4 1.4

Voltas 121 ADD 40,086 784 331 7.5 8.4 9.0 (23.0) 11.9 6.9 16.1 14.4 13.5 11.0 9.4 8.0 2.6 2.4 2.1 1.9 2.1 2.3 17.2 17.4 16.7 125 3.1 11.2

Industrials Cautious 2,428,537 47,469 11.2 11.7 3.6 15.5 13.9 13.4 10.3 9.1 8.5 2.7 2.3 2.0 1.4 1.4 1.4 17.3 16.7 15.2

Infrastructure

Adani Port and SEZ 134 ADD 269,834 5,274 2,017 5.6 7.3 11.2 22.1 31.3 53.2 24.1 18.3 12.0 17.7 13.2 10.1 5.3 4.3 3.3 0.7 1.1 1.4 23.8 25.8 31.2 160 19.6 4.8

Container Corporation 949 ADD 123,299 2,410 130 71.0 77.5 86.3 5.0 9.2 11.4 13.4 12.2 11.0 8.6 7.3 6.0 2.2 1.9 1.7 1.7 1.9 2.1 17.4 16.7 16.5 1,100 16.0 1.7

GMR Infrastructure 29 RS 112,685 2,203 3,892 (0.8) (0.2) 0.8 131.2 (77.8) (564.2) (37.2) (167.3) 36.0 13.6 11.3 7.2 1.0 1.0 0.9 — — — (4.0) (0.9) 4.2 — — 6.0

Gujarat Pipavav Port 58 ADD 24,651 482 424 1.4 2.5 2.9 (212.6) 85.7 16.8 43.0 23.2 19.8 16.0 12.7 10.5 3.1 2.7 2.4 — — — 10.4 13.0 13.7 65 11.7 0.3

GVK Power & Infrastructure 17 RS 26,926 526 1,579 1.0 0.3 2.6 1.6 (73.4) 861.1 17.1 64.3 6.7 16.6 19.6 7.5 0.8 0.8 0.7 1.8 2.1 4.7 4.6 1.2 11.1 — — 8.6

IRB Infrastructure 191 ADD 63,614 1,243 332 11.9 15.2 13.3 (12.9) 27.9 (12.3) 16.1 12.6 14.4 9.2 7.7 7.0 1.8 1.5 1.3 — — — 13.1 13.0 9.8 190 (0.7) 9.2

Infrastructure Cautious 621,009 12,139 5.7 30.4 52.1 26.4 20.3 13.3 13.7 11.2 8.1 2.1 1.9 1.6 0.7 0.9 1.2 7.9 9.3 12.4

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Media

DB Corp 210 BUY 38,480 752 183 11.2 13.5 16.6 (20.7) 20.6 23.3 18.8 15.6 12.6 11.0 9.1 7.4 4.1 3.6 3.3 1.9 2.8 4.8 23.0 24.5 27.4 300 42.9 0.1

DishTV 62 BUY 66,172 1,293 1,063 (0.7) 0.5 1.7 (62.6) (176.1) 240.3 (93.3) 122.6 36.0 14.4 11.0 8.3 (807.3) 144.5 28.8 — — — (260.1) 287.2 133.5 80 28.5 9.0

Eros International 191 BUY 18,525 362 97 15.8 19.6 21.7 34.2 24.2 10.3 12.1 9.7 8.8 8.6 6.2 5.5 2.2 1.8 1.5 — — — 20.4 20.5 18.3 270 41.3 1.7

Hindustan Media Ventures 143 BUY 10,491 205 73 9.0 10.6 12.7 23.3 17.8 19.5 15.9 13.5 11.3 9.1 6.9 5.4 2.4 2.1 1.9 0.7 1.4 2.8 16.1 16.5 17.5 190 32.9 0.1

HT Media 135 ADD 31,740 620 235 7.5 9.3 13.0 (2.4) 23.9 39.7 18.0 14.5 10.4 8.9 6.6 4.4 2.0 1.9 1.7 1.5 3.0 4.4 11.9 13.6 17.5 160 18.6 0.2

Jagran Prakashan 101 BUY 31,831 622 316 6.5 7.8 9.3 (5.3) 21.6 18.3 15.6 12.8 10.8 8.5 7.3 6.1 4.1 3.6 3.2 3.5 4.0 5.0 27.6 30.0 31.5 150 49.0 0.4

Sun TV Network 298 ADD 117,456 2,296 394 18.5 21.4 25.2 (5.4) 15.9 17.8 16.1 13.9 11.8 9.5 8.3 7.1 4.4 4.1 3.8 3.7 4.7 5.7 30.2 32.2 35.1 390 30.9 6.0

Zee Entertainment Enterprises 130 BUY 126,698 2,477 978 6.1 7.4 9.2 3.9 22.6 24.2 21.3 17.4 14.0 14.4 11.4 9.0 2.9 2.8 2.7 1.0 1.2 1.4 14.0 16.5 19.7 160 23.6 4.0

Media Attractive 441,392 8,628 4.1 26.8 26.1 21.5 16.9 13.4 11.1 9.1 7.3 3.8 3.5 3.2 1.8 2.4 3.1 17.8 20.7 23.7

Metals & Mining

Coal India 336 ADD 2,125,141 41,539 6,316 23.4 26.9 32.2 35.1 14.9 19.9 14.4 12.5 10.4 8.8 7.6 5.8 4.8 3.9 3.1 2.1 2.4 2.9 37.3 34.1 33.0 380 12.9 29.8

Hindalco Industries 126 REDUCE 241,277 4,716 1,915 17.2 16.0 16.6 34.3 (6.6) 3.5 7.3 7.9 7.6 6.5 6.3 5.6 0.8 0.7 0.6 1.2 1.2 1.2 10.8 9.2 8.8 135 7.1 35.8

Hindustan Zinc 125 ADD 529,393 10,348 4,225 12.7 14.7 16.7 8.8 16.0 13.2 9.9 8.5 7.5 5.9 4.1 3.0 2.0 1.7 1.4 2.0 2.0 2.0 21.8 21.4 20.4 150 19.7 2.8

Jindal Steel and Power 507 REDUCE 473,363 9,253 934 40.9 46.1 57.8 1.7 12.7 25.4 12.4 11.0 8.8 9.2 8.5 6.2 2.7 2.2 1.7 0.3 0.3 0.3 24.1 21.8 22.1 530 4.6 25.0

JSW Steel 688 SELL 155,375 3,037 226 32.3 77.7 94.8 (58.9) 140.5 22.0 21.3 8.8 7.3 5.5 6.0 5.6 0.9 0.8 0.8 1.5 1.5 1.5 14.1 9.9 11.1 680 (1.1) 43.8

National Aluminium Co. 59 SELL 152,186 2,975 2,577 3.2 3.7 4.3 (23.9) 15.8 18.2 18.7 16.1 13.6 9.0 7.1 5.3 1.3 1.3 1.2 2.5 2.5 2.5 7.2 8.0 9.0 53 (10.2) 1.1

Sesa Goa 187 ADD 162,218 3,171 869 33.0 48.3 36.8 (32.2) 46.6 (23.9) 5.7 3.9 5.1 5.0 5.2 7.3 1.1 0.8 0.7 2.2 2.2 2.2 17.4 22.9 14.5 220 17.9 21.3

Sterlite Industries 106 ADD 355,447 6,948 3,361 13.5 15.2 18.3 (11.0) 12.4 20.8 7.8 7.0 5.8 3.7 3.0 2.1 0.8 0.7 0.6 1.9 1.9 1.9 10.5 10.8 11.8 132 24.8 28.5

Tata Steel 460 ADD 446,606 8,730 971 27.8 58.4 80.4 (63.1) 110.4 37.6 16.6 7.9 5.7 7.8 6.0 4.9 1.1 1.0 0.9 2.6 2.6 2.6 7.1 13.4 16.3 525 14.2 64.7

Metals & Mining Cautious 4,641,005 90,716 (1.8) 18.6 16.9 11.4 9.6 8.2 7.0 6.0 4.9 1.9 1.6 1.4 1.9 2.0 2.2 16.3 16.7 17.0

Pharmaceutical

Apollo Hospitals 617 ADD 85,741 1,676 139 17.4 20.8 27.3 31.4 19.6 31.4 35.5 29.7 22.6 15.8 13.6 10.7 3.4 3.0 2.7 — — — 10.3 10.5 12.4 680 10.2 2.6

Biocon 243 ADD 48,580 950 200 16.4 19.5 20.5 (10.6) 18.9 5.2 14.8 12.4 11.8 8.1 6.6 5.8 2.2 1.9 1.7 — — — 15.3 16.4 15.6 260 7.0 4.9

Cipla 311 REDUCE 249,387 4,875 803 14.1 17.7 20.0 14.2 25.8 12.8 22.1 17.5 15.5 17.3 13.2 11.6 3.3 2.9 2.6 1.0 1.1 1.3 15.6 17.4 17.2 315 1.4 10.7

Cadila Healthcare 722 SELL 147,767 2,888 205 31.1 37.1 44.9 (10.5) 19.4 21.1 23.2 19.4 16.1 18.1 13.7 11.4 5.6 4.6 3.8 0.9 1.0 1.2 26.4 25.8 25.7 670 (7.2) 1.9

Dishman Pharma & chemicals 51 REDUCE 4,185 82 81 5.1 8.3 10.2 (48.6) 64.7 22.6 10.2 6.2 5.0 7.3 5.5 4.8 0.5 0.4 0.4 — — — 4.6 7.2 8.4 50 (2.8) 0.4

Divi's Laboratories 757 BUY 100,423 1,963 133 37.4 46.4 55.8 15.6 24.1 20.1 20.2 16.3 13.6 15.7 11.5 9.5 4.8 4.0 3.4 — — — 25.4 26.8 27.2 935 23.5 2.9

Dr Reddy's Laboratories 1,751 REDUCE 297,584 5,817 170 90.7 106.9 110.4 39.7 17.8 3.3 19.3 16.4 15.9 12.6 10.4 9.8 5.0 4.0 3.3 0.7 0.8 0.9 29.3 27.1 22.6 1,740 (0.6) 12.3

GlaxoSmithkline Pharmaceuticals (a) 2,211 SELL 187,257 3,660 85 74.3 82.8 94.6 8.8 11.5 14.2 29.8 26.7 23.4 21.6 17.9 15.4 9.7 9.0 8.1 2.0 2.6 2.6 32.4 35.0 36.6 1,930 (12.7) 1.5

Glenmark Pharmaceuticals 309 REDUCE 83,504 1,632 270 19.9 22.4 25.9 17.6 12.2 15.7 15.5 13.8 11.9 19.0 11.2 9.6 3.3 2.7 2.2 — — — 23.6 21.5 20.5 315 2.0 3.1

Jubilant Life Sciences 193 REDUCE 30,681 600 159 16.9 29.5 35.7 17.3 74.1 21.3 11.4 6.5 5.4 8.1 6.5 5.5 1.2 1.1 0.9 1.0 1.6 2.1 16.3 18.0 18.6 180 (6.5) 0.3

Lupin 539 ADD 241,777 4,726 448 23.0 27.5 32.5 19.4 19.5 18.5 23.5 19.6 16.6 18.6 14.5 11.9 5.8 4.6 3.8 0.6 0.8 1.0 27.8 26.6 25.5 550 2.0 7.1

Ranbaxy Laboratories 497 SELL 209,560 4,096 422 19.9 30.4 23.3 (50.9) 52.3 (23.1) 24.9 16.4 21.3 15.8 11.6 14.4 5.1 3.9 3.3 — — — 17.4 27.4 16.9 380 (23.5) 7.1

Sun Pharmaceuticals 559 ADD 579,056 11,319 1,036 23.4 25.6 28.6 33.2 9.8 11.4 23.9 21.8 19.6 17.3 14.4 12.3 4.6 3.8 3.2 0.7 0.9 1.1 23.1 21.2 20.0 600 7.3 10.8

Pharmaceuticals Attractive 2,265,502 44,283 9.3 20.4 7.4 21.7 18.0 16.8 15.0 11.7 11.5 3.3 2.8 3.1 0.7 0.9 1.0 15.4 15.8 18.5

Property

DLF 206 ADD 353,116 6,902 1,715 9.7 12.7 16.9 6.5 31.5 33.1 21.3 16.2 12.2 14.2 11.5 8.8 1.3 1.2 1.1 1.2 1.4 1.7 6.1 7.6 9.5 260 26.2 46.2

Housing Development & Infrastructure 86 BUY 37,772 738 441 19.4 29.8 30.9 (2.1) 53.6 3.6 4.4 2.9 2.8 6.1 4.5 4.1 0.4 0.3 0.3 1.2 1.8 2.3 8.4 11.6 10.8 130 51.8 46.5

Indiabulls Real Estate 67 RS 26,749 523 402 8.5 15.4 17.6 114.1 81.5 14.1 7.8 4.3 3.8 9.8 4.3 3.4 0.2 0.2 0.2 0.8 1.1 — 2.9 5.0 5.4 — — 9.9

Mahindra Life Space Developer 323 BUY 13,190 258 41 26.7 32.2 32.1 6.9 20.8 (0.3) 12.1 10.0 10.1 8.1 6.4 6.5 1.2 1.1 1.0 1.4 1.5 1.7 10.2 11.2 10.3 405 25.3 0.5

Oberoi Realty 280 BUY 92,359 1,805 330 14.9 26.4 42.6 (5.0) 77.3 61.3 18.8 10.6 6.6 13.8 6.6 4.1 2.5 2.0 1.6 0.5 0.9 1.1 13.9 21.1 27.2 300 7.1 0.7

Phoenix Mills 207 BUY 29,961 586 145 7.4 10.7 11.5 17.2 44.1 7.9 27.9 19.4 17.9 20.2 15.1 14.4 1.8 1.7 1.6 1.0 1.0 1.0 6.6 8.9 9.0 300 45.0 0.3

Puravankara Projects 72 REDUCE 15,367 300 213 7.4 9.5 16.3 33.2 29.4 71.0 9.8 7.6 4.4 13.0 10.7 4.5 0.9 0.9 0.7 2.1 2.8 3.5 9.9 11.8 17.9 80 11.1 0.1

Sobha Developers 316 BUY 31,013 606 98 15.6 25.7 32.8 (17.2) 65.3 27.6 20.3 12.3 9.6 14.8 9.4 7.6 1.6 1.4 1.3 1.1 1.3 1.4 7.9 12.0 13.8 340 7.5 1.4

Unitech 28 RS 74,303 1,452 2,616 1.5 2.0 2.4 (35.3) 34.7 20.8 18.9 14.0 11.6 16.2 11.2 8.7 0.6 0.5 0.5 0.7 1.1 1.1 3.3 4.0 4.2 — — 16.0

Property Cautious 715,365 13,983 12.4 45.0 27.5 14.9 10.2 8.0 12.3 8.7 6.7 1.0 0.9 0.8 1.1 1.3 1.5 6.4 8.5 9.7

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HCL Technologies 498 REDUCE 353,793 6,915 710 32.0 37.4 42.9 40.1 16.9 14.7 15.6 13.3 11.6 9.2 8.1 6.9 3.2 2.7 2.3 1.6 1.6 1.6 22.3 21.9 21.6 475 (4.7) 9.5

Hexaware Technologies 118 ADD 34,765 680 294 9.1 10.7 11.7 207.9 17.3 9.7 13.0 11.1 10.1 11.5 7.8 6.7 3.4 2.9 2.4 2.5 2.7 3.0 26.9 28.0 25.8 110 (7.1) 5.3

Infosys 2,823 ADD 1,620,259 31,670 574 143.8 169.2 191.3 20.1 17.7 13.1 19.6 16.7 14.8 13.2 10.7 9.2 5.2 4.3 3.6 1.6 1.8 2.1 28.9 28.3 26.8 3,100 9.8 66.8

Mahindra Satyam 79 REDUCE 93,139 1,821 1,176 8.7 8.1 8.8 106.3 (6.5) 8.1 9.1 9.8 9.0 6.6 5.2 4.5 3.4 2.5 2.1 — — 2.2 45.7 29.7 25.3 80 1.0 11.1

Mindtree 506 ADD 20,825 407 41 50.5 53.9 61.7 104.5 6.8 14.3 10.0 9.4 8.2 6.8 5.2 4.5 2.2 1.9 1.6 1.0 3.2 3.7 23.9 21.5 21.4 540 6.7 1.2

Mphasis 407 SELL 85,754 1,676 211 39.0 35.9 35.2 (24.6) (8.1) (1.8) 10.4 11.3 11.6 8.7 7.7 7.3 2.2 1.9 1.7 1.1 1.2 1.4 22.8 17.9 15.3 350 (14.0) 2.9

Polaris Financial Technology 160 REDUCE 15,957 312 100 21.7 24.0 24.0 12.5 10.4 0.2 7.4 6.7 6.7 3.1 2.4 2.1 1.3 1.1 1.0 2.4 2.6 2.7 19.2 18.2 15.9 145 (9.4) 1.5

TCS 1,164 REDUCE 2,278,377 44,534 1,957 53.2 63.9 72.1 19.4 20.1 12.8 21.9 18.2 16.2 15.3 12.6 11.1 7.3 5.9 4.8 1.6 1.9 2.2 36.7 35.6 32.8 1,180 1.4 39.5

Tech Mahindra 713 SELL 89,825 1,756 126 74.7 80.7 90.8 55.5 8.0 12.6 9.5 8.8 7.9 10.6 8.7 8.0 2.3 2.0 1.8 0.6 1.4 1.5 27.0 25.5 25.4 680 (4.6) 3.9

Wipro 439 ADD 1,077,429 21,060 2,454 22.7 27.1 31.2 5.1 19.5 15.1 19.4 16.2 14.1 13.2 10.7 9.1 3.8 3.2 2.7 1.1 1.4 1.6 21.3 21.5 20.9 460 4.8 11.5

Technology Attractive 5,735,983 112,119 18.4 16.8 12.8 18.9 16.1 14.3 13.0 10.7 9.3 4.8 4.0 3.4 1.5 1.7 2.0 25.5 24.8 23.6

Telecom

Bharti Airtel 330 ADD 1,252,259 24,477 3,798 12.8 20.8 25.5 (19.9) 62.9 22.7 25.8 15.9 12.9 7.8 6.1 5.1 2.5 2.2 1.9 — — 0.8 9.9 14.7 15.7 390 18.3 44.0

IDEA 98 ADD 324,219 6,337 3,303 2.1 4.6 7.0 (22.2) 118.5 52.3 46.4 21.2 13.9 8.9 6.7 5.4 2.6 2.3 2.0 — — — 5.7 11.6 15.4 100 1.9 8.9

MTNL 27 RS 17,105 334 630 (9.1) (8.4) (8.3) (11.9) (8.1) (1.7) (3.0) (3.2) (3.3) 0.2 0.3 0.3 0.2 0.2 0.2 — — — (5.7) (5.5) (5.8) — — 2.6

Reliance Communications 83 SELL 171,312 3,349 2,064 3.9 1.0 3.9 (39.7) (73.5) 270.5 21.1 79.5 21.5 7.8 6.6 5.6 0.4 0.4 0.4 — — — 2.0 0.6 2.0 60 (27.7) 31.0

Tata Communications 223 REDUCE 63,455 1,240 285 (27.0) (26.6) (23.6) 8.4 (1.4) (11.2) (8.2) (8.4) (9.4) 8.6 7.7 7.1 2.5 4.1 9.3 — — — (25.1) (37.0) (60.3) 215 (3.4) 1.8

Telecom Neutral 1,828,349 35,738 (27.5) 66.7 39.1 36.5 21.9 15.7 8.1 6.4 5.3 1.6 1.5 1.4 — — 0.5 4.4 6.9 8.8

Utilities

Adani Power 72 SELL 171,233 3,347 2,393 2.3 8.1 6.4 (4.3) 259.1 (21.1) 31.7 8.8 11.2 22.8 6.5 6.2 2.3 1.8 1.6 — — — 7.9 23.2 15.1 60 (16.1) 13.2

CESC 272 BUY 34,033 665 125 32.1 39.9 55.0 (17.9) 24.4 37.7 8.5 6.8 5.0 6.7 6.4 3.4 0.7 0.6 0.6 1.5 1.7 1.9 8.2 9.4 11.7 400 46.8 1.6

JSW Energy 59 REDUCE 96,350 1,883 1,640 1.6 2.3 2.3 (69.5) 44.8 1.5 37.6 25.9 25.5 18.2 8.4 7.7 1.7 1.6 1.5 — — — 4.5 6.3 6.0 43 (26.8) 5.0

Lanco Infratech 19 BUY 41,348 808 2,223 0.8 0.9 1.7 (48.7) 3.0 95.0 22.0 21.3 10.9 10.2 8.6 6.6 0.8 0.8 0.7 — — — 3.9 3.7 6.7 33 77.4 21.8

NHPC 20 BUY 246,015 4,809 12,301 2.0 2.2 2.4 49.2 7.2 10.3 9.9 9.3 8.4 10.3 7.4 6.5 0.9 0.8 0.8 2.7 2.9 3.3 9.0 9.1 9.4 29 45.0 2.7

NTPC 163 REDUCE 1,344,423 26,279 8,245 11.4 12.2 16.6 4.1 7.6 35.5 14.3 13.3 9.8 12.8 11.0 8.5 1.8 1.6 1.5 2.1 2.3 3.1 13.0 12.9 15.9 175 7.3 8.7

Reliance Infrastructure 580 BUY 153,934 3,009 265 65.3 71.4 72.3 12.5 9.4 1.2 8.9 8.1 8.0 7.4 8.2 7.3 0.6 0.6 0.5 1.8 1.9 1.9 11.7 8.9 8.4 890 53.3 41.2

Reliance Power 118 SELL 330,444 6,459 2,805 2.6 2.9 2.4 (5.3) 13.5 (17.2) 45.9 40.5 48.9 63.2 27.0 19.8 1.9 1.8 1.7 — — — 4.2 4.5 3.6 76 (35.5) 25.9

Tata Power 100 BUY 247,451 4,837 2,468 4.9 8.7 7.4 (36.3) 77.6 (14.9) 20.6 11.6 13.6 9.0 7.8 7.4 1.8 1.6 1.5 1.5 1.7 1.7 8.4 14.5 11.2 125 24.7 11.8

Utilities Cautious 2,665,231 52,096 (1.1) 21.9 16.5 15.8 12.9 11.1 12.7 9.6 8.0 1.5 1.3 1.2 1.6 1.7 2.1 9.2 10.4 11.1

Others

Carborundum Universal 156 REDUCE 29,098 569 187 11.6 11.7 13.1 26.6 1.0 12.0 13.5 13.3 11.9 7.7 7.4 6.5 2.8 2.4 2.0 1.6 1.6 1.8 25.9 22.0 20.8 150 (3.6) 0.2

Havells India 576 ADD 71,852 1,404 125 30.4 36.1 41.1 23.8 19.0 13.8 19.0 15.9 14.0 12.1 10.0 8.7 7.1 5.1 3.8 0.5 0.5 0.6 44.1 37.1 31.1 600 4.2 4.6

Jaiprakash Associates 82 BUY 175,007 3,421 2,126 6.4 8.1 11.9 6.2 26.1 47.3 12.9 10.2 6.9 10.9 8.5 6.5 1.5 1.3 1.1 — — — 12.0 13.6 17.4 97 17.9 34.0

Jet Airways 331 SELL 28,584 559 86 (233.8) (33.8) (29.1) 2,225.0 (86) (13.9) (1.4) (9.8) (11.4) (164.9) 10.7 10.2 (6.8) (4.0) (3.0) — — — — — — 280 (15.4) 19.0

SpiceJet 27 BUY 11,806 231 441 (8.7) 1.9 2.3 (450.3) (122.1) 18.7 (3.1) 13.8 11.7 (8.2) 11.7 8.5 19.3 8.1 4.8 — — — (202) 82.1 51.3 45 68.2 2.5

Tata Chemicals 340 REDUCE 86,592 1,693 255 32.9 38.8 42.3 25.4 17.9 9.0 10.3 8.8 8.0 5.4 4.6 3.9 1.4 1.2 1.1 3.5 4.4 5.0 18.6 19.5 19.4 365 7.4 2.3

United Phosphorus 134 ADD 61,720 1,206 462 11.8 17.9 21.9 (4.4) 51.5 22.3 11.3 7.5 6.1 5.3 4.3 3.6 1.5 1.3 1.1 2.2 2.6 3.4 14.5 19.0 — 150 12.2 5.2

Others 464,658 9,082 (67.1) 326.9 30.8 49.7 11.6 8.9 11.3 7.7 6.3 1.9 1.7 1.5 1.1 1.3 1.6 3.9 14.7 16.5

KS universe (b) 46,079,350 900,691 9.2 17.0 12.8 14.4 12.3 10.9 9.0 7.6 6.6 2.2 1.9 1.7 1.6 1.9 2.1 15.0 15.5 15.5

KS universe (b) ex-Energy 38,883,554 760,038 7.4 21.3 15.7 16.0 13.2 11.4 10.7 8.7 7.4 2.4 2.1 1.9 1.5 1.7 1.8 15.2 16.1 16.5

KS universe (d) ex-Energy & ex-Commodities 32,949,064 644,040 8.8 22.0 15.7 17.0 13.9 12.0 11.9 9.5 8.2 2.5 2.2 2.0 1.4 1.6 1.8 15.0 16.0 16.5

Notes:

(a) For banks we have used adjusted book values.

(b) 2010 means calendar year 2009, similarly for 2011 and 2012 for these particular companies.

(c) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector.

(d) Rupee-US Dollar exchange rate (Rs/US$)= 51.16

Dividend yield (%)



Disclosures

Kotak Institutional Equities Research coverage universeDistribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of December 31, 2011

Percentage of companies covered by Kotak Institutional Equities, within the specified category.

Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment banking services within the previous 12 months.

* The above categories are defined as follows: Buy = We expect this stock to deliver more than 17.5% returns over the next 12 months; Add = We expect this stock to deliver 7.5-17.5% returns over the next 12 months; Reduce = We expect this stock to deliver 0-7.5% returns over the next 12 months; Sell = We expect this stock to deliver less than 0% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. These ratings are used illustratively to comply with applicable regulations. As of 31/12/2011 Kotak Institutional Equities Investment Research had investment ratings on 167 equity securities.

13.2%

42.5%

26.9%

17.4%

6.6%4.2%

2.4% 3.0%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions of ratings

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our target prices are also on a 12-month horizon basis.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

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Copyright 2012 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and

2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment.

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India Daily, April 10, 2012 · Reinitiate coverage with a SELL rating and a target price of Rs230...

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