Motilal Pharma 18Aug10

8/8/2019 Motilal Pharma 18Aug10

1/43

0August 2010

India Strategy

Jun-10 Review

Aggregate PAT up 24%, in line

1% upgrade in FY11 Sensex EPS

FY10-12 Sensex EPS CAGR 24%


2/43

1August 2010

INDIA STRATEGY: June-10 Results Review

Aggregate performance in line with estimatesFor MOSL Universe (ex oil marketing companies), Net sales grew 27% (est 27%), EBITDA grew26% (est 23%), and PAT grew 24% (est 22%). Banking sector was a key growth driver.

Sensex performance has been in lineSensex performance was in line, with aggregate PAT growth of 25% (est 26%); EBITDA growthwas 26% (est 25%).

Breadth of earnings performance is neutral46 companies in our Universe reported higher than estimated PAT; 47 reported lower thanestimated PAT. On the EBITDA front, 39 companies surpassed our estimate while 39 fell short.

Large caps performance is a mixed bagTata Motors, BHEL, State Bank, Sun Pharma, SAIL, LIC Housing and Bank of India performedbetter than expected. Disappointments came from ABB, Jaiprakash Associates, Tata Steel,Maruti Suzuki, JSW Steel, Sterlite Inds., NTPC, Godrej Consumer, ACC, Infosys.

1% upgrade in FY11E Sensex EPS to Rs1,067; FY10-12E CAGR of 24%

Also refer our June-10 Qtr Preview


3/43

2August 2010

June-10 Quarter Results ReviewA) Aggregate performance in line with estimates

For MOSL Universe (ex oil marketing companies), Net sales grew 27% (est 27%), EBITDA grew 26% (est 23%), and PAT grew24% (est 22%). Banking sector was a key growth driver.

46 companies in our Universe reported PAT higher than estimate, 29 in line and 47 below estimate. On the EBITDA front, 39companies reported above estimate, 44 in line and 39 below estimate.

B) Sector performance: Banks lead growth; Oil & Gas, Utilities significantly below estimates

Among large sectors, Banks, Automobile, Real Estate PAT were above estimates, whereas Engineering, FMCG, IT were in line.

Sectors where both EBITDA and PAT growth were disappointing: Oil & Gas (PAT de-growth of 81% vs est de-growth of 25%) andUtilities (PAT de-growth of 13% vs est de-growth of 1%).

C) Sensex performance in line; sales up 30% (est 30%), PAT up 25% (est 26%)

6 companies reported higher than estimated PAT; 13 fell short.

Companies that surpassed estimates on all parameters Tata Motors, BHEL, ITC, State Bank.

Companies that fell short of expectations on all parameters Maruti Suzuki, Sterlite, Jaiprakash Associates, Tata Steel, NTPC,Reliance Infra .

D) Best and worst performing companies

Companies that reported very strong and above estimated earnings were: Tata Motors, Bank of India, Titan Industries, Unitech,LIC Housing, SAIL, Sesa Goa, Sun Pharma, BHEL, SBI.

Companies that reported weak and below estimated earnings were: ABB, Jaiprakash Associates, Tata Steel, Maruti Suzuki, JSWSteel, Sterlite Inds., NTPC, Godrej Consumer, ACC, Infosys.


4/43

3August 2010

June-10 Quarter - Key sectoral highlights

AUTOS: While volume growth remain strong at 32.5%, higher RM cost push resulted in EBITDA margin declineof 90bp QoQ (~120bp YoY) and PAT decline of 7.7% QoQ (~25.4% YoY growth). While Tata Motors surprisedpositively on margins, all other companies disappointed. As a result, Tata Motors estimates are upgraded 58%for FY11 and 42% for FY12 due to high visibility of superior performance at JLR.

BANKS: Banking sector PAT performance was above expectations led by strong core operating performance

by state owned banks. Among PSU banks, BoI, Canara and SBI profitability was better than estimates due tohigher than estimate margins and better than expected asset quality. Broadly, performance of private banks waslargely in line with estimate (with exception being ICICI Bank, 7% lower than est). For large banks (except ICICIBank), loans grew above industry growth of ~20% YoY.

CEMENT: Subdued volume growth at 3.8%, coupled with higher than estimated cost push (on account ofenergy and freight cost) negated positive surprise on realizations (~Rs4/bag QoQ improvement). As a result,EBITDA/ton (~Re1/bag QoQ improvement) was in line but aggregate PAT was below our estimate. Our FY12EPS has witnessed downgrade of 1-8% across the sector including ~6% for UTCEM and ~7.6% for ICEM.

ENGINEERING: Order intake for the sector improved 13% YoY. Revenue growth was muted at 10%, but 150bp

margin improvement led to a healthy 19% YoY growth in PAT.

FMCG: Volume growth sustained across segments, value growth has started increasing except in segments likelaundry and shampoo. Sectoral PAT growth was 12.7% versus an estimated 7.6% mainly due higher marginson account of cost control and lower ad spends. ITC, Nestle, Asian Paints, GSK Consumer and Colgate havebeen outperformers, while Britannia, Godrej Consumer and United Spirits underperformed.


5/43

4August 2010

June-10 Quarter - Key sectoral highlights (continued)

IT: Growth performance was in line, TCS and HCL Tech outperformed. Wage inflation and cross currencyimpacts led to decline in margins (except Wipro). Increased supply pressure was key concern. Outlook ofimproved growth on strong demand traction but pressure on margins. TCS upgraded; downgrades in mid-cap(Patni, Tech Mahindra).

METALS: Sector PAT was below our estimates led by lower steel sales volumes, and fall in LME prices despite

higher than expected increase in steel realization. EBITDA was largely in line with exception of Tata Steel andSterlite. SAIL was best performer with Cons PAT 24% above estimates due to higher realization per ton ofsaleable steel.

OIL & GAS: Except ONGC and GAIL, EBITDA for other companies was below estimates led by lower GRMand no govt. compensation to oil PSUs. GAIL was above estimate led by lower than expected subsidy burden.Clarity on complete diesel de-regulation, subsidy rationalization expected over coming months.

PHARMA: Generics PAT was above estimate led by Ranbaxy turnaround, better operational performance &licensing / technology income. CRAMS PAT was below estimate due to muted topline performance andadverse product mix.

TELECOM: Traffic growth for GSM incumbents remained strong (10-13% QoQ) for second consecutivequarter. RPM pressure has reduced which is a structural positive. 1QFY11 results were broadly inline at therevenue/EBITDA level; reported PAT was dragged by forex loss and one-offs.

UTILITIES: NTPCs earnings were impacted given lower incentives (base effect, planned outages) and treasuryyields. Tata Power, PGCIL, CESC reported numbers in-line with estimates. Merchant realizations declined ~7-30% YoY, impacting profitability.


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5August 2010

MOSL Universe: June-10 Quarter Performance (Rs b)


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6August 2010

Sensex Performance: Actual v/s Estimates

1QFY11 sales growth of 30%;Sectors with strong growth

were Autos, Banking and Metals

Sensex EBITDA growth 26%;5 companies outperformed;

11 disappointed

TREND IN SENSEX SALES GROWTH (%): ACTUAL V/S ESTIMATES

TREND IN SENSEX EBITDA GROWTH (%): ACTUAL V/S ESTIMATES

29

44

303031

19

-3

-12

-3

11

29

1916

1117

2825 26 22

32

20

-7

-15

4

32

3836373230

33

22

30

-8

1 Q F Y 0 7

2 Q F Y 0 7

3 Q F Y 0 7

4 Q F Y 0 7

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1

Estimates Actual YoY

26

1

-9

37

2023

42

2625

39

24

-4-8

212123

1418

12

2531

22

29

-3-8

-14

1723

282622

3125

-9

1 Q

F Y 0 7

2 Q

F Y 0 7

3 Q

F Y 0 7

4 Q

F Y 0 7

1 Q

F Y 0 8

2 Q

F Y 0 8

3 Q

F Y 0 8

4 Q

F Y 0 8

1 Q

F Y 0 9

2 Q

F Y 0 9

3 Q

F Y 0 9

4 Q

F Y 0 9

1 Q

F Y 1 0

2 Q

F Y 1 0

3 Q

F Y 1 0

4 Q

F Y 1 0

1 Q

F Y 1 1



8/43

7August 2010

1QFY11 Sensex PAT was in line with estimate. 6 Sensex companies beat estimates,while 11 lagged estimates. Companies that reported significantly better numbers

than our estimates were Tata Motors, BHEL, ITC, State Bank .

TREND IN SENSEX PAT GROWTH (%): ACTUAL V/S ESTIMATES

Sensex Performance: Actual v/s Estimates

17

26

43

33

-17-17

-6

171521

141618

3328

2322

-15

25

40

15

-11

2024

1917

26303031

-20 -17-17

33

1 Q F Y 0 7

2 Q F Y 0 7

3 Q F Y 0 7

4 Q F Y 0 7

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1



9/43

8August 2010

Sensex Companies Performance


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9August 2010

June-10 Quarter Results: The Best & The Worst (large caps)


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10August 2010

June-10 Quarter Results: The Best & The Worst (mid caps)


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11August 2010

Highest Earnings Upgrade/Downgrade


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12August 2010

Sensex Companies EPS Upgrade/Downgrade


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13August 2010

Sensex EPS Upgrade of 1%; CAGR of 24% till FY12

TREND IN FY11E SENSEX EPS REVISION TREND IN FY12E SENSEX EPS REVISION

EARNINGS GROWTH REVIVAL FROM FY11 AFTER FY08-10 GROWTH HOLIDAY

820

1263

825

1067

718

348216

81

278291250129 181

266 280 272236

450523

833

F Y 9 3

F Y 9 4

F Y 9 5

F Y 9 6

F Y 9 7

F Y 9 8

F Y 9 9

F Y 0 0

F Y 0 1

F Y 0 2

F Y 0 3

F Y 0 4

F Y 0 5

F Y 0 6

F Y 0 7

F Y 0 8

F Y 0 9

F Y 1 0

F Y 1 1 E

F Y 1 2 E

FY93-96: 45%CAGR FY96-03: 1% CAGR

FY03-08: 25%CAGR

FY08-10E:-0.5% CAGR

FY10-12: 24% CAGR

10421067

10521076

980

1028

1103

10.5 16.4 26.1 32.1 29.5 27.9 29.4

Mar-09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Aug 10

FY11 EPS % Grow th Revision in FY11 EPS

EPS growth YoY (%)

1276

1295

1308

1263

18.421.324.321.6

Dec 09 Mar 10 Jun 10 Aug 10

FY12 EPS % Grow th Revision in FY12 EPS

EPS growth YoY (%)


15/43

14August 2010

June-10 Quarter Results: Deviation from Est. (Companies)

PAT DEVIATION (122 COMPANIES)EBITDA DEVIATION (122 COMPANIES)

On the EBITDA front, 39 companies surpassed estimates while 39 fell short.

On the PAT front, 46 companies surpassed estimates while 47 fell short.

AboveEstimate

32%

BelowEstimate

32%

In Line36%

AboveEstimate

38%

Below

Estimate39%

In Line24%


16/43

15August 2010

June-10 Quarter Results: Deviation from Est. (Sectors)EBITDA DEVIATION (SECTORS) VARIANCE (%) PAT DEVIATION (SECTORS) VARIANCE (%)

(41)

(15)

(6)

(5)

8

7

5

3

1(1)

(1)

(3)

25

22

12

10

-50 -35 -20 -5 10 25 40

Oil & Gas

Utilities

Textiles

Cement

Infra

Metals

ITEngg

Media

FMCG

Telecom

Banking

Auto

Real Estate

Pharma

Retail

(75)

(33)

(13)

(12)

(9)

5

3

(0)

(1)(5)

(7)

50

22

18

12

5

-100 -75 -50 -25 0 25 50 75

Oil & Gas

Infra

Telecom

Utilities

Metals

Cement

TextilesIT

Media

Pharma

Engg

FMCG

Banking

Auto

Real Estate

Retail


17/43

16August 2010

Comparison of Earnings Based on Growth Rates

Breadth of earnings neutral

46 companies in our Universe reportedhigher than estimated PAT; 47 reportedlower than estimated PAT. On the EBITDAfront, 39 companies surpassed ourestimate while 39 fell short.

Proportion of companies with negativeearnings growth has decreased from32% to 31% during this period.

57% of companies in MOSL Universewith earnings contribution of 68% havereported earnings growth of 15%+.

Another 12% of the MOSL Universe with

earnings contribution of 5% havereported earnings growth of under 15%.

31% of the MOSL Universe with earningscontribution of 27% have reportedearnings de-growth.


18/43

17August 2010

1QFY11 Results Review: Sectoral ContributionSECTORAL CONTRIBUTION TO EBIDTA (%) 1QFY11

SECTORAL CONTRIBUTION TO PAT (%) 1QFY11

Banking (26%), and Oil & Gas(14%) are the biggest

contributors to EBITDAfor 1QFY11

Banking (27%), and Metals

(16%) are the biggestcontributors to PAT

for 1QFY11

Retail, 0.1

Utilities, 5.8

IT, 7.0Auto, 7.2

FMCG, 4.0

Pharma, 3.4

Cement, 3.1

Engg, 2.6Real Estate, 1.7

Infra, 1.1Media, 0.9Textiles, 0.8

Telecom, 7.4Metals, 14.4

Oil & Gas, 14.5

Banking, 25.6

Banking, 26.7

Metals, 15.6

IT, 10.8Auto, 8.7

Textiles, 0.4

Infra, 0.5

Media, 1.0

Real Estate, 1.9

Engg, 3.6

Cement, 3.7

Pharma, 3.9

Telecom, 4.7Utilities, 6.6 Oil & Gas, 6.0 FMCG, 5.5

Retail, 0.2


19/43

18August 2010

June-10 Quarter Sector Margins: Actual v/s Estimates


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19August 2010

MOSL Model Portfolio


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20August 2010

S e c t o r

S n a p s h o t s


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21August 2010

AUTO: Margins disappoint; multiple headwinds in near term

2,000

2,600

3,200

3,800

4,400

1QFY08 3QFY08 1QFY09 3QFY09 1QFY10 3QFY10-20%

0%

20%

40%

60%Industry ('000 units) Growth (%)

Summary

Volumes grew 32% YoY (4.3% QoQ) for the industry in

1QFY11, with growth across all segments.

RM cost increase (~140bp QoQ) was partly offset by priceincreases and higher operating leverage, translating into90bp QoQ decline in EBITDA margin and PAT decline of7.7% QoQ (~25.4% YoY growth).

Mixed bag for earnings: EPS upgrade for Tata Motors(+58%) and Bajaj Auto(+2%), but downgrade in Maruti(-13%) and Hero Honda (-6.6%).

Short-run demand could be impacted due to multipleheadwinds in form of increasing cost of ownership (priceincreases and hardening interest rates) and cost ofoperations (increase in fuel prices). Forex and commodityprice volatility could impact profitability.

Top Picks: M&M and Bajaj Auto.

MARGINS SOFTEN FROM HIGHER LEVELSVOLUME GROWTH CONTINUES TO BE ROBUST

MARGINS DECLINE 90BP QOQ

2,827

3,5593,947 4,1181%

37% 40%32%

4QFY09 3QFY10 4QFY10 1QFY11

Industry ('000 units) Grow th (%)

6

9

12

15

18

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1

55

60

65

70

75EBITDA Margin (%) RM Cost (% of sales)


23/43

22August 2010

BANKING: Strong core operating performance

Industry: Strong loan growth of 22% YoY partially led bylower base of last year and funding opportunity towards

3G and BWA. However, deposits growth was muted at15% YoY resulting into CD ratio improving to 73.4% vs72.2% a quarter ago. PNB, HDFC Bank and BoB grewloans higher than sequential industry growth.

While deposits growth is under pressure, CASA growthremains strong leading to lower cost of funds. Our sector

universe CASA grew 30% YoY and deposits 16% YoY.

Aggregate NII grew 6% QoQ (vs est 3% decline) led bybetter than expected performance on NIMs. On a lowerbase, NII grew 40% YoY. Sharp improvement in NIMwitnessed for BOI at 32bp QoQ and SBI at 22bp QoQ.Sharpest fall in NIM witnessed for Axis Bank (38bp QoQ).

Performance on asset quality is better than expectation.For our coverage universe GNPA increased by 6% QoQ.

Some banks have shown improving signs on upgradation andrecoveries. Biggest surprise came from BoI and OBC where GNPA

remained stable QoQ.

Fee income growth disappointed, except SBI, fees for all large PSUbanks grew single digit YoY. Even for private banks, fee incomegrowth was lower than loan growth. SBIs performance on fees standsout.

Core Operating Profit was up 61% YoY On a lower base. For PSUbanks it grew 74% YoY. SBI, BoB and OBC lead the pack .Overallresults were better than expected with PAT growth of 28% YoY for ourcoverage universe.

We expect margins to remain robust in FY11 as banks are offsettingthe impact of rising deposit rates by increasing their BPLR. Ourconcerns over asset quality are abating with uptick in economicgrowth.

Top Picks: SBI, ICICI Bank, HDFC Bank, BoB and Union Banklarge caps. Andhra, Indian, Federal Bank in mid caps.


24/43

CEMENT Di i i hi h i EBITDA


25/43

24August 2010

CEMENT: Disappointing as higher cost restricts EBITDA recovery

41.6 40.944.4

41.644.7 46.1

49.046.1

50.355.4

49.853.2

38.8

7.6%

10.7%

6.8% 7.4%9.2%

10.8%9.4% 10.0%

6.9%9.3%9.2%

6.3%

12.2%

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1

Despatches (MT) Grow th (%)

Summary

Volumes were lower than estimates with 3.8% YoY growth

in 1QFY11. Cement realizations were above estimateswith Rs4/bag QoQ improvement.

However, EBITDA/ton was in line with 2.3% QoQimprovement (~24.4% YoY decline) to Rs1,020/ton, asincrease in realizations was diluted by energy and freightcost inflation.

Higher cost push has led to downgrade of 1-8% in ourFY12 EPS. UltraTech has seen ~6% downgrade, whereasIndia Cement has seen ~7.6% downgrade.

Volume growth disappointed in 1QFY11 and is expected at~8% till Dec-10 with pick-up from 4QFY11. This coupledwith excess capacities would keep cement prices underpressure at least till 3QFY11.

Top Picks: ACC, UltraTech and Birla Corp

1QFY11 INDUSTRY VOLUME GROWTH SLOWED DOWN TO 6.9%

HIGHER COST RESTRICTS EBITDA/TON IMPROVEMENT (RS/TON)

RS4/BAG QOQ IMPROVEMENT IN REALIZATIONS

1 , 0 0 8

1 , 0 8 6

8 8 0

9 5 9

9 8 0

1 , 1 3 7

1 , 1 2 9

1 , 0 4 7

1 , 0 3 4

9 1 4

8 8 3 1

, 2 9 7

1 , 2 5 3

3,6023,510

3,439

3,7673,7493,535

3,460

3,5043,4313,322

3,272

3,3173,153

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1

EBITDA Realization

CONSTRUCTION I i i l i


26/43

25August 2010

CONSTRUCTION: Initial improvements

ORDER INTAKE (RS B): MORE THAN DOUBLES YoY EXECUTION REMAINS SLUGGISH IN 1QFY11 (% YoY)

Summary

Order intake growth more than doubled YoY primarilydriven by IVRCL Rs51b and NCC Rs32b. In-houseprojects for IVRCL stood at Rs30b.

EBIDTA margins for the sector stayed at 11.2% whichexpanded 40bp YoY mainly on the back of lowercommodity prices.

Despite poor execution, interest cost as percentage ofrevenues declined 40bp YoY and stood at 3.8% in1QFY11.

Top Picks: NCC, Simplex

PAT GROWTH (% YoY) : STRONG FOR HCC AND SIMPLEX

-200

20406080

100120140160180200

1 Q F Y 0 7

2 Q F Y 0 7

3 Q F Y 0 7

4 Q F Y 0 7

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1

HCC IVRCL NCC Patel Simplex 4 8

. 3 %

2 7 . 7

% 3 5 . 8 %

3 4 . 2

% 3 6

. 7 % 4

4 . 3 %

3 8 . 5

%

3 6 . 6

%5 4

. 5 %

4 1 . 7

%

2 2 . 3

%

1 4 . 2

% 1 6

. 4 %

2 . 6 %

1 3 . 4

%

1 2 . 2 %

4 1 . 4

%

1 QF Y 0 7

2 QF Y 0 7

3 QF Y 0 7

4 QF Y 0 7

1 QF Y 0 8

2 QF Y 0 8

3 QF Y 0 8

4 QF Y 0 8

1 QF Y 0 9

2 QF Y 0 9

3 QF Y 0 9

4 QF Y 0 9

1 QF Y 1 0

2 QF Y 1 0

3 QF Y 1 0

4 QF Y 1 0

1 QF Y 1 1

ENGINEERING: Revenues sluggish; OPMs strong


27/43

26August 2010

ENGINEERING: Revenues sluggish; OPMs strong

ORDER INTAKE (RS B): INTAKE UP 13% YoY REVENUEGROWTH OF 10% YoY vs FY10 AT 13%

Summary

Order intake for the sector in 1QFY11 improved 13% YoYat Rs316b. Crompton (up 58% YoY), L&T (up 63% YoY)while BHEL had a 14% YoY decline.

Margins at 12.5% up 150bp YoY, BHELs adj margins up434bp YoY to 15%. L&T and Crompton witness marginexpansion of 153bp and 76bp, respectively. ABB and

Siemens margin impacted given forex MTM, one-offs, etc.

Revenue growth for 1QFY11 at 10% is below our FY11revenue growth of 19% for the sector which leaves a lot ofroom for growth to catch up in 2HFY11E.

Top Pick: BHEL

BHEL/L&T/CG/ ABOVE EST; ABB BELOW EST

0

125

250

375

500

1 QF Y 0 7

2 QF Y 0 7

3 QF Y 0 7

4 QF Y 0 7

1 QF Y 0 8

2 QF Y 0 8

3 QF Y 0 8

4 QF Y 0 8

1 QF Y 0 9

2 QF Y 0 9

3 QF Y 0 9

4 QF Y 0 9

1 QF Y 1 0

2 QF Y 1 0

3 QF Y 1 0

4 QF Y 1 0

1 QF Y 1 1

ABB BHEL Crompton Greaves Larsen & Toubro Siemens

33% 33%30%

17%

33%30%

22%

27%

11% 9%

3%

23%

10%

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1

FMCG V l th t d t t l t i d li


28/43

27August 2010

FMCG: Volume growth steady, cost control arrests margin decline

VOLUME GROWTH MOMENTUM SUSTAINED IN 1QFY11

Summary

Volume growth momentum continued in 1QFY11 as well, however value growth was muted for most companies on account offewer price increases.

Companies are optimistic of the volume growth in coming quarters as normalcy of monsoons augurs well for rural demand anddecline in inflation will boost demand from urban lower sections.

HULs volume growth stood at 10.3% (10.9% volume growth in 4QFY10); ITCs cigarette volumes de-grew ~3%.

Our FMCG universe reported 16.2% sales growth and 13.8% EBITDA growth. PAT increased 13.5%.

Top Picks: We continue to prefer players with niche presence in categories with low competitive intensity.ITC, Nestle and Marico are our preferred bets.

SELECTIVE PRICE HIKES, COST CONTROL MAINTAIN MARGINS

IT: Supply pressures; Margins decline on wage inflation


29/43

28August 2010

2.9%

3.9%

6.3%

5.1%4.8%

5.2%

6.8% 6.4%

3.1%3.1%3.2%

5.8%

3.5%3.4%

7.7%

3.8%

Sep 09 Dec 09 Mar 10 Jun-10

Infosys TCS Wipro HCLT

IT: Supply pressures; Margins decline on wage inflationSummary

TCS, HCL Tech grew better than estimates

Supply side pressures worsened with historical high attrition atInfosys, elevated attrition at Wipro; least impact on TCS.

Wage inflation led to reduced EBITDA margins (exceptWipro); Infosys margins declined most

Infosys results was below estimates; revenue growthguidance was positive but EPS outlook disappointed; HCL

Tech led growth in volumes and revenues; Wipro performedbest on margins. TCS operational results exceeded estimates

Expect US$ revenue CAGR for top-4 IT players of 19.3-23.2%over FY10-12 and EPS CAGR of 12.6-18.4% for top-3 and29% at HCL.

Top Picks: Infosys, HCL Tech, Mphasis and Fintech

1QFY11: ACTUAL VS ESTIMATE

INCREASED ATTRITION ACROSS COMPANIES, LEAST IN TCS

TCS AND HCL TECH LEADS US$ REVENUE GROWTH EBITDA MARGINS DIP ON WAGE INFLATION, CROSS CURRENCY

EBITDA M argin QoQ Change (bp)

47

(236)

57

(180)(129)

89

(148)

14899

30

(68)(17)

(121)

30 20

(105)

Sep 09 Dec 09 Mar 10 Jun-10

Infosys TCS Wipro HCLT

IT Guidance and Outlook: Infosys and HCL Tech more positive


30/43

29August 2010

IT Guidance and Outlook: Infosys and HCL Tech more positive

Infosys Outlook: Revenue guidance positive but pressureon margins

FY11 US$ revenue guidance of 19-21% key positive

EBITDA margin guidance of 150bp decline on wageinflation and currency impact (guidance at INR/US$ of46.45 vs 44.5 earlier)

FY11 EPS guidance of 7.1% YoY (top end) despiteassumed INR depreciation indicates margin pressure

Gross addition target: 36,000 people (30,000 earlier)Wipro Outlook: Margins to stay in narrow band, pressure

on elevated attrition

Revenue growth guidance of 4.1%-6.1% in 2QFY11 v/s4.1-5.1% for Infosys positive

To maintain margins within the narrow band hereon

Margin pressures on RSU charges and promotion impactsof mid to senior level employees

Risk on high attrition and low util. cushion in a high FPP(44.6%) and increased contract staff scenario

TCS Outlook: Strong volume growth, to sustain marginson aggressive cost control

Strong volume growth on broad-based demand

Gross hiring target of 40,000 people (30,000 earlier)

Possible back-ended pricing increase on continuedtraction in overall demand and discretionary spend

Continued cost management aggression but limited scopeon SGA and utilization

HCL Tech Outlook: Broad based demand traction, wagehikes to impact margins

Strong deal pipeline across verticals; BFSI seeingexpansion within existing customers

Margins headwinds in 1QFY11 on wage inflation

BPO EBITDA losses of ~US$5m per quarter to continuefor the next 4-5 quarters

Flattish to marginal growth outlook in EAS in 1QFY11 onmoving key projects offshore

QoQ grow th (%) Revenue Volume Realization/MixInfosys 4.8 6.9 -2.0TCS 6.4 8.1 -1.7Wipro 3.2 4.7 -1.5HCL Tech 7.7 10.5 -2.8

Note: Realization is in reported currency

1QFY11 REVENUE BREAK-UP

TOP TIER IN LINE, EXCEPT UPGRADE IN TCS;DOWNGRADES IN MID-CAP (PATNI AND TECH MAHINDRA)

MEDIA: Strong momentum driven by advertising


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30August 2010

MEDIA: Strong momentum driven by advertising

Actual Est Var (%) Actual Est Var (%)Sun TV 4,404 4,065 8 3,599 3,278 10ZEEL 6,770 6,631 2 1,870 2,081 -10Jagran Prakashan 2,698 2,573 5 902 846 7Deccan Chronicle 2,318 2,305 1 1,199 1,159 3HT Media 4,042 3,774 7 799 755 6

Ne t Sale s (Rs m ) EBITDA (Rs m )Summary

Advertising growth remains strong - ZEEL reported 35-40%(like-to-like) ad revenue growth while Sun reported 44%.

ZEEL revenue was broadly in line but EBITDA was belowestimates due to losses in sports business.

All print media companies posted strong numbers; robust adrevenue growth and newsprint contracts/inventory at lowercost offset the impact of higher newsprint prices.

We expect continued traction in ad revenue momentum. DTHremains a growth driver for subscription revenue ofbroadcasters. Potential sunset clause on analog broadcastingwould be a positive though TRAI recommendations of lowerpricing per subscriber is an overhang. Increasing newsprintcost remains a concern for print media stocks.

Top Picks: Zee, Deccan Chronicle

PRINT: EBITDA (RS M) ABOVE ESTIMATES TRACTION IN DTH REVENUE CONTINUES (RS M)

YOY AD REVENUE GROWTH (%)

1QFY11: ACTUAL VS ESTIMATES

4435

2218

7

SunTV ZEEL HT Media Jagran Deccan

1 1 0

1 4 2 2

3 03 5

8 3 6 0 4 0 0 4 4

0 6 3 0 6 8

0

2 4 9

2 7 1

2 8 3 3

8 1 4 6 7 5

1 4 5 8 2 6

5 3 7 1 0

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1

Sun TV ZEEL

7 0 5 1

, 0 5 9

6 9 1 8 3

2 1 , 3 8 7

6 4 6

6 5 3

1 , 2 6 6

7 4 6

6 3 3 8 1

3 9 2 9

9 0 2 1 ,

1 9 9

7 9 9

Jagran Prakashan Dec can Chronicle HT Media

1QFY10 2QFY10 3QFY10 4QFY10 1QFY 11

METALS: Muted volumes higher rise in QoQ steel realizations


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METALS: Muted volumes, higher rise in QoQ steel realizationsSummary

Steel realizations for key producers increased 8-15% QoQ as

steel prices moved up on the back of raw material cost push.

Steel sales volumes fell more sharply (QoQ 18-30%) due tosharp increase in cheaper imports during the quarter.

Margins have contracted QoQ on higher raw material costsdespite higher sales realization as expected.

Revenues and margins of non-ferrous companies declined dueto QoQ decline in LME prices, while costs remained high.

Mid-cap steel companies performance was subdued due toshortage of iron ore and teething problems of pellet plantscommissioned during earlier quarters.

Top Picks: JSW Steel, Hindalco (large caps); Bhushan,Prakash and Adhunik (mid-caps).

1QFY11 PERFORMANCE SNAPSHOT

STEEL: EBITDA PER TON (US$/TON)STEEL: REALIZATIONS MOVED UP QOQ (US$/TON)

Net Sales EBITDA Adj PAT

Rs b YoY (%) Rs b YoY (%) Rs b YoY (%)Tata Steel 271.9 17 44.3 -na- 18.9 -na-

JSW Steel 46.8 20 10.3 22 3.4 255

SAIL 93.2 2 18.4 20 11.8 -11

Nalco 13.1 40 3.9 135 2.8 125

Hindalco* 51.8 33 8.3 35 5.3 58

Sterlite 59.7 30 15.0 47 8.6 28

Hind Zinc 19.7 31 10.2 33 8.9 24

Sesa Goa 24.1 139 15.5 242 13.8 226

Note: Hindalco numbers are standalone

0

100

200

300

400

500

600

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1

TATA SAIL JSW

500

750

1,000

1,250

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1

TATA SAIL JSW

OIL & GAS: GRM decline QoQ; Petchem margins mixed


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32August 2010

OIL & GAS: GRM decline QoQ; Petchem margins mixedSummary

Deregulation: Total in petrol, in-principle for diesel;subsidy sharing clarity awaited: Govt freed Petrol pricescompletely and hiked prices of Diesel (5%), Kero (33%) andLPG (11%) reducing under-recoveries by 28% for FY11 at oilprice of US$75/bbl. Upstream (ONGC, OIL & GAIL) shared1/3 rd of total under-recoveries while OMCs (HPCL, BPCL &IOC) bore 67% due to no compensation from govt. Clarity onactual sharing to come in 2HFY11.

GRM declined QoQ, expect to remain subdued: BenchmarkSingapore GRM at US$3.7/bbl was down QoQ fromUS$4.9/bbl in 4QFY10. Though QTD 2QFY11 GRMs haverecovered to US$4.5/bbl, we expect them to remain subdued.

Mixed trend in petchem margins: Though polymer marginsdeclined QoQ, polyester margins were best in last 6 quarters.Expect margin pressure led by supplies from new capacities inMiddle East and China.

RIL KG-D6 ramp-up halted after sharp increase in FY10:KG-D6 gas production after reaching 60mmscmd in 12months, will not increase further for next 1.5 years as RIL willbe conducting reservoir studies. RILs E&P margins continuedto remain low in 1QFY11 led by high depletion charges.

Gas Sector reforms picking up: Govt hiked long awaitedAPM gas price by 113% to US$4.2/mmbtu (in line with RILsKG-D6 price) and ONGC C-series price to US$5.25/mmbtu.

Cairn production reaches 100kbpd: Rajasthan productionreached 100kbpd in July 2010; on track to reach 125kbpd by4QCY10 and 175kbpd in 2012.

Top Picks: ONGC, GAIL, HPCL, BPCL, IOC

SINGAPORE GRM DOWN SEQUENTIALLY IN 1QFY11

1QFY11: ACTUAL VS ESTIMATE

-5

0

5

10

15

20

1QF08 3QF08 1QF09 3QF09 1QF10 3QF10 1QF11

Singapore GRM RIL HPCL IOC RIL Premium (RHS)

OIL & GAS: KG-D6 growth halted; ONGCs D D&A lower sequentially


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33August 2010

OIL & GAS: KG D6 growth halted; ONGC s D,D&A lower sequentiallyUPSTREAM SHARED 33% OF TOTAL UNDER RECOVERIES;GOVERNMENT YET TO GIVE ITS SHARE TO OMCs ONGC: D,D&A CHARGES MODERATED SEQUENTIALLY

PETCHEM MARGINS UNDER PRESSURE DUE TO INCREASEDSUPPLY FROM ME AND CHINA

2.2 2.6 3.0 1.6 2.42.7 2.5 2.0 2.2 2.4 2.7 2.6 2.9

0.80.9 0.9

1.0 0.70.9 0.7

0.9 0.6 0.60.7 0.8 0.80.4

0.8 0.63.9

1.4 0.8 1.34.0

2.3 1.4

5.5 5.4

2.01.1

0.7 1.2

3.6

2.40.8 1.6

2.5

1.80.6

1.4 1.3

1.4

0

4

8

12

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

FY08 FY09 FY10 FY11

Depletion Depreciation Dry Wells Survey Others

KG-D6 RAMP-UP HALTED AFTER SHARP RISE IN FY10 (MMSCMD)

0

10

20

30

40

50

60

70

1 Q F Y 0 5

3 Q F Y 0 5

1 Q F Y 0 6

3 Q F Y 0 6

1 Q F Y 0 7

3 Q F Y 0 7

1 Q F Y 0 8

3 Q F Y 0 8

1 Q F Y 0 9

3 Q F Y 0 9

1 Q F Y 1 0

3 Q F Y 1 0

1 Q F Y 1 1

PVC PP PE PSF POY

0

10

2030

40

50

60

70

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

1 Q F Y 1 1 E

2 Q F Y 1 1 E

3 Q F Y 1 1 E

4 Q F Y 1 1 E

PHARMA Generics do better than CRAMS


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34August 2010

PHARMA Generics do better than CRAMSSummary

Topline below est/in-line except for Biocon, Cadila, Lupinand Sun Pharma. US & emerging markets key drivers forgenerics. Muted performance in CRAMS.

EBITDA below est/in-line except for Biocon, Cadila,Lupin, Ranbaxy & Sun.

Generics: Adj PAT above est led by Ranbaxyturnaround, better operational performance & licensing / technology income. DRL, Glenmark disappoint.

CRAMS: Adj PAT below estimate due to muted toplineperformance and adverse product mix. PHLs PAT wasimpacted by lower domestic formulation and CRAMS.

Top Picks: Cipla, Lupin, & Divis Labs

KEY PLAYERS ESTIMATE VS ACTUALS

REAL ESTATE: Above estimates due to better realization


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35August 2010

REAL ESTATE: Above estimates due to better realization

Results above expectation: Volumes for 1QFY11 werestrong and above our estimates. Net profit was also above

our estimates, primarily due to higher volumes and betterthan expected margins. Realizations across key assetclasses were also ahead of our estimate. Unitech, Anant Rajand HDIL reported EBITDA above estimate, while DLF,Mahindra Lifespaces and Phoenix Mills were in line.

Commercial recovery picking momentum : DLF achievednet leases of 0.93msf in offices and sales of 0.5msf in thecommercial vertical during 1QFY11. Phoenix Mills has alsowitnessed a steady response for its retail assets. Unitech isevaluating a possible offer for Unitech Corporate Park toleverage on recovery underway in the commercial officesvertical.

Net DER for the sector increased marginally: While

Unitech has reduced its net DER during 1QFY11, DLFsgross debt/equity is almost at 0.9x, while its net debt/equity is0.79x, primarily due to repayment of CCP worth Rs28.9b. Themanagement has indicated the figure to reach its pick during2QFY11 on further repayment.

IBREL upgraded from Under Review to Buy: During1QFY11, we have upgraded IBREL to Buy. Key investmentarguments behind this re-rating are: Several key concernswith regard to over capitalization and lack of operationalvisibility on the core real estate business have beenaddressed since FY10, due to 1) successful deployment ofsurplus cash and 2) steady sales and execution progressacross projects. Strong ongoing recovery in the commercialvertical is also a key positive.

DLF: INCREASE IN NET DEBT-EQUITY RATIO CONCERNING

Variance in Anant Raj is due to higher than expected sales momentum in recently launchedprojects in Kapasera and Manesar

Variance in HDIL is due to higher than expected TDR sales (1.1msf v/s est 0.6msf)

EBITDA variance in UT is due to lower than expected booking of Prior period charge in 1QFY11

234217

172147

0.9

0.8

0.70.70.6

0.60.6

0.6


Gross Debt(Rsb) Gross Debt/Equity (x) Net Debt/Equity Ratio (x)

TELECOM: Signs of stability


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Summary

Traffic growth for GSM incumbents (Bharti, Idea,Vodafone) remained strong (10-13% QoQ) for secondconsecutive quarter. RCom reported muted traffic growthof 1% QoQ due to removal of free minutes.

RPM declined 4-6% QoQ for Bharti/Idea/Vodafone;RComs RPM increased ~1% QoQ thus bridging the gap

v/s GSM incumbents.

Bharti (ex -Africa), Idea (ex-Spice consolidation impact)and Vodafone India posted a robust 5-6% QoQ revenuegrowth. RCom reported first QoQ increase in wirelessnet revenue and EBITDA in four quarters.

At consolidated level, Bharti reported revenue ofRs122.3b, EBITDA of Rs45.1b, and net profit of Rs16.8bincluding consolidation of acquired Africa business for 23days (effective 8 th June 2010).

Higher spectrum charge impacted EBITDA margin by50-100bp. Ideas margins further impacted (110bp) onfull Spice consolidation.

Reported earnings dragged by forex loss (INRdepreciation).

Outlook: RPM pressure has reduced which is astructural positive though near-term growth could beimpacted by weak seasonality (in 2Q) and MNPimplementation (likely in 3Q). Despite recent run-up,sector valuation attractive at 7-7.5x FY12 EV/EBITDA.

QOQ WIRELESS TRAFFIC GROWTH (%)

Aug 2010 36

TELECOM: Signs of stabilityQUARTERLY FINANCIALS (CONSOLIDATED)

* Idea 4QFY10 numbers include one month consolidation with Spice; full merger for 1QFY11

1Q F Y 10 4 Q F Y 10 1Q F Y 11 Y oY (%) Qo Q ( %)

REVENUE (RS B)Bharti (IFRS, ex -A f ric a) 104 107 113 8 5 Idea* 30 33 37 23 9 RCOM 61 51 51 -17 0 Vodaf one - India (implied 54 57 60 12 6 EBITDA (RS B)Bharti (IFRS, ex-Af rica) 43 42 43 -1 2 Idea* 9 9 9 3 -4 RCOM 25 16 16 -33 2 EBITDA M ARGIN (%)Bharti ( IFRS, ex-Afr ica) 41.3 38.9 37.7 -356bp -119bp Idea* 28.9 27.6 24.3 -458bp -327bp RCOM 39.9 31.5 31.9 -797bp 49bp PAT (RS B)Bharti (IFRS, ex-Af rica) 25 20 19 -23 -7

Idea* 3 3 2 -32 -24 RCOM 17 11 3 -83 -74

3

14 13

1

5 5

1

9 10

2

7

13

10

15

6

10


Bharti Idea RCOM Vodafone-India

UTILITIES: Mixed bag, Merchant realization down


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37August 2010

1QFY11 EARNINGS NTPC, RELI PERFORMANCE IMPACTED DUE TO ONE-OFFS

KEY DEVELOPMENTS IN 1QFY11 MERCHANT REALISATION DOWN YOY (RS/UNIT)

Tata Power

Issued 14-15% of fresh equity in Coal SPV to Olympus Capital for USD300m

Added 18,000 new customers in distribution business

Reliance Infra Signed concession agreement for 2 road projects (total 240km) worth Rs41b

Sold 433MW of generation capacity for Rs10b to Rpower

CESC Spencer Retail operations break-even achieved at Store level

NTPC Merchant sale from 1.1GW Hydro project denied by GOI

Capacity addition target and capex taget maintained for FY11

PGCIL Investment approvals worth Rs46.5b which is 35% of total approval of FY10

PTC India In-principle approval from board for PFS IPO during current financial year

MOSL Universe: Annual Performance (Rs b)


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38August 2010

( )

MOSL Universe: Valuations


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39August 2010


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For information, please contact

Navin Agarwal, ACA, CFA

CEO - Institutional Equities

Tel: +91 22 39825450 Mobile: +91 98201 58913Email: [email protected]

Bloomberg: [email protected]

Rajat Rajgarhia, ACA, MBA

Director - Research

Tel: +91 22 39825441 Mobile: +91 98202 69614Email: [email protected]

Bloomberg: [email protected]

Motilal Oswal Securities Ltd , Hoechst House, Nariman Point, Mumbai 400 021

BOARD: +91 22 39825550 DEALING: +91 22 22811800 FAX: +91 22 22885038

BLOOMBERG: [email protected] WEBSITE: www.motilaloswal.com


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41August 2010

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any other person in any form.

The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it shouldnot be relied upon such. MOSt or any of its affiliates or employees shall not be in any way responsible for any loss or damage thatmay arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates oremployees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report,including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. Therecipients of this report should rely on their own investigations.

MOSt and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in thisreport. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however,not be treated as endorsement of the views expressed in the report.

This information is subject to change without any prior notice. MOSt reserves the right to make modifications and alternations to thisstatement as may be required from time to time. Nevertheless, MOSt is committed to providing independent and transparent

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