Q3FY13 Earnings Preview - Jan13

(Oct (Oct -- Dec 2012)Dec 2012)Earnings PreviewEarnings Preview

IDFC Securities Research(Dir) +91-22-6622 2600Email: [email protected]

January 2013

SEBI Registration Nos.: INB23 12914 37, INF23 12914 37, INB01 12914 33, INF01 12914 33.For Private Circulation only. Important

disclosures appear at the back of this report

January 2013 2

Q3FY13E earnings highlightsQ3FY13E earnings highlights

Our Q3FY13 Sensex earnings growth (ex-Financials, pending reinitiating coverage) stands at 5.3% yoy; Post inclusion of Bloomberg consensus estimates for financials in Sensex, the earnings growth stands at 8.6% yoy, compared to 5.2% yoy in Q2FY13

Our Q3FY13 Sensex earnings growth (ex-Financials, pending reinitiating coverage) stands at 5.3% yoy; Post inclusion of Bloomberg consensus estimates for financials in Sensex, the earnings growth stands at 8.6% yoy, compared to 5.2% yoy in Q2FY13

We estimate EBITDA margin for Sensex (ex-Financials) to remain flat with respect to comparable margin (15%) in Q2FY13; Margins of commodities stocks are expected to see compression of ~20bp yoy while non commodities (ex-Financials) are expected to report ~110bp

yoy margin compression

We estimate EBITDA margin for Sensex (ex-Financials) to remain flat with respect to comparable margin (15%) in Q2FY13; Margins of commodities stocks are expected to see compression of ~20bp yoy while non commodities (ex-Financials) are expected to report ~110bp

yoy margin compression

Top-line growth of Sensex (ex-Financials, pending reinitiating coverage) is expected at 9.6% yoy, Post inclusion of Bloomberg consensus estimates for financials in Sensex, the expected growth rate is 10%; Top-line growth of non-commodities (ex-Financials) remains robust at

15.4% yoy; Sectors like Pharmaceuticals (10.5% yoy), Consumer Goods (14% yoy) and Construction (14% yoy) are expected to report strong top-line growth;

Top-line growth of Sensex (ex-Financials, pending reinitiating coverage) is expected at 9.6% yoy, Post inclusion of Bloomberg consensus estimates for financials in Sensex, the expected growth rate is 10%; Top-line growth of non-commodities (ex-Financials) remains robust at

15.4% yoy; Sectors like Pharmaceuticals (10.5% yoy), Consumer Goods (14% yoy) and Construction (14% yoy) are expected to report strong top-line growth;

While commodities are expected to clock bottom-line growth of 11.4% yoy, earnings of non-commodities (ex-Financials) are likely to be muted at 2.2% yoy; While Consumer Goods (16.5% yoy) is expected to report strong earnings growth, Telecom (-16.3% yoy) and

Automobiles (-7.5%yoy) are expected to report weak bottom-line growth

While commodities are expected to clock bottom-line growth of 11.4% yoy, earnings of non-commodities (ex-Financials) are likely to be muted at 2.2% yoy; While Consumer Goods (16.5% yoy) is expected to report strong earnings growth, Telecom (-16.3% yoy) and

Automobiles (-7.5%yoy) are expected to report weak bottom-line growth

IDFC universe (ex-Financials) is expected to post a top-line growth of 7.5% yoy and bottom-line decline of 4.1% yoy in Q3FY13 due to yoydecline in PAT of Metals and Oil & Gas stocks ; EBITDA margins are expected to decline by ~120bp yoy to 14.6%

IDFC universe (ex-Financials) is expected to post a top-line growth of 7.5% yoy and bottom-line decline of 4.1% yoy in Q3FY13 due to yoydecline in PAT of Metals and Oil & Gas stocks ; EBITDA margins are expected to decline by ~120bp yoy to 14.6%

Our Sensex EPS (including Bloomberg consensus est for Financials) remains at Rs1188 (8% yoy) for FY13 and Rs1345 (13% yoy) for FY14Our Sensex EPS (including Bloomberg consensus est for Financials) remains at Rs1188 (8% yoy) for FY13 and Rs1345 (13% yoy) for FY14

3

Sensex earnings (exSensex earnings (ex--Financials) Financials) estest to be up by 5.3%yoyto be up by 5.3%yoy

Earnings of commodities are expected to grow 11.4% yoy due to Tata Steel (expected to report profit in Q3FY13 compared to reported loss in Q3FY12), which offsets the yoy decline in earnings of rest of the Metals stocks in Sensex; Among Oil & Gas stocks, 12.6% earnings growth in Reliance to offset earnings decline expected in GAIL (-13.4% yoy)

Non-commodities (ex-Financials) are expected to clock muted bottom-line growth of 2.2% yoy as earnings decline in Automobiles (-7.5% yoy) to offset growth in Consumer Goods (16.5% yoy)

Earnings of commodities are expected to grow 11.4% yoy due to Tata Steel (expected to report profit in Q3FY13 compared to reported loss in Q3FY12), which offsets the yoy decline in earnings of rest of the Metals stocks in Sensex; Among Oil & Gas stocks, 12.6% earnings growth in Reliance to offset earnings decline expected in GAIL (-13.4% yoy)

Non-commodities (ex-Financials) are expected to clock muted bottom-line growth of 2.2% yoy as earnings decline in Automobiles (-7.5% yoy) to offset growth in Consumer Goods (16.5% yoy)

(Rs m) Net Sales EBITDA Profit After Tax

Sector Q3FY13E Q3FY12 % chg yoy Q3FY13E Q3FY12 % chg yoy Q3FY13E Q3FY12 % chg yoy

Automobiles 503,562 454,518 10.8 63,817 64,170 (0.6) 32,725 35,366 (7.5)

Construction 143,783 125,987 14.1 14,390 12,088 19.0 9,467 8,924 6.1

Consumer goods 83,268 72,998 14.1 24,379 21,096 15.6 18,310 15,718 16.5

IT services 163,050 143,347 13.7 44,819 43,576 2.9 34,356 32,463 5.8

Metals 442,613 446,918 (1.0) 55,469 47,160 17.6 19,072 15,929 19.7

Oil & Gas 603,428 559,713 7.8 69,399 74,877 (7.3) 43,968 40,653 8.2

Pharmaceuticals 44,738 40,474 10.5 11,850 12,615 (6.1) 8,229 8,277 (0.6)

Power Equipment 38,964 36,918 5.5 6,533 6,599 (1.0) 4,700 5,014 (6.3)

Power Utilities 88,055 46,105 91.0 18,304 8,714 110.1 6,334 5,234 21.0

Telecoms 70,992 64,668 9.8 22,446 20,855 7.6 2,987 3,567 (16.3)

(Rs m) NII Pre-provisioning profit Profit After Tax

Financials * 135,446 116,246 16.5 113,481 92,048 23.3 63,549 53,215 19.4

Commodities 1,046,041 1,006,631 3.9 124,868 122,037 2.3 63,041 56,582 11.4

Non-commodities * 1,271,857 1,101,262 15.5 320,018 281,761 13.6 180,658 167,777 7.7

Sensex * 2,317,898 2,107,892 10.0 444,886 403,798 10.2 243,699 224,360 8.6

January 2013

* - Financials estimates from Bloomberg consensus, pending reinitiating coverage of the sector

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Slower topline growth trend continuesSlower topline growth trend continuesSensex revenue growth (ex-Financials) at 9.6% yoy

Overall top-line growth (excluding Financials, pending reinitiating coverage) is lower at 9.6% yoy (vs comparable 12.5% in Q2FY13) due to weak growth in commodities at 4%yoy (weak growth in Metals); Including Financials (Bloomberg Consensus estimate), Sensex topline to grow 10.% (lower than 12.8% in Q2FY13)

Top line growth in non-commodities (ex-Financials) to be led by Consumer Goods and Construction (both 14.1% yoy); Power Utilities to report 91% yoy growth led by low base effect in case of Tata Power (write off in Indonesian mining stake in Q3FY12)

Sensex revenue growth (ex-Financials) at 9.6% yoy

Overall top-line growth (excluding Financials, pending reinitiating coverage) is lower at 9.6% yoy (vs comparable 12.5% in Q2FY13) due to weak growth in commodities at 4%yoy (weak growth in Metals); Including Financials (Bloomberg Consensus estimate), Sensex topline to grow 10% (lower than 12.8% in Q2FY13)

Top line growth in non-commodities (ex-Financials) to be led by Consumer Goods and Construction (both 14.1% yoy); Power Utilities to report 91% yoy growth led by low base effect in case of Tata Power (write off in Indonesian mining stake in Q3FY12)

Sensex op. margin (ex-Financials) to decline 50bp yoy

EBITDA margins of Sensex companies (ex-Financials) expected to reduce by ~50bp yoy (flat qoq); Including Financials (Bloomberg Consensus estimate), Sensex EBITDA margins are expected to remain flat yoy

Sharp margin compression is expected in Pharma (down ~470bp yoy), IT Services (down ~290bp yoy) while margins are expected to improve in Consumer goods and Construction

Sensex op. margin (ex-Financials) to decline 50bp yoy

EBITDA margins of Sensex companies (ex-Financials) expected to reduce by ~50bp yoy (flat qoq); Including Financials (Bloomberg Consensus estimate), Sensex EBITDA margins are expected to remain flat yoy

Sharp margin compression is expected in Pharma (down ~470bp yoy), IT Services (down ~290bp yoy) while margins are expected to improve in Consumer goods and Construction

January 2013

EBITDA margin (%)

23.2 23.524.2

22.9 22.5

20.7 20.4 20.218.9

19.619.0 18.8 19.2

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Net sales grow th (%)

5.21.8

(2.3)

22.6

31.128.3

19.917.8

22.625.9

23.025.3

18.2 16.912.8

10.0

(7.9)-8

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Sensex earnings growth exSensex earnings growth ex--Financials at 5.3% Financials at 5.3% yoyyoy

Sensex earnings growth to be driven by Tata Steel (Q3FY13E PAT Rs1.4bn vs Q3FY12 loss Rs4bn) and Reliance (+12.6% yoy increase in PAT)

PAT margins for Sensex companies (ex-Financials) are expected to decline 35bp yoy (flat qoq) to 8.2%; however, including Bloomberg consensus estimates for Financials, Sensex PAT margins to remain flat qoq.

Sensex earnings growth to be driven by Tata Steel (Q3FY13E PAT Rs1.4bn vs Q3FY12 loss Rs4bn) and Reliance (+12.6% yoy increase in PAT)

PAT margins for Sensex companies (ex-Financials) are expected to decline 35bp yoy (flat qoq) to 8.2%; however, including Bloomberg consensus estimates for Financials, Sensex PAT margins to remain flat qoq.

Rolling quarter Sensex earnings growths

January 2013

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30%PAT (Rs bn) Sensex qoq profit grow th (RHS)

13.8

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32.528.4

9.7 7.9 8.24.2

16.7 14.5

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Sensex PAT grow th (%)

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Financials* and Oil & Gas to drive Sensex earningsFinancials* and Oil & Gas to drive Sensex earningsQ3FY13 sector-wise contribution to Sensex earnings (% yoy)

January 2013


Sector contributors to Sensex earnings

53.4

17.1 16.313.4

9.85.7

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Earnings growth of IDFC universe ex Financials to decline 4.1% Earnings growth of IDFC universe ex Financials to decline 4.1% yoyyoy(Rs m) Net Sales EBITDA Profit After Tax

Sector Q3FY13E Q3FY12 % chg yoy Q3FY13E Q3FY12 % chg yoy Q3FY13E Q3FY12 % chg yoy

Alcoholic Beverages 35,142 32,469 8.2 4,404 3,198 37.7 1,158 984 17.7

Automobiles 867,181 791,037 9.6 106,330 107,551 (1.1) 54,263 59,294 (8.5)

Cement 113,759 106,500 6.8 22,579 20,676 9.2 14,137 12,882 9.7

Construction 258,354 237,543 8.8 28,317 25,740 10.0 10,920 11,927 (8.4)

Consumer goods 215,966 187,562 15.1 51,646 44,558 15.9 38,119 32,988 15.6

Education 3,587 3,655 (1.9) 913 963 (5.2) 133 247 (46.1)

Engineering 74,457 71,475 4.2 8,140 5,585 45.7 6,493 4,723 37.5

Hospitals 23,160 13,194 75.5 3,103 2,119 46.4 959 940 2.0

Logistics 13,552 12,551 8.0 3,252 3,386 (4.0) 2,670 2,745 (2.7)

Infra Developers 158,118 135,261 16.9 36,574 30,304 20.7 4,655 11,065 (57.9)

IT services 513,606 441,578 16.3 127,805 112,581 13.5 96,831 83,064 16.6

Media 31,670 28,458 11.3 7,317 6,271 16.7 3,230 2,135 51.3

Metals 1,089,428 1,096,677 (0.7) 183,449 198,397 (7.5) 102,522 111,712 (8.2)

Oil & Gas 3,838,234 3,641,082 5.4 382,440 439,928 (13.1) 254,032 286,650 (11.4)

Others 42,098 39,226 7.3 7,381 6,979 5.8 2,487 1,824 36.3

Pharmaceuticals 179,837 169,849 5.9 42,075 43,641 (3.6) 24,113 20,282 18.9

Power Equipment 202,651 187,886 7.9 24,200 24,286 (0.4) 15,341 16,578 (7.5)

Power Utilities 387,098 297,512 30.1 77,299 57,114 35.3 28,909 27,634 4.6

Real Estate 39,750 38,186 4.1 15,270 15,242 0.2 6,031 8,005 (24.7)

Retail 69,485 60,784 14.3 5,822 5,088 14.4 2,124 1,868 13.7

Telecoms 313,931 287,314 9.3 97,225 89,563 8.6 14,086 14,552 (3.2)

(Rs m) NII Pre-provisioning profit Profit After Tax

Commodities 5,041,421 4,844,259 4.1 588,468 659,002 (10.7) 370,691 411,243 (9.9)

Non-commodities Ex Financials 3,429,645 3,035,539 13.0 647,072 584,169 10.8 312,523 300,854 3.9

IDFC Securities Ex Financials 8,471,066 7,879,798 7.5 1,235,540 1,243,171 (0.6) 683,213 712,098 (4.1)

January 2013

* - Financials estimates excluded, pending reinitiation coverage of the sector

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Sector Winners & LosersSector Winners & LosersWinners:

Consumer Goods: Price increases and improvement in gross margins will drive a 16% EBITDA growth for Consumer goods stocks in IDFC universe

Pharmaceuticals : Aided by continued strong growth in US, we expect steady growth in revenues (+17% yoy) for coverage universe,; Margins will also stay strong given the continued weakness in the rupee

Media: The ad environment has shown improvement in pockets, while the mandate on digitization has added strong momentum to the TV distribution segment

Winners:

Consumer Goods: Price increases and improvement in gross margins will drive a 16% EBITDA growth for Consumer goods stocks in IDFC universe

Pharmaceuticals : Aided by continued strong growth in US, we expect steady growth in revenues (+17% yoy) for coverage universe,; Margins will also stay strong given the continued weakness in the rupee

Media: The ad environment has shown improvement in pockets, while the mandate on digitization has added strong momentum to the TV distribution segment

Losers:

Automobiles : Despite pick-up in demand (led by festive season) and a non-festive base six of the eight companies in our coverage universe are expected to post earnings decline, similar to 2Q, due to various issues such as base effect and standalone loss (Tata Motors), margin contraction (Hero), higher tax rate (Bajaj)

Metals : Muted end-use demand , seasonal factors and higher threat of imports impacting realisations

Losers:

Automobiles : Despite pick-up in demand (led by festive season) and a non-festive base six of the eight companies in our coverage universe are expected to post earnings decline, similar to 2Q, due to various issues such as base effect and standalone loss (Tata Motors), margin contraction (Hero), higher tax rate (Bajaj)

Metals : Muted end-use demand , seasonal factors and higher threat of imports impacting realisations

January 2013

9

Sensex earnings growth* expected at 8.6% Sensex earnings growth* expected at 8.6% yoyyoy in FY13in FY13

Our Sensex EPS stands at Rs1188 for FY13 and Rs1345 for FY14

(% yoy) Net Sales EBITDA Profit After Tax

Sector FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

Automobiles 28.3 15.8 14.1 22.7 9.2 18.9 27.8 (7.4) 27.7

Construction 21.1 16.1 8.0 10.1 14.0 8.1 20.9 7.7 3.7

Consumer goods 15.3 17.4 16.7 20.4 20.6 19.6 23.3 21.6 18.5

Financial * 24.2 17.3 20.7 18.8 18.5 21.5 28.6 26.0 21.9

IT Services 24.3 19.5 7.1 20.6 14.9 6.5 19.7 16.3 9.5

Metals 16.2 (1.1) 5.0 (5.4) 0.9 15.9 (15.3) 1.6 8.3

Oil & Gas 28.7 (1.5) 1.7 7.6 1.6 2.9 5.5 1.9 1.5

Pharmaceuticals 25.2 19.9 9.5 46.5 24.5 7.5 34.5 21.1 8.0

Power Equipment 13.6 6.3 (7.1) 13.6 2.4 (13.3) 18.4 (2.5) (14.0)

Power Utilities 23.4 14.2 22.0 4.5 17.7 23.4 (24.0) 3.3 (1.5)

Telecoms 20.0 12.3 11.5 16.2 6.6 17.6 (24.8) (38.0) 72.6

Sensex Index 23.6 7.4 8.4 12.4 10.0 13.6 12.5 8.6 13.4

January 2013


10

SectorSector--wise earnings preview wise earnings preview (Q3FY13)(Q3FY13)

January 2013

11

Q3FY13 earnings previewQ3FY13 earnings preview

Jain Irrigation Systems (JISL)

Given the delay in subsidy disbursements by the government, JISL has taken a conscious decision to compromise growth in MIS by asking for higher upfront capital commitments (almost 100% in some states) from farmers. On account of this, we expect JISLs MIS business to be hit in Q3FY13 and garner a near 20% decline in revenues

Overall revenues are expected to register a 2% decline, with growth in the agro-processing segment partially offsetting the decline in MIS

With the highest margin MIS business under severe stress, we expect EBITDA margins to contract by 300bp to 19.5% during the quarter.

Given the high cost of debt, we expect interest costs to increase to Rs1bn for the quarter. However, given the change of business model towards higher recovery from farmers for MIS, we do not expect any material increase in the WC cycle for JISL.

Stress in the MIS business and higher financing costs is expected to result in a 56% decline in PBT. Further, we expect JISL to incur an MTM forex loss of ~Rs250m.

JISL has launched its NBFC, which would aid in addressing working capital issues over the longer term. However, in the near termunderlying business is expected to be under strain.

Reiterate Outperformer

United Phosphorus

Revenues expected to grow 15% yoy to Rs22.2bn aided by steady growth across markets and favorable currency

Expect EBITDA margins to at 17.6% for the quarter (EBITDA up 12% yoy)

PAT to grow 29% yoy to Rs1.6bn

Agri-related

January 2013

12


Agri-related


Q3FY13E Q3FY12 % chg yoy Q3FY13E Q3FY12 % chg yoy Q3FY13E Q3FY12 % chg yoy

Jain Irrigation 8,200 8,330 (1.6) 1,599 1,864 (14.2) 69 12 NM

United Phosphorus 22,181 19,288 15.0 3,904 3,484 12.1 1,623 1,261 28.7

January 2013

*Includes MTM forex impact

13


United Spirits

We expect USL to garner a single digit volume growth during the quarter. Reported revenue expected to increase by 15%.

While molasses prices are down sequentially, they continue to be higher on a yoy basis. Thus, gross margins are expected to contract by 200bp in Q3FY13

Expect interest costs to remain firm at ~Rs1.7bn, resulting in a 9% growth in PAT.

Change in operational performance post induction of Diageo remains to be the key monitorable.

Radico Khaitan

IMFL volume growth expected at ~7%, with Magic Moments registering a 15%+ growth and Morpheus Brandy a 25%+ growth. EBITDA is expected to grow by 14%. However, higher interest costs (on account of re-financing of FCCB) and higher tax rate is expected to result in a 1% decline in PAT.

United Breweries

United Breweries (UBL) is expected to witness a volume growth of 10-12% during the quarter. We expect UBL to see benefits of packaging material costs on account of rollout of patented bottles and strong performance in states with improved profitability.Reported EBITDA margins are expected to stand at 13.6% in Q3FY13. Strong volume growth coupled with improved state mix is expected to underpin a strong 49% growth in PAT.

Maintain Outperformer on United Spirits & Radico Khaitan and Underperformer on UBL.

Alcoholic beverages

In the alcoholic beverages space, we expect the beer industry to see a recovery in volumes as taxation increases of FY12 start to get absorbed in the key states. Further, a low base would result in better reported volume growth. With respect to liquor, the business environment is showing signs of recovery.

January 2013

14


Alcoholic beverages



Radico Khaitan 3,408 3,185 7.0 510 449 13.5 234 237 (1.1)

United Breweries 9,034 9,611 (6.0) 1,231 746 65.0 413 276 49.3

United Spirits 22,700 19,673 15.4 2,663 2,003 32.9 511 471 8.6

January 2013

15


Tata Motors

Record base at JLR (20% operating margins in 3QFY12 vs

16


Automobiles



Ashok Leyland 25,093 28,798 (12.9) 1,424 2,104 (32.3) (378) 669 (156.5)

Bajaj Auto 54,303 50,632 7.3 10,501 10,614 (1.1) 8,281 8,346 (0.8)

Eicher Motors * 17,051 15,766 8.1 1,246 1,538 (19.0) 697 854 (18.5)

Hero MotoCorp 61,466 60,315 1.9 8,882 9,430 (5.8) 5,930 6,130 (3.3)

M & M 108,707 88,783 22.4 13,612 10,208 33.3 8,633 6,622 30.4

Maruti Suzuki 96,240 76,532 25.8 8,524 4,234 101.3 4,837 2,052 135.7

Tata Motors 486,196 452,603 7.4 61,007 68,270 (10.6) 25,732 34,056 (24.4)

TVS Motor 18,125 17,609 2.9 1,134 1,153 (1.7) 530 565 (6.2)

January 2013

Ashok Leyland

A 27% drop in volumes (thirteen quarter low excluding JV product Dost) coupled with 90% jump in interest expense to result its first loss since Q1FY10, when it posted a loss of Rs427mn on a volume of 7,698 units.

TVS Motor

PAT decline of 6% led by 2% volume drop. However, QoQ PAT seen 17% higher on a 7% volume growth and mix improvement.

Eicher Motors

Despite 42% slump in VECV operating profits drop in consolidated operating profits arrested to 19% due to 185% growth in standalone operating profits. Other income down 45% due to accelarated capex and increased working capital at VECV.

* December year end

17


Cement companies to report 6-9% yoy growth in revenues mainly led by higher realizations

Average realizations to increase by 5-9% led by low base effect. However, on sequential basis, cement prices have fallen sharply due to festive season and weak demand. Hence, we estimate a 3% decline on qoq basis in realisations.

Volumes to be weak (largely flattish) led by weak construction activity

EBITDA / tonne to expand by 6-7%% across companies led by higher realisations on yoy basis. However, on sequential basis to decline led by lower realisations (expect some savings in power costs due to lower coal costs).

Accordingly, earnings to grow at muted pace in the quarter led by weaker realisations on qoq basis.

Grasims revenues likely to grow at a slower pace due to high base effect of realisations. On the other hand, higher costs to impact margins and thereby earnings in the quarter.

Cement



ACC* 25,751 25,027 2.9 4,048 3,893 4.0 2,287 2,425 (5.7)

Grasim 12,368 12,429 (0.5) 2,557 2,854 (10.4) 2,400 2,745 (12.6)

Gujarat Ambuja* 25,820 23,363 10.5 5,750 4,282 34.3 3,738 2,594 44.1

Ultratech Cement 49,820 45,681 9.1 10,223 9,646 6.0 5,712 5,118 11.6

* December year end

January 2013

18


No material improvement in business environment.

Order inflows have been very weak across most players

Working capital cycles remain stretched due to delayed payments; marginal rise in debt levels

Execution remains constrained by elevated working capital levels

L&T

Order announcements at Rs112bn; expect flat to marginal decline in order booking for the quarter

Expect 14% revenue growth and 40bp yoy rise in margins on a lower base (10% for Q3)

PAT to grow 6.1%yoy to Rs10.5bn

JPA

Reported earnings would not be comparable with Q3FY12 numbers due to demerger of the west and south cement capacities

Cement realizations to drop marginally on qoq basis; expect construction margins to moderate

Expect EBIDTA to decline 22% yoy to Rs6.6bn and PAT to decline 69%yoy to Rs954m on the back of lower EBIDTA and higher yoy tax rate

IVRCL, NCC, HCC, Simplex Infrastructures & Gammon India

Weak order flows and sharp yoy erosion in profits due to lower margins + higher interest costs

Marginal qoq rise in debt levels for most companies

Construction

January 2013

19


Construction



Gammon India 11,074 11,844 (6.5) 770 950 (19.0) (196) 80 NM

HCC 9,650 9,460 2.0 968 (559) NM (411) (1,379) NM

IVRCL Infrastructures 12,195 11,955 2.0 909 878 3.5 (209) 68 NM

Jaiprakash Associates 29,776 29,470 1.0 6,587 8,446 (22.0) 954 3,081 (69.1)

Larsen & Toubro 159,759 139,986 14.1 15,989 13,431 19.0 10,519 9,916 6.1

Madhucon Projects 5,311 6,249 (15.0) 636 527 20.7 111 75 47.3

NCC 14,089 12,636 11.5 1,112 793 40.3 48 (94) NM

Simplex Infrastructures 16,501 15,943 3.5 1,347 1,274 5.8 105 180 (41.7)

January 2013

20


Education

Educomp Solutions (EDSL)

We expect EDSL to add 6,250 classrooms in the smart class segment, with yields expected to remain flat sequentially

Lower yields would lead to significant contraction in EBIT margins. We expect EBIT margins in the segment to reduce from 40% in Q3FY12 to 25% in Q3FY13.

We expect EDSL to garner an overall revenue decline of 2% with EBITDA margins of 25%.

Higher interest cost is expected to result in a 46% decline in PAT (excluding MTM forex losses).



Educomp Solution 3,587 3,655 (1.9) 913 963 (5.2) 133 247 (46.1)

January 2013

*Includes MTM forex impact of Rs372m

21


Havells: Continued growth in domestic business segments, while savings in interest cost savings in Sylvania to drive consolidated profits.

Thermax: We expect earnings to be impacted by lower order backlog and execution of low margin orders. Inflows to improve led by some large order wins in the quarter. However, order backlog to remain weak in the quarter.

AIA Engg: Growth in volumes (mining segment) and realizations (rupee depreciation) to drive revenues. However, lower margins due to forex losses and mining volumes to depress PAT.

CUMI: Sluggish demand in abrasives segment as also high base of electromineral prices to impact both revenues and margins. Accordingly, earnings to fall steeply by 13% yoy in 3QFY13

EIL: Weak order backlog is likely to drive fall in revenues and margins, thereby impacting EBITDA growth. However, higher yields on free cash to offset the weakness at operating level.

BEL: Pick up in execution vs 1HFY13 to drive a better operational performance for the quarter.

Voltas: We expect revenues to remain flattish due to lower order backlog in EMP segment. While earnings are likely to be profitable on yoy basis (last year accounting of Sidra order), margins are likely to remain weak led by higher costs and execution of low margin orders. Order inflows to remain weak due to no pick up in activity.

Engineering

January 2013

22


Engineering

January 2013



AIAE * 4,350 3,470 25.4 674 701 (3.8) 408 494 (17.5)

Bharat Electronics 15,461 14,316 8.0 1,237 1,132 9.3 1,743 1,746 (0.2)

Carborundum Universal * 5,347 4,936 8.3 829 811 2.2 396 457 (13.2)

Engineers India 7,221 7,925 (8.9) 1,589 1,822 (12.8) 1,467 1,511 (2.9)

Havells India * 18,064 16,596 8.8 1,852 1,755 5.5 1,064 886 20.1

Thermax India 12,059 12,693 (5.0) 1,266 1,364 (7.2) 892 955 (6.6)

Voltas * 11,954 11,539 3.6 693 (2,000) NM 522 (1,326) NM

* Consolidated earnings

23


The performance of the Indian Entertainment & Media (IEM) sector is expected to see improvement from H1FY13. The ad environment has shown improvement in pockets, while the mandate on digitization has added strong momentum to the TV distribution segment. We expect the IEM sector to report a 11% revenue growth in Q3FY13.

Entertainment & Media

Broadcasting: Segment is witnessing marginal recovery in ad spends, with key sectors such as FMCG , Telecom and consumer durables increasing ad budgets to some extent. Overall ad revenues for the broadcasting industry is expected to grow at high single digits in Q3FY13. ZEEL expected to report a 16-17% growth in ad revenues (on a low base). We expect sports losses of ~Rs120m in Q3FY13 (flat yoy). Higher investments towards content in core broadcasting business and new channels is expected to result in margin contraction of 350bp for ZEEL. We expect ZEEL to report a 8% growth in PBT. ZEEL has won the court case against BCCI and is due to receive Rs1.4bn for the same. This extraordinary gain is estimated to be reported either in Q3FY13 or Q4FY13.

Distribution: Dish TV is expected to add ~0.8m gross subs, with ARPUs flat to marginally down QoQ. We expect Dish TV to garner an EBITDA of Rs1.65bn and net loss to Rs180m in Q3FY13 (excluding MTM forex impact).With regards the cable operators, DEN and Hathway are expected to add 0.5m-0.6m digital subs each. This sharp acceleration has been on the back of implementation of sunset on analog services in Phase-I (Mumbai + Delhi).

Print:HT Media is expected to garner a ~4% growth in ad revenues as the Hindi segment is expected to report a strong 13-14% growth, while the English segment continues to witness some pressure in the Delhi region. Marginal improvement in topline coupled with benign raw material prices are expected to result in a 10% growth in EBITDA.Jagran is expected to garner an ad growth of near 7% (albiet on a high base). While newsprint prices will offer relief, we expect other costs to remain firm resulting in a 5% growth in EBITDA. Tax benefit on account of merger of NaiDunia would aid in 75% growth in reported PAT.

January 2013

24




DEN Network 2,274 2,782 (18.2) 475 269 76.9 164 35 368.7

Dish TV India 5,582 4,905 13.8 1,646 1,202 36.9 (179) (429) NM

Entertainment Network 875 768 13.9 293 312 (6.2) 177 184 (3.9)

Hathway Cables and Datacom 2,993 2,560 16.9 569 460 23.6 - - -

HT Media 5,557 5,266 5.5 854 777 10.0 493 482 2.2

Jagran Prakashan 3,441 3,240 6.2 892 851 4.8 722 413 74.6

PVR 1,950 1,390 40.3 325 241 34.9 93 90 3.6

Zee Entertainment 8,998 7,548 19.2 2,264 2,160 4.8 1,760 1,360 29.5

Entertainment & Media

January 2013

25


Our FMCG universe is expected to post a 15% revenue growth which will be largely organic. A moderation in volume growth is expected as compared to 1HFY13, more so in discretionary packaged food categories. Price increases and improvement in gross margins will drive a 16% EBITDA growth for our universe.

HUL is expected to post a adjusted sales growth of 15% driven by 7% volume growth and 7-8% price increases. Overall revenue growth will be lower at 12.5% due to the de-merger of exports division. Price increases and cost control will be offset by higher A&P spends leading to a 20bp margin expansion at 15.3% with PAT growth expected at 16% for the quarter.

ITC is expected to report a 15% sales growth, led by 14% net sales growth in cigarettes and 24% growth in FMCG sales. The steep price increases will keep volumes subdued and we expect a 1% volume growth for the quarter. Overall PAT growth is expected at 17%.

We expect Nestle to report 14% sales growth. Price increases and improved mix will drive a 40bp gross margin expansion with EBITDA growth expected at 15%. PAT growth at 11% will be impacted by higher interest and depreciation costs.

Dabur is expected to report a 18% revenue growth driven by 9% volume growth. 160 bp improvement in gross margins will be compensated by higher overheads (A&P and other expenditure). We expect PAT growth at 19%.

Marico is expected to report a 16% revenue growth driven largely by volumes and by the Paras personal care acquisition. Margin expansion led by lower copra prices will drive a 19% PAT growth for the quarter.

GCPL is expected to record a 25% revenue growth led by acquisitions and a 18% domestic sales growth. PAT growth at 17% will be impacted by lower margins in the international business and higher interest costs.

Colgate is expected to report a 17% revenue growth with volume growth at 10%. A 70bp contraction in margins due to higher A&P as well as pressure on gross margins will keep PAT growth subdued at 13%.

Jyothy Laboratories is expected to report a 10% standalone revenue growth impacted by lower primary sales due to trade correction. Though PAT will be higher by 10% sequentially, on a YoY basis it will decline by 42% due to higher interest costs and tax rates.

FMCG

January 2013

26


FMCG



Colgate-Palmolive 7,834 6,696 17.0 1,471 1,291 13.9 1,313 1,156 13.6

Dabur India 17,264 14,631 18.0 2,849 2,319 22.9 2,054 1,728 18.9

Godrej Consumer 16,801 13,441 25.0 3,023 2,653 13.9 1,941 1,658 17.1

Hindustan Unilever 65,843 58,527 12.5 10,054 8,856 13.5 8,804 7,622 15.5

ITC 71,924 62,478 15.1 27,646 23,811 16.1 19,869 17,010 16.8

Jyothy Laboratories 1,829 1,663 10.0 247 283 (12.7) 169 291 (41.8)

Marico Industries 12,271 10,579 16.0 1,601 1,218 31.4 1,001 842 18.9

Nestle India 22,200 19,547 13.6 4,755 4,127 15.2 2,968 2,681 10.7

* December year end

January 2013

27


Apollo Hospitals

Expect standalone revenues to grow by 15% yoy to Rs8.2bn for the quarter. EBITDA margins to stay flat yoy at ~18%

PAT expected to grow 33% yoy to Rs863m

Fortis Healthcare

Expect revenues to grow 148% yoy to Rs15bn aided by consolidation of international businesses

EBITDA margins expected at 11% for the quarter (down 230bps qoq)

Consolidated PAT expected at Rs96m vs. Rs302m in Q2FY13

Hospitals



Apollo Hospitals 8,191 7,148 14.6 1,457 1,288 13.1 863 647 33.4

Fortis Healthcare 14,969 6,046 147.6 1,646 831 98.1 96 293 (67.2)

January 2013

28


Infrastructure Developers

January 2013

Adani Port and SEZ

Expect 23%yoy growth in standalone cargo volumes to 20.5mt led by across the board growth in cargo

Expect 19%yoy growth in consolidated EBIDTA; PAT to be remain impacted (down 35%yoy) led by higher interest costs

GPPL

Partial recovery in container cargo volumes on qoq basis; expect 9%yoy drop in total cargo volumes

Interest cost savings due to repayment of Rs3.5bn debt; expect 24.6%yoy decline in PAT to Rs204m

GMR & GVK

Domestic pax growth to remain subdued in the airport businesses (8-10% decline)

Power businesses to remain impacted by further fall in gas availability; PLFs to drop to 25-35%

Expect 38%yoy EBIDTA growth for GMR led by DIAL tariff hike; Expect net loss of Rs590m (net loss of Rs1.5bn in Q3FY12)

Expect 17%yoy EBIDTA growth for GVK with net loss of Rs306m in Q3FY13 (net loss of Rs145m in Q3FY12)

IRB

Expect 13%yoy EBIDTA growth led by EPC business; PAT to decline 17%yoy led by higher interest and depreciation costs

Adani Enterprises

Higher fuel costs, lower PLFs & additional fixed costs from commissioning of Tiroda Unit 1 to impact power profits

Expect sharp 95%yoy drop in PAT to Rs397m


Infrastructure Developers



Adani Enterprises 109,751 90,147 21.7 15,384 13,744 11.9 397 7,424 (94.7)

Adani Port & SEZ 10,443 9,074 15.1 7,087 5,965 18.8 2,372 3,653 (35.1)

GMR Infrastructure 20,812 19,993 4.1 6,221 4,494 38.4 (590) (1,451) NM

Gujarat Pipavav Port * 1,078 1,159 (7.0) 436 590 (26.1) 204 270 (24.5)

GVK Power 7,065 7,446 (5.1) 2,468 2,108 17.1 (306) (145) NM

IRB Infra 8,970 7,442 20.5 3,842 3,404 12.9 1,094 1,314 (16.7)

29January 2013

* December year end

30


IT Services

Seasonal weakness to be more pronounced

Lower working days and Furloughs in Manufacturing vertical to impact volume growth

Weak macro environment to accentuate seasonal weakness; Do not expect usual budget flush from BFSI/ Retail

Top4 companies to report 2-4% qoq USD revenue growth

~4% qoq for TCS, ~3% qoq for HCL Tech and ~2% qoq for Wipro

~4% qoq for Infosys (~2% organic and ~2% driven by Lodestone acquisition)

Mid-tier firms to report lower revenue growth

0-2% growth for Mahindra Satyam, Mphasis, Hexaware, MindTree, KPIT Cummins, Persistent Systems

TechM : +7% qoq revenue growth all driven by Hutchison GS and Comviva integration; eClerx: ~5% qoq growth

Margins to remain in a narrow band with no major headwinds/ tailwinds

Large cap margin within +/- 50bp qoq

Hexaware margins to decline by ~500bp qoq (client ramp down); eClerx margin to improve by ~300bp (absence of -ve one-off from the previous quarter); MindTree margins to decline by ~200bp (strong INR realization)

Expect Infosys to cut organic growth guidance by ~1% qoq

Recommend Outperformer on Infosys, TechM/ Satyam and Wipro in large cap, and KPIT Cummins and Persistent in small-mid cap

Recommend Underperformer on HCLT in large cap, and MindTree and eClerx in small-mid cap

January 2013

31




Eclerx Services 1,707 1,320 29.3 672 597 12.5 631 499 26.3

HCL Technologies 62,727 52,452 19.6 13,700 9,702 41.2 8,807 5,526 59.4

Hexaware Technologies 5,047 4,319 16.9 846 994 (14.9) 650 882 (26.3)

Infinite Computer 3,570 2,694 32.5 643 539 19.2 399 393 1.5

Infosys Technologies 101,850 92,980 9.5 29,680 31,330 (5.3) 22,632 23,720 (4.6)

KPIT Cummins Infosystems 5,680 3,789 49.9 952 580 64.2 636 411 54.9

Mahindra Satyam 19,486 17,181 13.4 4,092 2,781 47.1 3,286 3,084 6.5

Mindtree 5,923 5,197 14.0 1,178 897 31.3 807 606 33.2

MphasiS 13,415 13,672 (1.9) 2,570 2,522 1.9 2,122 1,848 14.8

Persistent Systems 3,293 2,677 23.0 870 696 25.0 572 406 40.9

Tata Consultancy 162,346 132,040 23.0 46,503 40,921 13.6 35,783 28,866 24.0

Tech Mahindra 17,469 14,449 20.9 3,537 2,343 51.0 2,970 2,258 31.5

Wipro 111,093 98,808 12.4 22,562 18,678 20.8 17,536 14,564 20.4

IT Services

January 2013

32


Concor

Revenues to grow by 7% led by higher realisations led by pass through of higher haulage costs

Volumes to remain muted led by weak international trade impacting exim volumes as also flat volumes at JNPT

OPM likely to fall by 250bps due to empty running as also part absorption of recent haulage rate hike

Lower tax and higher other income to partially offset weak operating performance

Gateway Distripark

GDL revenues to grow by 11% yoy led by higher rail revenues on account of pass through cost as also higher volumes

OPM to fall sharply led by lower CFS margins (lower ground rent) as also empty running in rail business

Higher depreciation and lower margins to restrict earnings growth for the quarter

Logistics



Container Corporation 11,235 10,462 7.4 2,696 2,774 (2.8) 2,397 2,414 (0.7)

Gateway Distripark * 2,317 2,088 10.9 556 612 (9.2) 273 331 (17.5)


January 2013

33


Muted end-use demand , seasonal factors and higher threat of imports have resulted in a sequential decline in domestic flat and long product prices. We expect an overall sequential realization decline of Rs1,200-1,500/tonne for long products and Rs800-1,000/tonne for flat products.

While steel volumes have been weaker in the first 2 months (Oct and Nov), attributable to muted end use demand and higher imports, Dec have seen an uptick in demand.

We expect benefits of lower raw material prices (largely coking coal) to flow in from Q4FY13. The above coupled with higher sequential realization (attributable to recent price hikes) to drive operating earnings across players.

A sequential rise in merchant tariffs (~Rs0.3/unit) to positively impact SEL and JSPL.

A sequential rise in LME metal prices coupled with volume growth to drive revenue growth for HNDL, while lower mining volumes to negatively impact HZL. Higher purchase of imported concentrates and declining base metal premium to negatively impact operatingprofits per tonne across metal companies.

Coal India to report a 9% yoy earnings decline, on the back of lower realization (attributable to declining e-auction and coking coal prices) coupled with higher employee and diesel costs.

Iron ore: We expect NMDC to report a sequential earnings decline of 28%, on the back of (a) 25% yoy decline in sales volume (led by lower e-auction sales) (b) a ~16% sequential drop in realization (attributable to higher sales of fines and price cuts in Oct and Nov). We expect SESA to report a significant earnings decline on the back of continuing production and transportation ban in Goa.

Metals

January 2013

34


Metals

Company Key monitorables

Coal India E-auction volumes, FSA realization growth

Hindalco Product mix and fuel cost in aluminum business, TC-RC margins in copper business, volume growth at Novelis

Hindustan Zinc Base metal premium, silver sales volume and realization

Jindal Steel & Power (Consol) Steel sales and PLF at CPP in standalone business, merchant tariff at JPL

JSW Steel (Consol.) Utilization rates and product mix improvement in standalone business; volume growth and realization at ISPAT

Nalco Surplus alumina sales, volume growth

NMDC Sales mix and iron ore volumes

Sterlite Industries Base metal premium for zinc and aluminum, TC-RC margins in copper business, spot power tariffs and fuel costs at Balco CPP and SEL

Sesa Goa Fixed costs and other income

Tata Steel Realization in standalone and European operations, profitability at European operations

SAIL Employee costs, impact of coking coal contracts; volume growth

January 2013

35


Metals



Coal India 165,879 153,493 8.1 38,396 45,430 (15.5) 36,556 40,378 (9.5)

Hindalco Industries 186,556 191,613 (2.6) 16,935 17,976 (5.8) 6,310 8,167 (22.7)

Hindalco - S/A 66,779 66,470 0.5 6,885 7,149 (3.7) 4,979 4,507 10.5

Hindustan Zinc 29,494 27,868 5.8 14,192 14,023 1.2 14,789 12,800 15.5

Jindal Steel & Power 51,235 43,577 17.6 18,721 17,421 7.5 9,802 9,707 1.0

Jindal Steel & Power - S/A 36,891 32,983 11.8 12,413 9,955 24.7 5,787 4,611 25.5

JSW Steel 85,060 84,954 0.1 13,059 14,496 (9.9) 1,190 (250) NM

JSW Steel - S/A 76,558 78,765 (2.8) 13,029 12,526 4.0 3,214 6,681 (51.9)

NMDC 17,355 28,220 (38.5) 12,167 22,607 (46.2) 12,116 18,588 (34.8)

SAIL 124,389 107,288 15.9 17,047 15,811 7.8 8,857 9,264 (4.4)

Sesa Goa 2,450 26,171 (90.6) (495) 10,852 (104.6) (970) 5,696 (117.0)

Sterlite Industries 106,107 102,462 3.6 24,195 22,608 7.0 12,486 13,389 (6.7)

Tata Steel 320,903 331,031 (3.1) 29,232 17,173 70.2 1,386 (6,027) NM

Tata Steel - S/A 102,442 83,819 22.2 28,409 26,306 8.0 14,756 14,212 3.8

* Includes standalone nos + Novelis

January 2013

36


Oil & Gas

January 2013

Strong quarter for the sector expected; OMCs report profits of Rs98bn (Q3FY12 loss of Rs141bn) led by payout assumed of ~99% of subsidy burden for the Quarter by upstream/GOI. Resultant, total profits of Rs254bn 6x higher yoy, even as qoq the earnings decline by 24% led by 43% qoq decline in OMCs

Gross subsidy assumed at Rs415bn, with upstream meeting ~39.5% (in line with Q2FY13) and Government contributing ~60% of this loss, enabling healthy earnings for the OMCs.

ONGC/OIL have a muted quarter due to high subsidy contribution; ONGC subsidy burden rises 10% qoq and 9% yoy delivering earnings of Rs51bn (+7% yoy, -14% qoq). Oil India sees flat subsidy for the quarter, PAT at Rs9.7bn (-4% yoy, +2% qoq)

RIL expected to report a 12% earnings growth yoy to Rs50bn on the back of healthy GRMs even as qoq earnings decline by 7%. consistently declining E&P volumes and soft Petchem demand offset a ~17% yoy improvement in refining margins. While E&P remains a risk, we believe valuations have bottomed out at current levels and steady petchem and refining margins, coupled with better news flow from E&P should help the stock from here

Cairn India to report earnings of Rs29bn, with steady production, weak rupee and low base delivering a 29% yoy growth.

Flat trading EBIT, higher subsidy share and low petchem EBIT drive GAILs earnings lower at Rs9.5bn (-13% yoy, -4% qoq). GGCL to show strong yoy growth as Q4CY11 saw spreads slump to Rs2.5/scm due a sudden rise in gas costs (current quarter spreads assumed at Rs5.5/scm); while GSPL to report a 6% yoy decline driven by lower volumes and tariffs

PLNG to have a muted quarter with just 4% earnings growth due to flat regas volumes and tariffs. We remain positive about its prospects, with growing capacity (10m tpa addition to capacity over FY13-15E) and steady margins expected to drive growth for the company.

37


Oil & Gas



BPCL 598,622 588,468 1.7 35,214 37,097 (5.1) 29,714 31,397 (5.4)

Cairn India 44,706 30,968 44.4 34,434 23,692 45.3 29,151 22,619 28.9

Essar Oil 231,555 129,930 78.2 11,733 4,820 143.4 1,583 290 445.8

GAIL (India) 116,386 112,944 3.0 14,455 17,951 (19.5) 9,449 10,916 (13.4)

Gujarat Gas Company 8,187 6,771 20.9 1,044 1,040 0.3 751 696 7.9

Gujarat State Petronet 2,568 2,755 (6.8) 2,348 2,535 (7.4) 1,183 1,261 (6.2)

HPCL 506,747 480,475 5.5 13,737 37,026 (62.9) 7,037 27,252 (74.2)

Indraprastha Gas 8,458 6,631 27.5 1,936 1,505 28.7 926 692 33.8

IOC 1,104,387 1,156,419 (4.5) 82,532 111,583 (26.0) 60,765 86,566 (29.8)

Oil India 25,701 25,898 (0.8) 13,171 14,282 (7.8) 9,698 10,140 (4.4)

ONGC 187,413 185,171 1.2 93,688 110,515 (15.2) 50,752 47,468 6.9

Petronet LNG 76,194 63,303 20.4 5,065 5,032 0.6 3,022 2,954 2.3

Reliance Industries 927,310 851,350 8.9 73,082 72,850 0.3 50,001 44,400 12.6

January 2013

38


Sintex Industries

A slowdown in monolithic business on the back of delayed payments and stagnant order book, to more than offset a strong growth in pre-fab business.

While overseas custom molding business (NIEF and Wausaukee) to face macroeconomic headwinds, performance at domestic custom molding (BRIGHT) to remain stable.

Others



Sintex 11,717 11,608 0.9 1,878 1,631 15.1 795 551 44.3

January 2013

39


Aided by continued strong growth in US, we expect steady growth in revenues (+17% yoy) for coverage universe (ex-Ranbaxy). Margins will also stay strong given the continued weakness in the rupee

Pharmaceuticals

Cipla Expect another strong quarter with 16% growth in revenues aided by strong growth across businesses. Expect EBITDA margins to improve to 22% for the quarter (+180bps yoy). PAT expected to grow by 22% yoy.

Ranbaxy Expect revenues to decline 34% yoy owing to higher Lipitor FTF in Q4CY11. Base business EBITDA margins to decline to ~7% (8.3% in Q3CY12) due to lower Lipitor sales. MTM losses of >Rs4bn to result in net loss of Rs2.4bn.

Dr Reddys Expect revenues to remain flat yoy (+2%) due to higher Zyprexa sales in Q3FY12. Recurring EBITDA to grow 30% yoyto R6.2bn with margins expected at 21.9% (+130bps yoy); Reported PAT to decline 22% yoy to Rs4bn

Lupin Expect revenues to grow 44% yoy aided by Tricor and Yasmin launches in the US (+$35m); India business expected to grow by 17% yoy; Recurring EBITDA margins expected at 18.7% for the quarter. Reported PAT to grow by 15% yoy

Sun Pharma Expect Sun to report 24% yoy revenue growth led by strong export formulations (+27% yoy; including Taro) and steady domestic business growth (+18%). Expect 38% ex-taro EBITDA margins (48% taro margins). PAT to grow by 43% yoy

Glenmark Expect revenues to grow by 26% yoy, led by strong growth in US formulations (+34%) and steady growth in India business (+15% yoy); expect EBITDA margins (ex-licensing) at 20.6% for the quarter (+260bps yoy)

Ipca Expect revenues to grow 15% yoy led by steady growth across markets. Domestic formulations growth to remain strong at 17% for the quarter. PAT to be impacted by Rs174m of forex losses on translation

January 2013

40

Torrent - Expect revenues to grow by 13% yoy led by strong formulation sales in US, Europe and RoW markets. Expect lower EBITDA margins at 21.9% (-90 bps yoy) due to higher employee expense. Lower tax in Q3FY12 to result in ~6% PAT growth

Strides Arcolabs Expect revenues at Rs6.1bn with strong growth in Specialties business (+133% yoy). Licensing income expected at Rs880m for the quarter. Ex-licensing margins expected at 17.6% for the quarter

GSK Pharma Expect revenues to grow by 15% yoy and EBITDA by 13% yoy; margins expected at 29.5% for the quarter

Aventis Pharma Expect revenues to grow by 15% yoy with EBITDA growth at 25% yoy. Expect margins at 18.3% for the quarter (+150bps yoy)

Biocon Expect revenues to grow by 17% yoy led by strong growth across businesses and despite lower licensing income. EBITDA margins to come at 22.4% (down 230bps yoy) for the quarter

Dishman Expect revenue to grow by 20% yoy with EBITDA margins improving to 21% for the quarter (+90bps yoy); Expect PAT at Rs223m (+94% yoy)


Pharmaceuticals

January 2013

41



Sanofi India * 4,113 3,586 14.7 753 602 25.1 410 361 13.6

Biocon 6,032 5,172 16.6 1,350 1,274 6.0 876 849 3.2

Cipla 19,846 17,115 16.0 4,366 3,450 26.6 3,285 2,699 21.7

Dishman Pharma 3,200 2,662 20.2 672 534 25.8 223 115 93.9

Dr Reddys Lab 28,233 27,692 2.0 6,178 8,690 (28.9) 4,023 5,132 (21.6)

Glaxosmithkline Pharma * 6,531 5,660 15.4 1,924 1,706 12.8 1,598 1,474 8.4

Glenmark Pharma 12,951 10,311 25.6 2,904 1,026 183.0 1,832 459 299.1

IPCA Laboratories 7,100 6,148 15.5 1,546 1,513 2.2 875 639 36.9

Lupin 25,728 17,922 43.6 5,765 3,469 66.2 3,719 2,257 64.8

Ranbaxy Lab * 25,174 37,923 (33.6) 2,370 8,601 (72.4) (2,402) (2,561) NM

Strides Arcolab * 6,118 6,981 (12.4) 1,512 1,489 1.5 830 1,083 (23.4)

SUN Pharma 26,658 21,451 24.3 10,946 9,637 13.6 7,691 6,683 15.1

Torrent Pharma 8,153 7,226 12.8 1,789 1,650 8.4 1,153 1,092 5.6

Pharmaceuticals


* December year end

January 2013

42


Power Equipment



ABB* 25,439 21,696 17.2 1,273 778 63.7 535 491 8.9

BHEL 111,324 105,480 5.5 18,665 18,853 (1.0) 13,429 14,326 (6.3)

Crompton Greaves^ 31,192 30,280 3.0 1,248 1,826 (31.7) 321 771 (58.4)

EMCO 1,793 1,949 (8.0) 208 165 25.8 12 14 (16.9)

* Q4CY12 earnings; ^ Consolidated earnings

January 2013

BHEL

Expect sluggish order intake due to delay in clearances and muted ordering by utilities

Expect 110bp yoy drop in EBIDTA margins; PAT to decline 6.3%yoy driven by lower margins and higher depreciation

ABB

Expect order intake to remain weak

EBIDTA margins to expand 140bp on a lower base; PAT to grow 9% yoy

Crompton

Slower revenue growth in international markets to impact revenues in the quarter. Domestic to continue seeing momentum in revenues across segments (+12% yoy)

Expect consolidated margins to fall by 200bps to 4% largely led by the ongoing restructuring impact at Belgium and scale up of Hungary operations. Further, execution of low margin standalone orders likely to further impact margins.

We expect the losses in the international business to peak in the quarter due to the restructuring at Rs955mn.

Underperformer on BHEL and ABB

43


Revenues are likely to see continued growth led by pick up in order execution the quarter

Operating margins likely to fall across companies led by execution of low margin orders won in previous year

Earnings growth to reflect EBTIDA growth due to lack of forex losses and higher interest costs

Overall, we expect power transmission companies to show continued order inflows from both domestic and international markets

Power Transmission



Jyoti Structures 6,460 5,871 10.0 627 595 5.3 139 138 0.3

Kalpataru Power 9,365 8,014 16.9 899 936 (3.9) 416 403 3.2

KEC International* 17,078 14,596 17.0 1,281 1,133 13.1 491 434 13.1

January 2013


44


Power Utilities

January 2013

NTPC

Improvement in plant availability year on year basis on base effect (October 2011 was affected by various one offs)

In addition, higher commercialization in this year will drive earning growth of 26.3% to Rs24.9bn

Tata Power

Growth in capacity additions YoY will lead to 60%yoy growth in EBIDTA

PAT at Rs1.93bn vs Rs72m in Q3FY12

Reliance Infrastructure

Expect 29%yoy drop in EBIDTA and 24%yoy drop in PAT with decline in order execution

Adani Power

Standalone: Expect 116%yoy drop in EBIDTA due to generation growth of 105%; net loss at Rs1.2bn on account of cap in tariff

Consolidated: Consolidated net loss will increase to Rs1.9bn on supply of power from Tiroda Unit 1 to MSEDCL

Lanco Infratech

Strong 34%yoy EBIDTA growth led by higher generation from new plants; Net loss at Rs1.7bn due to higher interest costs

JPVL

Seasonally weak quarter and teething problems at Bina to lead to a loss of Rs907m

KSK

Higher generation and lower coal cost to drive earnings growth, Expect net profit of Rs566m vis--vis net loss of Rs594m in Q2FY12

NBVL

Earnings to grow by 63.5% on better merchant rate realization in Andhra Pradesh


Power Utilities

NM868 (1,694)24.1 5,909 7,333 60.6 30,172 48,463 Lanco Infratech



Adani Power 18,757 10,595 77.0 4,208 2,120 98.5 (1,577) (1,535) NM

CESC 12,198 10,190 19.7 2,867 2,000 43.4 1,413 740 90.9

Jaiprakash Power 3,325 3,967 (16.2) 2,621 3,571 (26.6) (819) 595 NM

KSK Energy 6,476 5,696 13.7 2,354 2,373 (0.8) 566 755 (25.1)

Nava Bharat Ventures 2,848 2,332 22.1 766 468 63.9 651 398 63.5

NTPC 165,338 154,888 6.7 36,435 30,118 21.0 24,894 19,715 26.3

PTC 17,758 13,300 33.5 480 210 128.8 370 95 289.0

Reliance Infrastructure 33,382 44,761 (25.4) 4,496 6,501 (30.8) 3,169 4,158 (23.8)

Tata Power 78,553 21,611 263.5 15,739 3,843 309.5 1,936 1,844 5.0

January 2013

46


Backed by new launches, encouraging take-off in the festive season and increasing focus on execution, we expect revenues of coverage companies to grow ~13% yoy (Ex-JIL); Also margins are expected to improve yoy (37%; +170bps yoy) led by revenue recognition from newer higher margin projects.

Real Estate

January 2013

DLF: Revenues to remain flay yoy led by lack of new projects entering recognition; EBITDA margins also to remain flat at 41% for the quarter. PAT to decline 2% yoy despite higher other income from NTC land sale (~Rs1bn)

Jaypee Infratech: Revenues to decline 24% yoy due to higher base in Q3FY12 (recognition from plot sales); EBITDA margins expected at 45%, PAT to decline 65% yoy with depreciation and interest cost entering P&L

Godrej Properties: Revenues to grow 55% yoy led by lower base and faster execution across projects; EBITDA margins to improve by ~800bps to 25% for the quarter; PAT expected to grow by 16% yoy to Rs330m

Oberoi Realty: Steady sales across existing projects and no new launches to result in a flat qoq quarter; Expect revenues to grow 31% yoy to Rs30.6% with EBITDA margins at 58%; PAT to grow 14% yoy to Rs1.2bn

Sobha Developers: Another strong operational quarter, we expect revenues to grow 34% yoy led by higher recognition from real estate; EBITDA margins estimated at 31% for the quarter; PAT to grow 30% yoy to Rs520m

Sunteck Realty (SRL): Good quarter for SRL with steady sales in BKC (Pearl, Isles) and Goregaon projects; no revenue recognition till end-FY13 when first project gets delivered (Signature Island)

Ansal Properties and Infrastructure (APIL): Expect revenues to grow 28% yoy led by higher FSI sales in the quarter; EBITDA margins expected at ~13%; PAT expected at Rs102m for the quarter

47


Real Estate



Ansal Properties & Infra. 2,905 2,262 28.4 373 (97) NM 102 (210) NM

DLF 20,954 20,344 3.0 8,491 8,227 3.2 2,539 2,587 (1.9)

Godrej Properties 2,327 1,497 55.4 593 267 122.1 330 284 16.2

Jaypee Infratech 6,860 9,027 (24.0) 3,073 4,953 (38.0) 1,370 3,921 (65.1)

Oberoi Realty 2,447 1,873 30.6 1,421 1,134 25.3 1,168 1,021 14.4

SOBHA Developers 4,208 3,137 34.1 1,308 753 73.7 520 401 29.7

Sunteck Realty 49 46 6.5 11 5 120.0 2 1 187.5

January 2013

48


Strong festive season sales, a low base and an improving demand environment has led to a pick up in like to like growth to 9-10% across retail formats. December too has witnessed continued uptick in demand. The key monitorable will be demand post the sale season in January.

Pantaloon Retail is likely to post a 10% sales growth as same store sales growth is likely to increase to high single digits. Net space addition is expected to be muted as the company continues its store rationalization strategy. Though margins will be stable, higher interest costs will result in a 5% PAT decline. However, this is expected to be the best of the last four quarters in terms of revenue growth and profits.

Titan is expected to report a 18% sales growth with watches growing at 16% and jewelry division growing at 18%. Jewelry sales growth will be a mix of high single digit volume growth (positive for the first time in 4 quarters) and higher realizations. EBITDA margins are expected to improve 20bp with PAT growth expected at 19% for the quarter.

Shoppers Stop is expected to report a consolidated sales growth of 15%, with same store sales growth expected in high single digits and the remainder being store expansion driven growth. Though margins in the standalone business will improve sequentially, YoYmargins are expected to decline by 150bp. PAT is expected to decline by 50% to Rs47m impacted by contraction in margins and higher deprecation and interest costs in new store expansions.

Retail



Pantaloon Retail 31,827 28,933 10.0 2,896 2,612 10.9 128 135 (5.1)

Shoppers' Stop 8,862 7,447 19.0 363 344 5.5 47 94 (50.0)

Titan Industries 28,796 24,404 18.0 2,563 2,132 20.2 1,949 1,639 18.9

January 2013

49


Wireless business Seasonal tailwind and withdrawal of freebies to boost revenues

Domestic traffic expected to increase by 2-4% qoq for Bharti/Idea/RCOM led by festive demand

Withdrawal of freebies in select markets and higher mix of data revenue to drive ~1% improvement in average realizations

Domestic wireless business margins expected to increase by 50-100bp

Key tailwinds: better capacity utilization; uptick in realization; lower subscriber acquisition cost; Key headwind: marginal increase in ad

spends

Bharti Africa to report 3.5% qoq USD revenue growth with ~50bp margin improvement

VAS: weakness in domestic business to persist

OnMobile India revenue expected to decline ~4% qoq on the back of contract renewals and macro weakness; International revenue mix

estimated to inch up to ~61% of total with ~5% qoq revenue growth

Management commentary on domestic contracts and international taxation policy would be key monitorables

Consolidated earnings to see sequential uptick

Adjusted for derivatives/forex losses, earnings for telcos to see a sharp increase driven by strong EBITDA growth

Translation losses on foreign currency loans to be passed through balance sheet

Reiterate our positive stance on the sector - waning competitive intensity, better pricing power and improving regulatory environment

at the margin.

Recommend Outperformer on Bharti Airtel, Idea Cellular and Reliance Communications

Telecom

January 2013

50




Bharti Airtel 202,833 184,767 9.8 64,131 59,585 7.6 8,535 10,192 (16.3)

IDEA Cellular 55,863 50,308 11.0 15,542 13,446 15.6 3,103 2,320 33.8

OnMobile Global 1,819 1,688 7.8 405 391 3.6 141 178 (20.8)

Reliance Communication 53,416 50,551 5.7 17,147 16,141 6.2 2,307 1,862 23.9

Telecom

January 2013

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