ValueGuide_Jan2013

7/30/2019 ValueGuide_Jan2013

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ValueGuide

January 2013

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ValueGuide

Difference between 2008 and 2013

Nifty @6000January 2008 January 2013


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January 2013 Sharekhan ValueGuide2


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REPORT CARD EQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON JANUARY 04, 2013)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 04-JAN-13 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

AUTOMOBILESApollo Tyres Hold 89.6 102.0 102.5 61.6 5.9 -0.7 17.0 44.8 3.5 -4.5 2.6 14.1

Ashok Leyland Buy 26.7 29.0 33.5 18.8 -2.6 7.9 10.2 17.0 -4.8 3.7 -3.3 -7.8

Bajaj Auto Hold 2205.6 ** 2229.0 1407.2 12.7 25.2 43.3 59.2 10.1 20.4 25.7 25.5

M&M Buy 941.3 1046.0 976.0 621.1 0.3 9.6 33.3 49.9 -2.0 5.4 16.9 18.1Maruti Suzuki Buy 1545.5 1809.0 1567.8 925.6 4.4 11.1 27.4 64.0 2.0 6.8 11.7 29.3

BSE Auto Index 11590.6 11696.0 8053.0 7.4 11.1 24.5 45.6 5.0 6.8 9.2 14.8

BANKS & FINANCE

Allahabad Bank Buy 184.0 217.0 211.4 103.0 24.2 22.2 21.5 51.3 21.3 17.4 6.5 19.3

Andhra Bank Hold 126.5 139.0 138.5 82.7 13.2 12.0 7.0 55.7 10.7 7.7 -6.2 22.8

Axis (UTI) Bank Buy 1379.0 1570.0 1396.5 835.1 4.3 20.9 32.4 65.2 1.9 16.2 16.1 30.2

Bajaj Finserv Reduce 930.6 892.0 984.0 334.0 4.3 -2.5 36.4 126.9 1.9 -6.2 19.6 78.9

Bank of Baroda Hold 884.3 924.0 899.7 605.6 14.6 11.4 20.9 29.2 12.0 7.1 6.0 1.9

Bank of India Hold 364.6 376.0 408.0 253.3 28.5 19.4 3.1 29.2 25.6 14.8 -9.6 1.9

CanFin Homes Buy 181.3 220.0 184.7 88.7 28.8 62.1 68.5 111.7 25.9 55.8 47.7 66.9

Capital First Buy 208.2 260.0 235.0 114.5 -5.5 31.7 35.8 71.3 -7.6 26.6 19.1 35.1

Corp Bank Buy 486.2 541.0 540.0 348.0 16.8 15.0 14.1 45.2 14.1 10.6 0.1 14.5

Federal Bank Buy 526.9 610.0 571.0 335.0 9.0 15.0 19.2 49.6 6.6 10.5 4.5 17.9

HDFC Hold 837.7 882.0 882.3 610.5 -0.5 6.2 24.0 28.9 -2.7 2.0 8.7 1.6

HDFC Bank Hold 679.4 712.0 705.5 438.7 -0.8 7.6 17.5 54.4 -3.1 3.4 3.1 21.8ICICI Bank Buy 1182.4 1234.0 1184.9 728.0 5.6 9.1 31.0 62.5 3.2 4.9 14.8 28.1

IDBI Bank Hold 116.6 120.0 121.7 81.4 6.6 12.1 22.8 46.2 4.2 7.7 7.7 15.2

Punjab National Bank Hold 908.1 998.0 1091.1 659.0 15.3 9.1 7.3 17.0 12.7 4.8 -5.9 -7.8

SBI Hold 2486.7 2540.0 2493.0 1625.1 11.0 6.0 11.8 49.2 8.5 1.9 -2.0 17.7

Union Bank of India Buy 277.9 308.0 288.0 150.1 13.0 34.9 31.0 65.8 10.4 29.7 14.9 30.7

Yes Bank Buy 489.1 550.0 504.0 238.2 8.5 22.8 41.4 105.2 6.1 18.0 24.0 61.7

BSE Bank Index 14695.1 14743.3 9525.0 5.0 10.0 21.4 54.7 2.6 5.7 6.4 22.0

CONSUMERGOODS

Bajaj Corp Hold 236.7 256.0 248.2 96.3 6.7 29.1 96.0 148.5 4.3 24.1 71.9 96.0

GSK Consumers Buy 3841.2 3900.0 4391.0 2179.0 1.7 27.5 42.1 56.2 -0.6 22.6 24.6 23.1

Godrej Consumer Products Buy 725.0 796.0 853.1 380.0 -2.0 3.7 25.4 91.2 -4.2 -0.3 10.0 50.7

Hindustan Unilever Hold 534.7 540.0 572.0 368.9 0.2 -1.5 24.9 39.6 -2.1 -5.3 9.6 10.1

ITC Buy 282.4 324.0 306.5 197.0 -4.3 2.6 14.7 44.2 -6.5 -1.4 0 .6 13.7

Marico Hold 224.8 ** 250.0 146.1 1.6 10.5 23.9 50.5 -0.7 6.2 8.6 18.6

Mcleod Russel India Buy 358.4 381.0 372.0 175.1 0.2 8.7 17.6 84.7 -2.0 4.5 3.1 45.6

TGBL (Tata Tea)^ Hold 164.2 169.0 181.7 86.0 -1.3 8.1 40.4 74.9 -3.5 3.9 23.1 37.9

Zydus Wellness Hold 506.1 534.0 548.6 299.0 10.4 20.5 26.5 26.9 7.9 15.9 10.9 0.1

BSE FMCG Index 5884.2 6176.5 3971.8 -2.4 5.5 22.6 49.8 -4.6 1.4 7.5 18.1

IT / IT SERVICES

AGC Networks# Buy 218.5 235.0 234.1 59.8 5.0 9.2 83.7 246.0 2.7 5.0 61.1 172.8

CMC Buy 1224.4 1551.0 1258.0 685.0 6.9 9.2 42.4 48.1 4.4 5.0 24.9 16.8

HCL Technologies** Buy 634.1 700.0 661.0 395.1 -2.2 8.7 32.5 54.4 -4.4 4.5 16.1 21.7

Infosys Hold 2349.6 2440.0 2981.3 2060.6 -3.6 -8.2 -4.6 -16.1 -5.8 -11.8 -16.4 -33.8

NIIT Technologies Hold 251.3 280.0 324.9 186.6 -9.3 -12.9 -12.1 35.0 -11.3 -16.3 -23.0 6.4

Persistent Systems Buy 535.2 600.0 544.0 301.1 6.0 23.2 36.5 72.1 3.6 18.4 19.7 35.7

Polaris Financial Technology Buy 117.6 163.0 175.5 100.0 -5.0 -8.8 -4.9 -1.6 -7.2 -12.3 -16.6 -22.4

Tata Consultancy Services Hold 1299.2 1364.0 1439.8 1038.6 0.0 -1.1 4.6 13.0 -2.3 -5.0 -8.3 -10.9

Wipro Hold 403.7 ** 453.0 295.0 4.0 5.4 2.3 -2.1 1.6 1.3 -10.3 -22.8

BSE IT Index 5798.6 6361.4 5134.1 -0.9 -3.1 2.3 -0.3 -3.1 -6.8 -10.3 -21.4

CAPITALGOODS / POWER

Bharat Heavy Electricals Hold 242.8 250.0 328.4 195.1 2.2 -8.8 6.0 -1.5 -0.1 -12.3 -7.0 -22.4

CESC Hold 314.5 355.0 346.5 188.8 -0.2 -6.0 6.7 51.1 -2.4 -9.7 -6.4 19.2

Crompton Greaves Hold 124.1 ** 167.3 102.1 5.3 -6.1 -3.0 -3.2 3.0 -9.8 -14.9 -23.7

Greaves Cotton^ Hold 80.4 86.0 98.6 59.8 4.8 3.4 17.5 5.4 2.5 -0.6 3.0 -16.9

Kalpataru Power Transmission Buy 98.1 125.0 134.4 64.0 16.2 10.3 22.2 8.9 13.6 6.1 7.1 -14.1

PTC India Buy 78.1 82.0 79.6 40.5 4.3 9.7 24.4 91.6 1.9 5.4 9.1 51.1

Thermax Reduce 616.9 588.0 691.0 401.6 0.5 10.4 24.5 50.0 -1.7 6.1 9.1 18.3

V-Guard Industries Hold 502.7 540.0 590.5 157.2 -4.7 28.8 102.1 213.7 -6.9 23.8 77.2 147.3

BSE Power Index 2032.5 2416.3 1739.0 1.1 -2.8 2.0 11.5 -1.2 -6.6 -10.6 -12.1

BSE Capital Goods Index 11096.5 11615.1 8398.7 -0.2 -1.7 10.3 31.6 -2.4 -5.5 -3.3 3.7

INFRASTRUCTURE / REALESTATE

Gayatri Projects Buy 121.3 300.0 169.0 84.6 3.0 5.5 19.4 49.0 0.6 1.4 4.7 17.5

ITNL Buy 213.4 321.0 224.3 152.5 9.4 9.0 18.2 37.4 6.9 4.8 3.7 8.4

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Sharekhan ValueGuide January 20135

REPORT CARDEQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON JANUARY 04, 2013)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 04-JAN-13 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

IRB Infra Buy 132.6 175.0 210.5 100.1 -2.4 -15.1 0.5 3.8 -4.6 -18.4 -11.8 -18.2

Jaiprakash Associates Buy 101.0 102.0 106.8 50.4 -0.6 11.0 31.0 87.5 -2.9 6.7 14.8 47.8

Larsen & Toubro Buy 1628.0 1788.0 1720.0 1046.3 -1.9 -0.4 16.0 53.9 -4.1 -4.2 1.8 21.3

Mahindra Lifespace Developers@ Buy 420.2 460.0 453.8 243.0 1.1 2.0 28.7 72.2 -1.2 -2.0 12.9 35.8

Orbit Corporation Buy 57.2 75.0 68.9 30.0 -3.3 -10.9 -1.9 81.9 -5.5 -14.4 -14.0 43.4Pratibha Industries Buy 56.1 65.0 59.0 32.3 8.0 -1.8 8.8 72.6 5.5 -5.6 -4.6 36.1

Punj Lloyd Hold 61.4 60.0 65.9 39.4 11.6 7.3 13.0 45.8 9.1 3.2 -0.9 15.0

Unity Infraprojects Buy 46.2 72.0 56.4 31.9 0.4 -8.0 -0.1 45.7 -1.8 -11.5 -12.4 14.9

CNX Infra Index 2648.5 2835.8 2099.7 0.2 2.5 7.6 21.7 -2.1 -1.5 -5.6 -4.1

BSE Real Estate Index 2198.4 2212.3 1378.4 7.6 13.1 24.6 55.4 5.2 8.7 9.2 22.5

OIL & GAS

GAIL Hold 371.2 410.0 401.0 302.0 5.4 -5.2 3.9 -3.6 3.0 -8.9 -8.9 -24.0

Oil India Buy 481.9 600.0 552.4 430.5 5.9 -1.5 -2.8 8.5 3.5 -5.3 -14.8 -14.4

Reliance Ind Buy 861.9 915.0 881.6 673.1 4.5 1.0 17.4 21.8 2.1 -2.9 2.9 -4.0

Selan Exploration Technology Buy 315.4 360.0 351.0 228.6 5.4 -6.0 10.2 36.8 3.0 -9.6 -3.3 7.9

BSE Oil and Gas Index 8856.3 8993.8 7336.2 5.6 0.9 10.4 17.1 3.2 -3.0 -3.2 -7.7

PHARMACEUTICALS

Aurobindo Pharma Buy 201.7 247.0 204.9 88.8 2.0 39.4 76.9 126.2 -0.3 34.0 55.2 78.3

Cadila Healthcare Buy 890.5 1000.0 975.0 620.0 4.4 7.2 17.9 29.7 2.0 3.1 3.4 2.3

Dishman Pharma Buy 119.0 135.0 124.5 37.2 -1.3 21.8 76.6 204.3 -3.5 17.1 54.9 139.9

Divi's Labs Hold 1110.3 1246.0 1234.4 710.6 -5.2 -1.9 9.0 43.3 -7.4 -5.7 -4.4 13.0

Glenmark Pharmaceuticals Buy 524.5 600.0 550.7 285.0 19.9 28.9 38.9 80.0 17.2 23.9 21.8 41.9

Ipca Laboratories Hold 506.9 554.0 537.1 272.0 9.0 13.0 41.5 78.2 6.5 8.7 24.1 40.5

Lupin Buy 604.5 660.0 632.0 412.2 1.7 4.4 13.1 36.3 -0.6 0.3 -0.8 7.4

Sun Pharmaceutical Industries Buy 735.2 775.0 775.9 495.4 4.5 5.2 16.7 47.6 2.1 1.1 2.4 16.4

Torrent Pharma Buy 726.9 760.0 745.1 523.6 5.8 4.0 18.7 36.7 3.4 -0.1 4.1 7.8

BSE Health Care Index 8206.0 8285.7 5938.8 2.7 8.9 19.5 38.6 0.4 4.7 4.8 9.3

AGRI-INPUTS

Deepak Fert Buy 128.9 179.0 170.0 111.0 1.3 -4.2 -3.1 6.7 -1.0 -7.9 -15.1 -15.9

Tata Chemicals Buy 364.7 400.0 374.7 298.0 3.4 11.8 19.2 20.0 1.1 7.5 4.5 -5.4

United Phosphorus Buy 135.9 160.0 170.4 101.6 9.6 3.2 7.0 4.8 7.1 -0.8 -6.1 -17.4

BUILDINGMATERIALS

Grasim Hold 3189.5 3500.0 3511.0 2210.0 -2.7 -6.1 20.0 33.5 -4.9 -9.8 5.2 5.2

India Cements Hold 91.6 105.0 119.4 67.5 3.5 -3.7 9.1 37.0 1.2 -7.5 -4.3 8.0

Madras Cements Hold 240.9 255.0 253.5 98.2 17.8 23.5 55.0 131.2 15.2 18.7 35.9 82.3

Orient Paper and Industries Hold 79.8 86.0 102.0 46.2 -7.1 3.3 34.5 65.9 -9.2 -0.7 18.0 30.8Shree Cement Hold 4596.4 4660.0 5100.0 2032.0 9.4 13.0 50.2 116.9 6.9 8.6 31.7 71.0

UltraTech Cement Hold 2041.9 2100.0 2154.2 1093.8 3.1 3.0 33.5 79.6 0.7 -1.0 17.0 41.6

DISCRETIONARYCONSUMPTION

Eros International Media Buy 208.7 267.0 235.1 153.0 -3.2 28.8 18.1 -3.8 -5.4 23.8 3.6 -24.2

Indian Hotel Company Buy 66.1 82.0 80.0 51.3 1.1 -3.7 7.8 12.9 -1.2 -7.5 -5.4 -11.0

KKCL Hold 728.9 737.0 799.0 485.4 0.1 7.0 31.8 5.1 -2.2 2.8 15.6 -17.1

Raymond Hold 453.1 508.0 488.9 302.9 -0.5 17.3 10.5 43.6 -2.8 12.8 -3.1 13.2

Relaxo Footwear Hold 808.1 885.0 912.0 245.5 3.9 11.2 52.2 219.5 1.5 6.9 33.5 151.9

Speciality Restaurants Buy 190.8 243.0 227.0 150.0 5.8 1.5 -12.5 - 3.4 -2.5 -23.3 -

Zee Entertainment Buy 227.1 255.0 247.0 105.6 8.5 10.8 54.0 96.2 6.0 6.5 35.0 54.7

DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo Buy 1121.6 1254.0 1143.2 710.0 1.7 18.0 39.4 49.7 -0.6 13.4 22.2 18.0

Bajaj Holdings Buy 1032.8 1236.0 1058.3 625.0 19.0 23.2 29.0 64.1 16.3 18.4 13.1 29.4

Bharti Airtel Hold 327.0 340.0 401.0 215.8 -1.6 21.2 0.4 -5.2 -3.9 16.5 -12.0 -25.3

Bharat Electronics Buy 1317.5 1685.0 1710.0 1111.0 9.9 6.6 -2.6 -5.4 7.4 2.5 -14.6 -25.4Gateway Distriparks Buy 137.8 163.0 160.4 125.0 4.8 -2.8 -0.7 11.6 2.4 -6.5 -12.9 -12.0

Max India Buy 251.5 296.0 266.7 140.2 2.2 13.4 36.7 81.4 -0.1 9.0 19.9 43.0

Opto Circuits India Hold 112.1 157.0 225.9 97.3 5.6 -17.1 -29.2 -27.3 3.2 -20.3 -37.9 -42.7

Ratnamani Metals and Tubes Hold 143.6 138.0 150.0 89.0 6.5 27.2 32.8 60.2 4.1 22.3 16.5 26.3

Sintex Industries Hold 70.3 85.0 104.6 50.2 10.5 -2.1 6.1 9.0 8.0 -5.9 -7.0 -14.1

BSE500 Index 7742.5 7746.4 5866.5 3.1 5.8 15.5 32.7 0.7 1.7 1.3 4.6

CNX500 Index 4844.0 4846.4 3651.1 3.1 6.0 15.8 33.3 0.7 1.9 1.6 5.1

CNXMCAP Index 8747.0 8750.4 6184.4 5.5 9.4 17.9 42.3 3.1 5.2 3.3 12.2

COMPANY RECOMMENDED AT (Rs) RECOMMENDED ON BOOKED AT (Rs) BOOKED ON APPRECIATION (%)

Provogue India* - 6-Jul10 16 20-Dec-12 -

* Including value of Prozone shares, investors have not lost money.

REPORT CARD: STOCK IDEAS BOOKED

In Top Picks basket # Price target adjusted for the bonus issue ** Price target under review *** Price target adjusted for the demerge

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Difference between 2008 and 2013

FROM SHAREKHANS DESK

fromshare

khan

sdeskTwo thousand and twelve had begun amidst much gloom and had the appearance of being

a difficult year for equity investors. However, a few positive events made all the difference

and the benchmark indices ended the year with smart gains of 26%. The easing of the

monetary cycle and the unexpected announcement of a series of reforms later in the yearbreathed life back into our stock market in 2012. Not only in India but financial markets

the world over also stabilised in 2012 as central banks unleashed quantitative easing

programmes to support their economies and avoid slipping into a recession.

The world is sloshing with liquidity and global cues are supportive. In India, the macro-

economic environment is improving with the HSBC PMI Index at a six-month high and the

Wholesale Price Index inflation figure likely to moderate further in the coming months.

More importantly, the benchmark indices are within kissing distance of their all-time high

levels seen five years back in January 2008.

But alas, the mood among retail investors is completely different than what it was in early

2008. There is a complete lack of interest in equities now as compared with the euphoriaseen in January 2008. The retail investors had pumped over Rs45,000 crore in equity mutual

funds in the six-month period of November 2007-April 2008 whereas this time around the

retail investors have been withdrawing money from the equity market on rallies. In 2012,

the equity mutual funds witnessed outflows of close to Rs10,750 crore and over 20 million

folios closed or were withdrawn during January-November 2012.

The apathy towards the equity market is coming at a time when the market has consolidated

within a broad range of 15,000-20,000 on the Sensex for 40 months. The corporate earnings

have grown by close to 40% in the same period, resulting in the price/earnings multiple of

the Sensex slipping to 14x one-year forward earnings (from the heady level of 25x in January

2008). Contrary to the current situation, retail investors were rushing to pour money in theequity market in late 2007 when the index had already appreciated by 500-600% since

2003. One wonders what happened to the logic of Buy low and sell high, the basic tenet

of investing in the equity markets!

Along with our house view on the equity market, the Fundamental research team has also

put down some commonly ignored basic principles to be followed in the market with

examples drawn from practical experience in 2012. Investors would do better to learn from

experience rather than repeat the mistakes and miss out on an asset class that has the

potential to create a huge amount of wealth.

It is not difficult to do so in a growing economy like India where the nominal gross domestic

product (GDP; nominal GDP = real GDP + inflation) growth rate has been close to 14%since 1978 (more than three decades). In the long term, the appreciation in the index (Sensex)

has been more than the growth in the corporate earnings and the benchmark index has

appreciated by 5-6 times every decade.

So in the equity market there is no magic formula to generate handsome returns which tend

to far exceed the returns from the fixed income instruments and other asset classes. To

succeed in the equity market whats required from the investors end are three things:

homework, patience and discipline. Happy new year!


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2013: Volatility to rule again

MARKET OUTLOOK JANUARY 03, 2013

2012renewed policy activism made all the difference:Equities were at the losing end for the better part of2012 till the government woke up from a slumber andhelped the market to register a handsome gain of closeto 26% for the calendar year. The foreign investorskept faith and pumped in $24.4 billion in the Indianequity market. That too in a year when Indias macroconditions were deteriorating and the leading globalrating agencies had to revise the rating outlook toNegative from Stable. Moreover, India faced thethreat of a sovereign rating downgrade to the Junklevel on account of the ballooning twin deficits (current

account and fiscal deficits) and a complete policyparalysis. On the other hand, domestic investors bailedout of equity and continued to chase the other assetclasses like gold and real estate.

2013begins on a much better note but domesticinvestors remain sceptical: Unlike the beginning of2012, the start of 2013 has been much better. Thoughthere are challenges (in terms of slowing exports, risingcurrent account deficit and ballooning external debt),but the domestic macro-economic scenario is likely toimprove with the easing of the headline inflation figure

and the expected re-initiation of policy rate cuts bythe Reserve Bank of India (RBI) in the January-Marchquarter (if not in January itself). However, the domesticinvestors remain sceptical and have not yet participatedmeaningfully in the equity market.

Global cues to remain supportive: The policy makersin the USA have finally managed to sign a deal to limittax rate hikes to only the rich (above an annual incomeof $400,000 individually or $450,000 for a household)and also to keep spending to support the economy.The decision on the final contours of the deal has beenpostponed by two months and mitigates the immediatethreat to the US economy and equity market. TheEuropean situation is much more unpredictable. Italyand Spain are turning out to be new pain points withthe Greece exit from the European Union on thebackburner now. Elections in Italy in April and inGermany in the later part of the year could be the otherinfluencing events for the equity markets globally.

Valuationsearnings upgrades key to further re-ratingof multiples: In addition to liquidity, the trough of the

MARKET OUTLOOKEQUITY FUNDAMENTALS

SENSEX P/E (BASED ON ROLLING ONE-YEAR FORWARD EPS)

Source: Bloomberg, Sharekhan researc

downgrades in the earnings estimates by analysts andthe potential upgrades in the earnings estimates wouldbe the key re-rating factors for the valuation multiplof the domestic equity market. We believe that thearnings downgrade cycle is largely behind us. Mostof the negatives are largely factored in the analystsestimates. Moreover, the easing of the interest ratewith the expected cooling off of the energy prices (crudeoil, coal etc) could support the growth in the corporateearnings. However, the earnings upgrades woulddepend on the follow-up policy actions and the abilityof corporate India to exceed analysts expectations.

Another year of volatility with positive returns fromthe benchmark indices: Do not expect a secular trendyet. Two thousand and thirteen is most likely to beanother year of high volatility with bouts of riskaversion and liquidity driven sharp rallies. Howeverwe expect double-digit positive returns from thebenchmark indices this year too which would be largelyin line with the earnings growth expected in FY2014Those who completely missed out on the 2012 rallycan look at investing systematically (in a graduamanner) and use volatility as an opportunity to ente

at attractive levels. In addition, we believe that thequity market provides stock-specific attractiveinvestment opportunities at all times and it is nevertoo late to enter it. The themes to play in 2013 wouldbe largely economic recovery driven consumerdiscretionary sectors (like media, real estate, NBFCsand stock-specific balance sheet restructuring stories

+1

Avg PE

-1

7.0

10.0

13.0

16.0

19.0

22.0

25.0

Dec-00

Dec-02

Dec-04

Dec-06

Dec-08

Dec-10

Dec-12


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MARKET OUTLOOK EQUITY FUNDAMENTALS

LESSONS FROM 2012

#1. Bad macros do not necessarily mean bad returns from equitymarkets.

Despite a declining GDP growth and high inflation, the equitymarket provided robust returns in 2012. The equity market tends

to pre-empt a cyclical revival in the economy.

#2. Returns are likely to be handsome if investors buy into themarket with benchmark indices below P/E of 12x one-yearforward earnings.

That valuations matter even if the macro-economic scenario isnot supportive was clearly reflected in the market in 2012. On anumber of occasions we have highlighted the average historicalreturns given by the market at various valuation levels in ourMarket Outlook reports.

GDP GROWTH VS SENSEX RETURNS

Source: Bloomberg

#3. It is practically impossible to time the market for long-terminvestments.

Those waiting for the 4200 level on the index or the rupee/dollarlevel of 60 missed out on the entire rally.

-100%

-50%

0%

50%

100%

150%

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Sens ex retur ns (LHS) GDP grow th (RHS)

HISTORICAL MARKET RETURNS AT VARIOUS PE LEVELS

Source: Bloomberg, Sharekhan research

215%

125%

69%

11% 10%

-50%

0%

50%

100%

150%

200%

250%

Below 10 10-12.5 12.5-15 15-17.5 above

17.53 year avg return 1 year avg return

#4. Even in a falling market there are pockets of stocks that couldgenerate handsome returns for investors (eg many fast moving

consumer goods, pharmaceutical and domestic consumptiondriven stories in addition to the turn-around re-rating candidates).

ITC, Hindustan Unilever, GlaxoSmithKline Consumer Healthcare,Mahindra and Mahindra, Maruti Suzuki and Cipla are manyliquid, quality stocks that generated more than decent returns in2012; there are also re-rating stories like Wockhardt, DivisLaboratories, Mcleod Russel, V-Guard Industries, Bajaj Corp andAGC Networks in the mid-cap space.

#5. Interest rate-sensitive sectors normally tend to lead a rally ina monetary easing environment.

Banks have always been early gainers at the start of any multi-month (or for that matter multi-year) rally in the equity market.

RUPEE VS NIFTY

Source: Bloomberg

4,000

5,000

6,000

7,000

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

40.0

45.0

50.0

55.0

60.0

Nifty Index USDINR Curency

RATE CUTS AND MARKET MOVEMENT

Source: Bloomberg

-100.0%

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

Sensex returns Bankex returnsBSE Auto returns Repo rate


9/67


MARKET OUTLOOKEQUITY FUNDAMENTALS

Cautious optimism

Unlike in 2012 when the market had entered the year withpessimism, there is optimism at the beginning of 2013 in view ofthe progress on reforms seen in the past few months. After beingthe worst performing market in early 2012, the Indian market hasgiven a fair amount of returns (nearly 26% in 2012) reflecting thepositive investor sentiment. On the macro-economy front, theeconomic growth seems to have bottomed out (with a 5.3% growthin Q1FY2013) and the other indicators look to be improving fromhere. The RBI after holding the policy rates for the past ten months(since April 17th when it had reduced the repo rate by 50 basispoints) is willing to address the growth concerns which could setthe ball rolling and stimulate a recovery in the economy. Of late,the government has turned assertive on the reform front whichjustifies the optimism but the government faces the real test aheadin view of the assembly elections in some key states in 2013 and thegeneral election in mid 2014.

Monetary easing by RBI on the anvilThough the RBI has surprised the market several times, but thistime the expectation has built of a 25-50-basis-point rate cut inQ4FY2013. Besides, in its past two reviews the central bank hadchanged its hawkish stance and shown willingness to accommodategrowth concerns as it expects inflation to trend down fromQ4FY2013 onwards. The RBI is actively managing the liquidityvia open market operations to check any abrupt rise in the interestrates. In addition, the governments vow to keep its borrowingswithin the budgeted limit has helped the bond yields. The

PERFORMANCE: SENSEX VS ASIAN INDICES (IN 2012)

Source: Bloomberg

26.2%22.9%

12.9%10.7% 9.3%

3.2%0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

government has taken the initiative to cut the fiscal deficit(disinvestment, reduction in planned expenditure, hike in fuel pricesmuch to the comfort of the RBI. Overall, the market expects areduction of about 100 basis points in the repo rate in CY2013.

CRR AND REPO RATE TRENDS

Source: Bloomberg

0

2

4

6

8

10

12

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

CRR Repo rate Reverse repo

Electoral considerations could overshadow policy mattersWhile the government has been able to push through some of thereforms in the winter session of the Parliament (foreign direcinvestment in the retail sector, banking laws bill etc), the road aheadwould be patchy in view of the several state elections in 2013 andthe general election in mid 2014. In the face of several challengessuch as a sharp rise in the current account deficit and fiscaimbalances, the Union budget is likely to be populist and the keyreforms such as the implementation of the goods and services taxare unlikely to get through even in the current year. The economigrowth seems to have hit a low (5.3% in Q1FY2013), but a sluggishglobal environment, high interest rates and weak investments areunlikely to support the recovery in any major way.

MOVEMENT OF G-SEC YIELDS (%)

Source: Bloomber

7.8

8.0

8.2

8.4

8.6

8.8

9.0

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

1 Y ear 5 Y ear 10 Y ear

Slower growth rates to persist in global economy

Due to the slowdown in the developed economies and the impact

of their fiscal austerity measures the global economic growth islikely to remain subdued. Now that the fiscal cliff concerns havebeen dealt with, the USAs focus will shift to raising the debt ceilingMoreover, the macro-economic data released in the USA is showingsome improvement which is positive for the market. In the euroarea the peripheral nations such as Italy and Spain have emergedas new sore points as political crisis (the resignation of the primeminister in Italy) looms large in these countries apart from the highdebt to GDP ratio and imminent banking crisis. Going ahead, Italysgeneral election in April and Germanys election in the later partthe year will be the key events to watch. Nevertheless, the Chinesegross domestic product (GDP) has shown recovery signs and islikely to show a better growth in 2013.

STATE ELECTIONS IN 2013

State Tenure ends on Ruling party

Karnataka 4-Jun 2013 BJP

Madhya Pradesh 12-Dec 2013 BJP

Rajasthan 31-Dec 2013 Congress

Delhi 17-Dec 2013 Congress

Meghalaya 10-Mar 2013 Congress

Tripura 16-Mar 2013 CPI (M)

Nagaland 26-Mar 2013 Naga People's Front

Mizoram 15-Dec 2013 Congress


10/67


US HOUSING SECTOR AND IIP LOOK UP

Source: Media reports

CONSENSUS FY2014 SENSEX EARNINGS (EPS) ESTIMATES

Source: Bloomberg

320

330

340

350

360

370

380

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

(1.5)

(1.0)

(0.5)

-

0.5

1.0

1.5

US new home sales (in '000) IIP Y oY (%)

1,425

1,435

1,445

1,455

1,465

1,475

Jun-12

Aug-12

Oct-12

Dec-12

Corporate earnings may recover gradually

Earnings downgrades have moderated significantly due to the fiscalmeasures taken by the government and the increased possibility ofa reduction in the interest rates. However, the corporate earningsare likely to revive materially around H2FY2014, as a slower

revenue growth, margin pressure and high interest rates continueto eat into corporate profits. Going ahead, there are clear signs ofpeaking of the interest rates while the economic growth is mildlyimproving. The benefits of these would begin to flow into theearnings towards the second half of FY2014. The operating profitmargins may begin to look good due to a low base and softness incommodity prices. Moreover, any improvement in the global cuesover the next couple of quarters would brighten the earnings growthoutlook.

Market may remain volatile

The market has made a significant upmove, buoyed by the euphoriagenerated by the reforms which has led to strong foreign fund

MARKET OUTLOOK EQUITY FUNDAMENTALS

inflows. This has led to an expansion in the Sensex multiple, whichis now closer to the mean multiple. However, the expansion on theearnings side has yet to happen which could obstruct the momentumin the coming days. Besides, there could be some disappointmentsas well in 2013, such as a US debt ceiling and a deepening of the

euro crisis while on the domestic front, an expenditure-orientedbudget and a brake on reforms could add to the markets woes.

Thus, do not expect a secular trend yet. Two thousand and thirteenis most likely to be another year of high volatility with bouts of riskaversion and liquidity driven sharp rallies. However, we expectdouble-digit positive returns from the benchmark indices in thisyear too which would be largely in line with the earnings growthexpectations for FY2014. Those who completely missed out on the2012 rally can look at investing systematically (in a gradual manner)and use volatility as an opportunity to enter at attractive levels. Inaddition to this, we believe that the equity market provides stock-specific attractive investment opportunities at all times and it isnever too late to enter it.

KEY MONITORABLES FOR THE EQUITY MARKET IN 2013

Supportive Negative

End of super cycle in crude oil may reduce the subsidy burden and Spending cuts in the USA may cause the economy to slip back intopressure on trade deficit recession

Low growth in developed markets to keep liquidity tap flowing Contagion effect in Europe may result in another bout of riskand India will keep getting a fair share of the flows into the aversionemerging markets

RBI to cut policy rates by close to 100 basis points in 2013 Trade deficit could remain high due to slowing exports which

would put pressure on the rupee

Governments commitment to push forward reforms with direct cash A possible risk of dishing out a populist budget (FY2013-14) beforetransfers may turn out to be a game changer the state elections in 2013 and the general election in 2014

Corporate earnings may revert to higher growth trajectory (12-14%), A possible early general election in case the Congress Party is

up from the tepid growth of close to 7-8% CAGR in the past four years unable to manage its supporting partners

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

For detailed report, please visit the Research section of our website, sharekhan.com.


11/67


Sharekhan Top Picks

SHAREKHAN TOP PICKS

Despite the uncertainties related to the deal on fiscal cliff in theUSA and the continued selling by the domestic investors, the marketended higher in the last month on the back of positive global cues,continued foreign fund flow and the ability of the government topush through some pending legislative bills in the winter session ofthe Parliament.

The late surge enabled the equity market to end with gains of 1.3%and 1.2% in the Nifty and the Sensex respectively. Our basket ofTop Picks performed better than the benchmark indices yet againand registered gains of 2.7% during the same period. Our

* CMP as on January 01, 2013

NAME CMP* PER ROE (%) PRICE UPSIDE(RS) FY12 FY13E FY14E FY12 FY13E FY14E TARGET (%)

BHEL 233 8.1 8.6 9.3 27.7 22.2 17.9 250 8

CanFin Homes 161 7.5 6.2 4.8 13.3 14.3 16.5 220 37

Dishman Pharma 116 16.7 10.8 6.8 6.1 8.7 12.4 135 16

Federal Bank 540 11.9 10.6 8.8 14.4 14.4 15.5 - -

GCPL 722 43.0 31.1 24.1 26.3 26.8 28.2 796 10

ICICI Bank 1,162 20.7 17.2 15.5 11.2 12.3 12.7 1,230 6

Larsen & Toubro 1,624 19.9 16.5 14.9 17.0 17.5 16.8 1,788 10

M&M 940 20.8 17.9 18.5 22.8 22.3 18.7 1,046 11

Relaxo Footwears 800 24.0 18.5 13.7 20.3 20.4 20.6 885 11

Reliance 841 13.8 13.7 13.0 11.5 10.4 9.9 915 9

Zee Entertainment Enterprises 224 36.7 31.1 24.6 18.1 18.8 20.8 255 14

ABSOLUTE OUTPERFORMANCE (RETURNS IN %) CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS IN %)

SHAREKHAN TOP PICKS EQUITY FUNDAMENTALS

performance was aided by an 11% gain in Federal Bank, whichwas introduced in the Top Picks basket in the last month itself.

This month, we are replacing Axis Bank and Cadila Healthcarewith Zee Entertainment Enterprises and CanFin Homes. We see amuch higher potential for upside in Zee Entertainment Enterprisesthan Axis Bank among the large-cap stocks. The introduction oCanFin Homes is prompted by the need to maintain the weightagon the financials as well as to add some mid-cap flavour to the TopPicks basket.

-60.0%

-30.0%

0.0%

30.0%

60.0%

90.0%

120.0%

150.0%

180.0%

210.0%

CY2012 CY2011 CY2010 CY2009 Since Jan

2009

Sharekhan (Top Picks) Sensex Nif ty

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Apr-10

Jun-10

Aug-10

Oct-10

Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Sharekhan Sensex Nifty

EQUITY FUNDAMENTALS


12/67


SHAREKHAN TOP PICKS

NAME CMP PER ROE (%) PRICE UPSIDE(RS) FY12 FY13E FY14E FY12 FY13E FY14E TARGET (%)

BHEL 233 8.1 8.6 9.3 27.7 22.2 17.9 250 8

Remarks: Bharat Heavy Electricals Ltd (BHEL) is a premier power generation equipment manufacturer and a leading engineering, procurementand construction company.

BHEL has witnessed a severe downgrade in its valuation multiples in the last couple of years on account of policy inaction-drivenslowdown in the demand environment. However, the proposed initiatives to restructure the debt on the books of the state electricityboards would kick-start the reforms in the power sector.

In terms of the existing order book, we believe that the concern over the cancellation of the orders from the private power developersseems overplayed as the Inter Ministerial Group hasn't de-allocated any coal mine of BHELs private clients after scrutinising 29 coalmines.

The company is also focusing on the non-BTG segments, like railways, logistics, and transmission and distribution (T&D), that have asignificant growth potential.

The relatively lower order intake in recent years would reflect on its revenue growth and result in a marginal decline in the earningsover the next two years. However, a lot of negatives are reflected in the serious de-rating of the stock over the last two years and webelieve the current valuation is attractive at 9.3x its FY2014 earnings. Therefore, we have included BHEL in our Top Picks basket.

CANFIN HOMES 161 7.5 6.2 4.8 13.3 14.3 16.5 220 37

Remarks: CanFin Homes has renewed its focus on growth and the recent aggressive expansion of its branch network has put it on a high-growthpath for the next few years. It has added 25 branches since March 2011 which amounts to an increase of close to 60% in its currentbranch network of 66 outlets. Consequently, we expect the companys disbursement to grow at about 60% CAGR resulting in a 38%CAGR in the loan book over FY2012-14.

The companys branches are strategically located (outside cities) and serve customers requiring relatively smaller loans (of belowRs10 lakh), which are eligible for interest subvention. Further, the company gets refinancing from the National Housing Board atcompetitive rates due to lending in semi-urban rural areas (that account for about 40% of its loan book). Thus, we expect CanFins NIMto sustain at over 3% going ahead.

The asset quality of the company is strong as its gross NPAs were a meagre 0.9% of the advances and its net NPAs were nil inFY2012. This is mainly possible due to stringent credit appraisals (customer referrals preferred) and efficient recoveries. The CAR asof Q2FY2013 is 15.44% (17.44% in FY2012) against the minimum requirement of 12%. According to the management, the currentcapital will suffice till FY2014.

We believe the operational performance and return ratios of CanFin are improving which should lead to a re-rating of the stock. Wevalue the company at 1x FY2014E BV and recommended Buy with price target of Rs220.

DISHMAN PHARMA 116 16.7 10.8 6.8 6.1 8.7 12.4 135 16

Remarks: After four years of lull, Dishman is all set to capitalise on its capabilities in the contract, manufacturing and research services (CRAMS)space and the marketable molecules (MM) business, thanks to its enhanced capacities and the up cycle in the CRAMS business.

In H1FY2013, the net revenues of Dishman jumped by 19.4% YoY to Rs604.5 crore on the back of a 17.6% Y-o-Y rise in the CRAMSbusiness and a 22.5% jump in the MM business (which includes the vitamin-D business). The oprating profit margin (OPM) improvedby 925 basis points YoY to 23.5% which led the net profit to turnaround to Rs65.3 crore during H1FY2013.

The up cycle in the CRAMS business and the enhanced capacities (it commercialised three new units in Q3FY2012) will help achievea 16% revenue CAGR over FY2012-14. We expect an improvement in the operating profit margin and a reduction in the fixed costsduring this period, which should lead the profit after tax (PAT) to grow at a CAGR of 55% over FY2012-14. Strong cash flows are likelyto help reduce its debts significantly. We expect the debt/equity ratio to reduce to 0.5x in FY2014 from 0.9x in FY2012.

Being an export-oriented player and having a substantial portion of foreign debts on its balance sheet Dishman is vulnerable to foreignexchange fluctuations. The chequered past performance and the managements inability to meet the stated guidance in the past arealso causes for concern in the prevailing market where management quality and transparency carry a premium.

The stock is currently trading at 6.8x FY2014E EPS, which is a 58% discount to its five-year average P/E multiple and close to a 65%discount to Divis Laboratories. We expect the valuation gap to narrow on a strong operating performance and an improved financialhealth. We recommend a Buy on the stock with a price target of Rs135 (8x FY2014E EPS).


13/67


SHAREKHAN TOP PICKS


FEDERAL BANK 540 11.9 10.6 8.8 14.4 14.4 15.5 - -

Remarks: Federal Bank is an old private bank with a network of 1,010 branches and a dominant presence in south India. Under a new managementthe bank is working on a strategy to gain pan-Indian presence, shift the loan book to better-rated corporates, increase the fee income,become more efficient and improve the asset quality.

The asset quality of the bank has remained steady after showing some strain initially. The slippages from the SME and retail accountshave declined substantially while the slippages from the corporate accounts remain stable. Going forward, with the initiatives undertakenthe recoveries could pick up and the NPAs may decline.

Federal Banks loan growth has slowed over the past few quarters as the bank is cautious in view of the weakness in the economy.However, the loan growth is likely to be in line with the industry while risk adjusted margins may improve, thereby driving the operatingperformance.

The banks return ratios are likely to go up led by an increase in the profits. We expect an RoE of ~15.5% and an RoA of around 1.2%by FY2014 led by a 16% CAGR in the earnings. Currently the stock is trading at an attractive valuation of 1.2x FY2014 book value. Werecommend Buy.

GCPL 722 43.0 31.1 24.1 26.3 26.8 28.2 796 10

Remarks: Godrej Consumer Products Ltd (GCPL) is a major player in the Indian fast-moving consumer goods (FMCG) market with a strongpresence in the personal care, hair care and home care segments in India. The recent acquisitions (in line with the 3x3 strategy) haveimmensely improved the long-term growth prospects of the company.

On the back of strong distribution network, and advertising and promotional support, we expect GCPL to sustain the market share inits core categories of soap and hair colour in the domestic market. On the other hand, continuing its strong growth momentum, thehousehold insecticide business is expected to grow by ~20% YoY.

In the international markets, the Indonesian and Argentine businesses are expected to achieve a CAGR of around 20% and 35%respectively over FY2012-14. This along with the recently acquired Darling Group would help GCPL to post a top-line CAGR of ~23%over FY2012-14.

Due to the recent domestic and international acquisitions, the companys business has transformed from a commodities soap businessinto the business of value-added personal care and home care products. Therefore, we expect its OPM to be in the range of 16-18%in the coming years. Overall, we expect GCPLs bottom line to grow at a CAGR of above 30% over FY2012-14.

We believe the increased competitive activity in the personal care and hair care segments and the impact of high food inflation on thedemand for its products are the key risks to the companys profitability.

At the current market price, the stock trades at 31.1x its FY2013E EPS of Rs23.2 and 24.1x its FY2014E EPS of Rs29.0.

ICICI BANK 1,162 20.7 17.2 15.5 11.2 12.3 12.7 1,230 6

Remarks: ICICI Bank continues to report strong growth in advances with stable margins of 2.8%. We expect the advances of the bank to grow by20% CAGR over FY2012-14. This should lead to a 19.5% CAGR growth in the net interest income in the same period.

ICICI Banks asset quality has shown a turnaround as its NPAs have continued to decline over the last eight quarters led by contractionin slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, we expect the NPAsto decline further which will lead to lower NPA provisions and hence aid the profit growth.

Led by a pick-up in the business growth and an improvement in the margins the RoEs are likely to expand to about 13% by FY14 whilethe RoA would improve to 1.5%. This would be driven by a 16% CAGR in profits over FY2012-14.

The stock trades at 1.9x FY2014E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthygrowth in the core income and improved operating metrics we recommend Buy with a price target of Rs 1,230.

LARSEN & TOUBRO 1,624 19.9 16.5 14.9 17.0 17.5 16.8 1,788 10

Remarks: Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domesticinfrastructure development and industrial capital expenditure (capex) boom.

L&T continues to impress us with its good execution skills, reporting decent numbers throughout this year despite the slowdown in theindustrial capex cycle. Also we have seen order inflow traction in recent quarters.

Despite challenges like deferral of award decisions and stiff competition, the company has given robust guidance of 15-20% growth inrevenue and order inflow for FY2013. We believe the company will manage to meet its guidance.

Sound execution track record, bulging order book and strong performance of its subsidiaries reinforce our faith in L&T. With thecompany entering new verticals, namely solar and nuclear power, railways, and defence, there appears a huge scope for growth.

At the current market price, the stock is trading at 14.9x its FY2014E consolidated earnings.

EQUITY FUNDAMENTALS


14/67


SHAREKHAN TOP PICKS


M&M 940 20.8 17.9 18.5 22.8 22.3 18.7 1,046 11

Remarks: Mahindra & Mahindra (M&M) is a strong rural India story benefiting from the rising agriculture incomes. The farm equipment sector isestimated to grow by 10% in H2FY2013 as compared with a decline in H1FY2013. Continued farm mechanisation following labourshortages and increasing non-agri uses would support the demand for tractors in the long term.

The automotive sector is expected to grow by 19% in FY2013. The new launches, such as Quanto and Rexton, have expanded theexisting UV portfolio. The pick-ups portfolio has benefited from the shift towards large pick-ups where M&M has a higher market share.

The companys pricing power is better compared with the other OEMs because of its strong brand equity. It took price hikes aggressivelyto maintain the margins in both the automotive and the farm equipment division. The company is expected to launch Reva electricNXR and sub-four meter Verito in Q4FY2013.

Our SOTP-based price target for M&M is Rs1046 per share as we value the core business at Rs883 a share and the subsidiaries atRs164 a share. We recommend Buy on the stock.

RELAXO FOOTWEARS 800 24.0 18.5 13.7 20.3 20.4 20.6 885 11

Remarks: Relaxo Footwears is present in the Indian organised footwear market and is involved in the manufacturing and trading of footwearthrough its retail and wholesale networks. The companys top brands, namely Hawaii, Sparx, Flite and Schoolmate, have an establishedpresence among their respective segments.

The company has displayed an impressive growth rate in its top line and bottom line in the last couple of years and is expected tomaintain the performance going forward.

With an established distribution set-up and aggressive plans of opening own retail outlets called Relaxo Retail Shoppe, the companyshould be able to gain market share in the coming years.

The softening rubber prices should provide a boost to the companys margins and profitability.

We believe a rise in the raw material prices and a continuous slowdown in the discretionary spending remain the key risks to ourvolume and profitability estimates.

At the current market price, the stock trades at 18.5x its FY2013E EPS of Rs43.2 and 13.7x its FY2014E EPS of Rs58.3.

RELIANCE 841 13.8 13.7 13.0 11.5 10.4 9.9 915 9

Remarks: Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration business. The refiningdivision of the company is the highest contributor to the companys earnings and is operating efficiently with a better gross refiningmargin (GRM) compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude. However,

the gas production from the Krishna-Godavari-D6 field has fallen significantly in the past one year. With the government approval foradditional capex, we believe production will improve going ahead.

In case of refining, the GRM, which had improved sharply in Q2FY2013, showed signs of correction in recent times. We believe theGRM is likely to be stable in the coming quarters.

In the petrochemical business, the companys margins are close to bottoming out (with a sharp correction in Q1FY2013). In H2FY2013,we could see an improvement in the margin that will support the overall profitability of the company.

In case of the upstream exploration business, the company has recently got the nod for further investments in exploration at theKrishna-Godavari basin, which augurs well for the company and could address the issue of falling gas output. Further, the new gaspricing formula recommended by the Rangarajan panel augurs well for the company and could provide further upside to the earnings.

The key concern remains in terms of a lower than expected GRM, profitability of the petrochemical division and the companys inabilityto address the issue of falling gas output in the near term.

At the current market price the stock is trading at PE of 13x its FY2014E EPS.

ZEE ENTERTAINMENT 224 36.7 31.1 24.6 18.1 18.8 20.8 255 14

Remarks:

Among the key stakeholders of the domestic TV industry, we expect broadcasters to be the prime beneficiary of the mandatorydigitisation process initiated by the government. The broadcasters would benefit from higher subscription revenues at the least incrementalcapex as the subscriber declaration improves in the cable industry.

In the last three quarters Zee TV, the flagship channel of ZEEL, has consistently gained market share among the top four Hindi generalentertainment channels. Zee TVs market share has improved from 16.5% in Q3FY2012 to 22% in Q2FY2013, with gross rating pointsof 237 in Q2FY2013.

By FY2015, we expect ZEELs cash flow to improve significantly with a jump of around 75% from the FY2012 cash and cash equivalentsof Rs1,060.7 crore. In the last three years, the dividend pay-out ratio has been around 25-30%, which will increase in the comingyears. Also, in the last two years the company has initiated two share buy-back programmes acquiring shares of cumulative value ofRs290 crore.

ZEELs earnings are expected to grow at a CAGR of 25% over FY2013- 15. Further, strong cash levels would drive the managementsinclination to reward the shareholders which would act as a positive trigger for the stock. At the current market price of Rs223, the stocktrades at 31.1x on FY2013 and 24.6x FY2014 earnings estimates.


15/67


STOCK IDEA

A sweet pillCOMPANY DETAILS

Price target: Rs247

Market cap: Rs5,485 cr

52-week high/low: Rs201/83

NSE volume (no. of shares): 16.9 lakh

BSE code: 524804

NSE code: AUROPHARMA

Sharekhan code: AUROPHARMA

Free float (no. of shares): 13.2 cr

PRICE CHART

SHAREHOLDING PATTERN

(%) 1m 3m 6m 12m

Absolute 7.9 46.1 80.9 115.7

Relative 1.6 38.5 55.3 67.4

to Sensex

PRICE PERFORMANCE

CMP: RS188 DECEMBER 20, 2012

KEY POINTS

Looking beyond concerns: Aurobindo Pharma has been reeling under pressures fromvarious quarters including (1) the US Food and Drug Administration (USFDA) scrutinon some of its key manufacturing facilities; (2) fluctuation in foreign currency resultingin substantial marked-to-market (MTM) losses; and (3) an enquiry by the CentraBureau of Investigation (CBI) into the promoters links with former chief minister ofAndhra Pradesh, YSR Reddy. However, the situation is normalising now. The USFDAhas cleared one of its manufacturing units and the management is awaiting USFDAclearance for another unit (Unit VI) that has already undergone USFDA inspection (apositive outcome could bring in incremental revenues of $25-30 million).

Change in strategy to rejuvenate growth: The company envisages several changes inits business strategy to rejuvenate growth. These include (a) reduction of the dependencon partners in the developed markets (the USA and Europe) and focus on self-drivenbusinesses (through wholly owned subsidiaries) to ensure predictable growth; (bfocus on niche segments like controlled substances in the USA; (c) focus on costcontrol and margin expansion; (d) investments in upgrading manufacturing units toavoid USFDA action in future; and (e) aggressive product filings in different countries

Margins and cash flows to improve going ahead: With the expected increase in theexport-led business post-resolution of the USFDA issues, the favourable tilt in therevenue mix is likely to boost the margins, resulting in a relatively much bettegrowth in earnings as compared with revenues. The company has also been able tosuccessfully redeem its outstanding foreign currency convertible bonds (FCCBsthrough external commercial borrowings in FY2012 and is well funded to meet itscommitment of repaying its long-term debt (close to $80 million) in the currenfiscal. Though the net debt level continues to be high (a debt-equity ratio at 1.1x

but we expect the improving operating performance and the consequent stronginternal generation of cash flows to ease the stress on the balance sheet (the debtequity ratio is likely to drop to 0.5x by FY2015E).

Available at a discount to its peers; initiate coverage with a Buy call: Though thstock has run up recently, it is still trading at a 30% discount to its long-termaverage multiple (around 13.5x one-year forward earnings) and at close to an averagdiscount of 20% to some of its peers (like Torrent Pharmaceuticals and IpcaLaboratories) despite the fact that it has a relatively much better product pipelineThus, we see scope for substantial re-rating of the stock, in line with a distincimprovement in its financial performance. Consequently, we recommend Buy onthe stock with a price target of Rs247 (12x average of FY2014 and FY2015 estimatedearnings). Any negative development on the nod from the USFDA or any enquiryrelated to the promoters links with the politician is a potential risk to our prognosis

AUROBINDO PHARMA

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding

or having a postition in the companies mentioned in the article.For detailed report, please visit the Research section of our website, sharekhan.com.

BUY

VALUATIONS (CONSOLIDATED)Particulars FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

Net sales (Rs cr) 3,575.4 4,381.5 4,627.4 5,397.7 6,285.6 7,169.2

PAT (Rs cr) 561.2 573.8 197.7 404.1 516.5 680.9

Shares in issue (cr) 27.9 29.1 29.1 29.1 29.1 29.1

EPS (Rs) 20.1 19.7 6.8 13.9 17.7 23.4

Change YoY % 993.8 -2.1 -65.5 104.4 27.8 31.8

PER (x) 9.7 9.9 28.7 14.0 10.6 8.0

EV/EBIDTA (x) 9.1 8.2 13.4 10.2 8.1 6.4

P/BV (x) 3.0 2.3 2.4 2.1 1.7 1.4

RoCE (%) 21.2 19.0 7.8 11.3 13.5 16.3

RoNW (%) 36.6 26.9 8.3 16.2 17.8 19.7

EQUITY FUNDAMENTALS

75

95

115

135

155

175

195

215

De

c-11

Fe

b-12

Ap

r-12

Ju

n-12

Aug-12

Oc

t-12

De

c-12

Non-promoter

corporate

6%

Promoters

54%

Public and

others

10% Institutions

17%

Foreign

13%


16/67


Leveraging on its new-found pedigreeCOMPANY DETAILS

Price target: Rs260




BSE code: 532938

NSE code: CAPF

Sharekhan code: CAPF

3.9 cr

PRICE CHART


(%) 1m 3m 6m 12m

Absolute -13.9 20.6 24.2 55.4

Relative -15.0 15.7 9.8 20.4

to Sensex

PRICE PERFORMANCE

BUY CMP: RS190 JANUARY 02, 2013

KEY POINTS

A new beginning: Capital First, the erstwhile Future Capital Holdings, has beenacquired by the leading global private equity player, Warburg Pincus, from PantaloonRetail India. As part of the transaction, Capital Firsts balance sheet has been cleanedup considerably with the assignment of some sticky advances and the infusion ofadditional capital of Rs100 crore by Warburg Pincus. The accounting policies arebeing revised to make them more conservative and reflective of the companys actualperformance.

Shifting gearsmoving on to a higher growth trajectory: The existing managementheaded by V Vaidyanathan has a well laid-out strategy to expand in the retail andSME sectors. We see the re-energised management team in a better position to tapthe vast opportunity in the high-growth retail product segments like gold loans,LAP and LAS. Moreover, the company is now well capitalised with total CAR of

22.7% and tier-I CAR of 18.5% and the macro environment is likely to turnfavourable as the monetary easing through policy rate cuts boosts credit demand inthe retail, and SME segments. Consequently, the management expects to more thandouble its loan book to over Rs10,000 crore (Rs4,400 crore in Q2FY2013) in thenext three years.

Robust asset quality with improving return ratios: The managements strategy ofde-risking the portfolio by expanding the secured retail book coupled with a stringentcredit origination and monitoring process will help to sustain the asset quality atthe prevailing healthy levels. The companys gross and net NPAs were around 0.18%and 0.04% respectively (as of September 2012), the lowest compared with the peergroup. The companys provisioning policy is more stringent than the regulatoryrequirement and hence would not be affected by the 90-day NPA recognition normproposed by the RBI. We see scope for expansion in the return ratios led by arobust growth in the earnings and the potential to improve the spreads as thecompanys funding cost comes down with an upgrade in its credit rating.

Weak macros and potential sale of Pantaloon Retails 9% stake are risks: In additionto an unexpected deterioration in the macro-economic environment, the potentialsale of residual stake held by the Future group in the open market could limit theupside in the stock in the near term.

A potential re-rating candidateBuy: Capital First currently trades at about 1.2xFY2014E book value which is a significant discount to its peers like Bajaj Finance,Mahindra Financial Services and Shriram City Union Finance. The valuation discountis largely attributed to some legacy issues and a lower RoE. We believe the changein the ownership, the resolution of the legacy issues, the capital infusion and theability to aggressively grow its loan book in the retail and SME segments couldresult in the re-rating of its valuation multiple. We initiate coverage on the companywith a Buy recommendation and price target of Rs260 (1.5x the average of FY2014Eand FY2015E book values).

VALUATIONS

Particulars FY2011 FY2012 FY2013E FY2014E FY2015E

NII (Rs cr) 87 157 254 353 495

PAT ( Rs cr) 49 106 101 135 205

Growth (%) -17.1 115.4 -4.9 34.3 52.1

EPS (Rs) 7.6 16.4 14.2 19.1 29.1

RoE (%) 6.8 13.4 10.9 12.6 17.0

RoA (%) 1.7 2.3 1.6 1.6 1.9

BV (x) 106.1 128.9 143.6 159.3 183.3

P/BV (x) 1.8 1.5 1.3 1.2 1.0

P/E (x) 25.1 11.6 13.3 9.9 6.5

CAPITAL FIRST


or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

STOCK IDEAEQUITY FUNDAMENTALS

Promoter

43%

Foreign

3%MF & FI

1%

Public &

others

53%

110

130

150

170

190

210

230

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13


17/67


STOCK IDEA

Dig into itCOMPANY DETAILS

Price target: Rs243

Market cap: Rs803 cr



BSE code: 534425

NSE code: SPECIALITY

Sharekhan code: SPECIALITY


PRICE CHART


(%) 1m 3m 6m 12m

Absolute -5.6 -4.3 -19.8 -

Relative -8.6 -7.9 -30.4 -

to Sensex

PRICE PERFORMANCE

CMP: RS171 DECEMBER 31, 2012

KEY POINTS

Secular high-growth opportunity in the Indian restaurant industry: With growingdisposable incomes and rising consumer aspiration for quality foods, ambience andservices in the country, the organised players in the domestic food services industryhave a unique opportunity to grow at a healthy rate of 28-30% annually over thenext many years. Along with an exponential growth in the quick service restaurants(QSR; eg KFC, Dominos and McDonalds) within the organised segment, the finedining (full service restaurants) are also expected register a healthy high doubledigit growth rate for several years.

Specialitya reputed player with leading and established brands: With a portfolioof well established brands (including core brands Mainland China, Sigree and OhCalcutta), Speciality Restaurants Ltd (Speciality) is a leading player in the fine dining

space. Its value-for-money proposition to offer five-star quality food, ambience andservices at affordable rates has enabled it to successfully expand its chain ofrestaurants to over 80 restaurants spread across 22 cities in India. The managemenaims to open around 15 restaurants annually over the next three years and is welfunded to achieve the target. Consequently, we expect Specialitys revenues to growat a compounded annual growth rate (CAGR) of 31.5% over the next three years

Focus on improving margin expansion: In addition to its expansion-driven growthstrategy, the companys management is focusing on increasing the share of its flagshipbrand, Mainland China, which has a 30-35% operating profit margin (OPM) ascompared with a blended margin of close to 20% at the consolidated level in FY2012The company is also taking initiatives through the use of technology and centralisationof processes to improve its efficiency. Consequently, the management expects toimprove the blended margin by 200-300 basis points over the next few years.

Strong balance sheet with little threat of further equity dilution in the near term

Speciality has an asset-light business model as all its properties are leased and thiaids optimal utilisation of capital for efficiently managing the restaurants at varioulocations. Its business entails services for cash and thus the business has excellenoperating cash flows. With more and more of its restaurants attaining maturity, weexpect Specialitys free cash generation ability to improve substantially in the comingyears. This will not only take care of the future expansion plans, but also help inrewarding the investors with good dividend pay-outs.

Unique secular growth opportunity; recommend Buy with price target of Rs243Speciality is a unique investment play on the domestic consumption-driven seculargrowth story. In view of its expansion plans, portfolio of established brands andwell capitalised balance sheet, we expect the companys revenues and earnings togrow at a CAGR of about 31% and 49% respectively over the next three yearsConsequently, we recommend a Buy on the stock with a price target of Rs243 (20x

its FY2015E earnings per share [EPS] of Rs12.1).

SPECIALITY RESTAURANTS


or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

BUY

VALUATIONSParticulars FY2011 FY2012 FY2013E FY2014E FY2015E

Net sales (Rs cr) 173.1 196.2 256.4 347.0 445.2

Operating profit (Rs cr) 37.9 37.5 44.5 70.5 98.6

Adjusted PAT (Rs cr) 16.0 17.2 23.4 39.4 57.0

Diluted EPS (Rs) 3.4 3.7 5.0 8.4 12.1

OPM (%) 21.9 19.1 17.3 20.3 22.1

PE (x) 50.1 46.6 34.3 20.4 14.1

Market cap/sales (x) 3.5 3.1 3.1 2.3 1.8

EV/EBIDTA (x) 16.2 16.7 18.3 11.1 7.7

RoE (%) 19.5 16.2 10.9 11.8 14.9

RoCE (%) 24.3 21.5 15.9 17.4 22.1

EQUITY FUNDAMENTALS

Foreign

17%

Institutions

9%

Promoters

61%

Public & Others

8%

Non-promoter

corporate

5%

150

160

170

180

190

200

210

220

230

May

-12

Jun

-12

Ju

l-12

Aug

-12

Sep

-12

Oc

t-12

Nov

-12

Dec

-12


18/67


SWITCH IDEA

SHAREKHAN SPECIAL OCTOBER 06, 2008

Closure of switch call from Asian Paints to GSK Consumer

Key points First miss after nine consecutive successful trades: We are clos-

ing the switch call from Asian Paints to GSK Consumer

Healthcare with a loss of close to 10% since our recommenda-

tion in December last year. This is the first and the only miss

after nine consecutive successful closures of switch trades with

an average net return of 21.5% on an absolute basis.

Asian Paintsvolume sales did taper down as expected: In line

with our expectations, the volume sales did moderate sharply

in case of Asian Paints in the past couple of quarters. However,

in spite of concerns and some of the analysts turning negative,

the stock price was boosted by technical factors like the induc-

tion of Asian Paints in the benchmark index Nifty and the un-

FMCG DECEMBER 11, 2012

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding orhaving a postition in the companies mentioned in the article.


EQUITY FUNDAMENTALS

expected premium given to consumer-driven businesses by the

market. Hence, Asian Paints valuation reached 31% premium

to its long-term average multiple and overshadowed the hand-

some gain of 51% in GSK Consumer Healthcare during the

same period.

GSK Consumer Healthcarebuy-back and easing raw mate-

rial prices to keep the stock buoyed: We maintain our positive

stance on GSK Consumer Healthcare in view of the buy-back

announced by its parent at Rs3,900 and the fact that the prices

of some of the companys raw materials (like milk and milk

powder) have eased recently. However, we are closing the switch

call as almost one year has passed since it was generated.

SWITCH PERFORMANCE

Date Switch Reco Gain / Switch Reco CMP Gain / Net gain / from price CMP loss (%) to price loss (%) loss (%)

Dec 23, 2012 Asian Paints 2667 4300 -61.1 GSK Consumer 2485 3758 51.2 -10.0

CLOSED CALLPERFORMANCEPrice on Price on

Sr. Call Close Sell Call Close Return Buy Call Close Return Netno. date date date date % date date % returns %

1 27-Dec-11 23-Apr-12 M&M 702 715 -1.9 Maruti 968 1,375 42.0 40.2

2 27-Dec-11 2-May-12 Bajaj Auto 1,610 1,593 1.1 Hero Honda 1,938 2,245 15.8 16.9

3 12-Dec-11 4-May-12 Infosys 2,731 2,441 10.6 TCS 1,180 1,278 8.3 18.9

4 2-Dec-11 10-Jul-12 HUL 395 446 -13.0 ITC 207 258 24.7 11.7

5 8-Jun-12 16-Jul-12 BoI 353 335 5.3 PNB 783 853 9.0 14.3

6 23-Dec-11 23-Aug-12 R Power 72 84 -16.7 CESC 205 321 56.6 39.9

7 15-Dec-11 29-Aug-12 IOC 268 246 8.3 Oil India 471 503 6.8 15.1

8 30-Mar-12 30-Aug-12 Alok Ind 20 12 39.3 Raymond 424 340 -19.8 19.5

9 22-Jun-12 21-Sep-12 ITNL 180 183 -1.4 IRB Infra 126 151 20.0 18.6

10 17-Dec-11 11-Dec-12 Asian Paints 2,667 4,300 -61.2 GSK Consumer 2,485 3,755 51.1 -10.1

Average absolute return -3.0 21.5 18.5

Switch Ideas had a strike rate of 90% and delivered 18.5% returns on an average in 2012


19/67


SWITCH IDEA

SHAREKHAN SPECIAL OCTOBER 06, 2008

Piping hot

Key points Global demand-supply gap to widen: CY2012 began with a

production shortage of 12.5 million kg. With tea productiondown in the key black tea exporting countries, the demand-supply gap in the international market is expected to rise furtherat the end of the year. As per industry data, black tea productionfrom key tea exporting countries for the first nine months of2012 dropped by about 3% year on year (YoY; or 41 millionkg) to 1,427.5 million kg. The industry expects CY2012 to endwith a production shortfall of around of 50 million kg of blacktea.

Domestic tea prices to remain firm, to benefit domestic teacompanies: The supply shortage in the domestic andinternational markets has led to a spike in the tea prices in thedomestic market. The raw tea prices in India are currentlytrading at Rs15-20 per kg, higher than last year. However, witha lower yield the sales volume has been affected for most. Hence,we dont expect any significant expansion in the margins of thedomestic tea players in FY2013. With the demand-supply gaplikely to expand further in the coming months, the tea pricesare expected to rise higher in the next year. On the back of

TEA DECEMBER 07, 2012

EQUITY FUNDAMENTALS

Price target revised to Rs1,983COMPANY DETAILSPrice target: Rs1,983Market cap: Rs56,458 cr

52 week high/low: Rs1977/1410


BSE code: 532977

NSE code: BAJAJ-AUTO

Sharekhan code: BAJAJ-AUTO


(%) 1m 3m 6m 12m

Absolute 3.8 17.3 33.0 16.7

Relative to Sensex 0.4 4.5 8.7 -0.6

PRICE PERFORMANCE

HOLD CMP: RS1,951 DECEMBER 6, 2012BAJAJ AUTO

KEY POINTS

Domestic motorcycle market subdued: The domestic motorcycle market remains sluggishon account of a weak economic environment. The industry remained flat in the AprilNovember 2012 period. The demand is expected to pick up in FY2014 on an improvedeconomic outlook and a reduction in the interest rates.

Bajaj Auto gaining market share: Bajaj Auto Ltd (BAL) has been gaining market shareon the back of new launches. The recently launched Pulsar 200 NS and Discover SThave evoked a good response. BALs market share has increased from 23.2% in April2012 to 28% in October 2012.

Three-wheelers witnessing demand uptick: BALs three-wheeler volume recovered onthe back of the opening of new three-wheeler permits and replacement demand. State

like Delhi and Karnataka opened up new three-wheeler permits, thereby boosting thdemand. BAL outperformed the industry with its market share going up from 38.6%in April 2012 to 42.8% in October 2012 on the back of increased sales in the diesethree-wheeler segment. Also, BAL plans to launch product upgrades in Q1FY2014which would maintain the demand momentum.

Valuation: To factor in the increased motorcycle and three-wheeler volumes, we areraising our FY2014 estimate. We are also introducing our FY2015 estimate in thinote. Our revised earnings estimate for FY2014 stands at Rs139.8 per share. OurFY2015 earnings estimate stands at Rs154 per share. We are rolling over the pricetarget on the average of FY2014 and FY2015 estimates. Our revised price target isRs1,983 per share. We maintain our Hold recommendation on the stock.


Sharekhan Limited, its analyst or dependant(s) of the analyst might be

holding or having a postition in the companies mentioned in the article.


expectations of stable sales volume, we might see the profitabilityimprove substantially in FY2014.

Maintain Buy on Mcleod Russel, recommend Jayshree Tea as ashort-term trading idea: Indian tea is gaining preference in theinternational markets while the domestic tea market is growingat a steady pace of 2-3% YoY. The favourable demand-supplyenvironment would keep the Indian black tea producers in asweet spot, as tea prices are expected to remain firm in thedomestic and international markets with no signs of easing othe deficit globally. We believe companies like Mcleod Russel

Jayshree Tea India Ltd (JTIL), Harrison Malayalam, WarrenTea and Goodricke are likely to witness an improvement inprofitability in the coming years. We maintain our Buyrecommendation on Mcleod Russel with a revised price targe

of Rs381 (10x based on average FY2014-15 earnings of Rs38.1)JTIL is another key domestic player that is likely to witness ahandsome improvement in its profitability in the near termHence, we recommend it as a short-term trading idea (with asix-month time horizon).

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding orhaving a postition in the companies mentioned in the article.

For detailed report, please visit the Research section of our website, sharekhan.com

Promoters50%

Non-promoter

corporate holding

9% Institutions

10%

Foreign

15%

Public & Others

16%


20/67


Price target revised to Rs241COMPANY DETAILSPrice target: Rs241




BSE code: 533229

NSE code: BAJAJCORP

Sharekhan code: BAJAJCORP


(%) 1m 3m 6m 12m

Absolute 23.1 27.2 95.1 108.9

Relative to Sensex 17.7 14.4 61.9 71.1

PRICE PERFORMANCE

HOLD CMP: RS224 DECEMBER 3, 2012BAJAJ CORP

KEY POINTS Strong volume growth momentum to sustain: We expect Bajaj Corps sales volume

growth to stay in the range of 15-18% over the next two to three years. This can beattributed to a steady shift in consumers from branded coconut oil to value-added hairoil and an improving penetration in the rural markets. Overall, we expect the companystop line growth to grow above 20% in the coming years.

Stable input prices to improve profitability: The prices of liquid light paraffin havestabilised in the recent months and are trading at around Rs79 per kg. On the otherhand, the prices of vegetable oil are showing a downward trend on the back of a softdemand. Thus, with the volume growth expected to remain strong, we might see theOPM improving in the coming years. However, any significant increase in the prices ofthe key input would have an impact on the margins, unless the company decides topass it on to the consumers.

Outlook and valuation: Since our last stock update, the stock has moved up by almost30% in line with the strong up movement in the prices of the other FMCG stocks. Weare rolling over our price target to Rs241 (valuing the stock at 17x its FY2014-15average earnings). At the current market price, the stock is trading at 20.4x its FY2013EEPS of Rs11.0 and 17.2x its FY2014E EPS of Rs13.1. Any acquisition in the domesticpersonal care segment would act as an additional trigger for the stock. However, webelieve the stock is currently trading at a modest premium and can be accumulated atlower levels. Hence, we maintain our Hold recommendation on the stock.



holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

Emphasis on monetisation of contentCOMPANY DETAILS

Price target: Rs267




BSE code: 533261

NSE code: EROSMEDIA

Sharekhan code: EROSMEDIA


(%) 1m 3m 6m 12m

Absolute 32.1 33.8 27.6 -2.2

Relative to Sensex 28.5 21.6 8.3 -16.5

PRICE PERFORMANCE

BUY CMP: RS224 DECEMBER 10, 2012EROS INTERNATIONAL MEDIA

We recently attended the select analyst meet hosted by Eros International Media Ltd (EIML)to discuss the companys joint venture with HBO Asia. The highlights of the meeting are asfollows.

Key terms of the venture

HBO Asia and Eros International plc, the promoter of EIML, would be launching two newpremium advertising free movie channels in India: HBO DEFINED and HBO HITS.

The funding and the expenses of the venture would be borne by HBO Asia.

EIMLs contribution to the joint venture would be to provide exclusive satellite rights for10-12 new releases of the year for one month and give a library of about 100 movies.

The impact of the venture on EIMLPositives: The company does not have to invest in the joint venture and will provide the contentonly for which it will be getting a fixed income irrespective of the joint ventures profit.

The deal would lead to further monetisation of the content library.

Negatives: The select new releases that would be showcased first on the premium channelswould lower the satellite right price offered by the general entertainment channels.

Valuation: As we have highlighted in our earlier notes, EIML is a beneficiary of the digitisationera. The proposed joint venture with HBO Asia to launch premium movie channels is a step inthat direction. It will help EIML to monetise its content library further and lower the dependenceon the box-office revenues to some extent, though any meaningful benefit will accrue only overthe longer term. We maintain our Buy rating on the stock with a price target of Rs267.



holding or having a postition in the companies mentioned in the article.For detailed report, please visit the Research section of our website, sharekhan.com.

Promoters

84.8%

FIIs

9.5%

Domestic

institutions

0.5%

Others

5.3%

Institutions

2%

Foreign

7%

Public & Others

8% Non-promoter

corporate

5%

Promoters

78%

STOCK UPDATE EQUITY FUNDAMENTALS


21/67


Price target revised to Rs600COMPANY DETAILS

Price target: Rs600




BSE code: 532296

NSE code: GLENMARK

Sharekhan code: GLENMARK


(%) 1m 3m 6m 12m

Absolute 15.7 19.3 38.6 79.3


PRICE PERFORMANCE

BUY CMP: RS520 DECEMBER 24, 2012GLENMARK PHARMACEUTICALS

KEY POINTS Agreement with Forest Labs to fetch $9 million in revenues: Glenmark Pharma ha

entered into an agreement with Forest Laboratories Inc (Forest Labs) to develop novemPGES-1 inhibitors to treat chronic inflammatory conditions, including pain. Underthe terms of agreement, Forest Labs will make a $6-million upfront payment and providean additional $3 million to support the next phase of work. Forest Labs will makeother future payments in FY2014 to support the ongoing mPGES-1 inhibitorsprogramme. This programme is currently under pre-clinical trials. We consider it animportant development for the company having positive repercussions in the long term

Strong performance in branded generic business continues: Glenmark Pharma has postedan impressive growth in the domestic branded formulation business (a revenue growthof more than 25% in the 12 months ended November 2012, as per the secondary saledata), mainly boosted by the cardiovascular and the respiratory segments. Growth inother geographies is also expected to grow more than 20% on account of new produc

launches in the niche segments. We introduce FY2015 estimate; roll over valuation to average earnings for FY2014

and FY2015; maintain Buy with a price target of Rs600: We have fine-tuned ouestimates for FY2013 and FY2014, taking cues from the recent performance of GlenmarkPharma in the domestic market and stronger research and development (R&D) pipelineWe have also introduced earnings estimate for FY2015 in this copy and rolled over ouprice target to average estimated earnings for FY2014 and FY2015. Our revised pricetarget of Rs600 includes Rs89 for R&D pipeline and Rs511 for Glenmark Pharmascore business (15x average earnings for FY2014E and FY2015E).




Foreign

34%

Non-promoter

corporate

2%Institutions

7%

Public and

others

10%

Promoters

47%

Price target revised to Rs712COMPANY DETAILSPrice target: Rs712




BSE code: 500180

NSE code: HDFCBANK

Sharekhan code: HDFCBANK


(%) 1m 3m 6m 12m

Absolute 8.6 18.1 34.7 51.4


PRICE PERFORMANCE

HOLD CMP: RS693 DECEMBER 7, 2012HDFC BANK

We interacted with the management of HDFC Bank to discuss the growth outlook in thevolving macro environment. The highlights are as under.

Operating leverage to play outDue to a sharp increase in the number of branches that too outside the top ten cities, the CI ratio increased to 49.0% from 48.0%. Generally, it takes around two to three years fothese branches to break even and slightly lesser in case of branches located in top citiesFurther, the average branch addition is likely to slow down to around 250 per year, whichwould aid in lowering the cost-to-income ratio to 46% levels (50-70 basis points/yearover the next two to three years.

Corporate lending book to grow at ~15% while retail book to remain a key driverThough the banks loan book grew by ~23% YoY in Q2FY2013, the bank expects theFY2013 loan growth to be around 22% YoY. Within this, the corporate loans are expected

to grow at a slower rate of 10-15% YoY whereas the retail loans will continue to grow aa healthy rate of 26-28%. As the bank penetrated newer geographies, the componentswithin the retail (vehicle loans, gold loans etc) are showing a strong traction. Further, threvised priority sector norms will facilitate lending in the sector and the bank expects tomeet the requirement of the sub-heads (within overall limit of 40%) in the next 18 months

Outlook and valuationGoing forward, the steady margin and a strong growth in the retail segment will drive theoperating performance while the lower slippages are expected to moderate, keeping credicosts under check. Consequently, we expect the banks earnings to grow at a CAGR of21.6% over FY2012-15. On the valuation front, the stock currently trades at 4x its FY2014and 3.4x its FY2015 book value. We are rolling over the price target on an average bookvalue of FY2014 and FY2015 by keeping the multiple same. Thus, our revised price targestands at Rs712 (3.8x average of FY2014/FY2015 book value). Given the limited upsidewe maintain Hold rating on the stock.




Promoter

23%

FII

32%

MF & FI

10%

Public &

others

35%

STOCK UPDATEEQUITY FUNDAMENTALS


22/67


Event Update: Unilever Indonesia hikes royalty pay-

ments to Unilever

COMPANY DETAILS

Price target: Under review




BSE code: 500696

NSE code: HINDUNILVR

Sharekhan code: HINDUNILVR


(%) 1m 3m 6m 12m

Absolute 0.0 0.2 26.5 42.7

Relative to Sensex -3.5 -7.0 9.3 15.0

PRICE PERFORMANCE

HOLD CMP: RS520 DECEMBER 13, 2012HINDUSTAN UNILEVER

KEY POINTS The eventUnilever Indonesia increases royalty payment to its parent Unilever:

Unilevers Indonesian subsidiary, PT Unilever Indonesia, has approved a hike in royaltypayments to its parent Unilever. Unilever Indonesia has agreed to pay a 5% fee and amaximum of 3% actual cost recovery as compared with the existing 3.5% fee.

Fears about similar changes in HULs royalty fee structure: The hiking of royalty feesfor Unilever Indonesia has led to fears of a similar action on Hindustan Unilever Ltd(HUL). HUL currently pays a royalty fee of 1% of the net sales for using the brandsand trademarks held by Unilever. It is not necessary that a similar action will be takenwith respect to HUL. However, it has dented sentiments on the stock. Any adversedevelopment on the royalty payment issue could result in an additional pressure on themargin. We believe that in the current challenging environment, with the volume growth

moderating, the company may be unable to resort to price hikes to offset the impact ofroyalty payments.

Valuationat a premium to long-term average multiples, any negative cue creates sellingpressure: At the current market price of Rs520, the stock trades at 29.9x its FY2014Eearnings per share (EPS) of Rs17.4 and 26.3x its FY2015E EPS of Rs19.8. The businessfundamentals remain intact but the val

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