3QFY2014ResultPreview 030114

3QFY2014 Results Preview | January 3, 2014
Table of Contents
Strategy
2-8
3QFY2014 Sectoral Outlook

Automobile
10
Banking
13
Capital Goods
19
Cement
21
FMCG
23
Infrastructure
25
Information Technology
28
Media
31
Metals
32
Oil & Gas
35
Pharmaceutical
38
Power
41
Telecom
43
Stock W
atch
Watch
46
Note: Stock prices as of December 31, 2013

Refer to important Disclosures at the end of the report
Strategy
Export sectors to aid earnings performance
During 3QFY2014, we expect an improvement in earnings
growth for Sensex as well as our coverage companies* as
compared to the previous quarter, driven by sectors like IT &
Pharma. For the Sensex companies, we expect earnings to grow
by 13.1% yoy and 4.4% qoq and for our coverage companies
we expect earnings growth to come in at 12.2% yoy and
9.7% qoq. Strong numbers by individual large caps like Tata
Motors in the automobile space and Tata Steel in the metals
space are also expected to aid earnings.
On the revenue front, we expect Sensex companies to report a
growth of 15.0% yoy and 6.1% qoq. Similarly, our coverage
companies are expected to post a 13.9% yoy and 5.4% qoq
growth on the top-line front. We expect the performance of
companies in the Oil and Gas and IT space along with Tata
Motors in the automobile sector to contribute substantially to
the overall revenue performance of our coverage companies.
and for our coverage universe we expect margins to contract

by 65bp yoy and 28bp qoq.
Outlook and V
aluation: We are anticipating markets to gain
Valuation:
positively on the back of supportive global cues as well as our
improving domestic economic outlook. Our external sector is
more resilient now as the trade deficit has narrowed owing to
the boost from export performance and moderation in import
demand. We expect a revival in the economy as the investment
cycle is boosted post elections owing to greater policy certainty.
With these positives shaping up, we attribute a 16x multiple to
our Sensex EPS and arrive at a target of 24,600 for the Sensex
over the next one year.
We continue to maintain a positive bias for export-oriented
sectors like IT and Pharmaceuticals, supported by the growth
revival in advanced economies and the rupee depreciation on
a yoy basis. We also maintain a positive view on select metal
stocks, considering recent capacity additions and under-utilized
capacity getting employed for exports aided by improving global
fundamentals. We continue to prefer large private banks as
these are likely to benefit from an imminent economic revival
since they continue to remain structurally strong.
The persistence of headwinds in cyclical sectors is expected to

weigh on their margin performance during 3QFY2014 as well.
As a result, we expect margin deterioration for both the Sensex
as well as our coverage companies. For the Sensex companies,
we expect a margin contraction of 81bp yoy and 48bp qoq
Exhibit 1: 3QFY2014 Angel coverage performance estimates

Net Sales
Sector
Net PProfit
rofit
Operating Margins
(%, yoy)
(%, qoq)
(%, yoy)
(%, qoq)
(bps, yoy)
(bps, qoq)
13.7
3.0
28.2
52
(47)
Auto (7)
16.5
6.6
40.7
(8.4)
182
(100)
Auto Anc. (6)
10.0
3.0
41.4
3.2
222
22
Banks - New private (4)
15.3
4.5
17.1
11.9
154
15
2.0
2.3
(1.5)
(5.3)
(570)
(16)
Agriculture (2)
Banks - Old private (2)

Banks - Large PSU (7)
7.0
2.7
(9.9)
25.7
(712)
83
Banks - Mid PSU (14)
6.7
1.2
(6.8)
492.2
(427)
94
Banks - Housing finance (2)
12.1
(1.3)
13.4
(1.0)
(49)
(22)
Capital Goods (7)
(2.3)
4.5
(23.9)
16.3
(186)
207
Cement (7)
(1.2)
10.1
(30.5)
41.2
(259)
287
FMCG (12)
11.0
6.0
13.8
4.1
83
14
7.4
16.4
4.6
30.7
69
(3)
Infrastructure (11)
IT (12)
27.9
2.2
29.4
3.2
132
(10)
Media (5)
17.3
8.0
9.1
16.4
(124)
277
Metals (8)
14.6
0.9
57.7
9.6
251
34
Mining (1)
0.1
12.5
(15.6)
22.4
(588)
465
Oil & Gas (4)
19.9
9.1
2.1
1.0
(313)
(134)
Pharmaceuticals (12)
17.6
(0.1)
41.7
(11.5)
242
(57)
Power (2)
1.7
(1.1)
1.8
7.5
27
53
Telecom (3)
8.7
2.3
148.2
28.5
260
17
13.9
5.4
12.2
9.7
(65)
(28)
Coverage Universe (128)

Source: Company, Angel Research
Note: *Sesa Goa and Cipla estimates have been excluded from analysis as comparable 3QFY2013 numbers are not available
Strategy
Exhibit 2: 3QFY2014 Sensex performance estimates
Net Sales
Sector
Operating Margins
Net PProfit
rofit
(%, yoy)
(%, qoq)
(%, yoy)
(%, qoq)
(bps, yoy)
(bps, qoq)
Auto (5)
17.7
7.5
41.7
(7.3)
189
(113)
Finance (5)
12.0
4.3
4.0
11.3
(372)
91
Capital Goods (1)
(11.0)
1.2
(40.0)
9.5
(519)
408
FMCG (2)
8.9
5.4
12.1
5.6
162
(23)
Infrastructure (1)
8.0
14.9
8.5
14.2
44
34
IT (3)
27.3
2.3
28.3
3.8
99
(5)
Metals (2)
10.6
0.3
331.3
45.2
259
(6)
Mining (1)
0.1
12.5
(15.6)
22.4
(588)
465
Oil & Gas (3)
20.0
9.2
(0.4)
(1.4)
(318)
(138)
Pharma (2)
27.5
(3.5)
43.9
(12.8)
296
76
(37)
Power (2)
2.2
1.4
2.2
4.3
23
Telecom (1)
7.4
2.0
186.8
58.9
196
48
Sensex* (28)
15.0
6.1
13.1
4.4
(81)
(48)
Source: Company, Angel Research, Note: *Sesa Goa and Cipla estimates have been excluded as comparable3QFY2013 numbers are not available
Exhibit 3: 3QFY2014 Sensex companies' performance estimates

Net Sales ((`
` cr)
Operating PProfit
rofit ((`
` cr)
Net PProfit
rofit ((`
` cr)
Company
3QFY2014E
3QFY2013
% chg
3QFY2014E
3QFY2013
% chg
3QFY2014E
3QFY2013
% chg
Axis Bank
4,725
4,110
14.9
2,769
2,362
17.2
1,568
1,347
16.4
Bajaj Auto
5,321
5,413
(1.7)
1,092
1,012
7.9
861
819
5.2
Bharti Airtel
21,761
20,254
7.4
7,070
6,184
14.3
814
284
186.8
9,096
10,220
(11.0)
982
1,634
(39.9)
709
1,182
(40.0)
17,336
17,325
0.1
4,379
5,395
(18.8)
3,724
4,413
(15.6)
BHEL
Coal India
Dr. Reddy
3,588
2,865
25.2
911
507
79.7
736
363
102.8
HDFC
1,929
1,729
11.6
1,758
1,585
10.9
1,283
1,140
12.6
26.3
HDFC Bank
6,823
5,909
15.5
3,826
3,121
22.6
2,349
1,859
Hero Moto Corp
6,869
6,188
11.0
755
569
32.9
561
488
15.0
Hindalco
6,775
6,790
(0.2)
579
582
(0.5)
224
289
(22.5)
HUL
6,938
6,434
7.8
989
868
14.0
924
879
5.2
ICICI Bank
6,556
5,714
14.7
4,012
3,452
16.2
2,475
2,250
10.0
13,101
10,424
25.7
3,453
2,970
16.2
2,650
2,369
11.8
8,373
7,627
9.8
3,224
2,773
16.3
2,361
2,052
15.1
Gail India
13,734
12,474
10.1
1,968
2,002
(1.7)
1,229
1,285
(4.3)
L&T
16,667
15,429
8.0
1,667
1,475
13.0
1,116
1,029
8.5
M&M
10,415
10,774
(3.3)
1,378
1,211
13.8
902
836
7.8
Maruti Suzuki
10,928
11,200
(2.4)
1,211
891
35.9
620
501
23.7
NTPC
16,090
15,775
2.0
4,135
3,995
3.5
2,668
2,597
2.7
ONGC
21,643
20,987
3.1
11,529
11,342
1.6
5,558
5,563
(0.1)
Infosys
ITC
RIL
117,488
93,886
25.1
7,717
8,373
(7.8)
5,508
5,502
0.1
SBI
16,120
14,803
8.9
6,808
7,791
(12.6)
2,716
3,396
(20.0)
Sun Pharma
3,700
2,852
29.7
1,558
1,261
23.6
1,054
881
19.6
Tata Motors
60,209
46,090
30.6
8,322
5,657
47.1
3,353
1,801
86.2
Tata Power
2,631
2,549
3.2
570
569
0.3
206
216
(4.7)
Tata Steel
36,257
32,107
12.9
3,654
2,239
63.2
826
(743)
211.1
TCS
21,434
16,070
33.4
6,734
4,654
44.7
4,955
3,552
39.5
Wipro
11,452
9,624
19.0
2,617
2,074
26.2
2,022
1,582
27.9
473,233
411,511
15.0
92,899
84,186
10.3
52,403
46,384
13.1
Sensex*
Source: Company, Angel Research, Note: *Sesa Goa and Cipla estimates have been excluded as comparable 3QFY2013 numbers are not available
Strategy
Sectoral Analysis
Automobile - Tata Motors likely to support robust
earnings performance
During 3QFY2014 volumes for our coverage automobile
companies continued to remain sluggish as demand decelerated
post the festival season owing to weak consumer sentiments.
Domestic industry volumes witnessed a growth of about
3.0% yoy YTD in FY2014, driven entirely by the two-wheeler
and the tractor segments, which were aided by rural demand
on the back of good monsoon.
Capital goods - Margin pressure and high interest costs

remain a drag on profitability
We expect the companies in our capital goods universe to post
a decline of 2.3% yoy in revenues. However, excluding the
performance of Bharat Heavy Electricals (BHEL), our coverage
capital goods companies are expected to report a moderate
revenue growth of 7.2% yoy. BHEL's top-line is likely to be
impacted due to execution delays on account of delay in
payments by clients as well as delay in obtaining the necessary
clearances.
Overall on the bottom-line front, we expect our capital goods
We expect our coverage automobile companies to post a strong
universe to report a steep contraction of 23.9% yoy as most of
earnings growth of 40.7% yoy, despite the yoy decline in
the companies are expected to witness continued margin
volumes, led by robust growth at Tata Motors, driven yet again
pressure due to tough competition in the sector. Furthermore,
by an impressive Jaguar and Land Rover (JLR) performance.
interest costs remain at elevated levels for many companies in
We expect our coverage auto universe's top-line to register a
our capital goods universe as execution delays (due to delay in
strong growth of 16.5% yoy, primarily aided by INR depreciation
clearances and deferral in payment by clients) and decline in
on a yoy basis and price increases. Led by the price increases
advances (due to subdued order inflow) have led to deterioration
and favorable currency movement, we expect our coverage auto
of working capital, which is being funded by short- term
companies' margins to expand by 182bp yoy. Nevertheless,
borrowings.
excluding the performance of Tata Motors, we expect our

coverage automobile universe to register an almost flat revenue
Cement - Earnings to be impacted by lower realizations
performance while earnings report a growth of about 9.4% yoy
We expect our coverage cement universe to report a sharp
supported by margin expansion.
earnings decline, impacted by lower realizations, as the demand
Banking - New Private banks to deliver better

numbers yet again
scenario continues to remain sluggish. Volume growth for our

cement universe is expected to be 4.1% yoy on a low base. But
we expect a 1.2% yoy decline on the revenue front, mainly due
Over the last few years, PSU banks have continuously lost profit
to lower realization. Owing to lower realizations we also expect
market share (both on reported profit as well as on profit
most of the companies under our coverage to post a decline in
adjusted for increase in net NPAs) to private banks within our
margins on a yoy basis. Overall we expect a 259bp yoy decline
coverage. During 3QFY2014 as well, we expect earnings
in OPM for our cement universe.
divergence amongst our coverage banking stocks to continue,
FMCG - Healthy revenue performance to aid earnings

growth
as we anticipate new private banks to report a healthy earnings

growth of 17.1% yoy, while our coverage PSU banks are
expected to report weak performance with earnings de-growth
of 9.0% yoy.
During the quarter, we expect our coverage FMCG universe to

report a 13.8% yoy earnings growth, led by healthy performance
on the top-line front. We expect our FMCG universe (excluding
New private banks are expected to deliver healthy NII growth
ITC) to post a top-line growth of 11.4% yoy during the quarter
of 20.1% yoy, which is expected to aid healthy growth of
aided by both higher volumes and better realizations. Overall,
18.4% yoy in operating profit and 17.1% yoy in earnings. On
we expect a mixed performance on the operating front as higher
the other hand, PSU banks are expected to register moderate
raw material prices are expected to result in a decline in gross
NII growth of 10.6% yoy and de-growth of 4.8% yoy in
margins for some of our coverage FMCG companies. Also,
non-interest income. Additionally, growth in operating expenses
advertising and sales promotion expenses continue to remain
for PSU banks is expected to be higher at 21.6% yoy as against
at elevated level, which along with higher freight costs are
11.1% yoy for new private banks.
expected to impact margin performance.
Strategy
Infrastructure - Earnings likely to be supported by
performance of L&T
We expect our coverage infrastructure companies to post a
moderate earnings growth of 4.6% yoy, mainly supported by
the performance of Larsen & Toubro (L&T). Excluding L&T, the
and operating profits are aided mainly by higher volume growth.

We expect our coverage non-ferrous companies (except
Hindalco) to report an improvement in earnings performance.
For Hindalco, we expect the bottom-line to decline by
22.5% yoy due to higher interest and depreciation costs.
earnings are likely to continue remaining under pressure and
Oil and Gas - Strong revenue performance to support
we expect an earnings decline of 7.0% yoy for the remaining
earnings
infra companies in our coverage universe. We attribute the

dismal earnings performance during this quarter as well to
persistence of headwinds facing the sector such as a high interest
cost, inflationary cost pressures, stretched working capital and
delays in payments from clients.
We continue to maintain that a stock-specific approach would
yield higher returns, given the disparity among the companies
in our coverage universe. Hence, we remain positive on
companies having 1) a comfortable leverage position;
Our coverage oil and gas companies are expected to report a

strong revenue growth of about 20.0% yoy. However, owing to
margin pressure (excluding for Cairn India) we expect earnings
to post a muted growth of 2.1% yoy. For Cairn India, we expect
slight improvement in margins (owing to the impact of
INR depreciation and increase in realizations) as well as revenue
performance which is likely to result in a healthy earnings growth
for the company.
2) superior return ratios and 3) less dependence on capital
Pharmaceuticals - Robust earnings performance to
markets for raising equity for funding projects.
continue
IT - 3Q a weak quarter, expect moderate volume growth

to aid revenues
We expect our coverage pharmaceutical companies to continue
Our coverage IT companies are expected to continue posting a
corresponding consolidated figures are not available for
robust performance with earnings growth estimated at

29.4% yoy. Sequentially we expect earnings to witness a modest
growth of 3.2% qoq as 3Q is traditionally a weak quarter for
IT companies. We expect revenue growth during the quarter to
be largely volume driven and pricing to remain stable.
For 3QFY2014, volume growth is expected to be in the range
of 2.0-3.4% qoq for tier-I IT companies and we expect TCS to
continue to lead the pack. In INR terms, revenue growth is
expected to be in the range of 1.0-3.0% qoq for tier-I IT
companies. We expect our coverage IT companies to witness a
marginal decline on the operating margin front, ie by about
10bp qoq, due to slight sequential INR appreciation and with
volume growth expected to be relatively moderate during the
quarter.
Metals - Tata Steel likely to support robust earnings

performance
reporting a good set of numbers. Excluding Cipla (for which

3QFY2013), we expect a strong 41.7% yoy growth in earnings
during the quarter supported by expansion of 17.6% yoy in
revenue and 242bp yoy in margin performance. The strong
performance of exports in the sector has also contributed to
top-line growth. We expect Sensex pharmaceutical companies
to post a 27.5% yoy top-line growth and margin expansion of
296bp yoy, resulting in a robust 43.9% yoy increase in the
bottom-line.
Telecom - Expect improvement in overall performance

During the quarter, we expect our coverage telecom companies
to report a good set of numbers. We expect healthy revenue
growth for the industry on the back of increase in MOU, uptick
in voice ARPM as well as growing data users, and improvement
in margin performance. Amongst the top three operators, we
expect Idea Cellular (Idea) to lead in terms of revenue growth
followed by Bharti Airtel (Bharti) and Reliance Communications
Our coverage metal companies are expected to report a robust
(RCom). We expect Idea to post a 4.1% sequential revenue
earnings growth of 57.7% yoy buoyed by the performance of
growth while Bharti and RCom are expected to post a revenue
Tata Steel (aided by its operating profit). Excluding the
growth of 2.0% and 1.7% qoq, respectively. On the margins
performance of Tata Steel, earnings are likely to post a growth
front, we expect the EBITDA margin of Bharti and Idea to see
of 12.3% yoy. For steel companies under our coverage (except
marginal uptick while the EBITDA margin of RCom is expected
SAIL) we expect an improvement in earnings as their revenue
to decline by 94bp qoq.
Strategy
Fed embarks on tapering of bond purchases;
rates to remain low
The Federal Reserve (Fed) in its recent Federal Open Market
Committee meeting decided to moderately taper its quantitative
easing (QE3) program beginning January 2014 by USD10bn
per month. The Fed has decided to reduce its monthly asset
purchases from USD85bn since September 2012 to USD75bn.
It will cut down on the pace of purchase of treasury securities by
USD5bn to USD40bn and mortgage backed securities (MBS)
by USD5bn to USD35bn.
It appears that a further reduction in the stimulus would ensue
at a measured pace through much of next year and in case
improvement in the labor market continues as expected, the
program is likely to be fully shuttered by late-2014. But at the
same time, the Fed's stance continued to be dovish and it
reiterated its commitment to an accommodative monetary policy
stance to support growth. The Fed continued to indicate that
the policy rate (at 0.25%, presently) would be maintained at
exceptionally low levels at least as long as the unemployment
rate reaches above 6.5% and price stability is maintained at or
below its 2% medium-term objective.
Markets have taken the Fed's announcement on gradual
withdrawal of stimulus in their stride since our external
Exhibit 4: Sharp narrowing in the CAD during 2QFY14

(% of GDP)
(1)
reserves situation improved. Driven by strong export

performance and also moderation in imports due to a collapse
in domestic demand and curbs on gold imports, the trade deficit
has narrowed to USD33bn in 2QFY2014 from USD48bn in
the corresponding quarter of the previous year. As a result,
during 2QFY2014 the CAD came sharply lower at 1.2% of
GDP as compared to 5.0% of GDP in 2QFY2013. We expect a
sustained improvement in the trade balance to continue going
forward. For FY2014 as a whole, we expect the CAD to come
in at a more manageable level of 2.5-3.0% of GDP as against
a much wider 4.8% of GDP in FY2013.
Exhibit 5: Positive improvement in the trade balance

(USD bn)
30
(5)
20
(10)
(15)
(5)
(20)
(10)
(6)
(25)
(20)
4Q12
1Q13
2Q13
3Q13
1Q14
Oct-13
Nov-13
Sep-13
Jul-13
Aug-13
Jun-13
Apr-13
May-13
Mar-13
Jan-13
Exports growth (RHS)
Trade balance
2Q14
Feb-13
(8)
4Q13
Dec-12
(6.5)
3Q12
10
(4)
(7)
(35)
(%)
40
Oct-12
(30)
as our CAD moderated, risks to its financing receded and forex
Nov-12
(4.9)
(5.0)
front as global liquidity gets tapered have eased substantially
Sep-12
(25)
The concerns emanating for the economy from the external
Jul-12
(4.4)
(3.6)
(4.0)
Economy on a better footing as external sector becomes

resilient
Aug-12
(4.3)
growth in the economy.
Jun-12
(20)
in external demand would boost export growth and add to GDP
(2)
(3)
(15)
impact for emerging markets including India since improvement
Apr-12
(10)
advanced economies is likely to have a medium-term positive
May-12
(1.2)
believe that the strengthening of recovery in the US and other
Mar-12
(5)
in immense volatility in the equity and currency markets. We
Jan-12
(USD bn)
-
as % of GDP (RHS)
in contrast with May 2013 when indication of a taper resulted
Feb-12
CAD
vulnerability has eased considerably. This positive reaction stands
Imports growth (RHS)
Source: RBI, Angel Research
Source: Ministry of Commerce, Angel Research
Exhibit 6: Stability in the INR despite Fed's QE3 taper
Exhibit 7: Rise in forex reserves and import cover
(USDINR)
70.0
68.0
66.0
64.0
62.0
60.0
58.0
56.0
54.0
(USD bn)
(Months)
Forex reserves
9.0
310
8.5
300
8.0
290
7.5
280
7.0
270
Source: Bloomberg, Angel Research

Nov-13
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
May-13
Apr-13
Mar-13
6.0
Feb-13
6.5
250
Jan-13
260
Dec-12
Dec-13
Nov-13
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
May-13
Apr-13
52.0
50.0
Mar-13
Import cover (RHS)
320
Strategy
The risks surrounding the financing of the CAD have also
The CPI inflation, indicating price levels at the retail level, is
receded as the CAD itself has moderated to comfortable levels
also gaining more prominence in determining monetary policy.
and several policy measures have already been taken to garner
Headline CPI inflation came in at 11.2% as compared to 10.2%
capital inflows in the economy. The Reserve Bank of India (RBI)
in October 2013 as food articles account for almost 50%
has attracted about USD34bn under its schemes to attract FCNR
weightage of the index. Core CPI inflation has also remained
(B) deposits and foreign currency borrowings. Despite reduction
sticky at 8%-levels for the past 5 months. We believe that
in Fed's stimulus, the INR has remained stable in the 61-63
vegetable prices are expected to sharply moderate in the
range as compared to rout in the currency that pushed it to
near-term itself with the arrival of winter crop in the market and
68-levels against the dollar in August 2013, post which timely
that is likely to bring respite from overall high headline WPI as
policy measures and improved fundamentals supported the
well as CPI inflation levels. Going forward too, overall food
currency to stage a recovery.
inflation is likely to moderate owing to better agricultural
Respite from inflation likely on signs of moderation in

vegetable prices
The headline WPI and CPI inflation have remained elevated
and picked up in recent readings owing mainly to high food
inflation. During November 2013, WPI inflation came in at 7.5%
as against 7.0% in the three preceding months and WPI food
inflation reached more than a three-year high at about 20.0%
largely impacted by persistent vegetable and fruit prices for the
fifth consecutive month. Core inflation also picked up to 2.6%,
a seven-month high despite weak pricing power, reflecting the
pass through of higher input costs in the manufacturing sector.
Exhibit 8: Further pick-up in WPI and CPI inflation

WPI Inflation
(%)
12.0
has suggested policy prescription such as delisting fruits and

vegetables from the Agricultural Produce Markets Committee
(APMC) Act in Congress-ruled states by mid January 2014. If
implemented the step taken could help bring down retail food
prices in these states.
RBI keeps rates unchanged: Taking cognizance of the temporary
phenomenon of spurt in vegetable prices and also due to
indications of cooling down of prices, the RBI kept policy rates
unchanged in its December policy review. At the same time, the
RBI also noted that shaping up of positive factors such as
1) exchange rate stability, 2) negative output gap owing to
slowdown in growth, 3) lagged effect of policy tightening since
CPI inflation
11.2
July 2013 and 4) fiscal consolidation efforts are likely to contain

inflationary pressures. Nonetheless, the policy guidance
10.2
10.5
production during the fiscal year. Recently, the Congress party
continued to remain cautious and the RBI clearly indicated that
9.0
7.5
7.0
7.5
unless softening of inflation materializes, there is a possibility

of policy tightening.
6.0
4.5
Oct-13
Nov-13
Sep-13
Jul-13
Aug-13
Jun-13
Apr-13
May-13
Mar-13
Jan-13
Feb-13
Dec-12
Oct-12
Nov-12
Sep-12
Jul-12
Aug-12
Jun-12
Apr-12
May-12
3.0
Positive sentiment on elections, pinning hopes

on reforms
The outcome of recent state elections in Rajasthan, Madhya
Source: Office of Economic Adviser, Mospi, Angel Research
Pradesh and Chhattisgarh has boosted market sentiments. The
Exhibit 9: WPI primary articles inflation is food driven

Food Articles
(%)
25.0
BJP had a clean sweep victory in these states and also secured
majority of the seats in Delhi assembly elections although that
Non-food Primary Articles

19.9
20.0
did not materialize in government formation. Cumulatively these

4 states have a 13% share in the total Lok Sabha seats.
15.0
So far, the early opinion poll projections also indicate at a better
10.0
7.6
show by the main opposition party BJP in the general elections,
Source: Office of Economic Adviser, Angel Research
Nov-13
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
May-13
Apr-13
Feb-13
Mar-13
Jan-13
Nov-12
Dec-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
pro-development agenda, markets are pinning hopes on a
May-12
materializing as the single-largest party. Owing to their
Apr-12
5.0
reform-led government at the centre in May 2014. We believe

that post the elections, greater policy certainty is likely to drive
Strategy
new project announcements and stimulating capex. In our view,
We continue to maintain a positive outlook on export-oriented
the formation of a strong government will firmly bring back the
sectors like IT and pharmaceuticals supported by the growth
focus on creating more employment and boosting infrastructure
revival in advanced economies and the rupee depreciation on
investment to kick-start growth in the economy.
a yoy basis. We also maintain a positive view on select metal
Exhibit 10: BJP sweeps majority seats in state elections

2008
2013
Swing in
2013 seat
seats
share (%)
Rajasthan
BJP
78
162
84
81.4
Congress
96
21
(75)
10.6
Others
26
16
(10)
8.0
Congress
Others
global fundamentals. Amongst cyclicals we continue to prefer

large private banks, as these are likely to benefit from an
imminent economic revival since they continue to remain
structurally strong.
Exhibit 11: Sensex EPS growth over FY2013-15

1,700
50
49
(1)
54.4
owth
% gr
17.7
1,500
38
39
43.3
1,300
2.2
1,100
Madhya PPradesh
radesh
BJP
capacity getting employed for exports, aided by improving
(`)
Chhattisgarh
BJP
stocks, considering recent capacity additions and under-utilized
th
grow
11.6%
1,535
1,305
1,169
900
143
165
22
71.7
700
Congress
71
58
(13)
25.2
500
Others
16
(9)
3.0
BJP
23
32
45.7
Congress
43
(35)
11.4
AAP
28
28
40.0
Others
(2)
2.9
FY2013
FY2014E
FY2015E
Source: Angel Research
Delhi
Source: Election Commission of India, Angel Research
Exhibit 12: Sensex one-year forward P/E

30.0
Sensex 1 year forward P/E
15 year Avg
5 year Avg
25.0
20.0
15.0
Outlook and Valuation

10.0
We are anticipating markets to gain positively on the back of

supportive global cues as well as our improving domestic
economic outlook. Our external sector is more resilient now as
5.0
Dec-01
Dec-03
Dec-05
Dec-07
Dec-09
Dec-11
Dec-13
the trade deficit has narrowed owing to the boost from export
performance and moderation in import demand. We expect a
revival in the economy as the investment cycle is boosted post
elections owing to greater policy certainty and we also expect
monetary policy to support growth in 2HCY2014 as food
inflation cools down. With these positives shaping up, we
attribute a 16x multiple to our Sensex EPS and arrive at a target
of 24,600 for the Sensex over the next one year implying an
upside of nearly 17.0% from the present levels.
3QFY2014 Sectoral Outlook
Automobile
Sluggish demand trend continues...
Domestic automotive volumes continued to be sluggish in
3QFY2014 as demand across the segments (excl. two-wheelers
and tractors) tapered off post the festival season, broadly
in-line with our expectations. The industry continues to be
impacted by the slowdown in industrial activity, high inflation
levels and increasing fuel prices, which we believe have
dampened consumer sentiments. Although domestic volumes
(excl. tractors) witnessed a growth of ~3% yoy YTD in FY2014,
they were driven entirely by the two-wheeler (up ~6% yoy)
segment led by rural demand on the back of strong monsoons.
The commercial (CV) and passenger vehicle (PV) segments
however, registered a decline of ~18% and ~5% yoy YTD in
FY2014. Going ahead, we expect momentum in the tractor
and two-wheeler sales to continue; however, demand in the
CV and PV segments is expected to remain subdued in the near
term.
...but earnings growth to remain strong

We expect OEMs in our coverage universe to post strong results,
despite the yoy decline in volumes, led by robust growth at Tata
Motors (TTMT), driven yet again by impressive Jaguar and Land
Rover (JLR) performance. We expect TTMTs top-line to register
a strong growth of ~17% yoy, primarily aided by INR
depreciation and price increases. Its EBITDA margins are
expected to expand by ~180bp yoy to 13.4%, driven by price
increases, cost control initiatives and favorable currency
movement. Its net profit therefore is expected to surge by
~41% yoy during the quarter. Nevertheless, excluding TTMT,
our coverage universe is expected to register an earnings growth
of ~10% yoy (flat qoq) primarily driven by strong earnings
growth at Maruti Suzuki (MSIL) and Hero MotoCorp (HMCL).
On a sequential basis, while the top-line is expected to grow by
~7% on the back of ~10% volume growth (led by festival demand
during the quarter), earnings are expected to decline by ~8% as
EBITDA margins are expected to contract by ~100bp qoq. EBITDA
margins are expected to decline mainly due to the qoq drop in
profitability at TTMT on account of the unfavorable currency
movement and absence of incentives.
BSE Auto index continues to outperform the Sensex

The BSE Auto index yet again outperformed the Sensex, clocking
gains of ~11% as against ~9% recorded by the Sensex. The
outperformance continued despite the subdued demand
environment, led by strong gains recorded by Maruti Suzuki,
MRF, Motherson Sumi Systems and Cummins India on the back
of the better-than-expected 2QFY2014 results. Exide Industries,
Bajaj Auto and Hero MotoCorp however were the major
underperformers during the quarter. While Exide Industries was
impacted due to the disappointing quarterly results;
underperformance in Bajaj Auto was on account of the poor domestic
volume performance amid slowdown and higher competition.
Exhibit 1: 3QFY2014 - Stock price performance

1.8
Tata Motors
13.3
33.7
MRF
45.2
7.3
18.8
18.3
29.8
2.5
14.0
(8.2)
3.3
(16.2)
(4.8)
6.9
18.4
(15.4)
(3.9)
0.7
12.1
(20.0)
(10.0)
0.0
10.0
20.0
Relative to Auto index (%)
30.0
40.0
50.0
Absolute (%)
Severe downturn in the CV segment

CV sales continued to slide in 3QFY2014 with MHCV and LCV
sales witnessing a steep decline of ~27% and ~13% yoy
respectively YTD in FY2014. The volume performance continues
to be impacted by slowdown in industrial activity coupled with
softening of freight rates and rising fuel prices. Most of the
OEMs continued to observe temporary plant shutdowns to align
their production with market demand and avoid inventory
build-up. We expect the demand environment to remain
challenging in the near term as we expect slowdown in industrial
activity to continue until the outcome of the general elections.
We expect CV manufacturers to report bottom-line losses for
the fifth straight quarter on account of lower utilization levels
(due to significant drop in volumes) and operating margin
pressures.
We expect Ashok Leyland (AL) to register a bottom-line loss of
~`150cr in 3QFY2014 due to a sharp ~19% yoy (~25% qoq)
decline in the top-line following a ~19% yoy fall in volumes.
We expect EBITDA margins to contract 320bp yoy to a dismal
~1%, largely due to poor operating leverage and higher levels
of discounting.
We expect TTMT's standalone operations to register a
bottom-line loss of ~`570cr as volumes (down ~36% yoy) and
operating margins (down ~80bp yoy to ~1%) continue to
disappoint led by the ongoing slowdown, adverse product-mix
and higher discounts. Nevertheless, at the consolidated level,
we expect TTMT to post a robust growth of ~31% yoy
(~6% qoq) driven by continued traction in JLR sales and
translation gains. We expect JLR revenues to surge ~50%
(~9% qoq) and ~31% (~8% qoq) yoy in INR and GBP terms
respectively. We expect the companys EBITDA margins to
expand ~160bp yoy to 13.8%, largely driven by superior
product and geography mix at JLR and also due to favorable
currency movement. Consequently, the bottom-line is expected
to surge by ~86% yoy. On a sequential basis though,
consolidated earnings are expected to decline ~12% as margins
are expected to contract by ~140bp qoq due to unfavorable
currency movement and also due to the absence of local
incentives.
10
Automobile
Exhibit 2: TTMT and AL Quarterly volumes
Segment
3QFY2014 3QFY2013 yoy (%) 9MFY2014 9MFY2013 yoy (%)
TTMT
203,852 (36.1)
434,991
Total CV
130,353
95,377
149,402
(36.2)
325,886
613,716 (29.1)
424,703 (23.3)
Total PV
34,976
54,450
(35.8)
109,105
189,013 (42.3)
Exports (incl. above)
11,225
11,654
(3.7)
36,260
39,403
AL
18,453
22,661 (18.6)
63,254
80,084 (21.0)
(8.0)
MHCV
10,698
14,576
(26.6)
41,478
55,453 (25.2)
LCV ( incl. Dost)
7,755
8,085
(4.1)
21,776
24,631 (11.6)
1,713
1,702
0.6
6,146
6,788
(9.5)
Source: Company; Angel Research
PV sales too remain subdued

The PV segment registered a decline of ~5% yoy YTD in FY2014
as challenging macro-economic environment continues to
impact demand. The growth has been affected across all the
segments with the passenger car and utility vehicle segments
registering a decline of ~5% and ~6% yoy respectively. The
only bright spot in the segment remain the rural sales, which
continue to hold up well, and strong traction in new launches
like Grand i10, Amaze and EcoSport. Going ahead, we expect
the sluggish sales trend to continue in the near term as consumer
sentiments remain subdued.
We expect MSIL to register a strong earnings growth of
~24% yoy in 3QFY2014 despite decline in the top-line as
EBITDA margins are expected to improve ~310bp yoy to 11.1%
on a low base and also due to the impact of Suzuki Powertrain
India (SPIL) merger. Nonetheless, on a sequential basis, we
expect the top-line to register a growth of ~4%, driven by a
~5% qoq growth in volumes on the back of the festival demand
during the quarter. EBITDA margins are likely to decline by
~150bp qoq due to adverse product-mix, higher discounts and
unfavorable forex movement. As a result, earnings are expected
to decline by ~7% sequentially during the quarter.
Exhibit 3: MSIL and MM Quarterly volumes

Segment
MSIL
288,151
301,453
(4.4)
830,171
827,725
0.3
Domestic
268,185
268,957
(0.3)
755,093
742,175
1.7
19,966
32,496
(38.6)
75,078
207,843
211,678
(1.8)
582,951
588,361
Automotive - domestic120,929
140,378
(13.9)
349,366
389,450 (10.3)
led by capacity expansion at Honda Motors and Scooters India

(HMSI) and Hero MotoCorp coupled with the success of the
Maestro and Jupiter models. Motorcycle sales too have revived
and grown strongly by ~12% yoy during the quarter, led
by rural demand and the festival cheer. Going ahead, we
expect the momentum in 2W sales to continue driven by
rural demand.
HMCL is expected to lead the earnings growth in the 2W segment
following a strong volume growth of ~7% yoy (~19% qoq), led
by rural demand amid the festival season. We expect EBITDA
margins to improve ~180bp yoy to ~11% led by better
product-mix, price increases and also on account of the cost
reduction initiatives. Consequently the net profit is expected to
surge ~15% yoy (~17% qoq) during the quarter.
We expect Bajaj Auto (BJAUT) to register a ~5% earnings growth
despite a ~2% yoy decline in the top-line. The top-line
performance is expected to be impacted due to weakness in
the domestic segment (down ~24% yoy), even though the export
volumes registered a strong growth of ~12% yoy. The companys
net average realization though, is expected to grow strongly by
~12% yoy (flat qoq), mainly due to the INR depreciation. Led
by favorable exchange rate, the companys EBITDA margins
are expected to surge ~180bp yoy to 20.5% during the quarter.
Exhibit 4: BJAUT, HMCL and TVSL Quarterly volumes
Segment
BJA
UT
BJAUT
993,690
Motorcycles
887,671
Three-wheelers
1,127,741 (11.9) 2,934,295 3,255,920
(9.9)
986,263
(10.0) 2,597,112 2,897,410 (10.4)
106,019
141,478
(25.1)
358,510
(5.9)
Exports (incl. above) 422,506
376,222
12.3 1,186,099 1,182,152
0.3
HMCL
337,183
1,680,940
1,573,135
6.9 4,656,154 4,546,230
2.4
TVSL
519,308
518,496
0.2 1,520,419 1,523,655
(0.2)
Two-wheelers
498,941
504,894
(1.2) 1,460,889 1,488,761
(1.9)
Three-wheelers
20,367
13,602
49.7
59,530
34,894
70.6
74,289
58,894
26.1
227,590
179,627
26.7
Auto ancillaries
Strong scooter sales though insulates the 2W segment
Auto ancillary companies in our coverage universe are expected

to post a strong performance on a yoy basis, largely due to the
base effect. However, on a sequential basis the performance is
expected to remain muted due to continued slowdown in
demand from OEMs. We expect Motherson Sumi Systems (MSS)
to witness a strong earnings growth (yoy as well as sequential)
led by continued improvement in utilization at the new plants
and also due to the favorable forex movement.
The 2W segment, which registered a growth of ~4% yoy in

1HFY2014, has picked up pace and is estimated to have grown
by ~12% yoy in 3QFY2014 led by strong rural demand on the
back of favorable monsoons. Scooters continued with their
strong sales momentum and surged by ~25% yoy in 3QFY2014,
On a consolidated basis, we expect Apollo Tyres (APTY) to

register a top-line growth of ~5% yoy (down ~2% qoq) driven
primarily by robust revenue growth in Europe aided by a
favorable exchange rate. Domestic and South Africa revenues
are however expected to decline by ~7% and ~4% yoy
Exports
MM
Automotive - exports
Tractor - domestic
Tractor - exports
8,495
6,500
30.7
21,325
76,132
62,341
22.1
204,758
2,287
2,459
(7.0)
7,502
85,550 (12.2)
(0.9)
24,690 (13.6)
165,699
23.6
8,522 (12.0)
11
Automobile
respectively due to a weak demand scenario. We expect EBITDA
margins to improve marginally by ~30bp yoy to 12.2%
(flat qoq) leading to an ~5% yoy (down ~14% qoq) growth in
earnings.
For Bharat Forge (BHFC), we expect the standalone earnings to
swell ~96% yoy largely due to the base effect. Its top-line is
expected to jump ~28% yoy led by ~17% and ~10% yoy growth
in volumes and net average realization respectively. The
companys EBITDA margins are expected to improve sharply
by ~470bp yoy to 25.9% driven by better product-mix and
favorable exchange rate. Nevertheless, on a sequential basis,
we expect the companys bottom-line to decline by ~4% as
EBITDA margins are expected to contract 50bp qoq due to cost
pressures.
We expect Bosch (BOS) to post a modest top-line growth of
~4% yoy (~3% qoq) largely driven by exports. On the operating
front, margins are expected to expand by ~340bp yoy (~65bp
qoq) to 15.8% led by cost control measures. Consequently, its
net profit is expected to increase by ~39% yoy (~2% qoq) during
the quarter.
We expect Exide Industries (EXID) to register a modest top-line
growth of ~3% yoy (~5% qoq) primarily due to slowdown in
demand from OEMs. Nonetheless, we expect its EBITDA margins
to improve ~330bp yoy (~50bp qoq) to 14.5% due to the
pricing action and easing of lead prices. As a result, we expect
the companys bottom-line to register a growth of ~29% yoy
(~13% qoq) during the quarter.
We expect Motherson Sumi Systems (MSS) to post favorable

results on the back of the improving utilization levels at the new
facilities and also due to INR depreciation. On the consolidated
front, we expect the top-line to post a strong growth of ~14%
yoy (~5% qoq), driven primarily by ~20% and ~13% yoy growth
in Samvardhana Motherson Reflectec (SMR) and Peguform
revenues respectively. We expect EBITDA margins to improve
~230bp yoy (~30bp qoq) to 9.9%, aided by better utilization
levels and also due to cost control initiatives. The net profit
therefore is expected to register a strong growth of ~81% yoy
(~18% qoq) during the quarter.
Outlook
While the near term environment continues to remain
challenging for the automotive sector, we believe the long-term
structural growth drivers for the industry such as GDP growth
(leading to increasing affluence of rural and urban consumers),
favorable demographics, low penetration levels, entry of global
players and easy availability of finance will remain intact. We
continue to prefer stocks that have strong fundamentals, high
exposure to rural and export markets and command superior
pricing power. We maintain our positive view on Bajaj Auto,
Mahindra & Mahindra and TTata
ata Motors.
Exhibit 5: Quarterly estimates Automobile

Company
CMP
Net Sales
OPM (%)
EPS ((`
`)
P/E (x)
TTarget
arget Reco.
(`)
3QFY14E
chg bp
3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
1,953
(18.9)
1.1
(323)
(151)
86.0
(0.6)
86.0
0.6
(1.4)
0.7
28.1
26.2
1,911
5,321
(1.7)
20.5
183
861
5.2
29.8
5.2
105.2
120.5
142.0
18.2
15.9
13.5
2,272
Buy
Hero MotoCorp^ 2,075
6,869
11.0
11.0
181
561
15.0
28.1
15.0
106.1
107.9
150.8
19.6
19.2
13.8
2,262
Accum.
Bajaj Auto
% chg 3QFY14E
EPS ((`
`)
17
Ashok Leyland
% chg 3QFY14E
(`
` cr)
Net PProfit
rofit
(`)
Neutral
Maruti Suzuki 1,763
10,928
(2.4)
11.1
312
620
23.7
20.5
23.7
79.2
96.7
111.1
22.3
18.2
15.9
Neutral
Mah. & Mah.@ 944
10,415
(3.3)
13.2
199
902
7.8
15.3
7.8
54.7
60.4
65.2
17.2
15.6
14.5
1,050
Accum.
Tata Motors*
376
60,209
30.6
13.8
155
3,353
86.2
10.4
84.5
32.9
41.3
48.3
11.4
9.1
7.8
419
Accum.
76
2,051
14.0
6.1
19
69
30.8
1.4
30.8
4.4
5.2
6.6
17.4
14.7
11.5
Neutral
TVS Motor
Source: Company, Angel Research; Note: Price as on December 31, 2013; * Consolidated numbers; ^ OPM adjusted for royalty payment; @ P/E not adjusted for the value of subsidiaries
Exhibit 6: Quarterly estimates Auto Ancillary

Company
CMP
Net Sales
OPM (%)
EPS ((`
`)
% chg 3QFY14E
EPS ((`
`)
P/E (x)
TTarget
arget
Reco.
(`)
3QFY14E
chg bp
3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
Apollo Tyres*
107
3,368
4.7
12.2
32
189
4.8
3.8
4.8
11.8
14.6
15.8
9.1
7.3
6.8
Neutral
Bharat Forge&
329
858
27.6
25.9
473
93
95.7
4.0
95.7
7.8
16.9
22.2
42.1
19.5
14.8
Neutral
10,087
Accum.
Bosch#
% chg 3QFY14E
(`
` cr)
Net PProfit
rofit
(`)
2,221
4.2
15.8
336
239
39.0
76.2
39.0
313.2
369.0
448.6
32.2
27.3
22.5
11,215
123
1,500
2.5
14.5
326
134
28.8
1.6
28.8
6.2
6.8
8.1
20.0
18.2
15.2
135
Accum.
FAG Bearings# 1,614
388
11.8
13.9
199
34
14.0
20.4
14.0
73.0
97.8
125.1
22.1
16.5
12.9
1,751
Accum.
Motherson Sumi* 183
7,610
14.2
9.9
226
302
80.7
5.1
80.7
10.3
11.7
13.6
17.7
15.7
13.4
218
Exide Industries
Buy
Source: Company, Angel Research; Note: Price as on December 31, 2013, * Consolidated numbers; # December ending; & Full year EPS is consolidated
Analyst - Y
aresh K
othari
Yaresh
Kothari
12
Banking
27.5
(43.2)
J&K Bank
24.3
(3.5)
Allahabad Bank
25.1
(44.1)
ICICI Bank
26.1
10.9
Andhra Bank
21.4
(46.8)
Union Bank
18.6
(9.4)
LIC HF
16.6
(39.8)
IOB
16.7
(24.7)
IDBI Bank
12.3
(1.9)
HDFC Bank
13.7
(40.4)
Vijaya Bank
9.4
(25.9)
SBI
9.2
9.0
Corp Bank
7.1
(43.4)
17.00
16.00
15.00
14.00
13.00
12.00
11.00
10.00
Exhibit 3: Liquidity remains comfortable

(` bn)
MSF
(500)
(1,000)
6.6
(60.0)
2.5
(25.4)
South Indian Bank (SIB)
4.0
(4.1)
(2,000)
Central Bank
1.7
(39.0)
(2,500)
(3.9)
(40.3)
Term Repo
United Bank
(1,500)
Nov-12
Bank of Maharashtra
Repo
500
HDFC
Nov-13
Canara Bank
18.00
Dec-13
(4.2)
Oct-13
(20.2)
28.9
Deposits Gr. (%)
Sep-13
28.8
Yes Bank
Credit Gr. (%)
19.00
Nov-13
Axis Bank
20.00
Oct-13
(25.5)
Jul-13
30.8
Aug-13
UCO Bank
Exhibit 2: FCNR (B) deposits aid deposits growth
Sep-13
(4.2)
Jun-13
(28.1)
30.3
Aug-13
35.8
BOB
Apr-13
Dena Bank
May-13
(47.0)
Jul-13
32.8
Mar-13
(26.2)
PNB
Jun-13
39.8
Jan-13
47.7
Feb-13
(21.9)
Federal Bank
Syndicate Bank
May-13
(30.6)
Dec-12
50.6
Apr-13
Bank of India
Mar-13
(34.6)
Oct-12
58.1
Nov-12
(41.7)
OBC
Sep-12
Returns (yoy)
72.3
Feb-13
Returns (qoq)
Indian Bank
Aug-12
(%)
Credit growth for the banking system, after witnessing sudden

acceleration in 2QFY2014 to 17.7% yoy aided by shift from
Commercial Paper borrowings to loans, has now again
moderated to 15.3% yoy as of December 13, 2013. A
challenging macro environment and policy woes in select sectors
has affected investment sentiments for quite some time now.
Hence incremental credit demand from corporates remains
weak, largely comprising of working capital needs. Going
forward, in our view, credit growth for FY2014 is likely to be
around 15%, as credit disbursement pipeline for banks, as
indicated by their Managements, remains thin, largely
comprising of sanctions already in place.
Jan-13
Exhibit 1: 3QFY2014 stock performance
Credit growth remains moderate; strong FCNR (B)

deposit mobilization aids healthy deposit growth
Jul-12
As the RBI normalized most of its exceptional liquidity tightening

measures, short term rates have come off by 100-125bp qoq
(though they are still elevated compared to pre-tightening levels).
At the longer end of the interest rate curve, most banks have
Overall, we expect earnings divergence amongst our coverage

banking stocks to continue during 3QFY2014 as well. We expect
our coverage new private banks to deliver earnings growth of
17.1% yoy, while our coverage PSU and old private banks are
expected to register bottom-line de-growth of 9.0% and
1.5% yoy, respectively.
Dec-12
Banking stocks outperformed the broader markets during

3QFY2014, as more than two-third of our coverage banks
registered a sequential gain of more than 15%. During the
quarter, the RBI normalized its exceptional liquidity tightening
measures taken in the previous quarter, as its other structural
measures (gold import curbs, swap facility for OMCs banks
etc) restored stability in the currency markets. The RBI also
increased repo rate once during the quarter by 25bp, so as to
anchor inflationary expectations, while it eased systemic liquidity
by introducing Term Repos (7 and 14 days) to the extent of
0.5% of the NDTL or `40,000cr. Recently it injected another
`10,000cr via Term Repos to support advance tax related payout
from banks.
kept their peak retail term deposit rates unchanged from the
end of last quarter. Higher short-term funding cost is likely to
result in margin pressures for those banks which have not taken
corresponding base rate hikes. Moreover, the un-provided MTM
losses as of 2QFY2014 end would also affect profitability for
some PSU banks (no provisioning required for new private banks
on that count as they have already provided fully).
Jun-12
Banking stocks outperformed broader markets on

improved liquidity, sentiments
13
Banking
retail term deposit rates unchanged from the end of last quarter.
However, healthy influx of FCNR (B) deposits at around USD
11bn for the system towards the end of the quarter, at
50-100bp lower cost, is likely to aid overall cost of funds (though
full impact is likely to be felt only from next quarter). In
2QFY2014, some banks (most of the Pvt. and few PSU banks)
had responded to the increase in incremental cost of funds by
increasing their base rates. Even in 3QFY2014, three private
banks have further increased their base lending rates. In our
view, those banks which have had base rate hikes in the recent
past stand to benefit on margins front from moderating costs
Exhibit 4: Short-term borrowing cost trend
Margins to find respite in nearly flat deposit rates and

strong influx of FCNR (B) deposits
(%)
10.5
RBI's exceptional liquidity tightening measures were normalized

during the quarter, however operational policy rate still remains
high as compared to the pre-tightening levels. Short-term
borrowing costs have eased further now (three month CD and
CP rates are lower by around 100bp from the levels at the end
of 2QFY2014 and by 320-370bp from their peaks), but are
still elevated compared to the pre-tightening levels. At the longer
end of the interest rate curve, most banks have kept their peak
9.5
31-Dec-12
30-Sep-13
31-Dec-13
10.0
9.0
8.5
8.0
9.29
8.82
9.61
8.68
8.49
9.63
8.68
8.46
9.66
9.83
9.45
10.25
9.00
6.5
9.96
8.96
7.0
8.60
7.5
10.03
8.95
Aided by strong accretion in FCNR (B) deposits under the RBI's

concessional swap scheme, deposits for the banking system
grew at 17.0% yoy as of December 13, 2013 (influx of FCNR
(B) deposits aided deposit growth by around 100bp). Recent
inflation readings have increased mainly on account of high
food prices. With sharp correction already in vegetable prices,
expectations of healthy Agri harvests this year, softening global
commodity prices and moderate MSP revisions this year, food
inflation should eventually taper off, leading to moderation in
overall inflation readings as well. Hence, we expect core deposit
growth (deposits excluding FCNR (B) deposits) to improve going
ahead, as we expect overall retail inflation to moderate.
6.0
CP 1M
CP 3M
CP 12M
CD 1M
CD 3M
CD 12M
Exhibit 5: 2QFY2014 and 3QFY2014 Lending and deposit rates

Avg
Avg.. Base rates (%)
Bank
SBI
HDFC Bank
Federal Bank
Bank of India
Union Bank
ICICI Bank
Axis Bank
Bank of Maharashtra
Central Bank
Yes Bank
Andhra Bank
IOB
J&K Bank
United Bank
Syndicate Bank
BOB
PNB
Corp Bank
OBC
Dena Bank
IDBI Bank
South Indian Bank
Allahabad Bank
UCO Bank
Indian Bank
Vijaya Bank
Canara Bank
Avg
Avg.. BPLR rates (%)
FD rates* (%)
2QFY14
3QFY14
bp change
2QFY14
3QFY14
bp change
2QFY14
3QFY14
bp change
9.71
9.73
10.32
10.08
10.09
9.86
10.12
10.14
10.15
10.67
10.17
10.25
10.25
10.25
10.25
10.25
10.25
10.25
10.25
10.25
10.25
10.50
10.20
10.20
10.20
10.20
9.97
9.91
9.92
10.50
10.25
10.25
10.00
10.25
10.25
10.25
10.75
10.25
10.25
10.25
10.25
10.25
10.25
10.25
10.25
10.25
10.25
10.25
10.50
10.20
10.20
10.20
10.20
9.95
20
20
18
17
16
14
13
11
10
8
8
(0)
(0)
(0)
(0)
(2)
14.46
18.23
17.75
14.50
14.60
18.61
17.87
15.00
15.00
19.75
14.42
15.50
14.75
14.60
14.50
14.50
14.00
15.00
14.75
15.75
14.75
19.00
14.45
14.50
14.50
14.75
14.34
14.66
18.42
17.75
14.50
14.75
18.75
18.00
15.00
15.00
19.75
14.50
15.50
14.75
14.60
14.50
14.50
14.00
15.00
14.75
15.75
14.75
19.00
14.45
14.50
14.50
14.75
14.20
20
20
15
14
13
8
0
(0)
(14)
9.00
9.00
8.75
9.00
9.00
9.00
9.00
9.25
8.75
9.10
9.50
9.00
8.75
9.00
9.30
8.75
9.00
9.00
9.00
9.10
9.00
9.25
9.00
9.00
9.00
9.00
8.80
9.00
9.00
9.00
9.05
9.00
9.00
9.00
9.10
8.75
9.10
9.20
9.00
8.75
9.25
9.10
9.05
9.00
9.00
9.00
9.00
9.40
9.25
9.00
9.00
9.00
9.30
9.05
25
5
(15)
(30)
25
(20)
30
(10)
40
30
25
Source: Company, Angel Research; Note: * peak retail tern deposit rates in 1-3 year maturity bucket
14
Banking
of funds, aided by nearly flat deposit rates, lower cost of
borrowings qoq and healthy influx of FCNR (B) deposits.
Aided by strong accretion in FCNR (B) deposits under the RBI's
concessional swap scheme, deposits for the banking system
grew at 17.0% yoy. Systemic liquidity has improved aided by
capital flows under RBI swap facility for banking capital and
FCNR (B) deposits. On back of improved liquidity amidst
moderate credit demand, most of our coverage banks kept
their peak retail term deposit rates unchanged during the
quarter. Four of our coverage banks reduced their retail term
deposit rates by 10-30bp qoq, drawing comfort from ample
liquidity, while seven of them increased their retail term deposit
rates. Highest increase in retail term deposit rates was witnessed in
case of IDBI Bank (40bp qoq), followed by BOB and Vijaya Bank by
30bp qoq and Canara Bank and United Bank by 25bp qoq.
As far as lending rates are concerned, three of our coverage
banks further increased their base rates during the quarter (SBI
and HDFC Bank by 20bp and Federal Bank by 10bp), citing
elevated incremental costs of funds. Hence, on an average basis,
the base lending rate would be higher for those three banks
and also for eight others which had raised their lending rates
sometime in last quarter. Highest sequential increase in base
lending rate would be for SBI and HDFC Bank (by 20bp each),
followed by Federal Bank, Bank of India and Union Bank (by
16-18bp each) and ICICI Bank and Axis Bank (by 13-14bp
each), while in case of Canara Bank it would be lower marginally
by 2bp.
New private banks to deliver better numbers

yet again
During 3QFY2014, we expect earnings divergence amongst
our coverage banking stocks to continue. We expect our
coverage new private banks to deliver healthy earnings growth
of 17.1% yoy, while our coverage PSU and old private banks
are expected to register bottom-line de-growth of 9.0% and
1.5% yoy, respectively.
New private banks are expected to deliver healthy NII growth
of 20.1% yoy, which is expected to aid healthy growth of 15.3%
yoy in operating income, dragged by moderate performance
on non-interest income (at 6.9% yoy). On back of healthy
operating profit growth of 18.4% yoy, our coverage new private
banks are expected to report healthy earnings growth of
17.1% yoy. On the other hand, PSU and old private banks are
expected to register moderate NII growth of 10.6% and
9.6% yoy, respectively and muted non-interest income
performance with yoy de-growth of 4.8% and 21.9%,
respectively. Additionally, operating expenses growth for PSU
and old private banks is expected to be higher than new private
banks at 21.6% and 15.3% yoy, respectively. Overall, we expect
our coverage PSU and old private banks to register bottom-line
de-growth of 9.0% and 1.5% yoy, respectively.
Asset quality pressures likely to remain elevated

Asset quality stress has remained at elevated levels for Indian
banks for quite some time now, and has severely dented the
sector's performance and outlook. Slippages for the banking
industry have continued to trend northwards over the last few
years. Even in 2QFY2014, Indian banks' fresh NPL formation
remained high at 3.1%, which although was slightly better on a
qoq/yoy basis (3.7% in 1QFY2014 and 3.4% in 2QFY2013).
Recent healthy exports growth has provided a much needed
breather to the economy and more specifically to stressed sectors
like textiles. Expectations of sustained moderation in inflation
going ahead owing to lower food inflation is likely to act as a
single biggest positive catalyst for our economy. Sustained
moderation in inflation, as and when it happens, would
eventually provide room to lower interest rates, thereby leading
to improvement in growth, higher savings and investments
mobilization and improvement in asset quality outlook.
Until then, in the near term, while we expect slippages to
moderate here on, they are likely to remain at elevated levels.
Recoveries/upgrades performance can be expected to be better
than earlier, aided by the recent pick up in sale of assets to
ARCs. Overall, we expect net slippages to trend lower here on.
Private banks have not been spared from asset quality pressures,
however, they have not only been reporting much lower
slippages, but have also performed reasonably on the recoveries
and upgrades front and have managed to keep their asset
quality largely intact until now in a challenging economic
environment. Even going ahead, we expect private banks to
continue outperforming their nationalized peers on the asset
quality front.
During 2QFY2014, few banks like Bank of India, Allahabad
Bank, witnessed a sudden spurt in their recoveries from written
off accounts, largely aided by asset sale to ARCs, which
contributed significantly to their earnings for the quarter. Given
the determined efforts across banks to improve their asset quality
before the end of the fiscal, asset sale to ARCs is likely to pick
up further, with media reports suggesting that few banks taken
together have put up assets worth `4,000cr for sale to ARCs
during the quarter (SBI - `1,200cr, Dena Bank - `600cr, OBC `640cr, Allahabad Bank - `350cr). Healthy quantum of asset
sale to ARCs is likely to remain a significant contributor to
profitability for many of these banks in 3QFY2014.
On the restructuring front, corporate debt restructuring (CDR)
referrals have also risen significantly over the last several
quarters, closely tracking the deteriorating economic growth
15
Banking
Exhibit 7: Net NPA trends (%) Private vs PSU
Pvt Banks
PSU Banks
4.52
0.79
0.69
4.02
3.41
3QFY11
2QFY11
Exhibit 9: Net NPA trend (%) for the banking industry

2.50
2.25
2.30
3.80
2.09
2.10
3.49
3.32
1.90
3.09
2.43 2.47 2.40
0.62 0.66
0.56 0.56 0.54 0.54
0.46 0.49 0.54 0.55 0.53
Exhibit 8: Gross NPA trend (%) for the banking industry
2.73
1QFY11
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
1QFY11
0.00
4QFY13
0.92
3QFY13
1.50
0.50
2QFY13
2.01 2.05 2.06 2.00 1.90 2.00 2.02
1QFY13
2.45
1.121.13 1.07
1.00
4QFY12
2.34 2.42 2.35 2.27
2.33 2.24 2.17
1.47 1.56 1.50
1.73
1.09 1.16
3QFY12
2.36
1.50
2QFY12
2.57
3.02 2.98
1QFY12
2.85
2.04 2.12 2.01
4QFY11
2.80 2.70
2.50
1.74
1.70
2.85 2.80
2.43
2.28
1.72
1.49
1.50
1.30
1.80
1.36
1.28
1.08 1.07
1.10
1.30
1.00 0.99 1.04
environment. Under CDR mechanism, fresh approvals of around

`22,000cr in 2QFY2014 (unless the implementation is delayed
for any reason) and the pending cases of around `44,000cr
(only those which are approved and implemented during the
quarter), would add to the restructuring book of participating
banks during the current quarter.
As far as the progress on SEB restructuring under the centre's
Financial Restructuring Plan (FRP) is concerned, so far six states
- Tamil Nadu, Uttar Pradesh, Haryana, Rajasthan, Madhya
Pradesh and Punjab have finalized restructuring of their shortterm debt upto March 2012 under the FRP. Further, CCEA has
also allowed Jharkhand, Bihar and Andhra Pradesh to
restructure their short-term debt upto March 2013 under the
FRP. FRP entails conversion of 50% of the short-term debt of
discoms into bonds (which would be eventually taken over by
states over a period of 2-5 years), while the balance 50% would
be restructured by the banks. Conversion of short-term debt to
bonds (priced at around 9-10%) would result in 200-300bp
reduction in yields for banks and would be negative for banks
from an NIM perspective. At the same time, it would also entail
release of 300-325bp provisioning on this debt (part of which
is converted to bonds), making the arrangement positive on an
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
1QFY11
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
0.90
1QFY11
4.30
4.10
3.90
3.70
3.50
3.30
3.10
2.90
2.70
2.50
2.30
2.10
2.65
2.47
2.00
3.34
3.50
2.00
PSU Banks
2.50
3.75 3.87 3.67
4.00
3.00
Pvt Banks
3.00
4.26
4.50
2QFY14
5.00
1QFY14
Exhibit 6: Gross NPA trends (%) Private vs PSU
Exhibit 10: CDR snapshot

Referred
No. of cases Add. ((`
` cr)
Approved
No. of cases Add. ((`
` cr)
FY10
31
20,175
31
17,763
FY11
49
22,614
27
6,615
1QFY12
18
4,595
10
8,141
2QFY12
18
21,095
2,095
3QFY12
23
19,187
17
21,364
4QFY12
28
23,012
16
8,001
FY12
87
67,889
50
39,601
1QFY13
41
20,528
17
17,957
2QFY13
33
18,907
18
18,925
3QFY13
25
20,957
35
24,581
4QFY13
31
31,256
39
17,035
130
91,648
109
78,498
1QFY14
27
39,370
14
21,266
2QFY14
31
24,859
16
22,007
580
362,370
431
272,286
FY13
Outstanding
Source: CDR Cell, Angel Research
the next few quarters), Union Bank (~`3,000cr, majority of which
overall basis.
comprises discom restructuring under FRP), OBC (~`2,300cr),
As indicated by their Managements, the restructuring pipeline
Syndicate Bank (~`2,100cr, majority of which comprises
appears sizable for banks like Canara Bank (~`6,500cr of which
discoms under FRP), Andhra Bank (~`3,000cr) and Central
~`3,000cr would be discoms under FRP), SBI (~`6,000cr over
Bank (~`2,000cr).
16
Banking
Exhibit 11: Industry-wise live approved cases under CDR
Industry
Outlook and valuation
No.
Agg
` cr)
Agg.. Debt ((`
From a structural perspective, we recommend cautious stance
Iron& Steel
46
41,812
21.3
on PSU banks as a segment, given the challenges they face in
Infrastructure
20
35,543
18.1
Textiles
47
19,545
10.0
terms of a) low capital adequacy and core profitability (for many
Power
13
17,225
8.8
Telecom
9,808
5.0
Ship-Breaking/Ship Building
6,732
3.4
Pharmaceuticals
6,375
3.3
NBFC
6,257
3.2
Paper/Packaging
15
5,280
2.7
From a cyclical perspective, improvement in the macro
Sugar
16
4,955
2.5
environment (as and when it happens) is likely to benefit all
of them; which increases the risk of book dilutive capital raising),

and b) higher competitive intensity (not only loss of deposits
and credit market share, but also of profitability - as current
credit cycle evidently highlights adverse asset selection on part
of PSUs and superior selection by private banks).
4,852
2.5
banks, including our preferred picks amongst large private
10
4,806
2.5
banks viz. Axis Bank and ICICI Bank. That said, albeit with a
Fertilizers
4,193
2.1
higher risk profile, some of the PSU banks with relatively higher
Computer hardware
3,113
1.6
capital adequacy and well diversified asset books could be
Cements
2,242
1.1
considered from a cyclical revival point of view; these mainly
Electronics
2,230
1.1
comprise some of the larger PSU names like SBI and BOB.
53
21,299
10.8
261
196,267
100
Petrochemicals
Hospitality
Others
Total
2.10
Exhibit 12: Corporate and G-Sec bond yields

31-Dec-12
30-Sep-13
1.50
1.20
0.90
0.60
Jun-13
Dec-13
Jun-12
Dec-12
Jun-11
Dec-11
Jun-10
Dec-10
Jun-09
Dec-09
Jun-08
Dec-08
Jun-07
Dec-07
Jun-06
Dec-06
0.30
Jun-05
Given the current state of yields, the un-provided MTM losses

as of 2QFY2014, are likely to require meaningful provisioning
for some PSU banks (no provisioning for new private banks on
this count - as they have already provided fully) in the coming
quarter. Within our coverage banks, un-provided MTM losses
as a proportion of operating profits for second half of the fiscal
are relatively high for Dena Bank at around 33% followed by
IOB at 28%, Vijaya Bank and Canara Bank at 24% and Corp
Bank at 19%.
1.80
Dec-05
Un-provided MTM losses to require meaningful

provisioning for some PSU banks
Dec-04
Source: CDR Cell, Angel Research
(%)
12.0
Exhibit 13: PSU banks price band (P/ABV)*
Source:C-line, Angel Research, Note:* For PSU banks excl. SBI and IDBI
Exhibit 14: New Private banks price band (P/ABV)*

4.00
3.50
3.00
2.50
31-Dec-13
2.00
1.50
11.0
1.00
10.0
8.83
8.05
8.76
8.03
8.85
8.89
8.56
7.93
8.70
9.62
9.06
9.96
9.63
9.10
9.94
9.85
9.06
7.0
9.84
Sep-13
Feb-13
Jul-12
Dec-11
May-11
Oct-10
Mar-10
Aug-09
Jan-09
Jun-08
Nov-07
Apr-07
Sep-06
Feb-06
8.0
Jul-05
Dec-04
0.50
9.0
Source:C-line, Angel Research, Note:*under our coverage
6.0
AAA 3 Yr
AAA 5 Yr
AAA 10 Yr
Gsec 3Yr
Gsec 5Yr
Gsec 10Yr
17
Banking
((`
` cr)
Exhibit 15: Quarterly estimates

Company
CMP
Operating Income
Net PProfit
rofit
FY13
FY14E
FY15E
FY13
FY14E
1,568
16.4
110.7
130.5
158.4
705.2
803.1
923.6
11.7
10.0
8.2
1.8
1.6
1.4 1,709 Buy
207
(1.9)
9.8
8.6
10.3
73.8
81.1
89.1
8.6
9.8
8.2
1.1
1.0
0.9
- Neutral
15.5
2,349
26.3
28.3
35.9
45.5
152.2
179.7
215.0
23.6
18.5
14.6
4.4
3.7
3.1
753 Accum.
6,556
14.7
2,475
10.0
72.2
82.5
97.4
578.2
634.2
700.1
15.2
13.3
11.3
1.9
1.7
1.6 1,454 Buy
435
3.8
127
(0.8)
3.8
3.7
4.1
20.4
23.4
26.5
5.4
5.5
5.0
1.0
0.9
0.8
25 Buy
370
1,065
18.7
397
15.9
36.3
43.8
49.9
162.0
198.2
239.4
10.2
8.4
7.4
2.3
1.9
1.5
443 Buy
Allahabad Bank 95
1,712
2.5
237
(23.6)
23.7
23.4
27.8
168.7
166.8
185.6
4.0
4.1
3.4
0.6
0.6
0.5
- Neutral
Andhra Bank
63
1,257
3.9
120
(53.4)
23.0
10.3
13.9
129.1
121.0
130.4
2.7
6.1
4.5
0.5
0.5
0.5
- Neutral
BOB
646
3,872
5.2
1,130
11.7
106.0
107.8
122.1
735.5
786.9
884.8
6.1
6.0
5.3
0.9
0.8
0.7
- Neutral
Bank of India
238
3,540
9.1
786
(2.2)
46.1
49.9
55.7
345.2
379.4
422.0
5.2
4.8
4.3
0.7
0.6
0.6
- Neutral
Canara Bank
282
2,973
4.9
639
(10.1)
64.8
59.0
56.5
473.6
491.3
532.6
4.4
4.8
5.0
0.6
0.6
0.5
- Neutral
Central Bank
51
1,874
6.1
202
12.2
8.1
(7.8)
9.4
88.5
68.0
74.7
6.4
(6.5)
5.5
0.6
0.8
0.7
- Neutral
Corp Bank
261
1,306
2.8
191
(36.9)
93.8
53.5
77.8
594.1
550.0
614.4
2.8
4.9
3.4
0.4
0.5
0.4
- Neutral
Dena Bank
61
782
3.0
155
(25.2)
23.1
13.2
14.5
135.6
122.2
134.8
2.6
4.6
4.2
0.4
0.5
0.5
- Neutral
IDBI Bank
66
2,278
(0.2)
360
(13.6)
14.1
8.6
16.0
142.8
129.6
143.7
4.7
7.7
4.1
0.5
0.5
0.5
- Neutral
116
1,373
(0.8)
314
(5.1)
35.8
28.6
32.1
222.2
236.5
265.3
3.2
4.0
3.6
0.5
0.5
0.4
133 Accum.
51
1,945
2.6
181
55.2
6.1
6.0
13.2
116.1
105.1
115.7
8.4
8.6
3.9
0.4
0.5
0.4
- Neutral
1,434
796
16.2
308
6.5
217.6
254.8
245.7 1,003.2 1,197.6 1,379.9
6.6
5.6
5.8
1.4
1.2
1.0
- Neutral
OBC
229
1,664
5.1
327
0.3
45.5
42.1
49.9
382.4
397.3
442.5
5.0
5.4
4.6
0.6
0.6
0.5
PNB
627
5,077
7.9
1,238
(5.2)
134.3
120.6
152.7
802.2
876.4 1,035.7
4.7
5.2
4.1
0.8
0.7
0.6
1,766
16,120
8.9
2,716
(20.0)
206.2
171.0
235.8 1,364.7 1,394.0 1,582.4
8.6
10.3
7.5
1.3
1.3
1.1 2,102 Buy
SIB
Yes Bank
Indian Bank
IOB
J&K Bank
SBI
1,300
4,725
14.9
84
708
0.9
666
6,823
1,098
20
FY15E
Target Reco.
FY15E
ICICI Bank
3QFY14E
P/AB
V (x)
P/ABV
FY14E
HDFC Bank
% chg
P/E (x)
FY13
Federal Bank
3QFY14E
Adj B
VPS ((`
`)
BVPS
% chg
Axis Bank
(`)
EPS ((`
`)
FY13 FY14E FY15E
(`)
- Neutral
751 Buy
Syndicate Bank 95
1,713
2.6
391
(23.1)
33.3
26.9
21.9
158.9
169.1
188.8
2.8
3.5
4.3
0.6
0.6
0.5
- Neutral
UCO Bank
76
1,866
36.5
372
263.4
5.6
19.8
22.0
71.3
90.7
114.6
13.5
3.8
3.4
1.1
0.8
0.7
80 Accum.
Union Bank
130
2,616
3.4
290
(4.2)
36.0
25.3
37.0
247.1
250.0
279.3
3.6
5.1
3.5
0.5
0.5
0.5
- Neutral
Vijaya Bank
39
707
21.9
86
(32.4)
9.0
6.3
7.6
78.8
73.1
79.6
4.3
6.2
5.1
0.5
0.5
0.5
- Neutral
HDFC
796
1,929
11.6
1,283
12.6
31.7
37.5
44.7
161.7
179.9
201.5
25.2
21.2
17.8
4.9
4.4
4.0
841 Accum.
LIC HF
219
479
14.3
277
17.4
20.3
24.5
28.9
125.2
143.9
165.9
10.8
9.0
7.6
1.8
1.5
1.3
257 Buy
Source: Company, Angel Research; Note: Price as on December 31, 2013
Analyst - V
aibhav Agrawa
l/
Sourabh TTaparia/Harshal
aparia/Harshal PPatkar
atkar
Vaibhav
Agrawal/
l/Sourabh
18
Capital Goods
We expect the companies in our capital goods (CG) universe to
post a 2.3% yoy decline in top-line, on an overall basis. However,
excluding Bharat Heavy Electricals (BHEL; 11.0% yoy decline),
our CG universe is expected to report a moderate growth in
top-line of 7.2% yoy. On the bottom-line front, continued margin
pressure due to tough competition in the sector, and in some
cases higher interest costs due to deteriorating working capital
cycle, are expected to be a drag on profitability of most of the
companies in our sector universe.
ABB (CMP/TP: `693/`540) (Rating: Sell)

For 4QCY2013, we expect ABB India (ABB)'s top-line to decline
by 3.0% yoy to `2,020cr. At the operating level, ABB's margin is
expected to expand by 250bp yoy to 5.7%, aided by sharp
improvement in margins of power system segment on back of
cost control measures and supply chain optimizations.
Consequently, its net profit is expected to grow by an impressive
159% yoy to `43cr (albeit on a low base). On account of high
valuations, we assign a Sell rating to the stock with a target
price of `540.
BHEL (CMP/TP: `176/-) (Rating: Neutral)

We expect BHEL to post an 11% yoy decline in top-line to
`9,096cr for 3QFY2014 due to execution delays (on account
of delay in payments by clients as well as delay in obtaining the
necessary clearances). On the EBITDA front, the company's
margin is expected to contract by 519bp yoy to 10.8%.
Consequently, we expect PAT to decline sharply by 40% yoy to
`709cr. We maintain our Neutral recommendation on the stock
as declining order backlog limits revenue visibility for BHEL
BHEL..
BGR Energy (CMP/TP: `126/`135) (Rating: Accumulate)

We expect BGR Energy (BGR)'s top-line to grow by 19.8% yoy
to `964cr on back of good execution of Construction and EPC
contracts. However, its EBITDA margin is expected to contract
by 244bp yoy to 11.3% as the company is executing relatively
lower margin orders. Consequently, the bottom-line is likely to
decline by 3.7% yoy to `40cr. We recommend Accumulate rating
on the stock with a target price of `135.
Crompton Greaves (CMP/TP: `129/`150) (Rating: Buy)

For 3QFY2014, we project Crompton Greaves to report a
double digit top-line growth of 11.0% yoy to `3,299cr as the
company executes its robust order book. On the EBITDA front,
the company's margin is expected to expand by an impressive
573bp yoy to 5.8% (albeit on a very low base due to productivity
losses in 3QFY2013). Consequently, the company is expected
to post a net profit of `79cr compared to a loss of `68cr in
3QFY2013. We recommend Buy on the stock with a target
price of `150.
Jyoti Structures (CMP/TP: `31/-) (Rating: Neutral)

For 3QFY2014, we expect Jyoti Structures' top-line to grow by
12.6% yoy to `698cr. However, the operating margin is expected
to contract by 70bp yoy to 9.4% as tough competition in the
last few years has led to more aggressive bidding for projects.
In spite of margin pressure, the company's net profit is expected
to grow by 21.6% yoy to `16cr. We maintain our Neutral
recommendation on the stock.
KEC International (CMP/TP: `57/`62) (Rating: Accumulate)

For 3QFY2014, KEC International (KEC) is expected to register
a double digit top-line growth of 14.1% yoy to `2,050cr on the
back of strong execution of its robust order book. On the EBITDA
front, the company's margin is expected to expand by
64bp yoy to 6.4%. Consequently, we expect PAT to grow by
21.5% yoy to `36cr in spite of elevated interest costs. We
recommend Accumulate on the stock with a target price of `62.
Thermax (CMP/TP: `712/-) (Rating: Neutral)

For 3QFY2014, we expect Thermax to report a 7.8% yoy decline
in its top-line to `965cr, as subdued order backlog in the last
few quarters (due to weak order inflow) continues to drag down
its revenue. The company's EBITDA margin is likely to contract
by 97bp yoy to 9.7%. Falling revenue and margin are expected
to result in a yoy fall of 23.4% in the PAT to `58cr. We maintain
our Neutral rating on the stock.
Key Developments
CCI clears stalled projects worth `3.5 lakh cr
The Cabinet Committee of Investments (CCI) has cleared
92 projects worth `3.5 lakh cr stuck across five key infrastructure
sectors of power, roads, ports, cement and petroleum till now.
Most of the projects that have been cleared by CCI's intervention
are power plants that needed coal supplies to kick off electricity
generation. The government has now tasked the Department
of Financial Services in the finance ministry to monitor the actual
flow of these investments on the ground and report back to the
cabinet. It indicates CCI's strong commitment to revive stalled
projects and augurs well for the capital goods sector as a whole.
BSE Capital Goods Index outperforms Sensex: After lackluster
performance in 1HFY2014, the BSE Capital Goods index
bounced back sharply in 3QFY2014, outperforming the Sensex
by 24%. The increased optimism on revival of investment cycle
post-elections coupled with relatively cheap valuations led to
all the stocks in our capital goods universe to outperform the
Sensex. Crompton Greaves and KEC International which were
amongst the worst performers in 1HFY2014 recovered the most,
gaining by 50% or more on expectation of recovery in margins.
19
Capital Goods
Even BTG and BOP players such as BHEL, Thermax and ABB,
suffering from declining order inflows due to issues in power
sector, have recovered on hopes of capex revival and faster
clearances to power projects through CCI's intervention.
However, the government still needs to address structural
problems plaguing the power sector such as delays in
environmental clearances and land acquisition issues, to sustain
the rally.
(T&D) companies, order intake is expected to be stable on back

of steady ordering from PGCIL and uptick in ordering from
international markets. Although we firmly believe that
order inflow has bottomed out, execution delays and
slower-than-anticipated revival in industrial capex remain
a key risk.
Exhibit 1: 3QFY2014 - Sensex vs CG stocks
High competitive intensity, partly due to limited orders on the

horizon, has led to deterioration in margins. Further, interest
costs remain at elevated levels for many companies in our capital
goods universe as execution delays (due to delay in clearances
and deferral in payment by clients) and decline in advances
(due to subdued order inflow) have led to deterioration of
working capital, which is being funded by short-term borrowings.
120
111
100
(%)
80
58
60
40
50
28
33
29
21
20
15
Overall, the outlook remains challenging
ABB
BHEL
CG
Thermax
BGR
KEC
Jyoti
Margin pressure and high interest costs remain a drag

on profitability
BSE CG SENSEX
Index

Order inflow remains subdued
Order inflow for companies in the capital goods sector has
been largely subdued in the last few years on account of
substantial deceleration in investments across various sectors
(due to economic slowdown). Moreover, the headwinds in the
power sector (such as unavailability of domestic fuel and delay
in clearances) have delayed finalization of orders from power
companies. However, CCI's drive to revive stalled projects,
especially in the power sector, by fast-tracking various clearances
has renewed optimism for boiler, turbine and generator (BTG)
companies which have been grappling with declining order
backlog and execution delays. For transmission and distribution
Amid continued slowdown in economy, we believe the overall

picture remains gloomy for market leaders (read BHEL, ABB
and Thermax). Although the government has initiated efforts
by fast-tracking many projects through referral to the CCI and
framing state electricity board (SEB) restructuring policies to
improve their financial condition, we believe it will take a while
for the sector to witness any significant and dramatic growth.
Given this, we expect the slowdown to continue for the next
couple of quarters.
Valuations: We prefer companies operating with diversified
revenue streams across different geographies. Hence, Crompton
Greaves and KEC International are our preferred picks over
the medium to long term. However, we continue to maintain
our negative stance on the BTG space, owing to concerns
of heightened competition, execution delays and subdued
order inflows.

Company
CMP
Net Sales
(`) 3QFY14E
ABB*
( ` cr)
OPM (%)
% chg 3QFY14E
693
2,020
(3.0)
5.7
Net PProfit
rofit
chg bp 3QFY14E
EPS ((`
`)
EPS ((`
`)
P/E (x)
Tar
get
arg
% chg 3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
(`)
250
43
158.9
2.0
158.9
6.5
7.7
12.9
106.8
90.0
53.9
540
Reco.
Sell
BHEL
176
9,096
(11.0)
10.8
(519)
709
(40.0)
2.9
(40.0)
27.3
16.2
13.1
6.5
10.9
13.4
Neutral
BGR
126
964
19.8
11.3
(244)
40
(3.7)
5.5
(3.7)
22.5
23.1
22.6
5.6
5.4
5.6
135
Accum.
CG
129
3,299
11.0
5.8
573
79
1.2
(0.6)
5.0
7.8
25.7
16.6
150
31
698
12.6
9.4
(70)
16
21.6
2.0
21.6
4.7
7.2
8.3
6.7
4.3
3.8
Neutral
KEC Int.
57
2,050
14.1
6.4
64
36
21.5
1.4
21.5
2.5
4.7
7.3
22.5
12.2
7.9
62
Accum.
Thermax
712
965
(7.8)
9.7
(97)
58
(23.4)
4.9
(23.4)
26.9
26.7
31.7
26.5
26.7
22.4
Neutral
Jyoti Structures
Buy
Source: Company; Angel Research; Note: Price as on December 31, 2013; * December year ending
Analyst - Amit PPatil

atil
20
Cement
Pricing scenario in 3QFY2014

Cement manufacturers hiked prices at the end of 2QFY2014
hoping for a pick-up in demand. However, continued weakness
in demand made price hikes unsustainable and resulted in price
correction in most parts of the country during the quarter under
review. While prices remained at elevated levels in October,
they started to decline in the month of November. There was a
further decline in price in the month of December due to volume
push by companies following calendar year financial accounting.
Exhibit 1: Region-wise cement prices

Region
Prevailing cement price (`/50kg

/50kg.. bag)
South
250-330
North
230-280
Central
250-300
West
250-330
East
290-350
Source: Industry, Angel Research
Imported coal prices down yoy (in US$ terms)

Indian cement companies rely heavily on imported coal to meet
their fuel needs as domestic supplies do not meet their
requirement sufficiently. During 3QFY2014, average prices of
250
9,000
Price of coal increased qoq

in both US$ and INR terms
8,000
200
7,000
6,000
150
5,000
4,000
100
3,000
2,000
50
1,000
0
NCM Coal ($) (LHS)
Dec-13
Jun-13
Jun-12
Dec-12
Dec-11
Jun-11
Dec-10
Jun-10
Jun-09
Dec-09
Dec-08
Jun-08
Dec-07
Demand for cement in the northern region continued to be

poor during 3QFY2014. Further, cement demand in the region
was affected by the Rajasthan High Court's ban on mining and
transportation of sand throughout the state for more than a
month (from October 22 to November 26). The court had
passed this order based on allegations of flouting of
environmental norms and illegal sand mining in the state.
Shortage of sand resulted in spiraling of sand prices, thereby
affecting construction activities in the region. Demand remained
sluggish in the central and western regions as well. Demand
from the housing segment remained weak in the western region.
The southern region was affected by the sand mining ban in
Tamil Nadu, which affected construction activities in the state
as well as in the neighboring states of Andhra Pradesh and
Karnataka. Further, the continuing political turmoil in the state
of Andhra Pradesh also weighed on cement demand. Demand
was weak in the eastern region as well, impacted by adverse
weather conditions in Orissa in the months of October and
November.
Exhibit 2: New castle Mccloskey prices
Jun-07
With economic slowdown continuing to persist, cement demand

remains weak across the country. There was no major pick-up
in demand post the monsoon as expected by some cement
manufacturers earlier. Demand from both, the housing and
infrastructure segments continued to remain weak. Shortage of
sand too impacted construction in many parts of the country
during the quarter, thereby impacting cement demand. However,
sand availability improved during the later part of the quarter.
New Castle Mckloksey 6,000kc coal were up by 6.4% qoq but

down by 2.6% yoy to US$82.0 per tonne. The rise in prices of
imported coal in INR terms stood at 6.6% qoq. The INR/US$
exchange rate remained stable during the quarter. However, on
a yoy basis though the price of coal reduced by 2.6% in US$
terms, a 14.3% yoy depreciation in the INR led to an increase in
the price of imported coal by 11.3% yoy in INR terms.
Dec-06
Demand scenario remains bleak
INR (RHS)
Key developments
Jaypee
-Ultratech deal gets CCI nod: During the quarter, the
Jaypee-Ultratech
Competition Commission of India (CCI) approved Ultratech's
deal with Jaypee Cement Corporation to acquire the latter's
Gujarat Cement Plants (GCP). As per the deal entered in
September 2013, Ultratech would buy Jaypee Cement
Corporation's (a wholly owned subsidiary of Jaiprakash
Associates) 4.8mtpa cement plant in Gujarat. GCP consist of
an integrated cement plant at Sewagram and a 2.4mtpa cement
grinding unit at Wanakbori. GCP has a 2,500DWT jetty in Kutch
which is used for clinker and coal movement along with 57.5MW
coal based captive power plant. The enterprise value of the
transaction is `3,800cr (excluding actual net working capital).
Earlier, there were concerns that the CCI might disapprove the
deal as Ultratech and the other big player in the state Ambuja
would control a substantial ~60% of the Gujarat market based
on current demand. However, CCI in its order said that the
proposed deal will not have an adverse effect on competition
as Ultratech has committed to increase the capacity utilization
of the acquired plants (from ~65% in FY2013) which would
result in higher supply in the market. The CCI further added
that the commissioning of new plants by ABG in Gujarat and
Lafarge in Rajasthan would result in healthy competition in the
Gujarat market.
India Cements gets government approval for expanding
Dalavoi plant: During the quarter, the expert appraisal
committee under the Ministry of Environment gave its approval
to India Cements to double the capacity of its Dalavoi plant.
The current capacity for clinker production in this facility is
1.24mtpa and the company plans to add 1.53mtpa, taking the
total clinker production capacity to 2.77mtpa. The company's
21
Cement
cement (OPC/PPC) production capacity is 2.16mtpa and it plans
to add 2.55mtpa, taking the total cement production capacity
to 4.71mtpa. India Cements also plans to set up a 40MW CPP
in the Dalavoi facility. The estimated cost of the project is `810cr.
Exhibit 4: 3QFY2014E top-line performance of companies

4.0
3.2
2.0
0.3
0.0
(%)
Cement stocks - Performance on the bourses

During 3QFY2014, most of the cement stocks in our coverage
universe underperformed the BSE-Sensex, which gained 9.2%
during the quarter. However, JK Lakshmi Cement and India
Cements outperformed the BSE-Sensex and posted gains of
11.5% and 17.8% respectively.
(0.7)
(2.0)
(1.7)
(4.0)
(3.5)
(4.6)
(6.0)
(6.7)
(8.0)
ACC
Ambuja
Ultratech
India
Cements
Ramco
JK Lakshmi
Shree
Cement
Exhibit 3: Sensex vs Cement stocks (3QFY2014)

Cement majors
Abs. Return (%)
Sensex
Relative to Sensex (%)
9.2
ACC
(0.3)
(9.6)
Ambuja
(0.1)
(9.4)
India Cements
17.8
8.6
JK Lakshmi Cement
11.5
2.2
The Ramco Cements
7.8
(1.4)
Shree Cements
5.4
(3.9)
(2.6)
(11.8)
Ultratech
Margins to remain under pressure

Cement companies are confronted with weak cement prices
and increase in operating costs such as of raw material, freight
etc. We expect most of the companies under our coverage to
post a decline in margins on a yoy basis. Overall we expect a
259bp yoy decline in OPM for our cement universe.
Exhibit 5: OPM (%) performance in 3QFY2014E

Company
Source: BSE, Angel Research
3QFY2014 expectations
Top-line to decline marginally yoy
We expect our cement universe to report a marginal 1.2% yoy
decline on the top-line front. While we expect a 4.1% yoy growth
in volumes, realizations are expected to be lower on a yoy basis,
resulting in a marginal decline on the top-line front.
2QFY2014E 2QFY2013
yoy (bp) 1QFY2014
qoq (bp)
ACC ^
15.5
12.8
268
11.4
Ambuja ^
17.7
19.5
(176)
13.4
411
434
Ultratech
16.5
21.6
(509)
15.1
141
India Cements
12.2
17.8
(555)
11.7
50
Ramco Cements
15.9
23.2
(723)
13.0
290
JK Lakshmi
14.6
19.9
(524)
12.5
210
Shree Cement *
25.2
25.9
(70)
20.0
520
Source: Company, Angel Research; Note: ^December year ending; *June

year ending

A weak demand scenario has impacted the pricing power of
cement manufacturers in the country. Thus, despite the increase
in cost pressures due to higher freight fares and power costs,
cement manufacturers are finding it difficult to pass on the same
through price hikes. Further we also do not expect any respite
on the cost front going ahead. We maintain a Neutral view on
the sector.

Company
CMP
Net Sales
(` cr)
OPM (%)
EPS ((`
`)
EPS ((`
`)
P/E (x)
Tar
get
arg
Reco.
(`)
3QFY14E
chg bp
3QFY14E
% chg 3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
(`)
1,108
2,892
(6.7)
15.5
268
174
(27.2)
9.3
(27.2)
74.7
52.8
69.9
14.8
21.0
15.9
1,225
Ambuja Cem.^ 183
2,275
(1.7)
17.7
(176)
193
(9.0)
1.2
(9.0)
10.2
7.4
9.2
17.9
24.6
19.9
Neutral
India Cem.
1,086
0.3
12.2
(555)
(13)
(0.4)
6.0
0.8
3.9
10.1
75.1
15.2
Neutral
ACC^
60
% chg 3QFY14E
Net PProfit
rofit
J K Lakshmi
79
471
(4.6)
14.6
(524)
18
(55.7)
1.6
(55.7)
16.3
7.1
9.9
4.8
11.1
8.0
Ramco Cem.
191
866
(0.7)
15.9
(723)
22
(73.6)
0.9
(73.6)
17.0
6.9
12.1
11.3
27.7
15.9
Neutral
Shree Cem.* 4,330
1,378
(3.5)
25.2
(70)
204
(10.3)
58.5
(10.3)
288.4
243.8
276.4
15.0
17.8
15.7
Neutral
UltraTech
5,015
3.2
16.5
(509)
397
(33.9)
14.5
(33.9)
96.8
74.6
80.2
18.2
23.6
22.0
Neutral
1,763
Accum.
Neutral
Source: Company, Angel Research; Note: Price as on December 31, 2013; ^December year ending; *June year ending
Analyst - V Srinivasan
22
FMCG
Slowdown persists in FMCG sector
3QFY2014 did not witness any major improvement in consumer
sentiments, which continue to remain weak across the country.
While slowdown is evident across the consumer space, it is more
evident on the discretionary side. Volume growth has been weak
for premium products. Further, down-trading was visible in
certain categories. Although advertisement and promotional
spends remained at elevated levels during the quarter, they
moderated slightly on a sequential basis.
Slowdown was witnessed in both the urban as well as the rural
markets. However, rural demand continues to be better than
urban demand. Further we expect the rural demand to pick up
going ahead aided by a good harvest due to healthy monsoon.
Raw-material price movements show a varied trend

During the quarter raw material price movement showed a
varied trend. While prices of wheat rose by 3.7% on a yoy basis,
sugar prices were down by 12.4% on a yoy basis. Copra prices
surged by 38.6% on a sequential basis during the quarter.
Exhibit 1: Input cost trend during 3QFY2014

3QFY14 PPrices
rices
yoy (%)
qoq (%)
Wheat (`/quintal)
1,637
3.7
3.4
Barley (`/quintal)
1,342
1.6
2.5
Sugar (`/ quintal)
3,124
(12.4)
(3.7)
Coffee (US $/10 tonne)
1,624
(17.2)
(10.1)
Cocoa (US$/MT)
2,733
13.7
12.9
Milk Liquid (`/ltr)
38
42.5
7.1
PFAD (USD/MT)
709
4.0
10.6
Copra (`/quintal)
7,100
67.6
38.6
Safflower (`/ quintal)
3,775
(9.9)
(3.7)
683
2.1
4.7
Groundnt Oil (`/MT)
85,345
(28.2)
(8.2)
Crude (US$/ barrel)
109
(0.8)
(0.4)
Caustic Soda (`/kg)
1,854
(9.0)
15.2
Soda Ash (`/kg)
1,160
0.9
(0.1)
Soyabean Oil (`/10kg)
Source: Bloomberg, C-Line, Angel Research
Key developments during the quarter

UBHL's sale of shares in USL void: Karnataka High court
During the quarter The Karnataka High Court annulled United
Breweries Holding's (UBHL) sale of its stake in United Spirits
(USL) to Diageo. The High Court order came in response to a
winding-up petition filed by creditors against UBHL for dues of
about `600cr, which is pertaining to Kingfisher Airlines. The
High Court order said that the earlier Company Court order,
which allowed the share sale by UBHL to Diageo, did not have
the jurisdiction to do so. Diageo's 26.4% stake in USL includes
shares it purchased from UBHL (6.9%), shares obtained from
other UB group entities (2.22%) and shares obtained through

preferential allotment (10%).
The High Court order has only cancelled the sale of share by
UBHL to Diageo but has not declared the entire deal between
UB group and Diageo void. As a result of this court order
Diageo's stake in USL would reduce to 19.5%, but it would
continue to be the largest shareholder in the company. Further,
we expect the UB group to vote as directed by Diageo till the
issue is settled.
Although the UB group and Diageo are expected to appeal
against the order in the Supreme Court, we believe it would act
as an overhang on the USL stock.
New product launches during 3QFY2014

Dabur: During the quarter Dabur launched the Fem Fairness
Naturals range, which is based on the bleach platform with no
added ammonia. The new Fem Fairness Naturals range has
4 products under it - Fem Fairness Naturals Saffron Crme
Bleach for fair skin, Fem Fairness Naturals Pearl for darker skin,
Fem Fairness Naturals Gold Bleach for special occasions and
Fem Turmeric Herbal Bleach for a month's fairness benefit.
Dabur also launched during the quarter the Hibiscus range of
shampoo and hair oil under the Vatika brand. The products
launched are Vatika Enriched Coconut oil with Hibiscus and
Vatika Premium Naturals Shampoo with hibiscus, reetha and
olive conditioning.
Dabur also forayed into the packaged milk shake market with
the launch of RAL Fruit Shakes under the RAL brand. RAL
Fruit Shakes has been test launched with a single variant - Mango
Shake and will be offered to consumers in two SKUs - 200ml
for `25 and 1litre for `105.
IT
C: During the quarter, ITC launched nicotine chewing gums
ITC
under the brand Kwiknic. Currently the size of the nicotine
chewing gum market is insignificant at `20cr and the distribution
is done through pharmacists. ITC is expected to distribute Kwiknic
through its strong retail distribution network.
TGBL
TGBL:: Tata Starbucks (the 50:50 JV between Tata Global
Beverages [TGBL] and Starbucks company) opened its first
Bengaluru store during the quarter. Post the opening of the
Bengaluru outlet, Tata Starbucks has a total of 30 outlets in
India located in Mumbai, New Delhi, NCR, Pune and Benguluru.
FMCG stocks' performance on the bourses

The BSE FMCG index fell by 4% during the quarter and
underperformed the BSE-Sensex which rose by 9.2% during
the quarter. Among the stocks under our coverage only Britannia
and Tata Global outperformed the BSE-Sensex and posted gains
of 11.7% and 11.3% respectively. Both the Sensex FMCG
stocks - ITC and HUL posted negative returns and fell by 5.4%
and 8.9% respectively.
23
FMCG
Exhibit 3: Top-line growth in 3QFY2014E
Exhibit 2: Stock performance in 3QFY2014

United Spirits
11.3
1.9
10.0
9.8
8.1
7.8
7.6
5.0
9.1
TGBL
HUL
ITC
Colgate
15
Nestle
Dabur
10
Britannia
5
(%)
Asian Paints
GSKCH
11.7
6.9
Marico
(5)
14.3
0.1
Colgate Palmolive
Britannia
Asian Paints
(10)
15.8
12.9
10.6
2.3
2.3
GSK Consumer
GCPL
Dabur India
20.2
16.3
15.0
ITC
HUL
(8.9)
21.3
20.0
GCPL
(5.4)
25.0
2.7
TGBL
Nestle
(1.0) Marico
OPMs to witness a mixed trend
Top-line growth for universe estimated at 11.4%
The increase in the prices of raw materials such as copra and

PFAD is expected to result in a decline in gross margins of some
companies although a few of them have initiated price hikes.
Advertising and sales promotion expenses continue to remain
at elevated levels as companies continue to combat slowdown.
Also, increase in the cost of diesel has pushed up freight costs.
Thus we expect a mixed performance on the operating front for
the companies under coverage.
We expect our FMCG universe (excluding ITC) to post a

top-line growth of 11.4% yoy during the quarter aided by both
higher volumes and better realizations. Godrej Consumer
Products (GCPL) is expected to post the highest top-line
growth of 21.3% driven by international businesses in
Africa and Europe.
Sensex companies ITC and HUL are expected to post a top-line
growth of 9.8% and 7.8% respectively. ITC's top-line growth
would be led by price hikes taken by it in its cigarettes business.
We expect HUL's top-line growth to be driven mostly by higher
volume.

Although the slowdown witnessed in the FMCG sector is expected
to persist for the next few quarters, we believe India's long-term
consumption story is intact. Consumption in many categories,
with potential for high growth rates, is still very low in urban
India. In rural India, the penetration of these products is even
lower. With rising income levels and changing consumer
behavior in the country, consumer spending on branded FMCG
products is set to rise. However, we have concerns over the
high valuations at which these stocks are currently trading. Thus
we have a Neutral view on the sector.

Company
CMP
Net Sales
(`
` cr)
OPM (%)
EPS ((`
`)
P/E (x)
Tar
get
arg
Reco.
(`)
3QFY14E
chg bp
3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
(`)
3,430
12.9
16.9
64
368
9.8
3.8
9.8
11.6
13.2
15.7
42.3
37.2
31.3
Neutral
Britannia
1,682
15.8
8.7
332
104
82.2
8.7
82.2
19.6
33.7
40.1
47.1
27.3
23.0
Neutral
Colgate
% chg 3QFY14E
EPS ((`
`)
Asian Paints ^ 491

920
% chg 3QFY14E
Net PProfit
rofit
1,353
872
14.3
15.9
(99)
116
4.4
8.5
4.4
36.6
37.2
43.5
37.0
36.3
31.1
Neutral
Dabur India ^ 170
1,896
16.3
17.5
94
256
21.0
1.2
21.0
4.4
5.5
6.1
38.6
31.1
27.7
Neutral
GCPL
857
2,052
21.3
15.2
(139)
208
20.8
6.1
20.8
20.6
23.0
28.4
41.7
37.2
30.2
Neutral
GSK Cons. * 4,433
852
20.2
15.4
(155)
83
18.6
19.6
18.6
100.8
120.3
149.7
44.0
36.9
29.6
Neutral
5.2
4.3
5.2
14.8
16.8
17.6
38.7
34.0
32.4
Neutral
HUL
571
6,938
7.8
14.3
76
924
ITC
322
8,373
9.8
38.5
215
2,361
15.1
3.1
15.1
9.4
11.0
12.8
34.3
29.2
25.1
Neutral
Marico ^
217
1,252
7.6
14.4
48
114
11.5
1.9
11.5
5.6
7.0
8.6
38.5
31.2
25.1
Neutral
Nestle *
5,297
2,380
10.6
21.8
(127)
307
10.0
31.8
10.0
114.2
119.1
146.4
46.4
44.5
36.2
Neutral
TGBL^
160
2,057
8.1
9.5
(52)
101
25.5
1.6
25.5
6.5
6.8
9.2
24.7
23.7
17.4
Neutral
2,607
2,337
7.5
10.6
(70)
115
42.2
7.9
28.0
10.8
20.3
43.0
242.3
128.5
60.6
Neutral
USL#
Source: Company, Angel Research; Note: Price as on December 31, 2013; * December year ending; ^Consolidated; #Quaterly numbers pertains to standalone financials
Analyst - V Srinivasan
24
Infrastructure
For 3QFY2014, we expect our coverage universe of
infrastructure companies to report a 7.4% yoy top-line growth
(as depicted in the chart below). However, this growth is largely
skewed towards Larsen & Toubro (L&T) which would contribute
significantly to the overall growth of our coverage universe.
Barring L&T, the average estimated growth for 3QFY2014 comes
in at a subdued 6.7% yoy. This subdued growth would be mainly
on account of persistent headwinds such as: (a) a challenging
macro environment, (b) policy paralysis, (c) stretched working
capital, and (d) delays in payments.
Exhibit 1: Average yoy revenue growth (%)

(%)
25.0
19.7
20.0
15.0
12.5
10.2
8.7
10.0
7.4
8.4
7.4
0.0
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
Source: Company, Angel Research; Note: For our analysis, we have

selected 11 companies, as detailed in Exhibit 6
During 3QFY2014, there has been no respite from the several

headwinds (such as high interest and inflationary cost pressures
and slowdown in order inflows) faced by the sector. Thus, dull
revenue performance along with pressure on EBITDAM and high
interest cost will result in a muted performance on the earnings
front. Against this backdrop, we expect a subdued performance
on the earnings front for most of the companies under our coverage
universe. Excluding the performance of L&T, the earnings for our
coverage companies are likely to decelerate to 7.0% yoy.
Exhibit 2: Average yoy earnings growth (%)

(%)
30.0
Consolidated Construction Consortium (CCCL) is expected to

continue to post poor numbers on all fronts for 3QFY2014. On
the back of slow moving order book and lower-than-anticipated
order inflows in 1HFY2014, we expect the company to post a
top-line of `416cr, a decline of 5.0% yoy. On the EBITDA front,
we expect the company to continue with its dismal performance
and register a dip of 49bp yoy to 2.5%, owing to poor
performance on the execution front. On the bottom-line front,
the company is expected to post a loss of `15cr for the quarter
vs a similar loss of `15cr in 3QFY2013.
IRB Infrastructure Developers (IRB) is expected to post a mixed
performance for the quarter. We expect E&C segment revenues
to decline by 9.2% yoy to `605cr, as Jaipur-Deoli and
Tumkur-Chitradurga road BOT projects are near completion
(~95% complete) and hence, will contribute meagerly to E&C
revenue. However, the BOT segment is expected to report a
healthy 20.0% yoy growth to `337cr, leading to a modest
top-line growth of 3.0% to `941cr. We expect the blended EBITDA
margin to be at 45.0%, a growth of 36bp yoy. Depreciation for
the quarter is expected to jump by 17.4% yoy, owing to
commissioning of the Jaipur-Deoli and Talegaon- Amravati
projects. We project net profit before tax and after tax (post
minority interest) at `153cr and `102cr
102cr,, respectively
respectively,, after
factoring a blended tax rate of 34% for the quarter
quarter..
ITNL (CMP/TP: `140/`156) (Rating: Accumulate)

22.2
20.0
9.1
9.1
10.0
5.7
4.6
0.0
4QFY12
(10.0)
CCCL (CMP/TP: `4/-) (Rating: Neutral)
IRB (CMP/TP: `93/`112) (Rating: Buy)
3.4
5.0
dominate the company's revenue by contributing `396cr (up

8.9% yoy) while the BOT segment's share is expected to be `72cr
(up 2.8% yoy). On the margin front, we expect ABL's EBITDAM
to increase by 8bp yoy to 19%. On the earnings front, we expect
the company to post a growth of 84.1% yoy to `23cr mainly
on account of pick up in execution and lower base of last year
year..
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
(12.4)
2QFY14
3QFY14
(10.7)
(20.0)
(30.0)
(40.0)
(33.1)
Source: Company, Angel Research; Note: For our analysis, we have

selected 11 companies, as detailed in Exhibit 6
ABL (CMP/TP: `61/`74) (Rating: Buy)
For 3QFY2014, Ashoka Buildcon (ABL) is expected to post a
consolidated revenue of `468cr, indicating a growth of
8.7% yoy. The under-construction captive road BOT projects
will drive its E&C revenue. The E&C segment will continue to
We expect IL&FS Transportation Networks (ITNL) to post a mixed

set of numbers for the quarter, with decent performance (on
high base) on the revenue front, but muted show at the earnings
level, owing to high interest cost. The company's consolidated
revenue is expected to grow by 3.1% yoy to `1,819cr for
3QFY2014. We expect the company to register an EBITDAM of
28.0%. Further, on the back of higher interest cost, which is
expected to come in at `362cr (up 27.2% yoy), we expect ITNL's
earnings to remain flat yoy to `105cr
105cr..
IVRCL (CMP/TP: `16/-) (Rating: Neutral)

For 3QFY2014, we expect IVRCL to continue to post poor
numbers. The company is expected to post a revenue of
`1,360cr, indicating a modest growth of 7.1% yoy. We expect
the EBITDA margin to expand by 314bp yoy to 8.5%. On the
bottom-line front, on the back of high interest cost and subdued
operating performance, we expect the company to post a loss
of `34cr vs a loss of `68cr in 2QFY2013.
25
Infrastructure
JAL (CMP/TP: `55/-) (Rating: Neutral)
Unity Infra (CMP/TP: `27/-) (Rating: Neutral)
We expect Jaiprakash Associates (JAL) to post a top-line decline

of 3.6% yoy to `3,309cr for the quarter. C&EPC revenue is
expected to increase by 13.9% yoy to `1,453cr. On the cement
business front, we expect JAL to post a revenue of `1,506cr on
a volume of 3.4mt with realization of `4,303/tonne, for the
quarter. We expect the company to post a blended EBITDA
margin of 26.1%, registering a growth of 296bp yoy for the
AT of `72cr
quarter. On the bottom-line front, we expect a PPA
72cr,,
registering a yoy decline of 34.9% in 3QFY2014. This is mainly
on account of a 13% yoy jump expected in the interest cost to
`600cr
600cr..
For Unity Infraprojects (Unity Infra), we project a muted

2.8% yoy growth in revenue to `567cr for 3QFY2014, due to
slowdown in execution on account of the gloomy macro
environment. On the EBITDAM front, we expect a dip of
38bp to 13.5%. The bottom-line is expected to post a decline
of 37.2% yoy to `18cr for the quarter
quarter..
L&T (CMP/TP: `1,070/`1,237) (Rating: Buy)

For 3QFY2014, owing to a large order book (~`1.76 trillion)
and robust order inflows in the past couple of quarters, we
expect L&T to record a revenue of `16,667cr, indicating a growth
of 8.0% yoy. On the EBITDA front, we expect the company's
margin to witness an expansion of 44bp yoy to 10.0%. We
project the net profit to come in at `1,116cr for 3QFY2014,
registering a growth of 8.5% yoy
yoy.. We estimate the company's
order inflow to be at ~`25,000cr for the quarter, which is in
line with the Management's guidance of 15-20% growth in order
book for the full year.
NCC (CMP/TP: `33/`39) (Rating: Buy)

We expect a mixed performance from NCC for 3QFY2014.
On the top-line front, the company is expected to post a healthy
growth of 22.5% to `1,451cr. This growth would mainly be due
to lower base of last year. Its EBITDA margin is expected to
grow by 76bp yoy to 8.0% for the quarter. On the earnings
front, we expect the net profit to decline by 2.9% yoy to `11cr
11cr..
This would be primarily on account of high interest cost of `108cr
(up 9.1% yoy) owing to an elongated working capital cycle.
SEL (CMP/TP: `88/`99) (Rating: Accumulate)

On the back of pick up in execution and a low base of
3QFY2013, we expect Sadbhav Engineering (SEL) to post a
strong performance for the quarter. The company is expected
to post a revenue of `641cr, a growth of 81.3% yoy. The EBITDA
margin is expected to witness a jump of 64bp yoy to 10.0%,
mainly due to pick-up in execution. On the earnings front, the
company is expected to post a growth of 419.7% yoy to `19cr
mainly led by revenue growth and lower base of last year
year..
Simplex Infra (CMP/TP: `87/-) (Rating: Neutral)

Simplex Infrastructures (Simplex Infra) is expected to post a decent
performance on the revenue front as we expect its top-line to come
in at `1,497cr, registering a growth of 10.7% yoy for 3QFY2014.
We expect the EBITDA margin to increase by 40bp to 10.0%. The
bottom-line is expected to post a growth of 45.9% yoy to `18cr
for the quarter
-thanexpected
quarter.. This is mainly on account of higher
higher-than-than-expected
operating performance and low base of 3QFY2013.
No respite from high interest cost

The high interest cost, owing to a high interest rate regime and
increasing debt levels, has put most of the infrastructure
companies under our coverage under pressure, resulting in a
decline in the bottom-line. Although the RBI kept rates
unchanged in its December 2013 policy review, it continues to
maintain a cautious stance on inflationary pressures. In case
food inflation moderates as expected, it is likely to give respite
from high overall inflation. This in turn could give the RBI some
room to ease rates going forward.
Exhibit 3: Interest cost as a % of sales for E&C companies

(%)
25.0
20.0
15.0
10.0
5.0
0.0
JAL
IVRCL
Unity Infra
NCC
CCCL
2QFY14
1QFY14
Simplex In. Sadbhav

4QFY13
L&T
Order inflow remains muted

Order inflows for companies under our coverage have largely
been disappointing for the past few quarters. Moreover, the
road sector has also seen significant slowdown in awarding of
projects. However, the infrastructure sector has seen some
positive developments in the form of clearance of various stalled
projects (ticket size of above `1,000cr) in key infrastructure
sectors such as power, roads, ports, cement, petroleum, etc. by
the Cabinet Committee on Investment (CCI) and also with some
up-tick in order inflows from overseas countries. This would
help in order inflows and execution picking up going forward.
For 2QFY2014, most of the companies under our coverage
have seen a strong growth in order inflows mainly due to lower
base of last year. L&T, SEL and Simplex Infra are the only
exceptions which have seen a healthy growth in order inflows
over the last few quarters. However, owing to policy paralysis at
the government's end, delays arising due to constraints in land
acquisition, environmental clearance issues and slower-thananticipated revival in industrial capex, most players faced
difficulties in drawing order inflows during the quarter.
26
Infrastructure
Exhibit 4: Order inflow yoy growth trend during 2QFY2014 (%)
Simplex In.
231
IVRCL
NCC
Sadbhav
L&T
L&T
27
(99)
NCC
Sadbhav
IVRCL
(200)
(100)
Simplex In.
240
-
100
200
300
Order backlog remains healthy

The order book for most of the companies in our coverage
universe has remained decent despite sluggish order inflows,
mainly led by slowdown in execution pace due to persistent
headwinds faced by the sector. This order backlog gives comfort
for growth over the next couple of years. For few companies
such as NCC and SEL, the order book has been boosted by
captive orders during the last financial year.
Exhibit 5: Decent order book provides revenue visibility

6.0
20.0
5.0
15.0
4.0
10.0
3.0
5.0
2.0
0.0
1.0
0.0
-5.0
Simplex In.
Sadbhav
L&T
OB/Sales (x), RHS
IVRCL
NCC
Order book growth yoy (%), LHS

In the past 12-18 months, there has been no respite for
infrastructure companies from persistent headwinds such as
inflationary pressures, slow order inflows, high interest rates
and policy paralysis. This has resulted in execution slowdown
and shrinking bottom-lines of most of the infrastructure
companies under our coverage. Many projects could not take
off due to delay in approvals and decision making. Along with
this, a lack of investment in the infrastructure sector has resulted
in a downward spiral for infrastructure stocks over the last one
year. However, infrastructure stocks have seen some positive
movement during the past few weeks as the Indian government
has unleashed various reforms to help revive the dampened
investment sentiment and to bolster the country's economic
growth. The CCI formed by the government to fast-track
clearances of large investments has been on a roll, clearing
various stalled projects in the infrastructure sector. However we
believe that it will take time for these measures to yield a
favorable stimulus for the sector. Although interest rate cuts and
increasing investment in the sector remain key triggers for
infrastructure stocks, removal of bottlenecks such as delays in
environmental clearances and land-acquisition issues are also
of prime importance for the execution pace to pick up.
We prefer to remain selective: We believe that stock-specific
approach would yield higher returns, given the disparity among
the companies in our coverage universe and changing dynamics
affecting them, either positively or negatively. Hence, we remain
positive on companies having 1) a comfortable leverage
position; 2) superior return ratios and 3) less dependence on
capital markets for raising equity for funding projects. We
recommend L&T
L&T,, ITNL and SEL as our top picks in the sector
sector..

Company
CMP
Net Sales
(`
` cr)
OPM (%)
EPS ((`
`)
% chg 3QFY14E
EPS ((`
`)
P/E (x)
Tar
get
arg
Reco.
(`)
3QFY14E
chg bp
3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
(`)
ABL^
61
468
8.7
19.0
23
84.1
1.5
84.1
5.3
6.8
7.6
11.4
9.0
8.0
74
CCCL
416
(5.0)
2.5
(49)
(15)
(0.8)
(4.2)
(2.9)
(0.4)
(0.9)
(1.4)
(11.1)
93
941
3.0
45.0
36
102
(28.9)
3.1
(28.9)
16.7
14.6
15.1
5.5
6.3
6.1
112
Buy
Accum.
IRB Infra^
% chg 3QFY14E
Net PProfit
rofit
Buy
Neutral
ITNL^
140
1,819
3.1
28.0
251
105
0.5
5.4
0.5
26.8
30.1
32.3
5.2
4.7
4.3
156
IVRCL
16
1,360
7.1
8.5
314
(34)
(1.3)
(3.3)
(2.5)
(2.1)
(4.9)
(6.5)
(7.8)
Neutral
JAL
55
3,309
(3.6)
26.1
296
72
(34.9)
0.3
(34.9)
2.5
1.6
2.5
22.1
34.9
21.8
Neutral
L&T
1,070
16,667
8.0
10.0
44
1,116
8.5
12.1
8.5
44.1
46.7
52.0
24.3
22.9
20.6
1,237
Buy
NCC
33
1,451
22.5
8.0
76
11
(2.9)
0.4
(2.9)
2.4
2.4
2.6
13.6
13.9
12.7
39
Buy
SEL
88
641
81.3
10.0
64
19
419.7
0.1
419.7
0.9
4.6
5.8
101.5
19.0
15.1
99
Accum.
Simplex In.
87
1,497
10.7
10.0
40
18
45.9
3.5
45.9
10.8
12.4
16.7
8.1
7.0
5.2
Neutral
Unity Infra
27
567
2.8
13.5
(38)
18
(37.2)
2.4
(37.2)
12.5
9.3
9.5
2.1
2.9
2.8
Neutral
Source: Company, Angel Research; Note: Price as on December 31, 2013, Target prices are based on SOTP methodology; ^Consolidated numbers; *FY2013 figures are for 9 months
Analyst: Viral Shah

27
Improved macroeconomic outlook indicates stable
CY2014 IT budgets
The Indian IT services industry is likely to touch ~US$110bn in
FY2014 according to Nasscom; of this exports are likely to be
about US$84-87bn, a growth of 12-14%. According to Gartner,
IT spending in India is projected to total US$71.3bn in 2014, a
5.9% increase from the US$67.4bn forecast for 2013. IT services
will record the strongest revenue growth at 12.1%, software
revenue will grow by 10%, and the telecommunication services
segment, is set to grow by 2% in 2014. In addition, according to
IDC, a market research firm, the global tech spending is expected
to grow by 4% in 2014 in constant currency, reaching US$2.04tn,
on the back of continued momentum in the US and Europe.
During the quarter, Indian IT stocks reacted positively following
signs of a demand uptick and indications that IT budgeting
cycle for CY2014 is expected to begin on a positive note with
signs of improvement in economic activities. Recent
Management commentaries indicate that growth has been
broad based and has picked up for both large and medium
companies, and the problematic segments have either bottomed
out or have started accelerating.
Economic indicators: The US' real GDP grew by 3.6% in
3QCY2013, following a 2.8% rise in 2QCY2013, the fastest
pace since late 2011. In addition, corporate profits in
3QCY2013 increased by an annualized 11.5%, following a
gain of 8.5% in 2QCY2013. For November 2013, data points
for the US economy are largely encouraging. For instance,
1) the manufacturing index increased to 57.3 against 56.4 in
October 2013; 2) industrial production growth jumped 1.1%,
following a 0.1% rise in October 2013; 3) retail sales grew by
0.7% as against 0.6% in October 2013; 4) monthly growth in
new non-manufacturing orders remained solid, indicating
strength in general activity in the months ahead even as the
non-manufacturing index declined to 53.9 from 55.4 in October
2013; 5) unemployment rate dipped to 7.0% as against 7.3%
in October 2013; and 6) personal income growth rebounded
0.2%, following a 0.1% dip in October. These improved
economic data points from the US indicate towards an optimistic
demand scenario in the country. Given the current environment,
we expect volume growth for tier-I Indian IT companies to be in
the range of 9-14% for FY2014 and expect industry to grow in
the range of 11-14% in FY2015.
Tech numbers: The recent quarterly numbers from Oracle and
Accenture gave improved signals for the Indian IT sector going
into CY2014. Oracle's Cloud revenue registered a robust growth
with overall revenues rising by 2% to US$9.3bn. For Accenture,
revenues increased by 3% yoy in constant currency (CC) terms
to US$7.4bn; the Outsourcing business expanded by 6% yoy in
CC terms whilst the Consulting business was flat yoy in
CC terms. Better-than-expected numbers from the two global
IT players is a positive sign for Indian IT companies.
Our take: We expect IT budgets to remain flat to marginally

positive in CY2014 with IT spend now driven by trends such as
increased off-shoring of work from Europe and vendor
consolidation. Market share gains in the renewal deal pipeline
will be a key differentiator of volume growth across players, in
our view. Historically the demand environment has mattered
more to stock price performances in the IT sector; significant
INR depreciation does not help stocks if the demand environment
is worsening; conversely appreciation in the INR does not hurt
if demand picks up. If INR stabilizes at current levels or
strengthens further, the IT stock prices might witness marginal
correction, but from a longer term perspective they may still
deliver a reasonable performance.
Exhibit 1: Relative performance to Sensex during 3QFY2014

KPIT Cummins
33.3
56.5
Hexaware
2.1
Mphasis
(3.1)
(%)
Tech Mahindra
38.0
HCL Tech
17.4
17.8
Wipro
TCS
10.9
Infosys
15.3
BSE IT Index
15.5
(8.0)
Persistent
Mindtree
29.3
0.0
8.0
16.0
24.0
32.0
40.0
48.0
56.0
64.0
Cyclically a weak quarter with decent volume growth

Traditionally, 3Q (FY) is a weak quarter for IT companies as the
number of working days are less compared to other quarters,
due to the holiday season at client sites. Volume growth in
3QFY2014 will be impacted due to following factors - a) lesser
working days due to holidays, b) furloughs across industries
and c) lower spending in verticals such as retail, manufacturing
and in services like consulting and enterprise solutions.
We expect revenue growth in 3QFY2014 to be largely volume
driven and pricing to remain stable. For 3QFY2014, volume
growth is expected to be in the range of 2.0-3.4% qoq for tier-I IT
companies, with TCS to continue to lead the pack. For tier-II
companies, we expect growth to be modest at 1.7-3.5% qoq,
with Persistent Systems (Persistent) and Hexaware leading the pack.
USD revenue to grow, albeit at a slower pace

The cross-currency movement this quarter has been positive for
Indian IT companies. So we expect a positive impact of
~20-40bp qoq on USD revenue of Infosys, TCS, Wipro and HCL
Technologies (HCL Tech) on this account. On the back of pent up
demand for discretionary services and abating attrition, we expect
utilization to remain tightly held and revenue growth to be enhanced.
For 3QFY2014, on the back of fair volume growth, stable pricing
and positive cross-currency movement, we expect USD revenue
of tier-I IT companies to grow by 2.3-3.6% qoq, with TCS leading
the pack.
28
Exhibit 2: Trend in USD revenue growth (qoq) - Tier-I
Exhibit 5: Trend in INR revenue growth (qoq) - Tier-II
20
6.3
6
5.4
16
4.1
3.6
3.3
3.1
3.8
3.1
3.2
2.7
2.7
2.4
12
3.6
3.3
3.5
(%)
(%)
2.5
2.3
1.4
4
0.5
0.2
0.8
3QFY13
4QFY13
Infosys
TCS
1QFY14
HCL Tech
2QFY14
Wipro*
4QFY13
3QFY14E
1QFY14
Tech Mahindra
KPIT
2QFY14
Mphasis
MindTree
For tier-II IT companies, USD revenue growth is expected

to be 1.7-3.2% qoq, with Hexaware, Persistent and KPIT
Technologies leading the pack.
Operating margins to decline marginally
Exhibit 3: Trend in USD revenue growth (qoq) - Tier-II

12
10
8
(%)
6
3.2
2.5
2.7
2.3
1.7
2.4
2
0
4QFY13
1QFY14
2QFY14
3QFY14E
(2)
(4)
Tech Mahindra
Mphasis
MindTree
Persistent
Hexaware
KPIT
INR revenue growth to be muted

After almost a year of volatile sessions seen in terms of currency,
3QFY2014 saw some stability in the currency movement. On
an average basis, the INR appreciated marginally by ~0.2%
qoq during 3QFY2014. This will negatively impact the INR
revenue growth and can trim down the operating margins of
IT players by 0-10bp qoq. For 3QFY2014, in INR terms, revenue
growth is expected to be in the range of 1.0-3.0% qoq for
tier-I IT companies.
Exhibit 4: Trend in INR revenue growth (qoq) - Tier-I

18
16.6
15.1
14.1
12.7
16
14
9.5
10
7.8
Exhibit 6: EBITDA margin profile - Tier-I

34
31.6
8.6
31
5.7
29.1
29.0
4.5
2.9
3.0
2.7
2.2 2.4
0.3
0
3QFY13
2.2
3.0
2.2
1.0
(0.6)
4QFY13
Infosys
28
25
1QFY14
TCS
Hexaware
For tier-II IT companies under our coverage, we expect slight

INR appreciation and low volume growth to negatively impact
operating margin by 20-50bp on a qoq basis. The EBITDA
margins of Tech Mahindra, MindTree, Persistent and Hexaware
are expected to show a decline of 20bp, 24bp, 21bp and
26bp qoq to 23.1%, 20.5%, 25.7 and 23.5%, respectively. KPIT
Cummins is expected to post a 91bp qoq gain in operating
margin to 16.4% due to absence of any one-time cost which
was there in 2QFY2014.
(%)
(%)
1.7
Indian IT companies are expected to witness a marginal decline

on the operating margin front due to slight INR appreciation as
well as relatively subdued volume growth expected during the
quarter. We expect the EBITDA margin of Infosys to inch up by
21bp qoq to 26.4% on account of benefits from cost optimization
drive going on in the company as well as uptick in utilization
level which will overshadow the negative impacts from low
volume growth and INR appreciation. TCS is expected to post a
marginal decline of 23bp qoq in its EBITDA margin to 31.4%
due to muted volume growth and sequentially lower INR realized
rate. However, excluding the currency impact, the companys
operating margins are expected to be comparable to that in
the last quarter. Wipro's (IT services) EBITDA margin is expected
to inch up by 22bp qoq to 25.3% on account of increase in
utilization level, while HCL Tech is expected to report a 33bp qoq
decline in EBITDA margin to 26.0% due to muted volume growth
and slight dip in utilization level as the company was running on
a very high utilization level in the last couple of quarters.
12
(2)
0.6
3QFY14E
Persistent
Source: Company, Angel Research; Note: *For the IT services segment
2.7
2.2
1.7
2QFY14
HCL Tech
23.7
28.5
23.5
3QFY14E
Wipro*
Source: Company, Angel Research; Note: *For the IT services segment
For tier-II IT companies, INR revenue growth is expected to be

in the range of 0.5-2.7% qoq, with MphasiS leading the pack.
28.4
22
22.2
22.6
28.4
26.5
23.0
22.4
31.4
28.6
26.4
26.3
26.5
26.1
23.1
26.0
25.1
25.3
22.6
19
2QFY13
3QFY13
Infosys
4QFY13
TCS
1QFY14
HCL Tech
2QFY14
3QFY14E
Wipro*
Source: Company, Angel Research; Note: *For IT services segment
29
Earnings growth to be a mixed bag
On the back of INR appreciation and reasonable volume growth,
profitability of tier-I companies such as TCS, Infosys and Wipro is
expected to increase moderately by 5.4%, 0.9% and 4.1%,
respectively. TCS expects forex gains of `150-200cr, given current
exchange rates as against forex losses of `377cr reported in
2QFY2014. This will contribute to a sharp improvement in net
income. Amongst mid-tier IT companies under our coverage, their
earnings growth is expected to show a modest increase barring
MindTree and Persistent which would be impacted due to
considerably lower other income sequentially.

For FY2014, Nasscom estimates total revenues
(domestic+exports; excludes hardware) of the Indian-IT services
industry to grow by about 13-15% to reach US$106-111bn; of
this, exports are likely to be about US$84-87bn, a growth of
about 12-14%. With the global macro data being steady, we
believe that the demand environment for the IT sector will remain
stable. As per Nasscom, five major technology changes are
expected to open new opportunities for service providers - ie
smart computing (expected to drive industry-specific solutions),
Software-as-a-Service (SaaS to play a dominant role), social
technologies (empower all elements of an industry's value chain
including suppliers, employees, customers, and business
partners), mobility (access to anytime, anywhere information)
and analytics (real-time intelligence).
We believe FY2014 will again have the trend of divergent growth
rates among tier-I companies with TCS and HCL Tech growing
at a rate higher than the industry's average (in mid-teens). We
believe IT services demand is likely to continue to improve in
FY2015 led by a better macroeconomic growth outlook.
Preliminary discussions with IT companies and clients indicate
that IT budgeting cycle for CY2014 is expected to begin on a

positive note with signs of improvement in economic activities.
Increasing offshore penetration in Europe and in the relatively
untapped infrastructure services segment remains a multi-year
growth driver. In addition, pick-up in discretionary spend in the
US geography as well as demand for new technologies ie Social,
Mobility, Analytics and Cloud is also likely to drive demand.
With the INR depreciating sharply against the USD, we expect
IT companies to deploy the gains towards sales and marketing,
towards mitigating the impact of the Immigration bill and
towards making investments in new service lines.
Sector valuations are in line with the historical average and we
believe they can sustain, given an improving demand outlook
and receding risks. We expect TCS to outperform the industry
on the revenue growth front due to its superior market reach
and excellent execution capabilities. We believe TCS deserves
the premium multiples that it currently commands, given its
consistency in performance and leadership in growth/
profitability. We maintain our Buy rating on the stock with a
target price of `2,500. In addition, HCL Tech is also expected
to perform well going ahead and we recommend an Accumulate
rating on the stock with a target price of `1,350. We recommend
a Neutral rating on Infosys, given eight senior Management
resignations this year and the stock is already being rewarded
for its better performance in the last two quarters. Further, we
recommend an Accumulate rating on Wipro with a target price
of `600. Among mid-caps, we continue to like Tech Mahindra
as the merger of Satyam with Tech Mahindra gives the company
higher flexibility for investments, reduces client and vertical
exposure and also provides superior financial strength;
we recommend Accumulate on it with a target price of `1,935.
In addition, we remain positive on MindTree with a target
price of `1,650.

Company
CMP
Net Sales
(`
` cr)
OPM (%)
EPS ((`
`)
% chg 3QFY14E
EPS ((`
`)
P/E (x)
Tar
get
arg
(`)
3QFY14E
chg bp
3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
(`)
TCS
2,171
21,434
2.2
31.4
(23)
4,955
5.4
25.3
5.4
71.2
95.2
115.4
30.5
22.8
18.8
2,500
Infosys
3,486
13,101
1.0
26.4
21
2,650
0.9
46.4
0.9
164.9
178.2
214.9
21.1
19.6
16.2
Wipro
% chg 3QFY14E
Net PProfit
rofit
Reco.
Buy
Neutral
559
11,452
4.2
22.9
2,022
4.1
8.2
4.1
24.8
31.4
36.1
22.5
17.8
15.5
600
Accum.
HCL Tech*
1,263
8,136
2.2
26.0
(33)
1,450
2.4
20.0
2.4
57.1
81.9
91.4
22.1
15.4
13.8
1,350
Accum.
Tech Mah.
1,838
4,811
0.8
23.1
(20)
735
2.3
31.0
2.3
82.6
121.6
132.4
22.3
15.1
13.9
1,935
Accum.
Mphasis^
438
1,637
2.7
17.2
(34)
193
1.6
9.2
1.6
35.4
39.7
45.3
12.4
11.0
9.7
Neutral
Hexaware#
132
632
1.7
23.5
(26)
104
5.1
3.4
5.1
10.9
12.6
14.2
12.1
10.4
9.3
142
Accum.
Mindtree
1,531
786
2.2
20.5
(24)
104
(19.4)
24.8
(19.4)
81.7
114.7
132.7
18.7
13.3
11.5
1,650
Accum.
Persistent
980
435
0.6
25.7
(21)
59
(2.8)
14.8
(2.8)
46.9
60.2
76.3
20.9
16.3
12.8
Neutral
KPIT Tech.
172
715
1.7
16.4
91
67
0.2
7.4
0.2
10.6
13.4
16.5
16.3
12.8
10.4
Neutral
Infotech Entp.
341
554
0.8
19.4
(41)
72
(1.4)
6.4
(1.4)
20.7
24.2
27.2
16.5
14.0
12.5
Neutral
Source: Company, Angel Research; Note: Price as on December 31, 2013; *June ending so 2QFY2014 estimates; ^October ending so 1QFY2014 estimates; #December ending
so 4QCY2013 estimates; Change is on a qoq basis
Analyst - Ankita Somani

30
Media
Healthy top-line growth
For 3QFY2014, we expect our Media universe to post a top-line
growth of 17.2% yoy on an overall basis. Festive season coupled
with the recently held state elections in 4 states will likely drive topline growth for print media companies. Although Sun TV Network
(Sun TV) is expected to benefit from strong growth in subscription
revenue, advertising revenue growth is expected to be sluggish
due to imposition of 12 minute ad-limit per hour by TRAI. PVR is
expected to post a healthy revenue growth on like-to-like basis on
the back of robust performance of the Exhibition segment (especially
on account of the strong performance of Dhoom 3).
Exhibit 1: Newsprint prices
800
Performance on the bourses

Exhibit 2: Relative performance to Sensex during 3QFY2014
40,000
35
35,000
650
600
30,000
550
25,000
(INR/tonne)
(USD/tonne)
700
500
20,000
450
400
Dec-06
Imposition of ad-limit will limit broadcaster's ad inventory and

hence, is a negative development for broadcasting companies.
Many broadcasters including Sun TV have increased advertising
rates in the previous quarter to try and minimize the impact of
TRAI's advertising limit.
45,000
Newsprint prices up yoy in INR terms

(due to INR depreciation)
750
to Indiantelevision.com, the Delhi HC has granted an interim

injunction, asking TRAI to not take any action against
broadcasters, if they exceed the ad-cap enforced by the
regulator. At the same time, it has also asked the broadcasters
to maintain records of the amount of airtime on each channel
on a weekly basis.
32
30
25
21
20
15
10
10
5
Dec-07
Dec-08
Dec-09
Dec-10
USD/tonne
Dec-11
Dec-12
15,000
Dec-13
INR/tonne
(5)
(3)
(10)
(11)
(15)
Although average prices of newsprint declined 5.3% yoy to

$587, the depreciation in the INR vs the USD led to an
8.5% yoy increase in newsprint prices in INR terms. Print media
companies have opted to hike cover prices selectively in their
mature markets to alleviate margin pressure due to increase in
newsprint cost.
Key development
Broadcasters approach Delhi HC after TDSAT dismisses
appeal on ad limit imposed by TRAI
After Telecom Disputes Settlement and Appellate Tribunal
(TDSAT)'s dismissal of New Broadcasters Association (NBA)'s
appeal against TRAI's decision (to impose the 12-minute
advertising limit for one hour programming), NBA has now
appealed against TRAI's decision in Delhi High Court. According
DBCORP
HTMEDIA
JAGRAN
PVR
SUNTV
SENSEX

Due to OPM pressure on account of higher newsprint costs
(due to rupee depreciation) and cyclical nature of ad revenue
growth (sluggish due to slower GDP growth), print media stocks
are currently trading at relatively cheaper valuations. However,
considering the structural positives of the print business (high
brand loyalty and significant entry barriers), reduction in losses
of emerging editions and expected uptick in advertising aided
by upcoming elections, in our view, print media stocks deserve
a premium to the Sensex. Hence, we recommend Buy rating
on Jagran PPrakshan
rakshan and HT Media and Accumulate on
DB Corp.

Company
CMP
Net Sales
(`
` cr)
OPM (%)
EPS ((`
`)
EPS ((`
`)
P/E (x)
Tar
get
arg
Reco.
(`)
3QFY14E
chg bp
3QFY14E
% chg
3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
(`)
91
406
19.0
25.4
84
63
(4.3)
2.0
(4.3)
8.1
6.8
7.7
11.2
13.3
11.7
111
D B Corp
293
493
12.3
27.6
44
81
14.9
4.4
14.9
11.9
15.5
17.9
24.7
18.9
16.4
330
Accum.
HT Media
78
560
2.3
16.1
11
64
18.7
2.7
18.7
7.1
8.8
9.3
10.9
8.9
8.4
104
Buy
PVR
646
368
82.0
19.1
236
23
157.5
5.8
82.7
11.2
18.8
25.5
57.5
34.4
25.3
Neutral
Sun TV
382
536
10.4
73.6
(386)
195
2.6
4.9
2.6
18.3
19.5
23.5
20.8
19.6
16.2
Neutral
Jagran
% chg 3QFY14E
Net PProfit
rofit
Buy
Source: Company, Angel Research; Note: Price as on December 31, 2013
Analyst - Amit PPatil

atil
31
Metals
For 3QFY2014 we expect the profitability of steel companies
under our coverage universe to improve qoq. This is on account
of higher prices aided by INR depreciation and seasonal pickup. Even on a yoy basis, we expect operating profits of companies
(excluding SAIL) to improve, mainly aided by higher volumes.
During 3QFY2014 steel prices rose modestly in the US while
they were flat in the domestic market. Steel prices in the US
grew by 3.2% while in China and CIS they declined by 3.3%
and 1.1% qoq, respectively, during 3QFY2014. Indian steel
companies had announced price hikes in the range of 3-7%
effective September 2013. However, weak domestic demand
alongside fragmented domestic industry led to prices coming
down in the form of discounts. Real steel consumption in India
was flat yoy during April-September 2013 due to low demand
from the construction and automotive sectors.
For 4QFY2014, coking coal contract prices are likely to settle
at US$150/tonne, compared to US$152/tonne during
3QFY2014. Iron ore contract prices for 4QFY2014 are expected
to increase as spot iron ore prices have risen during 3QFY2014.
We expect non-ferrous companies' profitability to improve yoy
during 3QFY2014. National Aluminium (Nalco) and Hindustan
Zinc (HZL) are expected to report improvement in profitability
while Hindalco's net profit is likely to decline due to higher interest
and depreciation costs.
Due to the uncertain economic environment, falling demand,
and a slump in the capex cycle, metal companies are slowing
their expansion plans. Although no formal announcements have
come, we foresee some steel companies slowing their expansion
schedules. SAIL, Monnet Ispat, Bhushan Steel and Hindalco are
likely to go slow on their capacity expansion schedule.
Metals and mining stocks had declined sharply during
January - July 2013 on the back of gradual (but steady) fall in
product prices, declining demand, slow down in capex cycle
etc. However, since August, the stocks have risen sharply led
by: 1) improvement in sentiment in developed countries, 2) INR
weakening against the USD, and 3) cheap valuations. The BSE
Metal Index posted a positive return of 19.0% in 3QFY2014;
all the stocks under our coverage except for Coal India and
HZL gave positive returns. Tata Steel, JSW Steel and SAIL gave
positive returns of 56.0%, 39.4% and 45.1% respectively. Among
the non-ferrous space Nalco and and Hindalco rose by 15.8% and
9.6% respectively. Sesa Sterlite also rose post the merger and gave
Exhibit 1: Metal stocks performance 3QFY2014
11.7% returns. Among the PSU miners NMDC and MOIL rose by
18.2% and 18.4% respectively during the quarter.
Key events
Sesa Sterlite commenced mining in Karnataka
During December 2013, Sesa Sterlite commenced its iron ore
mining operations in Karnataka after getting the necessary
approvals from the Supreme Court's appointed authority CEC.
The Supreme Court (in April 2013) had lifted the blanket ban
on iron ore mining in the state and had ordered that operations
of Category A and B mines can commence after getting all
necessary clearances from CEC and MoEF.
CCI slapped `1,773cr penalty on Coal India

During 3QFY2014 the Competition Commission of India (CCI)
had slapped a penalty of `1,773cr on Coal India (CIL) for abusing
dominant power in the coal exploration business. The penalty
figure stood at ~10.2% of the company's consolidated PAT for
FY2013. CIL is likely to appeal against this order at the tribunal.
NMDC hiked iron ore prices

NMDC hiked its iron ore price during October-November 2013.
Lumps contribute ~35% of NMDC's product mix. The company
increased the price of lumps by `100/tonne in October and
`200/tonne in November. Further, it hiked the price of iron ore
fines by `200/tonne in November 2013. The prices for December
stood at `4,500/tonne for lumps and `2,810/tonne for fines.
Supreme Court allowed Goa to liquidate Iron ore

inventory through e-auctions
During November 2013, the Supreme Court permitted iron ore
miners in Goa to sell their existing iron ore inventory through
e-auctions. The total iron ore inventory in Goa was estimated
to be 11.5mn tonne, of which, ~3.8mn tonne was Sesa Sterlite's.
The Supreme Court suggested setting up a six-member expert
committee to study the cap on production in Goa based on
carrying capacity of roads and other factors. The panel would
present an interim report by February 15, 2014.
Coal Ministry panel cancels award of 11 captive blocks

During 3QFY2014 a Coal Ministry panel de-allocated 11 captive
coal blocks belonging to Jindal Steel and Power (JSPL), Tata Steel
and Monnet Ispat & Energy. Some of the mines de-allocated include
two blocks Amarkonda Murgadangal and Ramchandi belonging
to JSPL and the Urtan North block allocated jointly to JSPL and
Monnet Ispat & Energy.
Exhibit 2: US HRC prices rose qoq

800
HZL
4,500
4,000
(US$/tonne)
750
NMDC
MOIL
BSE Metal Index
3,500
700
3,000
2,500
650
2,000
600
1,500
1,000
550
JSW
500
500

Nov-13
Dec-13
Oct-13
Nov-13
Sep-13
Aug-13
Sep-13
Jul-13
USA HRC/tonne
Jul-13
Jun-13
60.0
May-13
50.0
Apr-13
40.0
Apr-13
30.0
(%)
Feb-13
20.0
Mar-13
10.0
Jan-13
0.0
Feb-13
(10.0)
(Yuan/tonne)
COAL
China HRC/tonne (RHS)
32
Metals
Exhibit 5: Iron ore exports to China decline
Global steel prices in the US reversed their downward trend

and rose during 3QFY2014, led by higher demand and
improving macro-economic indicators. Steel prices in the US
grew by 3.2% while in China and CIS they declined by 3.3%
and 1.1% qoq, respectively, during 3QFY2014.
12
10
(mn tonnes)
Ferrous sector
Exhibit 3: Domestic HRC prices flat qoq
8
6
4
2
37,000
Nov-13
Jul-13
Sep-13
May-13
Jan-13
Mar-13
Nov-12
Jul-12
Sep-12
May-12
Jan-12
Mar-12
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Steel imports have slid lately
Net production
145
Real consumption
(000 tonnes)
Sep-13
Jul-13
Aug-13
Jun-13
Apr-13
Net imports - RHS
135
125
115
Outlook
105
95
Steel prices likely to remain stable
85
75
Jan-13
May-13
(200)
Mar-13
(100)
Jan-13
Feb-13
100
0
1,000
Nov-12
200
2,000
Dec-12
300
3,000
Oct-12
400
4,000
Sep-12
5,000
Jul-12
600
500
Aug-12
155
700
6,000
Jun-12
165
800
7,000
Apr-12
Exhibit 4: Iron ore prices and inventory in China
8,000
May-12
Media reports suggest that quarterly coking coal contracts for JanuaryMarch quarter are likely to be signed at US$150/tonne.
Exhibit 6: Production and consumption- Steel
Mar-12
Global iron ore prices increased during the quarter due to higher
demand from China. Declining supplies from India were more
than offset by rising exports from Australia. Australia exported
290mn tonne (ie a 23.4% yoy growth in the 8-month period
April 2013-November 2013). During the quarter, average spot
iron ore prices for 63.5% Fe grade (CFR, China) increased by
1.6% qoq to US$135/tonne. Hence, iron ore contract prices
for 4QFY2014 are likely to rise on a qoq basis.
Jan-12
Iron ore and coking coal prices rise
Feb-12
Dec-11
Dec-13
Oct-13
Nov-13
Sep-13
Jul-13
Aug-13
Jun-13
Apr-13
May-13
Mar-13
Jan-13
Feb-13
Dec-12
Oct-12
Nov-12
Sep-12
Jul-12
Aug-12
Jun-12
Apr-12
May-12
31,000
Steel imports had risen by 15.3% yoy during FY2013 to 7.9mn

tonne as Indian steel players continued to face the threat of
imports from FTA countries (which attract lower import duty). To
counter rising imports, the government imposed a 20% import
duty on some flat steel products from China, during 4QFY2013.
However, during April - October 2013, steel imports by India
decreased by 28.7% yoy to 4.1mn tonne. Moreover, given the
recent INR depreciation and demand slowdown in India, we expect
steel imports to continue to decline during FY2014-15.
Nov-11
33,000
32,000
(US $/tonne)
Mar-11
Sep-10
34,000
(000 tonnes)
(` /tonne)
35,000
Nov-10
36,000
Mar-13
May-13
Iron ore fines CFR 63.5% Fe
Jul-13
Sep-13
Nov-13
Iron ore fines CFR 58% Fe
Iron ore exports from India continued to decline

During FY2013, India's Iron ore exports to China declined by
64.3% yoy to 21.7mn tonne, mainly impacted by the ban on
mining imposed by the Supreme Court in Karnataka in FY2012.
Later in FY2013 the government in Goa banned all mining
activities and export of iron ore from Goa which subsequently
led to suspension of environment clearances of all the 93 mining
leases issued by the MoEF in Goa. As per estimates of the
Federation of Indian Mineral Industries (FIMI), iron ore mining
in Karnataka will take a minimum of two years to operate at a
capacity as prior to the ban, after the Supreme Court allowing
resumption of mining at category-A & B mines in the state.
Current international iron ore prices are in the range of US$130140/tonne, which is slightly above the marginal cost of production
for several Chinese iron ore miners. Hence, we do not expect
any further meaningful downside from the current price levels.
After falling steadily during January-September 2013, domestic iron
ore prices have started moving up over the past two months. We
expect iron ore prices to remain stable given that steel prices are
expected to remain in a narrow range during the coming one year.
Contracted coking coal prices have declined gradually over the
past one year. A decline in coking coal prices is expected to
benefit Indian steelmakers, although INR depreciation against
the USD would partially offset the same.
According to World Steel, global crude steel production
increased by 6.6% to 134mn tonne in October, whereas it
increased 3.6% yoy to 127mn tonne in November. Global
33
Metals
capacity utilization levels during October and November stood
at 77.5% and 75.8%, respectively.
3QFY2014 expectations: For 3QFY2014, on a yoy basis, we
expect net sales of steel companies to increase due to higher
volumes. Also, we expect their operating profits to improve (except
SAIL) mainly due to higher volume growth. For Tata Steel, we
expect its top-line to increase by 12.9% yoy due to higher volumes;
its operating profit is expected to increase by 63.2% yoy. For
SAIL, we expect net sales to increase by 10.2% yoy due to higher
volumes; however, its operating profit is expected to decline by
13.7% due to lower prices and higher costs. NMDC's net sales
and operating profit are expected to grow by 37.8% and
36.2% yoy, respectively as we expect 34.4% yoy increase in
volumes. We remain positive on Tata Steel and NMDC.
Non-ferrous sector
During the quarter, base metal prices declined sharply on a yoy
basis. Domestic aluminium companies continued to suffer on
account of low aluminium prices due to subdued demand.
On a sequential basis, average copper and zinc prices increased
by 0.9% and 2.4%, respectively whereas the aluminium prices
declined 0.7%. On a yoy basis, average copper, aluminium and
zinc prices declined by 9.6%, 10.1% and 2.2% respectively.
Exhibit 7: Average base metal prices (US$/tonne)

3QFY14
3QFY13
yoy %
2QFY14
qoq %
Copper
7,166
7,928
(9.6)
7,099
0.9
Aluminium
1,815
2,018
(10.1)
1,828
(0.7)
Zinc
1,905
1,947
(2.2)
1,860
2.4
On a yoy basis, inventory levels at the LME warehouse for copper

and aluminium rose by 94.9% and 5.9% respectively whereas
for zinc it declined by 14.5%. However, on a qoq basis, copper
and zinc inventories declined by 19.1% and 3.8%, respectively
while aluminium inventory was flat.
Exhibit 8: Inventory chart

180
160
140
120
100
80
60
40
20
0
Jul-11
Nov-11
Mar-12
Jul-12
Nov-12
Copper
Mar-13
Aluminium
Jul-13
Nov-13
Zinc
Outlook
Non-ferrous companies are expected to face a double whammy
of lower product prices coupled with higher input costs during
FY2014. Base metal prices in USD terms have declined over
the past one year and hence realizations for companies are
expected to decline during FY2014 (partially offset by INR
depreciation against the USD). Further, although several
aluminium companies (globally) have announced production
cuts, we are yet to see any meaningful decline in actual
production. Thus, lower realizations coupled with higher prices
of key inputs such as imported coal, caustic soda, CP pitch and
petroleum coke are expected to hit margins of non-ferrous
companies over the coming one year in our view.
3QFY2014 expectations: For 3QFY2014, we expect net profit
of non-ferrous companies (except Hindalco) to improve yoy.
Although we expect Nalco's net sales to increase by only
4.4% yoy, we expect its operating profit to improve by
57.9% yoy due to increase in sales of high-margin alumina.
We expect Hindustan Zinc's net sales and operating profit to
improve by 9.7% and 22.4%, yoy, respectively, due to increases
in volumes of zinc, lead and silver. For Hindalco, while we expect
net sales to remain flat yoy, we expect its bottom-line to decrease
by 22.5% yoy due to higher interest and depreciation costs. We
have a positive stance on Hindustan Zinc.

Company
CMP
Net Sales
( ` ccrr )
OPM (%)
EPS ((`
`)
EPS ((`
`)
P/E (x)
Tar
get
arg
Reco.
(`)
3QFY14E
chg bp
3QFY14E
% chg 3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
(`)
Coal India
290
17,336
0.1
25.3
(588)
3,724
(15.6)
5.9
(15.6)
27.5
23.8
27.6
10.6
12.2
10.5
Neutral
Hindalco (S)
123
6,775
(0.2)
8.6
(2)
224
(22.5)
1.2
(22.5)
15.8
11.2
15.5
7.8
11.0
7.9
Neutral
Hind. Zinc (S)
132
3,446
9.7
53.1
549
1,795
11.3
4.7
11.3
16.3
16.4
17.0
8.1
8.1
7.8
156
Buy
1,018
11,358
37.3
19.6
372
618
33.1
27.7
33.1
60.3
87.9
95.1
16.9
11.6
10.7
848
Sell
JSW Steel (S)
% chg 3QFY14E
Net PProfit
rofit
MOIL (S)
240
251
10.2
40.6
(968)
107
(5.9)
6.4
(5.9)
25.7
25.6
27.5
9.3
9.4
8.7
Neutral
Nalco (S)
38
1,744
4.4
16.5
560
191
60.8
0.7
60.8
2.3
2.7
3.2
16.8
13.9
11.8
Neutral
NMDC (S)
142
2,821
37.8
67.2
(77)
1,636
27
4.2
26.5
16.0
16.5
17.0
8.9
8.6
8.4
151
73
11,566
10.2
8.5
(235)
379
(26)
0.9
(26.4)
5.3
4.1
5.0
13.8
17.8
14.6
51
423
36,257
12.9
10.1
310
826
8.5
3.4
40.4
47.6
123.7
10.5
8.9
461
SAIL (S)
Tata Steel
Accum.
Sell
Accum.
Source: Company, Angel Research; Note: Price as on December 31, 2013; EPS calculation based on fully diluted equity; Denotes consolidated numbers
Analyst : Bhavesh Chauhan / Vinay Rachh

34
Oil & Gas
Brent crude oil remained in the price range of

US$103-116 during 3QFY2014. Overall, during the
quarter, average Brent crude oil price was flat qoq mainly
due to lower demand in the quarter partially offset by supply
issues from Libya and south Sudan.
was the political tension in South Sudan and conflicts between

the rebels and the Libya government which led to closure of
crude exporting ports in Libya and hence affecting supplies from
these two countries. This was however offset by poor demand
scenario during the quarter.
The average West Texas Intermediate (WTI) crude oil price however
decreased 7.8% qoq during the quarter on poor demand.
Petrochemical prices decreased qoq in 3QFY2014
Average Henry Hub natural gas price increased by

7.0% qoq. Also, the price of Asian spot LNG remained firm
on account of demand-supply mismatch in the continent.
Prices of petrochemical products decreased on a qoq basis

during 3QFY2014. The average prices of PTA and MEG
fell by 7.5% and 4.9% respectively. However POY prices
were flat qoq.
5,500
1,400
5,000
1,200
4,500
1,000
4,000
800
3,500
600
Jan-10
Jul-10
Feb-11
Aug-11
PTA
Mar-12
MEG
Sep-12
Apr-13
3,000
Nov-13
POY Prices (RHS)
Source: Industry sources, Angel Research
Exhibit 4: World oil supply improved in 3QFY2014

94
Exhibit 1: Indian crude basket trend
94
93
112
93
(mnbpd)
108
104
(US$/bbl)
1,600
(US$/tonne)
Exhibit 3: Petchem prices decline qoq in 3QFY2014
(US$/tonne)
During November 2013, the Indian crude oil basket stood at

US$106.5/bbl. The jump in international crude oil prices and
a sharp depreciation in the INR against the USD resulted in
higher under-recoveries for oil marketing companies (OMCs)
on account of selling diesel, kerosene and domestic LPG at
subsidized rates. During first half of December 2013, OMCs
lost `434cr per day on this account. OMCs lost `10.4/liter,
`36.2/liter and `542.7/cylinder on diesel, kerosene and
domestic LPG, respectively during the period.
During 3QFY2014, prices of petrochemical products decreased

on a qoq basis. The average prices of PTA and MEG fell by 7.5%
and 4.9% respectively. However POY prices were flat qoq.
100
92
92
91
91
96
90
92
90
88
89
Dec-12
84
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
80
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Source: PPAC, Angel Research
US gas prices rise; Asian gas prices also remain firm
Brent crude remained flat during 3QFY2014

Brent crude oil ended 3QFY2014 almost flat and was in the
range of US$103-116 during 3QFY2014. The reason for this
The average Henry Hub natural gas price rose by 7.0% qoq due
to seasonal variations in demand. Asian spot LNG prices also
continued to remain high on account of higher demand in Asia.
Exhibit 2: Brent crude remained volatile during 3QFY2014
Exhibit 5: US gas prices increased in 3QFY14
140
5.5
130
4.5
(US $/mmbtu)
(US $ / bbl)
120
110
100
90
3.5
2.5
80
70
Dec-13
Nov-13
Dec-13
Oct-13
Jul-13
Sep-13
Feb-13
Aug-13
Sep-12
Jul-13
Apr-12
Jun-13
Nov-11
May-13
Jun-11
Apr-13
Jan-11
Mar-13
Aug-10
Feb-13
1.5
Jan-13
60
Mar-10
35
Oil & Gas

Exhibit 6: Crude inventory increased qoq in 3QFY2014
420
(000 bbls)
400
380
Gujarat High Court ordered ONGC to pay royalty dues

worth ~`6,000cr to state government
360
340
Dec-13
Nov-13
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
May-13
Apr-13
Mar-13
Feb-13
Jan-13
320
Exhibit 7: Motor gasoline inventory decreased qoq in 3QFY2014

280
240
(000 bbls)
to all City gas distribution projects at a uniform rate across

India. Before the order there was a huge mismatch in prices
between cities; in Ahmedabad, the price was almost 50-60%
higher compared to prices in Mumbai and Delhi.
200
160
Dec-13
Nov-13
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
May-13
Apr-13
Mar-13
Feb-13
Jan-13
120
During the last quarter the Gujarat High Court directed ONGC
to pay dues worth ~`6,000cr to the state government towards
differences in royalty of crude that the PSU had extracted since
2008. According to the Oil Field Act, ONGC was required to
pay 20% royalty on the market value of crude oil it extracted
from oil blocks to the state government. ONGC used to pay
such royalty to the Gujarat government but in 2004, when the
Union government asked ONGC to provide crude to IOCL as
burden-sharing mechanism at a discounted rate, it started
paying royalty to the state government at post-discount rate,
resulting in drastic reduction in royalty to Gujarat. The Gujarat
High Court asked ONGC to make payment of differences of
royalty to the state by February 2014 and also asked it to pay
royalty, in future, at market rate of crude.
Cairn strikes oil on the east coast
Key developments
During 3QFY2014, Cairn India struck a significant oil reserve

in its Krishna- Godavari (KG) Basin onshore field
KG-ONN-2003/1. It also found more gas prospects in its
already existing oil and gas producing block Ravva on the East
Coast in the field named LO-110 which had the prospect of
368bcf of recoverable gas and 16mn barrels of condensate.
Government imposed US$792mn fine on RIL

During 3QFY2014, the Government had imposed a fine of
US$792mn on Reliance Industries (RIL) for missing the KG D6
gas production targets. Later the CCEA approved gas price
hike for KG D6 fields provided the company furnishes a bank
guarantee which will be encashed if RIL loses the arbitration
against the government.
Governments ordered RIL to surrender 81% of KG

blocks
During 3QFY2014, the Oil Ministry ordered RIL to give up 81%
of its KG-D6 gas block as the time allocated for producing
from those blocks had expired. The area sought by the Ministry
was over 5,367sq km. It included five discoveries for which the
Directorate General of Hydrocarbon had opined that the
company missed deadlines for submission of investment plans.
The five discoveries were estimated to hold 0.81tcf of gas
reserves.
Government ordered uniform prices across cities for

natural gas
During 3QFY2014 the government ordered GAIL to ensure the
supply of domestically produced gas on a proportionate basis
ONGC found rich reserves in KG basin

During 3QFY2014, Oil and Natural Gas Corporation (ONGC)
discovered gas reserves in Krishna-Godavari basin which was
estimated to hold reserves four times the previous estimate, at
100mn tonne. Earlier, the block KG-DWN-98/2 was estimated
to hold predominantly gas.
Robust 3QFY2014 performance by oil & gas stocks

During 3QFY2014, the BSE Oil and Gas Index increased by
7.5%. RIL and ONGC's stock price led the rally in the index
with 8.8% and 7.8% increase during the quarter as the
government announced a key reform of gas price hike across
the board for all upstream companies. The Cairn India stock
rose by 1.5% due to newer discoveries and firm oil prices. The
GAIL stock also increased by 4.4% during the quarter after the
Madras High court allowed the company to lay pipeline through
the fields and rejected the Tamil Nadu government's order of
routing the pipeline through the national highway.
36
Oil & Gas

Exhibit 8: 3QFY2014 stock performance
For RIL, we expect its top-line to increase by 25.1% yoy as
10.0
INR depreciation against the USD helps it raise petrochemical
9.0
8.0
prices. However, we expect lower profits from its Refining
7.0
segment due to decline in global refining margins on a
(%)
6.0
yoy basis. Overall, we expect its bottom-line to remain flat yoy.
5.0
4.0
For ONGC, we expect net sales to increase by 3.1% yoy while
3.0
its PAT is expected to remain flat yoy due to yoy slight increase
2.0
1.0
in subsidy burden.
0.0
RIL
ONGC
BSE O&G Index
GAIL
Cairn
GAIL is expected to report a top-line growth of 10.1% yoy on
account of increase in volumes. However, its net profit is expected
to decrease by 4.3% yoy.
For 3QFY2014, we expect top-line to increase yoy for all the
Cairn India's net sales are expected to increase by 15.8% yoy
companies; however, bottom-lines are expected to decline for
due to increases in both, production and realizations.
most companies.
Its bottom-line is also expected to increase by 12.7% on a

yoy basis.

Net Sales
(`
` cr)
Company
CMP
OPM (%)
(`)
3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
(`)
Cairn India
324
4,952
15.8
77.1
32
3,291
12.7
18.6
12.7
60.0
63.4
61.9
5.4
5.1
5.2
380
GAIL
342
13,734
10.1
14.3
(172)
1,229
(4.3)
9.7
(4.3)
31.7
32.5
30.7
10.8
10.5
11.1
% chg 3QFY14E
Net PProfit
rofit
chg bp
3QFY14E
EPS ((`
`)
% chg 3QFY14E
EPS ((`
`)
P/E (x)
Tar
get
arg
Reco.
Buy
Neutral
ONGC ^
289
21,643
3.1
53.3
(77)
5,558
(0.1)
6.5
(0.1)
28.3
30.0
39.6
10.2
9.6
7.3
318
Accum.
RIL ^
895
117,488
25.1
6.6
(235)
5,508
0.1
18.5
0.1
70.9
73.0
77.7
12.6
12.3
11.5
1,020
Accum.
Source: Company, Angel Research; Note: Price as on December 31, 2013; ^Standalone numbers for the quarter and consolidated numbers for the full year
Analyst : Bhavesh Chauhan / Vinay Rachh

37
Pharmaceutical
Pharma sector posts robust gains, but underperforms
Sensex
During 3QFY2014, the BSE Healthcare (HC) index rose by
5.0% qoq as against an 8.5% qoq rise in the Sensex. The
HC index' performance for the quarter was relatively lower as
compared to the rise posted by it during the last few quarters. The
rise in the HC index was mainly driven by a rise in the mid-cap
companies, while the large cap stocks posted mixed results.
Exhibit 1: BSE HC Index vs. the Sensex

15.0
10.7
10.0
8.5
8.0
6.0
(%)
5.0
4.0
5.0
3.8
0.0
-0.3
-1.0
(5.0)
3QFY2013
-3.7
4QFY2013
1QFY2014
2QFY2014
3QFY2014
(10.0)
(15.0)
BSEHC
SENSEX
Source: C-line, Angel Research
The major gainers in the pharma space were Aurobindo Pharma

and Indoco Remedies, which rose by 88% and 108% respectively.
Alembic Pharma and Dishman Pharma rose by 49% and 63%
respectively. The rise in these stocks was on back of their
attractiveness on the valuation front.
Among the large caps, Ranbaxy Labs and Glaxo
Pharmaceuticals were the major gainers, rising by 29.0% and
21.0% respectively. Other large caps like Cadila Healthcare
and Lupin rose by 19.0% and 7.0% respectively. Cipla and
Sun Pharma were the losers amongst the large caps, losing
7.0% and 4.0% respectively. Among other large caps,
Dr Reddy's rose by 5.0%.
Key developments
Union Cabinet rejects DIPP proposal to limit FDI in
pharmaceutical sector: The Union Cabinet has rejected a
proposal to limit foreign direct investment (FDI) in domestic
manufacturers of "rare and critical" drugs. However, it said FDI
deals in the pharmaceutical sector will not have a non-compete clause,
giving existing promoters leeway to foray into the same line of business.
The department of industrial policy and promotion (DIPP) had
proposed a 49% limit in so-called brownfield projects, as opposed
to the absence of any cap now, on fears that unfettered acquisitions
could drive up the cost of medicines in India. India had allowed
100% FDI in the pharmaceutical sector through the automatic
approval route in 2002. The Cabinet decided that the current policy
in brownfield and greenfield projects in the pharmaceutical sector
will continue subject to the additional condition that in all cases of
FDI in brownfield pharmaceutical projects, there will not be any
non-compete clause in any of the inter se agreements.
In a review of the country's pharmaceutical policy a year ago,

Prime Minister Manmohan Singh had approved the imposition
of conditions that included mandatory investment in research
& development and manufacture of drugs produced by the
acquired pharmaceutical company.
Among the list of proposals by DIPP, the Cabinet only gave nod to the
removal of non-compete clause from all FDI deals in the
pharmaceutical sector. The Finance Ministry, along with the Department
of Health, had backed the clause. DIPP was of the view that if a
promoter sells one facility or operation, he should not be barred from
starting another venture with all the expertise he had gathered.
DIPP had also sought to prevent foreign investors from divesting
stakes in manufacturing and R&D facilities in cases of transfer
of ownership, besides imposing a three-year lock-in on
investment, which was rejected.
Further, another proposal, which mentioned that foreign
investors must invest 25% of total investment in R&D expenditure,
was also rejected.
Thus, the cabinet has rejected most of the proposals, given by
the DIPP, except that the current policy in brownfield and
greenfield projects in the pharmaceutical sector will continue
subject to the additional condition that in all cases of FDI in
brownfield pharmaceutical projects, there will not be any
noncompete clause in any of the inter
non-compete
inter--se agreements. This might
have an impact on some of the companies which were getting
higher valuations on possibility of an M&A
M&A,, while the sector
should not witness any change in the valuations accorded, as
most of the companies are being valued for their core businesses
and don't enjoy any premium for the M&A activity
activity.. However
However,, this
might bring down the premium paid by the acquiring companies.
Thus, we maintain our recommendations in the sector
sector..
GSK Pharma to invest `864cr to set up pharmaceutical unit in
India: Global pharmaceutical major GlaxoSmithKline
Pharmaceuticals (GSK) announced a `864cr investment in India
to set up a medicine manufacturing unit. During a visit to India
to take part in a conference of international business leaders,
GSK Chief Executive Officer Andrew Witty said the location of
the new facility is yet to be finalized, but the lead site is in
Bangalore. The new facility will substantially increase the capacity
of GSK's manufacturing base. When complete, the factory will
make pharma products for the Indian market at a rate of up to
eight billion tablets and one billion capsules a year. The facility,
expected to be operational by 2017, will include a warehouse,
site infrastructure, and utilities to support the manufacturing
and packing of medicines. It showcases GSK's latest commitment
to its manufacturing network in India where the company has
invested `1,017cr over the last decade. The development is
positive and comes after a long lull by the company in terms of
investments. Given that the facility is in its initial stages of
development and would go commercial in 2017, we maintain
our estimates for the company and a Neutral stance on the stock.
38
Pharmaceutical
GSK PLC to spend `6,400cr to enhance its share in GSK
Pharmaceuticals to 75%: London-listed GlaxoSmithKline
announced that it is going to increase stake in its Indian
pharmaceutical subsidiary GlaxoSmithKline Pharmaceuticals
through a voluntary open offer. GlaxoSmithKline holds 50.7%
stake in its Indian subsidiary and wants to raise it up to 75% at
a price of `3,100/share. GlaxoSmithKline intends to keep the
company publicly-listed. According to SEBI, the Indian company
requires a minimum public shareholding of 25% for it to
maintain a public listing in the country. GlaxoSmithKline intends
to acquire up to 2,06,09,774 shares, representing 24.3% of
the total outstanding shares of GlaxoSmithKline
Pharmaceuticals. The potential total value of the transaction at
the offer price is approximately `6,400cr.
The open offer of shares is at an attractive price, much above
the current market price, and is a strong indicator from the
Management towards the performance of its listed Indian entity,
especially as it comes after the recent `864cr investment plan
announced by the company to further its growth prospects in
the Indian pharmaceutical markets. The said investments are
expected to fructify by 2017. On the valuation front, on a
normalized basis (normalized for the impact of the current
DPCO 2013 on its operations), the stock at the open offer price
would trade at around 34x CY2014E earnings. Thus, the stock
would move up on the open offer
ong term shareholders are
offer.. LLong
advised to remain put in the stock, as in the long run, when
these facilities become operational (from 2017), they can easily
earn 20% p.a on the stock. Investors looking from a very near
term perspective should exit the stock, as the valuations in the
near term, at the open offer price, are very expensive.
Cadila Healthcare - in an out
court settlement with W
arner
out-- ofof-court
Warner
Chilcott: Cadila Healthcare and Zydus Pharmaceuticals (USA)
Inc. have entered into an agreement in principle with Warner
Chilcott Company LLC to settle all outstanding patent litigation
related to Asacol delayed-release tablets.
Under the terms of the agreement in principle, Warner Chilcott
Company will grant Zydus Pharmaceuticals (Zydus) a royaltybearing license to market its generic Asacol HD beginning on
November 15, 2015 or earlier under certain circumstances,
following receipt by Zydus of final approval from the USFDA on its
Abbreviated New Drug Application (ANDA) for generic Asacol HD.
Alternatively, if Zydus does not receive USFDA approval for its
generic Asacol HD by July 1, 2016, Zydus will be permitted to
launch an authorized generic version of Actavis' product beginning
on July 1, 2016. Other terms of the settlement were not disclosed.
Asacol HD had sales of US$122mn during the quarter that ended
on June 30, according to Warner Chilcott Company. We maintain
an Accumulate on the stock with a target price of `894.
Sun Pharma, LLupin,

upin, Aurobindo, Dr Reddy's announce USFD
A
USFDA
approval for generic Cymbalta: Sun Pharma and Lupin have
announced that the USFDA has granted final approval to market
a generic version of Cymbalta Duloxetine delayed-release
capsules USP, 20mg, 30mg and 60mg. Duloxetine delayedrelease capsules USP, 20mg, 30mg and 60mg are therapeutic
equivalents of Eli Lilly & Company's Cymbalta delayed-release
capsules. These capsules have annual sales of approximately
US$5.5bn in the US. Duloxetine delayed-release capsules USP is
indicated for the treatment of major depressive disorder (MDD),
generalized anxiety disorder (GAD) and diabetic peripheral
neuropathic pain (DPNP).
Sun Pharma subsidiary, being one of the first-to-file ANDAs for
generic Cymbalta with a para IV certification, is eligible for
shared 180-day marketing exclusivity in the US. The product
has lost its exclusivity in December 2013, and has around six
players having already got the USFDA nod (the notable Indian
players amongst them being Sun Pharma, Lupin, Dr Reddy's,
Aurobindo Pharma, Torrent Pharma and Teva Pharma) for the
product. For the fourth quarter of 2013, Eli Lilly estimates that
US sales of Cymbalta will be approximately US$500mn,
reflecting the loss of US patent exclusivity on December 11,
2013 from its normal run rate of US$1.1bn as of 3QCY2013.
The product has a shared exclusivity and hence on a conservative
basis, the product is expected to contribute around US$80-90mn
and US$16-18mn on sales and net profit front respectively
during the 180 day exclusivity period for these players. We
maintain our Neutral rating on Sun Pharma, LLupin,
upin, Aurobindo
Pharma and Buy on Dr Reddy's with a target price of `3,008.
3QFY2014 result expectations

The Indian pharma sector is expected to post a double-digit
growth on the sales and net profit front for 3QFY2014. Excluding
Cipla, for which the last corresponding consolidated sales are
not available, we expect our coverage universe to register a
17.6% yoy top-line growth. On the operating front, the margins
are expected to expand by 242.4bp. This is expected to lead to the
companies in our coverage post an earnings growth of 41.7%
during the period.
Amongst large caps, Sun Pharma is expected to post a 29.7%
yoy sales growth. Other players, namely Lupin and Cadila
Healthcare are expected to report 19.8% and 14.1% sales
growth respectively. Dr Reddy's and Ranbaxy Labs on the other
hand are expected to post a top-line growth of around 25.2%
and 3.3% respectively. Amongst small caps, Indoco Remedies is
expected to post a growth of 24.2% yoy. Amongst the MNC pack,
Sanofi India is likely to post a 9.8% yoy growth in net sales, while
Glaxo is expected to post a marginal growth of 0.2% yoy in sales.
39
Pharmaceutical
Exhibit 2: Sales growth and OPM for 3QFY2014
Ranbaxy Labs is expected to post a modest growth of 3.3% with

sales at `2,758cr during 4QFY2014. Its OPM is expected to be at
6.6% vs 3.2% in 4QCY2012. Its net profit is likely to come in at
`120cr, vs a net loss of `25cr during the last corresponding period.
50.0
42.1
40.0
29.7
30.0
25.2 25.4
23.4
Cadila Healthcare is expected to post a sales growth of

14.1% to `1,781cr. We expect the company's OPM to expand
by 240bp yoy to 16.0%. Net profit is expected to grow by 62.4%
yoy to `167cr, on back of lower tax outgo.
19.8
20.0
6.6
10.0
3.3
0.0
Sun Pharma
Lupin
Ranbaxy
Sales growth
Mid caps- Aurobindo to post robust numbers
DRL
OPM
Among large caps, Dr Reddy's, Sun Pharma and Lupin

to outperform
Among the large caps in our coverage universe, for 3QFY2014,
Sun Pharma is likely to clock a 29.7% yoy growth on the sales
front, led by both exports and domestic sales. Operating profit
margins would decline by 210bp with margins likely to be
around 42.1%. However, inspite of the same, the net profit is
expected to post a growth of 19.6% yoy.
Lupin, on the other hand, is expected to register a strong revenue growth
of 19.8%. Its OPM is expected to expand by 30bp during the period to
23.4%. Its net profit is estimated to increase by 26.6% in 3QFY2014.
Dr Reddy's is expected to post a top-line de-growth of 25.2% to
`3,588cr on the back of robust exports growth. The company
is expected to see strong traction in its Indian and Russian
formulation businesses as well. The company is expected to
post an OPM of 25.4%, as against 17.7% in the corresponding
period of the previous year. The company is expected to post a
net profit of `736cr, a growth of 102.8% over the last
corresponding period.
Cipla is expected to post a net sales growth of `2,366cr. On the
operating front, the OPM (excluding technical know-how fees) is expected
to come in at 23.1%, and net profit is expected to come at `439.3cr.
We estimate Ipca Laboratories' top-line to grow by 19.0% to

`824cr for 3QFY2014. The OPM is expected to dip by 100bp
yoy to 20.6%. The adjusted net profit is expected to grow by
39.5% yoy on back of dip in OPM.
Aurobindo Pharma is expected to post a net sales growth of
15.3% yoy. The margins are likely to expand to 17.4% vs 15.5%
in the corresponding period of previous year, which will lead
the net profit of `187cr vs a net profit of `137cr in the
corresponding period of previous year.
Indoco Remedies is expected to report a sales growth of 24.2% to
`187cr. The OPM is expected to expand by 380bp yoy to 14.6%. As
a result, the net profit is expected to dip by 135.8% yoy to `17.4cr.
Outlook and Valuation

With an expected earnings CAGR of ~20% over FY2013-15E
for our universe of stocks, we remain overweight on the sector
maintaining a positive future outlook and earnings growth. In
the generic segment, we prefer Cipla, Dr Reddy's and Cadila
Healthcare.
In CRAMS, though the segment is currently witnessing some
pressure, there have been indications of gradual recovery and
ramp up from most of the players in the segment. Thus, with
the valuations rendering attractive, we recommend Dishman
Pharma in this segment.

Company
CMP
(`)
Alembic Pharma 211

Aurobindo
393
Net Sales
3QFY14E
(`
` cr)
OPM (%)
% chg 3QFY14E
Net PProfit
rofit
chg bp
3QFY14E
EPS ((`
`)
% chg 3QFY14E
EPS ((`
`)
% chg
FY13
FY14E
P/E (x)
FY15E
FY13
FY14E
Tar
get
arg
FY15E
Reco.
(`)
420
13.9
16.6
(210)
45
(6.8)
2.4
(6.8)
8.8
10.5
13.8
23.9
20.1
15.3
Neutral
1,790
15.3
17.4
190
187
36.3
6.4
36.3
14.8
28.0
33.8
26.5
14.0
11.6
Neutral
Accum.
Cadila
807
1,781
14.1
16.0
240
167
62.4
8.2
62.4
32.0
37.3
44.7
25.2
21.6
18.1
894
Cipla*
401
2,366
23.1
439
5.4
19.0
21.0
23.9
21.1
19.1
16.8
504
Buy
Dishman Pharma 100
370
16.5
19.1
130
20
21.3
2.5
21.3
12.2
14.8
16.6
8.2
6.7
6.0
107
Accum.
Dr. Reddys
2533
3,588
25.2
25.4
770
736
102.8
43.7
102.8
103.1
144.4
161.6
24.6
17.5
15.7
3,008
Glaxo #
2993
658
0.2
20.6
(660)
120
(24.8)
14.1
(24.8)
77.6
58.4
64.4
38.6
51.2
46.5
Buy
Neutral
Indoco Rem.
137
187
24.2
14.6
380
17
135.8
1.9
135.8
4.6
5.9
7.6
29.8
23.2
18.0
Neutral
Accum.
Ipca Lab.
721
824
19.0
20.6
(100)
123
39.5
9.8
39.5
26.9
40.4
52.7
26.8
17.8
13.7
791
Lupin
909
2,954
19.8
23.4
30
425
26.6
9.5
26.6
29.4
36.6
44.8
30.9
24.8
20.3
Neutral
Ranbaxy Lab
453
2,758
3.3
6.6
340.0
120
2.9
59.3
11.4
15.2
7.6
39.7
29.8
Neutral
440
9.8
12.5
(20.0)
46
1.8
19.8
1.8
76.9
94.8
101.7
35.9
29.1
27.2
Neutral
3,700
29.7
42.1
(210)
1,054
19.6
5.1
19.6
16.7
25.6
25.8
34.0
22.2
22.0
Neutral
Sanofi India # 2763

Sun Pharma
568
Source: Company, Angel Research; Note: Price as on December 31, 2013; Note: Our numbers does not include MTM on Foreign Debt. # 4Q'CY2013, * Last coressponding period
consolidated numbers not available.
Analyst: Sarabjit K
our Nangra
Kour
40
Power
All-India power generation highlights
Capacity addition
During 8MFY2014, the overall power generation in India rose

by 5.2% yoy to 638.8BU, aided by a 10.1% yoy increase in
installed capacity to 232,165MW.
During 8MFY2014, 6,963MW of capacity was added compared

to targeted capacity of 8,176MW. Private utilities added
3,800MW and exceeded the target of 3,244MW capacity
addition, whereas, State utilities fell short of the target capacity
of 2,846MW and added only 1,745MW. Central utilities added
1,418MW against their target of 2,086MW.
During this period, thermal power generation grew by a meager

2.9% yoy to 508.8BU while hydro power generation grew by a
healthy 19.3% yoy to 102.7BU. However, nuclear power
generation remained stagnant on a yoy basis at 22.0BU.
Operational performance (PLF)

The all-India plant load factor (PLF) of thermal power plants
during 8MFY2014 stood lower at 64.0% vs 68.9% in the
corresponding period of last year, due to fuel availability
constraints and lower off-take. Although NTPC reported a sharp
307bp yoy decline in PLF from 81.0% to 77.9%, the same was
much higher than the all-India PLF during the same period.
Exhibit 2:Generation capacity addition: Targeted vs achieved

(MW)
(%)
25,000
160.0
140.0
20,000
100.0
80.0
10,000
60.0
40.0
5,000
20.0
Generation for companies under coverage
During 8MFY2014, NTPC's power generation declined by 0.9%

yoy to 149.2BU while GIPCL's generation (excluding 145MW
Baroda plant) declined by 29.0% yoy to 2.0BU.
Fuel availability position

As on Dec 22, 2013, 33 thermal power stations had coal stocks
for less than 7 days, which includes 18 power stations having
coal stocks for less than 4 days. The southern region was the
worst affected with it having 10 out of the 33 stations having
coal stocks for less than 7 days. The current fuel availability
position has deteriorated as compared to that in Sept 2013, when
18 thermal power stations had coal stocks for less than 7 days,
including 10 power stations having coal stocks for less than
4 days. The main reason for lower coal stocks can be attributed
to lower domestic production as well as transportation constraints.
Imported coal prices down yoy (in US$ terms)

During 3QFY2014, average prices of New Castle Mckloksey
6,000kc coal were up by 6.4% qoq but down by 2.6% yoy to
US$82.0 per tonne. On a qoq basis, the rise in price of imported
coal in INR terms was 6.6% aided by a stable INR/US$ exchange
rate (INR appreciated against the US$ by 0.1% qoq). However,
on a yoy basis though the price of coal reduced by 2.6% in US$
terms, a 14.3% yoy depreciation in the INR led to an increase in
the price of imported coal by 11.3% yoy in INR terms.
Exhibit 1: New Castle Mccloskey coal prices
250
120.0
15,000
0.0
FY04
FY06
Target (Tgt.) LHS
FY08
FY10
Achievement (Ach.) LHS
Source: CEA, Angel Research
Transmission lines and substations

During Apr-Nov 2013, 7,620 circuit kilometers (ckm) were
added to the transmission lines, as against the targeted
12,833ckm. In the same period, total addition to the
transmission sub-station category was 26,180MVA, as against
the targeted 16,920MVA.
Power-deficit situation
India's overall and peak power-deficit levels during 8MFY2014
stood at 4.5% and 4.2% respectively, as against 8.6% and 9.0%
reported in 8MFY2013. The sharp reduction can be attributed to
capacity addition by generation utilities and an extended monsoon
which delayed the winters and resulted in lower electricity demand.
Exhibit 3: India - Power-deficit scenario
(%)
20.0
16.6
16.0
12.0
13.8
11.2
11.7
12.3
8.0
4.0
12.0
7.1
7.3
8.4
9.9
9.6
11.0
8,000
200
7,000
6,000
150
5,000
4,000
100
10.1
8.5
10.6
9.0
8.5
8.7
4.2
4.5
0.0
FY2006
FY2008
Overall
9,000
12.7
9.8
FY2004
Price of coal increased qoq

in both US$ and INR terms
FY12
8MFY14
Ach. as % of Tgt. (RHS)
FY2010
FY2012
8MFY2014
Peak
Key developments
CERC Draft Tariff Regulations for 2014-2019
3,000
2,000
50
1,000
0
NCM Coal ($) (LHS)
INR (RHS)
Dec-13
Jun-13
Dec-12
Jun-12
Dec-11
Jun-11
Dec-10
Jun-10
Dec-09
Jun-09
Jun-08
Dec-08
Dec-07
Jun-07
Dec-06
The Central Electricity Regulatory Commission (CERC) has released

the Draft Tariff regulations for the central power utilities for
FY2015-19E. The ROE level has been maintained at 15.5% with a
0.5% incentive for timely completion. The major changes are:-

41
Power
Shift from PPAF
AF based incentives to PLF based incentives for
generation companies: As per current regulations if the PAF
(Plant Availability Factor) is maintained above 85% the fixed
charge goes up proportionately even if there has not been any
off-take and therefore the generation companies can recover
their fixed costs. However, in the draft regulations, CERC
changed this to PLF (Plant Load Factor) based where the
generation company will get an incentive of `0.5/unit of power
generated if it maintains the PLF greater than 85%. This puts
the generation companies at a disadvantage because they will
have to bear the loss if there is no off-take or fuel is unavailable
even when it is not due to their fault.
Tax arbitrage: As per current regulations companies are allowed
to retain tax benefits earned from grossing up of ROE on the
marginal tax rate which has now been disallowed in the draft
regulations and the generation company will get tax benefit
only on the effective tax rate. This will result in companies like
NTPC taking a hit on the effective ROE.
CCEA clears changes to Mega Power Policy

The Cabinet Committee on Economic Affairs (CCEA) approved
amendments in the Mega Power Policy. To avail the benefits
under the policy, the power generator must tie up at least 65%
(earlier 85% was mandatory) of the installed capacity through
competitive bidding and the remaining 35% should be through
regulated tariff according to the host state's regulations.
Currently, as per the policy thermal power projects of 1,000MW
and above and hydro power projects of 500MW and above
capacity are allowed duty-free equipment imports and tax
holiday for 10 years. These benefits can be availed after
submission of provisional mega power project status certificate
along with a bank guarantee as a security. The maximum time
period for provisional mega projects for furnishing final mega
certificates to the tax authorities (after tying up capacity through
competitive bids) has been extended to 60 months instead of current
provision of 36 months from the date of import. This will have a
positive impact on power generation companies going forward.
Exhibit 4: Performance on the bourses in 2QFY2014

15
Major changes in operational norms:
12
The normative gross station heat rate (GSHR) for 500MW

sub critical plants has been reduced from 2,425 Kcal/KWh
to 2,375 Kcal/KWh in an attempt to improve efficiency
The coal inventory included in calculating the working capital
for interest calculation has been reduced for
pit-head stations from 1.5 months to 0.5 months and for nonpithead stations from 2 months to 1 month. This has been
attempted to make the operational norms more stringent.
Any savings on fuel cost will be shared with the consumers
in the ratio of 3:1
With these regulations, CERC aims to improve operational

efficiency and have a positive impact on power prices for end
consumers. Also, we believe tightening of the operating norms
will reduce savings from operational efficiencies for generation
companies. In our view the final regulations (expected to come
out by April 2014) could be different from the current draft
regulations; similar to what happened with the past regulations
and thus, it may provide some respite to the generation
companies like NTPC. We believe that if these regulations are
implemented as it is, they would have an impact of ~`700cr`800cr on the earnings of NPTC.
10
5
1
-
(5)
(7)
(10)
NTPC
GIPCL
BSE Power
SENSEX
Source: BSE, Angel Research
Outlook:
The power sector has been facing many headwinds such as
fuel shortage, delay in land acquisition, and environmental
clearances among others. The government has been trying to
give a boost to the sector with reforms such as the financial
restructuring plan for State Electricity Boards (SEBs), the Cabinet
Committee on Investment (CCI) clearing several projects stuck
due to various reasons as well as other supportive measures.
Keeping in mind the government's continued efforts towards
improving the health of the power sector we believe it to be
positive in the medium to long term. However, for now we
recommend a Neutral rating on GIPCL and NTPC.

Company
CMP
Net Sales
(`
` cr)
OPM (%)
% chg 3QFY14E
Net PProfit
rofit
EPS ((`
`)
EPS ((`
`)
P/E (x)
Tar
get
arg
Reco.
(`)
3QFY14E
chg bp
3QFY14E
% chg 3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
(`)
GIPCL
62
329
(11)
34.6
(319)
46
(34.4)
3.0
(34.4)
14.5
9.9
11.4
4.3
6.3
5.4
Neutral
NTPC
137
16,090
2.0
25.7
37
2,668
2.7
3.2
2.7
15.3
12.0
12.5
9.0
11.4
11.0
Neutral
Source: Company, Angel Research; Note: Price as on December 31, 2013.
Analyst - Akshay Narang

42
Telecom
During November 2013, the Empowered Group of Ministers

(EGoM) has accepted the recommendations of the Telecom
Commission (TC) regarding the upcoming round of spectrum
auctions. The TC had suggested a 15% higher pan-India reserve
price for 1,800MHz spectrum (`1,765cr/MHz) and a 25% higher
reserve price for 900MHz spectrum (only in metro circles)
compared with the prices suggested by the TRAI. The regulator
had reduced the pan-India reserve price by 47% compared
with the November 2012 discovered auction price for pan-India
1,800MHz spectrum and by 60% for 900MHz spectrum in metro
circles. The Department of Telecom (DoT) has invited applications
for its next round of spectrum auctions for the 1800MHz and
the 900 MHz band. The government is auctioning 90MHz only
in three circles, ie Delhi, Mumbai and Kolkata, the licenses of
which are coming up for renewal in CY2014 and CY2015. As
per the schedule, auctions are set to begin on January 23, with
January 4 being the last date for submission of applications by
interested parties. The quantum offered for auction for the 1800
and the 900MHz band is 403.2MHz and 46MHz, respectively.
This will be a key auction which will determine the competitive
landscape of the Indian telecom industry over the medium term.
We believe the incumbents would be keen to retain their current
holding in the 900MHz band. If they are unable to retain
spectrum in this band, they will have to incur further capex to
realign their network to the new frequency.
The recent developments bode well for the overall sector. Though
the refarming of the 900MHz band spectrum remains an issue
for incumbent operators, the reduction in spectrum pricing
considerably reduces potential spectrum related payouts for
telecom operators. However, the government needs to provide
recourse to operators who won spectrum in the November 2012
auctions at higher prices to maintain its level playing field
approach. Decisions regarding one-time excess spectrum fee,
3G roaming pact cancellations and modalities of spectrum
refarming are yet to be made, which in our view, will continue
to be an overhang on the sector.
Exhibit 1: Stock return analysis of leading Indian TSPs

80
72.1
70
60.8
60
50
(%)
40
30
20
10
2.9
3.0
0
(10)
(4.1)
(20)
Bharti
Idea
Chg. (3 months)
(12.4)
RCom
Chg. (1 year)
VLR data points favorable for tier-I companies

As per the recent visitor location register (VLR) data released for
October 2013, of the total 888mn subscribers, 85.01%, ie
755mn subscribers were active subscribers on the date of peak
VLR. Service-provider wise, Idea leads the tally with a share of
97.5%, followed by Vodafone with 95.7%, Bharti with 95.3%
and Reliance Communications (RCom) with 93.5%, whereas
BSNL and Loop Mobile stood at the bottom with a share of
56.5% and 47.8%, respectively. Idea's as well as Bharti's VLR
number has sustained at such high levels and has remained
largely flat since the last six quarters. RCom has shown
substantial improvement in its peak VLR data from 77.1% in
November 2012 to 86.8% in July 2013 and then to 93.5% in
October 2013. The company removed inactive customers
Exhibit 2: VLR data of incumbents

110
100
95.2
95.3 95.2
95.7 97.6
97.5
90
(%)
Since April 2013, the benefits of quasi-consolidation in the

Indian telecom industry have been increasingly visible. The top3 companies - Bharti Airtel (Bharti), Idea Cellular (Idea) and
Vodafone India (Vodafone) - increased their combined gross
revenue (GR) market share in the Indian wireless industry again
in the June 2013 quarter, as per data released by the Telecom
Regulatory Authority of India (TRAI). These three telecom
companies together clocked a 69.1% GR market share in the
quarter ending June 2013, notably their highest ever as a
composite. This represents a qoq market share gain of 50bp
and a yoy market share gain of 146bp. Even as most of the
sequential market share gain accrued because of Idea, Bharti
has done well over the past one year. The wireless industry's
gross revenues grew 5.2% qoq, led by the three telecom
operators mentioned above. Further, most operators have
reduced promotions (free minutes on every plan) and plan
validities (tenure of the plan). This led the telecom operators to
post a robust average revenue per minute (ARPM) improvement
in 2QFY2014 and we expect the companies to continue to reap
benefits from the sustained effort to reduce promotional/
discounted minutes over the past few quarters. This would
support ARPM over the next couple of years and thereby improve
operating cash flows.
93.5
86.8
80
70
63.4
60
55.9
64.6
56.5
50
Bharti
Vodafone
Jul-13
Idea
Rcom
BSNL
Aug-13
Sep-13
Oct-13
Aircel
Source: TRAI, Angel Research
43
Telecom
(subscribers who have not had any usage in the last 60 days)
from its subscriber base, focused on the quality of its subscribers
and removed free minutes from the network. All the other
incumbent players also reported considerable improvements
in their peak VLR data in the past six months, keeping in notice
the regulatory requirements regarding inactive SIM users (SIM
not recharged since last six months).
Exhibit 3: Active subscribers (October 2013)

Active Active subscribers' Active subscribers'
Reported
market share market share (%)
subscribers'
subscribers
(mn)
(%)
- June 2013 market share (%)
During August-October 2013, Bharti and Idea added 2.7mn

and 2.4mn subscribers, taking their total subscriber base to
194.9mn and 128.4mn, respectively. RCom's subscriber base
got reduced by ~10mn subscribers before the aforesaid period
on account of its ongoing exercise of removing inactive
subscribers from its subscriber base. We believe the incumbents
went competitive to acquire subscribers left out by new operators
who were forced by the Supreme Court to either shut down or
scale down their operations in February 2013.
Exhibit 4: Total subscriber base

Company (mn)
May
-13
May-13
Jun-13
Jul-13
Aug
-13
Aug-13
Sept
-13
Sept-13
Oct
-13
Oct-13
Bharti
185.7
24.59
24.38
21.94
Bharti
189.6
190.9
191.4
192.2
193.4
194.9
Vodafone
149.9
19.86
19.92
17.64
RCom
124.9
125.7
126.2
126.8
116.3
116.7
Idea
125.2
16.58
16.47
14.45
Vodafone
154.7
155.0
154.4
154.3
155.5
156.7
RCom
110.3
14.61
14.84
13.28
BSNL
97.2
97.2
97.2
97.2
97.2
97.2
BSNL
54.9
7.27
7.44
10.94
Idea
123.8
125.0
125.3
126.0
127.2
128.4
Aircel
41.2
5.45
5.26
7.18
TTSL
65.4
79.0
78.7
78.7
76.8
76.9
0.39
Aircel
60.4
61.0
61.7
62.6
63.2
63.7
MTNL
4.6
4.3
4.1
3.8
3.6
3.4
MTNL
2.0
Source: TRAI, Angel Research
0.26
0.28
RMS vs SMS
As per revenue market share (RMS) data for 1QFY2014, Bharti
leads at 31.0% with a subscriber market share (SMS) of 21.5%,
whereas Idea has its RMS and SMS at 18.4% and 14.1%,
respectively. Idea has shown a significant rise in its RMS in the
past one year as it gained ~320bp yoy of RMS to 18.4% and
its revenue share now exceeds that of RCom and Tata Teleservices
combined. The RMS for Bharti and Idea is higher than their
SMS, which indicates that the quality of subscribers added by
these companies is good. Conversely, in case of RCom, SMS is
at 14.3%, which is much higher than its RMS, which is only
7.5%. This is evident from the average revenue per user (ARPU)
profile of these companies; also, even though RCom's peak VLR
has improved, but it still stood at 86.9% (in June 2013) which is
less as compared to its peers Bharti, Idea and Vodafone - the
peak VLR of these vary from 95-98% (for June 2013). The recent
step by RCom to remove inactive customers from its subscriber
base has led to some improvement in its overall ARPU profile and
the same will reduce the difference between its RMS and SMS.
Loop Mobile
3.0
3.0
3.0
3.0
3.0
3.0
HFCL
1.4
1.4
1.6
1.6
1.7
1.8
10.1
9.8
9.6
9.6
9.6
9.6
32.0
32.3
32.8
32.3
32.4
32.3
2.3
2.4
2.8
2.9
3.2
3.5
Total
869.5
887.0
888.8
Source: COAI, AUSPI, Angel Research
891.1
883.1
888.1
Shyam Telelink
S Tel
Uninor
Videocon
DB Etisalat
MOUs to improve
In 2QFY2014, Idea as well as RCom posted a decline in their
minutes of usage (MOU) due to seasonal slowdown seen in
2Q as well as increased proportion of rural subscribers. For
3QFY2014, we expect the overall MOU profile for Bharti (India
mobile operations), Idea and RCom to increase by more than
2.5% qoq to 450min, 377min and 289min, respectively. This is
because 3Q is a seasonally good quarter in terms of MOU for
telecom players due to the festive season falling in the quarter
Exhibit 5: Trend in MOU per month per subscriber

500
Modest momentum in net subscriber addition
455
437
450
400
406
(min)
The country's total wireless subscriber base increased from

869.5mn in May 2013 to 888.1mn at the end of October 2013,
registering an average monthly growth of 0.5%. The share of
urban wireless subscribers as of October 2013 decreased to 60.3%
from 60.4% in September 2013, whereas the share of rural
subscribers increased from 39.6% in September 2013 to 39.7% in
October 2013. The overall wireless teledensity in India as of October
2013 has reached 73.3% from 73.0% in the previous month.
455
435
417
384
398
368
359
291
300
271
283
280
377
289
236
200
2QFY13
3QFY13
4QFY13
Bharti (India ops)
1QFY14
Idea
2QFY14
3QFY14E
RCom
44
Telecom
and on account of the low base effect of 2Q (which tends to be
a weak quarter).
pull the APRU of Bharti (India operations), Idea as well as RCom
ARPM to inch up
respectively.
In 2QFY2014, all the telecom players under our coverage

witnessed marginal increases in their ARPMs on a sequential
basis led by cut down on discounted tariffs and promotional
vouchers. Also, industry dynamics favored incumbent telecom
companies with pricing power coming back to them due to
virtual consolidation (new operators are rationalizing operations
to reduce losses as business case is becoming unviable with
increasing costs). During 3QFY2014, we expect the ARPM for
Bharti and Idea to grow by more than 1% qoq.
Exhibit 6: Trend in ARPM

0.46
0.46
0.46
0.46
0.45
0.45
(`
/min)
0.44
0.44
0.44
0.44
0.43
0.44
0.41
0.44
0.44
0.43
0.42
0.43
0.43
0.41
industry on the back of increase in MOU, uptick in voice ARPM

as well growing data users. Amongst the top three operators,
we expect Idea to lead in terms of revenue growth followed by
Bharti and RCom. We expect Idea to post a 4.1% sequential
revenue growth while Bharti and RCom are expected to post a
revenue growth of 2.0% and 1.7% qoq, respectively. On the
margins front, we expect the EBITDA margin of Bharti and Idea
31.3%, respectively, while the EBITDA margin of RCom is
expected to decline by 94bp qoq to 34.0%. Indian incumbents
are reporting decent EBITDA and EPS growth as a result of
normalization of margins. However, free cash flow will likely be
constrained in the medium term due to payments for spectrum.
0.42
0.41
0.41
3QFY13
4QFY13
1QFY14
2QFY14
Bharti (India ops)
Idea
RCom
We believe the regulatory environment continues to improve
0.40
2QFY13
For 3QFY2014, we expect healthy revenue growth for the
to see marginal uptick of 48bp and 11bp qoq to 32.5% and
0.47
0.45
upwards to `200/month, `171/month and `133/month,
3QFY14E
which bodes well for the sector. In our view, the telecom industry
can substantially improve structurally only after data revenues
start contributing significantly to the overall revenues. As the
ARPUs to increase
competitive intensity is receding and pricing power is coming
For 3QFY2014, we expect the combination of increase in MOU

as well as ARPM with a modest increase in subscriber base to
back to operators, we expect incumbent players such as Bharti,
Exhibit 7: Trend in ARPU per month
currently neutral on the telecom sector as issues like one-time
220
200
193
185
177
(`/month)
200
192
171
167
164
158
integrated model (owned tower infrastructure), potential

opportunity to scale up in Africa, established leadership in
148
140
revenue and subscriber market share, relatively better KPIs and
120
133
128
130
129
4QFY13
1QFY14
2QFY14
Bharti (India ops)
Idea
RCom
119
100
80
spectrum charge, and renewal fees still persist. Bharti continues

to be our preferred pick amongst telcos due to its low-cost
174
180
160
200
Vodafone and Idea to perform well going ahead. We are
due to potential upside in its stock price on account of listing of

Bharti Infratel.
101
2QFY13
3QFY13
3QFY14E

Company
CMP
Net Sales
(`
` cr)
OPM (%)
% chg 3QFY14E
Net PProfit
rofit
EPS ((`
`)
% chg 3QFY14E
EPS ((`
`)
P/E (x)
Targ
et
rge
Reco.
(`)
3QFY14E
chg bp
3QFY14E
% chg
FY13
FY14E
FY15E
FY13
FY14E
FY15E
(`)
Bharti
330
21,761
2.0
32.5
48
814
58.9
2.0
58.9
6.0
7.7
12.7
55.1
43.0
26.1
360
Accum.
Idea
167
6,582
4.1
31.3
11
463
3.4
1.4
3.4
3.1
5.6
6.9
54.5
29.6
24.2
Neutral
Rcom
130
5,484
1.7
34.0
(94)
256
9.6
1.2
9.6
3.2
3.6
5.9
40.1
35.9
22.0
Neutral
Source: Company, Angel Research; Note: Price as on December 31, 2013; Change is on a qoq basis
Analyst - Ankita Somani

45
Stock Watch
46
Stock W
atch | January 2014
Watch
Company Name
Reco
CMP
(`)
Target
Price (`)
Mkt Cap
(` cr)
Sales (` cr)
FY14E
FY15E
OPM (%)
FY14E FY15E
EPS (`)
FY14E
FY15E
PER (x)
FY14E
FY15E
P/BV (x)
FY14E
FY15E
RoE (%)
FY14E
FY15E
EV/Sales (x)
FY14E
FY15E
Agri / Agri Chemical

Rallis
Neutral
178
3,459
1,696
1,983
14.9
14.9
7.7
8.8
23.1
20.2
4.8
4.1
22.4
21.9
2.2
1.9
United Phosphorus
Accumulate
198
225
8,755
10,091
11,302
16.5
16.5
19.2
22.5
10.3
8.8
1.6
1.4
17.0
17.2
1.0
0.9
1.4
Auto & Auto Ancillary

Amara Raja Batteries
Accumulate
336
362
5,738
3,504
4,130
16.6
16.1
21.4
24.1
15.7
13.9
4.2
3.3
30.0
26.5
1.6
Apollo Tyres
Neutral
107
5,401
13,163
14,163
12.2
12.0
14.6
15.8
7.3
6.8
1.3
1.1
19.8
18.1
0.5
0.5
Ashok Leyland
Neutral
17
4,576
10,689
13,466
2.9
6.9
(1.4)
0.7
26.2
1.8
1.8
(8.6)
4.5
0.6
0.5
Automotive Axle#
Neutral
Bajaj Auto
Buy
Bharat Forge
Neutral
329
7,647
Bosch India*
Accumulate 10,087
11,215
31,672
CEAT
Neutral
321
1,153
Exide Industries
Accumulate
123
135
FAG Bearings*
Accumulate 1,614
1,751
Hero Motocorp
Accumulate 2,075
JK Tyre
Accumulate
Mahindra and Mahindra Accumulate

Maruti
Neutral
Motherson Sumi
Buy
Subros
Neutral
Tata Motors
Accumulate
TVS Motor
Neutral
238
360
739
984
9.4
10.4
15.5
29.8
15.4
8.0
1.3
1.1
8.3
15.0
0.5
0.4
1,911
2,272
55,285
21,173
24,924
20.4
20.3
120.5
142.0
15.9
13.5
5.6
4.4
39.3
36.8
2.2
1.8
6,271
7,023
16.2
16.8
16.9
22.2
19.5
14.8
3.0
2.6
16.4
19.1
1.4
1.2
10,074
11,708
17.0
18.0
369.0
448.6
27.3
22.5
4.4
3.7
15.9
16.6
2.8
2.3
5,260
5,843
12.0
11.7
76.4
83.3
4.2
3.8
1.1
0.9
30.2
25.5
0.3
0.3
10,455
6,178
7,016
14.7
15.5
6.8
8.1
18.2
15.2
2.7
2.4
15.8
16.7
1.3
1.1
2,682
1,646
1,948
15.4
16.4
97.8
125.1
16.5
12.9
2.3
2.0
15.2
16.7
1.4
1.2
2,262
41,431
25,566
28,540
14.3
14.7
107.9
150.8
19.2
13.8
7.2
5.6
40.0
45.9
1.4
1.2
175
187
720
7,530
8,335
11.3
11.1
70.2
75.0
2.5
2.3
0.6
0.5
27.7
23.3
0.4
0.4
1.0
944
1,050
58,109
39,419
44,609
12.9
12.6
60.4
65.2
15.6
14.5
3.2
2.7
22.2
20.4
1.2
1,763
53,257
45,094
53,058
11.8
11.3
96.7
111.1
18.2
15.9
2.5
2.2
14.7
14.7
1.0
0.8
183
218
16,098
29,673
33,624
9.0
8.8
11.7
13.6
15.7
13.4
4.9
3.8
36.8
31.7
0.6
0.5
28
167
1,231
1,412
10.0
10.2
1.7
3.6
16.3
7.8
0.6
0.5
3.5
7.2
0.4
0.4
376
419
101,405
229,925
263,898
14.1
14.5
41.4
48.3
9.1
7.8
2.4
1.9
30.3
27.0
0.5
0.5
76
3,608
7,846
8,917
6.0
6.3
5.2
6.6
14.7
11.5
2.6
2.2
18.7
20.6
0.4
0.3
Financials
Allahabad Bank
Neutral
95
4,755
7,359
7,508
2.6
2.6
23.4
27.8
4.1
3.4
0.6
0.5
11.4
12.2
Andhra Bank
Neutral
63
3,500
5,169
5,485
2.6
2.5
10.3
13.9
6.1
4.5
0.5
0.5
6.9
8.7
1,300
1,709
60,984
19,319
22,715
3.4
3.4
130.5
158.4
10.0
8.2
1.6
1.41
17.2
18.2
646
27,203
15,974
17,895
2.1
2.2
107.8
122.1
6.0
5.3
0.8
0.7
13.6
13.8
Axis Bank
Buy
Bank of Baroda
Neutral
Bank of India
Neutral
238
15,257
14,647
16,054
2.2
2.1
49.9
55.7
4.8
4.3
0.6
0.6
13.1
12.9
Canara Bank
Neutral
282
12,499
12,293
13,359
2.0
2.0
59.0
56.5
4.8
5.0
0.6
0.5
11.3
9.8
Central Bank
Neutral
51
6,928
7,918
8,793
2.2
2.3
(7.8)
9.4
5.5
0.8
0.7
(8.7)
9.7
Corporation Bank
Neutral
261
4,369
5,602
6,056
1.9
1.9
53.5
77.8
4.9
3.4
0.5
0.4
8.8
11.6
Dena Bank
Neutral
61
2,127
3,377
3,570
2.3
2.4
13.2
14.5
4.6
4.2
0.5
0.5
11.2
10.6
Federal Bank
Neutral
84
7,190
2,873
3,250
3.0
2.9
8.6
10.3
9.8
8.2
1.0
0.9
11.0
12.1
HDFC
Accumulate
796
841
124,162
8,679
10,350
3.6
3.6
37.5
44.7
21.2
17.8
4.4
4.0
30.1
30.6
HDFC Bank
Accumulate
666
753
159,420
26,674
32,104
4.5
4.6
35.9
45.5
18.5
14.6
3.7
3.1
21.6
23.0
ICICI Bank
Buy
1,098
1,454
126,820
25,924
30,178
3.2
3.2
82.5
97.4
13.3
11.3
1.7
1.6
14.7
15.5
IDBI Bank
Neutral
66
8,856
9,282
10,426
1.9
2.0
8.6
16.0
7.7
4.1
0.5
0.5
6.6
11.0
Indian Bank
Accumulate
116
133
4,964
5,919
6,348
2.7
2.7
28.6
32.1
4.0
3.6
0.5
0.4
11.7
11.9
May 2011
Please refer to important disclosures at the end of this report.
47
Stock W
atch | January 2014
Watch
Company Name
CMP
(`)
Target
Price (`)
Mkt Cap
(` cr)
Neutral
51
4,754
7,898
8,559
2.3
2.3
6.0
13.2
8.6
3.9
0.5
0.4
5.3
10.4
J & K Bank
Neutral
1,434
6,950
3,195
3,571
3.9
4.0
254.8
245.7
5.6
5.8
1.2
1.0
23.2
19.0
LIC Housing Finance
Buy
219
257
11,062
2,063
2,507
2.3
2.3
24.5
28.9
9.0
7.6
1.5
1.3
17.7
18.2
Oriental Bank
Neutral
229
6,861
6,848
7,382
2.6
2.6
42.1
49.9
5.4
4.6
0.6
0.5
10.0
10.8
Punjab Natl.Bank
Buy
627
751
22,150
20,600
23,129
3.3
3.3
120.6
152.7
5.2
4.1
0.7
0.6
13.2
14.8
South Ind.Bank
Buy
20
25
2,731
1,783
1,966
2.7
2.6
3.7
4.1
5.5
5.0
0.9
0.8
16.2
15.8
St Bk of India
Buy
1,766
2,102
120,766
66,539
75,419
3.1
3.1
171.0
235.8
10.3
7.5
1.3
1.1
11.7
14.5
Syndicate Bank
Neutral
95
5,694
6,852
7,540
2.5
2.4
26.9
21.9
3.5
4.3
0.6
0.5
16.3
11.9
UCO Bank
Accumulate
76
80
5,682
7,450
8,366
3.1
3.1
19.8
22.0
3.8
3.4
0.8
0.7
18.8
18.1
IOB
Reco
Sales (` cr)
FY14E
FY15E
OPM (%)
FY14E FY15E
EPS (`)
FY14E
FY15E
PER (x)
FY14E
FY15E
P/BV (x)
FY14E
FY15E
RoE (%)
FY14E
FY15E
EV/Sales (x)
FY14E
FY15E
Union Bank
Neutral
130
7,785
10,665
11,985
2.4
2.4
25.3
37.0
5.1
3.5
0.5
0.5
9.6
12.7
Vijaya Bank
Neutral
39
1,943
2,929
2,997
1.9
1.8
6.3
7.6
6.2
5.1
0.5
0.5
8.1
8.9
Yes Bank
Buy
370
443
13,344
4,424
5,261
2.8
2.9
43.8
49.9
8.4
7.4
1.9
1.5
24.3
22.8
Sell
693
540
14,681
7,521
8,107
5.8
6.8
7.7
12.9
90.0
53.9
5.6
5.4
6.3
10.3
1.9
1.8
BGR Energy
Accumulate
126
135
907
3,883
3,987
11.5
10.7
23.1
22.6
5.4
5.6
0.7
0.6
23.6
18.9
0.6
0.4
BHEL
Neutral
176
43,188
41,082
37,867
13.1
12.0
16.2
13.1
10.9
13.4
1.9
1.8
18.8
13.8
0.9
1.0
Blue Star
Buy
158
193
1,425
2,941
3,099
3.4
4.2
6.0
9.3
26.5
17.0
3.3
2.9
12.9
18.0
0.6
0.6
Crompton Greaves
Buy
129
150
8,259
13,272
14,789
5.5
6.6
5.0
7.8
25.7
16.6
2.2
2.0
8.7
12.5
0.7
0.7
Jyoti Structures
Neutral
31
257
3,264
3,537
9.5
9.0
7.2
8.3
4.3
3.8
0.3
0.3
8.9
9.4
0.3
0.3
KEC International
Accumulate
57
62
1,465
7,709
8,507
6.2
7.0
4.7
7.3
12.2
7.9
1.2
1.1
15.3
15.3
0.4
0.3
Thermax
Neutral
712
8,481
5,480
6,187
9.1
9.6
26.7
31.7
26.7
22.4
4.1
3.6
16.1
17.0
1.5
1.3
ACC
Accumulate 1,108
1,225
20,806
11,358
12,649
15.4
17.3
52.8
69.9
21.0
15.9
2.6
2.4
13.0
15.9
1.5
1.3
Ambuja Cements
Neutral
183
28,244
9,259
10,671
19.0
21.8
7.4
9.2
24.6
19.9
3.0
2.8
12.6
14.5
2.5
2.1
India Cements
Neutral
60
1,846
4,507
5,129
10.7
11.7
0.8
3.9
75.1
15.3
0.5
0.5
0.7
3.4
0.9
0.8
J K Lakshmi Cement
Neutral
79
931
1,977
2,313
15.3
17.7
7.0
9.9
11.2
8.0
0.7
0.7
6.4
8.4
0.7
1.2
Ramco Cements
Neutral
192
4,536
3,722
4,382
17.4
19.0
6.9
12.1
27.7
15.9
1.8
1.6
6.8
10.9
1.9
1.6
Shree Cement^
Neutral
4,330
15,086
6,025
6,713
25.0
23.8
243.8
276.4
17.8
15.7
3.3
2.8
20.2
19.3
2.2
1.8
UltraTech Cement
Neutral
1,763
48,356
20,325
23,548
19.0
18.4
74.6
80.2
23.6
22.0
2.9
2.6
12.7
12.3
2.4
2.3
61
74
964
1,912
2,131
21.0
21.5
6.8
7.6
9.0
8.0
0.9
0.8
8.8
7.6
1.8
1.9
74
1,715
1,824
2.4
6.2
(2.9)
(0.4)
0.2
0.2
0.5
0.5
Capital Goods
ABB*
Cement
Construction
Ashoka Buildcon
Buy
Consolidated Co
Neutral
IRB Infra
Buy
ITNL
Accumulate
IVRCL Infra
Neutral
May 2011
93
112
3,078
3,772
4,191
45.1
45.3
14.6
15.1
6.3
6.1
0.9
0.8
14.2
13.4
3.1
3.3
140
156
2,722
7,423
7,970
29.2
30.4
30.1
32.3
4.7
4.3
0.7
0.6
14.9
14.2
2.5
2.5
16
502
5,440
5,931
7.7
7.6
(2.5)
(2.1)
0.2
0.3
0.6
0.6
48
Stock W
atch | January 2014
Watch
Company Name
CMP
(`)
Target
Price (`)
Mkt Cap
(` cr)
Jaiprakash Asso.
Larsen & Toubro
Nagarjuna Const.
Punj Lloyd
Sadbhav Engg.
Simplex Infra
Unity Infra
FMCG
Neutral
55
Buy
1,070
Buy
33
Neutral
29
Accumulate
88
Neutral
87
Neutral
27
1,237
39
99
-
12,094
99,080
853
953
1,338
430
198
13,238
66,667
6,044
12,726
2,458
6,237
2,179
15,218
74,669
6,533
14,226
2,727
6,908
2,359
26.9
10.0
8.0
8.2
10.6
9.1
12.9
26.9
10.0
8.0
8.2
10.6
9.0
13.0
1.6
46.7
2.4
0.9
4.6
12.4
9.3
2.5
52.0
2.6
1.0
5.8
16.7
9.5
34.9
22.9
13.9
33.4
19.1
7.0
2.9
21.8
20.6
12.7
28.1
15.1
5.2
2.8
0.9
3.1
0.3
0.3
1.5
0.3
0.2
0.9
2.8
0.3
0.3
1.4
0.3
0.2
2.6
14.2
2.5
1.0
8.1
3.7
7.9
4.0
14.5
2.6
1.2
8.7
5.0
7.6
2.8
1.6
0.5
0.6
0.8
0.5
0.7
2.5
1.5
0.5
0.6
0.8
0.5
0.7
Asian Paints
Britannia
Colgate
Dabur India
GlaxoSmith Con*
Godrej Consumer
HUL
ITC
Marico
Nestle*
Tata Global
IT
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
491
920
1,353
170
4,433
857
571
322
217
5,297
160
47,073
11,038
18,398
29,680
18,645
29,167
123,475
255,206
13,984
51,074
9,922
12,473
6,470
3,588
7,074
3,617
7,801
27,315
32,945
4,816
9,190
7,761
14,581
7,339
4,165
8,135
4,259
9,094
30,732
38,295
5,498
10,590
8,615
15.8
8.9
17.5
17.3
15.5
15.0
14.4
36.3
14.8
21.9
9.6
16.0
9.2
17.7
16.7
16.6
15.5
13.7
36.9
15.5
22.5
10.5
13.2
33.7
37.2
5.5
120.3
23.0
16.8
11.0
7.0
119.1
6.8
15.7
40.1
43.5
6.1
149.7
28.4
17.6
12.8
8.6
146.4
9.2
37.2
27.3
36.3
31.1
36.9
37.2
34.0
29.2
31.2
44.5
23.7
31.3
23.0
31.1
27.7
29.6
30.2
32.4
25.1
25.1
36.2
17.4
11.4
11.9
31.9
11.1
11.4
7.5
32.5
9.5
5.9
21.5
2.5
9.1
8.6
26.5
8.9
9.1
6.3
24.2
7.7
4.8
15.7
2.4
33.7
51.5
94.9
39.9
33.8
23.1
112.2
35.4
20.6
55.0
10.4
32.3
43.4
92.9
35.8
34.3
23.7
85.7
34.0
21.1
50.2
10.3
3.7
1.7
5.0
4.2
4.7
3.9
4.4
7.5
2.9
5.6
1.2
3.1
1.4
4.3
3.6
3.9
3.3
3.9
6.3
2.5
4.8
1.1
HCL Tech^
Hexaware*
Infosys
Infotech Enterprises
KPIT Tech
Mindtree
Mphasis&
NIIT
Persistent
TCS
Tech Mahindra
Wipro
Media
Accumulate
Accumulate
Neutral
Neutral
Neutral
Accumulate
Neutral
Neutral
Neutral
Buy
Accumulate
Accumulate
1,263
132
3,486
341
172
1,531
438
28
980
2,171
1,838
559
1,350
142
1,650
2,500
1,935
600
88,269
3,951
200,150
3,812
3,317
6,368
9,195
456
3,920
425,230
42,855
137,835
33,071
2,297
50,571
2,152
2,768
3,009
6,666
984
1,672
82,399
18,579
44,001
37,360
2,727
57,137
2,419
3,147
3,485
7,134
1,066
1,959
95,466
21,284
49,882
25.7
22.7
26.3
19.0
16.0
20.3
18.0
7.1
25.1
30.9
22.7
22.5
24.8
22.8
26.8
18.9
16.3
20.9
18.4
7.0
25.5
30.9
22.1
23.1
81.9
12.6
178.2
24.2
13.4
114.7
39.7
2.0
60.2
95.2
121.6
31.4
91.4
14.2
214.9
27.2
16.5
132.7
45.3
4.0
76.3
115.4
132.4
36.1
15.4
10.4
19.6
14.0
12.8
13.3
11.0
13.6
16.3
22.8
15.1
17.8
13.8
9.3
16.2
12.5
10.4
11.5
9.7
7.0
12.8
18.8
13.9
15.5
4.6
2.6
4.0
2.4
2.3
3.5
1.6
0.7
3.1
7.7
4.6
4.0
3.6
2.2
3.4
2.0
1.9
2.7
1.4
0.7
2.6
6.0
3.5
3.4
30.6
25.6
20.9
17.0
20.0
26.9
14.8
5.1
19.3
33.7
30.2
22.5
26.3
24.5
20.7
16.2
19.8
23.8
14.6
9.4
19.9
31.7
25.2
21.4
2.4
1.6
3.3
1.4
1.2
1.8
1.0
0.2
2.0
4.9
2.1
2.7
2.0
1.3
2.8
1.2
0.9
1.4
0.8
0.1
1.5
4.2
1.7
2.2
D B Corp
HT Media
Jagran Prakashan
PVR
Sun TV Network
Accumulate
Buy
Buy
Neutral
Neutral
293
78
91
646
382
330
104
111
-
5,383
1,834
3,012
2,576
15,050
1,825
2,188
1,692
1,431
2,287
2,037
2,360
1,855
1,755
2,580
26.1
14.5
21.9
17.9
68.3
26.8
15.0
23.5
18.0
69.7
15.5
8.8
6.8
18.8
19.5
17.9
9.3
7.7
25.5
23.5
18.9
8.9
13.3
34.4
19.6
16.4
8.4
11.7
25.3
16.2
5.2
1.1
2.8
3.7
4.8
4.4
1.0
2.5
3.3
4.2
25.3
12.2
22.1
11.2
25.8
24.7
11.5
22.7
13.9
27.7
2.9
0.5
1.8
2.2
6.2
2.5
0.3
1.6
1.8
5.4
May 2011
Reco
Sales (` cr)
FY14E
FY15E
OPM (%)
FY14E FY15E
EPS (`)
FY14E
FY15E
PER (x)
FY14E
FY15E
P/BV (x)
FY14E
FY15E
RoE (%)
FY14E
FY15E
EV/Sales (x)
FY14E
FY15E
49
Stock W
atch | January 2014
Watch
Company Name
Metal
Bhushan Steel
Coal India
Electrosteel Castings
GMDC
Hind. Zinc
Hindalco
JSW Steel
MOIL
Monnet Ispat
Nalco
NMDC
SAIL
Sesa Sterlite
Tata Steel
Sarda
Prakash Industries
Godawari Power
Oil & Gas
Cairn India
GAIL
ONGC
Reliance Industries
Gujarat Gas*
Indraprastha Gas
Petronet LNG
Gujarat State Petronet
Pharmaceuticals
Alembic Pharma
Aurobindo Pharma
Aventis*
Cadila Healthcare
Cipla
Dr Reddy's
Dishman Pharma
GSK Pharma*
Indoco Remedies
Ipca labs
Lupin
Ranbaxy
Sun Pharma
May 2011
Reco
CMP
(`)
Target
Price (`)
Mkt Cap
(` cr)
Reduce
481
Neutral
290
Neutral
15
Accumulate
119
Buy
132
Neutral
123
Sell
1,018
Neutral
240
Accumulate
151
Neutral
38
Accumulate
142
Sell
73
Neutral
202
Accumulate
423
Buy
105
Neutral
42
Buy
86
448
131
156
848
170
151
51
461
138
100
10,885
183,175
487
3,775
55,964
25,291
24,599
4,030
965
9,755
56,259
29,964
59,872
41,126
377
565
283
9,407
69,854
1,976
1,477
12,882
90,332
43,980
1,027
2,041
6,848
11,334
46,017
66,940
153,787
1,096
2,076
2,413
12,737
74,994
2,017
1,890
13,550
103,186
47,710
1,069
2,475
7,454
12,043
51,344
72,762
167,041
1,134
2,060
2,745
32.2
26.9
11.8
42.2
53.6
8.6
18.2
42.0
22.2
14.2
67.5
9.0
34.6
9.8
16.8
15.0
14.9
36.9
29.7
12.7
46.4
51.9
9.6
17.8
46.0
18.9
15.6
65.5
9.7
34.6
10.1
17.3
16.9
16.1
19.4
23.8
0.1
13.5
16.4
11.2
87.9
25.6
30.5
2.7
16.5
4.1
26.6
40.4
21.8
9.5
29.2
48.5
27.6
1.2
18.7
17.0
15.5
95.1
27.5
27.5
3.2
16.9
5.0
32.3
47.6
23.5
11.4
39.1
24.7
12.2
233.4
8.8
8.1
11.0
11.6
9.4
5.0
14.0
8.6
17.8
7.6
10.5
4.8
4.4
3.0
9.9
10.5
12.3
6.3
7.8
7.9
10.7
8.7
5.5
11.8
8.4
14.6
6.3
8.9
4.5
3.7
2.2
1.1
2.8
0.1
1.4
1.5
0.6
1.4
1.3
0.3
0.8
1.8
0.7
0.6
1.1
0.4
0.3
0.3
1.0
2.4
0.1
1.2
1.3
0.6
1.3
1.2
0.3
0.8
1.6
0.7
0.5
1.0
0.4
0.2
0.2
4.5
30.0
0.1
16.4
19.8
6.0
12.4
14.7
7.2
5.8
21.8
6.2
10.2
11.0
8.2
6.5
9.5
10.4
32.1
1.9
19.9
17.7
7.8
12.6
14.1
6.1
6.6
20.6
4.8
8.9
11.8
8.2
7.3
11.5
3.8
1.7
0.7
2.3
2.2
0.8
1.1
1.5
2.1
0.7
3.0
1.2
1.3
0.6
0.4
0.6
0.8
2.9
1.5
0.1
1.7
1.7
0.7
1.0
1.5
1.7
0.6
2.7
1.2
1.1
0.5
0.3
0.6
0.7
324
342
289
895
267
268
122
61
380
318
1,020
70
61,870
43,318
246,911
289,132
3,424
3,745
9,158
3,427
19,470
56,115
181,003
465,082
3,270
4,488
37,686
1,119
19,621
65,425
204,096
491,292
3,467
5,418
44,414
1,009
73.0
12.6
30.7
7.0
16.5
17.6
4.4
91.4
63.4
10.5
35.8
6.9
14.1
15.5
4.4
91.5
63.4
32.5
30.0
73.0
29.0
25.7
11.4
9.0
61.9
30.7
39.6
77.7
26.3
27.4
13.2
7.8
5.1
10.5
9.6
12.3
9.2
10.4
10.7
6.7
5.2
11.1
7.3
11.5
10.2
9.8
9.3
7.8
1.1
1.6
1.5
1.3
3.0
2.1
1.8
1.0
0.9
1.4
1.3
1.2
2.7
1.8
1.5
0.9
23.1
16.0
16.0
11.4
35.2
22.1
17.8
16.1
19.0
13.5
18.8
11.0
28.1
20.3
17.9
12.4
2.0
0.2
1.2
0.6
0.9
0.8
0.3
2.5
1.6
0.2
0.9
0.6
0.8
0.6
0.3
2.7
Neutral
211
Neutral
393
Neutral
2,763
Accumulate
807
Buy
401
Buy
2,533
Accumulate
100
Neutral
2,993
Neutral
137
Accumulate
721
Neutral
909
Neutral
453
Neutral
568
894
504
3,008
107
791
-
3,970
11,442
6,362
16,525
32,161
43,069
804
25,348
1,263
9,097
40,726
19,200
117,587
1,736
7,166
1,682
7,123
9,274
13,617
1,394
2,548
747
3,296
11,813
10,400
14,306
2,008
8,478
1,917
8,367
10,796
15,590
1,534
2,752
906
4,087
14,377
11,331
16,236
17.1
18.5
15.6
15.5
23.1
24.8
22.5
20.0
15.3
22.3
22.0
6.6
43.0
18.9
18.5
15.6
15.7
23.1
24.3
22.4
21.2
15.3
23.5
22.0
8.4
42.0
10.5
28.0
94.8
37.3
21.0
144.4
14.8
58.4
5.9
40.4
36.6
11.4
25.6
13.8
33.8
104.7
44.7
23.8
161.6
16.6
64.4
7.6
52.7
44.8
15.2
25.8
20.1
14.0
29.1
21.6
19.1
17.5
6.7
51.2
23.2
17.8
24.8
39.7
22.2
15.3
11.6
26.4
18.1
16.8
15.7
6.0
46.5
18.0
13.7
20.3
29.8
22.0
6.1
3.4
4.2
4.5
3.1
4.5
0.7
12.6
2.8
4.5
6.2
4.2
7.4
4.7
2.6
3.5
3.8
2.6
3.6
0.6
12.3
2.5
3.5
4.9
3.7
5.7
34.4
27.1
16.1
22.9
17.2
29.2
10.8
24.6
12.5
28.7
27.1
11.1
35.3
34.7
25.3
17.6
22.9
16.8
25.7
11.0
26.8
14.4
28.8
25.8
13.1
29.0
2.4
2.0
3.3
2.6
3.2
3.2
1.2
9.2
1.9
2.9
3.5
1.9
7.8
2.0
1.8
2.7
2.2
2.7
2.7
1.0
8.4
1.6
2.3
2.8
1.7
6.6
Buy
Neutral
Accumulate
Accumulate
Neutral
Neutral
Neutral
Buy
Sales (` cr)
FY14E
FY15E
OPM (%)
FY14E FY15E
EPS (`)
FY14E
FY15E
PER (x)
FY14E
FY15E
P/BV (x)
FY14E
FY15E
RoE (%)
FY14E
FY15E
EV/Sales (x)
FY14E
FY15E
50
Stock W
atch | January 2014
Watch
Company Name
CMP
(`)
Target
Price (`)
Mkt Cap
(` cr)
Neutral
Neutral
62
137
935
112,798
1,298
72,187
1,319
76,460
31.9
23.5
32.5
23.9
9.9
12.0
11.4
12.5
6.3
11.4
5.4
11.0
0.5
1.3
0.5
1.2
8.9
11.7
9.7
11.5
0.9
2.3
0.7
2.3
DLF
MLIFE
Telecom
Accumulate
Buy
167
396
179
483
29,734
1,618
8,293
888
9,622
1,002
36.5
27.0
36.1
29.9
5.7
33.9
6.7
42.1
29.2
11.7
24.8
9.4
1.0
1.2
1.0
1.1
3.7
9.9
4.1
11.2
5.7
2.4
4.7
2.2
Bharti Airtel
Idea Cellular
Rcom
Others
Accumulate
Neutral
Neutral
330
167
130
360
-
132,094
55,364
26,791
85,396
26,245
21,818
92,224
28,401
24,183
32.1
31.4
33.0
32.4
31.3
33.7
7.7
5.6
3.6
12.7
6.9
5.9
43.0
29.6
35.9
26.1
24.2
22.0
2.4
3.4
0.8
2.2
3.0
0.8
5.8
11.4
2.2
8.8
12.3
3.4
2.2
2.5
3.0
2.0
2.2
2.6
Abbott India*
Bajaj Electricals
Cera Sanitaryware
Cravatex
Finolex Cables
Goodyear India*
Hitachi
Honeywell Automation*
IFB Agro
ITD Cementation
Jyothy Laboratories
MRF
Page Industries
Relaxo Footwears
Siyaram Silk Mills
Styrolution ABS India*
TAJ GVK
Tata Sponge Iron
TTK Healthcare
Tree House
TVS Srichakra
United Spirits
Vesuvius India*
HSIL
Neutral
Neutral
Neutral
Neutral
Accumulate
Neutral
Neutral
Neutral
Buy
Buy
Accumulate
Accumulate
Neutral
Neutral
Accumulate
Buy
Buy
Buy
Accumulate
Buy
Accumulate
Neutral
Neutral
Accumulate
1,689
223
701
245
83
370
156
2,757
178
140
190
19,372
5,164
227
281
420
65
309
542
240
274
2,607
456
105
87
217
189
207
20,425
319
492
108
405
614
313
309
117
3,588
2,225
888
63
1,263
854
423
2,438
160
161
3,440
8,216
5,760
1,362
263
738
410
475
421
865
210
37,888
926
690
1,788
3,885
647
248
2,573
1,581
1,080
1,842
475
1,313
1,244
13,240
1,102
1,125
1,216
1,007
300
735
416
154
1,594
11,446
600
2,042
1,996
4,472
836
284
2,908
1,724
1,199
2,131
542
1,444
1,523
14,229
1,348
1,373
1,396
1,108
319
836
475
206
1,723
12,934
638
2,363
12.5
4.0
13.5
6.5
10.2
8.9
8.9
5.8
10.2
10.6
13.6
13.9
20.3
11.1
10.8
8.3
35.8
14.7
4.8
54.1
6.0
12.0
20.1
14.6
12.7
5.8
13.4
7.2
10.2
8.7
9.1
6.0
10.7
11.2
13.9
13.8
20.2
12.6
11.0
8.7
36.2
16.2
6.5
54.9
6.0
12.0
19.4
14.8
71.7
6.8
40.4
27.1
10.7
38.8
8.5
82.5
30.1
7.9
5.3
2,061.1
136.0
9.5
65.3
30.0
7.9
50.1
16.3
12.5
36.9
20.3
35.7
12.3
81.4
15.4
51.1
38.2
12.4
41.2
14.2
100.4
36.1
26.2
9.0
2,269.5
165.4
15.0
79.8
35.1
9.1
63.5
25.2
17.4
44.2
43.0
36.5
16.5
23.5
33.0
17.3
9.0
7.7
9.5
18.4
33.4
5.9
17.7
36.1
9.4
38.0
23.8
4.3
14.0
8.3
6.2
33.3
19.3
7.4
128.5
12.8
8.5
20.7
14.5
13.7
6.4
6.7
9.0
11.0
27.5
4.9
5.3
21.1
8.5
31.2
15.1
3.5
12.0
7.2
4.9
21.5
13.8
6.2
60.6
12.5
6.3
4.8
2.9
4.0
1.4
1.2
2.0
1.7
3.2
0.9
0.4
3.2
1.8
19.6
5.3
0.7
1.5
1.1
0.7
4.1
2.3
1.1
4.3
2.3
0.6
4.1
2.5
3.2
1.2
1.0
1.7
1.5
2.9
0.7
0.4
2.8
1.5
14.1
4.1
0.6
1.4
1.0
0.6
3.6
2.1
0.9
4.1
2.0
0.6
21.7
8.8
25.4
15.7
15.0
23.0
9.4
10.1
15.8
2.2
10.6
21.4
59.8
24.2
18.0
11.5
13.9
11.5
12.6
12.2
15.5
4.4
19.4
7.5
21.2
17.3
25.6
18.5
14.8
20.6
14.2
11.2
16.2
7.2
14.1
19.3
52.6
30.5
18.7
12.2
14.4
13.2
18.0
15.0
16.3
6.9
17.1
9.4
1.8
0.6
1.4
0.4
0.4
0.4
0.5
1.2
0.2
0.5
2.9
0.7
5.3
1.4
0.4
0.7
1.7
0.1
0.9
5.4
0.2
3.7
1.3
0.8
1.6
0.5
1.1
0.4
0.3
0.3
0.4
1.1
0.2
0.5
2.3
0.6
4.3
1.1
0.4
0.6
1.4
0.0
0.8
3.9
0.2
3.2
1.2
0.7
Power
GIPCL
NTPC
Real Estate
Reco
Sales (` cr)
FY14E
FY15E
OPM (%)
FY14E FY15E
EPS (`)
FY14E
FY15E
PER (x)
FY14E
FY15E
P/BV (x)
FY14E
FY15E
RoE (%)
FY14E
FY15E
EV/Sales (x)
FY14E
FY15E
Source: Company, Angel Research, Note: *December year end; #September year end; &October year end; ^June year end; Price as on December 31, 2013; Sesa Goa's numbers reflect the standalone Sesa Goa business only. We will revise our numbers once
the consolidated entity Sesa- Sterlite is formed
May 2011
51
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Ratings (Returns) :
Buy (> 15%)

Reduce (-5% to -15%)
Accumulate (5% to 15%)

Sell (< -15%)
Neutral (-5 to 5%)
52

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Research Team
Fundamental:
Sarabjit Kour Nangra
VP-Research, Pharmaceutical
sarabjit@angelbroking.com
Vaibhav Agrawal
VP-Research, Banking
vaibhav.agrawal@angelbroking.com
Bhavesh Chauhan
Sr. Analyst (Metals & Mining)
bhaveshu.chauhan@angelbroking.com
Viral Shah
Sr. Analyst (Infrastructure)
viralk.shah@angelbroking.com
V Srinivasan
Analyst (Cement, FMCG)
v.srinivasan@angelbroking.com
Yaresh Kothari
Analyst (Automobile)
yareshb.kothari@angelbroking.com
Ankita Somani
Analyst (IT, Telecom)
ankita.somani@angelbroking.com
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Analyst (Banking)
Sourabh.taparia@angelbroking.com
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Economist
bhupali.gursale@angelbroking.com
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Research Associate
vinay.rachh@angelbroking.com
Amit Patil
Research Associate
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Research Associate
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Research Associate
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Akshay Narang
Research Associate
akshay.narang@angelbroking.com
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Research Associate
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Research Associate
nishantj.sharma@angelbroking.com
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Sr. Technical Analyst
shardul.kulkarni@angelbroking.com
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Technical Analyst
sameet.chavan@angelbroking.com
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siddarth.bhamre@angelbroking.com
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VP - Institutional Sales
mayuresh.joshi@angelbroking.com
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Dealer
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Dealer
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3QFY2014 Results Preview | January 3, 2014

3QFY2014 Sectoral Outlook

Oil & Gas

Note: Stock prices as of December 31, 2013

3QFY2014 Results Preview | January 3, 2014

and for our coverage universe we expect margins to contract

The persistence of headwinds in cyclical sectors is expected to

Exhibit 1: 3QFY2014 Angel coverage performance estimates

Auto Anc. (6)

Banks - New private (4)

Banks - Old private (2)

Banks - Mid PSU (14)

Banks - Housing finance (2)

Capital Goods (7)

Oil & Gas (4)

Coverage Universe (128)

3QFY2014 Results Preview | January 3, 2014

Capital Goods (1)

Oil & Gas (3)

Exhibit 3: 3QFY2014 Sensex companies' performance estimates

Hero Moto Corp

Refer to important Disclosures at the end of the report

3QFY2014 Results Preview | January 3, 2014

Capital goods - Margin pressure and high interest costs

We expect our coverage automobile companies to post a strong

universe to report a steep contraction of 23.9% yoy as most of

earnings growth of 40.7% yoy, despite the yoy decline in

the companies are expected to witness continued margin

volumes, led by robust growth at Tata Motors, driven yet again

pressure due to tough competition in the sector. Furthermore,

by an impressive Jaguar and Land Rover (JLR) performance.

interest costs remain at elevated levels for many companies in

We expect our coverage auto universe's top-line to register a

our capital goods universe as execution delays (due to delay in

strong growth of 16.5% yoy, primarily aided by INR depreciation

clearances and deferral in payment by clients) and decline in

on a yoy basis and price increases. Led by the price increases

advances (due to subdued order inflow) have led to deterioration

and favorable currency movement, we expect our coverage auto

of working capital, which is being funded by short- term

companies' margins to expand by 182bp yoy. Nevertheless,

excluding the performance of Tata Motors, we expect our

Cement - Earnings to be impacted by lower realizations

performance while earnings report a growth of about 9.4% yoy

We expect our coverage cement universe to report a sharp

supported by margin expansion.

earnings decline, impacted by lower realizations, as the demand

Banking - New Private banks to deliver better

scenario continues to remain sluggish. Volume growth for our

to lower realization. Owing to lower realizations we also expect

market share (both on reported profit as well as on profit

most of the companies under our coverage to post a decline in

adjusted for increase in net NPAs) to private banks within our

margins on a yoy basis. Overall we expect a 259bp yoy decline

coverage. During 3QFY2014 as well, we expect earnings

in OPM for our cement universe.

divergence amongst our coverage banking stocks to continue,

FMCG - Healthy revenue performance to aid earnings

as we anticipate new private banks to report a healthy earnings

During the quarter, we expect our coverage FMCG universe to

New private banks are expected to deliver healthy NII growth

ITC) to post a top-line growth of 11.4% yoy during the quarter

of 20.1% yoy, which is expected to aid healthy growth of