Market Outlook

India Research
August 1, 2011

Dealers Diary
The key benchmark indices surged to fresh intraday highs in morning trade as bargain hunting emerged after the recent sharp losses. The market breadth remained strong. However, the volatility was witnessed as the key benchmark indices slipped into the red in mid-morning trade on weak Asian stocks, which were pulled on the back of US debt worries. The market was marginally lower after trimming losses in early afternoon trade. The market reversed losses and entered the positive terrain in afternoon trade. Telecom shares witnessed increased buying, whereas realty stocks extended losses on the worries in increased borrowing rates. However, overall macro concerns as well as US debt woes weighed heavily, which pulled back the indices to close on a flat note. The Sensex and Nifty closed down by around 0.1% each. The mid-cap and smallcap indices closed down by 0.7% each. Among the front runners, ICICI Bank, Maruti Suzuki, Bharti Airtel, Bajaj Auto and ITC gained 12%, while Jaiprakash Associates, Jindal Steel, ONGC, Hero Honda and Sterlite lost 25%. Among mid caps, EIH, GTL, GTL Infra., Cox & Kings and Bata India gained 612%, while Orchid Chemicals, SpiceJet, JSL, Jai Corp. and Sterlite Technologies lost 611%.

Domestic Indices BSE Sensex Nifty MID CAP SMALL CAP BSE HC BSE PSU BANKEX AUTO METAL OIL & GAS BSE IT Global Indices Dow Jones NASDAQ FTSE Nikkei Hang Seng Straits Times Shanghai Com Indian ADRs Infosys Wipro ICICI Bank HDFC Bank

Chg (%) -0.1% -0.1% -0.7% -0.7% -0.4% -1.0% 0.5% 0.2% -2.0% -1.2% 0.3% Chg (%) -0.8% -0.4% -1.0% -0.7% 0.0% -0.3% Chg (%) 0.7% -1.3% 2.1% 0.3%

(Pts) (5.8) (47.6) (55.8) (28.4) (81.8) 17.9 (105.2) 17.2 (Pts) (96.9) (9.9) (58.0) (68.3) (0.6) (7.1) (Pts) 0.4 (0.2) 0.9 0.1

(Close) 5,482 6,915 8,306 6,421 8,308 8,759 8,799 5,835 (Close) 12,143 2,756 5,815 9,833 22,440 3,189 2,702 (Close) $62.2 $11.9 $46.6 $34.8

(12.3) 18,197

65.4 12,448 (286.0) 14,017

Markets Today
The trend deciding level for the day is 18,221/5,485 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,310 18,424/5,517 5,552 levels. However, if NIFTY trades below 18,221/5,485 levels for the first half-an-hour of trade then it may correct up to 18,108 18,019/5,451 5,419 levels.
Indices SENSEX NIFTY S2 18,019 5,419 S1 18,108 5,451 R1 18,310 5,517 R2 18,424 5,552

-0.6% (130.5)

News Analysis
1QFY2012 Result Review ICICI Bank, SAIL, Nestle, Idea, Motherson Sumi, Bhushan Steel, CESC, TVS Motor, Sadbhav Engineering, Sarda Energy, Madhucon Projects, JK Tyre 1QFY2012 Result Preview KEC International
Refer detailed news analysis on the following page

Advances / Declines Advances Declines Unchanged

BSE 1,105 1,770 127

NSE 485 922 75

Net Inflows (July 28, 2011) ` cr Purch FII MFs 4,121 824

Volumes (` cr)

Sales 3,704 665

Net 417 158

MTD 8,031 544

YTD 9,352 3,669 Open Interest 11,011 30,980 Losers

BSE NSE

2,968 12,459

FII Derivatives (July 29, 2011) ` cr Index Futures Stock Futures Gainers / Losers Gainers Company EIH GTL United Breweries Dena Bank Idea Cellular Price (`) 96 75 498 85 94 chg (%) 12.5 9.8 6.3 4.9 4.8 Company Adani Enterprises Adani Power Mundra Port JSW Energy Jai Corp. Price (`) 586 99 144 68 100 chg (%) (21.0) (11.7) (7.1) (6.7) (6.7)
1

Purch 1,347 1,651

Sales 2,252 1,617

Net (904) 34

Please refer to important disclosures at the end of this report

Sebi Registration No: INB 010996539

Market Outlook | India Research

1QFY2012 Result Review ICICI Bank

For 1QFY2012, ICICI Banks standalone net profit grew by healthy 29.8% yoy to `1,332cr, below our as well as streets estimates, mainly on account of lower operating income. Moderate NIM compression with largely stable asset quality and continued reduction in NPA provisioning burden were the key highlights of the results. Moderate NIM compression; stable asset quality lead to lower provisioning burden During 1QFY2012, the momentum in the banks business slowed a bit, in-line with its peers. The banks advances increased by 19.7% yoy, while deposits grew by 14.8% yoy. Saving account deposits growth, though moderated in 1QFY2012, was healthy at 18.2% yoy. Though period-end CASA ratio came off by 320bp qoq to 41.9%, average CASA ratio improved by ~50bp qoq to 40%. Reported NIM declined by 10bp qoq to 2.6% due to higher cost of deposits. Growth in fee income was below expectations at 11.7% yoy. Employee expenses were on the higher side due to hike in salary and higher headcount, leading to an increase in cost-to-income ratio to 44.9% from 40.4% in 1QFY2011. Provisioning expenses declined by 43.1% yoy despite the bank having to provide `145cr for the recent hike in regulatory provisioning requirements. Gross NPAs declined marginally by 0.5% qoq, while net NPAs decreased by 4.4% qoq. The provision coverage ratio (as per the RBIs guidelines) improved to 76.9%. At the CMP, the banks core banking business (after adjusting for subsidiaries) is trading at 1.9x FY2013E ABV (including subsidiaries also, at 1.9x FY2013E ABV). We maintain our Buy rating on the stock with a target price of `1,324.

SAIL
SAIL reported disappointing profitability for 1QFY2012. Net sales grew by 19.7% yoy to `10,811cr (higher our estimates of `9,405cr) mainly due to increased sales volumes (+16.7% yoy to 2.8mn tonnes). Realisation grew by 2.6% yoy to `38,611/tonne. However, EBITDA dipped by 28.8% yoy to `1,312cr, as EBITDA margin declined by massive 827bp yoy to 12.1% (significantly below our estimate of 17.1%) mainly due to increased coking coal costs. EBITDA/tonne stood at `4,687 in 1QFY2012 compared to `7,679 in 1QFY2011. Net profit decreased by 28.9% yoy to `839cr (below our estimate of `1,029cr) in 1QFY2012. With results significantly below our estimates, we keep our rating and target price under review.

Nestle 2QCY2011
Nestle reported mixed set of numbers, beating our revenue expectation upwards by ~2%. Earnings estimate came in lower by ~12%. The companys top line grew by 20.2% yoy and stood at `1,763cr, while earnings grew by disappointing ~10% yoy and stood at `214cr (against our expectation of ~24% yoy growth). Operating margin contracted due to raw-material price inflation. We maintain our Reduce view on the stock with a target price of `3,483.

August 1, 2011

Market Outlook | India Research

Idea
Idea Cellular (Idea) reported its 1QFY2012 numbers, which were ahead of our expectations on the revenue front; however, they were disappointing on the bottom-line front. Revenue came in at `4,521cr, up 6.8% qoq, on the back of growth in ARPM (growth came in after a continuous decline in ARPM since the last eight quarters) by 1.0% qoq to `0.41/min and network traffic growth. However, MOUs and ARPU declined by 1.5% and 0.6% qoq to 391min and `160/month, respectively. Also, VAS share as a percentage of revenue stood flat qoq at 12.1%, despite the launch of 3G in eight circles. EBITDA margin grew by 124bp qoq to 26.6% on the back of lower subscriber acquisition costs. PAT came in at `177cr, down 35.4% qoq, due to higher interest costs of `122.8cr and higher depreciation and amortisation expenses of `65.6cr due to 3G and higher tax rates of 31% vs. 17.5% in 4QFY2011. Idea has increased its tariff rates in six circles A.P., M.P., Kerala, Maharashtra, U.P. (W) and Gujarat by 20%, which will lead to improvement in its KPIs going forward. The stock is currently under review.

Motherson Sumi Systems

Motherson Sumi Systems (MSSL) registered an in-line 20.8% yoy increase (down 2.4% qoq) in net sales to `2,300cr on a consolidated basis, driven by a 33.6% (down 15.7% qoq) and 16.4% yoy (8.4% qoq) jump in domestic and overseas sales, respectively. Overseas sales performance was led by strong 19.6% yoy (flat qoq) growth in SMR. On the operating front, margin reported a 114bp yoy (318bp qoq) contraction to 8.6%, largely due to input cost pressures and subdued operating performance at SMR (margins at 5.1% against 7.2% in 1QFY2011) on account of start-up costs related to two new plants in Hungary and Brazil. Raw-material costs during the quarter increased by 155bp yoy and accounted for 64.1% of net sales. However, the decline in staff costs, other expenditure and gains on the foreign exchange front arrested the further contraction in operating margins. Net profit posted modest 9.6% yoy (down 53% qoq) growth to `65cr, significantly lower than our estimates of `106cr. At `230, the stock is trading at 22.2x FY2012E and 16.3x FY2013E earnings. The stock rating is currently under review.

Bhushan Steel
Bhushan reported its 1QFY2012 results. Net sales grew by 62.6% yoy to `2,232cr mainly on account of higher volumes of flat products. Flat products sales volume grew by 80.2% yoy to 388,790 tonnes, while long product sales volume grew by 7.6% yoy to 100,664 tonnes in 1QFY2012. Long product average realisation increased by 18.2% yoy to `42,915/tonne, while flat product average realisation decreased by 3.2% yoy to `49,294/tonne. EBITDA increased by 62.1% yoy to `661cr, representing EBITDA margin of 29.6%. EBITDA/tonne increased to `13,505 in 1QFY2012 compared to `13,186 in 1QFY2011. Depreciation expense increased by 182.4% yoy to `151cr on account of higher capacity, while interest expense increased by 173.8% yoy to `216cr due to increased debt. A sharp increase in depreciation and interest costs resulted in net profit growth of only 2.0% yoy to `210cr. We maintain our Neutral view on the stock.

CESC
During 1QFY2012, CESC reported 8.0% yoy growth in its standalone net sales to `1,169cr, which was in-line with our estimates. Top-line growth was on account of better realisation, as the volume of power sold fell by 2% yoy to 2,232MU. The companys operating profit rose by 4.3% yoy to `267cr. OPM came down by 80bp yoy to 22.6% on account of higher power and fuel costs. Power and fuel costs rose by 16.1% yoy to `650cr, despite a 2% fall in generation. International coal prices were higher by ~20% during the quarter, resulting in higher power and fuel costs for the company. On the bottom-line front, net profit remained flat at `111cr, impacted by higher depreciation and interest costs. We maintain our Accumulate view on the stock with a target price of `380.
August 1, 2011 3

Market Outlook | India Research

TVS Motor
For 1QFY2012, TVS Motor (TSM) reported a strong 25.3% yoy (6.9% qoq) increase in its top line to `1,746cr, slightly higher than our expectation due to better-than-expected average net realisation. Top-line growth was led by a 15.6% yoy jump (flat qoq) in volumes and a 7.8% yoy (5.9% qoq) increase in average net realisation to `31,884. Average net realisation improved on account of a superior product mix (higher share of exports) and price increases. On the operating front, EBITDA margin improved by 26bp yoy (112bp qoq) to 6.7%, despite a 186bp yoy (207bp qoq) increase in raw-material costs. Margin expansion was supported by a sharp 212bp yoy (303bp qoq) decline in other expenditure. As a result, net profit jumped substantially by 45.7% yoy (41.1% qoq) to `59cr against our expectation of `46cr. Further, the decrease in interest cost on account of a decline in debt levels supported strong bottom-line growth. At `49, the stock is trading at attractive valuations of 10.6x FY2012E and 9.4x FY2013E earnings. We maintain our Buy view on the stock and value the company at 12x (20% discount to the average multiple of the top two industry players at 15x) FY2013E earnings to arrive at a target price of `62.

Sadbhav Engineering
For 1QFY2012, Sadbhav Engineerings (SEL) numbers broadly came in-line with our expectations. The company reported healthy 44.1% yoy top-line growth to `612.9cr (`425.3cr) vs. our estimate of 54.0% growth. Ramp-up in the execution of captive road BOT projects has led to this robust revenue growth. On the operating margin front, the company posted OPM of 11.1% (11.9%), above our estimates of 9.7%. Interest and depreciation costs came in-line with our estimates. On the earnings front, SEL reported robust 32.4% growth yoy to `33.8cr (`25.5cr), higher than our expectations of `30.3cr. We recommend our Accumulate view on the stock with the target price of `161.

Sarda Energy
Sarda Energy reported its 1QFY2012 results. Net sales grew by 17.2% yoy to `254cr, driven by higher revenue of the steel segment. The steel segments revenue grew by 71.1% yoy to `162cr, while the ferro alloys segments revenue declined by 29.9% yoy to `79cr. The companys EBITDA decreased by 19.8% yoy to `41cr due to subdued profitability performance from the ferro alloy segment. The ferro alloy segments EBIT decreased by 73.1% yoy to `7cr, which was partially offset by the increase in the steel segments EBIT, which grew by 35.1% yoy to `22cr. The companys PAT decreased by 20.2% yoy to `11cr. We maintain our Buy view on the stock, while we keep our target price under review.

Madhucon Projects
MPL reported a disappointing performance on the top-line front, with a yoy decline of 19.2% to `329.2cr (`407.4cr), below our expectations of `481.0cr. The companys OPM came in at 14.1% (10.7%), posting a whopping jump of 340bp yoy against our expectations of 10.1%. On the earnings front, the company posted a decline of 41.0% yoy to `8.0cr (`13.5cr), against our expectations of `11.7cr. We would be revising our numbers and target price after the call with the management. The stock rating is currently under review.

August 1, 2011

Market Outlook | India Research

JK Tyre
JK Tyre reported a weak bottom-line performance for 1QFY2012 on account of contraction in operating margin and high interest cost. Net sales during the quarter reported healthy 21% yoy (5% qoq) growth to `1,413cr. On the operating front, the company posted an 11.8% yoy (4.2% qoq) decline in operating profit to `65cr, as operating margin dipped by 170bp yoy (44bp qoq) to 4.6%, primarily due to raw-material cost pressures in the form of higher rubber prices. As a result, raw-material cost to sales ratio stood at 77.3% of sales during 1QFY2012. However, margin erosion was arrested due to a 67bp and 155bp yoy reduction in staff cost and other expenditure, respectively. Net profit witnessed a substantial 95% yoy (92.3% qoq) decline to `1cr, primarily due to margin contraction and a substantial increase in interest expense. At `104, the stock is trading at 3.5x and 5.8x FY2013 earnings and EV/EBITDA, respectively. We continue to maintain our Buy rating on the stock; however, our target price is under review. We shall release a detailed note shortly.

1QFY2012 Result Preview KEC International

KEC International is scheduled to announce its 1QFY2012 results. The companys top line is expected to grow by 18% yoy to `998cr. On the operating front, we expect the companys margin to expand by 52bp yoy to around 10.5%. Net profit is expected to increase by 43.5% yoy to `38cr. The stock is currently trading at 8.3x FY2012E and 6.2x FY2013E earnings. We maintain our Buy view on the stock with a target price of `115. However, we will revisit our estimates post the conference call.

Economic and Political News

Fiscal deficit surges four-fold in April-June Government approves National Social Security Fund Governments outstanding loans at `233.3bn in July 22 week: RBI Spices export jumps 21% in 1QFY2012 Domestic aviation traffic growth at 14%: IATA Deficit in rainfall rises to 4%, fuels Kharif sowing fears

Corporate News
ONGC, Sistema may soon merge assets in Russia Max to set up four new hospitals at `500cr this year ICICI Bank acquires 29.3% in GTL GVK Power likely to finalise Hancock deal in two months IIFCL to raise `3,500cr via infra bonds
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

August 1, 2011

Market Outlook | India Research

Events for the day DCW Glaxosmithkline Consumer Goodyear India Havells India Indraprastha Gas Pfizer RPP Infra Shree Cement Stanrose Mafatlal Sun TV Network Tilaknagar Industries Triveni Engineering

Results Results Results Results Results Results Results Results Results Results Results Results

August 1, 2011

Market Outlook | India Research

Research Team Tel: 022-3935 7800 E-mail: research@angelbroking.com Website: www.angelbroking.com

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Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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August 1, 2011