Market Outlook

India Research
October 25, 2011

Dealers Diary
The Indian markets are expected to open in the green on the back of mixed cues from Asian markets and positive cues from European and US stocks, bumping the benchmark indices against their early-August highs, as talk of a bigger bailout fund in Europe, an improvement in China manufacturing data, some US deal announcements, and strong US corporate earnings kept investor sentiment afloat. In European markets, concrete decisions to combat the sovereign debt crisis have yet to be communicated. However, statements that were made by European leaders following the EU summit over the weekend were positively received by the market. Investors will now await the result of the second summit, which will take place on Wednesday. The street would also be keeping a close eye on the todays RBIs monetary policy review where a 25bp hike is already factored in by the markets, in our view. We believe this hike would be a final one in the current interest rate cycle on the back of expectation of moderation in inflation. No major negative surprise so far has retained the investor confidence in markets.

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

Chg (%) 0.9 1.0 (0.3) (0.3) 0.4 0.0 (0.4) 1.9 0.4 1.7 1.9 Chg (%) 0.9 2.4 1.1 1.9 4.1 1.8 2.3

(Pts) 48.4 (20.1) (19.4) 23.8 1.8 (41.9) 164.2 42.1 142.4 105.6 (Pts) 62.0 59.4 165.1 48.5 53.1

(Close) 5,098 6,092 6,806 5,952 7,378 11,052 9,012 11,142 8,792 5,631 (Close) 2,699 5,548 8,844 2,761 2,370

153.6 16,939

104.8 11,914

Markets Today
The trend deciding level for the day is 16,981/5,110 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,063 17,187 / 5,134 5,170 levels. However, if NIFTY trades below 16,981/5,110 levels for the first half-an-hour of trade then it may correct up to 16,857 16,775 / 5,074 5,049 levels.
Indices SENSEX NIFTY S2 16,775 5,049 S1 16,857 5,074 R1 17,063 5,134 R2 17,187 5,170

746.1 18,772

Indian ADRs Infosys Wipro ICICI Bank HDFC Bank

Chg (%) 3.7 2.1 1.4 2.2

(Pts) 2.1 0.2 0.5 0.7

(Close) $57.6 $9.8 $36.0 $32.1

News Analysis
RBI Monetary Policy Preview One final hike likely Areva secures orders worth `400cr 2QFY2012 Result Reviews ITC, Sterlite, GAIL, Union Bank of India, Sadbhav Engg., Jyoti Structures 2QFY2012 Result Previews NTPC, DRL, Sesa Goa, KEC
Refer detailed news analysis on the following page

Advances / Declines Advances Declines Unchanged

BSE 1,278 1,528 120

NSE 609 801 76

Net Inflows (October 21, 2011)

` cr FII MFs ` cr Index Futures Stock Futures Purch 1,376 340 Sales 1,555 395 Purch 5,908 6,257 Gainers Company Price (`) chg (%) Company Net (178) (54) Sales 4,991 6,234 Net 917 23 MTD (974) 22 YTD (2,928) 5,519 Open Interest 15,190 29,838 Losers Price (`) chg (%)
Volumes (` cr) BSE NSE 1,996 8,643

FII Derivatives (October 24, 2011)

Gainers / Losers

Tata Motors ONGC Axis Bank Reliance Power Mundra Port

186 276 1,169 88 156

4.4 4.1 4.0 3.9 3.9

Union Bank Jain Irrigation Oriental Bank Mangalore Ref NMDC

212 117 282 61 231

(11.6) (5.3) (4.8) (3.9) (3.6) Sebi Registration No: INB 010996539

Please refer to important disclosures at the end of this report

Market Outlook | India Research

RBI Monetary Policy Preview One final hike likely

The Reserve Bank of India (RBI) will be conducting the 2QFY2012 review of its monetary policy today. Majority of the street is expecting the RBI to carry out a 25bp hike in its repo rate. We also expect a 25bp hike in repo rate considering the elevated inflation numbers; however, we believe this hike would be a final one in the current interest rate cycle, given the continuation of the expectation of easing domestic inflation due to lower global commodity prices, moderating domestic growth environment and heightened global macro risks. In spite of slowing domestic growth, inflation has stubbornly remained above the RBI's indicated comfort level of 5-5.5% for 22 consecutive months. Although headline WPI inflation for September 2011 moderated marginally by 6bp to 9.72% (from 9.78% in August 2011), it remained much above the comfortable levels. Core (non-food manufacturing) inflation in September 2011 moderated to a four-month low but remained well above its longer-term growth rate. High inflation readings are likely to force the RBI to persevere with its hawkish stance, considering the RBI's unequivocal guidance of change in stance only if the inflation trajectory shows a downward movement. However, the recent sharp fall in global commodity and energy prices following the Fed's abstinence from adopting quantitative easing (QE)-III and weaker global demand prospects is likely to aid in pulling down headline inflation to 8-9% from January 2012 and is likely to be a meaningful case for the RBI to pause and even think of cuts depending on the domestic growth scenario and international macro environment.

Areva secures orders worth `400cr

Areva T&D India (Areva) has won a contract from Rajasthan Rajya Vidyut Prasaran Nigam Ltd. (RRVPNL). Valued at `400cr, the contract work includes turnkey construction of 765kV substation including extra high voltage (EHV) transformers and reactors. It also includes a long-term maintenance contract for the substation. While this high-value order is an added positive; it does little to alter our view on the company. Delay in generation projects (on the back of deepening fuel crisis, environment clearance, weak merchant realizations and poor health of SEBs, among others) is likely to postpone the associated T&D spending both from PGCIL and the SEBs (leading to lower order inflows). In addition, Chinese and Korean competition continues to be unabated suppliers continue to dump products in the Indian market at cheap prices (price erosion of 20-25%). This is giving tough competition to local players in India (read Areva, Crompton and ABB). Considering these factors, the market leadership of the company and margin improvement thesis (notably, on the declining trend) does not augur well. The stock currently trades at rich valuations of 26.7x and 18.9x CY2011E and CY2012E EPS, respectively. Given the negatives surmounting the T&D space, the stock seems to be fairly valued and upside from the current level seems limited. Hence, we continue to remain Neutral on the stock.

October 25, 2011

Market Outlook | India Research

Result Reviews ITC

ITC declared top-line growth of 17.5% yoy to `5,974cr (`5,083cr), in-line with our estimates. For the quarter, the cigarette division registered 21.5% growth in gross revenue (16.4% yoy growth in net revenue) on the back of better realizations. Amongst other segments, at the net level, agri-business, paperboards and packaging and hotels posted growth of 14.8% yoy, 9.4% yoy and 1.1% yoy, respectively, while non-cigarette FMCG business grew by robust ~27% yoy. Earnings for the quarter grew by robust 21.5% yoy to `1,514cr (`1,247cr), marginally above our estimates. The company has been successful in reducing its losses in the non-cigarette FMCG business loss during 2QFY2012 stood at ~`56cr (`67cr). Earnings for the quarter grew by robust 21.5% yoy to `1,514cr (`1,2478cr), in-line with our estimates. The company reported marginal margin expansion (up by 11bp yoy) in its operating profit despite gross margin contraction of 221bp yoy by reducing staff costs and other expenses. The stock is under review.

Sterlite Industries
Sterlite Industries (Sterlite) reported disappointing profitability during 2QFY2012. Net sales increased by 68.1% yoy to `10,134cr, slightly above our estimate of `9,726cr. Net sales growth was driven by higher zinc sales volumes as well as higher realization of zinc, lead and copper. Revenue of the copper, zinc and power segments grew by 76.5%, 66.3% and 282.3% yoy, respectively. EBIT of the copper and zinc segments grew by 95.8% and 64.5% yoy, respectively. However, EBIT of the aluminium and power segments declined by 93.9% and 6.9% yoy, respectively. Aluminium cost of production at Balco increased by 22.0% yoy to US$2,133/tonne on account of increased prices of alumina and higher carbon costs. Sterlites associate, Vedanta Aluminium reported loss of `624cr in 2QFY2012 compared to loss of `196cr in 2QFY2011. Adjusted net profit increased by 0.9% yoy to `1,022cr, significantly below our estimate of `1,641cr. The stock is under review currently.

GAIL
GAILs 2QFY2012 results were slightly above our expectations. The companys top line grew by robust 19.7% yoy to `9,699cr, above our estimate of `8,779cr, mainly due to strong growth in the natural gas trading, petrochemical and LPG segments. The companys fuel subsidy burden stood at `567cr in 2QFY2012 compared to `347cr in 2QFY2011. Gross revenue of the natural gas trading, petrochemical and LPG segments grew by 20.4%, 30.1% and 34.2% yoy to `7,575cr, `938cr and `989cr, respectively. EBIT of the natural gas trading, petrochemical and LPG segments grew by 78.9%, 48.8% and 101.0% yoy to `287cr, `404cr and `352cr, respectively. However, EBIT of the natural gas transmission and LPG transmission segments decreased by 22.8% and 8.2% yoy to `556cr and `72cr, respectively. Consequently, GAILs EBITDA increased by 16.9%
October 25, 2011

Market Outlook | India Research

yoy to `1,676cr in 2QFY2012. However, EBITDA margin contracted by 41bp yoy to 17.3%. Tax rate decreased to 30.2% in 2QFY2012 compared to 37.8% in 2QFY2011. Consequently, net profit grew by 30.6% yoy to `1,094cr, slightly above our estimate of `954cr. The company has planned a capex of `7,200cr and aims to raise US$300mn through overseas borrowing. We maintain our Buy recommendation on the stock; our target price is under review.

Union Bank of India

For 2QFY2012, Union Bank of India posted a disappointing set of numbers, which were far below our as well as street estimates, primarily due to the considerably higher-than-expected provisioning expenses. Substantial deterioration in asset quality was the key negative highlight of the results. The banks business growth was muted, with advances growing marginally by 1.2% qoq and deposits declining by 1.8% qoq. Even CASA deposits base was almost flat sequentially and grew by just 8% on a yoy basis. On the back of improvement in CD ratio and yield on advances, the banks reported NIM improved by 11bp qoq to 3.21%. On the asset-quality front, slippages ballooned to `1,821cr (annualized slippage ratio of 4.8%) from an average quarterly run rate of `640cr over the past 12 quarters. Management attributed a large part of the rise in slippages to the completion of switchover to system-based NPA recognition platform. Absolute amounts of gross and net NPAs rose sharply by 37.2% qoq and 56.3% qoq, respectively. Provision coverage ratio including technical write-offs slipped sharply by 772bp qoq to 60.5%, as the bank chose to sacrifice on the coverage and ensure profitability. The stock is trading at 0.8x FY2013E P/ABV, which is considerably below its fiveyear median of 1.3x. However, in light of the considerable stress in asset quality, we keep the stock rating under review.

Sadbhav Engineering
For 2QFY2012, Sadbhav Engineerings (SEL) numbers came in ahead of our expectations. The company reported strong 65.0% yoy growth on the top-line front to `430.4cr (`260.9cr) vs. our estimate of 48% growth. SEL has been able to maintain sturdy execution pace for captive road BOT projects since the past few quarters, leading to robust revenue growth. On the operating margin front, the company posted OPM of 10.5% (12.0%), below our estimate of 11.3%, likely due to subcontracting of road BOT projects. Interest cost stood at `15.4cr (`9.0cr), up 70.9% yoy, on account of increased debt levels to `455.7cr from `396.1cr in FY2011 and a high interest rate scenario. On the earnings front, SEL reported healthy 32.1% growth yoy to `18.1cr (`13.7cr), higher than our expectation of `16.9cr on account of better-than-expected top-line growth. We maintain our

Buy recommendation on the stock with a target price of `167.

October 25, 2011

Market Outlook | India Research

Jyoti Structures
Jyoti Structures (JSL) announced its 2QFY2012 results, which were in-line on the top-line front. However, results were lower than our and street estimates on the bottom line front. The top line grew by 16.5% yoy to `632.1cr, which was higher by 2.2% from our estimate of `618.3cr. However, EBITDA margin declined by ~90bp yoy to 10.8%, slightly higher than our estimate of 11.1%, primarily driven by higher sub-contracting expenses and other expenses rising by ~220bp yoy to 19.5% and 140bp yoy to 9.6%, respectively, as a proportion of sales. Profitability was further impacted by high interest expenses, which soared by 49.5% yoy to `31cr. This resulted into PAT declining by 10.9% yoy to `22.1cr, against our estimate of `25.2cr. The earnings miss of 2QFY2012 does not warrant for the companys poor performance. At the CMP, the stock trades cheaply at 4.5x and 4.0x, FY2012E and FY2013E, EPS, respectively. The pessimism viz. high interest expenses, low profitability and elongated working capital cycle has clearly factored in the stocks performance. However, we believe the concerns are overly worried, given that JSL is sailing smooth in terms of growth trajectory (comfortable OB/sales ratio of 1.8x FY2012E sales). In addition, recent commentary from PGCIL indicated strong ordering in the near term, which suggests a revival in the T&D space.

Result Previews NTPC

NTPC is scheduled to announce its 2QFY2012 results. We expect the company to record a 10.4% yoy increase in its top line to `14,733cr, aided by volume growth and higher capacity. Operating profit is expected to increase by 46.7% yoy to `3,094cr. The huge growth is on account of low base, since it had a huge one-off provision of `1,263cr on sundry debtors during 2QFY2011. However, it also had depreciation write-back and advance against depreciation (AAD) recognized as prior-period sales, totaling `1,763cr in 2QFY2011. Thus, net profit is expected to increase marginally by 2.1% yoy to `2,151cr. We maintain our Buy recommendation on the stock with a target price of `202.

DRL
For 2QFY2012, DRL is expected to post strong results, with top-line growth of 7.6% yoy to `2,013cr, majorly driven by the US market. The company is expected to see strong traction in its Indian and Russian formulation businesses as well. In terms of the PSAI segment, lackluster performance is expected for 2QFY2012. The company is expected to post OPM of 20.7%, up 470bp yoy. On the net profit front, the company is expected to post net profit of `295cr, 3.1% yoy growth. At the CMP, the stock is trading at 17.6x FY012E and 16.1x FY2013E earnings. We maintain our Buy rating on the stock with a target price of `1,920.

October 25, 2011

Market Outlook | India Research

Sesa Goa
Sesa Goa is slated to announce its 2QFY2012 results. We expect the companys top line to grow by 22.5% yoy to `1,125cr on account of higher iron ore realizations. On the operating front, EBITDA margin is expected to expand 100bp yoy to 38.0%. However, the bottom line is expected to decline by 16.4% yoy to `322cr due to a sharp decline in other income. We maintain our Buy recommendation on the stock with a target price of `253.

KEC International
For 2QFY2012, KEC International (KEC) is expected to register strong growth of 17.0% yoy to `1,171cr on the back of strong execution of its robust order book. On the EBITDA front, the company's margin is expected to remain under pressure due to contribution of low-margin businesses (railways, cables and telecom); however, increased contribution from SAE Towers is likely to ensure that margins remain flat at 10.2%. Nonetheless, high interest cost is expected to shadow some of the gains and the bottom line is expected to grow by 14.0% yoy to `48.7cr. We maintain our Buy rating on the stock with a target price of `88.

Quarterly Bloomberg Brokers Consensus Estimates

Dr. Reddys Laboratories Ltd. - Consolidated (25/10/2011)
Particulars (` cr) Net sales Net profit
Source: Bloomberg

2QFY12E 2,126 286

2QFY11 1,870 287

yoy (%) 13.7 (0.3)

1QFY12 1,978 263

qoq (%) 7.5 8.9

Kotak Mahindra Bank Ltd. - (25/10/2011)

Particulars (` cr) Net profit
Source: Bloomberg

2QFY12E 325

2QFY11 195

yoy (%) 66.7

1QFY12 252

qoq (%) 28.8

NTPC Ltd. 25/10/2011)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit
Source: Bloomberg

2QFY12E 14,120 3,332 24 2,024

2QFY11 12,989 3,872 30 2,107

yoy (%) 8.7 (13.9) (4.0)

1QFY12 14,171 3,219 23 2,076

qoq (%) (0.4) 3.5 (2.5)

October 25, 2011

Market Outlook | India Research

Sesa Goa Ltd. - Consolidated (25/10/2011)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit
Source: Bloomberg

2QFY12E 907 346 38 297

2QFY11 907 303 33 385

yoy (%) 0.1 14.0 (22.9)

1QFY12 2,095 1,147 55 841

qoq (%) (56.7) (69.9) (64.7)

NHPC (28/10/2011)
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit
Source: Bloomberg

2QFY12E 1,476 1,010 68 732

2QFY11 1,240 1,059 85 690

yoy (%) 19.0 (4.6) 6.1

1QFY12 1,431 1,038 73 791

qoq (%) 3.1 (2.7) (7.4)

LIC Housing Finance Ltd. (29/10/2011)

Particulars (` cr) Net profit
Source: Bloomberg

2QFY12E 255

2QFY11 234

yoy (%) 9.1

1QFY12 257

qoq (%) (0.4)

Maruti Suzuki Ltd. (29/10/2011)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit
Source: Bloomberg

2QFY12E 7,643 656 9 414

2QFY11 8,937 960 11 598

yoy (%) (14.5) (31.7) (30.9)

1QFY12 8,361 814 10 549

qoq (%) (8.6) (19.4) (24.7)

Bank of Baroda Ltd. (31/10/2011)

Particulars (` cr) Net profit
Source: Bloomberg

2QFY12E 1,076

2QFY11 1,019

yoy (%) 5.6

1QFY12 1,033

qoq (%) 4.2

BPCL Ltd. (31/10/2011)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit
Source: Bloomberg

2QFY12E 47,168 (96) (0) 2

2QFY11 35,416 2,487 7 2,142

yoy (%) 33.2 (103.9) (99.9)

1QFY12 46,118 (2,164) (5) (2,562)

qoq (%) 2.3 (95.6) (100.1)

October 25, 2011

Market Outlook | India Research

Dabur India Ltd. - Consolidated (31/10/2011)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit
Source: Bloomberg

2QFY12E 1,257 232 18 175

2QFY11 973 208 21 160

yoy (%) 29.2 11.2 9.4

1QFY12 1,205 179 15 128

qoq (%) 4.4 29.6 37.3

Hindustan Unilever Ltd. (31/10/2011)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit
Source: Bloomberg

2QFY12E 5,369 711 13 587

2QFY11 4,681 647 14 566

yoy (%) 14.7 9.8 3.6

1QFY12 5,504 754 14 627

qoq (%) (2.4) (5.8) (6.5)

Wipro Ltd - Consolidated (31/10/2011)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit
Source: Bloomberg

2QFY12E 8,953 1,689 19 1,311

2QFY11 7,731 1,611 21 1,285

yoy (%) 15.8 4.8 2.0

1QFY12 8,564 1,729 20 1,335

qoq (%) 4.5 (2.3) (1.8)

October 25, 2011

Market Outlook | India Research

Economic and Political News

RBI likely to raise rates again on inflation concerns Power position turns grim as coal stocks dip at stations again Road Ministry asks states to go for e-tendering Write off power distribution companies losses: Ministry of Power to states National manufacturing policy may get green signal today

Corporate News
Indian firms beat MNC peers in drug launches JSW steel sees New Hope in Oz to meet its coal needs TCS inks pact with Scotwest Airports authority asks Kingfisher to clear `210cr dues JSPL to spend `15,000cr on capacity addition

Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

Results Calendar
25/10/2011 NTPC, Kotak Mah. Bank, Dr Reddy's, Sesa Goa, KEC International

28/10/2011 NHPC, Tata Global, CCCL,

29/10/2011 Maruti, LIC Housing Fin., IOB, Electrosteel Castings, J K Lakshmi Cements

ICICI Bank, NMDC, Wipro, HUL, Bank of Baroda, BPCL, Canara Bank, Dabur India, Colgate, Indian Bank, Oriental 31/10/2011 Bank, Corporation Bank, UCO Bank, Ipca labs, J & K Bank, Vijaya Bank, Dena Bank, United Bank, LMW, Greenply, Subros
01/11/2011 Punjab Natl.Bank, Ambuja Cements, ACC, HPCL, Essar Oil, Divi's Lab., Central Bank, Bajaj Electrical, Orchid Chemicals

October 25, 2011

Market Outlook | India Research

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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October 25, 2011

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