india daily, june 1, 2009kotak institutional equities research 1 india daily summary - june 01, 2009...

Kotak Institutional Equities Research 1

India Daily Summary - June 01, 2009

Contents

Results

IOCL: Limited merit in analyzing quarterly results or stock pricemovement

Tata Motors: Stretched standalone financials tell only half the story;maintain SELL

BPCL: In-line 4QFY09 results; frenzy continues on expectation ofderegulation

Lanco Infratech: 4QFY09: Project execution reflects in constructionrevenues; await commercialization of capacities

Colgate-Palmolive (India): In-line quarter, limited valuation upside

Tata Chemicals: Operating performance lower than expected

IVRCL Infrastructures: Strong revenues help mitigate disappointingmargins, strong growth guidance a positive; retain BUY

Nagarjuna Construction: Disappointing margins ands execution; besetby large order cancellations

Welspun Gujarat Stahl Rohren: Forex losses pull down 4QFY09 PAT

PSL: 4QFY09 - strong revenues but disappointing margins

Change in recommendations

ICICI Bank: Valuations do not justify further re-rating; downgrade toREDUCE

Updates

Economy: India at the bottom of the U-shaped cycle of 5.5-6% in2HFY09-1HFY10E

Real Estate: Real estate stocks pricing in sharp recovery; advise profitbooking in DLF, Unitech

Insurance: April 2009—A dull month for the insurance industry

INDIA DAILY

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OFTHIS MATERIAL, AT http://www.kotaksecurities.com.

EQUITY MARKETS

Change, %

India 29-May 1-day 1-mo 3-mo

Sensex 14,625 2.3 28.3 64.5

Nifty 4,449 2.6 28.1 61.0

Global/Regional indices

Dow Jones 8,404 1.3 2.7 19.0

FTSE 4,444 1.3 6.1 16.0

Nikkie 9,523 0.8 12.1 25.8

Hang Seng 18,171 1.6 24.8 41.8

KOSPI 1,396 0.3 4.3 31.3

Value traded - India

Moving avg, Rs bn

29-May 1-mo 3-mo

Cash (NSE+BSE) 341.1 236.5 184.4

Derivatives (NSE) 903.2 811.4 392

Deri. open interest 1,042.3 932 474

June 01, 2009

®

Forex/money market

Change, basis points

29-May 1-day 1-mo 3-mo

Rs/US$ 47.2 (45) (301) (477)

10yr govt bond, % 6.7 8 52 68

Commodity marketChange, %

29-May 1-day 1-mo 3-mo

Gold (US$/OZ) 975.7 1.7 8.7 3.5

Silver (US$/OZ) 15.6 2.6 21.9 18.5

Crude (US$/BBL) 64.5 1.8 31.4 43.6

Net investment (US$mn)

27-May MTD CYTD

FIIs 92 - 3,653

MFs 213 - (22)

Top movers -3mo basis

Change, %

Best performers 29-May 1-day 1-mo 3-mo

Ivrcl Infrastructures 329 9.0 107.3 202.3

Nmdc Limited 449 5.4 126.7 195.8

Jsw Steel Limited 553 0.7 61.5 193.9

Aban Offshore Limit 905 3.5 122.2 185.2

Unitech Limited 80 4.4 80.7 181.8

Worst performers

Housing Developme 284 3.2 93.9 287.6

Hindustan Unilever L 231 (0.1) (1.7) (9.0)

Itc Ltd 184 (0.1) (2.8) 0.3

Nestle India Limited 1,726 0.1 1.3 15.6

Tata Communicatio 468 (6.0) (14.7) 15.7

2 Kotak Institutional Equities Research


IOCL: Limited merit in analyzing quarterly results or stock pricemovement

• Strong results boosted by oil bonds and impact of revision in AS-11 provisions

• No merit in analyzing quarterly results given volatility in compensation

• Fine-tuned estimates, but a futile exercise; maintain REDUCE rating with a revisedtarget price of Rs550 (Rs500 previously)

IOCL reported 4QFY09 net income at Rs66.2 bn versus net income of Rs29.6 bn in3QFY09 and net loss of Rs4.1 bn in 4QFY08. We see limited merit in analysis of results ofdownstream companies given volatility in compensation received in every quarter;quarterly results can swing wildly depending on the quantum and timing of receipt of oilbonds. We are uncomfortable with the continued frenzy triggered by likely deregulation ofauto fuel prices. We see deregulation, if any, as positive for the sector; however, we see noupside to the fair valuations of R&M companies even in case of full deregulation. Wecompute IOCL's fair valuation in a normalized scenario at Rs575 (see Exhibit 2). We havemade modest earnings revisions for IOCL for FY2010E, FY2011E and FY2012E EPS toRs45.6, Rs44.6 and Rs63.3 versus Rs43.6, Rs43.2 and Rs62, previously. We retain ourREDUCE rating with a revised 12-month fair valuation of Rs550 (Rs500 previously) basedon 8X FY2011E EPS plus value of investments. Key upside risk stems from higher-than-expected refining margins.

IOCL’s 4QFY09 results details

IOCL reported strong 4QFY09 results with standalone net income of Rs66.2 bn comparedto net income of Rs29.6 bn in 3QFY09 and net loss of Rs4.1 bn in 4QFY08; we expectednet income of Rs60.4 bn. The strong results were due to (1) provision of oil bonds atRs62.2 bn, (2) strong refining margins at US$4.6/bbl and (3) positive swing of Rs7.8 bndue to impact of change in AS-11 provisions.

1. Compensation (oil bonds) from the government. IOCL booked oil bonds for Rs62.2bn in 4QFY09 versus Rs90.8 bn in 3QFY09 and Rs75.4 bn in 4QFY08. Based on theshare of oil bonds for IOCL in FY2009 (56.65%), we model IOCL will receive Rs68 bn,Rs68 bn and Rs71 bn of oil bonds in FY2010E, FY2011E and FY2012E, respectively,based on total issue of Rs120 bn, Rs120 bn and Rs125 bn of bonds to the industry inFY2010E, FY2011E and FY2012E.

2. Good refining margins. IOCL’s 4QFY09 standalone refining margin was US$4.6/bblversus -US$2.7/bbl in 3QFY09 and US$8.8/bbl in 4QFY08. IOCL’s FY2009 margin wasUS$3.7/bbl versus US$9/bbl in FY2008. We model FY2010E, FY2011E and FY2012Erefining margins at US$4.1/bbl, US$4.1/bbl and US$5/bbl.

3. Higher employee costs due to provision for pay revision and gratuity. IOCL’sFY2009 employee costs increased 95% yoy to Rs56.9 bn. However, the steep rise wasdue to provision of Rs27.1 bn for pay revision of employees effective January 1, 2007and includes the impact of proposed enhancement in gratuity ceiling. We expectemployee costs to normalize in FY2010E.

4. AS-11 impact. IOCL has changed its accounting policy for recognition of exchangedifferences arising on account of long-term foreign currency monetary items as peroption given in AS-11, which resulted in a positive impact of Rs7.8 bn in 4QFY09.

5. High adventitious and inventory losses. Inventory/adventitious losses for FY2009were Rs44 bn driven by a decline of US$55/bbl in crude prices during the period.

Shareholding, March 2009

% of Over/(under)Pattern Portfolio weight

Promoters 80.4 - -

FIIs 1.0 0.1 (1.6)

MFs 1.9 1.0 (0.8)

UTI - - (1.7)

LIC 2.7 1.0 (0.7)

Energy

IOC.BO, Rs609Rating

Sector coverage view

Target Price (Rs) 550

52W High -Low (Rs) 662 - 299

Market Cap (Rs bn) 718.2

FinancialsMarch y/e 2009 2010E 2011E

Sales (Rs bn) 3,053 2,232 2,312

Net Profit (Rs bn) 22.6 52.8 51.4

EPS (Rs) 18.9 44.3 43.1

EPS gth (69.1) 133.8 (2.6)

P/E (x) 32.2 13.8 14.1

EV/EBITDA (x) 11.1 6.1 6.0

Div yield (%) 1.2 3.0 2.9

Neutral

REDUCE

Pricing performance

Perf-1m Perf-3m Perf-6m Perf-1y

37.5 39.1 48.1 45.6



6. Other operating details. IOCL processed 12.6 mn tons of crude in 4QFY09 versus 12mn tons in 3QFY09 and 12.3 mn tons in 4QFY08. IOCL sold 17.3 mn tons (includingexports) of refined products versus 16.5 mn tons in 3QFY09 and 16.6 mn tons in4QFY08. Pipeline throughput for 4QFY09 increased 8.9% qoq and 6.1% yoy to 15.8mn tons.

7. Dividend. IOCL declared a dividend of Rs7.5/share for FY2009 versus Rs 5.5/share inFY2008.

Performance of subsidiaries

CPCL. Chennai Petroleum (CPCL) reported 4QFY09 net income at Rs2.7 bn versus loss of -Rs12.7 bn in 3QFY09 and net income of Rs3.4 bn in 4QFY08 led by strong refiningmargins at US$6.6/bbl versus -US$18/bbl in 3QFY09. CPCL processed 2.5 mn tones ofcrude as compared to 2.6 mn tons in 3QFY09 and 2.7 mn tons in 4QFY08. Our EPSestimates for CPCL for FY2010E, FY2011E and FY2012E are Rs21.1, Rs25.5 and Rs34.7,respectively.

BRPL. The scheme of amalgamation of Bongaigaon Refineries and Petrochemicals (BRPL)with IOCL has been sanctioned by the ministry of corporate affairs with an approved swapratio of 4 shares of IOCL for every 37 shares held in BRPL.

Interim results of Indian Oil Corp., March fiscal year-ends (Rs mn)

(% chg) yoy4QFY09 4QFY09E 4QFY08 3QFY09 4QFY09E 4QFY08 3QFY09 2009 2008 % chg

Net sales (a) 599,377 991,658 718,998 705,341 (40) (17) (15) 3,053,377 2,449,690 25Total expenditure (509,796) (917,840) (712,778) (671,510) (44) (28) (24) (2,979,252) (2,348,396) 27 Increase/(Decrease) in stocks (16,276) 11,156 Purchase of products/crude for resale (157,332) (458,783) (379,189) (291,798) (66) (59) (46) (1,357,798) (1,210,566) 12 Consumption of raw materials (270,065) (481,158) (295,832) (287,384) (44) (9) (6) (1,370,472) (1,013,492) 35 Staff cost (20,269) (7,280) (7,847) (13,725) 178 158 48 (56,887) (29,142) 95 Other expenditure (a) (45,853) 29,381 (41,065) (27,968) (256) 12 64 (177,350) (114,777) 55EBITDA 89,582 73,818 6,220 33,831 21 1,340 165 74,125 101,294 (27)Other income 6,621 5,742 (1,070) 18,177 15 (719) (64) 37,499 30,656 22Interest (8,397) (4,301) (4,923) (15,054) 95 71 (44) (39,521) (15,512) 155Depreciation (8,041) (7,570) (6,922) (7,275) 6 16 11 (28,817) (27,097) 6Pretax profits 79,765 67,689 (6,696) 29,679 18 (1,291) 169 43,286 89,341 (52)Previous years arrears/extraordinary income — — — — — 11,463Tax (13,036) (7,357) 1,314 (93) (13,292) (31,127)Deferred tax (499) 63 1,239 — (499) (51)Net income 66,230 60,395 (4,143) 29,586 10 (1,699) 124 29,495 69,625 (58)Tax rate (%) 17.0 10.8 38.1 0.3 31.9 30.9

Volume dataCrude throughput (mn tons) 14.8 12.3 12.0 20 23 49.2 47.4 4Domestic sales (mn tons) 16.3 15.9 15.7 3 4 62.6 59.3 6Export sales (mn tons) 0.9 0.7 0.8 26 18 3.6 3.3 8Pipelines throughput (mn tons) 15.8 14.9 14.5 6 9 59.6 57.1 4Refining margin (US$/bbl) 3.9 8.8 (2.7) 3.7 9.0Inventory gain/(loss)-products (Rs mn) 16,120 1,890 (36,000) (43,760) 14,900Receipt from upstream companies (Rs mn) (11,558) 53,762 35,852 169,030 143,229Oil bonds from government (Rs mn) 62,176 75,362 90,830 403,830 189,970Subsidy gain/(loss) (Rs mn) 24,773 (161,713) (79,364) (572,860) (430,936)

(a) Reported sales and other expenditure include freight costs and local taxes. Our estimates are without the same.

Source: Kotak Institutional Equities estimates



Normalized marketing margins show no upside from current levelsComparison of normalized marketing margins with FY2010 estimates (Rs/ton)

2010E NormalizedLPG (9,282) 1,500Naphtha 1,200 400Gasoline 1,900 1,900Jet fuel 1,700 1,400Kerosene (16,784) 600Diesel 1,700 1,500Light diesel oil 1,450 500Low sulphur heavy stock 1,000 500Fuel oil 1,000 500Bitumen 2,000 1,000EPS (Rs) 45.6 56.0 EBITDA (Rs bn) 111.7 130.5 EV (5X normalised EBITDA) (Rs bn) 652 Value of investments (Rs bn) 231Net debt (Rs bn) 199Equity value (Rs/share) 574 Current target price 550

Note: (a) Our normalized earnings estimates are based on normalized marketing margins and actual refining margin estimates for FY2010E.




Consolidated profit model, balance sheet, cash model of IOCL, March fiscal year-ends, 2004-2011E (Rs mn)

2004 2005 2006 2007 2008 2009E 2010E 2011EProfit model (Rs mn)Net sales 1,173,450 1,379,018 1,729,474 2,149,428 2,444,378 3,053,377 2,231,579 2,311,885EBITDA 114,303 86,765 82,044 110,451 120,872 68,732 111,686 111,476Other income 17,565 16,138 21,310 27,451 43,748 37,462 34,304 19,811Interest (5,043) (7,433) (12,101) (17,058) (17,556) (42,031) (34,351) (14,507)Depreciation (20,626) (23,140) (24,711) (28,686) (29,918) (31,789) (32,750) (36,278)Pretax profits 106,199 72,330 66,542 92,157 117,145 32,375 78,889 80,502Extraordinary items 3,553 4,283 5,590 24,757 5,374 5,632 4,969 4,952Tax (25,966) (13,658) (19,975) (25,834) (38,293) (13,832) (24,319) (29,030)Deferred taxation (5,157) (2,335) (1,282) (8,040) (473) 1,463 (1,247) 472Net profits 79,052 59,475 51,125 82,729 83,430 25,638 58,292 56,896Net profits after minority interests 73,298 52,666 45,362 62,469 74,573 24,984 54,313 53,179Earnings per share (Rs) 62.8 45.1 38.8 52.4 62.5 21.0 45.6 44.6

Balance sheet (Rs mn)Total equity 233,386 271,302 317,977 378,117 450,449 467,185 500,462 532,804Deferred tax liability 47,934 50,367 50,602 59,859 60,331 58,868 60,115 59,643Total borrowings 146,147 197,809 292,395 290,215 382,818 641,136 357,685 257,741Currrent liabilities 219,522 266,430 286,716 330,791 386,724 474,894 369,821 383,021Total liabilities and equity 646,988 785,907 947,691 1,058,981 1,280,322 1,642,083 1,288,082 1,233,210Cash 13,777 13,356 8,080 9,385 8,413 2,178 8,705 10,305Current assets 278,550 368,158 413,904 437,178 599,256 753,291 576,740 588,797Total fixed assets 320,647 370,003 383,717 415,014 460,307 480,071 521,093 527,564Investments 34,013 34,391 141,990 197,403 212,345 406,543 181,543 106,543Total assets 646,988 785,907 947,691 1,058,981 1,280,322 1,642,083 1,288,082 1,233,209

Free cash flow (Rs mn)Operating cash flow, excl. working capital 93,713 71,765 (10,334) (44,660) (107,263) 23,374 57,116 66,937Working capital changes 1,710 (33,421) (8,136) 2,237 (1,414) (112,786) 54,563 (846)Capital expenditure (47,179) (73,626) (49,042) (50,969) (79,586) (45,207) (53,562) (22,620)Investments (509) (1,172) (17,778) 99,768 92,665 (194,083) 225,000 73,956Other Income 5,826 7,814 10,317 13,582 18,253 92,245 27,657 14,819Free cash flow 53,560 (28,641) (74,973) 19,958 (77,346) (236,456) 310,774 132,245

Ratios (%)Debt/equity 52.0 61.5 79.3 66.3 74.9 121.9 63.8 43.5 Net debt/equity 47.1 57.3 77.1 64.1 73.3 121.5 62.3 41.8 RoAE 30.0 18.3 13.7 16.1 16.3 5.0 10.4 9.6 RoACE 20.4 13.7 9.3 11.3 11.2 4.1 7.5 6.9

Key assumptions (IOC standalone)Crude throughput (mn tons) 37.7 36.6 38.5 44.0 47.4 49.2 50.2 51.2 Effective tariff protection (%) 7.6 5.7 3.1 1.6 1.4 2.8 2.8 2.8 Net refining margin (US$/bbl) 5.4 6.2 4.8 4.2 8.1 3.7 4.1 4.1 Sales volume (mn tons) 47.1 48.2 50.4 53.4 57.4 60.7 63.0 65.3 Marketing margin (Rs/ton) 2,092 1,982 26 (633) (2,203) (5,253) 1,624 1,610Subsidy under-recoveries (Rs mn) (28,078) (64,309) (95,361) (34,041) (64,486) (55,535) (44,387) (34,809)




Earnings sensitivity of IOC (standalone) to refining margins and marketing margins (Rs mn)

Fiscal 2010E Fiscal 2011E Fiscal 2012EDownside Base case Upside Downside Base case Upside Downside Base case Upside

Refining marginsRefining margins (US$/bbl) 3.1 4.1 5.1 3.1 4.1 5.1 4.0 5.0 6.0Net profits (Rs mn) 43,933 55,475 67,016 42,348 54,079 65,809 64,188 75,906 87,623EPS (Rs) 36.8 46.5 56.2 35.5 45.4 55.2 53.8 63.7 73.5% upside/(downside) (20.8) 20.8 (21.7) 21.7 (15.4) 15.4

Marketing marginsTransportation fuels margins (Rs/ton) 1581 1731 1881 1581 1731 1881 1597 1747 1897Net profits (Rs mn) 52,029 55,475 58,920 50,456 54,079 57,702 72,096 75,906 79,716EPS (Rs) 43.6 46.5 49.4 42.3 45.4 48.4 60.5 63.7 66.9% upside/(downside) (6.2) 6.2 (6.7) 6.7 (5.0) 5.0




Tata Motors: Stretched standalone financials tell only half the story;maintain Sell

• Tata Motors’ 4QFY09 earnings were worse than expected with adjusted net loss ofthe Rs859 mn on account of higher costs and interest expense

• We are reducing our FY2010E EPS to Rs15 from Rs19 to reflect higher interestexpense

• Balance sheet and cash flows: unsustainable capital structure requires debt to becut in half

• Raising our target price to Rs235 from Rs195 as we move to FY2011E earnings;maintain SELL

Tata Motors ended up with breakeven PAT for FY2009 excluding other income and one-time gains on sale of investments and technology transfers. 4QFY09 EBITDA came inbelow estimates. We lowered our EPS estimates for FY2010E and FY2011E to reflecthigher interest expense. Our FY2010E estimate implies margins improving to 9% from5.7% in FY09, 15% M&HCV and 10% LCV volume growth. We are raising our target toRs235 from Rs195 as we rolled forward our target to FY2011E consolidated (including JLR)earnings. Our target reflects 8X consolidated FY2011E EBITDA. At 6X net debt to EBITDAand 2.5X interest coverage, the company would need to cut its debt by half to achieve asustainable capital structure and would entail an equity placement to the tune of Rs80 bn.We are maintaining our SELL rating.

Tata Motors 4QFY09 adjusted net loss at Rs860 mn, worse than expected onhigher costs and interest expense

Tata Motors reported a PAT of Rs10 bn for the year, implying a PAT of Rs5.9 bn for thequarter. However, excluding the AS11 –related write back, income from technologytransfer and gain on bond buyback, we estimate adjusted PAT to be negative Rs859 mnversus our expectation of a positive Rs740 mn.

At the operating level, Tata Motors reported adjusted EBITDA of Rs3.5 bn versus ourexpectation of Rs4.3 bn, with the shortfall largely driven by higher other expenses.EBITDA margins came in at 5.2% for the quarter versus 6.3% a year ago and up from1.6% in 3QFY09. The sequential increase was largely driven by lower raw material costsand improved mix of higher margin CVs. Net revenues were down 23.4%yoy, in-line withthe 23% decline in volumes, implying flat realizations. Realizations improved 3%sequentially as the mix of M&HCVs improved.

Interest expense for the quarter came in at Rs2.5 bn versus Rs1.7 bn in the 3QFY09,despite net debt declining marginally on a sequential basis. This seems to be driven byhigher interest rates and the full quarter impact of higher debt in 3QFY09.

We are reducing our FY2010E EPS to Rs15 from Rs19 to reflect higher interestexpense

Tata Motors is taking the Rs4.2 bn secured NCD loan in its standalone books while usingthe proceeds to repay the JLR bridge. We raised our interest expense to reflect thatwithout assuming any additional income benefit from JLR on the higher investment. Weare also reducing our FY2011E EPS to Rs20 from Rs24 prior for similar reasons.

Our assumptions include a 10% volume growth for each of FY2010E and FY2011E



Promoters 41.7 - -

FIIs 20.2 0.4 0.1

MFs 2.7 0.3 (0.1)

UTI - - (0.3)

LIC 10.3 0.7 0.4

Automobiles

TAMO.BO, Rs337Rating



52W High -Low (Rs) 620 - 122



Sales (Rs bn) 254.7 282.5 346.0

Net Profit (Rs bn) 10.0 8.4 11.1

EPS (Rs) 20.8 15.2 20.0

EPS gth (58.3) (27.0) 32.2

P/E (x) 16.2 22.2 16.8

EV/EBITDA (x) 12.2 10.5 9.2

Div yield (%) 1.6 1.6 1.6

SELL

Cautious

Pricing performance


38.2 125.6 146.1 (40.4)



excluding the Nano. The growth is driven by a 15% increase in M&HCVs, 10% in CVsand 7% in passenger vehicles. On the margin front, we have modeled a 320 bps increasein EBITDA margins, driven by lower raw material costs. For FY2011E, we are modeling aslight 30bps decline in margins as Nano becomes a bigger portion of the mix.

Balance sheet and cash flows: unsustainable capital structure

Net debt to EBITDA at the end of FY2009 stood at 8.5X and interest coverage stood at2.1X EBITDA. These are unsustainable levels and we would expect to see some sort ofequity-raising, even at current stock price levels.

The company reported gross debt of Rs131.6 bn and net debt of Rs124 bn at the end ofFY2009. Net debt stood at Rs136 bn at the end of December 2008. Most of the declineseems to have come from a lower finance receivable book size on the Tata Motors’ books.Capex for the year totaled Rs40bn. The company reduced its capex outlook to Rs25-30bnannually for the next two years from Rs40bn prior.

Valuation: raising our target price to Rs235 from Rs195 as we move to FY2011Eearnings, reiterate Sell

Our Rs235 target is now based on consolidated (standalone + JLR) EBITDA, given the inter-mingling of debt between standalone and JLR books. Exhibit 1 explains how we arrive atour valuation. Our Rs235 target is based on 8X standalone + JLR EBITDA of Rs50bn forFY2011E.

While one can argue that the stock is currently trading only at a slightly higher 9X theseestimates, we would point out that FY2011E earnings are not trough earnings any more.Our Rs29.8 bn EBITDA estimate for standalone Tata Motors in FY2011E is within strikingdistance of the all-time high EBITDA of Rs30.2 bn reported in FY2007. For JLR we aremodeling EBITDA of over US$400 mn compared to an EBITDA loss of US$65 for FY2009Eand US$180 mn in FY2010E. A US$400 mn EBITDA would imply a 3.5% margin, whichseems conservative. However JLR has rarely made money (Exhibit2) and we would wary ofassuming a higher EBITDA margin. Additionally the non-availability of actual JLR financialsfor FY2009E keeps us unsure of the hole to begin with.

An ideal capital structure as defined by the company would require halving of the currentdebt. Assuming the company is able to raise equity to the tune of Rs80 bn at Rs350 pershare, we would arrive at a valuation of Rs275, assuming a similar EV/EBITDA multiple.

Exhibit 1: Stock valued for perfectionTata Motors, SOTP-based valuation, FY2011E basis (Rs mn)

EBITDA Multiple Value Value/share(Rs mn) (X) (Rs mn) (Rs) Comments

Tata Motors standalone EV 29761.06 8 238,088 428 Based on 8X FY2011E EBITDAJLR stadalone EV 20128.74 8 161,030 290 Based on 8X FY2011E EBITDALess: Net debt - standalone 166,955 300 standalone debt including Rs42 bn secured NCDLess: Net debt - JLR 122,754 221 $1bn rollover loan, after-tax pension underfunding, cash burn Total standalone implied equity value 109,410 197 Value of subsidiaries 40 SOTP-based value 237 Target price 235

Notes:(1) We have valued the subsidiaries and the investments in Tata Steel after considering 20% holding company discount.




Exhibit 2: We see JLR burning cash through FY2011E

Jaguar Land Rover income statement Jun-Dec'08 FY09E FY10E FY11EVolumes (000s) 125 257 219 243 Sales 6,312 13,383 10,858 12,052 RPU 50,677 51,995 49,626 49,626

Cost of sales R&D SG&AOtherEBIT (326) 299 (271) (31) EBITDA (64) 749 179 419

EBIT WalkPrior year EBIT 649 299 (271) Volume (286) (386) 241 Pricing (64) (518) - Cost - 334 - Current EBIT 299 (271) (31) Jun-Mar'09 EBIT to Tata Motors (326)

Jaguar Land Rover cash flow statementNet Income (276) 162 (288) (119) D&A 263 450 450 450Working capital (150) (180) — —Operating cash flow (163) 432 162 331

Capex (225) (375) (450) (450) Pension contributionFree cash flow (388) 57 (288) (119)

Exhibit 3: 2009 sales volumes show some improvementJLR Europe volumes 2007 to date


0

4,000

8,000

12,000

16,000

20,000

24,000

Jan-

07

Feb-

07

Mar

-07

Apr

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep-

07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Feb-

08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

Jaguar Land Rover



Tata Motors, Volume details, March fiscal year-ends, 2005-2011E (Rs mn)

2005 2006 2007 2008 2009 2010E 2011EM&HCVs 135,187 136,871 184,997 179,400 123,011 140,996 161,632 M&HCVs-domestic 129,256 128,610 172,842 166,037 113,674 130,725 150,334 M&HCVs-exports 5,931 8,261 12,155 13,363 9,337 10,271 11,298

LCVs 74,235 108,151 149,241 173,434 168,495 184,487 202,035 LCVs-domestic 60,757 86,226 125,744 147,334 151,338 166,472 183,119 LCVs-exports 13,478 21,925 23,497 26,100 17,157 18,015 18,916

UVs 37,032 39,791 49,306 50,299 39,981 42,753 45,731 UVs-domestic 34,249 37,910 47,892 47,700 39,303 42,054 44,998 UVs-exports 2,783 1,881 1,414 2,599 678 698 733

Passenger vehicles 152,641 169,280 196,736 179,268 166,660 228,326 487,243 Passenger vehicles-domestic 144,831 151,160 180,328 167,058 160,422 171,652 180,234 Passenger vehicles-exports 7,810 18,120 16,408 12,210 6,238 6,675 7,008 Small car 50,000 300,000

Total domestic sales 369,093 403,906 526,806 528,129 464,737 560,903 858,685 Total export sales 30,002 50,187 53,474 54,272 33,410 35,659 37,955 Total vehicle sales 399,095 454,093 580,280 582,401 498,147 596,561 896,640

Volume growth (yoy %)M&HCVs 25.5 1.2 35.2 (3.0) (31.4) 14.6 14.6 M&HCVs-domestic 25.2 (0.5) 34.4 (3.9) (31.5) 15.0 15.0 M&HCVs-exports 31.7 39.3 47.1 9.9 (30.1) 10.0 10.0

LCVs 34.1 45.7 38.0 16.2 (2.8) 9.5 9.5 LCVs-domestic 23.9 41.9 45.8 17.2 2.7 10.0 10.0 LCVs-exports 112.9 62.7 7.2 11.1 (34.3) 5.0 5.0

UVs 8.7 7.5 23.9 2.0 (20.5) 6.9 7.0 UVs-domestic 7.5 10.7 26.3 (0.4) (17.6) 7.0 7.0 UVs-exports 25.1 (32.4) (24.8) 83.8 (73.9) 3.0 5.0

Passenger vehicles 30.4 10.9 16.2 (8.9) (7.0) 37.0 113.4 Passenger vehicles-domestic 33.9 4.4 19.3 (7.4) (4.0) 7.0 5.0 Passenger vehicles-exports (12.2) 132.0 (9.4) (25.6) (48.9) 7.0 5.0 Small car

Total domestic sales 26.3 9.4 30.4 0.3 (12.0) 20.7 53.1 Total export sales 36.7 67.3 6.5 1.5 (38.4) 6.7 6.4 Total vehicle sales 27.0 13.8 27.8 0.4 (14.5) 19.8 50.3



Tata Motors, Profit model, balance sheet and cash flow model, March fiscal year-ends, 2006-2011E (Rs mn)

2006 2007 2008E 2009E 2010E 2011EProfit model (Rs mn)Net sales 205,241 272,618 285,219 254,712 282,458 345,995

EBITDA 23,822 30,191 28,191 14,463 25,072 29,761 Other income 4,184 4,535 6,921 11,155 8,389 8,941

Interest (2,264) (3,131) (2,824) (6,736) (12,389) (12,527)

Depreciaiton (5,209) (5,863) (6,523) (8,745) (10,534) (12,240)

Profit before tax 20,534 25,732 25,765 10,137 10,539 13,935 Current tax (3,824) (4,825) (1,460) (608) (685) (906)

Deferred tax (1,422) (1,772) (4,015) 483 (1,423) (1,881)

Net profit 15,289 19,135 20,289 10,012 8,431 11,148 Earnings per share (Rs) 39.2 47.0 49.8 20.8 15.2 20.0 Balance sheet (Rs mn)Equity 55,371 68,698 78,395 126,268 131,090 138,629

Deferred tax liability 6,225 7,868 9,757 9,274 10,697 12,578

Total Borrowings 29,368 40,091 62,805 131,500 173,500 173,500

Current liabilities 69,419 77,280 106,566 97,638 102,125 108,041

Total liabilities 160,383 193,937 257,524 364,680 417,411 432,748 Net fixed assets 45,212 63,946 104,523 135,777 152,743 165,503

Investments 20,152 24,770 49,103 120,603 157,603 157,603

Cash 11,194 8,268 23,973 7,419 9,907 6,546

Other current assets 83,684 96,853 79,865 100,821 97,098 103,036

Miscellaneous expenditure 141 101 61 61 61 61

Total assets 160,383 193,937 257,524 364,680 417,411 432,748 Free cash flow (Rs mn)Operating cash flow excl. working capital 20,981 26,621 24,631 13,855 24,387 28,855

Working capital changes (23,191) (4,520) 37,114 (29,884) 8,209 (22)

Capital expenditure (11,095) (23,660) (43,719) (40,000) (27,500) (25,000)

Free cash flow (13,305) (1,559) 18,026 (56,029) 5,096 3,833 RatiosDebt/equity (X) 0.5 0.5 0.7 1.0 1.2 1.1

Net debt/equity (X) 0.2 0.3 0.1 0.1 0.1 0.2

RoAE (%) 28.3 27.7 24.7 9.0 6.1 7.6

RoACE (%) 20.9 20.7 16.8 8.0 6.3 6.6

Source: Company, Kotak Institutional Equities estimates.



Interim results of Tata Motors (standalone), March fiscal year-ends (Rs mn)

(% chg.)4QFY09 4QFY09E 4QFY08 3QFY09 4QFY09E 4QFY08 3QFY09 2009 2008 (%chg)

Net sales 67,053 62,244 87,495 47,586 7.7 (23.4) 40.9 254,712 287,308 (11.3) Total expenditure (59,906) (57,036) (79,547) (44,982) 5.0 (24.7) 33.2 (237,215) (258,000) (8.1) Inc/(Dec) in stock (3,684) (932) (2,458) (1,825) 295.3 49.9 101.8 (2,380) (405) 488.0 Raw materials (45,314) (44,160) (61,184) (34,036) 2.6 (25.9) 33.1 (183,989) (201,902) (8.9) Staff cost (3,638) (3,723) (4,155) (3,709) (2.3) (12.4) (1.9) (15,514) (15,446) 0.4 Other expenditure (10,954) (9,153) (14,208) (7,237) 19.7 (22.9) 51.4 (37,712) (40,652) (7.2) EBITDA 3,463 4,276 5,490 779 (19.0) (36.9) 344.4 15,117 28,904 (47.7) OPM (%) 5.2 6.9 6.3 1.6 5.9 10.1 Other income 816 834 2,344 517 (2.2) (65.2) 57.7 4,057 4,832 (16.0) Interest (2,447) (2,090) (126) (1,684) 17.1 1,849.6 45.3 (6,737) (2,824) 138.6 Depreciation (2,892) (2,198) (1,776) (2,017) 31.6 62.8 43.4 (8,745) (6,523) 34.1 Pretax profits (1,060) 821 5,933 (2,404) (229.0) (117.9) (55.9) 3,692 24,389 (84.9) Extraordinaries 8,357 - 1,048 (1,787) 697.5 (567.6) 6,446 1,376 Tax (1,384) (82) (1,618) 1,559 1,584.9 (14.5) (188.8) (125) (5,476) (98) Net income 5,914 739 5,363 (2,633) 700.0 10.3 (324.6) 10,013 20,289 (50.7) Income tax rate (%) 19.0 10.0 23.2 37.2 1.2 21.3

RatiosRM to sales (%) 71.0 70.9 69.9 71.0 73.2 70.4 EBITDA margin (%) 5.2 6.9 6.3 1.6 5.9 10.1 Net profit margin (%) 8.8 1.2 6.1 (5.5) 3.9 7.1 ETR (%) 19.0 10.0 23.2 37.2 1.2 21.3 EPS (Rs) 12.3 1.3 - (5.5) 20.8 49.9 Other detailsSales volumes (# vehicles) 135,227 135,227 175,472 98,760 498,147 582,401 (14.5) Net sales realisation (Rs/vehicle) 541,416 521,317 573,786 535,772 570,308 568,233 0.4

Source: Company data, Kotak Institutional Equities



BPCL: In-line 4QFY09 results; frenzy continues on expectation ofderegulation

• Strong 4QFY09 results boosted by oil bonds

• No merit in analyzing quarterly results given volatility in compensation

• Fine-tuned estimates; maintain SELL with revised 12-month TP of Rs475 (Rs450previously)

BPCL reported 4QFY09 net income at Rs36.3 bn versus our estimate of Rs34.6 bn; thevariance was due to (1) lower employee costs at Rs1.5 bn versus Rs3.6 bn assumed by usand (2) moderately higher refining margins. We have made modest earnings revisions forFY2010E, FY2011E and FY2012E EPS to Rs32.1, Rs41.8 and Rs67.5 versus Rs30.3, Rs39.5and Rs64.3. We see limited merit in analysis of quarterly results for downstreamcompanies as earnings can highly fluctuate depending on quantum and timing of receiptof oil bonds. We are perplexed by the continued frenzy triggered by likely deregulation ofauto fuel prices. We see deregulation, if any as positive for the sector; however, we see noupside to the fair valuations of R&M companies even in case of full deregulation. Wecompute BPCL's fair valuation in a normalized scenario at Rs458 (see Exhibit 2). We retainour SELL rating with a revised 12-month fair valuation of Rs475 (Rs450 previously) basedon 8X FY2011E EPS plus value of treasury shares and other investments. Key upside riskstems from higher-than-expected refining margins.

Strong 4QFY09 results boosted by receipt of oil bonds; decent operatingperformance as well. BPCL reported 4QFY09 EBITDA at Rs41.7bn versus Rs15.5 bn in3QFY09 and Rs8.6 bn in 4FY08; our estimate was at Rs35.8 bn. The strong performancewas due to (1) receipt of oil bonds of Rs20.7 bn and (2) good refining margins at US$4.9/bbl. We do not see merit in comparison of quarterly results given high volatility in timingand quantum of oil bonds and contribution form upstream companies.

Nonetheless, the operating performance was decent despite inventory loss of Rs3.7 bn in4QFY09. BPCL’s overall 4QFY09 refining margin was US$4.9/bbl versus US$4.8/bbl in3QFY09 and US$5/bbl in 4QFY08. BPCL sold 7.1 mn tons of products in 4QFY09 (+1.7%yoy and +3.7% qoq) and 27.2 mn tons in FY2009 (+5.3% yoy) led by strong demand fordiesel (+10.9% yoy), gasoline (+10.8% yoy) and LPG (+3.4%).

Other financial and operating details of 4QFY09 and FY2009 results and keyassumptions behind earnings model1. Refining margins. BPCL’s overall 4QFY09 refining margin was US$4.9/bbl versus

US$4.8/bbl in 3QFY09 and US$5/bbl in 4QFY08. BPCL’s FY2009 refining margin wasUS$5.2/bbl versus US$5.6/bbl in FY2008. We expect refining margins to decline inFY2010-11E due to (1) global demand weakness and (2) significant refining capacityadditions in CY2009-10 (3.5 mn b/d plus 1.0 mn b/d of additional NGL supply). Wemodel refining margin for BPCL at US$3.2/bbl in FY2010E, US$3.8/bbl in FY2011E andUS$4.7/bbl in FY2012E.

2. Compensation (oil bonds) from the government. BPCL booked oil bonds forRs20.7 bn in 4QFY09 versus Rs36 bn in 3QFY09 and Rs39.7bn in 4QFY08. Based onthe share of oil bonds for BPCL in FY2009 (22.75%), we model BPCL will receive Rs27bn, Rs27 bn and Rs28 bn of oil bonds in FY2010E, FY2011E and FY2012E, respectively,based on total issue of Rs120 bn, Rs120 bn and Rs125 bn of bonds to the industry inFY2010E, FY2011E and FY2012E, respectively.



Promoters 64.3 - -

FIIs 8.4 0.3 (0.2)

MFs 6.9 1.1 0.5

UTI - - (0.5)

LIC 9.3 1.0 0.5

Energy

BPCL.BO, Rs465Rating



52W High -Low (Rs) 516 - 206



Sales (Rs bn) 1,353 885.1 920.9


EPS (Rs) 20.4 32.1 41.8

EPS gth (50.7) 57.8 30.1

P/E (x) 22.8 14.5 11.1

EV/EBITDA (x) 5.2 5.2 4.7

Div yield (%) 1.7 2.8 3.7

SELL

Neutral

Pricing performance


19.9 21.4 30.8 30.1



3. Refining throughput in 4QFY09. BPCL’s two refineries processed 4.9 mn tons ofcrude in 4QFY09 compared to 4.8 mn tons in 3QFY09 and 5 mn tons in 4QFY08.BPCL’s Mumbai refinery processed 12.3 mn tons of crude in FY2009 and its Kochirefinery processed 7.7 mn tons of crude. We model crude throughput at 21 mn tons inFY2010E and 22.7 mn tons in FY2011E. BPCL will expand its refining capacity (Kochirefinery) by 2 mtpa in FY2011E, which will boost its throughput significantly.

4. 45% yoy increase in employee costs. BPCL’s FY2009 employee cost increased toRs18.8 bn (+45% yoy). The steep increase reflects provision of Rs1.1 bn for estimatedliability due to pending pay revision of staff from January 1, 2007. We highlight thatthere has been a wide fluctuation in this line item due to provisioning of estimatedliability for pay revisions and other one-off items.

5. Dividend. BPCL declared a dividend of Rs7/share for FY2009 versus Rs 4/share inFY2008.

Interim results of Bharat Petroleum, March fiscal year-ends (Rs mn)

(% chg) yoy4QFY09 4QFY09E 4QFY08 3QFY09 4QFY09E 4QFY08 3QFY09 2009 2008 % chg

Net sales 265,253 313,896 325,786 319,080 (15.5) (18.6) (16.9) 1,353,315 1,105,468 22.4Increase/(decrease) in stock (12,156) (2,841) (38,713) (15,759) (3,925)Raw material (81,954) (170,598) (128,568) (108,822) (52.0) (36.3) (24.7) (539,369) (489,219) 10.3Trading purchase (108,409) (118,377) (167,363) (140,027) (8.4) (35.2) (22.6) (678,678) (526,646) 28.9Staff cost (1,487) (3,580) (4,550) (7,540) (58.5) (67.3) (80.3) (18,849) (12,972) 45.3Other expenses (19,514) 14,455 (13,864) (8,533) (235.0) 40.8 128.7 (72,349) (42,980) 68.3Total expenditure (223,519) (278,100) (317,186) (303,636) (19.6) (29.5) (26.4) (1,325,004) (1,075,742) 23.2EBITDA 41,734 35,797 8,600 15,445 16.6 385.3 170.2 28,310 29,726 (4.8)Other income 5,901 6,348 1,343 2,766 (7.0) 339.4 113.3 14,150 12,394 14.2Interest (6,149) (2,254) (2,156) (7,161) 172.8 185.2 (14.1) (21,664) (6,725) 222.1Depreciation (2,631) (2,519) (3,319) (3,014) 4.5 (20.7) (12.7) (10,755) (10,982) (2.1)Pretax profits 38,854 37,372 4,468 8,036 4.0 769.6 383.5 10,041 24,413 (58.9)Extraordinary item — — — — — 1,560Tax (2,574) (1,636) (3,486) (38) (2,682) (9,059)Deferred tax — (1,165) (398) — — (1,108)Net income 36,280 34,571 584 7,998 4.9 6,112.4 353.6 7,359 15,806 (53.4)Adjusted net income 36,280 34,571 584 7,998 4.9 6,112.4 353.6 7,359 14,857 (50.5)Tax rate (%) 6.6 7.5 86.9 0.5 26.7 39.1

Volume dataCrude throughput (mn tons) 4.9 5.0 4.8 (2.8) 1.0 19.9 21.0 (4.8)Domestic sales volume (mn tons) 7.1 7.0 6.8 1.7 3.7 27.2 25.8 5.3Refining margin (US$/bbl) 4.9 6.8 (0.3) 5.2 5.6 Inventory gain/(loss) (3,670) 3,500 (15,330) (21,000) 10,000Receipt from upstream companies 2,379 23,692 12,401 75,564 59,751Reciept of oil bonds from government 20,696 39,715 35,984 162,164 85,895Subsidy gain/(loss) 11,000 (69,500) (28,000) (235,000) (179,000)

Source: Company, Kotak Institutional Equities estimates



Normalized marketing margins show no upside from current levelsComparison of normalized marketing margins with FY2010 estimates (Rs/ton)

2010E NormalizedLPG (9,282) 1,500Naphtha 1,000 400Gasoline 1,688 1,900Jet fuel 1,400 1,400Kerosene (16,784) 600Diesel 1,500 1,500Light diesel oil 1,200 500Low sulphur heavy stock 700 500Fuel oil 700 500Bitumen 2,000 1,000EPS (Rs) 32.1 46.5 EBITDA (Rs bn) 30.7 38.5 EV (5X normalised EBITDA) (Rs bn) 193 Value of investments (Rs bn) 49 Net debt (Rs bn) 76 Equity value (Rs/share) 458 Current target price 475

Note: (a) Our normalized earnings estimates are based on normalized marketing margins and actual refining margin estimates for FY2010E.


Earnings sensitivity of BPCL to refining margins and marketing margins, March fiscal year-ends (Rs mn)

Fiscal 2010E Fiscal 2011E Fiscal 2012EDownside Base case Upside Downside Base case Upside Downside Base case Upside

Refining marginsRefining margins (US$/bbl) 2.2 3.2 4.2 2.8 3.8 4.8 3.7 4.7 5.7Net profits (Rs mn) 6,718 11,610 16,502 9,888 15,104 20,321 19,209 24,398 29,586EPS (Rs) 18.6 32.1 45.6 27.3 41.8 56.2 53.1 67.5 81.8% upside/(downside) (42.1) 42.1 (34.5) 34.5 (21.3) 21.3

Marketing marginsAuto fuels marketing margin (Rs/ton) 1,388 1,538 1,688 1,391 1,541 1,691 1,412 1,562 1,712Net profits (Rs mn) 9,961 11,610 13,259 13,370 15,104 16,839 22,573 24,398 26,223EPS (Rs) 27.6 32.1 36.7 37.0 41.8 46.6 62.4 67.5 72.5% upside/(downside) (14.2) 14.2 (11.5) 11.5 (7.5) 7.5




Consolidated profit model, balance sheet, cash model of BPCL, March fiscal year-ends, 2004-2011E (Rs mn)

2004 2005 2006 2007 2008 2009E 2010E 2011EProfit model (Rs mn)Net sales 479,840 578,774 755,333 965,569 1,102,081 1,353,315 885,105 920,944EBITDA 38,686 26,231 9,407 35,362 28,472 28,311 30,650 36,848Other income 4,348 4,015 4,653 7,332 13,954 14,150 13,201 8,256Interest (1,447) (1,748) (2,474) (4,774) (6,725) (21,664) (16,109) (10,325)Depreciation (6,754) (7,130) (7,680) (9,041) (10,982) (10,756) (10,154) (11,897)Pretax profits 34,833 21,368 3,906 28,879 24,719 10,041 17,588 22,882Extraordinary items (420) 810 176 (68) — — — —Tax (12,026) (7,250) (140) (9,286) (9,059) (2,682) (3,699) (6,016)Deferred taxation (805) (1,230) (1,025) (268) (1,108) — (2,280) (1,762)Net profits 21,582 13,698 2,916 18,055 15,806 7,359 11,610 15,104Net profits after minority interests 19,086 11,334 2,916 18,055 15,806 7,359 11,610 15,104Earnings per share (Rs) 64.6 37.2 7.6 50.1 43.7 20.4 32.1 41.8

Balance sheet (Rs mn)Total equity 69,960 82,887 91,394 102,735 116,768 121,166 127,701 136,201Deferred taxation liability 11,304 12,533 13,558 13,826 14,814 14,814 17,093 18,855Total borrowings 32,701 46,589 83,736 108,292 150,224 218,186 132,263 94,763Currrent liabilities 95,495 104,462 94,070 112,767 145,803 128,566 110,165 115,838Total liabilities and equity 209,459 246,472 282,758 337,620 427,608 482,732 387,222 365,657Cash 9,319 6,644 4,921 8,640 9,616 842 6,680 8,108Current assets 97,729 130,393 128,208 127,698 187,457 176,721 140,779 144,187Goodwill — — — — — — — —Total fixed assets 88,484 98,542 110,855 118,334 127,354 137,855 171,699 170,298Investments 13,927 10,893 38,774 82,949 103,182 167,314 68,064 43,064Total assets 209,459 246,472 282,758 337,621 427,608 482,732 387,222 365,657

Free cash flow (Rs mn)Operating cash flow, excl. working capital 30,727 21,118 9,275 29,920 22,988 3,965 10,842 20,507Working capital 1,025 (18,393) 1,577 11,451 (25,161) (19,516) 19,161 3,516Capital expenditure (17,001) (17,120) (19,945) (17,908) (20,665) (21,257) (43,998) (10,497)Investments 1,278 2,992 (28,146) (45,481) (21,684) (64,132) 99,250 25,000Other income 1,985 2,445 1,785 4,337 6,434 27,164 11,581 7,005Free cash flow 18,015 (8,957) (35,455) (17,682) (38,088) (73,775) 96,836 45,532

Ratios (%)Debt/equity 40.2 48.8 91.6 105.4 128.7 180.1 103.6 69.6Net debt/equity 28.8 41.9 86.2 97.0 120.4 179.4 98.3 63.6RoAE 28.8 14.4 3.3 16.3 12.7 5.5 8.3 10.1RoACE 21.2 12.0 4.1 11.0 7.9 7.3 8.4 9.3

Key assumptions (standalone until FY2005)Crude throughput (mn tons) 8.8 9.1 17.2 19.8 20.9 20.0 21.2 22.7Effective tariff protection (%) 7.2 4.8 2.9 1.6 1.4 2.3 2.3 2.3Net refining margin (US$/bbl) 4.2 3.8 2.1 3.1 5.6 5.2 3.2 3.8Sales volume (mn tons) 20.9 21.5 23.3 24.5 26.7 28.2 29.3 30.5Marketing margin (Rs/ton) 1,893 1,732 (671) (1,140) (3,010) (5,860) 1,427 1,381Subsidy under-recoveries (Rs mn) (13,518) (25,821) (31,847) (20,159) (26,680) (25,251) (14,311) (8,686)




Lanco Infratech: 4QFY09—Project execution reflects in constructionrevenues; await commercialization of capacities

• Earnings from extant power business stable, await commissioning of Amarkantak

• Construction revenues grow 182% yoy, real estate earnings in the red

• Revise rating to ADD with target price of Rs360/share

Lanco Infratech (LITL) reported consolidated sales of Rs20.5 bn (our est. Rs17.3 bn), andnet profit of Rs1.1 bn (our est. Rs1.2 bn) during 4QFY09. Reported profits were lower byRs246 mn due to forex losses incurred during the quarter. Implementation of Kondapalliextn project contributed to 183% yoy increase in construction revenues. Lower powertrading during the quarter resulted in sequential decline in power revenues. We haverevised our rating to ADD (from BUY) as the stock is trading close to our SOTP-basedtarget price of Rs360/share (Rs270/share previously). We have revised our earning estimateto Rs18.1 (Rs17.1 previously) for FY2010E and Rs33.8 (Rs24.9 previously) for FY2011E.Changes to earnings largely emanate from inclusion of revenues from the Kondapalli Extnproject. Key risks to our estimates stem from (1) delay in commissioning of power projects,(2) lower margins in construction business, and (3) demand slowdown in property businesson account of lower affordability.

Revise rating to ADD—target price increased due to inclusion of Kondapalli Extn.The recent rally in the stock price of LITL offers limited upside to our revised target price ofRs360/share. The revision in our target price emanates largely from the 370 MW gas-basedproject at Lanco Kondapalli extn. We have included the gas-based project in our financialmodel due to—(1) strong execution of the project (capex of Rs5.5 bn incurred so far), (2)inclusion of the project in the EGOM list for allocation of gas from Reliance’s KG-D6 basinand (3) a favorable political environment. The premium valuation for the project is due tohigh leverage (entirely debt financed) and benefit accruing from merchant tariffs as earlyas the end of the current fiscal.

Our SOTP-based value of Rs360/share includes—(1) DCF-equity of power project portfolioat Rs204/share, (2) construction business valued at Rs120/share at EV/EBITDA of 6X onFY2011E, (3) real estate project at 50% of NAV ~Rs23/share, (4) DCF-equity of BOT roadprojects at Rs5/share and (5) value from sale of carbon credits (Rs8/share).

Power—Amarkantak I synchronized, commercial generation likely from nextquarter. LITL reported net revenues of Rs7 bn (up 14% yoy) and EBIT of Rs1 bn (1.0 bn in4QFY08) from the power business for 4QFY09. Use of higher cost naphtha fuel alsocontributed to inflation of revenues. Sequential decline in power revenues is attributed tolower revenues from power trading business, which does not contribute significantly tooperating profits.

We note that commercial generation from the first unit at Amarkantak (300 MW) hasbeen delayed, although the project has now been synchronized and will likely contributeto earnings from the next quarter. During the year, LITL commissioned 5 MW of VamshiHydro plant in Himachal Pradesh, commercial generation from which contributed Rs2 mnto power revenues. LITL has so far incurred a capex of Rs86 bn (funded by debt of Rs56bn) towards the 3,900 MW of power projects currently under construction. These projectswill likely commission in a phased manner by 2012/13.



Promoters 73.6 - -

FIIs 12.7 0.1 (0.0)

MFs 0.5 0.0 (0.1)

UTI - - (0.1)

LIC 2.4 0.1 (0.1)

Utilities

LAIN.BO, Rs370Rating



52W High -Low (Rs) 520 - 83



Sales (Rs bn) 60.6 58.2 98.4


EPS (Rs) 14.5 18.1 33.8

EPS gth (2.9) 29.4 101.7

P/E (x) 25.6 20.4 10.9

EV/EBITDA (x) 23.1 17.6 8.3

Div yield (%) - - -

ADD

Attractive

Pricing performance


66.7 193.2 231.3 (25.5)



Construction—execution at Kondapalli contributes to revenue growth

Income from construction grew 182% yoy and 78% qoq to Rs18.5 bn. EBIT margins inconstruction business at 12.8% during 4QFY09 were significantly lower than marginsachieved in FY2008, but in line with margins reported in 3QFY09 and guidance given bythe management. Construction revenues were aided by ramp up of execution of powerprojects at Kondapalli extn., Nagarjuna and Anpara C. The order book for the constructionbusiness at Rs103 bn provides good visibility (3X FY2010E revenues) for the next fewyears. The order book includes Rs85 bn from power projects and balance frominfrastructure projects. We value the construction business at 6X EV/EBITDA on FY2011Eearnings of Rs5.1 bn, yielding an enterprise value of Rs30.6 bn and equity value of Rs26.5bn.

Spent Rs13.7 bn so far on real estate—largely debt funded

Lanco reported real estate revenues of Rs179 mn for 4QFY09 compared to Rs1.2 bnduring 4QFY08. EBIT losses of Rs214 mn during the quarter are likely due to lowerrevenue recognition and increase in the cost of construction. For FY2009, the real estatedivision is just break even ay EBIT level on revenues of Rs1.6 bn. As per management, thereal estate division has so far incurred a capex of Rs13.7 bn, has advances of Rs3.6 bn anda net debt position of Rs7.3 bn.

LITL is developing 3 mn sq.ft of residential space at Lanco Hills out of which about 2 mnsq. ft has been sold. Our valuation includes the residential projects and only 1.5 mn sq. ftof under construction commercial projects. While the residential construction typicallydoes not require external funding for construction, we are not considering the remainingcommercial and retail projects as these are capital intensive and we would value them asand when these projects are launched. We assign a value of Rs23/share based on NAV ofthe residential projects and under-construction commercial projects.



Lanco Infratech (Consolidated), Quarterly performance, March year-ends (Rs mn)

(% Chg.)4QFY09 4QFY09E 4QFY08 3QFY09 4QFY09E 4QFY08 3QFY09 FY2009 FY2008 (%

Net sales 20,534 17,309 12,249 18,201 19 68 13 60,592 32,413 87 Construction, generation and operating expenses (16,756) (8,794) (15,111) (23,708) Personnel costs (493) (337) (531) (874) Other expenses and provisions (270) (319) (473) (926) Total expenses (17,520) (9,451) (16,115) (51,846) (25,507) EBITDA 3,015 2,799 2,086 8 44 8,745 6,905 27 Depreciation (330) (228) (295) (1,073) (776) EBIT 2,685 2,571 1,792 7,672 6,129 Other income 178 428 195 691 708 Net interest (529) (187) (496) (1,773) (832) PBT 2,334 2,812 1,490 (17) 57 6,590 6,005 10 Tax (681) (762) (410) (1,690) (1,405) Profit before Minority Interest 1,653 2,050 1,080 (19) 53 4,899 4,600 6 Minority interest (508) (456) (608) (1,684) (1,304) Net Profit 1,145 1,281 1,595 472 (11) (28) 143 3,216 3,296 (2) Extraordinary income (loss) (246) - 318 (412) 245

EBITDA margin (%) 14.7 22.8 11.5 14.4 21.3 Effective tax rate (%) 29.2 27.1 27.5 25.7 23.4

Segment RevenuesConstruction 18,544 6,584 10,434 182 78 40,512 15,560 160 less inter-segment revenues (5,255) (1,820) (1,805) 189 191 (8,747) (2,123) Net construction revenues 13,289 4,764 8,629 179 54 31,765 13,437 136 Power 7,039 6,180 9,101 14 (23) 27,149 17,631 54 Property development 179 1,288 445 (86) (60) 1,574 1,288 22 Others 54 (94) 27 (157) 101 231 (56) Net revenues 20,561 12,249 18,202 68 13 60,720 32,413

EBITConstruction 2,375 1,783 1,247 33 90 5,445 2,971 83 Power 1,044 638 696 64 50 3,203 2,560 25 Property development (214) 442 15 (148) (1,558) 91 328 (72)

EBIT Margin (%)Construction 12.8 27.1 12.0 13.4 18.9 Power 14.8 10.3 7.6 11.8 14.6 Property Development (119.3) 34.3 3.3 5.8 31.6


Lanco Infratech (Standalone), Quarterly performance, March year-ends (Rs mn)

(% Chg.)4QFY09 4QFY08 3QFY09 4QFY08 3QFY09 FY2009 FY2008 (% Chg.)

Net sales 18,544 6,619 10,434 180 78 40,512 15,745 157 Total expenses (16,167) (4,838) (9,147) (35,155) (12,605) EBITDA 2,377 1,780 1,287 33 85 5,358 3,141 71 Depreciation (157) (51) (115) (405) (116) EBIT 2,220 1,730 1,172 4,952 3,025 Other income 115 71 84 464 291 Net interest (470) (148) (377) (1,386) (345) PBT 1,865 1,653 878 13 112 4,030 2,971 36 Tax (671) (553) (291) (1,382) (889) Net Profit 1,194 1,100 587 9 103 2,649 2,082 27

EBITDA margin (%) 12.8 26.9 12.3 13.2 19.9 Effective tax rate (%) 36.0 33.5 33.1 34.3 29.9




Lanco: Profit model, balance sheet, cash model 2006-2011E, March fiscal year-ends (Rs mn)

2006 2007 2008 2009E 2010E 2011EProfit model (Rs mn)

Net sales 1,471 16,058 32,413 60,592 58,249 98,414

EBITDA 167 4,198 6,993 8,745 12,652 28,584

Other income 13 416 708 691 1,056 636

Interest (36) (829) (920) (1,773) (3,436) (9,881)

Depreciation (19) (656) (776) (1,073) (2,306) (5,543)

Pretax profits 125 3,130 6,005 6,590 7,966 13,796

Tax (33) (471) (1,404) (1,690) (2,172) (2,965)

Minority Interest 79 (778) (1,304) (1,684) (1,771) (3,312)

Net profits 171 1,881 3,297 3,216 4,023 7,520

Extraordinary items (0) (1) 245 (412) — —

Earnings per share (Rs) 5.5 8.5 14.8 14.4 18.1 33.8

Balance sheet (Rs mn)

Total equity 954 15,105 18,333 21,587 26,144 34,004

Deferred taxation liability 31 92 173 186 901 3,635

Total borrowings 1,495 20,821 37,200 130,135 159,898 175,389

Currrent liabilities 1,581 11,424 27,038 35,069 30,477 36,054

Minority Interest 41 41 41 41 41 42

Total liabilities and equity 4,101 47,482 82,785 187,018 217,461 249,124

Cash 414 5,050 7,411 7,733 8,895 19,049

Current assets (excl cash) 2,264 12,013 30,379 37,406 36,378 44,304

Total fixed assets 409 24,390 38,029 141,073 171,383 184,966

Investments 1,015 6,029 6,966 804 803 803

Deferred Expenditure 0 0 0 1 1 1

Total assets 4,101 47,482 82,785 187,018 217,461 249,124

Free cash flow (Rs mn)

Operating cash flow, excl. working capital 120 3,739 5,632 6,876 11,116 24,788

Working capital (230) 95 (2,752) 1,004 (3,564) (2,349)

Capital expenditure (211) (24,637) (14,415) (104,117) (32,616) (19,126)

Investments (419) (5,014) (936) 6,161 1 —

Free cash flow (740) (25,817) (12,472) (90,076) (25,064) 3,313




SOTP value of Rs270/shareEquity value

Gross Attributable Est. CoD (Rs mn) (Rs mn) P/BV (X) (%) (Rs mn) (Rs/share)Operating power plantsLanco Kondapalli 368 217 6,151 3,400 1.8 59 3,629Aban Power 120 61 1,832 1,318 1.4 51 935Lanco Electric Utility (Power trading) 920 212 4.3 100 917Power plants under constructionLanco Amarkantak 600 456 Jun-09/Jan-10 9,623 5,598 1.7 76 7,314Lanco Green 70 63 Mar-10 1,197 840 1.4 90 1,078Vamshi Hydro 10 9 Mar-09 142 155 0.9 91 129Vamshi Industrial 10 9 Jul-09 202 153 1.3 91 184Nagarjuna Power 1,200 1,200 Apr-10/Sep-10 15,971 9,600 1.7 100 15,971Lanco Energy - Teesta VI 500 370 Sep-12 7,201 5,900 1.2 74 5,329Anpara 'C' 1,200 1,200 Jun-11/Sept-11 8,123 8,800 0.9 100 8,123Lanco Kondapalli extn. (366 MW) 366 216 Dec-09 14,904 59 8,793Power projects being soldClarion Power 12 12 98 345Rithwik Power 6 6 94 152Sub total 4,444 3,801 66,266 35,976 1.8 52,898 238Net equity funding requirement (7,612) (34)Power (A) 45,286 204Construction (B) 25,729 116Property development (C) 5,117 23Road projects (D) 1,006 5Carbon credits (E) 1,340 6Grand total (A+B+C+D+E) 78,477 353


Attributable valueCapacity (MW) Equity Inv.



Segmental breakup of LITL financials, March fiscal year-ends (Rs mn)

2007 2008 2009E 2010E 2011E 2012ERevenue flows

Power 10,990 17,501 27,168 30,258 61,257 78,452 Construction 5,417 15,745 40,512 35,266 40,888 41,468 Real estate — 1,039 1,732 1,542 3,220 5,649 Less inter-segmental (349) (1,873) (8,821) (8,816) (6,951) (7,050) Total 16,058 32,413 60,592 58,249 98,414 118,519

EBITDA flowsPower 3,216 3,706 3,818 8,711 23,512 32,085 Construction 1,141 3,141 5,358 4,814 4,968 4,209 Real estate — 341 514 331 949 1,911 Less inter-segmental (52) (281) (1,167) (1,203) (844) (715) Total 4,305 6,907 8,523 12,652 28,584 37,489 Attributable EBITDA 3,056 5,576 8,033 9,839 19,784 27,411

Net profitPower 1,454 2,260 2,129 4,128 8,725 11,797 Minority interest (576) (939) (831) (1,462) (3,077) (3,170) Attributable PAT from Power 877 1,321 1,298 2,666 5,648 8,627 Construction 732 2,002 2,649 2,135 2,004 1,575 Less inter-segmental (52) (281) (450) (534) (341) (268) Attributable PAT from Construction 679 1,721 2,198 1,601 1,663 1,307 Real estate — 218 288 59 452 517 Minority interest — (57) (75) (15) (117) (134) Attributable PAT from Real Estate — 161 213 44 334 383 Attributable profit 1,557 3,203 3,709 4,311 7,645 10,317

EPS (Rs)Power 3.9 5.9 5.8 12.0 25.4 38.8 Construction 3.1 7.7 9.9 7.2 7.5 5.9 Real estate — 0.7 1.0 0.2 1.5 1.7

Total 7.0 14.4 16.7 19.4 34.4 46.4 EPS differential due to accounting for depreciation 1.5 0.4 (2.2) (1.3) (0.6) (1.5) Reported EPS 8.5 14.8 14.5 18.1 33.8 44.9

Attributable net debtTotal 11,470 48,720 85,728 112,145 120,608 117,724

Note: The equity holdings have been consolidated under LITL from FY2007. We have assumed similar holding st

Source: Company data, Kotak Institutional Equities estimates

Change in estimates for Lanco Infratech (consolidated), March fiscal year-ends (Rs mn)

Revenues EBITDA Net profitNew Old % Chg. New Old % Chg. New Old % Chg.

2008 32,413 32,413 0.0 7,701 7,701 0.0 3,297 3,297 0.02009E 60,592 57,439 5.5 9,436 7,815 20.7 3,216 3,255 (1.2)2010E 58,249 56,579 3.0 13,708 11,851 15.7 4,023 3,795 6.02011E 98,414 87,102 13.0 29,220 22,268 31.2 7,520 5,531 36.0




Colgate-Palmolive (India): In-line quarter, limited valuation upside

• Likely higher promotional spends in FY2010E

• Colgate faces two issues in near term, (1) likely higher competitive intensity fromHUL and (2) transition to higher income tax rate in FY2011E

• Retain ADD rating, TP increased to Rs520/share (Rs490 previously) based onFY2011E estimates

In 4QFY09, Colgate reported in-line net sales of Rs4,722 mn (+21%, KIE estimate Rs4,754mn), better-than-expected EBITDA of Rs977 mn (+93%, KIE estimate Rs814 mn) and PATof Rs771 mn (+85%, KIE estimate Rs663 mn). Colgate's toothpaste volumes grew 15.2%and toothpowder volumes were flat. HUL has recently cut prices of two SKUs inPepsodent—Rs10 from Rs13 for a 40 gm carton pack and to Rs5 from Rs6 for the 30 gmflow-wrap pack. We assign a high probability to the success of Pepsodent’s Rs5 pack as itcompetes with Colgate Dental Cream Rs5 pack. However, the Rs13 to Rs10 price cut willonly have a short-term impact on Colgate as Pepsodent’s 40 gm is trying to compete withCibaca and Babool which offers a much higher value proposition of 80 gm at Rs10. Weretain ADD rating and increase TP to Rs520/share (Rs490 previously) based on FY2011Eestimates. At the current market price of Rs474/share, the stock trades at 18.4X FY2011E;we see limited valuation upside. We marginally tweak estimates—our EPS estimates forFY2010E and FY2011E are Rs24.4/share and Rs25.7/share. We value Colgate stock at 20Xapplying a 10% discount to the three year average PE as the company faces two issues innear term, (1) likely higher competitive intensity from HUL and (2) transition to higherincome tax rate in FY2011E. Key risks are (1) any unprecedented competitive activity byHUL for aggressive market share gains, (2) emergence of price-based competition and (3)higher-than-expected downtrading in the category.

Raising target to Rs520 from Rs490 as we carry forward our target to reflectFY2011E estimates; keeping ADD rating

We retain ADD rating and increase TP to Rs520/share (Rs490 previously) based onFY2011E estimates. At the current market price of Rs474/share, the stock trades at 18.4XFY2011E; we see limited valuation upside. We recommend Colgate stock to investorslooking for high quality defensive names—stability of earnings, good dividend yield (4%)and market leadership position. We marginally tweak estimates; our EPS estimates forFY2010E and FY2011E are Rs24.4/share and Rs25.7/share. We value Colgate stock at 20Xapplying a 10% discount to the three year average PE as the company faces two issues innear term, (1) likely higher competitive intensity from HUL and (2) transition to higherincome tax rate in FY2011E. Key risks to our ADD rating are (1) any unprecedentedcompetitive activity by HUL for aggressive market share gains, (2) emergence of price-based competition and (3) higher-than-expected downtrading in the category.

Leadership position maintained

In 4QFY09, Colgate reported in-line net sales of Rs4,722 mn (+21%, KIE estimate Rs4,754mn), better-than-expected EBITDA of Rs977 mn (+93%, KIE estimate Rs814 mn) and PATof Rs771 mn (+85%, KIE estimate Rs663mn).



Promoters 51.0 - -

FIIs 10.1 0.2 (0.1)

MFs 4.7 0.3 0.1

UTI - - (0.2)

LIC 5.0 0.3 0.0

Consumer products

COLG.BO, Rs474Rating



52W High -Low (Rs) 500 - 341



Sales (Rs bn) 16.9 19.1 21.3


EPS (Rs) 21.6 24.4 25.7

EPS gth 26.3 12.9 5.4

P/E (x) 22.0 19.4 18.4

EV/EBITDA (x) 17.5 15.6 13.6

Div yield (%) 3.2 3.8 4.4

ADD

Cautious

Pricing performance


(0.6) 1.8 22.5 10.5



During 4QFY09, Colgate’s toothpaste volumes grew 15.2% and toothpowder volumeswere flat. The company improved its position with market share of 50.2% in toothpaste(+200 bps yoy), 45.8% in toothpowder (+30 bps yoy) and 37% in toothbrush (-20 bpsyoy). Focus on low price point products and Cibaca helped Colgate outperform categorygrowth in 2008-09 (Exhibit 3). We have always liked Colgate’s strategy of (1) growththrough new consumer recruitment and (2) price increases as the last option (continuingdrive on penetration-led growth). We highlight that toothpaste is possibly the onlypersonal care category witnessing high levels of new consumer recruitment—the categorypenetration has improved to 57% in 2008 from 44% in 2001.

Toothpaste volume growth is likely to remain robust at about 10% for the next two yearsdriven by continued rural uptick and consumer upgradation from toothpowder andtraditional forms of dental care. Colgate is better placed to capture higher growth in ruralareas—the company’s sales from rural markets has increased to 35% in CY2008 from32% in 2005 (Exhibit 4).

Likely higher promotional spends in FY2010E

Reported EBITDA margins improved to 20.7% in 4QFY09 from 12.9% in 4QFY08. Thiswas led by favorable raw material costs (270 bps improvement to 42.5%, 4QFY08 hadcertain one-off supplier payments, which depressed the margins in base quarter) anddecline in ad spends (290 bps improvement to 14.9%). Though advertisement andpromotional spends (A&P) for the quarter was lower yoy, full-year spends were flat at 16%of sales. We model higher A&P spends in FY2010E (80 bps higher to 16.8% of sales) aswe continue to believe that (1) structurally Colgate will have to spend higher onadvertisements to match HUL’s SOV/SOM as HUL has scale benefits in media buying, (2)likelihood of higher competitive activity by HUL to win market shares in Pepsodent and (3)higher promotional spends to maintain toothpaste volume growth (for example,toothbrush free with toothpaste or a banded pack of toothbrush and toothpaste whereintoothbrush price is cross-subsidized by toothpaste). Expansion of EBITDA margins basedon cut in ad spends (as witnessed in 2HFY09) in FY2010 is unlikely, in our view. Weforecast modest decline of 30 bps in EBITDA margins to 15.9% in FY2010E.

Analyst meet takeaways and observations for FY2010E1. The excise duty reduction to 8% from 14% benefits Colgate as about 40% of

toothpaste production is in full-tax zones. The Himachal facility contributes ~47,000tons to total volumes of 80,000 tons and the management expects Himachal output toremain flat as (1) the facility is operating at >80% capacity utilization and (2) the facilityis already a three-shift operation

2. Cibaca forms 16.5% of the Colgate sales mix

3. We would keep a close watch on market share ambitions of key competitors, HUL andDabur. HUL has recently cut prices of two SKUs in Pepsodent—Rs13 to Rs10 for 40gmscarton pack and Rs6 to Rs5 for the 30 gms flow-wrap pack. We assign a highprobability for the success of Pepsodent Rs5 pack as it competes with Colgate DentalCream Rs5 pack. However, the Rs13 to Rs10 price cut will only have short term impacton Colgate as Pepsodent 40gm is trying to compete with Cibaca and Babool whichoffers a much higher value proposition of 80 gms at Rs10

4. Colgate has recently hiked the prices of some of its brands by ~4%. This surprised theStreet given the recent cut in excise duties and stable raw material prices. While we donot expect this to have any significant impact on demand, we would keenly watch forany incremental promotional spends by HUL in Pepsodent brand

5. Higher tax rates—the Himachal facility is already operating at >80% capacity utilizationand company has no plans to increase capacity before sunset clause takes effect fromMarch 31, 2010. Moreover, the Himachal facility will move to 30% income taxexemption in FY2011E from 100% exemption in FY2010E. We model effective tax ratesof 20% and 26% in FY2010E and FY2011E.



Interim results of Colgate Palmolive India Ltd, March fiscal year-end (Rs mn)

4QFY09 4QFY09E 4QFY08 3QFY09 4QFY09E 4QFY08 3QFY09 2009 2008 (%chg)Net income 4,722 4,754 3,913 4,356 (0.7) 20.7 8.4 17,455 14,734 18.5Total expenditure 3,746 3,941 3,408 3,446 (4.9) 9.9 8.7 14,221 12,387 14.8Material cost 2,005 1,979 1,768 1,840 1.3 13.4 9.0 7,404 6,328 17.0Staff cost 389 317 307 347 22.7 26.5 12.2 1,385 1,173 18.1Advertising & promotion 702 895 735 472 (21.6) (4.4) 48.7 2,717 2,565 5.9Other expenditure 649 750 598 787 (13.4) 8.6 (17.5) 2,714 2,321 16.9EBITDA 977 814 506 909 20.0 93.1 7.4 3,235 2,347 37.8OPM (%) 20.7 17.1 12.9 20.9 18.5 15.9 Other income 38 70 75 65 (45.7) (49.3) (41.5) 508 848 (40.1)Interest 1 1 4 1 10.0 (69.4) - 11 14 (23.4)Depreciation 64 58 55 55 9.5 16.5 14.8 230 198 15.6Pretax profits 950 825 523 918 15.2 81.8 3.5 3,502 2,982 17.5Tax 131 162 105 140 (19.4) 24.0 (6.9) 551 607 (9.2)Net income 819 663 417 777 23.7 96.4 5.4 2,951 2,375 24.3Extraordinary items (49) (49)Reported PAT 771 663 417 777 16.3 84.7 (0.9) 2,903 2,375 22.2Income tax rate (%) 13.7 19.6 20.2 15.3 15.7 20.3

Cost as a % of salesMaterial cost 42.5 41.6 45.2 42.2 42.4 43.0 Staff cost 8.2 6.7 7.9 8.0 7.9 8.0 Advertising & promotion 14.9 18.8 18.8 10.8 15.6 17.4 Other expenditure 13.7 15.8 15.3 18.1 15.5 15.8


(% chg)

Likely step up in promotional spends as HUL fights to win back shares in PepsodentColgate's advertising and promotion spend as a % of sales

Source: Company data, Kotak Institutional Equities.

15.7

14.2

17.6

16.0 15.8 16.016.8 17.0

0

5

10

15

20

FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E



Focus on low price point products helped Colgate outperform category growthColgate sales growth and category growth rate in CY2008, %

Source: Company, Kotak Institutional Equities

15

8

1817

0

5

10

15

20

25

Toothpaste Toothbrush

Market Colgate

(%)

Faster growth rates in low unit packs and Cibaca help drive rural penetrationColgate's urban and rural sales, %


68 67 66 65

32 34 3533

0

10

20

30

40

50

60

70

80

90

100

2005 2006 2007 2008

Urban Rural

(%)



Improvement in category penetration augurs well for the market leaderToothpaste and toothpowder penetration (%)


44 44 44 45 4650 51

5457

36 35 36 34 35 35 35 3531

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008

Toothpaste Toothpowder

We value Colgate at 10% discount to three year averageOne-year forward PE of Colgate (x)

Average Minimum Maximum1-year 18.9 16.6 21.53-years 21.9 16.6 28.45-years 22.1 14.2 39.210-years 26.8 13.6 73.6

Source: Kotak Institutional Equities estimates.

Colgate-Palmolive - P/E bands


Source : Kotak Institutional Equities

0

100

200

300

400

500

600

Apr

-00

Aug

-00

Dec

-00

Apr

-01

Aug

-01

Dec

-01

Apr

-02

Aug

-02

Dec

-02

Apr

-03

Aug

-03

Dec

-03

Apr

-04

Aug

-04

Dec

-04

Apr

-05

Aug

-05

Dec

-05

Apr

-06

Aug

-06

Dec

-06

Apr

-07

Aug

-07

Dec

-07

Apr

-08

Aug

-08

Dec

-08

Apr

-09

Aug

-09

Colgate Palmolive 10X 20X 30X



Colgate, change in estimates, March fiscal year-ends (Rs mn)

New Old Change (%) New Old Change (%)Sales 19103 18860 1.3 21330 21805 (2.2) EBIDTA 3031 3171 (4.4) 3530 3694 (4.4) Net profit 3313 3170 4.5 3493 3490 0.1 EPS 24.4 23.3 4.6 25.7 25.7 (0.1) Sales growth (%) 12.7 12.7 11.7 11.8Profit growth (%) 12.9 14.1 5.4 10.1


FY10E FY11E

Colgate: Profit model, balance sheet, cash model 2006-2011E, March fiscal year-ends (Rs mn)

2006 2007 2008 2009E 2010E 2011EProfit model (Rs mn)

Net sales 11,239 12,892 14,683 16,947 19,103 21,330

EBITDA 2,018 2,089 2,295 2,740 3,031 3,530

Other income 196 670 848 988 1,366 1,476

Interest (6) (10) (14) (10) (10) (10)

Depreciation (149) (153) (198) (229) (250) (266)

Extraordinary items (125) (389) (7) (33) 0 0

Pretax profits 1,934 2,208 2,924 3,456 4,136 4,729

Tax (558) (606) (607) (553) (823) (1,236)

Net profits 1,376 1,602 2,317 2,903 3,313 3,493

Earnings per share (Rs) 11.0 14.6 17.1 21.6 24.4 25.7

Dividend per share (Rs) 7.5 9.5 13.0 15.0 18.0 21.0

Balance sheet (Rs mn)

Total equity 2,711 2,805 1,622 2,141 2,593 2,744

Total borrowings 44 43 47 44 44 44

Currrent liabilities 3,511 4,226 5,342 5,350 5,883 6,411

Total liabilities and equity 6,265 7,074 7,011 7,535 8,520 9,198

Cash 880 1,117 1,443 1,619 2,145 2,445

Current assets 2,135 2,447 2,574 2,795 3,107 3,552

Total fixed assets 1,691 1,920 1,990 2,117 2,264 2,197

Investments 1,559 1,590 1,004 1,004 1,004 1,004

Total assets 6,265 7,074 7,011 7,535 8,520 9,198

Free cash flow (Rs mn)

Operating cash flow, excl. working capital 1,348 1,411 3,032 2,755 3,166 3,296

Working capital 427 71 163 421 102 (43)

Capital expenditure (332) (600) (290) (356) (397) (199)

Investments 124 150 607 0 0 0

Free cash flow 1,567 1,033 3,513 2,820 2,871 3,053

Key assumptions, growth %

Revenue growth 17.0 14.7 13.9 15.4 12.7 11.7

EBITDA margin(%) 18.0 16.2 15.6 16.2 15.9 16.5

EPS growth 23.6 32.6 16.7 26.3 12.9 5.4




Tata Chemicals: Operating performance lower than expected

• 4QFY09 PAT is higher than expected due to forex income reversal, operatingmargins lower due to write offs, one-time items

• We tweak TTCH forecasts with higher prices for soda ash in US/EU, new currencyassumptions

• Maintain ADD rating and raise price target to Rs200 (from Rs190)

4QFY09 TTCH revenues at Rs19 bn were 14% higher than our estimates due to betterperformance of its fertilizer business. Soda ash revenues were 10% lower than ourestimates due to qoq decline in volumes in all markets except India where volumes heldsteady qoq as per our estimates. Margins declined 200 bps qoq to 9% due to (1) lowerprofitability in phosphatic fertilizers (2) net asset impairment charge of Rs1.2 bn onaccount of plant closure in Netherlands (3) Rs480 mn inventory loss. Adjusted for the lasttwo cost items, margins were at 18%. 4QFY09 PAT at Rs1.7 bn was higher than ourestimate of Rs1.1 bn due to reversal of forex income due to adoption of AS 11. We expectEPS at Rs23.1 in FY2010E and Rs27.2 in FY2011E. TTCH is trading at 10X FY2010 and 8XFY2011 earnings estimate. The stock has nearly doubled since early March. While soda ashbusiness fundamentals are improving, we would prefer to buy at lower levels. MaintainADD with a price target of Rs200. This implies the stock will probably outperform in afalling market. Key risk to our call is a likely volume decline in soda ash on the back ofdemand destruction emerging from the flat glass segment.

Revenues at Rs19 bn were 14% higher than our estimates, operating performancelower due to poor profitability in the fertilizer business

Revenues at Rs19 bn were 14% higher due to better performance of the IMACID withsales more than doubling qoq. Management mentioned that IMACID and DAP plants wereworking at full capacity.

Fertilizer business revenues beat our estimates while soda ash revenues fell short of ourestimates due to a qoq decline in volumes in all markets except India where volumes heldsteady during the quarter.

1. BMGL sales for the quarter were 20% lower than our estimates at Rs4 bn due to poorvolumes at Magadi and lower volumes at BMGL. The management mentioned thatMagadi was hit by Chinese supplies into Asia while demand shrinkage was being seenin European markets

2. GCIP sales at Rs3.2 bn were12% lower than estimates due to lower exports to LatinAmerica

Operating margins at 9% declined qoq for several reasons1) Lower profitability in phosphatics due to a mismatch in output and phosphoric acid

prices. Management mentioned that prices were stabilizing and that the phosphaticsfacility is now running at full capacity. PBT margins for the quarter were 14% for thechemicals segment and were negative for fertilizer segment

2) Other expenses at 28% of sales was higher than our estimate of 7% for severalreasons:

• Net asset impairment charge of Rs1.2 bn on account of plant closure in Netherlands.TTCH mentioned that volume shrinkage is now being witnessed in the Europeanmarket and capacity utilization is currently at 70%. TTCH has decided to close theDelfzil plant in Netherlands which accounts for roughly 0.3 mtpa of soda ash capacityout of total BMGL capacity of 1.3 mtpa.



Promoters 29.2 - -

FIIs 8.2 0.1 (0.1)

MFs 11.5 0.4 0.3

UTI - - (0.1)

LIC 11.7 0.3 0.2

Others

TTCH.BO, Rs216Rating



52W High -Low (Rs) 440 - 95



Sales (Rs bn) 122.6 71.1 75.6


EPS (Rs) 27.6 23.1 27.2

EPS gth (30.4) (16) 17.9

P/E (x) 7.9 9.4 8.0

EV/EBITDA (x) 5.3 4.3 3.7

Div yield (%) 4.2 4.2 4.5

ADD

N/A

Pricing performance


26.1 74.3 46.2 (47.2)



• Inventory loss of Rs480 mn

• Rs780 loss on account of subsidy bonds. During the year, TTCH received Rs10 bn worthof bonds. Fertilizer bonds worth Rs5 bn were sold at a loss of Rs233 mn. On thebalance bonds, MTM losses of Rs546 mn were charged to other expenses

3) Staff costs at 8% were lower than our estimate of 11%, material cost at 33% of saleswas higher than our estimate of 32%, while all other expenses were broadly in line

4QFY09 PAT at Rs1.7 bn higher than our estimate of Rs1.1 bn due to the writebackof forex income due to adoption of AS 11

TTCH adopted AS 11 and has reversed forex losses arising out of long term forexliabilities. The amount amortised to P&L is Rs1.25 bn while Rs3.5 bn has been taken to thebalance sheet and will be amortised over two years ending March 2011. Due to this profitfor FY2009 is higher by around Rs2.4 bn.

We tweak TTCH forecasts with higher product prices, new currency assumptions

We change US$/Rs currency forecasts to Rs48 for FY2010E and Rs47.75 for FY2011E

GCIP: Our model builds in a price of US$135 per tonne for FY2010E for US market. Weexpected price to rise to US$142 in FY2011E. We built in volume of 2 mtpa in FY2010E(sales volume was 2.2 mtpa in FY2009), in line with management guidance recovering to2.1 mtpa in FY2011E. TTCH has capacity of 2.5 mtpa in USA. TTCH said that althoughdemand in the domestic market of US has stablized, exports to Latin America are shrinkingdue to Chinese exports. China has reintroduced a 9% export incentive leading toincreased exports out of China which is heading towards Asia and Latin America.

BMGL: For European operations of TTCH, our model built in price of US$276 per tonnefor FY2010E, same as the average price seen in FY2009. We forecast a 5% improvementin price in FY2011E. We estimate volume to decline to 1.5 mtpa in FY2010E from 1.6mtpa in FY2009.

We are leaving our assumptions for Indian operations unchanged at price of Rs14,500 pertonne in FY2010E down from Rs18,000 per tonne. The recent imposition of safeguardduty should give stability to prices in India. Volumes are expected to decline to 0.6 mtpa inFY2010E from 0.67 mtpa in FY2009 mainly due to lower exports. TTCH exports 15% ofvolumes in India which it expects to come down to 5% in FY2010E.

Maintain ADD with price target at Rs200 (was Rs 190)

We expect EPS of Rs23.1 in FY2010E (FY2009 EPS at Rs27.6) and Rs27.2 in FY2011E. Thestock is trading at 10X FY2010E and 8X FY2011E earnings estimate. Soda ash businessfundamentals are looking better than a few months ago, we note that the share price isup from a low of Rs95 in early March. We would wait for a lower price to enter the stock.

We arrive at our price target with an SOTP calculation of its two businesses – chemicalsand fertilizer. We use a 5X multiple for the soda ash business. In the absence of a puresoda ash company for comparison, we are using conservative multiples looking at globalcompanies Solvay and FMC. We think the fertilizer business can command a multiple of8X since the urea business is assured a 12% post tax ROE for older capacity and thepricing of new capacity is linked to international price. Our price target of Rs200 impliesP/E of 7X FY2011E earnings.

The increase in share price target is largely coming from the higher value of the Tata groupcompanies that TTCH owns. We arrive at a market value of these investments and apply a30% discount as before. We are not increasing the PE multiples we use in valuing TTCHthough the markets have gone up sharply in the past three months. If we use a PEmultiple of 8X for the chemicals business, the target price can rise to Rs270. Our rating isrelative to the BSE Sensex and hence implies that we expect the TTCH share price todecline less than the Sensex over the next 12 months.



Interim results- TCL , March fiscal year-ends (Rs mn)

4QFY09 4QFY09E 4QFY08 3QFY09 4QFY09E 4QFY08 3QFY09Net sales 19,075 16,793 14,348 35,100 14 33 (46)Op. costs 17,287 11,548 13,302 30,984 50 30 (44)EBITDA 1,789 5,245 1,047 4,116 (66) 71 (57)Interest(net) 1,136 1,000 315 988 14 261 15Depreciation 1,076 1,150 793 1,102 (6) 36 (2)Other income 1,507 (1,200) 5,703 (242) NM (74) NMPBT 1,084 1,895 5,641 1,784 (43) (81) (39)Tax (800) 474 364 472 NM NM NMPAT 1,884 1,421 5,277 1,311 33 (64) 44Minority interest 163 250 0 400 (35) NM (59)Reported PAT 1,721 1,171 5,277 912 47 (67) 89

Fertilizer business 6,602 3,089 5,068 20,987 114 30 (69) India 2,614 2,639 4,627 19,667 (1) (44) (87) IMACID 3,989 450 441 1,320 786 805 202Chemical business 12,375 13,704 9,636 14,472 (10) 28 (14) Brunner Mond Gro 4,390 5,616 4,910 5,500 (22) (11) (20) GCIP (USA) 3,220 3,665 0 3,710 (12) NM (13) India 5,415 4,423 4,818 5,401 22 12 0 Adjustments (650) 0 (92) (139) NM NM NMTotal 18,977 16,793 14,703 35,460 13 29 (46)


% change

TCL—Forecasts and valuation, March fiscal year-ends, 2007-2011E (Rs mn)

EPS ROCE ROE P/E(Rs mn) (Rs mn) (Rs mn) (Rs) (%) (%) (X)

2007 57,538 45.2 9,438 38.8 5,080 18.6 20.9 15.8 21.2 10.92008 59,757 3.9 9,277 (1.7) 9,644 89.8 39.6 9.4 30.7 5.7

2009E 122,577 105.1 18,591 100.4 6,481 (32.8) 27.6 15.2 17.9 8.22010E 71,147 (42.0) 16,742 (9.9) 5,421 (16.4) 23.1 12.5 12.9 9.8

2011E 75,601 6.3 18,280 9.2 6,391 17.9 27.2 14.4 13.7 8.3


Growth (%) Growth (%) Growth (%)Net sales EBITDA Net Profit



TCL—abridged profit model, balance sheet, March fiscal year-ends, 2007-2011E (Rs mn)

2007 2008 2009E 2010E 2011EProfit modelNet revenues 57,538 59,757 122,577 71,147 75,601EBITDA 9,438 9,277 18,591 16,742 18,280EBITDA margin (%) 16.4 15.5 15.2 23.5 24.2Other income 1,726 6,909 (1,239) 800 400Depreciation 2,739 3,138 4,226 4,500 4,750Net finance cost 944 1,289 3,953 4,000 3,300PBT 7,481 11,759 9,173 9,042 10,630Tax 2,401 2,115 1,575 2,621 3,189(Profit)/loss in minority interest — — (1,117) (1,000) (1,050)Reported net profit 5,080 9,644 6,481 5,421 6,391

Balance sheetTotal equity 25,718 37,185 47,698 51,685 56,692Total debt 18,642 48,505 55,414 40,982 38,713Minority interests — — 1,117 2,117 3,167Net Deferred tax liabilities 2,511 2,837 2,842 2,842 2,842Total liabiilities and equity 46,871 88,526 107,072 97,627 101,414Net fixed assets incl CWIP 30,561 33,712 35,580 32,080 28,330Goodwill on consolidation 7,632 46,492 46,492 46,492 46,492Investments 7,753 4,174 4,174 4,174 4,174Net current assets (619) (2,620) 10,927 1,564 3,765Cash 1,545 6,767 9,899 13,317 18,653Total assets 46,871 88,526 107,072 97,627 101,414

RatiosDiluted EPS (Rs) 20.9 39.6 27.6 23.1 27.2ROE (%) 21.2 30.7 17.9 12.9 13.7Debt/equity (%) 72.5 130.4 116.2 79.3 68.3


SOTP based price target, FY2010-11E

P/EFY2010E FY2011E (X) FY2010E FY2011E

Chemicals 4,716 5,770 5.0 23,582 28,850

Fertilisers 1,134 1,391 8.0 9,074 11,126

Total 5,851 7,161 32,655 39,976Value per share 170Value per share of investments 26

Share price target (Rs) 196


Valuation (Rs mn)PAT (Rs mn)



Estimates adjusted for forex (Rs mn)

2009 2010E 2011ESales 122,577 71,147 75,601YoY growth % -42% 6%EBITDA 18,591 16,742 18,280% to sales 15% 24% 24%PBT adjusted 10,096 9,042 10,630PAT Adjusted 7,246 5,421 6,391EPS Rs Diluted 30.8 23.1 27.2YoY growth % -25% 18%Rs/$ rate 46.1 48.0 47.8

Forex gain (loss ) (923) 0 0Reported PBT 9,173 9,042 10,630Reported PAT 6,481 5,421 6,391




IVRCL Infrastructures: Strong revenues mitigate disappointingmargins, strong growth guidance a positive; retain BUY

• Better-than-expected revenues help meet expectations, however, margins aredisappointing

• Management maintains guidance of 30-35% revenue growth with 9.5% EBITDAmargin

• Change earnings estimates and target price to Rs350/share; retain BUY

IVRCL reported 4QFY09 revenues of Rs16.2 bn (up 23% yoy) significantly above ourestimates of Rs14 bn. Operating profit margin declined by 180 bps yoy to 8.7% from10.5% in the previous year versus our expectation of 9.8% operating margin. Profit aftertax reported was Rs799 mn versus our estimate of Rs793 mn. The managementmaintained strong guidance of 30-35% revenue growth with EBITDA margin of 9.5% forFY2010E. We revise our earnings estimates to Rs17.9 (Rs17 earlier) and Rs22.2 (Rs19.5earlier) for FY2010E and FY2011E respectively. We change our SOTP-based target price toRs350 from Rs215 earlier based on revision in target multiple to 12X from 10X earlierrollover to FY2011E basis. Maintain BUY based on likely strong earnings growth, andpositive long term outlook for infrastructural investments.

Better-than-expected revenues help meet expectations however, marginssignificantly below expectations

IVRCL reported 4QFY09 revenues of Rs16.2 bn (up 23% yoy) significantly above ourestimates of Rs14.0 bn (Exhibit 1). Operating profit margin declined by 180 bps yoy to8.7% from 10.5% in the previous year versus our expectation of 9.8% operating margin.Profit after tax reported was Rs799 mn versus our estimate of Rs793 mn.

For the full year FY2009E, the company reported revenues of Rs48.8 bn (up 33.4% yoy)and profit after tax of Rs2.26 bn (up 7.4% yoy). Operating profit margin for the periodwas at 8.6% (down 120 bps yoy) versus 9.9% for FY2008 (Exhibit 1).

Management maintains guidance of 30-35% revenue growth with 9.5% EBITDAmargin

IVRCL management has maintained its FY2010E full-year revenue growth guidance of 30-35% with EBITDA margins for the full year expected to be about 9.5%-10%. IVRCL hasan order backlog of Rs145 bn and is expecting another Rs10 bn as fresh orders in the nearterm (Exhibits 2-4).

Debt cost has started to come down, should help in upholding profitability

Management stated that interest cost has come down from about 12.5% or so to about11.5% or so and this decline in interest cost should help the company in shoring upprofitability in FY2010E.

Change earnings estimates and target price to Rs350/share; retain BUY

We revise our earnings estimates to Rs17.9 and Rs22.2 from Rs17 and Rs19.5 for FY2010Eand FY2011E respectively based on (a) higher execution assumptions, (b) lower interestrate assumptions. We have changed our SOTP-based target price to Rs350/share (Exhibits5 and 6) from Rs215 earlier comprised of (1) core business valuation of Rs290/share (13XFY2011E earnings), (2) Rs32/share contribution from road and water projects, (3) IVRPrime’s contribution of Rs21/share, and (5) Rs10/share contribution from Hindustan DorrOliver.



Promoters 9.7 - -

FIIs 47.7 0.2 0.1

MFs 19.1 0.4 0.3

UTI - - (0.1)

LIC - - (0.1)

Construction

IVRC.BO, Rs329Rating



52W High -Low (Rs) 423 - 57



Sales (Rs bn) 46.8 59.6 71.2


EPS (Rs) 14.4 16.9 19.4

EPS gth (7.3) 17.1 14.8

P/E (x) 22.8 19.5 17.0

EV/EBITDA (x) 12.7 10.2 8.4

Div yield (%) 0.2 0.2 0.2

BUY

Attractive

Pricing performance


107.3 202.3 144.4 (18.2)



We maintain our BUY rating on the stock based on (a) strong likely near-term earningsgrowth, and (b) long-term outlook for infrastructural investments. Key risks to the earningsinclude (1) margin pressures due to volatility in commodity prices, (2) higher-than-expectedinterest costs and (c) deterioration in working capital parameters.

Exhibit 1. IVRCL - 4QFY09 - key numbers (Rs mn)

4QFY09 4QFY09E 4QFY08 3QFY09 4QFY09E 4QFY08 3QFY09 FY2009 FY2008 % chgNet Sales 16,272 14,000 13,217 11,896 16.2 23.1 36.8 48,819 36,606 33.4 Construction, stores & spares (4,710) (27,544) (3,927) (3,877) (82.9) 19.9 21.5 (16,579) (12,473) 32.9 Subcontracting expenditure (5,351) 8,162 (4,455) (2,720) (165.6) 20.1 96.7 (13,513) (10,923) 23.7 Masonry and other labour (3,991) 7,352 (2,449) (3,517) (154.3) 62.9 13.4 (11,681) (6,506) 79.5 Staff cost (538) (478) (480) (484) 12.5 12.2 11.2 (1,953) (1,442) 35.4 Other expenditure (264) (219) (520) (213) 20.2 (49.2) 23.9 (876) (1,647) (46.8) Expenditure (14,853) (12,728) (11,830) (10,811) 16.7 25.6 37.4 (44,601) (32,992) 35.2 Operating Profit 1,420 1,365 1,387 1,085 4.0 2.3 30.9 4,218 3,614 16.7 Other Income 87 - 11 14 #DIV/0! 664.8 527.2 299 45 560.3 PBIDT 1,506 1,365 1,399 1,099 10.4 7.7 37.1 4,517 3,660 23.4 Interest (392) (264) (208) (419) 48.3 88.6 (6.5) (1,306) (478) 173.1 Gross Profit 1,115 1,101 1,191 679 1.3 (6.4) 64.1 3,211 3,181 0.9 Depreciation (134) (133) (99) (123) 0.9 35.6 8.9 (473) (328) 44.1 Profit before Tax 980 968 1,092 556 1.3 (10.2) 76.3 2,738 2,853 (4.1) Tax (181) (174) (359) (91) 4.2 (49.4) 100.0 (478) (749) (36.1) Profit after Tax 799 793 733 465 0.7 9.0 71.7 2,260 2,105 7.4

Key ratiosConstruction, stores & spares 28.9 29.7 32.6 34.0 34.1 Subcontracting expenditure 32.9 33.7 22.9 27.7 29.8 Masonry and other labour 24.5 18.5 29.6 23.9 17.8 Staff cost 3.3 3.6 4.1 4.0 3.9 Other expenditure 1.6 3.9 1.8 1.8 4.5 Operating margin (%) 8.7 9.8 10.5 9.1 (1.0) (1.8) (0.4) 8.6 9.9 (1.2) PBT Margin 6.0 6.9 8.3 4.7 5.6 7.8 Net Profit margin (%) 4.9 5.7 5.5 3.9 4.6 5.7 Effective tax rate (%) 18.5 18.0 32.9 16.3 17.5 26.2


yoy% change



Exhibit 2. Majority of order inflow were government backed Water & irrigation projectsMajor orders booked by IVRCL recently

Date Nature of WorkSize of Order Customers

6-Apr-2009 Project Implementation Unit, Thrissur Corporation 422 Rehabilitation of water treatment plant6-Apr-2009 UP Rajya Vidyut Utpadan Nigam Ltd 347 Pump house ducts and cold water channel6-Apr-2009 Power Grid Corporation of India Ltd 298 Tower package works6-Apr-2009 Power Grid Corporation of India Ltd 779 Supply of equipment and materials for tower package6-Apr-2009 Kolkata Metropolitan Development Authoirty 1,646 Construction of Vivekananda road flyover6-Apr-2009 Govt. of AP, Roads & Buildings Department 103 Construction of R.O.B

Total large order booking in FY2010 so far 3,595 3-Mar-2009 Guru Gobind Singh refinery project, civil and structurals 1,783 HPCL-Mittal Energy Ltd.3-Mar-2009 Construction of Trauma Centre 354 Uttar Pradesh Rajkiya Nirman Nigam Ltd.3-Mar-2009 CSJM Medical Univ. campus 133 Uttar Pradesh Rajkiya Nirman Nigam Ltd.3-Mar-2009 Hostel and campus facilities 217 College of Engineering, Shivajinagar Pune3-Mar-2009 Two elevated terminal stations - RV Road and Jayanagar 715 Bangalore Metro Rail Corporation Ltd3-Mar-2009 Remodeling of distribution network 172 Government of Andhra Pradesh3-Mar-2009 Dam, canal and distribution netowrk work on turnkey basis 3,326 Narmada Development division, Madhya Pradesh5-Jan-2009 Pipelining works and construction of water treatment plant 539 Karnataka Urban Water Supply and Drainage Board5-Jan-2009 Civil, structual and piping works 383 Indian Oil Corporation Ltd5-Jan-2009 Contruction of elevated metro stations 758 Bangalore Metro Rail Corporation Ltd5-Jan-2009 Contruction of elevated metro stations 925 Bangalore Metro Rail Corporation Ltd

16-Dec-2008 Contruction of IT park 110 West Bengal Electronics Industry Development Corporation Ltd16-Dec-2008 EPC services on a turnkey basis 706 Government of Puducherry, Project Implementation Agency16-Dec-2008 Civil, interior and site development works 1,144 City & Industrial Development Corpn of Maharashtra Ltd16-Dec-2008 Housing project 5,503 A.P. Cine Workers' Coop. Housing Soceity Ltd24-Nov-2008 Rural electrification works 1,790 NTPC Electricity Supply Company Ltd24-Nov-2008 Somasila drinking water supply scheme 250 Andhra Pradesh Industrial Infrastructure Corporation 24-Nov-2008 Godavari drinking water supply project 2,538 Hyderabad Metropolitan Water Supply and Sewerage Board24-Nov-2008 Rayachoti water supply scheme 385 Government of Andhra Pradesh24-Nov-2008 Execution and O&M of village distribution system 335 Government of Rajasthan10-Nov-2008 Execution of Pranahitha - Chevella Lift Irrigation project 8,930 Government of Andhra Pradesh

7-Oct-2008 Execution of Kalleswaram Lift Irrigation project 4,993 Government of Andhra Pradesh29-Sep-2008 Punasa lift Irrigation scheme 4185 Narmada Development division, Madhya Pradesh19-Aug-2008 Mid manair reservoir, Karimnagar 7150 Government of Andhra Pradesh

31-Jul-2008 Madakasira branch canal 3580 Government of Andhra Pradesh21-Jul-2008 Buildings and water related orders 3512 Miscellaenous9-Jul-2008 Life scheme, Karimnagar district 4098 Government of Andhra Pradesh

2-Jun-2008 Accelerated soil stabilization 8,376 ONGC for Dahej Petrochemical Complex 5-May-2008 Godavari delta system 4,686 Govt. of Andhra Pradesh, Irrigation & CAD Dept

Total large order booking in FY2009 71,575 24-Mar-2008 Construction of research centre 789 Andhra Pradesh Industrial Infrastructure Corporation 3-Mar-2008 Execution of canal system 4,785 Narmada Valley Development Authority, Bhopal

20-Feb-2008 Water, irrigation and power works 5,179 Greater Visakhapatnam Municipal Corporation, Deoghar Water Supply Department among others

26-Nov-2007 Building construction and sewage works 3,293 Naya Raipur Dev. Authority, Pimpri Chinchwad Muni. Corpn, Tamilnadu Water Supply and Drainage Board

29-Oct-2007 Water & power transmission works 3,468 Rajasthan and Maharashtra state agencies9-Oct-2007 Lift irrigation works on EPC turnkey basis 7,612 Govt. of Andhra Pradesh, Irrigation & CAD Dept

24-Sep-2007 Buildings at Rajiv Gandhi Infotech Park, Pune 1,800 DLF Akruti Info Parks (Pune) Ltd

24-Sep-2007 Sea-Woods Estate Phase-II, Nerul, Navi Mumbai 851 City & Industrial Development Corpn of Maharashtra Ltd24-Sep-2007 Clear water sump and pumping station 678 Indore Municipal Corporation

24-Sep-2007 Transmission lines and erection of substations 614 Maharashtra State Electricity Distribution Co Ltd 17-Sep-2007 Water and civil projects in Chennai 3,681 Water utilities in Chennai and NTPC

30-Aug-2007 Irrigation works 3,202 Public Health and Engineering Dept, Govt of Rajasthan

23-Jul-2007 Irrigation works 6,414 Irrigation & C.A.D Dept, Govt of Andhra Pradesh17-Jul-2007 Irrigation works 2,027 Karnataka Neeravari Nigam Ltd

21-May-2007 Reservoir works 5,510 Irrigation & C.A.D Dept, Govt of Andhra Pradesh14-May-2007 Reservoir works 3,761 Irrigation & C.A.D Dept, Govt of Andhra Pradesh

Total large order booking since FY2008 so far 53,664

Source: Company data.



Exhibit 3. IVRCL Infrastructure has visibility of 2.6 years based on forward four quarter revenues

Order backlog, order booking and visibility (X) of IVRCL Infrastructure, March fiscal year-end 2002-2009


-

20

40

60

80

100

120

140

160

FY02

FY03

FY04

FY05

FY06

FY07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

(Rs bn)

0.0

0.5

1.0

1.5

2.0

2.5

3.0Order Backlog (LHS) Order Booking (LHS) Visibility (RHS)

Exhibit 4. Segment wise breakup of IVRCL's order book at the end of 3QFY09, FY2008 and FY2007


3QFY09

Water

resources

68%

ansportati

on

6%

Buildings

and

Industrial

20%

Electrical

6%FY2008

Water

resources

62%Transportati

on

9%

Buildings

and

Industrial

23%

Electrical

6%FY2007

Water

resources

50%

Transportati

on

25%

Buildings

and

Industrial

13%

Electrical

12%

Exhibit 5: Derivation of SOTP based target price for IVRCL

Project/ BusinessEquity Commitment

(Rs mn)Valuation

(Rs mn) Rs/ share Valuation methodologyValue of core construction business 0 288.6 P/E multiple of 13X FY2011E earnignsBook value of investments in BOT assets 2,394 2,394 17.7 1X bookValue from Hindustan Dorr Oliver 1,267 9.4 Discount to market priceValue of IVRCL Prime Developers Ltd 2,880 21.3 NAVIncremental value from roads and water projects

Jallandhar- Amristar Tollways 413 310 2.3 Incremental P/B of 0.75

Salem - Kumarapalayam 651 488 3.6 Incremental P/B of 0.76

Sumarapalayam Chenagmpalli 801 601 4.5 Incremental P/B of 0.77

Chennai Water 713 534 4.0 Incremental P/B of 0.78

Total 351




Exhibit 6. Key road BOT projects

Jallandhar- Amristar Tollways Salem - KumarapalayamSumarapalayam Chenagmpalli Chennai Water

Project Description

4 laning of 49 km stretch between Jallandhar and Amristar

53 kilometers from Salem to Kumarapalayam

47 kilometers from Kumarapalayam to Chengapalli 100 MLD

Company's share 100.00% 100.00% 100.00% 75%Other partners - BefesaProject Type Toll Toll Toll Two part tariff

Concession Period17.5 years including 2.5 years of construction period

20 years including 2 years of construction period

20 years including 3 years of construction period

Grant structure Positive grant of Rs 330 mn Positive grant of Rs 175 mn Positive grant of Rs 1290 mnEstimated Funding structure (in Rs mn)Total project Cost 2,378 4,214 5,011 4,730 Equity 413 651 801 950 Preference EquityDebt 1,570 3,389 2,920 3,780 Subordinate DebtGrant 395 175 1,290 IVRCL's Equity Commitment (Rs Mn) 413 651 801 713



Nagarjuna Construction: Disappointing margins and execution; besetby large order cancellations

• Large order cancellations contribute to disappointing margins and execution

• Strong business ramp up in Middle-East; visibility declines marginally to about 2.5years

• Revise earnings estimates, Maintain BUY with a target price of Rs145 versus Rs120earlier

Nagarjuna Construction reported 4QFY09 revenues of Rs10.9 bn (down 13% yoy)significantly lower than our expectation of Rs15.4 bn. Reasons for lower-than-expectedrevenues include (a) cancellation of Rs12 bn order by ONGC, leading to revenue reversal ofabout Rs1.2 bn, (b) problems faced by Maytas Infra which is a JV partner in several projects- about Rs0.5 bn and (c) cancellation of order worth Rs3.5 bn by the Karnatakagovernment. We have revised our FY2010E and FY2011E earnings estimates to Rs7.5(from Rs8.8 earlier) and Rs8.5 (from Rs9.7 earlier) based on lower execution as well asslightly lower margin expectation versus earlier. We have also revised our SOTP-basedtarget price to Rs145 from Rs120 earlier. Target price revision is based on revision in coreconstruction business valuation to Rs110 (versus Rs90 earlier) - revision in target P/Emultiple to 13X and rollover to FY2011E from FY2010E basis earlier. BOT projects and realestate both contribute about Rs17 to our target price based on book value of equityinvested as well as potential upside on book value from BOT projects. We maintain ourBUY based on (a) strong growth visibility, (b) benefit of lower interest rates in FY2010E, (c)ramp up of business segments that hold potential and (d) long-term outlook of stronginfrastructural investments.

Disappointing margins and execution; beset by large order cancellations

Nagarjuna Construction reported 4QFY09 revenues of Rs10.9 bn (down 13% yoy)signifincantly lower than our expectation of Rs15.4 bn. The EBITDA margin at 7.4% wasalso lower than our expectations of 8.25%. Reason for lower-than-expected revenuesinclude (a) cancellation of Rs12 bn order by ONGC as it refused to recognize the JV withNaftoGas leading to reversal of about Rs1.2 bn, (b) problems faced by Maytas Infra whichis a JV partner in several projects as well as client in several orders leading to revenue hitversus potential of about Rs0.5 bn and (c) cancellation of order worth Rs3.5 bn by theKarnataka government.

Going wide: Significant business ramp up in Middle-East bodes well

Nagarjuna has reported substantial ramp up in Middle-East business 27% of orderbacklog in the parent entity belonging to international segment. Several internationalsubsidiaries such as NCC, Dubai (revenues Rs2.7 bn, PB T Rs0.12 bn) and NCC Muscat(revenues Rs2.8 bn, PB T Rs0.13 bn) have reported substantial independent turnover inMiddle-East. Nagarjuna expects that international subsidiaries may account to about Rs7bn of turnover in FY2010E with average profitability at PAT level in line with the parentbusiness or slightly ahead of it.

Order book visibility declies led by cancellation, adjusted for that meets its orderbooking target for FY2009

Order book visibility of Nagarjuna Construction has declined to about 2.5 years based on



Promoters 24.4 - -

FIIs 27.1 0.1 0.0

MFs 22.1 0.4 0.3

UTI - - (0.1)

LIC - - (0.1)

Construction

NGCN.BO, Rs139Rating



52W High -Low (Rs) 203 - 34



Sales (Rs bn) 46.4 55.6 60.7


EPS (Rs) 7.3 8.8 9.7

EPS gth 2.5 19.7 10.0

P/E (x) 18.9 15.8 14.4

EV/EBITDA (x) 10.2 8.5 7.7

Div yield (%) 1.0 1.2 1.4

BUY

Attractive

Pricing performance


101.0 220.9 133.4 (28.5)



following four quarters revenues versus about 2.9 at the end of 1QFY09E. WhileNagarjuna has won orders worth Rs65 bn, net order booking adjusted for cancellation ofRs12.3 bn was Rs54.2 bn. Nagarjuna reports that it is L1 in orders worth Rs10 bn,particularly in the electrical segment.

Revise earnings estimates, Maintain BUY with a target price of Rs145 versusRs120 earlier

We have revised our FY2010E and FY2011E earnings estimates to Rs7.5 (from Rs8.8earlier) and Rs8.5 (from Rs9.7 earlier) based on lower execution as well as slightly lowermargin expectation versus earlier in. We have also revised our SOTP-based target price toRs145 from Rs120 earlier based on core construction business valuation to Rs110 (versusRs90 earlier) based on revision in target P/E multiple to 13X and rollover to FY2011E fromFY2010E basis earlier. BOT projects and real estate both contribute about Rs17 to ourtarget price based on book value of equity invested as well as potential upside on bookvalue from BOT projects. We maintain BUY based on (a) strong growth visibility based onorder backlog, (b) ramp up of business segments in areas like metals, power andinternational – areas that hold immense potential, and (c) long-term outlook of stronginfrastructural investments.

Exhibit 1. Nagarjuna Construction - 4QFY09 - key numbers (Rs mn)% change yoy

(in Rs mn) 4QFY09 4QFY09E 4QFY08 3QFY09 4QFY09E 4QFY08 3QFY09 FY2009 FY2008 % chgNet sales 10,959 15,413 12,541 10,266 (29) (13) 7 41,199 34,729 18.6

Operating costs (10,143) (11,447) (9,367) (11) 8 (37,777) (31,131) 21.3 (Increase)/Decrease in Stock in Trade (217) 269 540 (181) (140) 1,378 774 Raw materials (3,074) (4,564) (4,002) (33) (23) (14,420) (11,718) 23.1 Other construction expenses (5,203) (5,390) (4,234) (3) 23 (18,007) (14,780) 21.8 Labour (1,080) (1,140) (946) (5) 14 (3,923) (3,228) 21.5 Staff cost (409) (387) (458) 6 (11) (1,886) (1,402) 34.5 Other expenditure (161) (235) (267) (32) (40) (920) (777) 18.3 Operating profit 816 1,272 1,094 899 (36) (25) (9) 3,422 3,598 (4.9) Other income 37 37 8 (1) 340 356 56 542.0 Interest cost (213) (174) (238) 22 (10) (964) (719) 33.9 Depreciation (123) (138) (119) (11) 3 (533) (482) 10.6 Profit before tax 517 798 819 550 (35) (37) (6) 2,282 2,452 (6.9) Tax (135) (275) (293) (188) (51) (54) (28) (743) (833) (10.7) Profit after tax 382 522 526 363 (27) (27) 5 1,539 1,620 (5.0)

Key ratiosRaw material, labour and other const. expenses 87.4 - 86.3 84.2 84.9 83.4 1.5 Staff cost 3.7 - 3.1 4.5 4.6 4.0 0.5 Other expenditure 1.5 - 1.9 2.6 2.2 2.2 Operating profit margin (%) 7.4 8.3 8.7 8.8 (0.8) (1.3) (1.3) 8.3 10.4 (2.1) PBT margin (%) 4.7 5.2 6.5 5.4 5.5 7.1 PAT margin (%) 3.5 3.4 4.2 3.5 3.7 4.7 Effective tax rate (%) 26.1 34.5 35.8 34.1 32.6 34.0




Exhibit 2. Consolidated results of Nagarjuna Construction, March fiscal year-ends FY2008-09, (Rs mn)

(in Rs mn) FY2009 FY2008 % chgNet sales 47,241 36,354 29.9 Other income 782 236 231.6

Operating profit 5,203 4,212 23.5 Interest cost (1,737) (1,063) 63.4 Depreciation (823) (607) 35.7

Profit before tax 2,643 2,543 3.9 Tax (793) (854) (7.2)

Profit after tax 1,850 1,689 9.6

Key ratiosOperating profit margin (%) 11.0 11.6 PAT margin (%) 3.9 4.6

Effective tax rate (%) 30.0 33.6


Exhibit 3. Order book continues to be well diversified Segment wise order book break up at end of 4QFY09 and FY2008

Source: Company

4QFY09Buildings

21%

Roads/Transp

ortation

8%

International

26%

Irrigation

5%

Electrical

5%

Metals

12%

Oil & gas

1%

Pow er

1%

Water and

env ironment

21%

FY2008 Buildings

19%

Roads/Transp

ortation

15%

Electrical

3%

Irrigation

7%

Metals

6%

International

22%

Water and

env ironment

16%

Pow er

1%

Oil & gas

11%



Exhibit 4. Nagarjuna Construction met the order booking target of Rs65 bn for FY2009E, however was beset by cancellations of oil and Gas orderOrder book details of Nagarjuna Construction, March fiscal year-ends, 2008-2009Date Segment Client (Rs mn) Profile of work

12-Mar-09 Buildings Institute of Chartered Financial Analysts 610 Construction of academic block12-Mar-09 Water supply Commissioner, Coimbatore Corporation 830 Different water works12-Mar-09 Electrical Maharashtra State Electricity Distribution Company Limited 1,190 Tunkey contract for "Infrastructure Plan Phase-II Project Works"

9-Feb-09 Others Mumbai Metropolitan Region Development Authority, Mumbai 410 Construction of skywalk at Thane9-Feb-09 Others Bangalore Metro Rail Corporation Ltd, Bangalore 1,500 Design and construction of various works9-Feb-09 Buildings National Buildings Construction Corporation Ltd, New Delhi 1,610 Construction of houses for NMDC9-Feb-09 Others Singareni Collieries Company Ltd, Khammam, Andhra Pradesh 3,600 Blast hole drilling, controlled blasting and other works1-Dec-08 Buildings Learning Panorama Foundation, Mumbai 360 Construction of school project1-Dec-08 Buildings Project Seabird, New Delhi 450 Construction of dwelling units and commons facilities1-Dec-08 Buildings Yogi Vemana University, Kadapa 720 Construction of buildings at university campus1-Dec-08 Buildings National Institute of Technology (NIIT), Agartala 990 Construction of boys and girls hostel1-Dec-08 Others Paschim Kshetra Vidyut Vitaran Co. Ltd, Indore 1,110 Several works1-Dec-08 Buildings Golden Jubilee Hotels Ltd, Hyderabad 1,210 Construction of 5 star delux hotels3-Nov-08 Others Assam State Electricity Board, Assam 1,260 Several works3-Nov-08 Water supply HMWSSB, Hyderabad 4,010 Transmission of Godavari water for drinking water needs

23-Sep-08 Water supply APIICL, Hyderabad 500 Commissioning of gravity main for Somasila drinking water supply scheme23-Sep-08 Buildings Infopark, Thapasya, Kusumagiri, Kochi 610 Construction of software development buildings23-Sep-08 Water supply Public Health, Government of Andhra Pradesh 730 Design and development of water supply scheme23-Sep-08 Others MSEDCL, Mumbai 2,290 Supply and commissioning od sub transmission lines21-Aug-08 Others KSRTC Civil Engineering Division, Mysore 1,080 Development of transport infrastructure facilities21-Aug-08 Buildings Bangalore Metropolitan Transport Corporation, Bangalore 1,140 Construction of traffic and transit management centre21-Aug-08 Buildings Engineers India Ltd, New Delhi 2,520 Development of sports facilities5-Aug-08 Buildings National Institute of Technology (NIT), Warangal, Andhra Pradesh 849 Construction of hostel buildings5-Aug-08 Others MSRDC, Aurangabad, Maharashtra 318 Design and construction of proposed ROB5-Aug-08 Water supply PHED, Jodhpur, Rajasthan 2,191 Water supply scheme5-Aug-08 Irrigation Medium Irrigation Projects Circle, Bellampaly 1,077 Lift irrigation scheme26-Jun-08 Transportation Bangalore Development Authority, Bangalore 800 Construction of outer ring road26-Jun-08 Transportation Bangalore Development Authority, Bangalore 940 Construction of grade separators along outer ring road26-Jun-08 Water supply Water Supply and Drainage Dept, Pimpri Cihnchwad Corporation, 1,590 Direct pipeline from Pawana dam to water treatment plant at NIGDI, Pune16-Jun-08 Others Steel Authority of India Ltd, Burnpur, West Bengal 2,846 Basic Oxygen Furnace, continuous Casting Plant, Lime & Dolomite Plant16-Jun-08 Others Steel Authority of India Ltd, Burnpur, West Bengal 1,972 Re-heating Furnace, Rolling Mills16-Jun-08 Buildings Nizam Institute of Medical Sciences, Hyderabad 932 University Campus, Heart Institute, Medical University Buildings2-Jun-08 Buildings Central Publics Work Department, New Delhi 886 General pool office complex2-Jun-08 Buildings Central Publics Work Department, New Delhi 655 Weightlifting Auditorium2-Jun-08 Others Brahmani River Pellets Ltd., Bhubaneswar 270 Pelletisation Plant2-Jun-08 Water supply Engineer in chief, DW&SD, Ranchi 687 Augmentation of Dhanbad Phase II water supply scheme

Total orders booked in FY2009 44,743 5-Mar-08 Water supply Indore Municipal Corporation, Indore 2,660 Sewerage System & allied works5-Mar-08 Transportation Mumbai Metropolitan Region Development Authority, Mumbai, M 1,120 Flyovers on Dr. Babasaheb Ambedkar Marg5-Mar-08 Buildings Volkswagen India Pvt Ltd., Chakan, MIDC, Pune, Maharashtra 460 construction of Body Shop hall16-Jan-08 Water supply Public Health, Government of Andhra Pradesh 1,850 Water Supply Improvement Scheme at Warangal16-Jan-08 Buildings Greater visakhapatnam Municipal Corporation, Visakhapatnam 840 Infrastructure facilities16-Jan-08 Buildings M/s. Salarpuria Properties Pvt Ltd, Bangalore 500 Salarpuria Cyber Gardens at Hitech City16-Jan-08 Water supply Engineer-in-Chief (PH), Public Health, Hyderabad 530 Water Supply Improvement Scheme at Kadiri16-Jan-08 Water supply Public Health Engineering Department, Govt. of Chhattisgarh, Raip 530 Augmentation Water Supply Scheme16-Jan-08 Water supply Karnataka Urban Water Supply & Drainage Board, Bangalore 770 Re-modelling of WS Distribution Network at Mysore24-Dec-07 Transportation Government of Oman 5,700 Wadi Adai Al Amerat Road project: 6 new bridges, 9 box culverts, 1 single lane bridge20-Dec-07 Electrical Dakshin Haryana Bijli Nigam Ltd (DHBNL), Haiyana 2,300 New 11 KV Single Circuit lines providing HVDS20-Dec-07 Water supply Thane Municipal Corporation, Thane, Maharashtra 770 Water Supply Scheme26-Sep-07 Water supply Brandix India Apparel City, Vishakhapatnam 410 Raw Water Storage Reservoir 26-Sep-07 Others Volkswagen India Pvt Ltd 660 Paint Shopt & HRK Hall 26-Sep-07 Buildings Govt of India, 1,360 EMBASSY OF INDIA COMPLEX19-Jul-07 Others Steel Authority of India Ltd for IISCO Steel Plant at Burnpur, West 11,000 Setting up of Blast Furnace Complex

17-Sep-07 Water supply Ahmedabad Municipal Corporation, Ahmedabad 320 Construction of Water Treatment Plant 17-Sep-07 Transportation Karnataka Road Development Corporation Ltd 1,090 Bridges in Karnataka 11-Sep-07 Buildings Offbeat Developers 600 Mall for Market City Mumbai 11-Sep-07 Buildings Satyam Computer Services Ltd 960 Shell and Core in SEZ Infocity 25-Jul-07 Transportation Pondicherry to Tindivanam Section, BOT project 2,850 Roads18-Jul-07 Buildings Shriram Properties Ltd 360 Multi storied apartments complex18-Jul-07 Irrigation Andhra Pradesh government 2,000 Turn key order for Tunnel

27-Jun-07 Buildings Rajeev Gandhi University of Health Science's 3,378 Residentail buildings14-Jun-07 Building National Institute of Technology (NIT), Warangal, Andhra Pradesh 610 Residential buildings

26-Mar-07 Others Other orders 560 N.A.26-Mar-07 Water supply Government of West Bengal, Kolkatta 2,460 Surface water based water supply scheme in Nadia District in West Bengal 14-Mar-07 Buildings Punjab Cricket Association 740 Cricket stadium at Mohali14-Mar-07 Irrigation Government of Andhra Pradesh 860 Irrigation Project in Kurnool District

8-Jan-07 Electrical Gulbarga district, Karnataka 580 Rajeev Gandhi Grameen Vidyutikaran Yojana (RGGVY) Scheme 8-Jan-07 Water supply Maharashtra Airport Development Company Limited 2,020 Supply and Underground Sewerage System at Nagpur2-Jan-07 Water supply Rajasthan Rajya Vidyut Utpadan Nigam Limited 420 Water intake system for the 500 MW Chhabra Thermal Power Project2-Jan-07 Electrical Jharkhand State Electricity Board 1,310 Rural Electrification Work under Rajiv Gandhi Grameen Vidutikaran Yojana

27-Dec-06 Water supply Millitary Engineer Services, Chandigarh 230 Water Supply of Ambala Cant27-Dec-06 Buildings Sahara India Commercial Corporation Ltd 650 Villas at Amby valley27-Dec-06 Water supply Government of Rajasthan 2,820 Water Supply at Ajmer 13-Nov-06 Irrigation Government of Andhra pradesh 2,260 Widening of SRBC main canal, in JV with Maytas Infrastructure13-Nov-06 Buildings CPWD, New Delhi 980 Construction of Jawahar Lal Bhavan28-Sep-06 Water supply Water Supply and Drainage work Boards 580 Water supply orders28-Sep-06 Transportation Karnataka Road Development Corporation 560 construction of roads in Karnataka 28-Sep-06 Buildings CPWD, New Delhi 860 Cabinet Secretariat Building29-Aug-06 Buildings Times of India Group - Printing Press complex 1,140 Priting press complex at Times Print City, Airoli, Navi Mumbai

1-Jul-06 Transportation Govt of Chattisgarh for Rehabilitation and 650 Upgradation of Road (ADB funded project01-Jul-06 Irrigation Govt of Madhya Pradesh 530 Construction of Sanjay Sagar Dam Project 1-Jul-06 International Sultanate of Oman 7,200 Dualization & Realignment of AI-Amerat Quriyat Road at Muscat

1-Jun-06 Buildings Government of Jharkhand 1,520 Mega Sports Complex at Ranchi 1-Jun-06 Electrical Maharashtra State Electricity Distribution Company Limited 2,700 Gaothan Feeder Separation Scheme from MSEB

1-May-06 International Muscat Municipality, Muscat, Sultanate of Oman 1,160 Sohar Water Network, Phase-I in Oman1-May-06 Others Other Domestic Orders 2,460 Miscellaneous

Total orders booked in FY2008 78,878



Exhibit 5. Nagarjuna Construction has visibility of 2.2 years based on forward four quarter revenuesOrder backlog, order booking and visibility (X) of Nagarjuna Construction


0

20

40

60

80

100

120

140

FY01

FY02

FY03

Q10

4

Q20

4

Q30

4

Q40

4

Q10

5

Q20

5

Q30

5

Q40

5

Q10

6

Q20

6

Q30

6

Q40

6

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

Q20

8

Q30

8

Q40

8

Q10

9

Q20

9

Q30

9

(Rs bn)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Order backlog ( Rs bn, LHS) Order booking (Rs bn, LHS) Visibility (X, RHS)

Exhibit 6: Derivation of SOTP based target price for NCCL

Project/BusinessEquity commitment

(Rs mn) Valuation

(Rs mn) Rs/share Valuation methodology

Value of core construction business 18,978 110.6 P/E multiple of 13.0X FY2011E earningsBook value of equity investments in real estate 3,796 3,796 16.6 1X bookBook value of investments in BOT assets 2,711 2,711 11.8 1X bookIncremental value from roads, power and housing projects

3,148 1,298 5.7Brindavan Infrastructure Co. Ltd. 150 60 0.3 Incremental P/B of 0.4Bangalore elevated Corridor Project 637 478 2.1 Incremental P/B of 0.75Western UP Tollway Ltd. 239 179 0.8 Incremental P/B of 0.75Orai - Bhognipur 832 333 1.5 Incremental P/B of 0.4Pondicherry Tindivanam Tollway Limited 375 150 0.7 Incremental P/B of 0.4Gautami Power 420 0 0.0 Incremental P/B of 0Hydropower project in Himachal Pradesh 495 99 0.4 Incremental P/B of 0.2Total 145


Exhibit 7: Change in estimates for Nagarjuna Construction

Target price (Rs)Rating

FY2010E FY2011E FY2010E FY2011ERevenues (Rs mn) 50,434 57,351 55,625 60,725EBIDTA (Rs mn) 4,682 5,324 5,303 5,789EBITDA margin (%) 9.3 9.3 9.5 9.5PAT (Rs mn) 1,720 1,949 2,013 2,214EPS (Rs) 7.5 8.5 8.8 9.7EPS growth (%) 11.9 13.3 19.7 10.0


BUY BUY145 120

Nagarjuna ConstructionNew estimates Old estimates



Welspun Gujarat Stahl Rohren: Forex losses pull down 4QFY09 PAT

• 4QFY09 adjusted PAT of Rs762 mn below our estimate due to forex losses

• Management once again changes stance on plate mill usage

• Revise target price to Rs125, maintain REDUCE

Welspun's 4QFY09 results were below our estimates—consolidated adjusted PAT of Rs762mn against our estimate of Rs1 bn. The negative surprise was mainly due to forex losses ofRs604 mn resulting in lower EBITDA. Revenues at Rs17 bn were in line with our estimates.For the full year, the company has provided Rs3.6 bn towards forex loss (Rs1.4 bn of whichis MTM adjustment which may be reversed in future years). Management once againchanged its plans for the plate mill utilization and it now plans to increase focus onexternal sale of commercial grade plates. The company also plans to raise US$200 mnthrough equity issuance to fund organic/inorganic growth and reduce leverage. We reviseour FY2010E and FY2011E EPS estimates to Rs23.1 and Rs17.1 from Rs21.6 and Rs16.6,respectively. We increase our target price to Rs125 to factor in higher cash balances andlower working capital investment. However, we maintain our REDUCE rating on concernsof (1) low order flow reducing revenue visibility and (2) low plate mill utilization in absenceof sufficient LSAW orders.

Forex loss pulls down 4QFY09 margins and PAT below estimate• Revenues at Rs17 bn in line with estimate. Welspun’s 4QFY09 consolidated

revenues at Rs17 bn (up 16.7% qoq and 38.5% yoy) were in line with our estimate.The consolidated revenues were lower than standalone revenues of Rs18.4 bn due tosale of traded goods to the US subsidiary. Total pipe volume was 185,490 tons (up 20%qoq and down 4% yoy) versus our estimate of 190,207 tons. However, higher-than-expected realization for the HSAW pipes resulted in in-line revenues.

• EBITDA margin below estimate due to forex losses. Welspun’s 4QFY09consolidated EBITDA margin at 13.7 % was lower than our estimate of 18.1% mainlydue to forex loss. Total forex charge during the quarter was Rs1,314 mn (of whichRs710 mn) was extraordinary, resulting in a net forex charge of Rs604 mn. Adjusting forthe forex charge, margin would have been at 17.2%.

• PAT lower than estimate due to forex losses. Welspun’s consolidated adjusted PATof Rs762 mn was lower than our estimate of Rs1 bn mainly due to the Rs604 mn offorex losses.

Exchange rate fluctuation resulted in Rs4.6 bn of forex loss in FY2009

The high variation in exchange rate resulted in Rs4.6 bn of forex loss in FY2009 (seeExhibit 3). Out of the above, Rs3.6 bn was charged to P/L account, Rs616 mn capitalizedto fixed assets (as per the latest amendment to AS-11 as notified by the govt) and Rs355mn was deferred to the balance sheet to be charged over the next two years. The totalcash loss during the year was Rs2.2 bn and the remaining Rs2.4 bn was MTM adjustmentwhich may be reversed in subsequent periods in the event of appreciation of the Rupee.We highlight that a part of the Rs2.2 bn cash loss during the year may have beenrecovered by way of higher sales realizations on conversion of foreign currency hence wedo not treat the same as extraordinary. We treat Rs1.4 bn of MTM adjustment charged tothe P/L as extra-ordinary since this may be reversed in future periods.



Promoters 43.9 - -

FIIs 14.0 0.0 (0.0)

MFs 9.6 0.2 0.1

UTI - - (0.1)

LIC 1.1 0.0 (0.0)

Pipes

WGSR.BO, Rs169Rating



52W High -Low (Rs) 402 - 45



Sales (Rs bn) 57.4 70.8 59.8


EPS (Rs) 17.3 23.4 17.3

EPS gth (15.8) 35.0 (25.7)

P/E (x) 9.8 7.2 9.7

EV/EBITDA (x) 6.6 4.6 5.4

Div yield (%) 1.2 0.9 0.9

REDUCE

Attractive

Pricing performance


68.0 172.1 109.8 (55.2)



Plate mill performance dismal—management now focusing on commercial plates

The plate mill’s production at 192,000 tons was much below the management’s initialexpectation of 600,000 tons in FY2009. Our earlier concerns regarding (1) stabilization ofthe plate mill, (2) difficulty in rolling out API grade plates regularly and (3) lack ofsignificant captive demand due to insufficient LSAW orders were the key reasons for thedismal performance. Management corroborated our concerns and indicated that platemill’s performance has not been as per the expectations due to too many shutdowns anddifficulty in stabilizing the API grade plate production. Management has once againchanged its strategy for the plate mill :-

• The plate mill will be demerged into a 100% subsidiary with a separate managementteam to improve operational focus and marketing efforts

• Company is setting up 15 depots at various cities to sell its commercial grade plates

• It plans to sell plates to the railways and defence agencies and also for infrastructureand shipbuilding purposes

We believe the above measures indicate that the plate-cum-coil mill is not being effectiveas a backward integration project due to the lack of sufficient LSAW orders. The spreadbetween slab and plate prices have also reduced substantially thus the plate mill marginshave also shrunk from US$300/ton to US$100/ton. Welpsun will have to compete withintegrated steel players in the commercial grade plate market who have very lowproduction cost. The low margins and low volumes would imply a very low return on thelarge investment (US$400 mn) in the plant.

Current order book only limited till FY2010E; no visibility for FY2011E

Welspun’s current order book of Rs77 bn (including Rs6.4 bn for plates) is to be largelyexecuted in FY2010E. It has not received any major orders in the last 6 months except theRs4.5 bn order from GAIL. The company targets around 800, 000 tons of pipes inFY2011E; however currently it has no orders for the next year. We believe under thecurrent low demand scenario and increased competition it will be difficult for it to achievethe targeted volumes.

US$200 mn equity issuance planned

Welspun plans to raise fresh equity upto US$200 mn to fund organic/inorganic growthand reduce current debt position. Management indicated that they are looking at buyoutoptions in geographies where they are currently not present; however, they declined toelaborate on further plans at current stage.

Revise estimates marginally

We revise our FY2010E and FY2011E EPS estimates to Rs23.1 and Rs17.1 from Rs21.6 andRs16.6, respectively. Our FY2010E EPS increase is mainly due to increase in our assumptionof external plate sales to 136,125 tons from 79,500 tons earlier based on recently receivedexport orders. Our FY2011E EPS increase is mainly on account of lower interest anddepreciation costs.

Increase target price to Rs125, maintain REDUCE

We increase our DCF-based target price to Rs125 (from Rs100) to factor in higher cashbalances at end-FY2009E and lower working capital investment. We find the currentvaluation expensive at 9.9X FY2011E EPS. At our target price the stock will be valued at7.9X and 4X FY2011E EPS and EBITDA, respectively. We maintain our REDUCE rating dueto concerns on the global pipe demand and low returns on the plate mill investment.



Exhibit 1: Welspun Gujarat, Interim results (consolidated), March fiscal year-ends, (Rs mn)

4QFY09 KIE (% chg) 2009 2008 (% chg)Net sales 16,998 16,538 2.8 57,395 39,945 43.7 EBITDA 2,321 2,996 (22.5) 7,924 6,555 20.9 OPM (%) 13.7 18.1 13.8 16.4 Other income 34 27 25.9 187 107 74.3 Interest (533) (771) (30.9) (1,766) (818) 115.9 Depreciation (523) (585) (10.6) (1,433) (609) 135.3 Pretax profits 1,299 1,667 (22.1) 4,912 5,236 (6.2) Extra-ordinary (710) - (1,576) - Reported PBT 589 1,667 (64.7) 3,336 5,236 (36.3) Tax (270) (618) (56.3) (1,200) (1,828) (34.3) Net income 319 1,049 (69.6) 2,136 3,408 (37.3) Adjusted profits 762 1,049 (27.3) 3,152 3,408 (7.5)

Note: 4QFY09 consolidated numbers have been calculated by dedcuting the 9 month standalone numbers from the FY2009 consolidated numbers since the US plant was commercialised in 4QFY09 only.


Exhibit 2: Welspun Gujarat, Interim results (standalone), March fiscal year-ends, (Rs mn)

qoq yoy4QFY09 3QFY09 (% chg) 4QFY08 (% chg) 2009 2008 (% chg)

Gross revenues 18,735 15,457 21.2 12,724 47.2 61,097 41,730 46.4 less:excise (350) (891) (449) (2,314) (1,626) Net sales 18,385 14,566 26.2 12,275 49.8 58,783 40,104 46.6 Total expenditure (16,066) (12,718) 26.3 (10,312) 55.8 (50,861) (33,575) 51.5 Inc/(Dec) in stock 757 2,447 (69.1) (370) (304.5) 4,113 1,379 198.3 Raw materials (15,691) (13,126) 19.5 (7,753) 102.4 (46,227) (27,818) 66.2 Staff cost (277) (302) (8.0) (200) 38.7 (1,153) (743) 55.2 Other expenditure (855) (1,737) (50.8) (1,989) (57.0) (7,594) (6,393) 18.8 EBITDA 2,319 1,848 25.5 1,963 18.1 7,923 6,529 21.3 OPM (%) 12.6 12.7 16.0 13.5 16.3 Other income 26 50 (48.7) 108 (76.1) 179 186 (3.9) Interest (501) (480) 4.5 (346) 44.9 (1,735) (801) 116.6 Depreciation (345) (316) 9.2 (180) 91.4 (1,254) (572) 119.3 Pretax profits 1,499 1,103 35.8 1,545 (3.0) 5,112 5,342 (4.3) Extra-ordinary (710) (420) - (1,576) - Tax (270) (231) 17.2 (523) (48.3) (1,200) (1,828) (34.3) Net income 519 453 14.4 1,022 (49.3) 2,336 3,514 (33.5) Adjusted profits 985 731 34.8 1,022 (3.6) 3,377 3,514 (3.9) Income tax rate (%) 34.3 33.7 33.9 33.9 34.2


yoy



Exhibit 3: Welspun Gujarat, Forex impact in FY2009 (Rs mn)

ECB Others TotalTotal forex loss 1,149 3,433 4,582 Accounting impactCapitalised to Fixed assets 616 — 616 Charged to P/L 178 3,433 3,611 Deferred to B/sheet 355 — 355 Total 1,149 3,433 4,582 Cash flow impactCrystalised and paid — 2,177 2,177 MTM adjustment 1,149 1,256 2,405 Total 1,149 3,433 4,582

Source: Company data

Note: The total MTM adjustment of Rs2.4 bn may be reversed in future years in the event of appreciation of Rupee/US$.

Exhibit 4: Management changing stand on plate mill utilisationsManagement views on utlisation of the plate-cum-coil mill

Date Management commentAug-07 Plate mill to be used captively as well as for external salesOct-07 Plate and coil production to be done only for captive use- no external salesMar-08 Coil production delayed to 3QFY09, captive plate consumption only from 4QFY08Apr-08 FY2009E production target of 600,000 tons; 60-70% of current year's production targeted for captive consumptionOct-08 FY2009E production target reduced to 340,000 tons from 600,000 tons; external sale only 40,000 tonsApr-09 Plate mill to be demerged to 100% subsidiary for better management of operations and fiscal benefitsMay-09 FY2009 production only 192,000 tons; setting up 15 regional depots for selling commercial grade plates




Exhibit 5: Welspun Gujarat, change in estimates, March fiscal year-ends, (Rs mn)

New Old Change(%) New Old Change(%)Revenue 70,813 66,566 6.4 59,842 58,952 1.5 EBITDA 10,035 9,913 1.2 8,079 8,139 (0.7) EBITDA margin (%) 14.2 14.9 — 13.5 13.8 — Net profit 4,355 4,084 6.6 3,235 3,125 3.5 Diluted EPS 23.1 21.6 6.6 17.1 16.6 3.5 Sales (tons)HSAW 422,500 422,500 — 375,000 375,000 — ERW 87,500 87,500 — 100,000 100,000 — LSAW 227,500 210,000 8.3 175,000 175,000 — HSAW- USA 135,000 135,000 — 135,000 135,000 — Plate (external sales) 136,125 79,500 71.2 191,250 191,250 — Realisation (US$/ton)HSAW 1,454 1,457 — 1,309 1,311 (0.2) ERW 1,189 1,189 — 1,070 1,070 - LSAW 1,632 1,632 — 1,501 1,501 - HSAW- USA 1,454 1,457 — 1,309 1,311 (0.2) Plate 1,044 1,044 — 938 938 - EBITDA (US$/ton)HSAW 200 188 6.1 165 167 (1.2) ERW 35 35 — 43 43 - LSAW 182 182 — 157 157 - HSAW- USA 171 173 (1.3) 150 152 (1.3)

Source: Kotak Institutional Equities

2011E2010E



2007 2008 2009 2010E 2011EProfit model Net revenues 26,785 39,945 57,395 70,813 59,842 EBITDA 3,332 6,476 7,924 10,035 8,079 Other income 19 107 187 150 150 Interest (expense)/income (708) (818) (1,766) (1,883) (1,463) Depreciation (476) (609) (1,433) (1,867) (2,048) Adjusted pretax profits 2,167 5,157 4,912 6,434 4,718 Tax (672) (884) (450) (1,178) (1,011) Deferred taxation (93) (944) (750) (901) (472) Adjusted consolidated net income 1,411 3,356 3,152 4,355 3,235 Diluted Earnings per share (Rs) 8.6 18.0 16.7 23.1 17.1 Balance sheetTotal equity 6,535 15,672 15,924 20,075 22,874 Deferred taxation liability 794 1,738 2,488 3,389 3,861 Total borrowings 15,146 25,274 30,872 29,090 21,734 Current liabilities 10,558 17,061 42,857 47,331 36,668 Total liabilities and equity 33,103 59,745 92,141 99,884 85,137 Cash 3,574 2,703 9,583 14,469 9,564 Other current assets 12,781 23,418 41,015 45,682 37,061 Total fixed assets 16,492 26,807 36,836 35,665 34,445 Investments 256 6,817 4,707 4,068 4,068 Total assets 33,103 59,745 92,141 99,885 85,137 Free cash flowOperating cash flow, excl working capital 2,002 5,061 7,141 6,974 5,605 Working capital changes (2,601) (2,993) 3,448 (193) (2,042) Capital expenditure (6,294) (12,400) (11,470) (697) (828) Investments (256) (6,525) 2,110 639 - Other income 46 360 187 150 150 Free cash flow (7,102) (16,497) 1,417 6,873 2,886 Ratios (%)EBITDA margin (%) 12.4 16.2 13.8 14.2 13.5 Debt/equity 1.6 1.5 1.7 1.2 0.8 Net debt/equity 1.1 0.9 0.9 0.4 0.3 RoAE 22.0 27.1 17.6 20.8 12.9 RoACE 10.3 11.9 10.5 11.1 8.4


Exhibit 6: Profit model, balance sheet, cash model for Welspun Gujarat, March fiscal year-ends, 2007-2011E, (Rs mn)



Exhibit 7: Basic assumtions for Welspun Gujarat earnings estimateWelspun, operating assumptions, March fiscal year-ends, 2007-2011E

2007 2008 2009 2010E 2011ESales (tons)HSAW 217,739 331,113 453,768 422,500 375,000 ERW 110,000 51,071 79,537 87,500 100,000 LSAW 175,000 259,300 156,853 227,500 175,000 HSAW- USA — — 3,500 135,000 135,000 Plate (external sales) — — 42,073 136,125 191,250

Realisation (US$/ton)HSAW 1,074 1,351 1,594 1,454 1,309 ERW 850 1,105 1,306 1,189 1,070 LSAW 1,235 1,650 1,898 1,632 1,501 HSAW- USA — — 1,594 1,454 1,309 Plate — — 1,218 1,044 938

EBITDA (US$/ton)HSAW 138 317 229 200 165 ERW 14 180 70 35 43 LSAW 88 131 220 182 157 HSAW- USA — — — 171 150 Plate - external — — 130 130 130 Plates - captive — — 130 130 130


Exhibit 8: Our DCF-based valuation for Welspun Gujarat is Rs125DCF valuation of Welspun Gujarat, March fiscal year-ends (Rs mn)

Terminal2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E Value

EBITDA 10,035 8,079 8,084 8,087 7,845 7,735 7,224 7,519 7,519 Tax expense (1,497) (1,298) (1,476) (1,652) (1,750) (1,816) (1,683) (1,861) (1,933) Changes in working capital (193) (2,042) (1,907) 1,333 61 (11) 120 (91) 5 Cash flow from operations 8,345 4,739 4,701 7,769 6,156 5,908 5,660 5,567 5,592 Capital expenditure (697) (828) (633) (857) (874) (1,114) (1,371) (1,882) (1,958) Free cash flow to the firm 7,649 3,912 4,068 6,912 5,282 4,794 4,289 3,684 3,634 32,075 Dicounted cash flow-now 6,911 3,128 2,879 4,328 2,927 2,351 1,861 1,415 1,235 Discounted cash flow-1 year forward 3,534 3,253 4,891 3,308 2,657 2,103 1,599 1,396 Discounted cash flow-2 year forward 3,676 5,526 3,738 3,002 2,377 1,807 1,577

Discount rate 13.0%Growth from 2017 to perpetuity 1.5%

Discount factor at WACC 0.90 0.80 0.71 0.63 0.55 0.49 0.43 0.38 0.34

+ 1-year + 2-years

Total PV of free cash flow (a) 22,740 68% 21,702 64%PV of terminal value (b) 10,901 32% 12,319 36% 122 12.5% 13.0% 13.5% 14.0%EV (a) + (b) 33,641 34,021 0.0% 121 115 109 104 EV (US$ mn) 687 694 0.5% 123 117 111 106 Net debt 10,554 8,104 1.0% 126 120 113 108 Equity value 23,087 25,917 1.5% 129 122 116 110 No. of shares 188.8 188.8 2.0% 133 125 118 112 Implied share price (Rs) 122 137 2.5% 136 128 121 115 Exit EV/EBITDA multiple (X) 4.3 4.4 3.0% 140 132 124 117 Exit FCF multiple (X) 8.8

Source: Kotak Instituitonal Equities estimates

Gro

wth

Rat

e

WACC

Sensitivity of DCF value to WACC and growth rate (Rs)



PSL: 4QFY09—strong revenues but disappointing margins

• Higher realization drive revenues up 86% yoy to Rs12.2 bn

• EBITDA margin at 4% a big disappointment

• Revise target price to Rs160, maintain BUY as valuations remain attractive

PSL reported 4QFY09 results significantly below expectations. PAT of Rs136 mn (down26% yoy and 45% qoq) was much below our estimate of Rs278 mn. EBITDA margin at4% was significantly below our estimated 7.9% mainly due to higher materials costs. Asper management, the forex liabilities for the imported raw materials were not hedged dueto which the cost of the steel increased on account of Rupee depreciation. Revenues atRs12.2 bn (up 86% yoy and 25% qoq) were higher than our estimate of Rs10.1 bn mainlyon account of higher realizations. Pipe volume during the quarter was 156,937 tonsagainst estimated 150,000 tons. We reduce our FY2010E and FY2011E EPS estimates toRs36.8 and Rs30, respectively, from Rs43.7 and Rs37.8 due to lower domestic pipe volumeassumptions. We were earlier factoring few of the orders from GAIL to be awarded to PSL;however, with two of the recent orders being given to competitors we reduce ourdomestic volume estimates for PSL. We revise our DCF-based target price to Rs160 (fromRs145) on account of roll forward of our forecast period.

4QFY09—Forex fluctuation pulls down EBITDA margin• Disappointing margins. PSL’s 4QFY09 EBITDA margin at 4% (8.3% in 4QFY08 and

7.4% in 3QFY09) was significantly below our estimate of 7.9%. This is the lowestmargin reported in last 16 quarters and was a big negative surprise. As explained by themanagement, the drop in margins was mainly on account of increase in the foreigncurrency liabilities due to depreciation of the rupee. The company had not hedged itsforex liabilities for steel resulting in a higher payout due to the steep depreciation of theRupee. Also PSL had not accounted for the forex movements in the earlier quarters andthe full adjustment was made at the year-end resulting in a high charge in 4QFY09.

• Higher realizations drive revenues above estimates. Revenues for the quarterwere at Rs12.2 bn (up 86% yoy and 25% qoq ) versus our estimate of Rs10.1 bn.Higher realizations (Rs77,520/ton versus estimated Rs67,500/ton) resulted in higher-than-expected revenues. Total pipe volumes during the quarter were at 156,937 tonsagainst estimated 150,000 tons.

• PAT below estimates due to lower margin. PSL’s 4QFY09 reported PAT at Rs136 mn(down 26% yoy and 45% qoq) was much below our estimate of Rs278 mn. LowerEBITDA margins resulted in PAT below estimates. The yoy decline in PAT was mainly dueto higher interest cost for the working capital debt.

Reduce estimates for lower volumes

We reduce our FY2010E and FY2011E EPS estimate to Rs36.8 and Rs30 from Rs43.7 andRs37.8, respectively to factor in lower domestic volumes. We reduce our pipe volumeestimates for FY2010E and FY2011E to 548,000 tons and 554,000 tons from 679,000tons and 631,000 tons, respectively. We were earlier factoring few of the orders from GAILto be awarded to PSL; however, with two of the recent orders being given to competitorswe reduce our near-term domestic volume estimates. We also reduce our FY2011Erealization estimated by 5-7%.

Revise target price to Rs160, maintain BUY

We revise our 12-month DCF-based target price to Rs160 (Rs145 earlier) as we roll forwardour forecast period. We find the current valuations at 3.5X and 4.4X FY2010E EPS andEBITDA, respectively. Our target price implies 4.3X and 4.8X FY2010E EPS and EBITDAmultiple. We believe the recent rise in oil prices and easing of the global liquidity crunchmay lead to increase in linepipe demand. We maintain BUY on low valuations.



Promoters 49.1 - -

FIIs 17.2 0.0 0.0

MFs 15.9 0.1 0.1

UTI - - -

LIC - - -

Pipes

PSLH.BO, Rs128Rating



52W High -Low (Rs) 400 - 60



Sales (Rs bn) 34.3 39.3 31.0


EPS (Rs) 22.0 36.8 30.0

EPS gth 4.3 67.4 (18.5)

P/E (x) 5.8 3.5 4.3

EV/EBITDA (x) 5.3 4.3 3.7

Div yield (%) 7.1 7.0 7.0

BUY

Attractive

Pricing performance


41.2 91.5 52.6 (64.0)



Exhibit 1: Interim results of PSL (standalone) , March fiscal year-ends (Rs mn)

(% chg.)4QFY09 4QFY09E 4QFY08 3QFY09 4QFY09E 4QFY08 3QFY09 2009 2008 (%chg)

Gross sales 12,166 10,125 6,556 9,753 20.2 85.6 24.7 34,880 22,188 57.2 less: excise duty 304 203 805 820 50.2 (62.2) (62.9) 1,259 1,749 Net adjusted sales 11,862 9,923 5,751 8,933 19.5 106.2 32.8 33,620 20,439 64.5 Total expenditure (11,382) (9,139) (5,273) (8,269) 24.5 115.9 37.6 (31,395) (18,536) 69.4 Inc/(Dec) in stock (1,433) — (1,496) 476 — (4.2) (400.9) 3,207 545 488.6 Raw materials (7,561) — (1,914) (6,632) — 295.0 14.0 (27,376) (14,170) 93.2 Staff cost (146) — (131) (158) — 11.0 (7.6) (594) (538) 10.3 Other expenditure (2,242) — (1,732) (1,956) — 29.5 14.6 (6,632) (4,373) 51.7 EBITDA 480 784 478 664 (38.8) 0.3 (27.7) 2,225 1,903 16.9 OPM (%) 4.0 7.9 8.3 7.4 6.6 9.3 (28.9) Other income 145 180 129 234 (19.6) 12.2 (38.2) 620 429 44.4 Interest (297) (298) (160) (380) (0.5) 85.1 (22.0) (1,007) (579) 74.1 Depreciation (139) (155) (122) (150) (10.5) 14.1 (7.8) (571) (512) 11.5 Pretax profits 189 511 326 368 (62.9) (41.9) (48.5) 1,267 1,242 2.1 Tax (53) (233) (143) (121) (77.2) (62.8) (56.2) (408) (394) 3.6 Net income 136 278 183 247 (51.0) (25.6) (44.8) 859 848 1.4 Income tax rate (%) 28.0 45.6 43.8 32.9 32.2 31.7

Pipe volumes (tons) 156,937 150,000 154,944 170,000 4.6 1.3 (7.7) 471,411 410,000 15.0


Full year

Exhibit 2: PSL, change in estimates, March fiscal year-ends

2010E 2011E 2010E 2011E 2010E 2011E

Financials (Rs mn)

Revenues 39,308 30,989 44,571 34,189 (11.8) (9.4)

EBITDA 3,348 3,111 4,072 3,617 (17.8) (14.0)

EBITDA (%) 8.5 10.0 9.1 10.6 — —

PAT 1,604 1,307 1,904 1,649 (15.7) (20.7)

Diluted EPS (Rs) 36.8 30.0 43.7 37.8 (15.7) (20.7) Sales ('000 tons)India 352 385 495 462 (28.9) (16.7) UAE 34 34 34 34 — — USA 162 135 150 135 8.0 — Realisation (US$/ton)India 1,258 1,069 1,258 1,132 — (5.6) UAE 1,258 1,069 1,258 1,132 — (5.6) USA 1,700 1,105 1,700 1,190 — (7.1)

EBITDA EBITDA (Rs mn) 3,348 3,111 4,072 3,617 (17.8) (14.0) EBITDA / ton ($) 127 120 125 122 1.9 (2.0)


New estimates Old estimates Change (%)



Exhibit 3: Profit model, balance sheet, cash model for PSL Ltd 2006-2011E, March fiscal year-ends (Rs mn)

2006 2007 2008 2009E 2010E 2011EProfit model Net revenues 14,503 14,433 20,734 34,340 39,308 30,989 EBITDA 1,550 1,642 2,231 2,211 3,348 3,111 Other income 193 274 448 890 561 444 Interest (expense)/income (690) (563) (887) (1,028) (964) (851) Depreciation (344) (445) (539) (688) (882) (912) Pretax profits 708 908 1,253 1,386 2,062 1,791 Tax (192) (280) (400) (430) (382) (434) Deferred taxation 3 25 (9) (7) (11) (12) Minority Interest — — — — (65) (38) Adjusted consolidated net income 519 653 844 949 1,604 1,307 Diluted Earnings per share (Rs) 14.1 15.8 19.4 21.8 36.8 30.0 Balance sheetTotal equity 2,777 3,519 5,697 6,491 7,764 8,740 Deferred taxation liability 32 7 16 23 34 46 Total borrowings 6,810 6,698 9,317 10,407 10,070 7,583 Minority Interest — — 178 178 243 281 Current liabilities 5,898 5,791 8,365 12,582 13,848 11,081 Total liabilities and equity 15,518 16,015 23,572 29,681 31,959 27,730 Cash 1,199 1,263 4,005 1,000 1,200 2,131 Other current assets 10,654 9,596 12,966 20,416 23,154 18,679 Total fixed assets 3,564 5,131 6,391 8,062 7,409 6,732 Miscl. Exps. not w/o 0 0 167 160 153 146 Investments 102 25 43 43 43 43 Total assets 15,518 16,015 23,572 29,681 31,959 27,730 Free cash flowOperating cash flow, excl working capital 900 1,042 1,473 761 2,009 1,833 Working capital changes (1,267) 695 (1,023) (3,364) (1,548) 1,708 Capital expenditure (1,115) (2,012) (1,799) (2,358) (230) (235) Investments — 77 (18) — — — Other income 41 142 67 890 561 444 Free cash flow (1,441) (57) (1,300) (4,071) 792 3,750 Ratios (%)EBITDA margins (%) 10.7 11.4 10.8 6.4 8.5 10.0 Debt/equity 2.4 1.9 1.7 1.6 1.3 0.9 Net debt/equity 2.0 1.5 1.0 1.5 1.2 0.7 RoAE 22.6 20.7 18.3 15.6 22.5 15.8 RoACE 11.4 10.7 11.3 10.2 13.4 11.1




Exhibit 4: Our DCF-based valuation for PSL Ltd is Rs160DCF valuation of PSL Ltd, March fiscal year-ends (Rs mn)

Terminal2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Value

EBITDA 3,348 3,111 3,037 3,044 3,206 3,347 3,390 3,420 3,481 3,451 Tax expense (536) (610) (622) (610) (715) (765) (763) (723) (725) (687) Changes in working capital (1,548) 1,708 252 (400) (363) (244) (86) (149) (229) 77 Cash flow from operations 1,265 4,209 2,667 2,033 2,128 2,339 2,540 2,549 2,527 2,841 Capital expenditure (230) (235) (239) (305) (313) (385) (396) (748) (933) (993) Free cash flow to the firm 1,035 3,974 2,428 1,728 1,815 1,954 2,144 1,801 1,594 1,848 12,881 Dicounted cash flow-now 931 3,152 1,696 1,064 985 934 903 668 521 532 Discounted cash flow-1 year forward 3,577 1,925 1,208 1,118 1,060 1,025 758 591 604 Discounted cash flow-2 year forward 2,185 1,371 1,268 1,203 1,163 861 671 685

Discount rate 13.5%Growth from 2017 to perpetuity 1.0%Discount factor at WACC 0.90 0.79 0.70 0.62 0.54 0.48 0.42 0.37 0.33 0.29

+ 1-year + 2-years

Total PV of free cash flow (a) 11,867 74% 9,408 66%PV of terminal value (b) 4,211 26% 4,779 34% 160 12.5% 13.0% 13.5% 14.0% 14.5%EV (a) + (b) 16,077 14,187 -0.5% 171 159 149 138 129 Net debt 9,095 5,715 0.0% 175 163 152 142 132 Equity value 6,982 8,472 0.5% 180 168 156 145 135 No. of shares 43.6 43.6 1.0% 186 172 160 149 138 Implied share price (Rs) 160 194 1.5% 191 177 165 153 142 Exit EV/EBITDA multiple (X) 3.8 2.0% 198 183 170 157 146 Exit FCF multiple (X) 8.1 2.5% 205 189 175 162 150


Gro

wth

Rat

e

Sensitivity of DCF value to WACC and growth rate (Rs)

WACC



ICICI Bank: Valuations do not justify further re-rating; downgrade toREDUCE

• ICICI Bank's stock has outperformed the markets sharply - up 126% over the pastthree months, with a 37% outperformance

• Business outlook improving but valuations oustripping this pace - core PBR at1.4XFY2011E for sub 10% ROE for next couple of years, long-term ROEs assumed at14%

• Stretching valuations by removing discounts on international business, rolling overto FY2011E, raise target price Rs685 from Rs475 - stock still expensive, downgradeto REDUCE

We downgrade our recommendation on ICICI Bank to REDUCE from ADD as (1) valuationsdo not support any further re-rating and despite stretching our target price to Rs685, wedo not find upsides and (2) strong outperformance over the last one month (up 55%,outperformed the markets by 20%) and three months. ICICI Bank has rallied by 193%since its low of Rs252. A decline in wholesale rates is positive for ICICI Bank (alreadyreflecting in 4Q margins) however, concerns on asset quality persist (though we do notexpect delinquencies to shoot up in the immediate term). We increase our target price toRs685 (based on FY2011E) from Rs475 (based on FY2010E) by removing discounts on itsinternational subsidiaries (we earlier valued these subsidiaries at a 50% discount of theirnetworth), reducing our slippage assumptions and reducing our cost of equityassumptions. We find it difficult to increase target multiples for its core banking business,as ROEs are likely to remain sub 10% over next couple of years - earnings momentum(especially on fees) is likely to remain weak over the medium term and concerns on assetquality persist. Faster-than-expected economic recovery resulting in an improvement inasset quality or sustained inflows in equity markets are a key risks to our call.

Positive triggers appear to have already to be factored in

A declining rate scenario would likely result in a deposit re-pricing benefits for ICICI Bank,given its skewed liability profile towards the wholesale market. Wholesale rates havealready declined sharply on the back of ample liquidity and various measures undertakenby RBI. We expect ICICI Bank’s NIM to improve to 2.67% (up 27bps) in FY2010E and to2.8% in FY2011E. The improvement will be driven by re-pricing of deposits (about 60% ofICICI’s deposits are wholesale in nature and will re-price over the next year) andmanagement’s stated policy to go slow on loan growth. However, margins in 1QFY10E willbe impacted by priority loan acquisitions (made towards the end of 4QFY09); theimprovement will likely be more visible from 2QFY10E.

Stetching TP – remove all discounts

We have rolling over to FY2011E and raise target price to Rs685. We also remove alldiscounts that we place on its international subsidiaries, but still maintain a 10% holdingcompany discount on insurance. We marginally increase our valuations for othersubsidiaries in order to factor in the positive trend in capital markets. We also reduce ourcost of equity assumptions in order to factor in a lower risk perception currently. Thisincreases our target price to Rs600 for FY2010. Our target price for FY2011 is Rs685 forICICI Bank.



Promoters - - -

FIIs 62.6 5.7 4.3

MFs 6.8 2.9 1.5

UTI - - (1.4)

LIC 9.4 2.8 1.4

Banking

ICBK.BO, Rs740Rating



52W High -Low (Rs) 835 - 252



Sales (Rs bn) 159.7 167.5 186.8

Net Profit (Rs bn) 37.6 35.9 42.8

EPS (Rs) 33.8 32.3 38.5

EPS gth (15.4) (4.4) 19.2

P/E (x) 21.9 22.9 19.2

P/B (x) 1.7 1.6 1.5

Div yield (%) 1.5 1.2 1.3

REDUCE

Attractive

Pricing performance


54.5 126.0 110.5 (7.0)



Rise in interest rates in 2HFY10E- a potential risk

In an event of high portfolio flows, we believe that RBI might tighten money supply andraise CRR levels, which could lead to higher interest rates in 2HFY10E. Thus, the interplayof decline in interest rates in 1HFY10E followed by a likely spike in 2HFY10E will have abearing on the near-term margins of ICICI Bank. We like ICICI Bank’s strategy to reduce itsdependence on wholesale deposits, though the ratio of wholesale deposits to totaldeposits (52%) remains high. We believe a build up in CASA deposits would be crucial tosustain long-term profitability, higher ROEs and subsequenty higher valuations.

Asset quality issues- not over yet?

We believe that ICICI Bank’s asset quality continues to remain weak. We have reduced ourestimate of slippages to 2.3% in FY2010E and 2% in FY2011E as compared to 2.3% inFY2009, down from earlier assumption of 2.6% and 2.7% respectively since theenvironment to raise equity capital has somewhat improved for larger corporates.

High restructuring numbers in non-retail book; challenges remain high

The asset quality of the non-retail segment of ICICI Bank has been fairly robust, thus far, inline with the trend observed at other Indian banks. However, there are likely to bechallenges, even assuming an improving economic environment. The regulatory relaxationprovided by RBI has enabled ICICI Bank to restructure some of these stressed assets andpostpone the recognition of NPLs for a few quarters—similar as in the case of other banks.During 4QFY09, ICICI Bank had restructured Rs11 bn of loans (Rs 20 bn in pipeline). This isin addition to Rs50 bn of restructured assets already classified as standard assets before4QFY09. Thus, overall ICICI Bank has Rs80 bn of restructured assets, which is about 8% ofits corporate book. We believe that there are likely to be more such restructuring on thedomestic and the international book.

Asset quality in retail may remain stable. The gross NPLs in the retail segment for ICICIBank is 6.5% as of March 2009. In our assessment, its underlying asset quality is unlikelyto worsen though the reported gross NPL ratio of the retail segment for ICICI Bank is likelyto rise due to the stagnation of the loan book. The reasons for this conclusion are asfollows:

(1) Retail loans backed by collateral (especially mortgages and auto) do not have largeasset quality issues. Our recent channel checks for the auto loan segment suggest that thebehavior of the car loan portfolio has not seen a sharp deterioration in recent months.Mortgage segment has not seen a sharp rise in delinquencies for the banking industry,thus far.

(2) The slippages in the non-collateral segment (i.e. credit cards and personal loans)continue to remain high. ICICI Bank has slowed down disbursement growth in theuncollateralized segment over the last 12-18 months. We now expect the pace of NPLaddition to get lower as the portfolio gets seasoned.

Ability for corporates to raise funding is positive. Few recent transactions suggest that theability for larger corporates to raise equity funds has improved sharply. We believe that thisis positive for banks, as fears of NPLs reduce significantly. However, we believe that this isonly restricted to the larger corporates and the middle market and SMEs are still finding itvery diffcult to raise funds (even debt) in the current environment. A buoyant capitalmarkets is positive and could result in lower eventual NPLs, as corporates are able to raiseequity capital.



International business, MTM concerns recede, but asset quality concern still exists.

Concerns on MTM losses on ICICI Bank’s foreign investments have receded in our view,though we remain concerned on the international book. International loans account for38% of ICICI Bank’s consolidated loan book of US$53 bn as of March 2009. Internationalloans on ICICI Bank’s standalone book are about 59% of total consolidated internationalloan exposure while the subsidiaries account for the remainder 41%. The bank has beenan active player in the overseas acquisitions done by Indian corporates or actively involvedin the overseas funds raised (ECBs/FCCBs) by corporates. The management has indicatedthat the 10% of the ICICI Bank (standalone) international book is to non-India entitieswhile about 20% of the loans on the international subsidiaries are to non–India entities.We believe that the risks to the international book are similar to the domestic business- animprovement in corporate’s ability to raise funds would be positive for the bank.

Profitability of its international operations continues to be subdued. We highlight thatprofitability in its international operations continues to remain below par. In FY2009, ICICIBank UK reported a PAT of just Rs340 mn on an equity investment of Rs23.3 bn and ICICIBank Canada reported a PAT of Rs1.7 bn on an equity investment of Rs33.5 bn. Thecombined capital invested in these two subsidiaries is Rs66 bn. We believe that marginswill likely continue to remain low, resulting in lower RoEs for these businesses althoughrisk of MTM losses has now receded.

Fees to decline across the board. Fee income has been the key revenue driver for ICICIBank in the recent past. However, the fee income growth was largely driven by fees from arapidly expanding international business (M&A and transaction based) and distributionbusiness (especially insurance). With the deal flow having almost stopped on theinternational side coupled with declining distribution revenues, we believe that that thefee income growth is likely to remain modest over the next few quarters.

We estimate that out of total fee revenues, split between the corporate and retailsegments is 50:50. Lending related fees are about 10%, which will be impacted by theslower lending activity. Distribution business contributes about 10% of total fees and isalso likely to be under stress. Syndication and deal related fees, which are a large part ofcorporate fees, are likely to remain subdued for ICICI Bank given the moderation in activityin the international segment. We expect fees to remain flat in FY2010E.

NIMs to rise on back of low growth and lower wholesale ratesNet Interest Margin, March fiscal year-ends, 2004-2011E (%)


2.22.4 2.4

2.1

2.4

2.72.8

1.0

1.5

2.0

2.5

3.0

2005 2006 2007 2008 2009E 2010E 2011E



Incremental delinquencies continue to remain highIncremental slippage as proportion of opening advances, March fiscal year-ends, 2004-2011E (%


0.5

1.5

2.5

2004 2005 2006 2007 2008 2009 2010E 2011E

Net NPLs to rise, on back of high slippagesNet NPLs as proportion of loans, March fiscal year-ends, 2004-2011E (%)


2.2

1.7

0.71.0

1.5

2.02.1

1.7

0.5

1.5

2.5

3.5

2004 2005 2006 2007 2008 2009E 2010E 2011E



Gross NPLs (assuming no write-offs) to rise sharply led by non-retail loansGross NPLs as proportion of loans, March fiscal year-ends, 2004-2011E (%)


4.8

3.0

1.52.1

3.3

4.5

5.76.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2004 2005 2006 2007 2008 2009E 2010E 2011E

NPLs and restructured asset numbers are high currentlyNPL details as of March 2009

FY2009 (Rs bn) 4QFY09E (%)Gross NPLs 99 4.5Provisions and w/off 53 2.4Net NPLs 46 2.1

Restructured Assets 61 2.8Proposals as of March 2009 20 0.9

Net NPLs + Restructured+ Proposals 127 5.8


Forecasts and valuation for ICICI BankMarch fiscal year-ends, 2005-2011E

PAT EPS P/E BVPS P/B RoEEPS excl. dividend

P/E (standalone)

BVPS (standalone)

P/B (standalone)

(Rs bn) (Rs) (X) (Rs) (X) (%) (Rs) (X) (Rs) (X)2007 31.1 34.6 21.4 270 2.7 13.4 29.6 16.9 225 2.2 2008 41.6 39.9 18.5 418 1.8 11.7 28.9 17.3 341 1.5 2009E 37.6 33.8 21.9 445 1.7 7.8 31.1 16.1 336 1.5 2010E 35.9 32.3 22.9 467 1.6 7.1 28.9 17.3 345 1.5 2011E 42.8 38.5 19.2 494 1.5 8.0 34.8 14.4 363 1.4

Source: Company, Bloomberg, Kotak Institutional Equities.



ICICI Share (%) FY2011 Valuation methodoly adoptedValue of ICICI standalone 100 445 Based on Residual growth modelSubsidiaries

ICICI Financial Services 94 148ICICI Prudential Life 74* 115 17X NBAP, margin assumed is 13%General Insurance 74* 13 1X FY2011 PBRMutual Fund 51* 20 3% of AUMs as of March 2011, assuming 20% growth

Other subsidiaries/associatesICICI Securities Ltd 100 1 1X FY2011 PBR ICICI Securities Primary Dealer 100 2 1X FY2011 PBRICICI Homes Ltd 100 20 1.5X FY2011 PBRICICI Bank UK 100 25 1XFY2011 PBRICICI Bank Canada 100 33 1XFY2011 PBRICICI Bank Euroasia 100 0Venture capital/MF 100 11 10% of AUM of US$2 bn

Value of subsidiaries 240 `Value of company 686

Source: Company, Kotak Instititional Equities estimates.



ICICI Bank, growth rates, key ratios and Du Pont analysis, March fiscal year-ends, 2007-2011E

2007 2008 2009E 2010E 2011EGrowth rates (%)Net loan growth 34.0 15.2 (3.2) (2.4) 8.7 Customer assets growth 38.6 17.6 (4.7) (2.1) 8.1

Corporate loans 33.0 30.4 12.4 0.2 11.8 Total retail loans 34.8 3.2 (18.9) (6.1) 4.2

Deposits growth 39.6 6.0 (10.7) 6.3 9.3 Borrowings growth 43.8 19.1 7.1 4.2 (3.4) Net interest income 46.8 10.1 14.5 10.1 9.5 Loan loss provisions 172.6 25.1 38.9 0.6 0.1 Non-interest income 26.5 28.4 (13.1) (0.8) 13.9

Net fee income 44.3 29.4 7.3 1.2 15.0 Net capital gains 48.7 62.5 (75.6) 58.0 14.3

Total income 35.8 19.3 (0.5) 4.9 11.5 Operating expenses 28.3 21.9 (13.6) 12.6 12.2

Employee expenses 49.4 28.6 (5.2) 5.8 18.7 DMA 9.5 1.2 (65.7) 28.2 19.4

Asset management measures (%)Yield on average earning assets 8.4 9.0 8.9 8.1 8.0

Interest on advances 9.4 10.7 10.0 9.2 9.2 Interest on investments 7.8 7.8 7.7 7.3 7.0

Average cost of funds 6.3 7.3 7.0 5.9 5.5 Interest on deposits 5.9 7.7 7.3 5.7 5.5 Other interest 7.4 6.3 6.2 6.3 5.7

Difference 2.1 1.7 1.9 2.3 2.4 Net interest income/earning assets 2.4 2.1 2.4 2.7 2.8 New provisions/average net loans 1.3 1.3 1.7 1.8 1.7 Loans-to-deposit ratio 64.1 67.5 69.4 64.1 66.1 Share of deposits

Current 9.3 10.1 9.9 10.8 11.9 Fixed 78.2 73.9 71.3 67.7 64.2 Savings 12.5 16.0 18.8 21.5 23.8

Tax rate 14.7 17.8 26.0 28.0 28.0 Dividend payout ratio 29.0 29.5 32.6 28.0 25.0 ROA decomposition - % of average assetsNet interest income 2.2 2.0 2.1 2.4 2.5 Loan loss provisions 0.7 0.7 1.0 1.0 0.9 Net other income 2.3 2.3 2.0 1.9 2.1 Operating expenses 2.3 2.2 1.8 2.0 2.2 Invt. Depreciation 0.0 — — — —(1- tax rate) 85.3 82.2 73.4 72.0 72.0 ROA 1.0 1.1 1.0 0.9 1.0 Average assets/average equity 12.8 10.5 8.1 7.7 7.7 ROE 13.4 11.7 7.8 7.1 8.0




ICICI Bank, income statement and balance sheet, March fiscal year-ends, 2007-2011E

2007 2008 2009E 2010E 2011ETotal interest income 229,943 307,883 310,926 281,494 290,018

Interest on advances 160,963 226,010 223,238 198,294 204,005 Interest on investments 59,885 74,660 74,031 75,586 79,649

Total interest expense 163,585 234,842 227,259 189,404 189,143 Deposits from customers 116,477 182,759 169,678 127,652 133,034

Net interest income 66,358 73,041 83,666 92,090 100,875 Loan loss provisions 21,593 27,010 37,530 37,741 37,794 Net interest income (after prov.) 44,765 46,031 46,136 54,349 63,081 Other income 68,126 87,452 76,037 75,417 85,918

Net fee income 43,309 56,053 60,145 60,840 69,966 Net capital gains 11,152 18,121 4,430 7,000 8,000 Miscellaneous income 2,741 656 752 827 827

Operating expenses 66,906 81,542 70,451 79,317 88,987 Employee expense 16,167 20,789 19,717 20,857 24,754 DMA 15,239 15,427 5,289 6,780 8,094

Pretax income 36,480 50,561 51,170 49,897 59,460 Tax provisions 5,378 8,984 13,588 13,971 16,649 Net Profit 31,102 41,577 37,581 35,926 42,811 % growth 22.4 33.7 (9.6) (4.4) 19.2 PBT+provision-treasury gains 46,439 60,829 84,822 81,190 89,807 % growth 51.6 31.0 39.4 (4.3) 10.6 Balance sheet (Rs mn)Cash and bank balance 371,213 380,411 296,660 312,439 323,963

Cash 20,670 28,478 24,755 26,320 28,766 Balance with RBI 166,399 265,297 155,752 164,658 173,736 Balance with banks 20,362 12,049 10,000 10,000 10,000 Outside India 162,783 74,587 106,154 111,461 111,461

Net value of investments 912,578 1,114,543 1,030,580 1,272,482 1,262,901 Investments in India 867,540 1,051,164 952,625 1,185,544 1,169,491

Govt. and other securities 673,682 753,777 684,840 896,986 875,932 Shares 19,373 29,201 29,201 29,201 29,201 Subsidiaries 26,072 46,383 61,220 68,220 73,220 Debentures and bonds 24,628 18,872 15,097 18,872 18,872

Net loans and advances 1,958,656 2,256,161 2,183,110 2,130,129 2,316,273 Corporate loans 866,656 1,129,531 1,269,790 1,272,154 1,422,186 Total retail loans 1,092,000 1,126,630 913,320 857,974 894,088

Fixed assets 39,234 41,089 40,514 44,676 44,223 Net leased assets 10,032 7,971 6,775 5,759 4,895 Net owned assets 29,202 33,118 33,739 38,917 39,328

Other assets 164,899 205,746 242,146 242,146 266,360 Total assets 3,446,581 3,997,951 3,793,010 4,001,871 4,213,721

Deposits 2,305,102 2,444,311 2,183,480 2,321,534 2,537,280 Borrowings and bills payable 752,449 896,494 960,558 1,000,634 966,449 Preference capital 3,500 3,500 3,500 3,500 3,500 Other liabilities 145,897 192,444 153,642 156,715 156,715 Total liabilities 3,203,448 3,533,249 3,297,680 3,482,384 3,663,944 Paid-up capital 8,990 11,127 11,130 11,130 11,130 Reserves & surplus 234,140 453,575 484,200 508,358 538,647 Total shareholders' equity 243,130 464,702 495,330 519,488 549,777




India at the bottom of U-shaped cycle of 5.5-6% in 2HFY09-1HFY10E

• CSO’s revised estimates place real GDP growth at 5.8% in 3QFY09 and 4QFY09

• In our view, similar growth likely in 1HFY10E before recovery sets in

• Consumption stimulus by the Indian government shores up GDP growth

• Risks to growth ahead arise from capex and interest rate cycles

The official data on India’s GDP growth pegged 4QFY09 real GDP growth at 5.8%, in linewith our expectations and above Street consensus of 5.2%; moreover, 3QFY09 GDPgrowth was revised upwards to 5.8% from 5.3%. In our view, the revised official data onIndia’s GDP growth suggests that Indian economy entered into a cyclical trough in3QFY09. We believe growth may stay in 5.5-6.0% band in 1QFY10E and 2QFY10E, withour base projection of 5.6% for both these periods. We do recognize the green shootevidence now available, but assess it as weak and not enough to suggest 6%+ growth innear term. If the monsoon turns out to be normal and current optimism in businessconfidence stays, we expect a U-shaped recovery. We still see risks to growth ahead arisingfrom the capex cycle, which may see private sector investment dipping in FY2010E, andinterest rate cycle which may see a turnaround if fiscal correction is not put in place.Therefore, we would not put too much faith in a quick and strong recovery in the Indianeconomy and expect the cycle to be a trifle elongated.

4QFY09 Real GDP growth in line with our expectations

Central Statistical Organization (CSO), the official statistical agency, released the 4QFY09GDP estimates along with its Revised Estimates (RE) for the full year FY2009. The 4QFY09estimates of 5.8% GDP growth were in line with our estimates but above Streetexpectations of 5.2%. The key highlights of the 4QFY09 estimates are.

• A healthy 2.7% yoy growth in agriculture and allied activities on the basis of normalRabi food-grains crop

• Industry contracting 0.5% in line with known trends, largely on of contraction in themanufacturing segment (1.4%)

• Better-than-expected services growth at 8.4% as a result of continued buoyancy incommunity, social and personal services (12.5%) and a good growth in financing,insurance, real estate and business services (9.5%)

Sharp upward revision in 3QFY09 growth

CSO also revised upwards its 3QFY09 GDP growth by 0.5-ppt of GDP to 5.8% from 5.3%.Major revisions in 3QFY09 GDP were:

• Growth for agriculture and allied activities revised upwards to (-)0.8% from (-)2.2%

• Manufacturing growth revised upwards to 0.9% from (-)0.2%

• Construction growth revised upwards to 8.3% from 6.7%

• Sharp upward revision in ‘community, social and personal services’ growth to 22.5%from 17.3%

Economy

Sector coverage view N/A



FY2009 growth at 6.7% in line with our expectations

The revised FY2009 GDP growth confirms the slowdown in Indian economy with growthdecelerated to sub-seven (6.7%) levels against the earlier official estimate of 7.1%.Nonetheless, the growth in 3QFY09 and 4QFY09 remained relatively (to the globaleconomy) robust at 5.8%. Therefore, it lends support to the view that while officialestimates are slower to catch up with reality, the street often overreacts in the short run.We had cautioned repeatedly on the street building low growth scenarios of sub-6.5% forFY2009 and sub-5.5% for FY2010. CSO’s latest data release reaffirms our view of relativestable Indian economy.

We retain our FY2010E and FY2011E GDP growth estimates

Indian economy has clearly decelerated from 9%+ growth and is unlikely to bounce backin a hurry. FY2010E may still see an investment dip and while it is early to give reliableforecasts, a growth of about 6% looks likely. Though we are seeing some weak signs ofgreen shoots, relatively stronger growth may come through only in 2HFY10E. Significantly,growth in FY2009 was shored up by consumption stimulus as reflected in ‘community,social and personal services’ (13.1% growth). We expect this component to again record adouble-digit growth in FY2010E.

We caution against too much optimism and expectations of quick and strong recovery inIndia’s economy. GDP growth in recent times has been supported by extensive fiscal andmonetary stimuli provided by the government and RBI. RBI has limited room for furthereasing and in fact, rising inflation and rupee appreciation (on the back of capital flows) in2HFY10E may force a reversal in its monetary policy stance. The scope for further stimulusis constrained (see our economy report “Mandate mania will not avert fiscal challenges”dated May 20, 2009). In our view, export sector and capital goods, which have been hitthe hardest in the current downturn, should have been given more targeted treatment.

We retain our base case estimate of a U-shaped recovery in the Indian economy (GDPgrowth back to 7.3% in FY2011E) assuming normal monsoons and continuation ofcurrent business confidence. However, we would also highlight the risks to our estimates,notably in the form of high fiscal deficit of the government; Exhibit 5 seeks to build atheoretical case for the impact of reversal of fiscal stimulus (initiated in FY2009 andFY2010E) in later years (reversal of tax cuts). Any attempt by the government to correct itschallenging fiscal position will have growth implications for the broader economy.However, return to the path of fiscal prudence is also important to prevent a reversal in theinterest rate cycle.

Exhibit 1: India's 4QFY09 growth stays at 5.8%Sector-wise quarterly real GDP growth rates, March fiscal year-ends, 1QFY08-4QFY09

Sector 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09I Agriculture and allied activities 4.3 3.9 8.1 2.2 3.0 2.7 (0.8) 2.7 II Industry (2+3+4) 8.5 7.5 7.6 5.9 5.1 4.8 1.6 (0.5)

2 Mining and quarrying 0.1 3.8 4.2 4.7 4.6 3.7 4.9 1.6

3 Manufacturing 10.0 8.2 8.6 6.3 5.5 5.1 0.9 (1.4)

4 Electricity, gas and water supply 6.9 5.9 3.8 4.6 2.7 3.8 3.5 3.6

III Services (5+6+7+8) 10.8 10.7 10.2 11.3 10.0 9.8 9.5 8.4 5 Construction 11.0 13.4 9.7 6.9 8.4 9.6 4.2 6.8

6 Trade, hotels, transport, storage and communication 13.1 10.9 11.7 13.8 13.0 12.1 5.9 6.3

7 Financing, insurance, real estate and business services 12.6 12.4 11.9 10.3 6.9 6.4 8.3 9.5

8 Community, social and personal services 4.5 7.5 5.5 9.5 8.2 9.0 22.5 12.5

IV Real GDP at factor cost (I+II+III) 9.2 9.0 9.3 8.6 7.8 7.7 5.8 5.8

Source: Central Statistical Organization, Kotak Institutional Equities estimates



Exhibit 2: India's FY2010E real GDP growth likely to drop to 6.0% versus 6.7%in FY2009Growth in real GDP at factor cost and components, March fiscal year-ends, 2007-2011E (%)

Sector 2007 2008 2009 2010E 2011EAgriculture and allied activities 4.0 4.9 1.6 3.4 3.0 Industry 10.7 7.4 2.6 4.8 6.7 Mining and quarrying 8.8 3.3 3.6 7.5 8.3 Manufacturing 11.8 8.2 2.4 4.3 6.5 Electricity, gas and water supply 5.3 5.3 3.4 5.6 6.6 Services 11.3 10.8 9.4 7.1 8.5 Construction 11.8 10.1 7.2 5.9 7.0 Trade, hotels, transport, storage and communication 12.8 12.4 9.0 6.5 9.8 Financing, insurance, real estate and business services 13.8 11.7 7.8 5.5 9.1 Community, social and personal services 5.7 6.8 13.1 10.8 6.0 Real GDP at factor cost 9.7 9.0 6.7 6.0 7.3

Notes:(a) FY2009AE are CSO's Advance Estimates(b) FY2009E and FY2010E are Kotak Institutional Equities Estimates

Source: Central Statistical Organisation, Kotak Institutional Equities estimates

Exhibit 3: Growth likely to fall 2-ppt below potential in 2HFY09E and 1HFY10EGrowth in actual output, potential output and output gap, 1QFY98-4QFY11E (%)

Source: Central Statistical Organization, Kotak Institutional Equities estimates

-5

0

5

10

15

20

1QFY

98

1QFY

99

1QFY

00

1QFY

01

1QFY

02

1QFY

03

1QFY

04

1QFY

05

1QFY

06

1QFY

07

1QFY

08

1QFY

09

1QFY

10E

1QFY

11E

Actual Potential Output gap



Exhibit 4: Government spending helps hold aggregate demand in 3QFY09Growth in components of real aggregate demand, March fiscal year-ends, 1QFY07-4QFY09 (%)

Source: Central Statistical Organisation, compiled by Kotak Institutional Equities

-20

0

20

40

60

80

1QF

Y07

2QF

Y07

3QF

Y07

4QF

Y07

1QF

Y08

2QF

Y08

3QF

Y08

4QF

Y08

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

private consumption government consumption investment

Phased impact of publis sector (government) stimulus on the economy (% of GDP)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8Public sector(Spending)/Taxation (1.0) - 0.2 0.2 0.2 0.2 0.2 -

Private sectorStimulus multiplier (X) 2.0 1.6 1.6 1.6 1.6 1.6 1.6 1.6 same-year impact (X) 1.5 1.2 1.2 1.2 1.2 1.2 1.2 1.2 next-year impact (X) - 0.5 0.4 0.4 0.4 0.4 0.4 0.4 Spending/(Taxation) 1.5 0.5 (0.2) (0.3) (0.3) (0.3) (0.3) (0.1)

EconomyEconomic impact 0.50 0.50 (0.04) (0.12) (0.12) (0.12) (0.12) (0.08)




Real estate stocks pricing in sharp recovery; advise profit booking inDLF, Unitech

• Post euphoria of increase in launches focus likely to shift to valuations, execution

• Affordable housing cannot substitute for other business verticals

• Retain REDUCE on DLF with a revised target price of Rs320/share; retain SELL onUnitech with revised target price of Rs55/share

We would use the recent spurt in stock prices of DLF/Unitech to sell them. These stockshave started quoting at premium to NAVs indicating, (1) profitable re-investment, (2)limited uncertainty in pricing/volumes, and (3) full valuation of large land banks. Wehighlight that out of three main verticals'retail, commercial and residential'visibility hasincreased only for residential and that too only on the volume front. Recent events in mostreal estate companies indicate business restructuring including land bank rationalizationrather than expansion. This stock price rally has resulted in DLF/Unitech starting to quote atFY2010E P/B of 2.3+ for RoEs in the region of 10%. Thus stocks are pricing in muchhigher profitability vis-'-vis our expectations. We feel that higher profitability is unlikelysince, (1) we have already built in largest ever residential volumes, (2) pricing recoverytakes a long time, and (3) present fund raising in most cases is RoE/EPS dilutive.Furthermore, commercial and retail vertical remain weak and new activity can start onlypost absorption of current excess space. We now base our prices after removing discountto NAV (30% earlier) and thus factor in low uncertainty regarding pricing and volumes.We also roll forward our target price to March'11 based NAVs and even then we findlimited value at the current stock valuations. Our target price for DLF is revised to Rs320(Rs190 earlier) and we retain our REDUCE rating. Our target price for Unitech is revised toRs55/share (Rs32 earlier) and we retain our SELL rating. We would advice clients to reduceexposure to DLF and Unitech post this sharp rally as we believe these stocks will offerbetter entry points.

Current stock prices are factoring in sharp recovery in pricing as well as volumes

Real estate stocks have rallied rapidly over the past three weeks as liquidity concerns haveeased and sentiment on economic environment has improved post favorable electionresult. Good responses to some of residential projects especially in Mumbai and Delhi havefurther contributed to this positive sentiment. We have built in residential demandrecovery into our estimates but even then we estimate RoEs remaining around 10% forFY2010-11E. Thus stock prices are factoring in much sharper recovery on pricing/volumesor both. Furthermore, these RoEs need to be looked in the context of

Higher profitability vis-à-vis consensus. Our FY2010E PAT for DLF is Rs27.6 bn vis-à-visconsensus of Rs17.9 bn and for Unitech is Rs8.9 bn vis-à-vis consensus expectation ofRs6.7 bn.

We have built in demand recovery. We are expecting revenues and volumes for DLFand Unitech to rebound sharply in FY2010E and grow at 20+% pace in FY2011E. Exhibit 1shows trend in residential revenue booking for DLF and Unitech.

Asset sales. We built income from asset sale of Rs5 bn for Unitech in FY2010E and wenow estimate Rs3 bn in FY2011E as well. Asset sales would have been positive if stockswere pricing in liquidity concerns but that we believe is not the present scenario. Assetsales per se are going to NAV neutral in case they happen close to our valuations. As aresult out FY2011E PAT for Unitech is revised to Rs8.9 bn (Rs6.9 bn earlier).

Fund raising being EPS dilutive. We find that for Unitech as well IBREL, fund raisingshave been EPS dilutive. Equity issuances are being used to repay debt but interest expensereduction is minimal since most interest was being capitalized (Exhibit 2).

Property


Price, Rs

Company Rating 29-May TargetDLF REDUCE 407 320

Unitech SELL 80 55

Neutral



EBITDA margins under pressure. We note that all the three major verticals viz.residential, commercial and retail are undergoing structural changes in terms of bothpricing as well as absorption. EBITDA margins for DLF and Unitech peaked in FY2008 andwill likely remain weak over FY2009-11E.

Most important reason for limited profitability is large expansion in balance sheet. Mostcompanies have raised capital (debt as well as equity) very rapidly in FY2006-08. FY2006-08 saw DLF and Unitech preparing for rapid expansion across residential, retail,commercial and hotel verticals and its balance sheet size expanded by 6X (Exhibit 3). As aresult, sharp slowdown in retail and commercial businesses is resulting in sub-optimal assetutilization and will likely limit DLF’s profitability ratios in the near future.

Stocks starting to look expensive on all parameters

We expect focus to now shift to valuations and execution issues as refinancing concernsrecede. Funding concerns on account of tight credit markets have led the stockperformance to be extremely volatile over the past six months. Now as liquidity improves,we believe focus will now start shifting to valuations and sustainable profitability of thesecompanies. We find DLF/ Unitech expensive on all parameters.

NAV. DLF is quoting at 35% premium to March’11 based NAV of Rs320/share whileUnitech is quoting at 40% premium to March’11 based NAV of Rs55/share.

P/B. Despite RoE’s in the region of 10%, DLF is quoting at 2.5X FY2010E book value ofRs157 and Unitech is quoting at 2.3X FY2010E book value of Rs35.

P/E. DLF is quoting at FY2011E P/E of 24X while Unitech is quoting at FY2011E P/E of19X.

Thus present stock prices are pricing in huge sales momentum. Cumulative sales for DLFtill FY2005-09 is Rs300 bn against current EV of Rs800 bn while cumulative sales forUnitech for FY2005-09 is Rs120 bn against current EV of Rs230 bn. Exhibit 5 indicates thatEV of DLF and Unitech is more than three times of cumulative sales for FY2010-11E. This istwice similar ratio for Chinese companies.

Should there be premium to NAV/terminal value? We believe discount or premium toNAV will depend on direction of NAV movement and growth opportunities available to thesector. When there is uncertainty on NAV direction and limited confidence in NAVcalculations, stocks will tend to trade at a discount to NAVs, which should be the casecurrently. Most real estate companies have land banks which will take at least 7-10 yearsto develop and calculation of NAVs assume a large set of assumptions, thus increasinguncertainty.

Recent stock market optimism is not matched with physical market recovery

We believe that demand recovery across the three verticals will show a divergent trend.While demand recovery in the residential segment is expected to start in couple ofquarters, commercial and retail will take much longer.

Residential. Exhibit 6 indicates that competition in all markets is likely to increasetremendously. Increase in competition could be as a result of aggressive expansion plansby existing players (NCR, Bangalore) or on account of entry of new players (Chennai,Hyderabad). Even in non-metros competition is likely to remain high as many largedevelopers plan to enter these markets simultaneously. For NCR, we find three newentrants—Jaiprakash Associates, BPTP and Indiabulls Realty—gaining market share rapidly.Selling prices have dropped sharply with most locations seeing a fall if 30-35%. Webelieve that decrease in selling prices have been higher than expected. Such a fallcompresses operating margins by 50%, thus indicating that companies will have to sellmuch more to match operating profit of previous years.



Commercial. As shown in Exhibit 7, commercial revenues contributed 40% to revenues ofUnitech in FY2008 while similar number for DLF was 37%. We believe that proportion ofcommercial sales will decline rapidly on back of sharp slowdown in IT sector. From growthof 25+% witnessed over past few years, IT industry is expected to show nominal growththus limiting demand for new commercial space. We believe the sudden drop in demandwould have also created oversupply in certain locations, delaying recovery in commercialsector. We highlight that commercial demand is largely price inelastic and is moredependent on expected growth of corporates.

Exhibit 8 tracks changes in consensus EPS over the four-month period for DLFand Unitech.We haven’t seen any abatement in downgrades in the current quarter.

Changes in model

Unitech. We have now modeled in profit on asset sales of Rs5 bn (versus Rs3 bn earlier)and Rs3 bn for FY2011E (v/s NIL). Consequently, our PAT for FY2010E and FY2011E isrevised to Rs8.9 bn (Rs7.8 bn earlier) and Rs8.9 bn (Rs6.9 bn earlier).

DLF. We model payments of Rs20 bn by DAL to DLF for FY2010E and make adjustments inreceivables. We also adjust for lower retail rentals. On account of these changes, our PATfor FY2010E and FY2011E is revised to Rs27.6 bn (Rs27.3 bn earlier) and Rs29.7 bn(Rs29.6 bn earlier).

We are building in recovery in residential volumes/revenues in FY2010ESales (Rs mn), residential sales (mn sq. ft) for FY2006-11E, March fiscal year-ends

FY2006 FY2007 FY2008 FY2009E FY2010E FY2011EHousing revenues (Rs mn)DLF 3,818 9,732 29,866 31,242 40,016 54,160Unitech 5,110 12,970 18,562 11,999 20,652 23,634Sobha 3,942 7,783 10,212 7,108 8,462 10,980Puravankara 2,781 4,138 5,338 4,851 5,159 7,292Total 15,652 34,623 63,978 55,200 74,290 96,067

Housing volumes (mn sq. ft)DLF 13.5 8.4 13.4 15.9

Unitech 6.5 7.3 3.2 11.9 12.3


Equity fund raising is EPS/RoE dilutive

Capital raising(Rs bn) Pre Post Change (%) FY2010E FY2011E FY2010E FY2011E FY2010E FY2011E FY2010E FY2011E FY2010E FY2011E FY2010E FY2011E

Unitech 16 45 46 3.7 4.8 4.3 3.9 3.4 (19.2) (20.6) 15.5 12.0 13.4 9.3 (13.9) (21.9)DLF 39 274 282 2.9 15.9 17.2 16.1 17.3 1.5 0.5 10.6 10.7 10.8 10.7 1.1 0.0IBREL 26.5 184 209 13.6 3.9 10.2 3.1 7.5 (20.6) (26.7) 1.5 3.9 1.6 3.2 3.5 (17.6)


NAV (Rs/share) Change (%)EPS (Rs/share) RoE (%)

Pre Post Change (%)Pre Post



Large portion of the land bank acquired in the last 3 yearsBalance sheet for UT and DLF, FY2007-11E, March fiscal year ends

(iRs mn) 2006 2007 2008 2009E 2010E 2011E 2006 2007 2008 2009E 2010E 2011ESources of fundsShare capital 378 3,059 3,410 3,410 3,398 3,398 125 1,623 3,247 3,247 4,089 4,089Reserves/surplus 9,122 36,613 193,473 242,510 264,351 286,252 2,472 18,320 32,758 43,086 67,343 76,307Total equity 9,500 39,672 196,883 245,920 267,749 289,650 2,597 19,944 36,005 46,333 71,432 80,396Total borrowings 41,320 99,328 122,771 149,328 124,328 114,328 10,449 39,805 85,524 89,537 73,238 74,238Total liabilities 69,435 181,708 396,065 468,753 464,987 490,954 44,521 130,900 233,793 234,784 252,307 267,462

Application of fundsCash 1,950 4,155 21,421 4,854 13,568 20,134 3,899 10,227 14,083 3,549 9,143 13,894Current assets 26,157 124,114 244,337 314,197 282,074 300,018 34,762 106,850 172,929 168,786 176,836 184,848Net fixed assets (incl. Capital WIP) 15,585 41,872 100,031 115,661 135,303 136,761 4,887 8,148 31,442 37,158 41,038 43,430Total Assets 69,435 181,708 396,065 468,753 464,987 490,954 44,521 130,900 233,793 234,784 252,307 267,462

RatiosBook value/share (Rs) 50.3 25.9 115.5 144.3 157.6 170.5 41.6 24.6 22.2 28.5 34.9 39.3

D/E (X) 4.3 2.5 0.6 0.6 0.5 0.4 4.0 2.0 2.4 1.9 1.0 0.9RoAE (%) 20.2 49.0 39.7 18.8 10.3 10.2 33.6 65.5 46.1 22.3 12.4 11.2

RoACE (%) 4.5 22.9 35.3 13.7 7.7 7.6 12.2 41.8 20.9 11.0 8.9 9.2Incremental debt as a % of total debt 327.1 140.4 23.6 21.6 (16.7) (8.0) 8.0 280.9 114.9 4.7 (18.2) 1.4

Asset turnover (%) 17 22 36 21 18 21 21 25 18 13 13 15 Equity multiplier (X) 7.3 4.6 2.0 1.9 1.8 1.7 17.1 6.6 6.5 5.1 3.5 3.4


DLF Unitech

Coverage valuation summary for real estate sector

Land bankTarget price

Market cap. EV Price NAV NAV

Company name (mn sq. ft) Rating (Rs) (US$ mn) (US$ mn) (Rs) 2008 2009E 2010E 2011E 2008 2009E 2010E 2011E 2008 2009E 2010E 2011E (Rs/share) (Rs bn)DLF 425 REDUCE 320 14,234 17,005 407 3.4 2.8 2.6 2.4 8.7 15.0 25.2 23.5 66.0 20.9 10.8 10.7 321 550 26.8

Unitech 400 SELL 55 3,264 5,019 80 3.6 2.8 2.2 2.0 7.8 12.5 18.0 18.2 59.3 25.1 15.1 11.8 55 112 44.9

Indiabulls Real Estate 225 ADD 210 2,030 2,030 248 1.4 1.2 1.2 1.2 16.1 84.4 79.6 33.0 10.8 1.3 1.6 3.2 184 55 34.7

Phoenix Mills 34 BUY 210 405 388 137 1.3 1.3 1.3 1.2 43.6 26.5 19.2 15.8 5.3 6.8 7.9 10.4 301 44 (54.4)

Puravankara Projects 125 REDUCE 55 478 639 110 1.9 1.7 1.6 1.5 9.5 16.2 15.8 14.8 33.4 11.2 10.5 10.4 108 23 1.4

Sobha Developers 138 REDUCE 90 286 618 192 1.4 1.3 1.2 1.1 6.1 12.1 16.1 13.0 25.3 11.0 7.8 9.2 185 13 3.9

Mahindra Lifespaces 67 BUY 410 244 219 284 1.4 1.4 1.3 1.3 17.7 29.5 27.9 19.4 4.8 4.9 6.7 10.2 469 20 (39.4)


Premium/Discount

P/B (X) P/E (X) RoAE (%)

Indian real estate srocks are pricing in sharp increase in revnenue momentum vis-à-vis consensus

EV/(A) EV/(B)(US$ mn) (local curr. Mn) (US$ mn) (local curr. mn) (X) (local curr. mn) (X)

ChinaChina Vanke Co B HKD 15,462 114,179 15,462 106,188 1.1 124,148 0.9Poly Real Estate Group Co. Ltd. 9,982 87,662 9,982 31,571 2.8 49,665 1.8Guangzhou R&F Properties Co. Ltd. 2,294 68,065 2,294 50,392 1.4 46,223 1.5Shimao Property Holdings Ltd. 6,048 50,767 6,048 27,585 1.8 34,852 1.5Sino-Ocean Land Holdings Ltd. 4,754 38,091 4,754 20,549 1.9 24,072 1.6IndiaDLF Ltd. 14,528 799,500 14,528 306,725 2.6 217,171 3.7Unitech Ltd. 3,457 230,857 3,457 120,777 1.9 72,990 3.2

Source: Factset, Kotak Institutional Equities

EVMarket

cap.Sales (- 5 yrs)

(A)Sales (+1 to +2

yrs) (B)



Competition in residential market likely to increaseCitywise details of existing, new players

Existing players New playersExpansion by

existing playersNew

players

NCRDLF, Unitech, Vipul, Ansals, Parsvnath, Omaxe, Vatika

Jaiprakash Associates, BPTP, Raheja, Tata Housing, Tulip, Today, Corona, QVC Realty

Very high High

Hyderabad Anpara, Maytas, Prajay, Indu, Ramky Unitech, LANCO, DLF, IVR Prime, Godrej High High

BangaloreSobha, Prestige, Puravankara, Brigade, Shriram, Mantri

DLF, IVR Prime, Alliance Housing Very high Medium

ChennaiLancor, Citilights, Adora, Arihant, Mahindra Gesco, Jain Housing, Vijay Shanti

DLF, IVR Prime, Puravankara, Alliance, Lanco, Indiabulls Realty, Unitech, ETA Star

High Very high

MumbaiK Raheja, Hiranandani, HDIL, Godrej Properties, Kalpataru, Lodha, Oberoi, Nirmal, Keystone

DLF, large number of slum rehabilitation/redevelopment projects, Orbit Constructions, Acme, Marathon, Neptune

High Medium

Kolkata Ambuja Realty, Unitech DLF, Puravankara Medium Medium


Increase in competition

Substantial sales from commercial projects in FY2006-08Commercial revenue breakup for Unitech and DLF, FY2006-08

FY2006 FY2007 FY2008UnitechCommercial revenues (Rs mn) 0 15,788 17,124Total revenues 9,545 33,881 42,801% commercial 46.6 40.0

DLFCommercial revenues (Rs mn) 3,997 19,041 53,450Total revenues 11,536 39,233 144,375% commercial 34.6 48.5 37.0


Consensus earnings downgrades continue for the sector

Date DLF Unitech Consensus earnings downgrades continue for the sector7-Nov-08 53.3 12.68-Dec-08 45.6 10.112-Jan-09 40.1 8.310-Feb-09 21.8 6.06-Mar-09 19.1 5.88-Apr-09 15.5 4.610-May-09 10.2 4.228-May-09 10.5 3.6Date8-Dec-08 (14.4) (19.8)12-Jan-09 (12.1) (17.8)10-Feb-09 (45.6) (27.7)6-Mar-09 (12.3) (4.2)8-Apr-09 (18.9) (20.0)10-May-09 (34.2) (8.7)28-May-09 2.9 (13.2)


FY2010E consensus EPS (Rs/share)

monthly change (%)

0

10

20

30

40

50

60

70

Nov-08

Nov-08

Dec-08

Jan-09

Jan-09

Feb-09

Mar-09

Mar-09

Apr-09

Apr-09

May-09

DLF Unitech



April 2009—A dull month for insurance

• In April 2009, APE of private players declined by 23% yoy while LIC was up 14%

• Most large players reported yoy decline, Max NY Life gained market share fromlarge players

• We are factoring moderate (5-10%) growth for the private players in FY2010E

The Indian insurance industry reported an 8% decline in APE during April 2009 as privateplayers were down 23% while LIC was up 14%. LIC retained its market share in theindividual business (48% in April marginally below 49% in March 2009 but significantlyabove 40% reported in 1HFY09) likely indicating investors/ policyholders continuedpreference to public sector. Within the private sector, Max NY gained market share fromalmost all large private players (Bajaj All, HDFC SL and ICICI Pru Life), SBI Life’s marketshare was stable month on month. The month of April typically contributes to about 3-4%of annual business for the insurance players and hence current trends may not beindicative for the full year. We expect subdued growth for private players in 1HFY10 as thebase effects play out. An improving environment for mobilizing retail investments (on theback of stable Government, improving stock market performance) will likely drive growthin 2HFY10 though it would currently be premature to expect a sharp recovery. Currently,most insurance companies continue to maintain a cautious outlook on near-term growthand are going slow with their expansion plan. We are factoring 5-10% growth for theprivate players for the year.

Adjusted life insurance premium income collections (Rs mn)

Individualyoy growth

(%) Groupyoy growth

(%) Totalyoy growth

(%)Bajaj Allianz 879 (50) 71 7,612 950 (46)Birla Sunlife 622 (27) 17 226 639 (26)HDFC Standard Life 725 (26) 20 33 745 (25)ICICI Prudential 927 (62) 35 (57) 963 (62)Max NY 1,265 32 2 (80) 1,266 31KMOM 251 (42) 4 (11) 254 (42)Reliance Life 883 (11) 22 16 905 (11)MetLife 148 (79) 11 0 158 (77)SBI Life 1,098 (4) 341 1,352 1,439 23Tata AIG 436 (39) 4 (82) 440 (41)Private sector 8,826 (26) 537 189 9,362 (23)LIC 7,993 4 930 515 8,922 14Total 16,819 (14) 1,466 335 18,285 (8)

Source: IRDA.

Apr-09

Insurance



Growth in premium income from individual business, adjusted for single premium (%)

2005 2006 2007 2008 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 2009 Apr-09

Bajaj Allianz 182 199 136 79 53 2 7 14 (4) (47) (3) (30) (54) (54) (57) (48) (33) (50)

Birla Sun Life 90 11 24 143 255 254 213 107 23 16 10 14 35 44 16 13 43 (27)

HDFC Standard Life 164 118 57 80 70 16 58 16 41 141 12 (27) (31) (46) (22) (17) 4 (26)

ICICI Prudential 114 57 87 68 44 60 33 25 11 (6) (37) (46) (49) (43) (45) (44) (23) (62)

KMOM 103 82 43 88 95 121 130 165 136 123 55 (31) (12) (22) (15) (13) 24 (42)

Max NY 72 103 75 70 66 130 43 58 60 54 18 38 (7) 29 (16) (22) 22 32

Reliance Life 21 160 813 168 250 182 132 123 117 178 54 16 29 20 10 41 59 (11)

SBI Life 87 206 290 111 110 85 95 114 46 39 41 6 (4) (28) (41) (9) 9 (4)

Private sector 122 81 100 86 84 64 53 51 33 15 6 (17) (22) (26) (29) (16) 1 (26)

LIC 3 18 88 0 (41) (22) (29) (38) (63) 15 21 (9) (10) (17) (19) (5) (22) 4

Total 19 34 92 31 1 14 5 (5) (34) 15 12 (13) (17) (21) (25) (11) (10) (14)

Source:IRDA

Trend in market share for key players in individual premium, adjusted for single premium (%)2004 2005 2006 2007 2008 Apr-08 FY2009 Apr-09

Bajaj Allianz 1.2 2.9 6.4 7.8 10.7 9.0 8.0 5.2

Birla Sun Life 2.0 3.3 2.7 1.7 3.3 4.4 5.2 3.7

HDFC Standard Life 1.0 2.3 3.7 3.1 4.2 5.0 4.9 4.3

ICICI Prudential 4.8 8.7 10.1 9.9 12.7 12.6 10.9 5.5

Max NY 1.0 1.4 2.1 1.9 2.5 4.9 3.4 7.5

Reliance Life 0.2 0.2 0.4 1.7 3.6 5.1 6.3 5.2

SBI Life 0.4 0.7 1.5 3.1 5.0 5.8 6.1 6.5

Private sector 13.6 25.3 34.2 35.5 50.5 60.9 57.0 52.6

LIC 86.4 74.7 65.8 64.5 49.5 39.1 43.0 47.4

Source:IRDA

Market share in group business unadjusted (%)

2005 2006 2007 FY2008 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 FY2009 Apr-09

Bajaj Allianz 0.2 0.5 0.5 1.3 0.3 0.9 0.5 1.1 1.0 0.5 0.6 0.4 2.0 2.1 3.3 3.3 1.6 4.8

Birla Sun Life 2.1 1.7 1.0 1.6 1.6 0.1 0.4 0.6 2.5 1.9 2.7 1.9 1.3 1.6 1.3 3.3 1.9 1.2

HDFC Standard Life

1.1 2.7 2.0 2.3 4.4 0.8 0.1 0.3 1.5 0.3 0.5 0.5 2.3 2.5 0.4 1.6 1.1 1.3

ICICI Prudential 2.5 5.7 6.3 8.7 24.2 9.3 8.9 11.2 9.2 4.7 14.8 4.0 3.9 14.6 13.8 6.1 8.2 2.4

Max NY 0.1 — — — 2.3 0.4 0.1 0.3 0.1 0.1 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.1

Reliance Life 0.1 0.2 0.9 2.9 5.7 0.5 0.3 1.2 1.4 0.8 0.8 0.3 0.7 0.6 0.6 1.3 1.0 1.5

SBI Life 7.2 7.8 5.7 7.3 7.0 10.8 22.9 5.7 4.7 13.2 8.1 23.5 10.9 7.5 7.4 8.8 11.5 23.2

Private sector 15.4 21.2 18.3 26.9 55.1 24.0 34.5 23.0 22.0 22.8 32.0 32.4 26.1 35.1 29.6 27.5 28.0 36.6

LIC 84.6 78.8 81.7 73.1 44.9 76.0 65.5 77.0 78.0 77.2 68.0 67.6 73.9 64.9 70.4 72.5 72.0 63.4

Source:IRDA



Proportion of business contracted YTD (%)Proportion of full year's business contracted during the period mentioned (%)

Apr-05 Apr-06 Apr-07 Apr-09

Bajaj Allianz 1.2 2.4 2.1 2.6

SBI Life 0.9 1.6 2.1 3.1

HDFC Standard Life 2.5 3.6 2.6 2.8

ICICI Prudential 2.9 2.5 2.6 1.9

Birla Sun Life 2.8 3.0 1.4 2.3

Max NY 3.5 5.4 4.4 6.9

Reliance Life 3.5 3.3 1.5 2.6

Private sector 2.5 3.1 2.4 3.2

LIC 3.1 1.9 5.0 4.2

Insurance business adds significant value to parent companiesValue addition to parent's SOTP from insurance business (Rs/share of holding co.)

Economic value assumed

Revised fair value (based on FY2010E)

% of parents market price

Revised fair value (based on FY2011E)

% of parents market price

Insurance company (%) (Rs/share) (%) (Rs/share) (%)HDFC Standard Life HDFC Ltd 74 184 11 208 12

ICICI Bank ICICI Bank 74 93 21 111 26

Reliance Life Reliance Cap. 100 371 39 399 42

SBI Life SBI Ltd 74 123 10 138 11


Parent/Holding company

Likely price range based on fair value (based on March 2010E)Value addition to parents SOTP from insurance business (Rs per share of holding company)

HDFC Ltd. ICICI Bank

Margin (%) Multiple (X) 11.7 12.7 13.6 16.1

Multiple (X) 10.8 11.8 12.8 15.2 14 79 83 86 90

15 152 160 169 178 17 88 93 97 102

17 164 174 184 194 18 92 96 101 106

18 171 181 191 202 19 95 100 105 110

19 177 188 199 210 21 101 106 112 117

21 189 201 214 226

Reliance Capital SBI Ltd

Margin (%) Margin (%)

Multiple (X) 12.4 13.9 14.9 16.4 Multiple (X) 11.6 12.7 13.8 16.5

14 292 318 336 363 14 107 113 119 125

16 323 353 374 404 16 116 123 129 136

17 339 371 393 425 17 120 127 134 141

18 355 389 411 445 18 125 132 140 147

20 386 424 449 487 20 134 142 150 158




Likely price range based on fair value (based on March 2011E)Value addition to parents SOTP from insurance business (Rs per share of holding company)

HDFC Ltd. ICICI Bank

Margin (%) Multiple (X) 11.7 12.6 13.6 17.6

Multiple (X) 10.8 11.8 12.8 16.6 14 95 100 104 108

15 171 181 191 201 17 106 111 116 121

17 185 197 208 219 18 110 115 121 126

18 192 204 216 228 19 113 119 125 130

19 200 212 225 237 21 121 127 133 139

21 214 228 242 256

Reliance Capital SBI Ltd

Margin (%) Margin (%)

Multiple (X) 10.9 12.4 13.9 15.4 Multiple (X) 11.6 12.7 13.8 18.1

14 319 348 377 406 14 122 128 134 141

16 349 382 415 448 16 131 138 146 153

17 364 399 434 470 17 136 144 151 159

18 379 417 454 491 18 141 149 157 165

20 410 451 492 534 20 150 159 168 178


Valuations of Indian insurance companies

NBV 2010E

NBV 2011E

Fair value (2010E)

Fair value (2011E)

Fair value to 2010E NBV

Fair value to 2011E NBV

(Rs bn) (Rs bn) (Rs bn) (Rs bn) (X) (X)HDFC Standard Life 3.3 4.1 81.4 91.9 24.8 22.6

ICICI Prudential 6.5 7.5 165.1 197.8 25.5 26.5

Reliance Life 5.1 5.6 101.4 109.1 19.7 19.3

SBI Life 4.9 5.4 116.3 131.2 23.7 24.3


High fair value to EV reflects high growth potntial in Indian insurance market

FY2010 EV Fair value Fair value to EV FY2011 EV Fair value EV(Rs bn) (Rs bn) (X) (Rs bn) (Rs bn) (X)

HDFC Standard Life 25.6 81.4 3.2 27.8 91.9 3.3

ICICI Prudential 62.7 165.1 2.6 80.0 197.8 2.5

Reliance Life 20.0 101.4 5.1 29.1 109.1 3.7

SBI Life 44.0 116.3 2.6 51.7 131.2 2.5



India Daily Summary - June 01, 2009K

ota

k In

stit

uti

on

al E

qu

itie

s: V

alu

atio

n S

um

mar

y o

f K

ey In

dia

n C

om

pan

ies

Sour

ce:

Com

pany

, Bl

oom

berg

, K

otak

Inst

itutio

nal E

quiti

es e

stim

ates

29-M

ay-0

9M

kt c

ap.

O/S

sh

ares

EPS

(Rs)

EPS

gro

wth

(%

)PE

R (

X)

Co

mp

any

Pric

e (R

s)R

atin

g(R

s m

n)

(US$

mn

)(m

n)

2009

E20

10E

2011

E20

09E

2010

E20

11E

2009

E20

10E

2011

EA

uto

mo

bile

sBa

jaj A

uto

1,03

4

SELL

149,

639

3,17

414

5

48

.7

65.3

73

.1

(6.7

)

34.0

12.0

21.2

15.9

14.2

Her

o H

onda

1,

337

RE

DU

CE

267,

029

5,66

320

0

64

.2

83.8

91

.2

32.4

30.5

8.8

20.8

16.0

14.7

Mah

indr

a &

Mah

indr

a 66

9

A

DD

177,

428

3,76

326

5

21

.7

40.4

43

.6

(42.

9)

86

.0

8.

0

30

.8

16

.6

15

.3

Mar

uti S

uzuk

i1,

027

SE

LL29

6,83

26,

295

289

42.2

58

.3

63.4

(2

9.5)

38.1

8.6

24.3

17.6

16.2

Tata

Mot

ors

337

SELL

187,

392

3,97

455

6

20

.8

15.2

20

.0

(58.

3)

(2

7.0)

32.2

16.2

22.2

16.8

Au

tom

ob

iles

Cau

tio

us

1,07

8,31

922

,870

(26.

0)

30

.7

12

.3

22.7

17.3

15

.4

Ban

ks/F

inan

cial

Inst

itu

tio

ns

And

hra

Bank

95

AD

D45

,978

975

485

13.5

11

.1

12.6

14

.0

(1

7.9)

13.6

7.0

8.5

7.5

Axi

s Ba

nk77

9

BU

Y27

9,64

75,

931

359

50.6

56

.1

66.6

56

.9

11

.0

18

.7

15

.4

13

.9

11

.7

Bank

of

Baro

da43

9

A

DD

160,

394

3,40

236

6

60

.9

54.9

58

.5

55.1

(9.8

)

6.5

7.2

8.0

7.5

Bank

of

Indi

a33

8

A

DD

177,

496

3,76

552

6

57

.2

46.3

53

.2

40.7

(19.

1)

14

.9

5.

9

7.

3

6.

3

Can

ara

Bank

284

RED

UC

E11

6,35

82,

468

410

50.5

38

.6

41.4

32

.4

(2

3.6)

7.1

5.6

7.3

6.9

Cor

pora

tion

Bank

311

BUY

44,5

7394

514

3

62

.2

51.5

55

.3

21.4

(17.

3)

7.

4

5.

0

6.

0

5.

6

Fede

ral B

ank

248

BUY

42,4

8590

117

1

27

.8

31.4

38

.2

(19.

2)

13

.1

21

.5

8.

9

7.

9

6.

5

Futu

re C

apita

l Hol

ding

s28

5

BU

Y18

,000

382

63

4.5

28.8

N

A(1

98.6

)

546.

1

(1

00.0

)

64.0

9.9

NA

HD

FC2,

180

RE

DU

CE

619,

987

13,1

4928

4

80

.2

89.5

10

1.6

(6

.5)

11

.6

13

.5

27

.2

24

.3

21

.4

HD

FC B

ank

1,44

5

AD

D60

7,77

912

,890

421

55.4

64

.1

75.0

20

.4

15

.7

17

.1

26

.1

22

.5

19

.3

ICIC

I Ban

k74

0

RE

DU

CE

823,

787

17,4

721,

113

33

.8

32.3

38

.5

(15.

4)

(4

.4)

19

.2

21

.9

22

.9

19

.2

IDFC

125

AD

D16

1,20

53,

419

1,29

4

5.8

7.0

8.0

2.3

21

.0

13

.3

21

.4

17

.7

15

.6

Indi

a In

folin

e15

2

A

DD

47,1

951,

001

311

5.0

5.8

6.5

(10.

0)

15

.5

12

.3

30

.1

26

.0

23

.2

Indi

an B

ank

137

BUY

58,9

641,

251

430

28.1

26

.6

30.6

24

.7

(5

.3)

15

.0

4.

9

5.

2

4.

5

Indi

an O

vers

eas

Bank

91

BUY

49,6

861,

054

545

24.3

16

.6

22.2

10

.3

(3

1.9)

33.8

3.7

5.5

4.1

J&K

Ban

k49

1

A

DD

23,7

9350

548

82

.8

72.2

92

.8

11.5

(12.

7)

28

.4

5.

9

6.

8

5.

3

LIC

Hou

sing

Fina

nce

528

BUY

44,8

3695

185

62

.5

68.8

80

.3

37.3

10.0

16.8

8.4

7.7

6.6

Mah

indr

a &

Mah

indr

a Fi

nanc

ial

264

AD

D25

,222

535

96

22.4

27

.5

30.0

7.

5

22.9

8.7

11.8

9.6

8.8

Orie

ntal

Ban

k of

Com

mer

ce18

7

A

DD

46,7

8899

225

1

36

.1

27.3

34

.6

51.4

(24.

5)

26

.7

5.

2

6.

8

5.

4

PFC

194

SELL

222,

265

4,71

41,

148

13

.0

16.5

19

.3

14.3

26.7

17.6

14.9

11.8

10.0

Punj

ab N

atio

nal B

ank

671

BUY

211,

505

4,48

631

5

98

.0

98.5

11

5.1

50

.9

0.

5

16.8

6.8

6.8

5.8

Rura

l Ele

ctrif

icat

ion

Cor

p.14

7

BU

Y12

5,78

52,

668

859

15.2

17

.7

20.0

38

.8

16

.8

13

.0

9.

7

8.

3

7.

3

Shrir

am T

rans

port

288

AD

D60

,976

1,29

321

2

30

.1

32.5

36

.9

56.8

7.9

13

.7

9.

6

8.

9

7.

8

SREI

77

AD

D8,

978

190

116

7.7

6.9

8.2

(32.

8)

(1

0.1)

18.6

10.0

11.2

9.4

Stat

e Ba

nk o

f In

dia

1,86

9

BUY

1,18

6,72

025

,169

635

143.

6

121.

1

139.

2

34.8

(15.

7)

14

.9

13

.0

15

.4

13

.4

Uni

on B

ank

205

BUY

103,

675

2,19

950

5

34

.2

29.6

35

.5

24.5

(13.

5)

19

.9

6.

0

6.

9

5.

8

Ban

ks/F

inan

cial

Inst

itu

tio

ns

Att

ract

ive

5,31

4,07

711

2,70

627

.6

(4

.8)

15.4

12

.5

13

.2

11.4

C

emen

tA

CC

783

RED

UC

E14

7,01

63,

118

188

56.3

55

.2

42.2

(1

2.2)

(1.9

)

(23.

6)

13.9

14.2

18.6

Am

buja

Cem

ents

92

RED

UC

E13

9,45

02,

958

1,52

2

7.2

6.8

5.4

(5.0

)

(4.7

)

(20.

5)

12.7

13.4

16.8

G

rasim

Indu

strie

s2,

103

RE

DU

CE

192,

838

4,09

092

23

8.5

23

5.7

23

9.1

(1

6.2)

(1.2

)

1.4

8.8

8.9

8.8

Indi

a C

emen

ts15

4

A

DD

43,4

5092

228

2

22

.7

19.8

17

.5

n/a

(12.

8)

(1

1.2)

6.

8

7.

8

8.

8

Shre

e C

emen

t1,

018

BU

Y35

,466

752

35

174.

7

91.6

86

.2

93.7

(47.

6)

(5

.9)

5.8

11.1

11.8

Ultr

aTec

h C

emen

t71

8

A

DD

89,9

121,

907

125

78.0

70

.5

49.3

(4

.1)

(9

.7)

(3

0.0)

9.

2

10

.2

14

.6

Cem

ent

Cau

tio

us

648,

131

13,7

46(5

.1)

(9.5

)

(1

2.9)

9.

8

10

.8

12.4

C

on

sum

er p

rod

uct

sA

sian

Pain

ts1,

080

A

DD

103,

593

2,19

796

38

.4

49.1

57

.5

(2.2

)

27.9

17.1

28.1

22.0

18.8

C

olga

te-P

alm

oliv

e (In

dia)

474

AD

D64

,440

1,36

713

6

21

.6

24.4

25

.7

26.3

12.9

5.4

22.0

19.4

18.4

G

laxo

Smith

klin

e C

onsu

mer

(a)

862

AD

D36

,231

768

42

44.8

56

.1

63.6

15

.8

25

.2

13

.5

19

.2

15

.4

13

.5

God

rej C

onsu

mer

Pro

duct

s18

3

A

DD

47,2

471,

002

258

6.8

8.7

9.8

(3.9

)

27.8

12.8

27.0

21.1

18.7

H

indu

stan

Uni

leve

r23

1

RE

DU

CE

503,

020

10,6

692,

179

9.

2

10

.2

11.6

12

.9

11

.5

13

.6

25

.2

22

.6

19

.9

ITC

184

AD

D69

2,10

514

,679

3,76

9

8.7

9.9

11.3

4.

8

14.2

14.4

21.2

18.5

16.2

Jy

othy

Lab

orat

orie

s83

A

DD

6,03

012

873

7.

2

10

.6

13.0

10

.2

47

.3

22

.1

11

.5

7.

8

6.

4

N

estle

Indi

a (a

)1,

726

A

DD

166,

447

3,53

096

58

.6

70.5

82

.4

31.0

20.4

16.8

29.5

24.5

21.0

Ta

ta T

ea69

3

BU

Y42

,864

909

62

60.1

67

.7

75.8

10

.9

12

.7

11

.9

11

.5

10

.2

9.

1

C

on

sum

er p

rod

uct

s C

auti

ou

s1,

661,

978

35,2

499.

8

15.3

14.0

22

.8

19

.8

17.4

C

on

stru

ctio

ns

Con

solid

ated

Con

stru

ctio

n C

o.25

1

A

DD

9,27

019

737

19

.7

27.2

31

.9

(18.

1)

38

.0

17

.5

12

.7

9.

2

7.

9

IV

RCL

329

BUY

44,5

6594

513

5

14

.4

16.9

19

.4

(7.3

)

17.1

14.8

22.8

19.5

17.0

N

agar

juna

Con

stru

ctio

n C

o.13

9

BU

Y31

,866

676

229

7.3

8.8

9.7

2.5

19

.7

10

.0

18

.9

15

.8

14

.4

Punj

Llo

yd20

4

BU

Y63

,464

1,34

631

1

(7

.4)

15.9

17

.2

(174

.4)

(3

14.8

)

7.7

(27.

5)

12.8

11.9

Sa

dbha

v En

gine

erin

g68

4

A

DD

8,55

318

113

43

.8

54.3

88

.0

8.2

23

.8

62

.2

15

.6

12

.6

7.

8

C

on

stru

ctio

nA

ttra

ctiv

e15

7,71

83,

345

(70.

0)

34

4.1

13

.8

62.9

14.2

12

.4

EV/E

BIT

DA

(X

)Pr

ice/

BV

(X

)R

oE

(%)

Targ

et

pri

ceU

psi

de

AD

VT-

3mo

2009

E20

10E

2011

E20

09E

2010

E20

11E

2009

E20

10E

2011

E20

09E

2010

E20

11E

(Rs)

(%)

(US$

mn

)

11.8

9.0

8.9

7.9

6.1

4.8

1.9

1.9

1.9

40.2

42

.8

36.8

78

0

(2

4.6)

3.4

12.1

9.3

8.0

6.8

5.3

4.2

1.5

1.6

1.6

36.6

37

.4

31.9

1,

000

(2

5.2)

17.4

20.3

11.2

10.2

3.

7

2.

8

2.

4

1.

3

1.

4

1.

4

12

.3

19.3

17

.0

670

0.2

15

.1

13.8

9.0

7.6

3.1

2.6

2.3

0.3

0.5

0.5

13.3

16

.1

15.1

78

0

(2

4.1)

27.4

12.2

10.5

9.2

1.4

1.3

1.2

2—2—

2—9.

0

6.

1

—

235

(30.

2)

35

.7

13.4

9.8

8.7

3.2

2.7

2.4

1.2

1.3

1.3

14.1

15

.8

15.6

——

—1.

3

1.

3

1.

1

4.

7

2.

9

3.

3

19

.0

14.0

14

.4

75

(2

0.9)

1.2

——

—3.

0

2.

6

2.

3

1.

3

1.

4

1.

7

19

.1

18.3

18

.9

700

(10.

1)

68

.5

——

—1.

5

1.

5

1.

3

2.

1

1.

8

2.

0

18

.7

14.9

14

.2

370

(15.

7)

11

.2

——

—1.

8

1.

6

1.

5

2.

4

1.

9

2.

2

29

.2

19.0

18

.7

310

(8.1

)

16

.2

——

—1.

5

1.

3

1.

2

2.

8

2.

8

3.

5

18

.3

12.4

12

.2

220

(22.

5)

5.

4

——

—0.

9

0.

8

0.

7

4.

1

3.

4

3.

6

19

.6

14.3

13

.8

310

(0.2

)

0.

9

——

—1.

0

0.

9

0.

9

2.

1

2.

4

2.

9

11

.5

11.8

13

.0

280

12.7

3.1

——

—2.

4

1.

9

N

A—

——

3.8

21.4

N

A44

0

54

.5

1.

4

——

—4.

7

4.

2

3.

8

1.

4

1.

4

1.

6

18

.2

17.9

18

.0

1,97

5

(9.4

)

78

.0

——

—4.

0

3.

5

3.

1

0.

7

0.

8

1.

0

16

.9

16.7

17

.3

1,46

0

1.1

57

.9

——

—1.

7

1.

6

1.

5

1.

5

1.

2

1.

3

7.

8

7.

1

8.

0

68

5

(7

.5)

215.

4

——

—2.

6

2.

3

2.

1

0.

8

1.

0

1.

1

12

.9

14.1

14

.2

85

(3

1.8)

29.7

——

—3.

7

3.

3

3.

0

1.

8

2.

2

2.

6

11

.7

13.5

14

.6

90

(4

0.6)

8.4

——

—1.

1

1.

0

0.

9

3.

1

2.

9

3.

3

22

.7

18.3

18

.1

165

20.3

2.9

——

—0.

8

0.

8

0.

7

5.

8

4.

1

4.

5

24

.7

14.5

17

.0

110

20.6

3.9

——

—1.

0

1.

0

1.

0

3.

5

3.

1

3.

9

16

.5

12.9

14

.9

480

(2.2

)

0.

4

——

—1.

9

1.

6

1.

3

2.

6

2.

9

3.

3

26

.2

23.9

23

.4

390

(26.

1)

8.

5

——

—1.

8

1.

5

1.

4

2.

1

2.

6

2.

8

15

.4

16.9

16

.3

240

(8.9

)

0.

3

——

—0.

8

0.

9

0.

9

3.

9

2.

9

3.

7

14

.8

10.2

11

.8

150

(19.

7)

3.

3

——

—2.

0

1.

8

1.

6

1.

4

2.

6

2.

3

13

.8

15.8

16

.7

160

(17.

4)

5.

3

——

—1.

7

1.

5

1.

3

2.

9

2.

9

3.

4

23

.0

19.9

20

.1

760

13.3

24.4

——

—1.

8

1.

5

1.

3

3.

3

3.

9

4.

4

19

.6

19.9

19

.6

125

(14.

7)

2.

9

——

—2.

8

2.

4

2.

0

3.

0

3.

4

3.

8

29

.6

27.0

25

.8

300

4.1

2.

6

——

—0.

8

0.

8

0.

7

3.

0

3.

6

4.

1

14

.0

11.5

13

.0

50

(3

5.2)

2.4

——

—2.

4

2.

4

2.

1

1.

6

1.

6

1.

7

17

.1

12.7

13

.3

1,87

0

0.1

11

9.9

——

—1.

2

1.

1

0.

9

2.

5

2.

2

2.

6

27

.2

19.5

19

.9

220

7.2

6.

1

—

—

—

2.1

2.0

1.8

1.7

1.7

1.9

16.9

15

.0

15.6

7.0

7.0

8.2

2.8

2.5

2.3

3.0

3.0

3.0

24.7

21

.3

15.1

62

5

(2

0.1)

11.7

6.9

7.0

8.4

2.3

2.0

1.9

3.3

2.1

2.3

19.7

16

.6

12.0

70

(23.

6)

4.

8

5.2

4.6

4.4

1.8

1.5

1.3

1.6

1.6

1.6

21.7

18

.2

16.0

1,

900

(9

.7)

9.7

4.6

4.8

5.0

1.1

1.0

0.9

1.4

1.4

2.1

15.7

14

.7

11.7

13

0

(1

5.7)

6.0

4.1

4.4

4.6

3.0

2.4

2.1

1.0

1.0

1.0

65.7

24

.0

18.9

95

0

(6

.7)

0.5

5.9

5.6

7.0

2.1

1.8

1.6

1.1

1.1

1.1

31.2

22

.3

13.4

62

5

(1

2.9)

1.1

5.7

5.5

5.9

2.1

1.8

1.6

2.2

1.9

2.0

21.0

16

.4

12.9

16.3

12.8

10.8

9.

1

7.

5

6.

2

1.

6

1.

9

2.

1

36

.3

38.5

36

.8

1,00

0

(7.4

)

0.

9

17.5

15.6

13.6

30

.1

24.8

23

.5

3.2

3.8

4.4

156.

1

140.

2

131.

1

520

9.7

2.

0

10.6

8.6

7.5

4.7

4.0

3.6

1.7

2.4

3.4

26.8

28

.5

28.0

90

0

4.

5

0.5

23

.5

17

.2

14

.3

7.1

6.2

5.3

2.2

2.2

2.2

42.7

42

.7

33.1

16

0

(1

2.6)

0.8

20

.1

17

.2

15

.1

32.5

30

.2

27.9

3.

8

4.

2

4.

8

13

4.3

13

9.0

14

6.1

23

5

1.

8

26.8

12

.8

11

.4

10

.1

4.9

4.3

3.7

2.0

2.2

2.4

25.4

25

.4

25—

225

22.5

25.2

7.

2

5.

0

3.

8

1.

5

1.

3

1.

2

2.

8

3.

5

4.

2

13

.0

16.5

18

.8

127

52.8

18.7

16.0

13.8

35

.2

28.9

23

.9

2.5

3.0

3.5

126.

7

129.

6

124.

8

1,80

0

4.3

1.

8

6.2

4.9

4.3

0.9

0.8

0.8

2.5

2.8

3.1

10.3

10

.8

11.3

94

0

35

.6

1.

9

15.0

12.9

11

.3

6.9

6.1

5.4

2.6

2.9

3.3

30.0

30

.7

30.9

8.4

5.9

5.0

1.8

1.6

1.3

1.1

1.6

1.8

15.0

18

.1

18.3

19

0

(2

4.3)

0.1

12

.7

10

.2

8.

4

2.

5

2.

2

2.

0

0.

2

0.

2

0.

2

11

.5

12.0

12

.3

350

6.3

14

.7

10.2

8.5

7.7

1.9

1.7

1.6

1.0

1.2

1.4

10.3

11

.3

11.4

14

5

4.

2

4.7

28

.7

7.

3

7.

0

2.

5

2.

1

1.

8

(0

.2)

0.4

0.4

(9.2

)

18

.9

17.1

20

0

(2

.0)

29.8

8.

8

7.

3

5.

5

2.

5

2.

1

1.

7

0.

7

0.

9

1.

0

15

.9

16.8

21

.7

550

(19.

6)

0.

1

14.7

8.1

7.2

2.3

2.0

1.8

0.3

0.6

0.7

3.7

14.2

14

.1

Div

iden

d y

ield

(%

)



ota

k In

stit

uti

on

al E

qu

itie

s: V

alu

atio

n S

um

mar

y o

f K

ey In

dia

n C

om

pan

ies

Sour

ce:

Com

pany

, Bl

oom

berg

, K

otak

Inst

itutio

nal E

quiti

es e

stim

ates

29-M

ay-0

9M

kt c

ap.

O/S

sh

ares

EPS

(Rs)

EPS

gro

wth

(%

)PE

R (

X)

Co

mp

any

139.

1

BU

Y(R

s m

n)

(US$

mn

)(m

n)

2009

E20

10E

2011

E20

09E

2010

E20

11E

2009

E20

10E

2011

EEn

erg

yBh

arat

Pet

role

um46

5

SE

LL15

2,33

93,

231

328

20—

32.1

41

.8

(50.

7)

58

NA

23N

A11

.1

Cai

rn in

dia

232

BUY

439,

743

9,32

61,

897

4.

3

9.

2

31

.2

(3,7

03)

115

238.

0

5425

7.

4

Cas

trol

Indi

a (a

)33

6

BU

Y41

,592

882

124

21.3

25

.5

26.6

20

.8

19

.5

4.

3

15

.8

13

.2

12

.7

GA

IL (I

ndia

)30

0

RE

DU

CE

380,

543

8,07

11,

268

23

.4

20.6

21

.8

14.7

(11.

8)

5.

7

12

.8

14

.5

13

.7

GSP

L60

RE

DU

CE

33,7

6771

656

3

1.

9

2.

5

3.

7

4.

4

30.5

52.6

31.9

24.4

16.0

Hin

dust

an P

etro

leum

363

SELL

123,

044

2,61

033

9

(7

.4)

17.9

34

.0

(122

.0)

(3

43.0

)

90.1

(49.

3)

20.3

10.7

Indi

an O

il C

orpo

ratio

n60

9

RE

DU

CE

718,

206

15,2

321,

179

18

.9

44.3

43

.1

(69.

1)

13

3.8

(2.6

)

32

.2

13

.8

14

.1

Oil

& N

atur

al G

as C

orpo

ratio

n1,

169

BU

Y2,

500,

894

53,0

412,

139

10

0.3

95

.3

119.

2

8.1

(5

.0)

25

.1

11

.7

12

.3

9.

8

Petr

onet

LN

G71

A

DD

53,0

631,

125

750

6.9

7.7

9.0

—10

.8

17

.6

10

.2

9.

2

7.

9

Relia

nce

Indu

strie

s 2,

272

RE

DU

CE

3,11

9,31

966

,157

1,37

3

103.

4

126.

5

169.

4

(1.5

)

22.4

33.9

22.0

18.0

13.4

Relia

nce

Petr

oleu

m14

4

N

R64

9,80

013

,782

4,50

0

—8.

3

13

.8

n/a

n/a

n/a

n/a

n/a

10.5

Ener

gy

Neu

tral

8,21

2,30

917

4,17

4(7

.0)

27.4

34.6

18

.5

14

.5

10.8

In

du

stri

als

ABB

651

RED

UC

E13

7,94

22,

926

212

25.8

24

.9

29.6

11

.3

(3

.6)

18

.7

25

.2

26

.1

22

.0

BGR

Ener

gy S

yste

ms

342

RED

UC

E24

,628

522

72

15.3

20

.7

24.3

26

.1

35

.4

17

.5

22

.4

16

.5

14

.0

Bhar

at E

lect

roni

cs1,

340

RE

DU

CE

107,

236

2,27

480

10

1.9

11

1.1

11

9.0

(0

.0)

9.

0

7.1

13.2

12.1

11.3

Bhar

at H

eavy

Ele

ctric

als

2,17

8

RED

UC

E1,

066,

248

22,6

1449

0

64

.1

92.0

10

6.8

9.

8

43.5

16.1

34.0

23.7

20.4

Cro

mpt

on G

reav

es26

3

A

DD

96,2

472,

041

367

15.3

17

.0

20.0

37

.3

11

.0

17

.5

17

.1

15

.4

13

.1

Lars

en &

Tou

bro

1,40

2

AD

D83

6,69

317

,745

597

52.6

57

.5

68.2

38

.6

9.

4

18.5

26.7

24.4

20.6

Mah

aras

htra

Sea

mle

ss24

3

BU

Y17

,135

363

71

35.9

33

.0

39.6

22

.2

(8

.1)

20

.3

6.

8

7.

4

6.

1

Siem

ens

490

RED

UC

E16

5,14

13,

502

337

14.2

19

.8

21.1

(2

2.2)

39.7

6.4

34.6

24.7

23.2

Suzl

on E

nerg

y98

A

DD

153,

771

3,26

11,

571

7.

0

7.

1

11

.4

6.0

2.

1

59.7

14.0

13.8

8.6

Ind

ust

rial

s C

auti

ou

s2,

605,

040

55,2

5015

.5

20

.1

20

.0

25.8

21.4

17

.9

Infr

astr

uct

ure

IRB

Infr

astr

uctu

re14

1

A

DD

46,9

9699

733

2

5.

6

10

.4

10.8

63

.5

85

.5

3.

9

25

.2

13

.6

13

.1

Med

iaD

ishTV

49

RED

UC

E45

,946

974

946

(7.3

)

(4

.1)

(3.2

)

n/

a(4

4.4)

(22.

6)

(6.6

)

(1

1.9)

(1

5.4)

HT

Med

ia12

4

A

DD

29,0

5961

623

4

0.

8

3.

8

6.

4

(8

0.4)

342.

2

70

.1

14

6.0

33

.0

19

.4

Jagr

an P

raka

shan

72

BUY

21,6

3945

930

1

2.

9

4.

0

5.

5

(1

2.0)

39.8

36.4

25.1

17.9

13.2

Sun

TV N

etw

ork

252

RED

UC

E99

,407

2,10

839

4

9.

3

11

.1

12.8

11

.8

19

.2

15

.8

27

.2

22

.8

19

.7

Zee

Ente

rtai

nmen

t En

terp

rises

16

8

A

DD

72,9

691,

548

434

8.1

9.3

11.2

(9

.0)

15

.5

20

.0

20

.8

18

.0

15

.0

Zee

New

s45

A

DD

10,7

8922

924

0

1.

9

2.

1

2.

5

20

.4

11

.1

18

.8

24

.2

21

.8

18

.3

Med

ia

Neu

tral

279,

809

5,93

4(2

7.7)

84.1

49.2

72

.2

39

.2

26.3

M

etal

s H

inda

lco

Indu

strie

s85

A

DD

148,

359

3,14

71,

753

7.

7

2.

4

8.

2

(4

4.4)

(69.

2)

24

8.7

11

.0

35

.8

10

.3

Nat

iona

l Alu

min

ium

Co.

354

SELL

228,

150

4,83

964

4

19

.7

10.3

16

.3

(22.

2)

(4

7.8)

58.3

18.0

34.5

21.8

Jinda

l Ste

el a

nd P

ower

2,09

0

AD

D32

1,84

16,

826

154

198.

0

172.

4

196.

2

139.

3

(1

2.9)

13.8

10.6

12.1

10.7

JSW

Ste

el55

3

SE

LL10

3,46

62,

194

187

13.1

24

.1

53.5

(8

4.7)

83.3

121.

8

42.1

22.9

10.3

Hin

dust

an Z

inc

584

BUY

246,

632

5,23

142

3

64

.6

62.9

80

.9

(38.

0)

(2

.6)

28

.7

9.

0

9.

3

7.

2

Sesa

Goa

165

BUY

130,

209

2,76

278

7

24

.8

25.5

34

.2

30.8

3.0

34

.0

6.

7

6.

5

4.

8

Ster

lite

Indu

strie

s62

4

A

DD

441,

888

9,37

270

8

49

.2

41.0

50

.5

(23.

6)

(1

6.7)

23.4

12.7

15.2

12.3

Tata

Ste

el40

5

BU

Y33

3,19

47,

067

822

123.

9

55.5

87

.0

63.6

(55.

2)

56

.7

3.

3

7.

3

4.

7

Met

als

Att

ract

ive

1,95

3,73

841

,437

6.6

(3

4.8)

43.1

7.

8

12

.0

8.4

Phar

mac

euti

cal

Bioc

on18

2

BU

Y36

,360

771

200

4.7

13.6

19

.4

(80.

0)

19

2.2

42.8

39.1

13.4

9.4

Cip

la22

3

A

DD

173,

181

3,67

377

7

9.

9

13

.9

15.5

9.

5

40.6

11.9

22.6

16.0

14.3

D

ishm

an P

harm

a &

che

mic

als

191

BUY

15,5

5533

081

18

.0

21.2

27

.3

22.1

17.9

28.7

10.6

9.0

7.0

Div

i's L

abor

ator

ies

1,15

1

BUY

74,2

941,

576

65

64.9

75

.1

89.1

21

.8

15

.8

18

.7

17

.7

15

.3

12

.9

Dr

Redd

y's

Labo

rato

ries

648

BUY

109,

551

2,32

316

9

32

.4

45.5

47

.0

24.5

40.2

3.3

20.0

14.2

13.8

G

lenm

ark

Phar

mac

eutic

als

225

BUY

59,6

841,

266

266

15.8

18

.2

22.5

(3

8.7)

14.7

23.6

14.2

12.4

10.0

Ju

bila

nt O

rgan

osys

172

BUY

29,4

3862

417

1

16

.5

18.6

21

.8

(26.

2)

12

.6

17

10

.4

9.

2

7.

9

Lu

pin

836

BUY

74,0

691,

571

89

60.7

66

.0

71.3

21

.9

8.

7

8.0

13.8

12.7

11.7

Pi

ram

al H

ealth

care

260

BUY

54,3

301,

152

209

17.3

22

.4

28.2

(2

.7)

29

.8

26

.0

15

.1

11

.6

9.

2

Ra

nbax

y La

bora

torie

s27

9

RE

DU

CE

119,

110

2,52

642

7

(8

.1)

(5.7

)

5.

1

(1

34.7

)

NA

NA

(34.

5)

NA

54.5

Su

n Ph

arm

aceu

tical

s1,

214

BU

Y25

1,38

85,

332

207

86.8

85

.7

94.0

16

.3

(1

.3)

9.

7

14

.0

14

.2

12

.9

Phar

mac

euti

cals

A

ttra

ctiv

e99

6,95

721

,144

(17.

6)

24

.7

22

.4

20.2

16.2

13

.2

Pro

per

tyD

LF40

7

RE

DU

CE

690,

561

14,6

461,

699

29

.3

16.3

17

.5

(36.

6)

(4

4.4)

7.2

13.9

25.0

23.3

H

ousin

g D

evel

opm

ent

& In

fras

truc

t28

4

N

R78

,323

1,66

127

5

30

.6

19.8

24

.8

(40.

1)

(3

5.3)

25.1

9.3

14.3

11.5

In

diab

ulls

Real

Est

ate

248

AD

D99

,465

2,11

040

1

3.

0

3.

1

7.

5

(8

1.8)

3.8

14

1.1

82

.7

79

.6

33

.0

Mah

indr

a Li

fe S

pace

Dev

elop

er28

4

BU

Y11

,958

254

42

10.2

10

.8

15.4

(3

9.2)

5.3

42

.5

27

.8

26

.4

18

.5

Phoe

nix

Mills

137

BUY

19,8

5842

114

5

5.

4

7.

3

8.

9

70

.0

34

.7

23

.4

25

.5

18

.9

15

.3

Pura

vank

ara

Proj

ects

110

RED

UC

E23

,423

497

213

6.8

7.0

7.4

(39.

8)

2.

8

6.9

16.2

15.8

14.8

So

bha

192

RED

UC

E14

,004

297

73

15.9

11

.9

14.7

(5

0.0)

(24.

8)

23

.5

12

.1

16

.1

13

.0

Uni

tech

80

SELL

162,

732

3,45

12,

044

6.

4

4.

4

4.

4

(3

8.4)

(30.

4)

(0

.9)

12.5

18.0

18.2

Pr

op

erty

Neu

tral

1,10

0,32

523

,337

(38.

6)

(3

5.7)

12.6

15

.0

23

.4

20.7

EV/E

BIT

DA

(X

)Pr

ice/

BV

(X

)R

oE

(%)

Targ

et

pri

ceU

psi

de

AD

VT-

3mo

2009

E20

10E

2011

E20

09E

2010

E20

11E

2009

E20

10E

2011

E20

09E

2010

E20

11E

(Rs)

(%)

(US$

mn

)

5.2

5.2

4.7

1.1

1.1

1.0

2—2.

8

3.

7

5.

2

7.

7

9.

4

47

5

2.

2

7.3

35.4

13.0

5.3

1.3

1.2

1.2

——

10.8

2.

5

5.

1

16

.5

225

(3.0

)

28

.2

8.8

7.6

7.2

9.3

8.3

7.8

4.5

5.4

5.9

61.2

66

.5

63.7

39

0

15

.9

0.

5

7.0

8.2

8.6

2.3

2.1

1.9

2.4

2.2

2.2

18.4

14

.5

14.0

27

0

(1

0.0)

13.0

10.5

6.7

5.6

2.5

2.3

2.3

0.9

1.1

6.2

8.2

9.8

14.4

45

(25.

0)

3.

7

7.4

6.4

NA

1.0

1.0

NA

—3.

3

6.

3

(2

.0)

4.3

8.0

325

(10.

5)

7.

9

11.1

6.1

6.0

1.5

1.4

1.3

1—3.

0

2.

9

4.

6

10

.2

9.3

550

(9.7

)

4.

0

4.5

4.4

3.7

2.2

2.0

1.8

2.9

3.4

3.6

18.9

15

.9

18.2

1,

100

(5

.9)

48.2

8.1

6.4

5.5

2.3

1.9

1.6

2.1

2.1

2.8

24.0

21

.8

20.9

57

(19.

4)

4.

1

12.9

8.2

6.3

2.6

2.3

2.0

0.6

0.7

0.9

15.1

15

.8

18.6

1,

750

(2

3.0)

233.

4

n/a

n/a

8.5

4.8

4.0

3.0

—1.

4

1.

4

0.

6

25

.1

33.0

—

—25

.5

8.9

6.7

5.4

2.2

2.0

1.8

1.4

1.9

2.7

11.9

13

.8

16.7

14.9

14.7

12.0

6.

5

5.

4

4.

5

0.

3

0.

4

0.

5

29

.2

22.6

22

.1

500

(23.

2)

7.

4

12.3

9.8

8.4

4.4

3.6

3.0

0.7

1.0

1.2

21.3

23

.9

23.2

16

5

(5

1.8)

1.5

5.6

5.0

4.5

2.7

2.3

2.0

1.9

1.9

1.9

22.4

20

.9

19.2

1,

025

(2

3.5)

1.7

18.5

13.2

11.1

8.

2

6.

5

5.

3

0.

8

0.

9

1.

0

26

.4

30.7

28

.6

1,90

0

(12.

8)

64

.3

9.6

8.6

7.5

5.4

4.2

3.3

0.7

0.8

0.9

36.5

30

.5

27.9

30

0

14

.3

6.

7

16.2

14.2

12.2

5.

3

4.

3

3.

6

0.

7

0.

8

0.

9

22

.5

19.4

19

.1

1,37

5

(1.9

)

85

.1

4.5

4.7

3.6

1.3

1.1

1.0

2.2

2.0

2.9

20.3

16

.0

16.8

22

5

(7

.4)

1.0

16.4

14.2

13.5

7.

3

6.

2

5.

1

0.

6

1.

4

0.

8

23

.3

27.1

24

.2

360

(26.

5)

7.

5

9.8

8.7

7.0

1.5

1.3

1.1

0.5

0.5

1.0

11.3

10

.1

13.9

90

(8.1

)

74

.1

14.5

12.1

10

.3

5.1

4.2

3.5

0.7

0.9

1.0

19.8

19

.6

19.6

13.7

7.6

6.9

2.5

2.1

1.7

——

—10

.6

16.8

14

.5

135

(4.5

)

6.

3

(28.

2)

(174

.5)

54

.8

(7.1

)

(2

2.6)

(9

.1)

——

—86

.191

.1

NA

22

(5

4.7)

6.9

29.9

13.3

9.7

3.4

3.2

2.9

0.3

0.6

1.8

2.3

10.1

15

.8

110

(11.

3)

0.

5

14.0

9.8

7.5

3.9

3.7

3.3

2.8

3.3

4.2

15.8

21.1

26

.5

85

18

.3

0.

1

14.6

12.7

11.0

5.

8

5.

4

5.

0

1.

6

2.

4

3.

2

23

.5

25.1

26

.7

200

(20.

7)

1.

1

14.6

12.5

10.4

2.

2

2.

1

1.

9

1.

3

1.

6

1.

9

11

.612

.2

13.7

14

5

(1

3.8)

8.2

12.4

10.4

9.1

4.4

3.8

3.3

0.9

0.9

1.3

20.0

19

.0

19.5

40

(11.

1)

0.

8

21.5

15.1

11

.9

4.6

4.0

3.9

1.2

1.6

2.2

6.4

10.2

14

.7

6.1

8.4

7.1

0.4

0.4

0.4

——

—10

.3

5.2

6.7

55

(3

5.0)

16.3

9.3

12.1

8.2

2.2

2.1

1.9

1.0

0.6

0.6

12.7

6.

2

9.

2

13

5

(6

1.9)

2.9

7.3

7.5

6.2

4.4

3.2

2.5

—0.

3

0.

3

53

.1

31.0

26

.4

1,82

0

(12.

9)

29

.2

9.0

9.0

7.0

1.0

0.9

0.8

0.2

0.9

0.9

11.0

4.

3

8.

3

34

0

(3

8.5)

34.0

5.2

4.7

2.8

1.6

1.4

1.2

0.7

0.9

0.9

20.1

16

.5

17.9

61

0

4.

5

3.4

4.0

3.4

1.9

2.9

2.1

1.5

2.1

2.1

2.1

52.8

37

.1

36.0

20

0

20

.9

22

.4

7.6

8.3

6.2

1.7

1.5

1.4

——

—14

.3

10.7

11

.8

490

(21.

4)

43

.9

3.8

5.2

3.9

0.7

0.7

0.6

3.2

3.2

3.2

36.8

15

.7

21.3

28

0

(3

0.9)

97.4

5.6

6.7

5.1

1.3

1.2

1.0

0.9

1.0

1.0

16.3

9.

8

12

.4

16.1

7.5

5.4

2.4

2.1

1.8

0.0

0.1

0.1

6.2

16.9

20

.9

235

29.3

1.9

16

.2

11

.6

10

.3

4.0

3.4

2.9

1.1

1.3

1.6

19.1

23

.0

21.8

26

0

16

.7

8.

5

8.8

7.0

5.4

2.2

1.8

1.5

0.0

0.0

0.0

22.8

21

.9

22.9

28

0

46

.4

0.

5

13.8

11.3

9.0

6.0

4.4

3.4

0.1

0.1

0.1

40.2

33

.4

29.7

1,

450

26

.0

4.

4

9.6

7.9

7.0

3.1

2.6

2.2

0.6

0.6

0.6

13.6

19

.8

17.3

74

0

14

.3

4.

9

9.4

8.0

6.7

2.7

2.2

1.8

0.0

0.0

0.0

21.9

19

.8

20.2

39

0

73

.7

7.

1

12.1

7.6

5.6

2.3

1.9

1.6

0.7

0.7

1.0

18.6

22

.6

21.7

25

0

45

.4

0.

5

13.6

11.3

9.7

4.3

3.4

2.8

1.4

1.3

1.6

33.7

30

.3

26.1

1,

075

28

.6

3.

4

11.3

7.9

6.4

4.1

3.2

2.5

1.6

1.7

1.7

26.3

31

.4

30.8

34

0

30

.8

1.

8

(162

.9)

84

6.5

21

.7

2.4

2.0

2.2

3.6

4.1

4.5

(8.8

)

(4

.7)

4.1

150

(46.

2)

16

.6

10.8

10.1

8.6

3.7

3.0

2.5

0.9

1.1

1.1

31.1

24

.3

21.9

1,

800

48

.3

18

.8

13.6

10.6

8.

5

3.

4

2.

8

2.

4

1.

1

1.

3

1.

4

16

.7

17.2

18

.0

13.7

19.8

16.9

2.

8

2.

6

2.

4

0.

7

0.

7

1.

0

22

.5

10.8

10

.6

320

(21.

3)

13

2.5

12.0

13.8

11.2

1.

8

1.

7

1.

5

1.

8

2.

1

2.

8

21

.2

12.1

13

.9

-

N

A85

.7

(265

)71

.1

17

.1

1.5

1.1

1.1

1.3

2.0

2.0

1.3

1.6

3.2

210

(15.

3)

50

.8

43.0

25.0

12.8

1.

4

1.

3

1.

3

1.

4

1.

4

1.

4

4.

8

4.

9

6.

7

41

0

44

.2

0.

6

28.3

14.2

11.4

1.

3

1.

3

1.

2

0.

7

0.

7

1.

1

5.

3

6.

8

7.

9

21

0

53

.2

0.

3

22.9

18.7

15.1

1.

8

1.

6

1.

5

—

1.8

1.8

11.5

10

.8

10.7

55

(49.

9)

0.

3

10.3

13.9

12.3

1.

3

1.

2

1.

1

2.

1

2.

1

2.

1

11

.0

7.8

9.1

90

(5

3.1)

1.0

13

.3

13

.5

12

.9

3.5

2.3

2.0

——

—25

.1

15.1

11

.8

55

(3

0.9)

95.7

14

.6

17

.9

15.1

2.

4

2.

1

1.

9

0.

8

0.

9

1.

1

16

.3

8.9

9.3

Div

iden

d y

ield

(%

)



ota

k In

stit

uti

on

al E

qu

itie

s: V

alu

atio

n S

um

mar

y o

f K

ey In

dia

n C

om

pan

ies

Sour

ce:

Com

pany

, Bl

oom

berg

, K

otak

Inst

itutio

nal E

quiti

es e

stim

ates

29-M

ay-0

9M

kt c

ap.

O/S

sh

ares

EPS

(Rs)

EPS

gro

wth

(%

) PE

R (

X)

Co

mp

any

48.6

RED

UC

E(R

s m

n)

(US$

mn

)(m

n)

2009

E20

10E

2011

E20

09E

2010

E20

11E

2009

E20

10E

2011

ER

etai

lTi

tan

Indu

strie

s1,

073

RE

DU

CE

47,6

251,

010

44

45.9

50

.1

56.9

30

.8

9.

2

13.7

23.4

21.4

18.8

R

etai

lN

eutr

al47

,625

1,01

030

.8

9.

2

13.7

23

.4

21

.4

18.8

Te

chn

olo

gy

HC

L Te

chno

logi

es16

7

RE

DU

CE

115,

996

2,46

069

5

16

.2

12.5

16

.7

5.8

(2

2.6)

33.4

10.3

13.3

10.0

Info

sys

Tech

nolo

gies

1,60

5

BUY

921,

327

19,5

4057

4

10

2.4

10

4.1

11

6.1

29

.6

1.

6

11.5

15.7

15.4

13.8

M

phas

is BF

L33

7

RE

DU

CE

70,2

401,

490

208

14.2

38

.8

30.3

15

.7

17

3.5

(21.

9)

23.8

8.7

11.1

M

indt

ree

373

BUY

15,3

5532

641

13

.2

44.0

50

.7

(50.

5)

23

2.5

15.1

28.2

8.5

7.4

Patn

i Com

pute

r Sy

stem

s21

9

RE

DU

CE

28,0

8859

612

9

26

.8

23.5

26

.1

(19.

3)

(1

2.4)

11.1

8.2

9.3

8.4

Pola

ris S

oftw

are

Lab

91

SELL

8,96

719

099

13

.1

13.3

12

.1

76.0

1.7

(8

.9)

6.9

6.8

7.5

TCS

705

RED

UC

E68

9,52

914

,624

979

52.9

51

.3

55.9

3.

1

(2.9

)

8.8

13.3

13.7

12.6

Te

ch M

ahin

dra

474

AD

D61

,165

1,29

712

9

70

.4

38.0

37

.2

19.3

(46.

0)

(2

.1)

6.7

12.5

12.7

W

ipro

382

AD

D55

8,85

011

,853

1,46

2

25.7

27

.0

29.4

15

.8

4.

7

9.1

14.8

14.2

13.0

Tech

no

log

y C

auti

ou

s2,

475,

952

52,5

1215

.0

0.

3

8.9

13.9

13.8

12

.7

Tele

com

Bhar

ti A

irtel

821

AD

D1,

558,

479

33,0

541,

899

44

.6

52.2

59

.8

26.4

17.0

14.6

18.4

15.7

13.7

IDEA

84

RED

UC

E26

1,18

95,

540

3,10

4

2.9

2.9

3.2

(26.

5)

(0

.1)

10

.9

29

.0

29

.0

26

.2

MTN

L10

4

SE

LL65

,646

1,39

263

0

4.

0

4.

1

4.

6

(4

4.3)

2.6

11

.8

26

.2

25

.5

22

.8

Relia

nce

Com

mun

icat

ions

306

SELL

630,

868

13,3

802,

064

27

.7

20.3

21

.1

4.7

(2

6.6)

3.9

11.0

15.0

14.5

Tata

Com

mun

icat

ions

468

RED

UC

E13

3,32

32,

828

285

13.6

14

.0

15.2

24

.0

3.

2

8.2

34.4

33.4

30.9

Tele

com

C

auti

ou

s2,

649,

505

56,1

9311

.5

(0

.5)

11.3

16

.5

16

.5

14.8

Tr

ansp

ort

atio

nC

onta

iner

Cor

pora

tion

938

AD

D12

1,94

72,

586

130

64.4

71

.4

83.3

11

.6

10

.8

16

.6

14

.6

13

.1

11

.3

Tran

spo

rtat

ion

C

auti

ou

s12

1,94

72,

586

11.6

10.8

16.6

14

.6

13

.1

11.3

U

tilit

ies

CES

C35

1

BU

Y43

,853

930

125

31.2

38

.0

42.1

12

.3

21

.8

10

.8

11

.3

9.

2

8.

3

La

nco

Infr

atec

h37

0

A

DD

82,1

951,

743

222

14.5

18

.1

33.8

(2

.5)

25

.1

86

.9

25

.6

20

.4

10

.9

NTP

C21

5

SE

LL1,

776,

073

37,6

698,

245

9.

4

10

.8

12.2

1.

1

14.7

12.6

22.8

19.9

17.7

Relia

nce

Infr

astr

uctu

re1,

272

BU

Y28

8,04

46,

109

226

64.1

58

.8

62.9

70

.5

(8

.2)

6.

9

19

.8

21

.6

20

.2

Relia

nce

Pow

er18

1

RE

DU

CE

433,

573

9,19

62,

397

1.

0

2.

5

3.

1

—

140.

3

25

.3

17

7.3

73

.8

58

.9

Tata

Pow

er1,

070

A

DD

238,

278

5,05

422

3

56

.2

76.6

86

.5

76.6

36.2

12.9

19.0

14.0

12.4

Uti

litie

s A

ttra

ctiv

e2,

862,

016

60,7

0014

.0

17

.4

14

.8

25.0

21.3

18

.6

Oth

ers

Aba

n O

ffsh

ore

905

SELL

34,2

6872

738

87

.8

148.

2

277.

7

2168

.8

87

.4

10

.3

6.

1

3.

3

H

avel

ls In

dia

272

RED

UC

E16

,446

349

61

(1.0

)

10

.3

14.7

(1

04)

NA

43.0

NA

26.5

18.5

Ja

ipra

kash

Ass

ocia

tes

208

AD

D29

2,06

06,

194

1,40

3

6.2

7.8

11.7

27

25.0

50.2

33.5

26.8

17.9

Jinda

l Saw

366

BUY

20,0

9242

655

64

.3

47.8

41

.7

(1)

(25.

6)

(1

2.8)

5.

7

7.

7

8.

8

PS

L12

8

BU

Y5,

591

119

44

22.0

36

.8

30.0

4

67.4

(18.

5)

5.8

3.5

4.3

Sint

ex23

0

BU

Y31

,326

664

136

23.8

24

.8

27.3

22

4.1

10

.2

9.

6

9.

3

8.

4

Ta

ta C

hem

ical

s21

6

A

DD

50,8

791,

079

235

27.6

23

.1

27.2

(3

0)(1

6.4)

17.9

7.9

9.4

8.0

Wel

spun

Guj

arat

Sta

hl R

ohre

n16

9

RE

DU

CE

31,9

0367

718

9

17

.3

23.4

17

.3

(16)

35.0

(25.

7)

9.8

7.2

9.7

Uni

ted

Phos

phor

us16

4

BU

Y75

,721

1,60

646

2

10

.7

13.5

18

.0

2825

.7

33

.9

15

.3

12

.2

9.

1

Oth

ers

558,

286

11,8

4112

.5

12

.5

29

.9

15.3

13.6

10

.5

KS

un

iver

se (

b)

32,7

70,7

29

695,

031

3.

6

4.0

21

.6

16

15.4

12

.7

KS

un

iver

se (

b)

ex-E

ner

gy

24,5

58,4

20

520,

857

7.

0

(2.5

)

16

.9

15.3

15.7

13

.4

KS

un

iver

se (

d)

ex-E

ner

gy

& e

x-C

om

mo

dit

ies

21,9

56,5

51

465,

674

7.

8

4.2

15

.1

17.1

16.4

14

.3

Not

e:(1

) For

ban

ks w

e ha

ve u

sed

adju

sted

boo

k va

lues

.(2

) 200

8 m

eans

cal

enda

r ye

ar 2

007,

sim

ilarly

for

200

9 an

d 20

10 f

or t

hese

par

ticul

ar c

ompa

nies

.(3

) EV

/Sal

es &

EV

/EBI

TDA

for

KS

univ

erse

exc

lude

s Ba

nkin

g Se

ctor

.

EV/E

BIT

DA

(X

)Pr

ice/

BV

(X

)R

oE

(%)

Targ

et

pri

ceU

psi

de

AD

VT-

3mo

2009

E20

10E

2011

E20

09E

2010

E20

11E

2009

E20

10E

2011

E20

09E

2010

E20

11E

(Rs)

(%)

(US$

mn

)

15.0

13.0

11.2

8.

3

6.

4

5.

1

0.

9

1.

0

1.

1

38

.9

33.6

29

.9

850

(20.

8)

3.

7

15.0

13.0

11

.2

8.3

6.4

5.1

0.9

1.0

1.1

35.3

29

.7

26.8

5.8

5.5

5.4

1.8

1.7

1.6

7.2

7.2

7.2

18.3

13

.0

16.8

11

0

(3

4.1)

5.5

11.2

10.9

9.0

5.0

4.1

3.4

1.5

1.6

1.8

36.7

29

.3

26.8

1,

500

(6

.5)

61.7

18

.0

6.

2

6.

0

4.

9

3.

3

2.

7

1.

2

1.

3

1.

5

22

.8

45.3

26

.4

240

(28.

8)

3.

0

4.9

4.9

4.1

2.8

2.1

1.6

0.5

—1.

4

5.

5

20

.4

18.4

40

0

7.

2

4.5

2.

8

2.

3

2.

1

1.

1

0.

9

0.

8

0.

8

2.

1

2.

4

16

.2

10.0

10

.3

150

(31.

4)

2.

0

2.4

2.8

2.9

1.2

1.0

0.9

3.0

2.2

2.2

18.1

15

.9

12.9

50

(45.

0)

3.

0

9.3

9.4

8.2

4.4

3.6

3.2

2.0

2.2

3.2

36.9

29

.1

26.8

51

0

(2

7.6)

29.3

4.

5

8.

1

7.

6

2.

7

2.

3

2.

0

0.

8

1.

3

1.

5

52

.8

20.3

17

.0

360

(24.

0)

19

.2

10.9

9.8

8.2

3.7

3.1

2.6

1.0

2.0

2.2

26.9

23

.7

21.7

32

5

(1

5.0)

13.9

9.5

9.0

7.8

3.9

3.2

2.8

1.8

2.1

2.5

28.1

23

.3

21.8

10.7

9.2

7.9

5.0

3.7

2.9

0.5

0.7

1.0

31.4

27

.0

23.8

77

5

(5

.6)

98.4

10

.6

9.

4

7.

9

1.

9

1.

8

1.

7

—

——

10.4

6.

4

6.

8

55

(34.

6)

13

.3

14.8

11.0

7.5

0.6

0.6

0.6

5.8

5.8

5.8

1.6

1.6

1.9

50

(5

2.0)

2.6

9.4

8.9

7.0

1.8

1.6

1.4

0.3

——

18.6

11

.7

10.9

18

0

(4

1.1)

67.4

14

.7

13

.3

12

.4

1.9

1.9

1.8

1.1

1.4

1.6

5.4

5.2

5.5

400

(14.

5)

3.

9

10.5

9.3

7.7

2.7

2.3

2.0

0.5

0.6

0.8

16.3

14

.0

13.6

10.3

8.7

7.3

3.2

2.7

2.3

1.5

1.7

2.0

24.0

22

.5

22.2

85

0

(9

.4)

0.8

10.3

8.7

7.3

3.2

2.7

2.3

1.5

1.7

2.0

22.1

20

.8

20.5

6.0

6.7

7.1

1.2

1.1

0.9

1.3

1.6

1.7

11.4

12

.2

11.9

38

5

9.

7

1.3

23.1

17.6

8.3

3.8

3.1

2.4

——

—16

.1

16.9

25

.0

270

(27.

0)

14

.3

17.3

14.7

13.9

3.

0

2.

8

2.

5

1.

6

1.

9

2.

1

13

.7

14.5

15

.0

180

(16.

4)

33

.4

21.4

21.7

16.8

1.

7

1.

6

1.

5

0.

6

0.

7

0.

7

6.

3

7.

0

9.

0

97

0

(2

3.7)

119.

5

——

—3.

1

3.

0

2.

9

—

——

1.8

4.2

5.0

120

(33.

7)

24

.2

10.7

11.2

10.5

2.

4

2.

1

1.

8

1.

1

1.

1

1.

3

13

.4

15.8

15

.7

1,10

0

2.8

13

.2

17.9

17.0

15

.1

2.7

2.5

2.3

1.2

1.3

1.5

10.8

11

.7

12.3

9.0

7.1

5.6

2.5

1.8

1.2

0.4

0.6

0.6

33.7

36

.9

41.2

30

0

(6

6.8)

51.0

10.6

9.1

8.2

2.3

2.2

2.0

1.2

1.5

1.8

(0.9

)

8.

5

11

.4

120

(55.

8)

2.

4

18.4

14.5

13.1

4.

9

4.

3

3.

6

0.

0

0.

0

0.

0

15

.9

17.0

21

.8

190

(8.7

)

78

.5

3.8

3.9

3.7

0.6

0.6

0.5

1.4

1.1

1.1

10.8

7.

4

6.

2

30

0

(1

8.1)

3.0

5.3

4.3

3.7

0.6

0.6

0.5

7.1

7.0

7.0

10.2

13

.4

11.1

16

0

24

.7

0.

5

6.9

6.3

5.3

1.6

1.4

1.2

0.5

0.5

0.5

16.6

14

.8

14.1

17

5

(2

3.7)

4.1

5.3

4.3

3.7

1.1

1.0

0.9

4.2

4.2

4.2

17.9

12

.9

13.7

20

0

(7

.6)

3.1

6.

6

4.

6

5.

4

1.

7

1.

4

1.

2

1.

2

0.

9

0.

9

17

.6

20.8

12

.9

125

(26.

0)

14

.8

10.1

7.4

5.7

2.5

2.1

1.8

0.7

0.9

1.2

18.1

18

.2

20.5

14

0

(1

4.6)

3.1

9.9

8.2

7.6

2.4

2.1

1.8

0.7

0.8

0.8

15.4

15

.1

16.8

10

.3

9.

1

7.

7

2.

5

2.

2

2.

0

1.

3

1.

6

1.

9

15

.6

14.5

15

.7

11.0

10.5

9.

0

2.

6

2.

3

2.

1

1.

3

1.

4

1.

6

17

.1

14.8

15

.3

13.2

11.7

10

.2

2.9

2.6

2.3

1.3

1.5

1.7

17.1

15

.7

16.0

Div

iden

d y

ield

(%

)



Ratings and other definitions/identifiers

Rating systemDefinitions of ratings

BUY. We expect this stock to outperform the BSE Sensex by 10% over the next 12 months.ADD. We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months.REDUCE: We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months.SELL: We expect this stock to underperform the BSE Sensexby more than 10% over the next 12 months.

Our target price are also on 12-month horizon basis.

Other definitionsCoverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations:Attractive (A), Neutral (N), Cautious (C).

Other ratings/identifiersNR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or KotakSecurities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and incertain other circumstances.CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.NC = Not Covered. Kotak Securities does not cover this company.RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamentalbasis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.NA = Not Available or Not Applicable. The information is not available for display or is not applicable.NM = Not Meaningful. The information is not meaningful and is therefore excluded.

Kotak Institutional Equities Research coverage universeDistribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of March 31, 2009

* The above categories are defined as follows: Buy = We expect this stock to outperform the BSE Sensex by 10% over the next 12 months; Add = We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months; Reduce = We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months; Sell = We expect this stock to underperform the BSE Sensex by more then 10% over the next 12 months. These ratings are used illustratively to comply with applicable regulations. As of 31/03/2009 Kotak Institutional Equities Investment Research had investment ratings on 146 equity securities.

Percentage of companies covered by Kotak Institutional Equities, within the specified category.

Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment banking services within the previous 12 months.

9.6%

24.7%26.0%

39.7%

0.7%2.8%3.5% 0.7%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL



Copyright 2009 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates areleading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationshipswith a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment bankingand other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business fromthe company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitationof such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and otherbusiness. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in thesecurities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from servingas an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written marketcommentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses maymake investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing,among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies thatare the subject of this material is provided herein.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Weare not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or takeinto account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients shouldconsider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and theincome from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are notguaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their taxadvisers regarding any potential investment.

Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable forall investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinionsexpressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, butregulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation orissuance of this material, may from time to time have “long” or “short” positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentionedherein. For the purpose of calculating whether Kotak Securities Limited and its affiliates holds beneficially owns or controls, including the right to vote for directors, 1% of more ofthe equity shares of the subject issuer of a research report, the holdings does not include accounts managed by Kotak Mahindra Mutual Fund.Kotak Securities Limited and its nonUS affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately followingits publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derivedfrom the investment. In addition , investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition optionsinvolve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into anyderivative transactions.

This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical information, it is believedto be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be deemed to mean and include Kotak MahindraInc.

Kotak Securities Ltd.Bakhtawar, 1st floor, 229 Nariman Point, Mumbai 400 021, India. Tel: +91-22-6634-1100 Fax: +91-22-2288-6453

Corporate Office Overseas OfficesKotak Securities Ltd. Kotak Mahindra (UK) Ltd. Kotak Mahindra Inc.

Bakhtawar, 1st Floor 6th Floor, Portsoken House 50 Main Street, Suite No.310229, Nariman Point 155-157 The Minories Westchester Financial CentreMumbai 400 021, India London EC 3N 1 LS White Plains, New York 10606Tel: +91-22-6634-1100 Tel: +44-20-7977-6900 / 6940 Tel: +1-914-997-6120

india daily, june 1, 2009kotak institutional equities research 1 india daily summary - june 01, 2009...

Documents