indiadaily 18 march 2011

8/7/2019 indiadaily 18 march 2011

1/25

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES.REFER TO THE END OF THIS MATERIAL.

INDIA DAILYMarch 18, 2011 India 17-Mar 1-day1-mo 3-mo

Sensex 18,150 (1.1) (1.9) (8.6)

Nifty 5,447 (1.2) (1.8) (8.4)

Global/Regional indices

Dow Jones 11,775 1.4 (4.4) 2.5

Nasdaq Composite 2,636 0.7 (6.9) (0.3)

FTSE 5,696 1.7 (6.4) (3.0)

Nikkie 9,166 2.3 (15.5) (11.0)

HangSeng 22,388 0.5 (5.1) (1.4)

KOSPI 1,967 0.4 (2.3) (2.9)

Value traded India

Cash(NSE+BSE) 140 155 135

Derivatives (NSE) 1,179 1,253 1,291

Deri. open interest 1,419 1,601 1,499

Forex/money market

Change, basis points

17-Mar 1-day 1-mo 3-mo

Rs/US$ 45.2 7 (16) (16)

10yr govt bond, % 8.0 - (12) (1)

Net investment (US$mn)

16-Mar MTD CYTD

FIIs (28) 538 (1,675)

MFs 63 46 (282)

Top movers -3mo basis

Change, %

Best performers 17-Mar 1-day 1-mo 3-mo

WLCO IN Equity 200.4 (2.7) 9.2 17.4

SIEM IN Equity 871.8 0.0 3.2 12.2

NACL IN Equity 104.0 (3.7) 2.0 11.2

LICHF IN Equity 198.9 0.4 3.3 8.6

GRASIM IN Equity 2438.0 0.1 6.3 8.3

Worst performers

IVRC IN Equity 72.9 0 .3 (2.5) (42.5)

UT IN Equity 37.9 (1.2) 11.0 (39.5)

RECL IN Equity 223.0 (2.7) (5.8) (28.5)

UNSP IN Equity 1042.7 (2.5) (12.3) (27.6)

POWF IN Equity 234.7 (0.2) (3.7) (26.8)

Contents

New release

Energy: Oil on the boil will make India toil

Updates

Sun Pharmaceuticals: Multiple triggers present upside to our FY2012E EPS

Nestle India: Analyst meet takeaways

United Phosphorus: MAI confirms positive outlook for 1Q2011E

Economy: RBI Credit Policy: Inflation rules the roost

Telecom: Feb GSM SIM net adds - strong growth and solid show from incumbents

News Round-up

In its mid-quarter monetary policy review, RBI increased key policy rates by a quarterpoint, the eight increase in a year, warning that rising oil prices will put more

pressure in the already high inflation. The RBI's short-term lending rate has gone up

from 6.5% to 6.75% with immediate effect. The reverse repo, its short term

borrowing rate has risen from 5.5% to 5.75%. (BSTD)

Reliance Ind. (RIL IN), GAIL (GAIL IN) & Andhra power producers have signedagreements involving swapping of gas to ensure additional gas supply for generating

600mw power in the state. (BSTD)

GAIL (India) Ltd (GAIL IN), Reliance Industries Ltd (RIL IN), Reliance Gas transportationInfrastructure Ltd (RGTIL), and power plants in Andhra Pradesh have agreed to swap

Krishna Godavari Basin D6 gas with imported gas. (THBL)

The govt. may revoke allocation of 31 coal blocks held by Tata Steel (TATA IN), JSWSteel (JSTL IN), NTPC (NATP IN), Jindal Power & Steel (JSP IN), Hindalco (HNDL IN) &

21 other firms for their failure to make required progress several years after

allotment. (ECNT)

The govt. cleared a bill to empower itself to effectively manage the affairs ofsubsidiary banks of SBI (SBIN IN). The move will also help facilitate the merger of five

subsidiaries with SBI, for which the govt. has indicated a timeframe of 12-18 months

(TTOI)

Bank of India's (BOI IN) shareholders had approved capital infusion of over USD222.22mn from the govt. by way of preferential issue of shares. (BSTD)

United Bank of India (UNTDB IN) is expecting the govt. to infuse USD 68.44 by theend of this month. (BSTD)

Qualcomm is in talks with Bharti Airtel (BHARTI IN) to sell its broadband wirelessaccess licences in India. (BSTD)

RCom (RCOM IN) has drawn the first tranche of USD 666.66mn of the USD 1.93bnloan facility it had signed with China Development Bank. (BSTD)

Siemens (SIEM IN) seeks RBI nod for its non-banking financial services arm to startoperations in the country. (BSTD)

Source: ECNT= Economic Times, BSTD = Business Standard, FNLE = Financial Express, THBL = Business Line.


2/25

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Crude prices: Predictions are meaningless in the current scenario

Crude oil prices may sustain at current high levels if social and political unrest in MENA sustains

and/or escalates further despite (1) ample OPEC spare capacity (on paper) and (2) nascent signs of

global tightening and slowdown in consumption of other commodities. OPECs spare capacity may

get strained if the ongoing social unrest in Libya escalates further and spreads to other oil-rich

countries in the MENA region.

Crude prices: Pain is for real for India; higher government borrowing and inflation

Given Indias social and political constraints and haphazard pricing system, we see limited pass-

through of the increase in global oil prices to Indian consumers. Five state elections in 1QFY12E

and sticky inflation through 1HFY12E (even without considering higher fuel prices) may preclude

any meaningful price increase. (1) The government may have to ultimately borrow more, which

may push up interest rates in the system. (2) Periodic small price increases, if implemented,

through FY2012E may keep inflation above 7% through FY2012E.

Refining margins: Expectations seem to have run ahead of fundamentals

We expect supply-demand imbalance to remain through CY2011-12E as incremental global

refining capacity of 3.1 mn b/d and NGL supply of 1 mn b/d will likely exceed incremental demand

of 2.5-2.7 mn b/d over the same period. Refining margins have been strong of late given crude

price volatility and dislocations and low capacity utilization in the US; reported margins may also

benefit from adventitious gains in the short term.

Stock view: ONGC, OIL look good despite their limited upside to crude prices

ONGC and OIL have a moderately positive leverage to crude oil prices since they sell sufficient

crude oil and value-added products to offset the impact of higher subsidies under the current

subsidy-sharing system. Cairn has high leverage to crude oil prices but uncertainty on the royalty

issue may act as an overhang in the short term while normalized long-term crude oil prices ofUS$80-90/bbl result in `290-`330 fair valuation for Cairn stock. RIL has little leverage to crude oil

prices. Earnings of BPCL, HPCL and IOCL are impossible to forecast without a proper pricing

system but the stocks seem to be discounting a rather bad situation in perpetuity.

EnergyIndia

Oil on the boil will make India toil. Ongoing social and political unrest in the MENAregion may keep crude oil prices high despite ample OPEC spare capacity (on paper)

and weakening global fundamentals. India faces a Hobsons choice between (1) highersubsidies and government borrowing and (2) higher inflation. In reality, we will see

both. We rule out a sustained improvement in refining margins given significant new

capacity additions and continued global over-supply.

NEUTRAL

MARCH 18, 2011

UPDATE

BSE-30: 18,150


3/25


Taxotere (US$1.2 bn drug)limited competition product, launch imminent

Five companies have filed ANDAs till date with Accord filing in early January 2011. We think

Hospira may enjoy some lead post launch in end-March 2011; however, SUNs approval shouldfollow shortly after. Unlike street expectations of 30-month stay blocking SUNs Taxotere till

January 2012E, we reiterate there is no 30-month stay and retain our assumption of a mid-

FY2012E launch. While Hospiras formulation is a single vial version, in line with branded product

which Sanofi has successfully converted to single vial, we believe with right pricing SUN should

garner meaningful sales in light of no additional competition likely in 2011E. We include US$70

mn sales in FY2012E (25% market share, 45% price erosion) for Taxotere.

Update on 3 other key products, launch date uncertain (hence not included in our FY2012E EPS)

We provide an update on three other products likely to be launched in FY2012/13E (1) Eloxatin:

On February 16, 2011, District Court of New Jersey issued an injunction preventing launch

by SUN till the court resolves all issues pertaining to settlement agreement. We believe launch by

SUNP is not likely until court decision/settlement is concluded, (2) Prandin: Latest Caraco filing

confirms this product site has been transferred from Caraco facility, we believe there is no

30-month stay and SUN may launch at risk. However, we await final approval before including

in our estimates (US$180 mn sales, SUN likely only filer), (3) Strattera: Eli Lilly had appealed the

lower court verdict, subsequently the Appeals court hearing was completed in December

2010. Even though SUN along with other generics have received final approval, the Appeals court

has granted an injunction that prevents the launch of generics until a ruling is rendered. We await

ruling and believe SUN will enjoy shared exclusivity along with 5-7 other companies.

Sun Pharmaceuticals (SUNP)Pharmaceuticals

Multiple triggers present upside to our FY2012E EPS. We believe likely launch offour key products in FY2012/13E will present an upside to our EPS of Rs19.7. Unlike

street expectations, we reiterate there is no 30-month stay for Taxotere and retain ourassumption of a mid-FY2012E launch. In addition, transaction documents prepared by

William Blair (advisor to Caraco) suggest strong US sales in FY2012E (estimates as per

Caraco management) with (1) FY2012E Caraco sales estimates at US$268 mn, 7%higher than our estimate, and (2) gradual recovery in sales from Caraco plant with

FY2012E sales at US$37 mn versus US$23 mn in FY2011E despite delay in resumptionof manufacturing. Maintain ADD, PT: Rs480.

Sun Pharmaceuticals

Stock data Forecasts/Valuations 2011 2012E 2013E

52-week range (Rs) (high,low) EPS (Rs) 17.4 19.7 24.1

Market Cap. (Rs bn) 450.8 EPS growth (%) 33.4 13.1 22.6Shareholding pattern (%) P/E (X) 25.0 22.1 18.0

Promoters 63.7 Sales (Rs bn) 58.3 74.5 86.9

FIIs 19.0 Net profits (Rs bn) 18.0 20.4 25.0

MFs 2.9 EBITDA (Rs bn) 21.6 25.4 30.2

Price performance (%) 1M 3M 12M EV/EBITDA (X) 19.2 15.9 12.8

Absolute 2.6 (3.3) 29.0 ROE (%) 21.0 19.9 20.5

Rel. to BSE-30 4.6 5.9 24.3 Div. Yield (%) 0.6 0.6 0.6

Company data and valuation summary

512-302

ADD

MARCH 17, 2011

UPDATE

Coverage view: Cautious

Price (Rs): 435

Target price (Rs): 480

BSE-30: 18,150

QUICK NUMBERS

Unlike streetexpectations, wereiterate there is no

30-month stay for

Taxotere

Documentsprepared by William

Blair (advisor to

Caraco) suggest

strong US sales in

FY2012E (estimates

as per Caracomanagement)


4/25

Pharmaceuticals Sun Pharmaceuticals

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

William Blair documents give FY2012E sales estimates for Caraco as US$268 mn,

7% higher than our estimate

In December 2010, Caraco retained William Blair as an independent advisor to consideration

of Sun Pharma proposal to taking Caraco private which has since been concluded. Read-

through from the documents prepared by William Blair which contains sales estimates by

Caraco management and was presented to the Caraco board for consideration of SUNsproposal suggests:

(1) FY2011/12E sales estimates for Caraco are US$307 (in line with our estimate) andUS$268 mn, (7% higher than our estimate), possibly reflecting impact of higher

Taxotere sales.

(2) Gradual recovery in sales from Caraco plant with FY2012E sales at US$37 mnversus US$23 mn in FY2011E, despite delay in resumption of manufacturing at the

plant.

Break-up of profits (Rs mn)

FY2010 FY2011E FY2012E FY2013E

Revenues

Base 34,629 39,425 52,329 61,101

Exclusive 6,132 9,261

Taro 9,651 22,199 25,761

Total 40,761 58,337 74,529 86,862

EBITDA

Base 9,185 10,917 18,744 22,177


Taro 1,946 4,884 6,183

Total 14,091 19,810 23,628 28,360

EBITDA, %

Base 26.5 27.7 35.8 36.3

Exclusive 80.0 75.0

Taro 20.2 22.0 24.0

Total 35 34 32 33

PAT

Base 9,256 12,009 20,395 25,007


Total 13,536 17,959 20,395 25,007

EPS Rs

Base 8.7 11.1 19.0 22.8

Exclusive 4.1 5.7

Interest income 0.2 0.4 0.7 1.3

Total 13.1 17.3 19.7 24.1

Source: Kotak Institutional Equities estimates, Company


5/25

Sun Pharmaceuticals Pharmaceuticals

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

Profit and loss statement, March fiscal year-ends, 2008-2013E

2008 2009 2010 2011E 2012E 2013E

Net sales 33,565 42,723 40,761 58,337 74,529 86,862

Materials (7,222) (8,556) (10,978) (15,425) (21,857) (24,931)

Selling and administration (3,759) (5,543) (6,317) (9,083) (10,942) (12,621)Employee cost (2,331) (3,401) (4,822) (7,942) (9,531) (10,961)

R& D (2,725) (3,099) (2,472) (3,053) (4,844) (5,646)

Others (2,017) (3,484) (2,810) (2,917) (3,726) (4,343)

Total expenditure (18,054) (24,084) (27,400) (38,420) (50,901) (58,502)

EBITDA 15,511 18,640 13,362 19,917 23,628 28,360

Depreciation and amortisation (969) (1,233) (1,533) (2,209) (2,650) (2,750)

EBIT 14,543 17,407 11,829 17,708 20,978 25,610

Net finance cost (88)

Other income 1,539 2,085 2,320 2,219 2,600 3,300

Pretax profits before extra-ord 15,994 19,492 14,148 19,927 23,578 28,910

Current tax (1,288) (1,192) (679) (1,370) (2,004) (2,457)

Deferred tax 804 481 0 0 0 0

Reported net profit 15,509 18,780 13,470 18,558 21,574 26,453

Minority Interests 640 603 (41) 533 1,179 1,446

Reported net profit after mino 14,869 18,177 13,511 18,025 20,395 25,007


Balance sheet, cash model, March fiscal year-ends, 2008-2013E

2008 2009 2010 2011E 2012E 2013E

Balance sheet

Total equity 49,915 70,449 78,289 93,518 111,117 133,328

Total debt 1,436 1,789 1,712 7,212 7,212 7,212Current liabilities 6,373 7,198 7,579 7,410 8,011 8,013

Minority Interests 1,886 1,970 1,932 2,465 3,644 5,089

Deferred tax liabilities 92 (679) (890) (890) (890) (890)

Total equity and liabilities 59,701 80,728 88,621 109,714 129,093 152,752

Cash and cash equivalents 12,389 16,690 6,073 11,417 22,908 40,787

Current assets 26,983 25,993 31,048 42,006 51,044 58,074

Net fixed assets 10,354 14,625 15,328 20,119 18,969 17,719

Intangible assets 1,729 3,253 4,060 4,060 4,060 4,060

Capital -WIP 686 1,571 1,448 1,448 1,448 1,448

Investments 7,560 18,595 30,664 30,664 30,664 30,664

Total assets 59,701 80,728 88,621 109,714 129,093 152,752

Free cash flow

Operating cash flow, excl. work 15,198 18,841 14,749 20,301 23,492 27,830Working capital (7,183) 1,113 (4,702) (10,533) (7,258) (5,582)

Capital expenditure (1,787) (6,401) (1,742) (1,500) (1,500) (1,500)

Investments (5,017) (11,035) (12,069)

Free cash flow 1,210 2,519 (3,763) 8,267 14,735 20,748



6/25


Key takeaways from analyst meet

CY2011E is likely a challenging year in Nestls view. It says that the company operates marginsin a band (EBITDA of 19-21%, in our view) and CY2011E margins could decline due to input

cost inflation (coffee, milk, palm oil) and impact of incremental excise duty. According to the

company, the imposition of 1% excise duty could potentially impact CY2011E EBITDA marginsby 50 bps, if it is not passed on.

Capex: It outlined capacity expansion plans, (1) new greenfield plant in Tahliwal, HimachalPradesh for noodles and chocolates, (2) expansion of dairy capacity in Moga, (3) doubling

noodles capacity in Samalkha, (4) adding a new noodles line in Bicholim, (5) expansion of

Nanjangud facility to include noodle line as well, and (6) addition of a pasta line in Pantnagar.

The company is planning to invest ~Rs25 bn over CY2011-13E, in our view.

Company added 464,000 new outlets in its coverage (which is a 15% growth, in our view). Werecall that Nestle is working on increasing the distribution coverage to 5 mn outlets from 3 mn

outlets over CY2009-14E.

The company indicated its intention to focus on premiumisation in most categorieschocolatesand dairy, in our view.

The Pantnagar facility (accounting for ~10-15% of throughput, in our view) is entering the sixthyear of operations (only 30% of profits will be exempt compared with 100% earlier) and hence

the effective income tax rate could increase by ~200 bps in CY2011E.

Bringing of various food products (noodles, pasta, soups etc.) into tax net with 1% excise dutyis a precursor to a potentially higher rate under GST, in our view.

The company has received RBI approval for raising US$450 mn ECB from foreign equity holders.It is likely to raise this in tranches over CY2011-13E as a loan from parent, in our view.

Nestle India (NEST)Consumer products

Analyst meet takeaways. Nestle indicated that it operates with margins in a band(EBITDA of 19-21%, in our view) and CY2011E margins could decline due to input cost

inflation (coffee, milk, palm oil) and impact of incremental 1% excise duty (which ispotentially a precursor to a higher rate under GST). Nestle is nervous to face

competition in noodles category (particularly ITC), in our view. At 35X FY2012E, there is

no room for execution risk. We like the market opportunity for most of Nestlscategories, but look for better entry points into the stock.

Nestle India (a)



Market Cap. (Rs bn) 343.7 EPS growth (%) 17.0 19.6 21.2

Shareholding pattern (%) P/E (X) 40.9 34.2 28.3

Promoters 62.8 Sales (Rs bn) 62.5 75.4 89.9FIIs 10.7 Net profits (Rs bn) 8.4 10.0 12.2

MFs 2.2 EBITDA (Rs bn) 12.6 15.5 19.0


Absolute 3.6 (0.1) 33.1 ROE (%) 129.6 124.8 121.2

Rel. to BSE-30 5.6 9.4 28.2 Div. Yield (%) 1.7 2.0 2.5


4,224-2,295

REDUCE

MARCH 17, 2011

UPDATE

Coverage view: Cautious

Price (Rs): 3,564

Target price (Rs): 3,100

BSE-30: 18,150


7/25

Nestle India Consumer products


Nestle is nervous to face competition in noodles category, in our view

We continue to believe that Maggi faces product substitution risk (from Foodles, Knorr and

Yippie). However, the spate of new launches in Maggi (four new variants) indicates that

competition seems to have triggered higher activity levels in the industry, led by the market

leader. We note that this can potentially help Maggi maintain its current growth rates by

increasing the consumption points.

However, we are surprised at the companys aggression in the analyst meet regarding

competitive activity in the noodles category. It commented that the company has not lost

market shares and that many of the newer entrants are probably not long-term players in

the category.

At 35X FY2012E, there is no room for execution risk. Retain REDUCE

We like the market opportunity for most of Nestls categories, but look for better entry

points into the stock. We maintain estimates and REDUCE rating with TP of Rs3,100. Key

risks to our rating are (1) higher-than-expected sales growth due to distribution gains and (2)

better than-expected margin expansion.

Nestle has never had to face severe competition in its categoriesNestls market share and market status, category-wise

Nearest Market

Category Nestle competitor status Remarks

Nutrition / Infant food ~90 ~5 Monopoly High entry barriers as advertising is banned

Culinary / Maggi ~90 ~5 Monopoly Nestle has done a good job in category creation

Beverages / Coffee 55 45 Duopoly Duopoly with HUL

Chocolates and confectionary 25 70 Duopoly Nestle dominates the wafer segment

Note:

(a) Market shares are approximations as per industry sources

Market share (%)

Source: Kotak Institutional Equities


8/25

Consumer products Nestle India


Nestle: Profit model, balance sheet, 2006-2012E, December calendar year-ends (Rs mn)

2006 2007 2008 2009 2010E 2011E 2012E

Profit model (Rs mn)

Net sales 28,161 35,043 43,242 51,294 62,547 75,373 89,870

EBITDA 5,385 6,962 8,638 10,542 12,507 15,339 18,793Other income 202 246 322 364 427 255 305

Depreciation (663) (747) (924) (1,113) (1,278) (1,857) (2,478)

Pretax profits 4,923 6,461 8,036 9,793 11,656 13,738 16,620

Tax (1,654) (2,148) (2,387) (2,620) (3,264) (3,699) (4,457)

Net profits 3,269 4,313 5,649 7,173 8,392 10,039 12,163

Earnings per share (Rs) 33.9 44.7 58.6 74.4 87.0 104.1 126.2

Balance sheet (Rs mn)

Total equity 3,889 4,184 4,733 5,813 7,140 8,945 11,131

Total borrowings 163 29 8 6 6 6 6

Currrent liabilities and provsions 8,726 9,865 12,208 14,538 16,922 19,989 23,845

Total liabilities and equity 12,777 14,078 16,950 20,356 24,069 28,940 34,982

Cash 2,387 1,322 2,286 3,588 3,400 1,952 1,922

Current assets 4,590 6,001 6,043 7,010 7,773 6,949 7,499

Total fixed assets 5,800 6,755 8,622 9,758 12,895 20,039 25,561

Total assets 12,777 14,078 16,950 20,356 24,069 28,940 34,982

Free cash flow (Rs mn)

Operating cash flow, excl. working 3,561 4,363 5,568 7,065 8,487 10,699 13,192

Working capital 561 361 1,149 1,355 1,258 3,542 2,857

Capital expenditure (1,497) (1,702) (2,790) (2,249) (4,414) (9,000) (8,000)

Free cash flow 2,624 3,022 3,927 6,170 5,330 5,241 8,048

Key assumptions

Revenue Growth (%) 13.7 24.4 23.4 18.6 21.9 20.5 19.2

EBITDA Margin(%) 19.1 19.9 20.0 20.6 20.0 20.4 20.9

EPS Growth (%) (0.7) 31.9 31.0 27.0 17.0 19.6 21.2

Source: Kotak Institutional Equities estimates


9/25


Analysis of MAI annual results confirms trends reported by UPL

Analysis of Makheteshim, # 1 global generic agchem company, annual results confirms the trends

reported by UPL YTD, namely:

(1) Selling price declined in CY2010. MAI reported decline in average selling price in CY2010 of

5% in line with decline of 4% for UPL over comparative 12 months ending December 2010. MAI

has reported yoy decline in average selling price in CY2010 in all geographies and as per MAIs

results call, majority of the pricing decline was witnessed in 1HCY10, in line with trend seen in UPL.

UPL reported pricing decline of 7% in 1HCY10 versus 3% in 2HCY10. In 4QCY10, MAI reported

pricing decline of 5% versus UPLs 3% and volume growth of 8% versus UPLs 15%.

(2) MAI/UPL reported double-digit volume growth in CY2010. MAI reported volume growth

of 12%, in line with UPLs 13% in CY2010. MAI reported volume growth across all geographies

except Brazil where UPL has minimal presence currently. However, MAI has reported volume

growth in Europe in CY2010. This, we believe, is contrary to UPLs European sales which we

believe has not reported volume growth in 12 months ending December 2010.

(3) Tepid growth in North America in dollar terms at 0.5%, lower than UPLs 3% due to

volume gains being offset by pricing decline.

(4) Europe underperforms for UPL. Europe turns around for MAI with 9%/3% growth in dollar

terms in 4Q/CY2010 versus UPLs sales decline of 20%/15%. We believe the sales growth for MAI

in Europe versus sales decline for UPL could be due to new operations started in Eastern Europe by

MAI and volume decline in Europe for UPL. UPL does not provide volume/price break-up by

geographies.

(5) ROW markets (excluding Brazil) continue to be strong sales driver in 2010 for agchem

companies, with sales growth at 48% in dollar terms for MAI versus 33% for UPL.

United Phosphorus (UNTP)Others

MAI confirms positive outlook for 1QCY11E. Analysis of Makheteshim (MAI) annualresults confirms trends reported by UPL YTD: (1) ROW markets remain key sales growth

driver in 2010 with tepid growth in EU/NA, (2) Brazil market underperforms reportingvolume/price decline for MAI, (3) selling price declined in CY2010 with most of it seen

in 1HCY10, (4) Europe underperforms for UPL, although up 3% for MAI, and (5) low

inventories, favorable weather, positive trend for price/volume are likely to result instrong 1QCY11E. We believe turnaround in Europe in 4QFY11E is key to UPL meeting

its FY2011E sales guidance of 5%. Maintain BUY with TP of Rs220.

United Phosphorus



Market Cap. (Rs bn) 62.7 EPS growth (%) 8.3 37.3 17.1

Shareholding pattern (%) P/E (X) 10.5 7.7 6.6

Promoters 26.5 Sales (Rs bn) 57.2 63.8 70.0

FIIs 35.6 Net profits (Rs bn) 5.9 8.2 9.6

MFs 11.3 EBITDA (Rs bn) 10.8 13.1 14.4


Absolute (5.6) (15.8) (14.5) ROE (%) 17.5 19.4 19.1

Rel. to BSE-30 (3.8) (7.8) (17.6) Div. Yield (%) 1.4 1.5 1.8


220-125

BUY

MARCH 17, 2011

UPDATE

Coverage view: Attractive

Price (Rs): 136

Target price (Rs): 220

BSE-30: 18,150

QUICK NUMBERS

MAI confirmspositive outlook for1QCY11E

Europeunderperforms for

UPL, although up

3% for MAI

Brazil marketunderperforms in

CY2010


10/25

Others United Phosphorus


Comparison of sales growth in CY2010 (%)

MAI UPL

Price growth (5) (4)

Volume growth 12 13

Exchange rate (5)

Total sales 7 4

Sales growth in US$ (%)

Europe 3 (15)

NA 1 3

Asia Pacific 48

Latin America (0)

Home market 3 24

Total sales 7 4

33


Recovery underway with price recovery likely in 1QCY11; we model flat pricing

Agchem companies such as MAI, UPL witnessed yoy decline in average selling price in

CY2010. This led to lower sales growth in single digit for both MAI (7%) and UPL (4%) with

both reporting average pricing decline of 5% and 4%, respectively. Volume growth for MAI

and UPL was at 12% and 13%.

MAI management comments from their results call indicate strong recovery in agchem

market. Favorable market conditions marked by (1) low inventories, (2) favorable weather in

NA/EU and (3) high crop prices are likely to result in positive trend for price/volume in

1QCY11E, according to the comments made during the results call.

According to the MAI management, the market is witnessing better pricing discipline and

there has been revival in prices in certain markets with strong recovery seen in Latin America

and others which had witnessed rock bottom prices in 2010.

We believe turnaround in Europe in 4QFY11E is key to UPL meeting its FY2011E sales

guidance of 5%. According to our discussions with the company, outlook for Europe

remains solid which is likely to result in a strong 4QFY11E. We model volume growth of

17%, up 2% qoq with flat pricing in 4QFY11E (see below).

Components of sales growth, FY2009-FY2011E, (%)

15

(5) (4) (3)0

14

148

15 17

8

1

(5) (5)

(1)

(20)

(10)

0

10

20

30

40

FY2009 FY2010 1HFY11 3QFY11 4QFY11E

Price Volume Exchange rate

37

10

(1)

716



11/25

United Phosphorus Others


Sales growth by geography, (%)

FY2010 1QFY11 2QFY11 3QFY11 4QFY11E FY2011E FY2012E

India 16 10 45 6 10 18 17

International 9 (15) (2) 8 17 2 10

North America 5 (12) (7) (4) 19 (1) 8

Europe (1) (25) (25) (24) 10 (13) 4

Rest of the World 26 (6) 23 36 24 20 15

Total (incl other income) 10 (10) 10 8 16 5 12


Brazil underperforms in 2010; UPL enters Brazil through recent acquisition

The underperformance was due to (1) decline in sales volume. For MAI, Brazil remained the

only geography to report volume decline in CY2010 on account of rapid decline in market

share. MAI has been witnessing decline in market share in Brazil since 2006, and (2) severe

decline in selling prices.

While UPLs sales are minimal from Brazil, UPL recently acquired 50% stake in Sipcam Isagro

Brazil (SIB), which we believe will add US$65 mn sales to its top line in FY2012E.

We view this acquisition as marginally positive as (1) it provides UPL entry into the high-

growth Brazilian market although it adds only 5% to its top line, and (2) we believe

acquisition cost is reasonable (200 days),

and (3) SIB has significant debt, mainly for working capital (3X debt/EBITDA).

Sipcam Isagro Brazil (50% share of Isagro), (Euro mn)

9M2010 2009 2008

qualititave comments indicating

performance of JV in 2010

Revenues 41 46

EBITDA 1 8

EBITDA, % recovery of margin in Brazilian JV 2 17

Amortisation 1 1

Net financial charges

higher financial charges for Sipcam

Isagro Brasil S.A., which by itself

paid interests and commissions of

Euro 4.8 mn + 9M2010 witnessed

lengthening payments terms 5 4

PBT (5) 3

Tax (2) 1

PAT (3) 2



12/25

Others United Phosphorus


UPLprofit and loss statement, March fiscal year-ends, 2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013E

Net sales 35,155 48,021 52,900 57,211 63,807 69,972

Operating expenses

Materials (18,146) (24,512) (29,542) (28,700) (31,660) (34,341)Selling and administration (4,927) (6,161) (6,387) (7,437) (8,295) (9,096)

Employee cost (4,017) (4,794) (5,018) (5,117) (5,316) (5,848)

R&D (90) (306) (310) (286) (319) (350)

Others (3,071) (3,806) (3,356) (4,325) (5,105) (5,948)

Total expenditure (30,250) (39,578) (44,612) (45,866) (50,695) (55,583)

EBITDA 4,905 8,444 8,288 11,346 13,112 14,389

Depreciation and amortisation (1,522) (1,927) (2,147) (2,002) (2,225) (2,350)

EBIT 3,383 6,517 6,141 9,343 10,887 12,039

Net finance cost (1,688) (1,761) (1,825) (2,179) (2,150) (1,700)

Other income 2,462 265 1,932 (34) 1,000 1,000

Pretax profits before extra-ordinaries 4,156 5,021 6,249 7,131 9,737 11,339

Current tax (141) (263) (408) (1,189) (1,655) (1,928)

Deferred tax (263) 19 (442)

Fringe benefit tax (20) (31)

Reported net profit 3,733 4,747 5,399 5,942 8,082 9,411

(Profit)/loss in minority interest (10) (25) (59)

Share of profit/(loss) in associate 222 200 188 4 80 150

Prior adjustments (net) (226) (268) (35)

Reported net profit after minority interes 3,719 4,654 5,492 5,946 8,162 9,561

Exceptional items (1,144) (95) (231)

Reported net profit after minority interes 2,575 4,559 5,262 5,946 8,162 9,561


UPLbalance sheet statement, March fiscal year-ends, 2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013E

Balance sheet

Net worth 22,380 26,730 29,918 38,036 45,133 53,362

Debt 15,683 20,665 23,818 22,326 18,002 15,207

Current liabilities 13,473 16,260 14,616 15,070 18,105 21,667

Minority Interests 60 95 140 140 140 140

Deferred payment liabilities 862 677 375 375 375 375

Deferred tax liabilities 254 338 780 780 780 780

Total equity and liabilities 52,711 64,765 69,648 76,728 82,534 91,532

Cash and cash equivalents 8,446 5,539 15,778 17,000 17,000 20,000

Current assets 23,635 35,635 27,465 33,325 39,356 45,704

Net assets incl intangibles 15,993 18,494 18,128 18,126 17,901 17,551

Investments 4,070 4,332 7,612 7,612 7,612 7,612

Deferred tax asset 563 765 665 665 665 665

Misc. expenditure 5

Total assets 52,711 64,765 69,648 76,728 82,534 91,532

Free cash flow

Operating cash flow, excl. w. capital 6,553 8,018 8,863 9,312 11,261 12,342

Working capital (2,615) (9,471) 6,273 (5,420) (3,024) (3,051)

Capital expenditure 2,827 (3,620) 427 (2,000) (2,000) (2,000)

Investments (159) (268) 286

Free cash flow 6,607 (5,340) 15,849 1,893 6,237 7,291



13/25

For private Circulation Only.

Inflation has started showing demand-side pressures; end-FY2011E estimate of RBI raised to 8%

The RBI acknowledged that food articles inflation has softened but protein-rich items inflation

continue to be high. Also, non-food manufactured products inflation in February rose sharply

indicating demand-side pressures in the economy. The acceleration of inflation across the

manufacturing sectors indicates that pricing power is present in the economy. Concerns remain on

the impact of the high international crude prices on petroleum products and non-food

manufactured products. From its earlier estimate of end-FY2011E inflation at 7%, the RBI raised

the estimate to 8%. We now see the end-March 2011 inflation number at 8.20%. Inflation is also

expected to remain sticky and hover around the 7.5% mark in 1HFY12E, prompting further policy

actions from RBI. The policy communiqu lauded the Union Budget on the efforts to raise

agricultural productivity and ease demand-side pressures but remained concerned on the subsidies

front. In line with what we have been highlighting, the RBI opines that focus should be on quality

of expenditure whereby the aggregate is under control without compromising on delivery of

services. This balance is essential in demand-side inflation management.

Growth not an immediate concern; we expect FY2012E to see some moderation

The scenario in the US and Euro Area has started showing optimism in terms of starting to gain

growth momentum. On the situation of Japan, the RBI views that the macroeconomic impact istoo early to assess but further upside to crude prices may come from the shift of Japan to thermal

energy from nuclear energy. The RBI sounded comfortable with domestic growth scenario as

agricultural production is likely to be strong as indicated by rabicrop sowing along with other

indicators like PMI, direct, indirect taxes and credit growth. We believe that though FY2011E

growth might not be a concern, a moderation in growth is likely in FY2012E. This might be a

deterrent for RBI in terms of aggressive rate hikes. Along with a cyclical moderation, dampening in

the investment situation may also come from high commodity prices. As highlighted by the RBI,

the weak performance of capital goods may be indicative of slowing investment momentum.

Liquidity to be at a comfortable level; reining in inflation expectations primary aim of RBI

The RBI expects liquidity to move towards its comfort level of (+/-)1% of NDTL with temporaryimbalances coming from the advance tax collections. Decline in government cash balances with

the RBI has further eased the liquidity pressures. The main aim of the RBI will be to rein in

demand-side pressures without affecting growth and managing inflationary expectations and

containing spillover of food and commodity price inflation into more generalized inflation.

RBI to stay hawkish; likely to continue with hikes of 25 bps

We believe that the RBI will continue to focus on inflation and maintain its rate hiking cycle of

doses of 25 bps each. We expect the RBI to raise the repo and reverse repo rates by 50-75 bps

more from the current levels of 6.75% and 5.75%, respectively. RBI has removed the term

calibrated increases in this document. Our assessment is that RBI could stick to the 25 bps dose

unless there is any run-away pressure on inflation as the document also makes it clear that some

risks to growth are emerging.

Economy.dot

EconomyMonetary Policy

RBI Credit Policy: Inflation rules the roost. The RBI during todays mid-quartermeeting decided to raise repo and reverse repo rates by 25 bps each citing reasons of

demand-side pressures in the economy. The policy maintains its anti-inflationary bias asinflation has continued to surprise on the upside. In a bid to control expectations, the

RBI stressed the necessity to maintain a calibrated approach to the rate hike cycle.

CRR and SLR rates were kept unchanged at 6% and 24%, respectively.

INDIA

MARCH 17, 2011

UPDATE

BSE-30: 18,150

QUICK NUMBERS

Repo and reverserepo rates raised by25 bps each to

6.75% and 5.75%;

CRR and SLR

unchanged

March inflation nowexpected at 8%

Expect to see ratehiked by 50-75 bps

in FY2012E


14/25

India Economy

14 KOTAK ECONOMIC RESEARCH

Expect another 50-75 bps hike in policy ratesRepo rate, reverse repo rate and CRR, 2001-2012E, (%)

3

4

5

6

7

8

9

10

11

Jan-01

Aug-01

Ma

r-02

Oc

t-02

May-03

Dec-03

Ju

l-04

Feb-05

Sep-05

Ap

r-06

Nov-06

Jun-07

Jan-08

Aug-08

Ma

r-09

Oc

t-09

May-10

Dec-10

Ju

l-11

Feb-12

Reverse repo rate Repo rate CRR

Source: RBI, Kotak Economic Research estimates

Inflation likely to remain around 7.5% in 1HFY12EChange in WPI, 2006-2012E, (y/y, %)

(2)

0

2

4

6

8

10

12

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Apr-11

Aug-11

Dec-11

WPI Inflation

Source: CMIE, Kotak Economic Research estimates


15/25

Economy India

KOTAK ECONOMIC RESEARCH 15

Non-food credit at 23% continues to outstrip deposit growth at 16%Growth in non-food credit and deposits, 2007-2011, (y/y, %)

5

10

15

20

25

30

35

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

aggregate deposits non-food credit

Source: CMIE, Kotak Economic Research estimates


16/25


Feb 2011 GSM SIM net adds strong growth continues

GSM operators, excluding RCOM and TTSL, added a net 14.7 mn SIMs in Feb 2011, an uptickfrom 13.7 mn reported in Jan 2011. Uptick was driven primarily by the swing in Videocons net

adds from a negative 1.3 mn in Jan to a positive 0.55 mn in Feb.

Circle-wise net adds distribution remained steady Metros (10%), A circles (35%), B circles(40%) and C circles (15%).

Player-wise performance suggests another strong month for the incumbents. Bhartis net addsremained steady at 3.2 mn versus 3.3 mn in Jan, Ideas were flat at 2.5 mn, while Vodafones

surged to 3.6 mn from 3.1 mn in the previous month. The top-3 GSM operators accounted for

63% of the net adds. Net adds slowed down for BSNL (to 1.5 mn from 2.2 mn in Jan and an

average of 2.9 mn in the Dec 2010 quarter), and Uninor (to 1.3 mn from 1.8 mn in Jan and an

average of 2.4 mn in the Dec 2010 quarter). Other players net adds were steady mom.

Slowdown in net adds for some players could be driven by aggressive churning rather than justa slowdown in gross adds. The TRAI has started reporting VLR data periodically which suggests

a poor active subs proportion for players other than Bharti, Idea and Vodafone. We discuss the

latest VLR data in brief in the next paragraph.

Jan 2011 VLR data key interpretations

The TRAI has started reporting the peak Visitor Location Register (VLR) subs data for the past few

months. VLR subs essentially represent the number of SIMs connected to one of the wireless

networks in India at a point in time. Given the multi-SIM phenomenon in the country, VLR data is

the closest proxy that one has to the unique subs base (548 mn at end-Jan 2011) in the country.

The latest two months (Dec 2010 and Jan 2011) VLR subs data player-wise is depicted in Exhibit

2, while Exhibit 3 depicts the player-wise, circle-wise data for Jan 2011. A few observations

Bharti (92.6%) and Idea had the highest VLR-to-reported subs ratio in Jan 2011. The high VLRratio for these companies demonstrates several things, the most important ones being (1)

superior quality subs reporting and churn norms of the two companies, (2) superior network

coverage, and (3) higher primary SIM status; the secondary SIM (of other operators) is possibly

activated only to make outgoing calls, at certain points in a day.

On the flip side, the VLR-ratio adjusted underlying ARPU (on active subs) for other operators ismuch higher than their reported numbers suggest. Essentially, the ARPU differential of a Bharti

versus others in the industry may not be as high as ARPU computed on reported subs would

suggest (Exhibit 4). This also means that the differential in revenue market share and subs

market share for Bharti is not as high as is normally perceived Bharti had a Dec 2010 quarter

RMS of 29.2%, Dec 2010 reported subs market share of 20.3%, and VLR subs share of 26.2%.

TelecomIndia

Feb GSM SIM net adds strong growth and solid show from incumbents. IndiasGSM operators (excluding RCOM and TTSL) added a net 14.7 mn SIMs in the month of

Feb 2011 versus 13.7 mn in Jan. Bharti, Idea and Vodafone continued their solidgrowth, together accounting for 63% of net adds. Nevertheless, these are SIM net adds

and the absolute numbers bear little meaning market share and trends do, of course.

Bharti and Idea are on track to meet our end-March 2011E SIM base estimates.

CAUTIOUS

MARCH 17, 2011

UPDATE

BSE-30: 18,150


17/25

Telecom India


Exhibit 1: Subscriber details for leading GSM cellular operators, ('000)

Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11

Subs ('000)

Bharti 124,619 127,619 130,619 133,620 136,620 139,221 141,251 143,292 146,293 149,394 152,495 155,797 158,999

Hutchison 97,230 100,858 103,756 106,347 109,061 111,465 113,774 115,553 118,038 121,163 124,255 127,364 130,921

IDEA-Escotel 62,144 63,825 65,288 66,727 68,887 70,749 72,736 74,214 76,024 78,826 81,779 84,290 86,801BPL 2,776 2,845 2,895 2,912 2,927 2,947 2,968 2,984 3,009 3,029 3,045 3,062 3,079

MTNL 4,697 4,784 4,818 4,858 4,902 4,948 4,990 5,025 5,053 5,091 5,115 5,153 5,179

BSNL 61,004 63,486 64,745 65,791 66,888 68,066 70,358 72,693 75,177 78,194 81,388 83,591 85,098

Aircel 34,861 36,861 38,470 40,080 41,680 43,297 44,907 46,515 47,520 48,739 50,169 51,832 53,500

Uninor 3,555 4,264 5,022 5,013 6,024 6,874 9,094 11,268 13,748 16,198 18,510 20,306 21,577

S Tel 717 1,007 1,112 1,233 1,327 1,423 1,519 1,642 1,867 2,068 2,316 2,515 2,692

Etisalat DB 5 10 18 30 44 57 71 132 265 453 652

Videocon 1,395 1,942 2,777 3,665 4,482 5,616 6,744 7,320 6,011 6,564

Total market 391,604 405,550 416,729 427,985 440,275 451,797 465,306 477,725 492,417 509,578 526,656 540,372 555,063

Market share of subs (%)

Bharti 31.8 31.5 31.3 31.2 31.0 30.8 30.4 30.0 29.7 29.3 29.0 28.8 28.6

Hutchison 24.8 24.9 24.9 24.8 24.8 24.7 24.5 24.2 24.0 23.8 23.6 23.6 23.6

IDEA-Escotel 15.9 15.7 15.7 15.6 15.6 15.7 15.6 15.5 15.4 15.5 15.5 15.6 15.6

BPL 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6

MTNL 1.2 1.2 1.2 1.1 1.1 1.1 1.1 1.1 1.0 1.0 1.0 1.0 0.9

BSNL 15.6 15.7 15.5 15.4 15.2 15.1 15.1 15.2 15.3 15.3 15.5 15.5 15.3

Aircel 8.9 9.1 9.2 9.4 9.5 9.6 9.7 9.7 9.7 9.6 9.5 9.6 9.6

Uninor 0.9 1.1 1.2 1.2 1.4 1.5 2.0 2.4 2.8 3.2 3.5 3.8 3.9

S Tel 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.5 0.5

Etisalat DB 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1

Videocon 0.3 0.4 0.6 0.8 0.9 1.1 1.3 1.4 1.1 1.2

Growth (%)

Bharti 2.4 2.4 2.4 2.3 2.2 1.9 1.5 1.4 2.1 2.1 2.1 2.2 2.1

Hutchison 3.3 3.7 2.9 2.5 2.6 2.2 2.1 1.6 2.2 2.6 2.6 2.5 2.8

IDEA-Escotel 3.8 2.7 2.3 2.2 3.2 2.7 2.8 2.0 2.4 3.7 3.7 3.1 3.0

BPL 2.8 2.5 1.8 0.6 0.5 0.7 0.7 0.5 0.9 0.6 0.5 0.6 0.6

MTNL 1.9 1.9 0.7 0.8 0.9 0.9 0.8 0.7 0.6 0.7 0.5 0.7 0.5

BSNL 2.6 4.1 2.0 1.6 1.7 1.8 3.4 3.3 3.4 4.0 4.1 2.7 1.8

Aircel 5.5 5.7 4.4 4.2 4.0 3.9 3.7 3.6 2.2 2.6 2.9 3.3 3.2

Uninor 40.1 19.9 17.8 (0.2) 20.2 14.1 32.3 23.9 22.0 17.8 14.3 9.7 6.3

S Tel 41.7 40.4 10.5 10.9 7.6 7.3 6.8 8.1 13.7 10.8 11.9 8.6 7.1

Etisalat DB 102.8 79.8 65.0 45.6 29.5 25.2 86.4 100.6 70.8 44.1

Videocon 39.3 43.0 32.0 22.3 25.3 20.1 8.5 (17.9) 9.2

Total market 3.4 3.6 2.8 2.7 2.9 2.6 3.0 2.7 3.1 3.5 3.4 2.6 2.7

Net monthly adds ('000)

Bharti 2,905 3,000 3,000 3,000 3,001 2,600 2,030 2,041 3,001 3,101 3,101 3,301 3,202

Hutchison 3,087 3,628 2,898 2,591 2,713 2,405 2,309 1,779 2,485 3,125 3,092 3,109 3,556IDEA-Escotel 2,256 1,681 1,464 1,439 2,160 1,862 1,987 1,478 1,810 2,802 2,953 2,511 2,511

BPL 75 68 50 17 15 20 21 16 26 19 16 18 17

MTNL 87 87 33 40 44 46 42 35 29 37 25 38 26

BSNL 1,550 2,482 1,259 1,046 1,097 1,178 2,292 2,336 2,484 3,017 3,194 2,203 1,507

Aircel 1,825 2,000 1,608 1,610 1,600 1,617 1,610 1,609 1,004 1,219 1,430 1,663 1,669

Uninor 1,017 709 758 (9) 1,011 850 2,220 2,174 2,481 2,450 2,312 1,796 1,272

S Tel 211 290 106 121 93 97 96 123 225 201 247 199 178

Etisalat DB 5 5 8 12 14 13 14 61 133 188 200

Videocon 1,395 548 835 888 817 1,134 1,128 576 (1,308) 553

Total market 13,012 13,946 11,180 11,255 12,290 11,522 13,509 12,419 14,692 17,161 17,078 13,717 14,691

Market share of net adds (%)

Bharti 22.3 21.5 26.8 26.7 24.4 22.6 15.0 16.4 20.4 18.1 18.2 24.1 21.8

Hutchison 23.7 26.0 25.9 23.0 22.1 20.9 17.1 14.3 16.9 18.2 18.1 22.7 24.2

IDEA-Escotel 17.3 12.1 13.1 12.8 17.6 16.2 14.7 11.9 12.3 16.3 17.3 18.3 17.1

BPL 0.6 0.5 0.4 0.2 0.1 0.2 0.2 0.1 0.2 0.1 0.1 0.1 0.1

MTNL 0.7 0.6 0.3 0.4 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.3 0.2

BSNL 11.9 17.8 11.3 9.3 8.9 10.2 17.0 18.8 16.9 17.6 18.7 16.1 10.3

Aircel 14.0 14.3 14.4 14.3 13.0 14.0 11.9 13.0 6.8 7.1 8.4 12.1 11.4

Uninor 7.8 5.1 6.8 (0.1) 8.2 7.4 16.4 17.5 16.9 14.3 13.5 13.1 8.7S Tel 1.6 2.1 0.9 1.1 0.8 0.8 0.7 1.0 1.5 1.2 1.4 1.5 1.2

Etisalat DB 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.4 0.8 1.4 1.4

Videocon 12.4 4.5 7.2 6.6 6.6 7.7 6.6 3.4 (9.5) 3.8

Note:

(a) Excluding RCOM and TTSL's GSM operations.

Source: COAI, , Kotak Institutional Equities


18/25

India Telecom


Exhibit 2: VLR subs operator-wise

Dec-10 Jan-11 Dec-10 Jan-11 Dec-10 Jan-11

Bharti 152,495 155,797 139,977 144,314 91.8 92.6

Vodafone 124,255 127,364 94,304 98,937 75.9 77.7Idea 81,779 84,290 73,635 76,147 90.0 90.3

BSNL 86,710 88,819 51,729 47,811 59.7 53.8

MTNL 5,398 5,432 1,894 1,986 35.1 36.6

Aircel 50,169 51,832 30,154 31,052 60.1 59.9

RCOM - total 125,652 128,872 84,136 85,455 67.0 66.3

TTSL - total 84,233 86,052 40,546 42,639 48.1 49.6

Shyam-Sistema 8,434 9,095 4,149 4,610 49.2 50.7

Loop Mobile 3,045 3,062 1,334 1,352 43.8 44.1

HFCL 1,342 1,283 634 640 47.2 49.9

Uninor 18,510 20,306 8,320 9,540 44.9 47.0

Videocon 7,320 6,011 2,724 2,987 37.2 49.7

S Tel 2,316 2,515 1,061 1,031 45.8 41.0

Etisalat 265 453 95 152 36.0 33.6Total 751,921 771,181 534,693 548,653 71.1 71.1

Reported subs ('000) VLR subs ('000) VLR as % of reported

Source: TRAI, Kotak Institutional Equities

Exhibit 3: VLR subs as % of total reported subs

Aircel Bharti BSNL Etisalat HFCL Idea Loop MTNL RCOM S Tel Shyam Tata Uninor Videocon Vodafone Total

A P 58.3 96.9 68.7 23.5 90.8 68.2 67.8 57.0 39.7 28.0 56.8 74.7

Assam 85.0 96.2 64.0 95.2 71.4 71.0 36.0 54.3 74.0 81.0

Bihar 59.6 96.7 57.9 11.4 77.5 64.4 41.8 36.2 42.8 47.5 47.8 77.4 70.8

Delhi 53.6 80.9 39.7 88.1 39.6 73.3 25.1 42.9 94.4 73.1

Gujarat 53.7 87.4 58.6 18.2 92.3 65.0 26.2 55.0 64.1 80.4 73.2

H P 127.5 90.6 56.2 - 65.9 61.1 48.2 40.6 51.0 82.7 69.8

Haryana 21.4 96.3 49.4 19.0 84.1 23.9 62.6 19.5 55.6 47.1 84.9 67.5

J & K 76.7 97.1 62.8 - 89.5 73.2 60.6 74.3 81.3

Karnataka 54.3 94.4 59.2 13.0 91.8 67.0 74.8 56.8 41.6 6.5 61.3 73.4

Kerala 43.6 87.7 63.2 12.1 91.3 65.4 48.7 49.2 26.4 25.8 76.9 70.5

Kolkata 53.5 90.2 33.2 - 50.5 13.4 64.8 55.8 51.9 35.0 78.1 62.5

M P 55.5 93.0 42.5 19.8 100.0 16.4 62.3 30.3 62.8 38.0 55.1 74.0

Maharashtra 52.0 95.8 63.9 20.7 98.3 70.4 62.6 52.3 52.4 49.1 84.8 77.6

Mumbai 43.7 86.5 35.3 90.3 44.2 33.7 72.8 19.4 37.5 37.5 61.7 73.0 59.6

North East 80.6 93.4 56.3 95.2 66.0 33.8 53.5 70.5 76.4

Orissa 58.6 90.3 60.3 42.6 14.7 65.7 35.8 46.6 31.5 22.2 66.9 64.4

Punjab 65.9 93.0 56.5 21.0 49.9 91.3 27.0 65.1 177.6 51.0 82.1 73.8

Rajasthan 43.4 94.1 44.0 29.0 93.3 17.0 64.1 43.9 44.6 49.9 69.4 70.3

Tamil Nadu 58.2 92.9 50.9 11.2 55.8 63.6 53.5 46.3 30.9 42.7 81.9 66.2UP (E) 64.2 97.3 43.3 28.4 96.4 66.0 55.6 47.4 61.4 65.3 79.9 72.2

UP (W) 59.5 83.2 44.8 21.2 94.8 63.6 53.6 42.3 53.5 58.9 77.4 69.2

West Bengal 60.4 86.8 50.9 44.2 65.8 68.8 40.7 51.9 41.6 88.1 70.9

Total 59.9 92.6 53.8 3.6 49.9 90.3 44.1 36.6 66.3 41.0 50.7 49.6 47.0 49.7 77.7 71.1



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Telecom India


Exhibit 4: ARPU based on VLR subs suggests a different picture as opposed to that based on reported SIM base

Company On reported subs On VLR subsBharti 91.8 20.3 26.2 29.2 198 219 - -

Vodafone 75.9 16.5 17.6 21.4 180 238 (9) 9

Idea 90.0 10.9 13.8 13.5 173 195 (13) (11)

BSNL 59.7 11.5 9.7 7.6 92 151 (54) (31)

MTNL 35.1 0.7 0.4 0.5 100 282 (50) 29

Aircel 60.1 6.7 5.6 4.8 99 166 (50) (24)

RCOM - GSM 65.9 9.5 8.8

RCOM - CDMA 68.4 7.2 6.9

RCOM - total 67.0 16.7 15.7 13.5 112 167 (44) (24)

TTSL - GSM 49.8 5.6 3.9

TTSL - CDMA 46.5 5.6 3.6

TTSL - total 48.1 11.2 7.6 7.2 89 190 (55) (13)

Shyam-Sistema 49.2 1.1 0.8 0.6 87 181 (56) (18)

Loop Mobile 43.8 0.4 0.2 0.6 199 433 0 98

HFCL 47.2 0.2 0.1 0.1 125 261 (37) 19

Uninor 44.9 2.5 1.6 0.9 60 152 (70) (31)Videocon 37.2 1.0 0.5

S Tel 45.8 0.3 0.2 0.1 45 123 (77) (44)

Etisalat 36.0 0.0 0.0

Total 71.1 100.0 100.0 100.0 140 198 (30) (10)

(a) GR is adjusted for wireline revenues included by various players in reporting.

Premium/ (discount) to Bharti (%)VLR subs as

% of

reported

Reported

subs market

share (%)

VLR subs

market share

(%)

Adjusted Dec

2010 GR mkt

share (%)

ARPU based

on reported

subs

ARPU based

on VLR subs



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Disclosures


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

Source: Kotak Institutional Equities As of September 30, 2010

* 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 30/09/2010 Kotak Institutional EquitiesInvestment Research had investment ratings on 156 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.

11.5%

23.1%

32.1% 33.3%

3.2%

5.1% 5.1%

0.6%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions 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 Sensex by more than 10% over the next 12 months.

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

Other definitions

Coverage view. The coverage view represents each analysts overall fundamental outlook on the Sector. The coverage view will consist of one of the following

designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = 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 Kotak Securities 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 in certain 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

fundamental basis 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.


25/25

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