17 june2010 india

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Slide 1: INDIA DAILY June 17, 2010 Contents Changes in Recommendation Grasim Industries: Steep discount for cement business, upgrade to ADD India Sensex Nifty 16-Jun 1-day1-mo 3-mo 17,463 5,233 0.3 0.2 3.7 3.4 (0.2) 0.0 Global/Regional indices Dow Jones Nasdaq Composite FTSE 10,409 2,306 5,238 10,025 20,144 1,708 0.0 0.0 0.4 (2.0) (3.0) (2.1) (3.5) (0.5) (7.2) Updates Tata Consultancy Services: Upbeat on growth, confident on margins ITC: Skincare entry is a good move Cipla: Another attempt to enter bio-similar products Nikkie Hang Seng KOSPI (0.4) (2.1) (7.6) 0.4 (0.0) (4.2) 0.2 3.4 1.5 Value traded – India Cash (NSE+BSE) Derivatives (NSE) 190 932 1,457 166 995 174 799 News Round-up Unit linked insurance plans, equity oriented mutual funds schemes & number of other popular savings & investment instruments will lose their tax immunity, and with it, their attractiveness when the Direct Taxes Code (DTC) comes into operation. (ECNT) Government is considering a 10 percent further equity dilution in Neyveli Lignite Corporation (NLC IN) which may mobilise about USD 510 mn for the Exchequer. (THBL) Mukesh Ambani eyes energy source to power UMPPS. RIL (RIL IN) may also venture into brown field power plants. (BSTD) Reliance (RIL IN) plans healthcare foray, sets eyes on 26% stake in Fortis. (FNLE) IOC (IOCL IN), HPCL (HPCL IN) have signed contracts with Reliance Industries (RIL IN) to buy natural gas to replace costlier liquid fuel at their refineries. (BSTD) L&T (LT IN) drops plan to set up USD 148.94mn IT special economic zones in its Powai premises owing to slowdown in the IT sector. (TTOI) State Bank of India (SBIN IN) set to enter wealth mgmt business this fiscal with a view to tap high networth clients. (FNLE) After five years of opposition and negotiations, Tata Power's (TPWR IN) 1,600 Mw project in Raigad district of Maharashtra has concluded the official formalities for joint survey of the affected land by the district collectorate and the affected farmers. (BSTD) Mahindra & Mahindra's (MM IN) US entry has hit a roadblock once again. The company's sole distributor in the region Atlanta-based Global Vehicles (GV) has filed a lawsuit against the co for taking too long to launch its pick-up truck in the US. (FNLE) Punj Lloyd (PUNJ IN) Singapore arm has bagged a contract worth USD 296.59mn in Singapore. (ECNT) Kingfisher Airlines (KAIR IN) has brought down foreign stake in the company from around 53% to 49%, just within the prescribed foreign investment cap of 49% permitted in the airline business in India. (FNLE) India Infoline (IIFL IN) and a set of investors have invested USD 37 mn in a Mumbai realty project of the Wadhawan group, which is engaged in housing finance, real estate and construction. (BSTD) Nestle India (NEST IN) is planning to invest about USD 74 mn in Nanjangud in Karnataka for production of instant noodles, mixed condiments and seasonings. (THBL) Source: ECNT= Economic Times, BSTD = Business Standard, FNLE = Financial Express, THBL = Business Line. Deri. open interest 1,357 1,247 Forex/money market Change, basis points 16-Jun 1-day Rs/US$ 10yr govt bond, % Net investment (US$mn) 15-Jun FIIs MFs 148 (32) MTD CYTD 84 47 4,684 (282) 46.6 7.6 (1) (5) 1-mo 92 11 3-mo 97 (38) Top movers -3mo basis Change, % Best performers BJFIN IN Equity BJAUT IN Equity IBULL IN Equity RPWR IN Equity DIVI IN Equity Worst performers ABAN IN Equity GRASIM IN Equity EDSL IN Equity NMDC IN Equity PUNJ IN Equity 708.7 1792.3 527.9 261.9 125.9 4.4 (0.2) (2.0) (0.2) 3.9 (10.6) (31.1) (10.7) (10.4) (9.0) (42.7) (38.6) (31.7) (27.7) (27.2) 16-Jun 1-day 454.9 2285.3 132.5 174.9 764.8 0.2 (0.1) (0.8) (1.5) 0.4 1-mo (14.5) 5.5 (11.3) 22.7 8.8 3-mo 37.9 26.2 25.4 24.0 20.6 For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. Slide 2: Grasim Industries (GRASIM) Cement ADD JUNE 16, 2010 CHANGE IN RECO. Coverage view: Neutral Steep discount for cement business, upgrade to ADD. We upgrade our rating on Grasim Industries to ADD, as the recent correction in the stock (partially ascribed to restructuring of cement business) implies a 44% discount to the CMP of holding in cement subsidiaries. The reasonable valuations—3X EV/EBITDA on FY2012E and cushion from VSF earnings, further strengthen our case for an upgrade, despite our otherwise cautious stance on the cement sector. Maintain TP of Rs2,150/share. Company data and valuation summary Grasim Industries Stock data 2,988-1,700 52-week range (Rs) (high,low) Market Cap. (Rs bn) 164.3 Shareholding pattern (%) Promoters 25.5 FIIs 34.2 MFs 2.9 Price performance (%) 1M 3M 12M Absolute (32.0) (38.2) (25.7) Rel. to BSE-30 (33.9) (38.5) (36.3) Price (Rs): 1,792 Target price (Rs): 2,150 BSE-30: 17,463 Forecasts/Valuations EPS (Rs) EPS growth (%) P/E (X) Sales (Rs bn) Net profits (Rs bn) EBITDA (Rs bn) EV/EBITDA (X) ROE (%) Div. Yield (%) 2010 301.0 26.1 6.0 199.3 27.6 63.2 3.8 22.9 1.9 2011E 240.1 (20.2) 7.5 200.1 22.0 58.1 3.9 16.4 1.9 2012E 282.0 17.5 6.4 223.4 25.9 67.6 3.0 16.7 1.9 CMP implies discount of 42% for ownership in cement subsidiaries Grasim’s CMP implies a 44% holding company discount for its 60% ownership in Ultratech (post-merger basis) based on the CMP of Ultratech. In our view, such a large holding company discount is unwarranted and the valuation gap between Ultratech and Grasim will likely narrow in the near term. Grasim is currently trading at 3X EV/EBITDA and 6.4X P/E on FY2012E earnings, at the lower end of its historical trading range and half of its historical average of 6X on EV/EBITDA and 8X on P/E. Cushion from VSF business to help tide over likely weakness in cement Grasim’s VSF division reported revenues of Rs10.4 bn (+64.8% yoy) and operating profit of Rs3.6 bn (231% yoy) in 4QFY10 with healthy operating margins of 35%, having recovered sharply from the 10% operating margins reported in 3QFY10. We estimate Grasim’s VSF business to report revenues of Rs37 bn and operating profit of Rs14 bn in FY2011E. VSF business will contribute 27% of consolidated operating profit suitably cushioning the likely weakness in earnings from the cement business. We note that 1QFY10 earnings from VSF business will, however, bear the burden of shutdown of one of the VSF facilities at Nagda due to shortage of water in the beginning of June 2010, which should resume normal operations given the onset of the monsoon season. Upgrade to ADD, maintaining target price of Rs2,150/share We upgrade Grasim Industries to ADD from REDUCE previously due to large implied discount for its valuations in the cement business. We value the cement business at 6X EV/EBITDA on FY2011E implying an EV/ton of US$122 on FY2011E production and factor an additional ‘holding-company’ discount for the restructuring of the cement business. We value the steady cash streams from VSF and allied chemicals business using DCF model. On comparative valuations on FY2011E, our assigned valuation implies 5.1X EV/EBITDA for chemicals business and 4.2X EV/EBITDA for the VSF business. For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Slide 3: Grasim Industries Cement Grasim's CMP implies a 44% holding company discount for its ownership in the cement business Implied discount (%) for Grasim's ownership in cement business based on Ultratech's CMP Current market capitalization of Grasim (a) Value of non-cement business VSF Others (Chemicals) Value of investments Net debt of non-cement business Value of non-cement business (b) Implied value of ownership in cement business (c=a-b) Value of stake in Ultratech +Samruddhi CMP of Ultratech Outstanding shares in Ultratech+Samruddhi (post-merger) Market capitalization of Ultratech+Samruddhi (post-merger) Value of Grasim's 60% ownership (d) Implied discount for ownership in cement business (1-c/d) Source: Bloomberg, Kotak Institutional Equities estimates Valuation (Rs mn) (Rs/share) 164,336 1,792 59,559 6,844 17,245 (10,221) 73,427 90,909 650 75 188 (111) 801 991 981 274 268,500 161,986 44 1,767 Sum-of-the-parts greater than the whole—the debate on holding company discount As highlighted previously, Grasim’s CMP implies a 44% discount to the value of its holding in Ultratech (and Samruddhi) on a post-merger basis. Without debating the merit of a holding company discount, we highlight that the 44% discount is far in excess of the 20-30% implied holding company discount for companies under our coverage (See Exhibit 2). Exhibit 2: Holding company discount for Grasim far ahead of other companies Computation of implied holding company discount (%) based on CMP of listed subsidiaries Sterlite 579,760 357,176 222,584 277,980 20 M&M Jaiprakash 363,987 269,935 277,632 125,601 86,355 144,334 111,784 203,311 23 29 RELI 289,736 160,179 129,558 188,583 31 Grasim 164,336 73,419 90,917 161,986 44 Market Cap Value of core and unlisted business Implied value of listed business Attributable value of listed business (CMP) Implied holding company discount (%) Source: Bloomberg, Kotak Institutional Equities estimates The rationale for a holding company discount usually stems from one of the several reasons (1) lack of control over investee entity, (2) cost of liquidation of concentrated holdings, (3) lack of marketability in case of unlisted holdings, and (4) inefficient tax structure. We note that in Grasim’s case, the only rationale for a holding company discount is the cost of liquidation, wherein divestment of a large holding will have associated transaction cost and will not be able to yield the current market price of those investments. KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Slide 4: Cement Grasim Industries Exhibit 3: Our valuation for the cement business now factors 20% 'holding-company' discount SOTP-based valuation of Grasim (Rs mn) Value (Rs mn) 122,389 59,559 6,844 17,245 206,037 31,876 (23,227) 8,649 197,388 91.7 2,153 2,150 Cement VSF Others (Chemicals) Value of key investments Enterprise value (Rs mn) Gross debt - Cash Net debt Equity value (Rs mn) Number of shares o/s (mn) Implied share price (Rs) Target price (Rs) 6X EV/EBITDA and 20% 'holding-company' discount DCF value implying an EV/EBITDA of 4.2X on FY2011E DCF value implying an EV/EBITDA of 5X on FY2011E 20% discount to current market price Attributable net debt for ownerhsip in Ultratech and Samruddhi Source: Kotak Institutional Equities estimates Structure of deal, Samruddhi to be listed soon In October 2009, Grasim Industries proposed to transfer its cement business comprising 25.7 mn tpa of cement capacity and 6.8 mn cubic meters of RMC capacity along with associated infrastructure and captive power plants into Samruddhi Cement Ltd. According to the proposal, Grasim would dilute its ownership in the cement business to 65%, while the balance equity will be issued to extant shareholders of Grasim (1:1 ratio), making the transaction neutral in impact for Grasim shareholders. As a sequel to the restructuring plan, the Board of Ultratech and Samruddhi approved the merger of the two entities that will result in the creation of the largest pure-play cement company in the country. Post merger, Grasim’s holding in UTCEM will increase to 60.33% from 54.8% currently, with the entire cement business of the AV Birla group housed under UTCEM. Currently Grasim has transferred its cement business to Samruddhi and Grasim shareholders have been issued shares of Samruddhi and are awaiting listing of Samruddhi. The shareholders and creditors of Ultratech have also approved the scheme of restructuring and court approvals for the same are expected to be received shortly. The entire scheme of arrangement is likely to be concluded by July 2010. Exhibit 4: Grasim has already transferred its cement business to Samruddhi, which will likely be listed shortly Structure of the merger of Grasim's cement business with Ultratech Existing structure Interim structure Eventual structure Grasim shareholders Grasim shareholders Grasim shareholders Grasim Industries (Cement+VSF) 0.57 Ultratech public shareholders 1.05 45% 35% Grasim Industries (VSF+Others) 0.57 Ultratech public shareholders 55% 0.74 45% 19% Grasim Industries 60% 1.79 Ultratech public shareholders 21% 100% Samruddhi 55% Ultratech (Cement) 65% Samruddhi (Cement) Ultratech (Cement) Samruddhi + Ultratech (Cement) Listed entity No. of Ultratech shares Source: Company, Kotak Institutional Equities 4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Slide 5: Grasim Industries Cement Exhibit 5: Profit model, balance sheet, cash model of Grasim Industries (Consolidated), March fiscal year-ends, 2007-12E (Rs mn) 2007 Profit model (Rs mn) Net sales EBITDA Other income Interest Depreciation Pretax profits Minority interest Tax Net profits Extraordinary items Earnings per share (Rs) Balance sheet (Rs mn) Total equity Total borrowings Currrent liabilities Total liabilities and equity Cash Current assets Total fixed assets Investments Deferred Expenditure Total assets Free cash flow (Rs mn) Operating cash flow, excl. working capital Working capital Capital expenditure Investments Free cash flow Source: Company, Kotak Institutional Equities estimates 2008 169,739 49,598 4,623 (2,221) (6,703) 45,296 (4,548) (14,658) 28,914 2,824 285 2009 184,039 43,306 4,532 (3,105) (8,658) 36,076 (4,286) (9,914) 21,877 — 239 2010E 199,334 57,867 5,356 (3,346) (9,947) 49,930 (6,631) (15,705) 30,955 3,361 301 2011E 200,057 52,604 5,511 (2,596) (9,698) 45,820 (8,448) (15,357) 22,015 — 240 2012E 223,400 61,761 5,791 (2,315) (10,112) 55,124 (10,910) (18,354) 25,860 — 282 140,952 39,723 3,177 (2,286) (6,100) 34,515 (3,919) (10,921) 19,675 — 215 66,399 57,318 24,632 148,348 3,692 29,524 84,721 22,719 7,691 148,348 91,438 68,531 36,783 196,751 2,903 39,681 129,223 16,607 8,337 196,751 115,701 75,865 35,685 227,250 2,270 43,073 142,190 35,626 4,091 227,250 125,246 93,541 38,891 257,678 2,370 43,009 145,527 66,759 13 257,678 143,721 96,535 40,113 280,368 23,592 46,454 145,930 66,759 (2,367) 280,368 166,041 101,997 42,697 310,735 53,770 50,614 142,853 66,759 (3,261) 310,735 31,262 (744) (25,530) (3,258) 1,730 38,559 1,994 (47,774) 4,183 (3,038) 41,870 (4,490) (17,824) (20,338) (780) 50,263 3,271 (13,285) (31,132) 9,116 45,398 (2,224) (10,101) — 33,073 49,883 (1,575) (7,035) — 41,273 KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Slide 6: TCS (TCS) Technology UPDATE BUY JUNE 16, 2010 Coverage view: Attractive Upbeat on growth, confident on margins. In our recent discussions, TCS management indicated broad-based demand momentum, little non-currency-translation impact on Europe exposure, confidence on margin protection despite wage pressure, and pricing stability (with an upward bias). 24% US$ revenue growth along with margin protection in a narrow range should drive 17% EPS growth in FY2011E. Re/US$ could spring surprise (we build in 45 for FY2011E). Reiterate BUY. Company data and valuation summary TCS Stock data 835-351 52-week range (Rs) (high,low) Market Cap. (Rs bn) 1,516.4 Shareholding pattern (%) Promoters 74.1 FIIs 12.4 MFs 2.3 Price performance (%) 1M 3M 12M Absolute 2.7 (5.3) 101.7 Rel. to BSE-30 (0.0) (5.8) 72.8 Price (Rs): 775 Target price (Rs): 900 BSE-30: 17,463 Forecasts/Valuations EPS (Rs) EPS growth (%) P/E (X) Sales (Rs bn) Net profits (Rs bn) EBITDA (Rs bn) EV/EBITDA (X) ROE (%) Div. Yield (%) 2010 35.1 32.8 22.1 300.3 68.7 86.8 17.0 37.6 2.6 2011E 41.1 16.9 18.9 353.9 80.4 102.8 13.8 34.8 2.1 2012E 46.3 12.8 16.7 425.8 90.7 120.9 11.4 32.8 2.4 Broad-based demand momentum for offshore IT services TCS indicated sustenance of strong demand momentum for offshore IT services. More importantly, demand strength is now significantly more broad-based than the past 2-3 quarters. Even as BFSI (44.4% of TCS’ revenues) continues to be the key growth driver, lag verticals like Manufacturing (8.3%) and Telecom (14.2%) are also showing promising signs, both in terms of spend recovery as well as new ‘discretionary spend’ RFPs. Among geographies, the company again indicated broad-based demand uptick, with North America leading the way. Europe – prolonged economy rebound could turn into an opportunity for offshore players TCS indicated little or no impact of the recent turmoil in select European countries on the demand for offshore IT services – (1) exposure to PIIGS countries is minimal (<US$100 mn of revenues, or <1.6% of FY2010 revenues), and (2) client response is markedly different than what was seen in 2HCY08 post Lehman crisis. Important difference versus 2008 is that the clients have been cautious on their IT spends, in any case, in the past 18 months – this was not the case in 2008, when discretionary IT spending was at much higher levels and needed moderation in the wake of economic slowdown. TCS also indicated a possibility of the European slowdown actually turning into an opportunity for the offshore IT services industry, as some of the traditionally-reluctant-to-offshore client base is forced to consider offshoring IT services as they stretch to meet cost take-out targets. The company also expressed optimism on deal pipeline in the European geography – we highlight TCS’ recent deal announcement with Telenor, a large Norway-headquartered TSP. We do note that depreciation of GBP, EUR and AUD will impact reported US$ revenue growth. At current levels, we estimate an impact of 120 bps on 1QFY11E qoq growth, and 190 bps on FY2011E yoy growth. Reiterates confidence on margin protection, attrition in manageable zone TCS reiterated confidence on managing operating margins in a narrow 50-100 bps range (from 4QFY10 levels) despite pressure from wage hikes and a potential drop in utilization rate. Re/US$, sustaining at current levels, should aid margins further. TCS also appeared comfortable on the supply side despite the sharp increase in attrition across the industry in the past few months. For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Slide 7: TCS Technology Profit model, balance sheet, cash model of TCS, 2008-2012E, March fiscal year-ends (Rs mn) 2008 Profit model Revenues Cost of sales SG&A expenses EBIT Other income Pre-tax profits Provision for tax Recurring net income Equity in earnings of affiliates Minority Interest Reported net income EPS (Rs) Balance Sheet Shareholders funds Borrowings Minority interest Other non-current liabilities Total liabilities Net fixed assets Goodwill Intangibles Investments Other non-current assets Cash and bank balances Net current assets excluding cash Total assets Cashflow statement Operating profit before working capital changes Change in working capital/other adjustments Capital expenditure Acquisitions net of cash & tangible assets taken over Investments Free cash flow Source: Company, Kotak Institutional Equities estimates 2009 278,129 (154,420) (57,694) 66,015 (4,673) 61,342 (9,012) 52,330 (8) (569) 51,761 26.4 156,545 2,762 3,098 2,744 165,149 37,494 25,913 8,232 17,271 17,370 24,742 34,127 165,149 58,096 (3,986) (13,046) (21,083) 9,204 29,186 2010 300,289 (161,629) (59,069) 79,591 2,255 81,846 (12,089) 69,757 (10) (1,018) 68,739 35.1 209,512 3,383 4,056 6,727 223,678 41,706 24,183 8,232 37,817 22,488 10,249 79,003 223,678 76,965 (39,684) (14,990) — (20,546) 1,745 2011E 353,939 (192,238) (67,288) 94,414 5,207 99,621 (18,066) 81,554 — (1,182) 80,373 41.1 252,272 — 5,238 3,492 261,001 57,591 24,183 8,232 37,817 22,488 65,397 45,293 261,001 89,895 23,556 (20,656) — — 92,795 2012E 425,783 (233,790) (81,085) 110,908 6,623 117,531 (25,813) 91,718 — (1,019) 90,698 46.3 300,525 — 6,257 4,201 310,983 67,953 24,183 8,232 37,817 22,488 99,982 50,327 310,983 101,714 (4,326) (20,358) — — 77,030 228,614 (126,194) (48,769) 53,651 4,450 58,101 (7,494) 50,607 8 (424) 50,183 25.6 123,820 6,727 2,300 756 133,602 30,214 11,105 3,633 26,475 10,427 10,352 41,396 133,602 56,353 (17,144) (12,340) (1,568) (13,815) 11,486 KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Slide 8: ITC (ITC) Consumer products UPDATE BUY JUNE 16, 2010 Coverage view: Attractive Skincare entry is a good move. We view ITC’s recent entry into skincare as a positive move in strengthening the ‘Vivel’ (vitality + wellness) brand in South India. The pricing of the 9 gm sachet at the coinage-important Rs5 (versus HUL’s Fair & Lovely at Rs7) could induce trial purchases (similar to HUL’s market share losses in shampoo sachets in 1990s when competition introduced 50 paisa sachets versus HUL’s Re1 offering). Improving profitability in extant FMCG will likely support personal care investments. Company data and valuation summary ITC Stock data 296-183 52-week range (Rs) (high,low) Market Cap. (Rs bn) 1,096.3 Shareholding pattern (%) Promoters 0.0 FIIs 13.8 MFs 3.0 Price performance (%) 1M 3M 12M Absolute 10.8 14.4 49.5 Rel. to BSE-30 7.8 13.9 28.1 Price (Rs): 291 Target price (Rs): 315 BSE-30: 17,463 Forecasts/Valuations EPS (Rs) EPS growth (%) P/E (X) Sales (Rs bn) Net profits (Rs bn) EBITDA (Rs bn) EV/EBITDA (X) ROE (%) Div. Yield (%) 2010 10.8 24.4 27.0 181.5 40.6 63.9 16.6 29.9 3.4 2011E 12.4 15.4 23.4 206.9 46.9 72.5 14.7 32.2 1.9 2012E 14.5 16.9 20.0 239.5 54.8 85.0 12.3 32.1 2.1 QUICK NUMBERS • Pricing of the skincare sachet at Rs5 (versus HUL’s Fair & Lovely at Rs7) could induce trial purchases • We model FMCG losses of Rs2.6 bn and Rs0.6 bn— including personal care losses of Rs3.6 bn and Rs2.4 bn—in FY2011E and FY2012E Improving profitability in extant FMCG to support personal care investments We take a close look at each of the segments in ITC’s FMCG business and conclude that the improving profitability of extant FMCG is supporting personal care investments. The driving factors for profitability improvement are (1) focus on value sales (Aashirwad atta), (2) mix improvement (Sunfeast biscuits), (3) likely lower (yoy) distribution investments (Bingo salty snacks) and (4) better brand traction (in stationery). While ITC is well-positioned to reduce losses in FMCG segment by ~25% in FY2011E and flat PBIT in FY2012E, we highlight that the brand investments in personal care will likely accelerate. We model FMCG losses of Rs2.6 bn and Rs0.6 bn—including personal care losses of Rs3.6 bn and Rs2.4 bn—in FY2011E and FY2012E, respectively (Exhibit 2). Cigarette volumes may follow typical consumer behavior to price increase (marginal dip & recovery) Our channel checks suggest continued good volumes in ITC’s cigarette business—in select geographies (in UP and Kerala)—post the 13% price increase in March 2010. However, it is likely that the national volumes could dip marginally in 1QFY11E before recovering in 2HFY11E (following the typical consumer behavior of curtailing consumption immediately after a price increase and returning to the normal consumption rates gradually). We continue to be positive on prospects for cigarette business and model volume growth of 2% and 3% for FY2011E and FY2012E, respectively. Retain BUY; potential for earnings upgrade in FY2011E exists Key factors favoring ITC is likely stability in regulation as most of the penal actions are behind it (including threat of indiscriminate increase in VAT by states—current effective VAT rate of ~14.5%). We continue to value ITC stock at the last three years’ average PE of 23X. We believe upside risks to our target multiple exist as the industry has faced one of its most difficult phases during FY2007-09. Taxation worries (including uncertainty on rates for demerit goods under GST) are real; however, strong underlying demand conditions provide a buffer. For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Slide 9: ITC Consumer products Exhibit 1: Consumer reaction to the Rs5 price-point offer (by Vivel) will be keenly watched SKU-wise MRP of HUL's Fair & Lovely and ITC's Vivel Active Fair Weight (gm) 80 50 25 15 9 Price (Rs) 102 70 38 18 7 Weight (gm) 50 25 9 Price (Rs) 70 38 5 Source: Industry, Kotak Institutional Equities Exhibit 2: Improving profitability in extant FMCG to support personal care investments ITC FMCG – sales and PBIT (Rs mn) 2009 Sales Foods Personal care Others Total PBIT Foods Personal care Others Total 20,800 2,000 7,340 30,140 2010 22,500 5,000 8,917 36,417 2011E 24,900 9,000 11,497 45,397 2012E 26,800 12,000 13,942 52,742 (2,355) (1,902) (578) (4,835) (20) (3,503) 22 (3,495) 696 (3,601) 293 (2,610) 1,053 (2,405) 674 (668) Source: Kotak Institutional Equities estimates KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Slide 10: Consumer products ITC ITC: Segment revenue and PBIT, 2006-2012E, March fiscal year-ends (Rs mn) 2006 Segment revenue, gross (Rs mn) Cigarettes Other FMCG Hotels Agri Business Paperboards, Paper & Packaging TOTAL Less: Inter segment revenue Gross sales Net sales Segment revenue break up, (%) Cigarettes Other FMCG Hotels Agri Business Paperboards, Paper & Packaging TOTAL Less: Inter segment revenue Gross sales Segment PBIT margins (Rs mn) Cigarettes Other FMCG Hotels Agri Business Paperboards, Paper & Packaging TOTAL Segment PBIT margins (%) Cigarettes Other FMCG Hotels Agri Business Paperboards, Paper & Packaging TOTAL 23.9 (17.0) 32.9 3.4 18.5 18.3 27,088 (1,718) 2,581 909 3,514 32,373 69.8 6.2 4.8 16.5 11.7 109.1 9.1 100.0 113,297 10,135 7,834 26,784 18,957 177,007 14,763 162,244 97,905 2007 128,337 17,044 9,857 36,914 21,001 213,152 18,101 195,051 123,693 2008 138,256 25,231 11,002 38,998 23,643 237,131 23,137 213,994 140,012 2009 151,151 30,140 10,203 38,460 28,220 258,173 26,738 231,435 153,881 2010 172,830 36,417 9,108 38,621 32,336 289,313 26,715 262,598 181,532 2011E 198,755 45,397 10,740 41,313 38,921 335,125 32,094 303,032 206,896 2012E 224,593 52,742 12,840 47,257 46,435 383,866 37,477 346,389 239,488 65.8 8.7 5.1 18.9 10.8 109.3 9.3 100.0 64.6 11.8 5.1 18.2 11.0 110.8 10.8 100.0 65.3 13.0 4.4 16.6 12.2 111.6 11.6 100.0 65.8 13.9 3.5 14.7 12.3 110.2 10.2 100.0 65.6 15.0 3.5 13.6 12.8 110.6 10.6 100.0 64.8 15.2 3.7 13.6 13.4 110.8 10.8 100.0 31,722 (2,020) 3,508 1,236 4,168 38,613 36,340 (2,635) 4,108 1,292 4,531 43,636 41,838 (4,835) 3,162 2,562 5,086 47,813 49,381 (3,495) 2,166 4,364 6,843 59,259 55,515 (2,610) 3,352 4,090 8,231 68,579 63,120 (668) 3,910 4,653 10,032 81,046 24.7 (11.9) 35.6 3.3 19.8 18.1 26.3 (10.4) 37.3 3.3 19.2 18.4 27.7 (16.0) 31.0 6.7 18.0 18.5 28.6 (9.6) 23.8 11.3 21.2 20.5 27.9 (5.7) 31.2 9.9 21.1 20.5 28.1 (1.3) 30.4 9.8 21.6 21.1 Source: Company, Kotak Institutional Equities estimates 10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Slide 11: ITC Consumer products ITC: Profit model, balance sheet, cash flow model 2006-2012E, March fiscal year-ends (Rs mn) 2006 Profit model (Rs mn) Net sales EBITDA Other income Interest Depreciation Pretax profits Tax Net profits Earnings per share (Rs) Balance sheet (Rs mn) Total equity Deferred taxation liability Total borrowings Currrent liabilities Total liabilities and equity Cash Current assets Total fixed assets Investments Total assets Free cash flow (Rs mn) Operating cash flow Working capital Capital expenditure Free cash flow Key ratios (%) Sales growth EBITDA margin EPS growth 28.2 34.0 28.3 26.3 32.1 20.1 13.2 31.9 17.1 9.9 31.6 2.8 18.0 33.5 24.4 14.0 33.5 15.4 15.8 34.1 16.9 25,638 (5,469) (6,013) 14,157 31,040 (8,667) (15,702) 6,672 37,112 (6,634) (21,239) 9,238 41,493 (4,977) (17,407) 19,109 47,417 2,683 (8,963) 41,137 54,026 (430) (15,000) 38,597 63,091 (1,699) (15,000) 46,392 90,615 3,248 1,197 35,781 130,840 8,558 43,061 44,051 35,170 130,840 104,371 4,729 2,009 38,576 149,684 9,002 53,896 56,109 30,678 149,684 120,577 5,451 2,144 44,323 172,495 5,703 64,490 72,956 29,346 172,495 137,351 8,672 1,776 47,050 194,848 10,324 71,287 84,860 28,378 194,848 134,021 8,672 1,776 60,569 205,038 20,222 68,713 87,725 28,378 205,038 156,645 8,672 1,776 54,342 221,434 18,259 78,962 95,835 28,378 221,434 184,983 8,672 1,776 58,392 253,822 35,857 86,488 103,100 28,378 253,822 97,905 33,274 2,899 (158) (3,323) 32,629 (10,276) 22,353 6.0 123,693 39,700 3,365 (169) (3,629) 39,267 (12,267) 27,000 7.2 140,012 44,703 6,109 (173) (4,385) 46,255 (14,517) 31,738 8.4 153,881 48,686 5,349 (284) (5,494) 48,258 (15,622) 32,636 8.7 181,532 60,740 6,034 (534) (6,087) 60,153 (19,543) 40,610 10.8 206,896 69,229 6,499 (591) (6,880) 68,258 (21,404) 46,854 12.4 239,488 81,624 6,772 (643) (7,726) 80,027 (25,256) 54,770 14.5 2007 2008 2009 2010E 2011E 2012E Source: Company, Kotak Institutional Equities estimates KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Slide 12: Cipla (CIPLA) Pharmaceuticals REDUCE JUNE 16, 2010 UPDATE Coverage view: Attractive Another attempt to enter bio-similar segment. Cipla plans to invest in JVs with Chinese partner in an effort to stay prepared for the attractive bio-similar segment. It plans to invest US$65 mn in the segment over the next three years. There is no change to FY2011-12E est. Inhaler opportunities in Europe and a potential manufacturing deal have countered negative impact of poor FY2011E guidance. We think the stock is richly valued compared to near-term growth. Maintain REDUCE with a target price of Rs280. Company data and valuation summary Cipla Stock data 364-240 52-week range (Rs) (high,low) Market Cap. (Rs bn) 271.4 Shareholding pattern (%) Promoters 36.8 FIIs 17.6 MFs 5.0 Price performance (%) 1M 3M 12M Absolute 7.9 6.4 29.6 Rel. to BSE-30 5.3 6.2 11.4 Price (Rs): 333 Target price (Rs): 280 BSE-30: 17,463 Forecasts/Valuations EPS (Rs) EPS growth (%) P/E (X) Sales (Rs bn) Net profits (Rs bn) EBITDA (Rs bn) EV/EBITDA (X) ROE (%) Div. Yield (%) 2010 13.5 35.9 25.1 53.6 10.2 14.4 18.6 19.9 0.7 2011E 12.8 (4.9) 26.4 58.5 10.3 15.3 17.5 16.3 0.7 2012E 15.6 21.9 21.6 67.9 12.5 18.1 14.6 17.4 0.7 QUICK NUMBERS • Cipla plans production of 8-10 bio-similar products • To invest US$65 mn in the next three years • Cipla retains rights to market all products Cipla’s attempt to enter bio-similar manufacturing with investment in two biotech companies Cipla has ventured again into biotechnology and will invest US$65 mn over the next three years with a Chinese JV partner in two biotech firms (1) 40 % stake in an Indian biotech firm by subscribing to new shares of the company, which is setting up a manufacturing facility for biosimilar products in Goa and (2) 25% stake in another firm in Hong Kong that will set up a facility for bio-similars in Shanghai. Cipla retains rights to market all products from this JV in India and international markets Cipla has shortlisted 8-10 products in categories like oncology, asthma, arthritis and rheumatism on which it will focus initially. Cipla would fund these through internal accruals. Cipla has Rs3.1 bn of cash including investments as of March 2010. After capex of Rs9 bn in FY2009 and Rs6.25 bn in FY2010, Cipla plans to spend Rs6 bn in FY2011E. This investment in bio-similars is above the planned capex spend. Valuation appears rich compared to growth potential, REDUCE rating reiterated We expect Cipla to show EPS (adjusted for forex-related losses) decline of 4% in FY2011E but growth will likely pick up to 22% in FY2012E. We think the stock is richly valued compared to growth potential. Its business model is seen to be more predictable and less risky compared to other Indian companies. This could be questioned after 4QFY10 results that showed volatility of earnings during the quarter. For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Slide 13: Cipla Pharmaceuticals Another attempt to enter bio-similar segment Generic versions of biological products appear to be the final frontier for global generic companies. Markets in developed countries appear to be particularly promising as approval path is lengthy and costly (where it is defined) and the number of competitors is likely to be lesser than seen in typical oral dosage products currently. Cipla had tied up with Indian company Avesthagen in the past under which Avesthagen was to develop and manufacture bio-therapeutic products. In FY2009 agreed milestones could not be achieved despite an extension of timelines and the agreement was terminated. Cipla enters bio-similar manufacturing with investment in two biotech firms Cipla is now investing in two biotech companies. The partner in these ventures is a Chinese entity with whom Cipla has continuing business relationship. The Chinese partner will bring in technology for these products. Media reports suggest that the partner is Desano group, based in Shanghai. We believe this is not true. We did not get much information about Desano group on the Internet except that it was established in 1996 and that it engaged in manufacturing of APIs. There will be two separate companies in India and China. Cipla will hold 40% stake in the Indian company and 25% in the Chinese one. Total investment in both these companies is estimated by Cipla to be US$65 mn over the next three years. Cipla plans to finance this investment from internal accruals and borrowings. Cipla retains rights to market all products from this JV in India and globally Cipla will have the right to market all products in India and international markets. The agreement will cover a basket of 8-10 products for treatment on arthritis, colorectal cancer, allergic asthma, head and neck cancer and other ailments. These products are not covered by patents in India, China and many emerging markets. Cipla estimates that sales of branded products for these are US$30 bn annually. Cipla plans to launch these products in the Indian market initially and expand to emerging markets. Depending on the regulatory approvals, Cipla expects the products to be available for commercial launch in the next three years. At this point, we are not building in investments and revenues from this plan in our estimates. Cipla’s European inhaler business is at a nascent stage; may suffer due to planned price cuts Cipla has eight HFA inhalers developed for EU and six registrations have been submitted. Cipla has received approvals for Budesonide inhalers in Germany and Portugal, Salbutamol inhalers in Denmark, UK and Portugal and Beclomethasone in Portugal. Cipla launched Salbutamol inhalers in 4QFY10, but due to logistic reasons the orders will be shipped out in 1QFY11. Cipla’s inhaler business suffered in FY2010 due to shortage of a key raw material, mainly gas for CFC-based inhalers. Cipla is in the process of initiating clinical trials on multi-dose dry powder inhaler for the European market. Cipla is also working on two products in the US and additional three products in Canada, which are under various stages of development and clinical work needs to be done. Over the past few months, cuts to pharmaceutical prices have been announced in Ireland, Germany and Greece. France, Spain and Italy are preparing to make similar moves. These cuts are across branded and generic drugs. Governments, which ultimately pay for healthcare in Europe, are taking a number of austerity measures including lower prices for generic medicines. KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Slide 14: Pharmaceuticals Cipla Some of the price reduction announcements relating to generic medicines in Europe are given below— 1. 2. 3. Spain – 30% price cut for generics Italy – announced 12.5% price cut for generics Ireland – 40% price cut for branded generics While Cipla’s inhaler business is at a nascent stage, it may suffer due to these planned price cuts. Valuation appears rich against growth potential, rating unchanged at REDUCE We retain the REDUCE rating and SOTP-based target price Rs280. In the past Cipla enjoyed premium valuation as it avoided the riskier markets of Russia and Latin America. Its business model is seen to be more predictable and less risky compared to other Indian companies. This could be questioned after Jan-Mar 2010 results that showed volatility of earnings. We expect Cipla to show EPS (adjusted for forex-related losses) decline of 4% in FY2011E but growth will likely pick up to 22% in FY2012E. As a result, we think the stock is richly valued compared to growth potential. We think that market may be excited about inhaler opportunity that Cipla has talked at the conference call but it remains a difficult market to penetrate and we think progress will be slow. SOTP-based target price, FY2011-FY2012E PAT (Rs mn) 2011E 2012E 4,852 5,989 869 900 1,256 1,641 736 962 2,339 3,056 10,053 12,548 P/E (X) 20.0 11.5 15.0 15.0 15.0 Valuation (Rs mn) 2011E 2012E 97,046 119,771 9,992 10,354 18,844 24,616 11,046 14,430 35,088 45,837 172,016 215,008 214 6 268 9 277 Finished dosage India API global Finished dosage USA Finished dosage Europe Finished dosage RoW Total Value per share (Rs) Cash per share (Rs) Share price target (Rs) Price target Source: Kotak Institutional Equities estimates, Company 14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Slide 15: Cipla Pharmaceuticals Profit and loss statement, March fiscal year-ends, 2007-2012E Net sales Operating expenses Materials Selling and administration Employee cost R&D Others Total expenditure EBITDA Depreciation and amortisation EBIT Net finance cost Other income Pretax profits before extra-ordinaries Current tax Deferred tax Fringe benefit tax Reported net profit Source: Kotak Institutional Equities estimates, Company 2007 34,382 (16,949) (5,085) (1,846) (1,473) (2,152) (27,505) 6,877 (1,034) 5,844 (70) 2,306 8,080 (1,218) (147) (35) 6,680 2008 40,104 (21,130) (6,135) (2,555) (2,029) (1,845) (33,693) 6,410 (1,307) 5,104 (117) 3,393 8,379 (940) (365) (64) 7,010 2009 49,606 (23,474) (8,835) (2,714) (2,355) (2,747) (40,125) 9,481 (1,518) 7,963 (329) 1,335 8,968 (1,010) (150) (98) 7,710 2010 53,595 (24,706) (11,488) (3,713) (2,144) — (42,051) 11,544 (1,897) 9,648 (237) 2,900 12,311 (1,972) (150) — 10,189 2011E 58,524 (27,045) (8,910) (4,450) (2,926) (3,219) (46,551) 11,974 (2,400) 9,574 — 3,300 12,874 (2,178) (400) — 10,296 2012E 67,899 (30,602) (10,337) (5,029) (3,395) (3,734) (53,097) 14,802 (2,750) 12,052 — 3,250 15,302 (2,354) (400) — 12,548 Balance sheet statement, March fiscal year-ends, 2007-2012E 2007 Balance sheet Net worth Debt Current liabilities Deferred tax liabilities Total equity and liabilities Cash and cash equivalents Current assets Net fixed assets incl CWIP Investments Total uses of funds Free cash flow Operating cash flow, excl. working capital Working capital Capital expenditure Investments Free cash flow Source: Kotak Institutional Equities estimates, Company 2008 37,552 5,805 12,477 1,492 57,326 797 36,649 18,945 935 57,326 2009 43,478 9,402 14,046 1,642 68,568 534 43,645 23,588 801 68,568 2010E 59,106 51 12,143 1,792 73,091 621 43,053 26,954 2,464 73,091 2011E 67,053 — 17,034 2,192 86,279 800 51,186 30,554 3,738 86,279 2012E 77,253 — 20,174 2,592 100,018 800 59,686 32,804 6,728 100,018 32,273 1,236 9,413 1,127 44,048 1,315 27,032 14,523 1,178 44,048 7,620 (4,270) (4,192) (841) 8,351 (6,553) (5,620) (3,822) 9,387 (5,428) (6,247) (2,287) 12,282 (1,839) (5,263) 5,180 12,696 (3,244) (6,000) 3,452 15,298 (5,359) (5,000) 4,938 KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Slide 16: Kotak Institutional Equities: Valuation summary of key Indian companies India Daily Summary - June 17, 2010 Company Automobiles Ashok Leyland Bajaj Auto Hero Honda Mahindra & Mahindra Maruti Suzuki Tata Motors Automobiles Banks/Financial Institutions Andhra Bank Axis Bank Bank of Baroda Bank of India Canara Bank Corporation Bank Federal Bank HDFC HDFC Bank ICICI Bank IDFC India Infoline Indian Bank Indian Overseas Bank J&K Bank LIC Housing Finance Mahindra & Mahindra Financial Oriental Bank of Commerce PFC Punjab National Bank Reliance Capital Rural Electrification Corp. Shriram Transport SREI State Bank of India Union Bank Banks/Financial Institutions Cement ACC Ambuja Cements Grasim Industries India Cements Shree Cement UltraTech Cement Cement Consumer products Asian Paints Colgate-Palmolive (India) Dabur India GlaxoSmithkline Consumer (a) Godrej Consumer Products Hindustan Unilever ITC Jubilant Foodworks Jyothy Laboratories Nestle India (a) Tata Tea Consumer products Constructions IVRCL Nagarjuna Construction Co. Punj Lloyd Sadbhav Engineering Construction 16-Jun-10 Price (Rs) 62 2,285 2,017 629 1,364 780 Rating ADD ADD SELL BUY ADD ADD Cautious Mkt cap. (Rs mn) (US$ mn) 83,077 330,645 402,815 363,987 394,326 465,229 2,040,079 66,009 494,597 264,989 173,894 174,660 79,127 55,372 836,323 904,524 977,480 211,087 30,229 97,687 52,927 38,465 94,962 44,837 83,142 336,354 328,482 186,589 285,849 131,351 9,530 1,499,397 156,006 7,613,868 162,253 176,367 164,336 34,862 72,085 122,125 732,028 222,308 113,710 162,993 71,886 105,432 557,725 1,096,289 19,433 16,647 282,368 69,363 2,718,153 48,529 48,097 42,665 15,523 154,814 1,784 7,102 8,652 7,818 8,470 9,993 43,821 1,418 10,624 5,692 3,735 3,752 1,700 1,189 17,964 19,429 20,996 4,534 649 2,098 1,137 826 2,040 963 1,786 7,225 7,056 4,008 6,140 2,821 205 32,207 3,351 163,546 3,485 3,788 3,530 749 1,548 2,623 15,724 4,775 2,442 3,501 1,544 2,265 11,980 23,548 417 358 6,065 1,490 58,386 1,042 1,033 916 333 3,325 O/S shares (mn) 1,330 145 200 578 289 596 2010E 2.8 117.5 111.8 34.9 86.4 23.9 EPS (Rs) 2011E 3.9 159.9 121.5 39.0 94.1 27.2 2012E 5.0 173.2 135.7 43.9 104.2 35.5 EPS growth (%) 2010E 2011E 2012E 84.5 159.8 74.1 132.5 104.9 138.9 118.1 37.5 36.1 8.7 11.7 8.9 13.5 16.4 0.6 24.7 7.3 22.2 4.5 6.3 42.3 20.1 30.6 28.9 12.9 9.8 1.1 18.9 6.3 33.8 19.3 16.5 9.9 3.4 17.0 21.2 25.4 (4.8) 23.4 11.5 17.2 (25.7) (1.8) (20.2) 3.1 6.3 (23.9) (15.5) 14.7 11.1 17.6 26.5 13.2 7.3 15.4 39.3 17.0 17.0 11.1 13.8 29.7 8.3 11.7 12.5 10.8 30.6 14.3 20.0 27.3 23.6 38.3 21.4 15.7 24.2 21.5 31.2 24.7 21.9 12.5 23.6 71.3 25.2 11.7 16.8 11.0 15.1 22.2 (12.4) 24.9 27.2 25.8 25.2 25.0 24.4 2.6 2.6 17.5 9.1 9.7 15.0 10.4 19.5 13.9 20.8 18.4 18.2 14.0 16.9 25.3 18.3 21.3 13.8 16.9 19.7 24.1 22.4 44.1 24.0 2010E 22.1 19.4 18.0 18.0 15.8 32.6 20.0 6.5 19.7 8.7 10.0 5.8 6.8 11.9 29.6 30.7 24.3 19.9 11.9 6.5 7.5 7.5 14.3 13.1 7.3 14.3 8.4 54.9 14.3 15.0 9.9 16.4 7.5 15.3 10.4 14.5 6.0 11.3 9.9 11.1 9.5 32.4 28.2 32.5 30.9 39.4 26.4 27.0 54.1 20.8 39.4 16.9 28.6 23.3 26.3 (9.7) 28.8 2,286.5 PER (X) 2011E 16.1 14.3 16.6 16.1 14.5 28.7 17.2 6.4 15.8 8.1 8.2 5.5 6.4 8.4 24.6 23.5 18.8 17.6 10.9 6.4 6.3 7.1 10.7 11.0 6.3 13.0 8.1 46.9 11.8 12.0 10.4 13.3 6.7 13.0 14.0 14.7 7.5 11.0 9.4 14.6 11.3 28.2 25.3 27.6 24.4 34.8 24.7 23.4 38.8 17.8 33.7 15.3 25.1 17.6 16.3 12.9 18.9 15.7 2012E 12.4 13.2 14.9 14.3 13.1 22.0 15.1 5.4 12.4 6.5 5.9 4.6 5.5 6.7 20.3 17.9 15.1 14.5 9.7 5.2 3.7 5.6 9.6 9.4 5.7 11.3 6.7 53.6 9.4 9.4 8.3 10.6 5.4 10.5 13.6 14.4 6.4 10.1 8.5 12.7 10.2 23.6 22.2 22.9 20.6 29.5 21.6 20.0 31.0 15.0 27.8 13.4 21.5 14.7 13.1 10.5 13.1 12.7 EV/EBITDA (X) 2010E 2011E 2012E 13.1 12.3 11.7 11.9 8.5 12.9 11.5 — — — — — — — — — — — — — — — — — — — — — — — — — — — 5.6 8.1 3.8 5.7 4.9 5.8 5.2 20.2 20.9 24.1 17.0 27.9 17.8 16.6 29.2 15.9 26.0 10.9 18.4 12.2 12.7 35.8 14.0 16.4 10.1 9.8 11.0 10.5 7.9 12.9 10.5 — — — — — — — — — — — — — — — — — — — — — — — — — — — 6.6 8.4 3.9 5.6 4.7 6.5 5.5 17.4 18.4 19.3 14.3 24.9 16.7 14.7 20.5 12.0 23.1 8.9 16.2 10.0 9.5 7.0 9.6 8.6 8.5 8.9 9.4 9.3 6.8 11.3 9.2 — — — — — — — — — — — — — — — — — — — — — — — — — — — 5.7 7.6 3.0 5.4 3.8 5.4 4.6 14.2 15.7 16.0 11.7 21.0 14.0 12.3 14.4 9.7 19.8 8.0 13.6 8.5 7.8 6.4 8.0 7.5 2010E 2.1 10.4 11.2 4.5 3.3 2.3 4.0 1.4 3.1 1.9 1.4 1.4 1.4 1.2 5.5 4.2 1.9 3.0 1.9 1.5 0.8 1.3 2.9 2.7 1.2 2.6 2.0 2.7 2.6 3.6 0.8 2.3 1.8 2.4 2.5 2.5 1.3 0.8 4.0 2.2 2.0 13.7 35.6 15.5 8.0 9.0 21.9 7.7 16.5 4.1 48.6 1.4 9.7 2.4 2.1 1.4 3.8 2.0 Price/BV (X) 2011E 2012E 2.0 6.6 7.7 3.6 2.7 2.0 3.3 1.2 2.7 1.6 1.2 1.1 1.2 1.1 4.9 3.7 1.8 2.7 1.6 1.2 0.7 1.2 2.5 2.3 1.0 2.3 1.7 2.6 2.3 3.0 0.8 2.0 1.5 2.1 2.2 2.2 1.1 0.8 2.8 2.0 1.7 11.0 27.8 12.7 6.7 7.9 18.8 6.6 11.6 3.5 38.6 1.3 8.4 2.1 1.9 1.3 3.2 1.8 1.8 4.7 5.7 3.0 2.3 1.8 2.7 1.0 2.3 1.4 1.1 0.9 1.0 0.9 4.3 3.2 1.7 2.3 1.3 1.0 0.6 1.0 2.1 1.9 0.9 2.0 1.4 2.6 2.0 2.5 0.7 1.8 1.2 1.8 2.0 2.0 1.0 0.7 2.1 1.7 1.5 8.8 22.3 10.5 5.6 7.8 16.3 5.7 8.4 3.0 30.5 1.2 7.3 1.9 1.7 1.1 2.6 1.6 Dividend yield (%) 2010E 2011E 2012E 2.4 0.9 1.5 1.5 0.4 0.7 1.0 3.1 1.0 2.1 2.1 1.9 3.0 1.5 1.2 0.6 1.4 1.0 3.3 2.7 4.2 2.8 1.5 1.6 2.7 1.7 2.1 0.9 2.2 2.0 1.5 1.7 1.8 1.5 2.7 1.6 1.9 1.9 0.5 0.8 1.7 1.2 2.4 1.6 1.1 1.2 3.0 3.4 — 2.0 1.7 1.9 2.6 0.2 0.9 (0.1) 0.3 0.3 1.6 0.9 1.6 1.5 0.5 0.7 1.1 3.1 1.2 2.2 2.6 2.3 3.2 2.2 1.4 0.8 1.8 1.0 2.0 2.7 4.6 2.9 2.0 1.9 3.2 1.9 2.5 0.9 2.5 2.5 1.5 1.8 2.2 1.8 2.7 1.8 1.9 2.8 0.5 0.8 1.8 1.5 2.7 1.9 1.3 1.2 3.3 1.9 — 1.5 2.1 2.1 2.2 0.2 1.1 0.3 0.5 0.5 1.6 0.9 1.8 1.6 0.5 0.7 1.1 3.7 1.6 2.7 3.6 2.8 3.7 2.7 1.7 1.0 2.2 1.3 2.4 3.3 5.1 3.7 2.2 2.3 3.6 2.2 3.0 0.7 3.2 3.2 1.5 1.9 2.7 2.1 2.7 1.8 1.9 2.8 0.5 0.8 1.8 1.8 3.1 2.3 1.6 1.2 3.8 2.1 — 2.0 2.5 2.4 2.4 0.2 1.1 0.8 0.5 0.7 2010E 11.1 66.6 59.1 30.0 23.3 8.1 19.9 24.4 18.9 24.4 14.3 23.0 21.9 10.3 20.0 16.1 8.1 16.1 16.4 24.0 9.6 17.3 23.6 21.4 14.1 18.8 26.4 5.0 22.0 28.4 11.1 14.8 26.2 15.5 29.3 19.3 22.9 8.2 48.0 26.6 20.5 51.6 150.2 54.3 27.9 30.7 91.6 29.9 46.6 18.6 136.0 10.9 34.0 10.9 9.3 (15.8) 13.3 0.1 RoE (%) 2011E 2012E 12.7 54.8 56.6 24.9 20.6 7.5 19.1 20.2 18.1 21.8 15.9 19.6 19.9 13.4 21.0 16.7 9.8 16.0 15.9 20.3 10.6 16.9 23.8 21.7 15.4 18.0 22.7 5.7 20.5 26.1 10.5 16.1 23.7 16.0 19.4 16.7 16.4 7.7 35.0 16.8 15.1 44.5 122.2 51.1 29.6 24.1 82.2 32.2 35.1 20.2 127.8 11.4 33.4 12.8 12.5 10.3 16.8 11.4 15.0 39.8 43.8 22.8 18.9 8.6 18.2 20.7 19.9 22.6 19.3 20.1 19.8 14.8 22.4 19.1 11.5 17.1 16.1 21.2 16.3 18.5 22.4 21.6 15.3 18.2 23.3 4.8 22.2 27.8 12.3 17.8 24.3 17.4 17.7 15.3 16.7 8.0 28.1 16.7 14.6 42.5 109.9 50.7 29.2 27.8 80.8 32.1 31.5 20.5 122.7 12.0 33.8 13.5 13.9 11.4 19.7 12.6 Target price Upside (Rs) 60 2,330 1,800 630 1,400 900 (%) (3.9) 2.0 (10.8) 0.1 2.6 15.3 ADVT-3mo (US$ mn) 9.8 11.6 23.3 27.3 18.9 98.6 KOTAK INSTITUTIONAL EQUITIES RESEARCH 16 136 1,221 725 331 426 552 324 2,913 1,976 877 162 97 227 97 793 1,000 467 332 293 1,042 758 290 589 82 2,362 309 BUY ADD BUY REDUCE ADD BUY BUY ADD BUY REDUCE ADD BUY BUY BUY BUY ADD BUY ADD SELL BUY ADD ADD ADD NR BUY BUY Attractive 485 405 366 526 410 143 171 287 458 1,115 1,301 312 430 545 48 95 96 251 1,148 315 246 987 223 116 635 505 21.0 62.1 83.7 33.1 73.7 81.6 27.2 98.4 64.4 36.1 8.2 8.1 35.1 13.0 105.7 69.7 35.7 45.3 20.5 123.8 13.8 20.3 39.2 8.3 144.4 41.1 21.1 77.4 89.8 40.5 77.0 86.7 38.7 118.2 84.1 46.5 9.2 8.9 35.5 15.4 112.3 93.2 42.6 52.8 22.5 128.0 16.1 24.6 49.1 7.9 178.1 45.8 25.4 98.5 111.0 56.0 93.6 100.3 48.0 143.7 110.4 58.0 11.2 10.0 43.8 26.4 140.6 104.2 49.8 58.6 25.9 156.5 14.1 30.7 62.4 9.9 223.0 57.3 56.1 22.7 37.3 (42.1) 45.8 31.1 (7.2) 22.7 22.1 6.9 41.1 59.2 25.5 (46.7) 25.1 11.4 59.3 25.3 53.5 26.3 (64.9) 23.2 30.1 17.8 0.5 20.2 14.4 160 1,360 825 360 500 650 360 3,200 2,200 980 180 140 280 120 850 1,050 500 400 240 1,150 875 300 600 — 2,700 380 17.6 11.4 13.8 8.9 17.4 17.8 11.2 9.9 11.3 11.8 10.9 44.4 23.2 23.5 7.2 5.0 7.1 20.5 (18.1) 10.4 15.4 3.6 1.9 — 14.3 23.0 5.9 51.3 10.8 5.9 6.6 1.1 5.2 40.7 32.7 92.7 18.4 3.5 4.1 3.3 0.5 21.4 1.1 4.7 2.5 7.6 31.5 14.4 4.7 4.5 97.7 4.8 864 116 1,792 114 2,069 981 SELL SELL REDUCE SELL BUY SELL Neutral 188 1,522 92 307 35 124 83.2 8.0 301.0 10.0 208.0 88.2 61.8 7.9 240.1 10.4 221.1 67.1 63.4 8.1 282.0 11.3 242.5 77.2 47.9 11.4 26.1 n/a 19.0 12.0 19.3 830 98 2,150 110 2,550 940 (3.9) (15.4) 20.0 (3.1) 23.2 (4.2) 9.5 6.4 9.8 4.2 0.9 3.1 2,318 836 188 1,709 342 256 291 300 229 2,929 1,122 BUY REDUCE BUY ADD NR REDUCE BUY REDUCE ADD ADD BUY Attractive BUY BUY REDUCE BUY Attractive 96 136 866 42 308 2,179 3,769 65 73 96 62 71.6 29.7 5.8 55.4 8.7 9.7 10.8 5.5 11.0 74.4 66.2 82.1 33.0 6.8 70.0 9.8 10.4 12.4 7.7 12.9 87.0 73.5 98.1 37.6 8.2 82.9 11.6 11.8 14.5 9.7 15.3 105.5 83.7 85.4 37.6 28.1 23.6 29.7 1.7 24.4 340.6 99.6 27.0 23.4 23.4 2,300 760 200 1,800 — 230 315 290 230 3,000 1,250 (0.8) (9.1) 6.3 5.3 — (10.1) 8.3 (3.3) 0.3 2.4 11.4 2.6 2.3 2.1 1.0 3.5 14.1 21.7 17.3 0.9 2.2 2.8 182 187 126 1,242 267 257 339 13 7.8 7.1 (12.9) 43.1 10.3 11.5 9.8 65.7 12.4 14.3 12.0 94.6 (7.7) 32.4 6.1 61.1 79.2 (175.4) (15.8) 52.5 (96.9) 14,434.5 215 210 140 1,600 18.3 12.0 11.2 28.8 9.2 3.8 13.1 0.4 India Daily Summary - June 1 Source: Company, Bloomberg, Kotak Institutional Equities estimates Slide 17: Kotak Institutional Equities: Valuation summary of key Indian companies Company Energy Bharat Petroleum Cairn india Castrol India (a) GAIL (India) GSPL Hindustan Petroleum Indian Oil Corporation Oil India Oil & Natural Gas Corporation Petronet LNG Reliance Industries Energy Industrials ABB BGR Energy Systems Bharat Electronics Bharat Heavy Electricals Crompton Greaves Larsen & Toubro Maharashtra Seamless Siemens Suzlon Energy Thermax Voltas Industrials Infrastructure Container Corporation GMR Infrastructure GVK Power & Infrastructure IRB Infrastructure Mundra Port and SEZ Infrastructure Media DB Corp DishTV HT Media Jagran Prakashan Sun TV Network Zee Entertainment Enterprises Media Metals Hindalco Industries Hindustan Zinc Jindal Steel and Power JSW Steel National Aluminium Co. Sesa Goa Sterlite Industries Tata Steel Metals Pharmaceutical Biocon Cipla Cadila Healthcare Dishman Pharma & chemicals Divi's Laboratories Dr Reddy's Laboratories GlaxoSmithkline Pharmaceuticals (a) Glenmark Pharmaceuticals Jubilant Organosys Lupin Piramal Healthcare Ranbaxy Laboratories Sun Pharmaceuticals Pharmaceuticals Property DLF Indiabulls Real Estate Mahindra Life Space Developer Phoenix Mills Puravankara Projects Sobha Unitech 311 333 627 205 765 1,414 2,085 270 351 1,882 491 432 1,703 16-Jun-10 Price (Rs) 534 309 425 464 95 342 334 1,267 1,165 80 1,058 Rating RS SELL REDUCE ADD REDUCE RS RS BUY BUY REDUCE SELL Cautious 861 742 1,836 2,392 258 1,721 384 722 57 721 184 REDUCE BUY REDUCE ADD BUY BUY BUY REDUCE REDUCE BUY REDUCE Attractive REDUCE ADD BUY RS REDUCE Attractive ADD ADD NR ADD REDUCE REDUCE Neutral ADD BUY SELL REDUCE SELL REDUCE ADD BUY Cautious BUY REDUCE REDUCE BUY ADD REDUCE REDUCE NR BUY ADD REDUCE SELL REDUCE Attractive ADD RS ADD BUY REDUCE ADD SELL Mkt cap. (Rs mn) (US$ mn) 193,171 585,215 105,032 588,067 53,180 115,823 809,964 304,740 2,490,734 60,338 3,148,459 8,454,722 182,506 53,420 146,844 1,171,103 165,199 1,034,418 27,094 243,345 91,329 85,931 60,739 3,261,930 169,526 205,535 68,538 92,979 285,812 822,390 44,755 46,098 36,566 38,369 158,637 129,853 454,279 277,809 428,321 605,419 210,080 280,823 315,266 579,760 430,877 3,128,355 62,260 267,694 128,295 16,690 101,056 239,551 176,580 73,932 55,762 166,722 102,619 185,219 352,684 1,929,064 474,107 59,924 17,907 31,330 23,092 28,855 184,048 4,149 12,570 2,256 12,632 1,142 2,488 17,398 6,546 53,501 1,296 67,629 181,607 3,920 1,147 3,154 25,155 3,548 22,219 582 5,227 1,962 1,846 1,305 70,066 3,641 4,415 1,472 1,997 6,139 17,665 961 990 785 824 3,408 2,789 9,758 5,967 9,200 13,004 4,513 6,032 6,772 12,453 9,255 67,197 1,337 5,750 2,756 358 2,171 5,146 3,793 1,588 1,198 3,581 2,204 3,978 7,576 41,436 10,184 1,287 385 673 496 620 3,953 200 803 205 81 132 169 85 274 159 89 209 428 207 14.7 12.7 24.7 14.4 25.8 48.1 59.1 12.7 26.5 76.9 23.4 7.1 65.2 18.3 12.8 29.6 17.2 34.3 66.7 69.1 17.4 33.7 104.1 13.4 28.0 67.7 22.4 15.6 34.9 28.8 43.9 70.8 79.2 19.2 39.3 122.5 11.0 11.7 77.6 212 72 80 490 642 601 71 337 1,594 119 331 16.7 16.0 93.9 92.0 12.8 58.1 40.2 25.0 (5.9) 21.7 10.9 23.3 28.0 111.8 115.8 13.3 71.2 43.6 29.6 0.3 29.4 11.3 37.2 39.7 127.4 136.2 15.8 90.4 49.8 34.3 5.3 37.6 12.6 O/S shares (mn) 362 1,897 247 1,268 562 339 2,428 240 2,139 750 2,976 2010E 63.3 5.3 15.4 24.8 7.4 54.7 49.9 115.1 91.4 5.4 49.6 EPS (Rs) 2011E 53.6 28.5 19.6 26.4 8.9 44.6 34.3 127.0 121.9 6.2 62.9 2012E 59.2 40.0 20.6 37.1 9.1 56.3 35.7 140.6 129.5 7.9 80.2 EPS growth (%) 2010E 2011E 2012E 207.3 — 44.6 11.7 234.7 222.7 406.8 — 1.3 — (1.8) 33.5 (35.2) 32.2 (9.6) 44.1 46.5 16.0 12.1 55.2 (182.3) (10.4) 57.4 3.7 0.3 (43.8) 6.7 83.8 40.8 12.7 276.4 (61.6) 623.3 91.9 44.8 24.4 183.3 (64.5) 48.2 17.2 447.0 (49.0) 32.2 21.9 (97.1) (28.9) 212.6 27.9 66.9 (19.7) (18.3) 48.3 8.1 14.3 49.0 27.8 35.5 (128.4) (25.7) 44.6 (64.0) 109.7 82.4 2.5 (5.2) (4.8) (54.2) (15.3) 433 27.0 6.8 21.5 (18.6) (31.3) 10.3 33.3 14.9 26.6 19.3 39.2 74.6 19.1 25.8 3.2 22.4 8.5 18.6 (104.4) 35.4 3.8 33.5 21.7 (48.9) 33.5 29.2 59.5 29.5 21.0 (52.4) 27.0 9.5 36.0 14.4 41.2 119.8 (26.8) 26.5 32.3 178.6 107.6 40.6 2,331.6 78.3 24.8 1.1 20.0 19.4 33.3 38.8 17.0 37.4 27.1 35.3 (42.9) 297.1 3.8 26.6 69.4 151.7 7.3 51.0 28.4 21.1 26.3 10.4 40.5 5.3 40.5 1.3 26.4 4.2 10.7 6.2 28.0 27.5 17.1 59.8 41.9 13.9 17.7 19.0 27.0 14.2 16.0 1,931.8 27.7 12.1 27.4 15.6 (40.0) 32.4 (3.7) 48.4 24.1 22.3 (146.5) 20.9 16.7 27.5 22.2 36.3 18.2 9.4 4.3 28.7 (1.2) 1.8 23.2 18.7 13.2 22.7 21.9 17.6 67.0 27.9 6.1 14.5 10.2 16.7 17.6 (17.6) (58.3) 14.6 6.1 53.8 101.7 35.8 13.5 (2.0) 41.6 30.2 2010E 8.4 58 27.6 18.7 12.9 6.2 6.7 11.0 12.7 14.9 21.3 14.1 51.5 46.3 19.5 26.0 20.0 29.6 9.6 28.9 (9.6) 33.2 16.9 30.1 21.4 130.1 53.3 28.8 46.9 40.9 23.2 (17.2) 25.5 21.8 30.6 28.5 37.6 25.6 10.6 17.0 13.2 43.3 12.0 14.3 149.9 17.5 21.2 26.3 25.4 14.2 29.7 29.4 35.3 21.3 13.2 24.5 21.0 61.3 26.1 26.8 28.8 94.2 22.6 42.5 16.9 20.4 20.8 PER (X) 2011E 10.0 11 21.7 17.5 10.6 7.7 9.7 10.0 9.6 13.0 16.8 11.8 37.0 26.5 16.4 20.7 19.4 24.2 8.8 24.4 220.9 24.5 16.3 22.5 17.5 254.6 39.9 22.3 29.4 31.5 19.2 (36.1) 20.1 19.9 22.5 24.9 26.6 11.6 14.5 13.4 9.9 15.5 5.8 10.2 6.2 9.8 17.0 26.0 21.1 11.9 22.3 21.2 30.2 15.5 10.4 18.1 36.7 15.4 25.1 21.2 17.0 37.4 21.0 28.1 13.1 16.9 16.5 2012E 9.0 7.7 20.6 12.5 10.4 6.1 9.3 9.0 9.0 10.1 13.2 10.1 23.1 18.7 14.4 17.6 16.3 19.0 7.7 21.0 10.9 19.2 14.5 17.7 15.2 424.0 30.2 23.1 19.8 25.4 15.7 77.7 16.6 17.1 17.7 20.4 19.5 9.8 13.2 12.9 7.7 15.7 5.7 8.3 5.2 8.7 13.9 21.3 18.0 7.1 17.4 20.0 26.3 14.0 8.9 15.4 44.6 37.0 21.9 20.0 11.1 18.6 15.5 24.8 13.4 11.9 12.7 EV/EBITDA (X) 2010E 2011E 2012E 4.9 45.2 16.3 10.5 6.7 2.3 4.6 4.5 4.6 9.4 10.7 6.9 29.5 26.0 9.5 14.5 11.6 15.9 5.0 17.0 16.8 17.8 9.8 15.1 15.0 23.1 18.3 13.5 30.2 20.6 12.8 66.9 12.8 13.2 17.4 21.2 18.1 7.7 6.5 10.6 8.3 19.3 9.7 10.9 17.2 10.5 12.1 18.3 16.4 10.4 22.2 16.3 20.3 12.9 9.6 20.9 15.5 15.1 19.7 16.7 18.8 (53) 18.7 32.7 21.2 15.4 19.0 4.9 7.4 13.3 10.8 5.6 2.7 5.5 3.8 3.9 7.7 8.1 5.8 21.8 15.1 7.7 11.3 10.6 13.4 4.4 14.0 8.7 13.7 8.7 11.9 12.2 14.9 16.7 12.0 19.4 15.2 10.6 21.7 10.6 11.6 12.9 16.8 13.8 8.3 8.6 8.6 7.0 7.6 3.5 7.8 5.8 6.8 10.1 17.2 13.7 8.6 16.4 12.3 17.4 9.2 8.5 15.2 5.8 9.0 17.7 12.9 11.9 27.4 15.4 21.0 14.3 12.3 13.0 4.5 5.2 12.5 8.9 5.0 2.2 4.6 3.2 3.3 6.7 6.7 4.9 13.5 10.9 6.4 9.2 8.7 11.0 3.4 11.8 5.6 10.8 7.4 9.5 10.2 14.0 17.2 11.1 13.8 13.1 8.4 11.7 8.7 9.9 10.2 13.3 10.7 8.5 6.7 8.0 5.6 7.0 2.8 5.8 4.9 5.9 8.3 14.4 11.9 6.1 12.5 11.4 14.8 8.8 7.0 11.9 4.0 17.9 14.9 12.1 8.9 7.0 8.3 17.5 14.0 7.6 8.2 2010E 1.3 1.7 22.8 3.2 3.1 0.9 1.5 2.1 1.9 2.4 2.1 1.9 7.5 9.5 3.3 7.2 6.3 4.6 1.7 7.2 0.8 7.9 5.7 4.9 3.9 1.9 2.2 4.0 7.8 3.4 6.4 11.3 3.8 6.3 8.2 3.5 5.5 1.2 2.3 5.3 1.8 2.6 4.1 1.6 1.7 2.2 3.5 4.6 8.0 2.1 6.7 6.3 9.9 3.2 2.5 7.2 6.1 4.7 4.2 5.1 1.8 0.7 1.9 2.0 1.6 1.6 1.7 Price/BV (X) 2011E 2012E 1.2 1.5 21.3 2.9 2.5 0.8 1.4 1.8 1.7 2.0 1.9 1.8 6.4 7.6 2.9 5.7 4.9 3.9 1.5 5.8 0.8 6.5 4.6 4.1 3.4 1.7 2.1 3.1 6.1 2.9 5.1 16.4 3.3 5.6 6.9 3.4 5.0 1.1 2.0 3.8 1.5 2.2 2.4 1.4 1.4 1.8 3.0 4.1 6.1 1.8 5.5 5.0 8.4 2.7 2.1 5.4 1.1 3.7 3.7 3.7 1.6 0.7 1.8 1.9 1.5 1.5 1.5 1.1 1.3 19.6 2.5 2.2 0.7 1.3 1.6 1.5 1.8 1.7 1.6 5.1 5.8 2.5 4.6 3.9 3.3 1.3 4.8 0.8 5.3 3.8 3.5 2.9 1.7 2.0 2.5 4.5 2.6 4.3 13.6 3.0 5.0 5.7 3.2 4.5 1.0 1.7 2.9 1.2 2.0 1.7 1.2 1.1 1.5 2.5 3.5 4.9 1.5 4.5 4.1 7.2 2.3 1.7 4.1 0.9 3.5 3.3 3.1 1.5 0.7 1.6 1.8 1.4 1.4 1.4 Dividend yield (%) 2010E 2011E 2012E 2.6 — 2.9 1.6 1.1 3.5 3.9 2.7 2.8 2.2 1.4 2.1 0.2 0.4 1.4 0.8 0.7 0.6 1.6 0.7 — 0.5 1.7 0.7 1.1 — — — — — 0.8 — 0.6 2.7 1.9 0.8 1.2 0.9 0.6 0.2 0.8 0.5 0.8 0.5 1.6 0.7 — 0.7 0.8 — — 0.5 — — 0.5 0.7 1.1 — 0.8 0.5 1.1 — 0.9 0.5 1.8 0.7 — 3.3 — 3.6 1.8 2.4 4.1 3.1 3.1 3.6 2.5 1.8 2.5 0.4 0.9 1.4 1.0 0.7 0.7 2.0 0.8 — 1.2 1.8 0.9 1.3 — 0.7 — — — 1.6 — 1.3 2.7 1.9 1.0 1.4 0.9 0.6 0.2 0.4 0.5 0.8 0.5 1.6 0.7 — 0.7 0.9 — — 0.6 — — 0.7 0.8 1.2 0.9 0.8 0.6 1.1 — 0.9 0.7 1.8 1.4 — 3.6 4.9 3.8 2.6 3.8 5.2 3.2 3.4 3.7 3.4 2.2 3.1 0.4 1.1 1.4 1.2 0.8 0.8 2.6 0.9 0.3 1.5 2.0 1.0 1.5 — 0.7 — — 0.4 2.4 — 2.6 3.1 2.2 1.2 1.8 0.9 0.6 0.2 0.4 0.5 0.8 0.5 1.6 0.7 0.1 0.7 1.1 — — 0.6 — — 0.9 0.8 0.7 0.9 0.8 0.6 1.8 — 0.9 0.9 1.8 1.4 2.1 2010E 15.9 3.0 83.8 17.4 27.3 13.9 22.7 16.7 14.6 15.9 11.4 13.8 15.6 22.3 17.9 30.8 36.8 18.6 19.3 27.3 (8.8) 24.9 38.3 16.2 19.6 2.4 4.7 15.6 18.5 8.4 38.2 248.6 15.6 30.0 28.4 13.0 14.5 10.3 24.2 37.3 15.4 6.1 36.7 13.0 1.1 12.4 17.9 20.1 36.1 15.5 24.8 22.2 29.8 16.8 26.3 36.6 32.1 6.9 17.8 19.0 6.4 0.8 8.4 4.8 10.0 9.8 9.7 RoE (%) 2011E 2012E 12.2 14.6 101.6 16.5 26.3 10.1 13.9 17.3 17.5 15.9 13.2 14.9 18.8 31.8 18.7 30.7 28.5 17.5 17.9 26.3 0.4 29.1 31.3 18.4 20.6 1.2 5.3 15.7 23.2 9.2 29.6 (37.1) 17.6 29.8 33.5 14.1 18.8 10.2 14.8 33.0 16.4 15.4 48.0 14.4 24.7 18.2 19.3 16.6 32.8 16.3 27.2 26.3 30.2 18.5 22.0 34.4 141.2 24.6 16.2 17.3 9.9 1.8 8.5 7.0 11.9 9.4 9.4 12.3 18.1 99.2 20.2 22.5 11.7 13.3 17.0 16.7 17.6 15.3 15.7 24.7 35.1 18.5 28.9 26.8 18.7 17.7 25.1 7.5 30.5 28.8 19.7 20.5 0.7 6.7 11.9 26.1 10.2 29.9 19.1 19.2 31.0 35.5 16.4 22.9 11.0 14.1 25.7 17.3 13.3 34.1 15.4 23.8 17.3 20.3 17.6 30.3 22.7 28.4 22.6 29.5 — 21.1 30.7 16.6 9.1 16.2 15.6 13.8 3.5 10.7 7.5 10.7 12.2 11.1 Target price Upside (Rs) — 250 365 485 80 — — 1,350 1,375 82 985 (%) — (19.0) (14.1) 4.6 (15.4) — — 6.5 18.1 1.9 (6.9) ADVT-3mo (US$ mn) 9.5 19.6 1.5 17.5 4.1 8.1 6.5 3.5 29.6 4.1 124.2 17 KOTAK INSTITUTIONAL EQUITIES RESEARCH 840 800 1,790 2,500 290 1,900 450 635 70 750 200 (2.5) 7.8 (2.5) 4.5 12.6 10.4 17.1 (12.0) 22.2 4.0 8.9 7.4 2.5 3.5 31.2 8.5 51.4 0.7 7.2 28.8 0.9 3.9 1,304 56 43 280 708 130 3,667 1,579 332 403 61.1 0.4 0.8 9.7 15.1 74.3 0.2 1.1 12.6 24.1 85.9 0.1 1.4 12.1 35.7 1,250 65 54 — 725 (4.2) 16.0 24.4 — 2.4 1.7 5.9 6.0 4.9 14.1 247 43 156 127 403 299 181 1,063 235 301 394 434 10.6 (2.5) 6.1 5.8 13.1 10.5 12.9 (1.2) 7.8 6.4 17.9 12.0 15.7 0.6 9.4 7.5 22.8 14.7 280 45 — 130 420 265 13.5 3.8 — 2.0 4.3 (11.4) 9.9 3.2 0.2 0.7 1.7 9.0 145 1,014 652 1,057 436 354 690 486 1,914 423 928 199 644 890 840 887 5.7 95.6 38.5 80.4 10.1 29.6 48.1 3.2 12.5 70.1 48.7 106.4 28.0 61.4 67.6 78.7 14.7 76.6 50.8 136.9 27.7 62.4 83.3 93.5 190 1,400 575 1,150 320 420 875 700 30.9 38.1 (11.9) 8.8 (26.6) 18.5 26.8 44.2 40.9 4.3 India Daily Summary - June 17, 2010 32.5 55.5 1.8 76.9 49.0 107.0 345 280 535 300 800 1,150 1,800 — 400 1,920 490 220 1,560 10.8 (16.0) (14.6) 46.2 4.6 (18.7) (13.7) — 13.9 2.0 (0.2) (49.1) (8.4) 4.0 11.6 1.4 0.9 3.7 14.6 1.7 6.0 2.6 7.0 31.0 11.2 8.9 278 149 426 216 108 294 70 1,708 401 42 145 213 98 2,616 9.6 1.6 18.9 5.1 6.4 14.4 3.4 16.3 4.0 20.3 7.7 8.2 17.5 4.3 25.1 8.0 27.5 8.7 8.1 24.7 5.6 340 285 540 260 110 325 72 22.5 90.8 26.8 20.2 1.7 10.5 2.3 56.4 22.0 1.5 1.0 0.7 2.3 58.3 Source: Company, Bloomberg, Kotak Institutional Equities estimates Slide 18: Kotak Institutional Equities: Valuation summary of key Indian companies India Daily Summary - June 17, 2010 Company Retail Titan Industries Retail Sugar Bajaj Hindustan Balrampur Chini Mills Shree Renuka Sugars Sugar Technology HCL Technologies Hexaware Technologies Infosys Technologies Mphasis BFL Mindtree Patni Computer Systems Polaris Software Lab TCS Wipro Technology Telecom Bharti Airtel IDEA MTNL Reliance Communications Tata Communications Telecom Utilities Adani Power CESC Lanco Infratech NTPC Reliance Infrastructure Reliance Power Tata Power Utilities Others Aban Offshore Havells India Jaiprakash Associates Jindal Saw PSL Sintex Tata Chemicals Welspun Gujarat Stahl Rohren United Phosphorus Others KS universe (b) KS universe (b) ex-Energy 16-Jun-10 Price (Rs) 2,222 Rating ADD Neutral SELL ADD BUY Cautious Mkt cap. (Rs mn) (US$ mn) 98,613 98,613 21,757 20,656 44,743 87,156 263,891 11,061 1,589,636 122,801 22,724 74,719 17,752 1,516,439 1,000,197 4,619,218 1,010,731 181,324 38,651 399,421 73,316 1,703,443 268,031 48,519 166,186 1,652,803 289,736 419,072 310,098 3,154,445 30,826 37,617 269,935 58,608 6,835 40,648 76,451 49,755 86,014 656,689 42,448,508 33,993,786 30,133,403 2,118 2,118 467 444 961 1,872 5,668 238 34,145 2,638 488 1,605 381 32,573 21,484 99,221 21,710 3,895 830 8,580 1,575 36,590 5,757 1,042 3,570 35,502 6,224 9,002 6,661 67,757 662 808 5,798 1,259 147 873 1,642 1,069 1,848 14,106 911,793 730,186 647,265 O/S shares (mn) 44 2010E 62.7 EPS (Rs) 2011E 76.1 2012E 96.2 EPS growth (%) 2010E 2011E 2012E 41.5 41.5 — — 196.4 96.1 21.3 21.3 2.2 183.7 (23.2) 2.5 40.6 (45.4) 15.6 12.5 (25.5) 15.6 24.3 16.9 16.2 16.7 (10.8) (51.7) (33.7) (36.2) 8.2 (19.8) 524.1 27.0 82.2 16.8 1.6 24.4 26.4 25.4 82.3 497.9 447.1 (29.8) 10.6 23.5 5.1 (8.1) 30.2 54.0 22.1 23.0 18.3 26.5 26.5 (10.4) (32.7) 3.1 (9.4) 13.6 84.0 20.2 (7.0) 32.6 (8.7) (2.7) 12.8 14.4 14.2 13.2 71.9 (11.9) 29.1 3.5 20.7 235.3 7.9 26.4 18.9 28.0 66.1 25.2 36.3 (39.8) 42.6 35.7 (7.2) 11.0 15.1 19.3 5.8 22.1 13.2 19.6 20.5 22.2 2010E 35.4 35.4 11.7 21.9 6.8 9.2 21.4 8.2 25.6 13.5 10.6 15.3 11.6 22.1 21.7 22.1 11.1 20.1 (3.9) 8.5 18.4 11.9 156.9 11.4 35.2 18.9 19.1 71.0 20.9 23.6 7.5 118.3 87.1 7.2 5.6 12.4 11.0 9.7 15.6 17.8 18.2 19.7 20.5 PER (X) 2011E 29.2 29.2 11.4 7.7 8.8 9.0 15.3 15.1 22.1 12.0 14.2 13.3 9.3 18.9 18.7 18.9 12.4 41.6 (5.9) 13.3 17.0 14.9 25.1 9.0 19.3 16.2 18.8 57.0 16.5 18.8 4.1 19.8 15.9 10.3 5.0 10.0 10.5 10.5 12.0 11.6 14.9 16.0 17.3 2012E 23.1 23.1 12.8 11.5 8.5 10.0 13.4 8.2 18.4 12.9 10.7 14.5 9.6 16.7 16.3 16.6 11.0 24.2 (6.7) 10.3 16.4 12.3 7.5 8.3 15.3 13.6 14.7 34.4 13.2 13.8 6.8 13.9 11.7 11.1 4.5 8.7 8.8 9.9 9.8 10.2 12.5 13.3 14.2 EV/EBITDA (X) 2010E 2011E 2012E 25.2 25.2 6.9 9.3 4.6 6.1 10.9 4.1 18.6 10.7 9.1 8.3 5.7 17.0 16.4 16.0 6.2 7.3 (0.2) 7.6 7.5 7.0 122.6 6.5 20.6 14.7 20.3 — 13.4 19.3 8.1 16.5 21.9 5.2 3.2 9.1 6.3 5.3 9.0 10.5 11.1 13.5 15.0 19.7 19.7 5.8 5.3 5.2 5.4 9.4 8.4 15.3 9.6 8.7 7.3 7.4 13.8 13.5 13.4 5.9 7.2 (0.3) 8.4 6.9 6.9 16.8 6.3 8.8 12.5 19.5 — 11.4 14.7 5.9 10.2 13.2 6.0 2.6 6.9 5.7 5.5 7.5 8.3 9.2 10.9 12.5 15.3 15.3 5.4 5.8 4.5 5.1 7.8 4.5 12.4 8.7 6.2 6.5 6.3 11.4 11.1 11.0 5.0 5.9 (0.4) 6.3 6.6 5.6 6.1 7.1 8.5 10.4 13.3 — 9.8 11.0 6.5 8.3 9.4 5.7 2.8 5.7 4.8 4.8 6.0 7.1 7.7 9.1 10.3 2010E 12.5 12.5 0.9 1.5 1.8 1.4 4.1 1.3 6.9 5.2 3.4 2.1 2.0 7.2 5.1 5.9 2.3 1.6 0.3 1.0 1.0 1.5 4.9 1.2 4.8 2.6 1.5 2.9 2.4 2.6 1.4 10.4 3.2 1.5 0.7 1.9 1.6 1.7 2.5 2.3 2.7 3.0 3.2 Price/BV (X) 2011E 2012E 9.3 9.3 0.8 1.3 1.5 1.2 3.4 1.2 5.7 3.8 2.8 2.0 1.7 6.0 4.2 4.9 2.0 1.5 0.4 1.0 1.0 1.4 4.1 1.0 3.9 2.4 1.4 2.8 2.1 2.3 0.8 6.8 2.7 1.3 0.7 1.6 1.4 1.5 2.1 1.8 2.4 2.6 2.8 7.0 7.0 0.8 1.2 1.2 1.1 2.9 1.1 4.7 3.0 2.2 1.8 1.5 5.0 3.5 4.1 1.7 1.4 0.4 0.9 1.0 1.3 2.7 0.9 3.1 2.2 1.3 2.6 1.9 2.1 0.7 4.6 2.2 1.2 0.6 1.3 1.3 1.3 1.8 1.6 2.1 2.3 2.4 Dividend yield (%) 2010E 2011E 2012E 0.5 0.5 0.6 0.6 0.6 0.6 1.0 1.3 0.9 0.6 0.4 1.3 2.0 2.6 0.9 1.5 1.1 — — 0.4 2.5 0.9 — 1.1 — 2.0 0.7 — 1.0 1.2 0.5 0.4 — 0.5 5.1 0.4 2.8 0.8 0.8 0.7 1.4 1.2 1.3 0.5 0.5 0.6 0.6 0.5 0.6 1.0 1.3 1.3 0.7 0.7 1.5 2.1 2.1 1.1 1.5 1.5 — — — 2.9 1.0 — 1.4 — 2.3 0.8 — 1.1 1.4 0.5 0.4 — 0.4 5.1 0.4 2.9 0.9 1.1 0.7 1.5 1.3 1.3 0.6 0.6 0.6 0.6 0.5 0.6 1.6 1.3 1.5 0.8 0.9 1.4 2.2 2.4 1.3 1.7 1.9 — — — 3.3 1.3 — 1.5 — 2.7 0.9 — 1.2 1.7 0.6 0.4 — 0.4 5.5 0.4 2.9 0.9 1.1 0.7 1.8 1.5 1.6 2010E 40.7 35.2 8.1 7.0 32.0 14.9 20.8 17.8 30.1 48.1 35.2 18.2 18.6 37.6 26.5 26.7 24.1 7.2 (8.5) 11.7 5.2 12.7 4.4 10.7 15.8 14.2 6.3 4.2 12.9 10.8 21.7 6.6 4.1 20.5 12.6 15.1 17.2 20.6 17.7 12.7 14.9 15.3 15.5 RoE (%) 2011E 2012E 36.6 32.0 7.5 18.1 18.1 13.3 24.9 8.4 28.2 36.4 21.4 15.8 20.1 34.8 24.6 25.8 17.0 3.8 (6.1) 7.4 5.5 9.3 17.8 12.1 20.6 15.3 7.3 5.0 13.6 12.4 20.8 41.6 18.3 12.9 11.7 15.6 17.3 14.8 19.0 15.9 15.9 16.2 16.0 34.8 30.5 6.3 11.0 15.7 10.8 23.3 14.0 28.0 25.8 23.1 12.8 17.0 32.8 23.2 24.6 16.5 6.3 (5.7) 8.9 5.5 10.2 43.0 11.7 21.0 16.6 10.1 7.8 15.2 15.0 11.1 39.7 20.8 11.1 12.0 15.2 17.9 13.5 19.5 15.6 16.6 17.0 17.0 Target price Upside (Rs) 2,400 (%) 8.0 ADVT-3mo (US$ mn) 4.0 KOTAK INSTITUTIONAL EQUITIES RESEARCH 18 114 80 67 191 257 670 9.7 3.7 9.9 9.9 10.4 7.6 8.9 7.0 7.8 99 92 76 (12.9) 14.4 13.8 8.2 7.7 18.3 382 77 2,769 589 552 561 178 775 409 REDUCE REDUCE BUY REDUCE REDUCE REDUCE SELL BUY ADD Attractive 690 144 574 208 41 133 100 1,957 2,447 17.8 9.3 108.3 43.6 52.2 36.6 15.4 35.1 18.9 25.1 5.1 125.2 49.0 38.9 42.3 19.1 41.1 21.9 28.5 9.4 150.5 45.6 51.6 38.6 18.6 46.3 25.0 2.0 127.7 5.7 207.5 294.3 36.4 16.9 32.8 22.1 22.9 370 72 3,100 550 550 450 180 900 465 (3.3) (6.5) 11.9 (6.6) (0.4) (19.8) 1.1 16.2 13.7 8.6 2.7 70.5 9.8 2.7 5.7 3.6 34.1 16.0 266 55 61 187 257 REDUCE REDUCE SELL SELL REDUCE Cautious 3,798 3,300 630 2,133 285 24.0 2.7 (15.6) 22.1 14.0 21.4 1.3 (10.4) 14.1 15.2 24.2 2.3 (9.1) 18.2 15.7 7.5 (5.8) (750.8) (30.2) 3.2 (15.1) 290 50 50 140 225 9.0 (9.0) (18.5) (25.3) (12.5) 46.6 9.7 2.0 28.9 1.3 123 388 69 200 1,178 175 1,256 ADD ADD BUY REDUCE ADD SELL BUY Attractive ADD SELL BUY ADD BUY BUY ADD REDUCE BUY 2,180 125 2,405 8,245 246 2,397 247 0.8 34.1 2.0 10.6 61.8 2.5 60.2 4.9 43.3 3.6 12.4 62.7 3.1 76.1 16.4 46.7 4.5 14.7 80.3 5.1 95.3 — 5.6 35.1 7.8 (1.5) — 20.1 15.1 (2.5) 3.7 (27.2) 121.9 3.3 0.5 7.4 44.9 18.8 21.0 13.2 7.5 14.0 130 455 70 200 1,100 128 1,500 5.7 17.2 1.3 (0.2) (6.6) (26.8) 19.4 9.9 2.0 9.9 12.1 42.2 15.3 10.6 709 625 127 199 128 298 314 242 186 43 60 2,129 294 53 136 243 205 463 94.5 5.3 1.5 27.5 22.9 24.1 28.6 25.1 11.9 172.3 31.6 8.0 19.3 25.4 29.8 30.1 23.0 15.6 103.6 45.0 10.8 17.9 28.2 34.3 35.9 24.4 19.0 900 480 183 243 175 380 340 245 250 27.0 (23.2) 44.3 22.0 36.9 27.6 8.2 1.2 34.5 44.9 10.4 36.2 7.3 0.6 4.0 3.2 10.4 7.4 KS universe (d) ex-Energy & ex-Commodities Note: (1) For banks we have used adjusted book values. (2) 2010 means calendar year 2009, similarly for 2011 and 2012 for these particular companies. (3) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector. (4) Rupee-US Dollar exchange rate (Rs/US$)= 46.56 Source: Company, Bloomberg, Kotak Institutional Equities estimates India Daily Summary - June 1 Slide 19: Disclosures Kotak Institutional Equities Research coverage universe Distribution of ratings/investment banking relationships 70% 60% 50% 40% 33.6% 30% 20% 13.4% 10% 2.7% 0% BUY ADD REDUCE SELL 6.7% 2.0% 0.7% 29.5% 23.5% 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. * 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 31/03/2010 Kotak Institutional Equities Investment Research had investment ratings on 149 equity securities. Percentage of companies covered by Kotak Institutional Equities, within the specified category. Source: Kotak Institutional Equities As of March 31, 2010 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 analyst’s 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. 19 KOTAK INSTITUTIONAL EQUITIES RESEARCH Slide 20: Corporate Office Kotak Securities Ltd. Bakhtawar, 1st Floor 229, Nariman Point Mumbai 400 021, India Tel: +91-22-6634-1100 Kotak Mahindra (UK) Ltd 6th Floor, Portsoken House 155-157 The Minories London EC 3N 1 LS Tel: +44-20-7977-6900 / 6940 Overseas Offices Kotak Mahindra Inc 50 Main Street, Suite No.310 Westchester Financial Centre White Plains, New York 10606 Tel:+1-914-997-6120 Copyright 2010 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved. 1. 2. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and 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 from the 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 solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. 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