Market Outlook

July 19, 2012

Dealers Diary
The Indian markets are expected to open on a positive note following positive opening in most of the Asian indices as U.S. housing starts jumped to a four-year high, boosting the outlook for the economic growth in the US. US stock markets ended on a strong note led by mainly technology stocks, which moved higher despite muted guidance from Intel. Stocks upward move was also supported by a report by the US commerce department which suggested housing starts jumped 6.9% to a rate of 760,000 in June from the revised May estimate of 711,000 better than consensus expectation of 745,000. On the other hand, building permits, an indicator of future housing demand, fell by 3.7% to an annual rate of 755,000 in June from the revised May rate of 784,000. Indian shares recouped early losses to end modestly higher on Wednesday amid mounting concerns over the monsoon's poor performance thus far. Investors are hoping that government will pursue economic reforms to boost sagging economic growth and dwindling foreign investment once the presidential elections are over. Going ahead, US economic data may attract some attention on Thursday, with several key reports scheduled to be released. Traders are likely to keep an eye on the reports on weekly jobless claims and existing home sales.
Domestic Indices Chg (%) (Pts) (Close)

BSE Sensex Nifty MID CAP SMALL CAP BSE HC BSE PSU BANKEX AUTO METAL OIL & GAS BSE IT
Global Indices

0.5 0.5 0.5 0.3 (0.2) 0.0 0.4 0.6 1.5 (0.2) 0.5
Chg (%)

79.7 17,185 23.5 32.5 19.4 (15.4) 2.3 54.1 (17.9) 24.3
(Pts)

5,216 6,191 6,658 7,030 7,279 9,180 7,985 5,234

(Close)

49.1 12,184 154.0 10,568

Dow Jones NASDAQ FTSE Nikkei Hang Seng Straits Times Shanghai Com
Indian ADRs

0.8 1.1 1.0 (0.3) 0.1 0.4

Chg (%)

103.2 12,909 32.6 56.7 (28.3) 2.4 7.9

(Pts)

2,943 5,686 8,727 3,017 2,169

(Close)

Markets Today
The trend deciding level for the day is 17,143/5,203 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,247 17,310/5,236 5,257 levels. However, if NIFTY trades below 17,143/5,203 levels for the first half-an-hour of trade then it may correct up to 17,081 16,976/5,183 5,149 levels.
Indices SENSEX NIFTY S2 16,976 5,149 S1 17,081 5,183 PIVOT 17,143 5,203 R1 17,247 5,236 R2 17,310 5,257

(1.1) (215.5) 19,240

INFY WIT IBN HDB

Advances / Declines

1.5 0.6 2.2 0.1

0.6 0.0 0.7 0.0

BSE

$39.8 $8.2 $34.6 $34.3

NSE

News Analysis
CPI inflation at 10.0% yoy Banks might face some pain from the proposed SEB loan bailout CRH Plc in fray to buy out Jaypee Cement 1QFY2013 Result Reviews - BJAUT, Honeywell Automation, Infotech. 1QFY2013 Result Previews - HMCL, DRL, DB Corp, Persistent Systems
Refer detailed news analysis on the following page

Advances Declines Unchanged

Volumes (` cr)

1,404 1,374 152

745 731 75

Net Inflows (July 17, 2012)

` cr FII MFs Purch 2,099 353 Sales 1,528 445 Net 571 (92) MTD 8,436 (1,936) YTD 49,973 (8,153)

BSE NSE

2,293 8,856

FII Derivatives (July 18, 2012)

` cr
Index Futures Stock Futures

Purch 1,209 1,776

Sales 1,481 2,046

Net (273) (270)

Open Interest 15,321 26,898

Gainers / Losers
Gainers Company
Pantaloon Retail Financial Tech. Tata Communications Century Textiles GMR Infra

Losers Company
Union Bank Amtek Auto PNB Indian Hotels Indian Bank

Price (`)
187 750 252 319 24

chg (%)
6.8 6.0 5.6 5.3 5.3

Price (`)
196 102 833 61 184

chg (%)
(3.0) (3.0) (2.8) (2.4) (2.4)

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Market Outlook
July 19, 2012

CPI inflation at 10.0% yoy

The CPI inflation (combined) came in at 10.0% yoy for June 2012 as against 10.4% in May 2012. CPI for rural segment increased from 9.6% yoy in May 2012 to 9.7% yoy for June 2012 on account of higher food inflation levels (10.4% yoy). Urban segment which has a lower weighting of food articles (37.2% compared to 59.3% for rural segment) witnessed a decline of 90bp in overall inflation level to 10.4% primarily due to decline in housing inflation levels (on a high base). On a mom basis, the housing inflation increased by 1.1% compared to 0.8% for May 2012.

Consumer Price index (%, yoy)

Rural A) General Index A.1) Food, Beverages and Tobacco A.2) Fuel and Light A.3) Housing A.4) Clothing, Bedding and Footwear A.5) Miscellaneous Urban A) General Index A.1) Food, Beverages and Tobacco A.2) Fuel and Light A.3) Housing A.4) Clothing, Bedding and Footwear A.5) Miscellaneous Combined A) General Index A.1) Food, Beverages and Tobacco A.2) Fuel and Light A.3) Housing A.4) Clothing, Bedding and Footwear A.5) Miscellaneous
Source: Company, Angel Research

Weight 100.0 59.3 10.4 5.4 24.9 Weight 100.0 37.2 8.4 22.5 3.9 28.0 Weight 100.0 49.7 9.5 9.8 4.7 26.3

Jan-12 7.3 4.6 13.6 13.8 9.8 Jan-12 8.3 4.4 12.4 12.7 15.4 8.0 Jan-12 7.6 4.5 13.1 12.7 14.2 8.9

Feb-12 8.4 7.2 13.0 12.7 9.1 Feb-12 9.5 7.5 12.2 13.6 14.0 7.2 Feb-12 8.8 7.0 12.8 13.6 13.2 8.3

Mar-12 8.7 8.2 11.7 12.0 9.3 Mar-12 10.3 9.4 11.9 14.4 13.0 7.5 Mar-12 9.4 8.3 11.8 14.4 12.4 8.6

Apr-12 9.7 9.8 10.3 11.4 8.6 Apr-12 11.1 10.8 12.6 14.8 12.3 7.8 Apr-12 10.3 10.2 11.2 14.8 11.8 8.2

May-12 9.6 10.1 9.3 11.0 8.3 May-12 11.5 11.4 13.1 15.7 11.9 7.9 May-12 10.4 10.5 10.7 15.7 11.4 8.1

Jun-12 9.7 10.4 9.1 10.8 8.2 Jun-12 10.4 11.6 12.5 10.6 11.6 8.2 Jun-12 10.0 10.8 10.3 10.6 11.0 8.2

Banks might face some pain from the proposed SEB loan bailout
As per media reports, the power ministry is expected to make a note to the Cabinet making proposals for bailout of the ailing state discoms, based on the recommendation of the B.K Chaturvedi committee and meetings with state power ministers. Proposals outlined in the media reports and reproduced below would need the approval of cabinet and acceptance of state governments before they become applicable. Out of the total outstanding short term debt of the discoms (~`120,000), 50% will be taken over by the state governments through the issue of state government bonds, which would be tradable and the other 50% would be restructured with an interest moratorium/immediate NPV hit, but would remain in the books of the banks and possibly be guaranteed by the state governments.

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Market Outlook
July 19, 2012

In addition to the NPV hit/interest moratorium, banks would also be affected by swapping of high yielding SEB loans with low yielding state government bonds and MTM losses on those bonds, in case they are classified in the AFS category. In our view, finance ministry would assure that the approved proposals will not be that stringent on the banks. However, restructuring of discom loans would largely affect mid and small PSU banks as they have a relatively higher exposure to these loans.

Exposure of banks to SEB loans (as per available data)

Bank Bank of Maharashtra Dena Bank Syndicate Bank UCO Bank Canara Bank Punjab National Bank United Bank
Source: Company, Angel Research

Advances 56,060 56,693 123,620 115,540 232,490 293,775 63,043

SEBs 5,482 4,500 6,904 6,000 12,000 7,800 800

% of Exp. 9.8 7.9 5.6 5.2 5.2 2.7 1.3

CRH Plc in fray to buy out Jaypee Cement

As per media reports, CRH Plc, the US$13.7bn Irish building materials group, has entered the fray to buy Jaiprakash Associates' (JAL) cement plants in Gujarat (4.8 mtpa) and Andhra Pradesh (5 mtpa), after the company's discussions with the AV Birla Group got stuck due to differences over valuation and other issues. The deal, if it goes through, is expected to fetch `8,000-9,000cr for JAL and will help the company reduce its total consolidated debt of about ~`45,000cr. In 2008, CRH had entered India by acquiring a 50% stake in Hyderabad-based cement producer My Home Industries. The company currently has an installed capacity of 4.2mtpa. Further, CRH is keen to expand in India. We recommend Buy on JAL with a SOTP target price of `88.

Result Reviews
Bajaj Auto (CMP: `1,522 / TP: `1,698 / Upside: 12%)
Bajaj Auto (BJAUT) registered slightly lower-than-expected operating performance for 1QFY2013 primarily on account of `36cr hit due to forex exposure. Top-line grew by 3.4% yoy (4.6% qoq) to `4,866cr broadly in-line with our estimates of 4,930cr, driven by 5.3% yoy growth in net average realization. However, on a sequential basis, net average realization declined 1.6% as the company witnessed adverse product-mix during the quarter. Volume performance for 1QFY2013 was sluggish as export volumes declined 2.7% yoy led by political unrest in Egypt, import duty hike in Sri Lanka and production disruption in Nigeria. Overall, the company lost sales of ~45,000 units during the quarter. While motorcycle sales posted a marginal 2% yoy (up 9.5% qoq) growth due to subdued domestic demand, three-wheeler sales declined 25.8% yoy (19.7% qoq). On the operating front, EBITDA margin contracted 188bp sequentially to 17.9% led by 90bp increase in raw-material expenses and 70bp increase in employee costs (12% wage hike for employees). On a yoy basis, the margins remained flat

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Market Outlook
July 19, 2012

as the positive impact of decline in raw-material expenses was negated by 120bp increase in other expenditure. During the quarter, the company took a hit of `36cr on the forex hedges (excess hedge) which was reflected in other expenditure. Adjusted net profit posted a 1% yoy growth to `718cr for 1QFY2013. While other income jumped 26.3% yoy (30.5% qoq) salvaging the bottom-line, tax rate increased to 29.5% from 25.4% in 1QFY2012 due to reduction in tax benefits from the Pantnagar plant. At the CMP of `1,522, the stock is trading at 12.5x FY2014E earnings. We recommend Accumulate rating on the stock with a target price of `1,698. We shall release a detailed result update post the conference call with the management which is scheduled today.
Y/E March FY2013E FY2014E Sales (` cr) 21,285 23,927 OPM (%) 18.2 18.3 PAT (` cr) 3,140 3,510 EPS (`) 108.5 121.3 ROE (%) 46.1 41.3 P/E (x) 14.0 12.5 P/BV (x) 5.8 4.7 EV/EBITDA (x) 9.3 7.8 EV/Sales (x) 1.6 1.4

Honeywell Automation India (CMP `2503/ TP: - / Upside: -)

HAIL reported lower than expected numbers for 2QCY2012. Top line dip by 6.3% sequentially to `387cr broadly in line with our estimate of `381cr. The companys EBITDA came in at `13.6cr far lower than our estimate of `18cr and 44% lower sequentially. Operating margin fell to 3.5% sequentially lower by 235bp mainly due to rise in employee cost which was higher by 248bp. Net profit for the quarter stood at `11.8cr in line with our estimate of `11.7cr vis--vis `16.6cr in 1QCY2012, owing to higher other income (by 157% sequentially) of `6.4cr. We maintain our Buy recommendation on the stock with target price under review.
Y/E March CY2012E CY2013E Sales (` cr) 1,745 1,993 OPM (%) 5.0 6.3 PAT (` cr) 62 87 EPS (`) 70 99 ROE (%) 13.4 17.1 P/E (x) 35.5 25.2 P/BV (x) 3.2 2.9 EV/EBITDA (x) 23.6 16.4 EV/Sales (x) 1.2 1.0

Infotech Enterprises (CMP: `177 / TP: - / Upside: -)

For 1QFY2013, Infotech Enterprises (Infotech) reported revenue of US$84.2mn, up 1.4% qoq, on the back of 2.0% qoq volume growth. USD revenue of the company got impacted by 0.7% due to adverse cross currency movement. The UT&C vertical witnessed robust volume growth of 5.8% qoq. In ENGG vertical, Aerospace segment witnessed volume growth of 2.5% while volumes from home, transportation, hi-tech (HTH) declined by 2.6% qoq. In INR terms, revenue came in at `456cr, up 9.4% qoq, on account of 1) 2.0% qoq volume growth, 2) 0.1% qoq positive impact because of increased price realization and 3) 7.3% qoq positive impact derived from favorable exchange movement. EBITDA and EBIT margins of Infotech declined by 115bp and 138bp qoq to 18.7% and 15.7%, respectively, largely because of wage hikes given during the quarter (8-10% for offshore employees and 3% for onsite employees) which impacted the margins by ~370bp qoq. This negative effect was partially absorbed by ~290bp qoq positive impact derived from INR depreciation against USD. Infotech added 17 new customers during the quarter 12 in UT&C and five in ENGG vertical. Management indicated that the company is expected to grow 14%

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Market Outlook
July 19, 2012

plus in terms of USD revenue during FY2013 in constant currency terms. The stock is currently under review and we will be releasing a detailed result update on it shortly.
Y/E March FY2013E FY2014E Sales (` cr) 1,839 1,994 OPM (%) 17.5 17.1 PAT (` cr) 189 206 EPS (`) 17.1 18.6 ROE (%) 13.8 13.2 P/E (x) 10.4 9.6 P/BV (x) 1.4 1.3 EV/EBITDA (x) 4.0 3.4 EV/Sales (x) 0.7 0.6

Result Previews
Hero MotoCorp (CMP: `2,114 / TP: `2,473 / Upside: 17%)
Hero MotoCorp (HMCL) is slated to announce its 1QFY2013 results today. We expect the companys top-line to grow by a healthy 12% yoy to `6,323cr driven by ~7% yoy growth in volumes and ~5% increase in average net realization led by price increases. Operating margin (adjusted for change in accounting for royalty payments) is expected to expand 50bp yoy to 11.8% on account of stable commodity prices and price increases. As a result, we expect the bottom line (adjusted) to post a ~14% yoy increase to `637cr. At `2,114, the stock is trading at 13.7x its FY2014E earnings. Currently, we have a Buy rating on the stock with a target price of `2,473.
Y/E March FY2013E FY2014E Sales (` cr) 25,970 29,772 OPM (%) 15.0 15.5 PAT (` cr) 2,790 3,086 EPS (`) 139.7 154.5 ROE (%) 54.7 44.9 P/E (x) 15.1 13.7 P/BV (x) 7.1 5.4 EV/EBITDA (x) 8.6 6.5 EV/Sales (x) 1.2 0.9

DRL (CMP: `1672 / TP: `1859 - / Upside: 11%)

Dr. Reddys (DRL) is expected to post strong results during 1QFY2013, reporting top-line growth of 26.4% yoy to `2,500cr, majorly driven by the U.S. market. The company is expected to see strong traction in its Indian and Russian formulation businesses as well. In the PSAI segment, lackluster performance is expected for 1QFY2013. The company is expected to post EBIT margin of 19.3%, down 80bp yoy. On the net profit front, the company is expected to post net profit of `385cr, registering 46.9% yoy growth. We recommend an Accumulate with a target price of `1859.
Y/E March FY2013E FY2014E Sales (` cr) 10,696 11,662 OPM (%) 20.7 21.0 PAT (` cr) 1,420 1,576 EPS (`) 83.7 92.9 ROE (%) 22.4 21.0 P/E (x) 20.0 18.0 P/BV (x) 4.1 3.5 EV/EBITDA (x) 13.4 11.9 EV/Sales (x) 2.8 2.5

DB Corp (CMP: `195 / TP: `269 / Upside: 38%)

DB Corp is slated to announce its 1QFY13 results. On the top line front, we expect 16.6% yoy growth to `412cr aided by 10.2% yoy growth in circulation revenue to `63 cr and 15.5% yoy growth in advertising revenue to `327cr. The companys OPM is expected to contract by 206bp yoy to 26.3%. On the bottom line front, the

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Market Outlook
July 19, 2012

company is expected to grow by 7.3% yoy to `65cr. We maintain our BUY view on the stock with a target price of `269.
Y/E March FY2013E FY2014E Sales (` cr) 1,638 1,851 OPM (%) 25.8 26.6 PAT EPS (` cr) (`) 247 13.5 295 16.1 ROE (%) 23.9 24.2 P/E (x) 14.5 12.1 P/BV (x) 3.2 2.7 EV/EBITDA (x) 7.9 6.5 EV/Sales (x) 2.0 1.7

Persistent Systems (CMP: `378 / TP: - / Upside: -)

Persistent Systems is slated to announce its 1QFY2013 results today. We expect the company to post revenue of US$54.5mn, up 0.5% qoq. In rupee terms, the revenue is expected to come in at `294cr, up 8.5% qoq. EBITDA margin is expected to expand by 159bp qoq to 30.2%. PAT is expected to come in at `30cr. We maintain our Neutral view on the stock.
Y/E March FY2013E FY2014E Sales (` cr) 1,187 1,274 OPM (%) 26.7 26.0 PAT EPS (` cr) (`) 138 34.5 171 42.6 ROE (%) 14.4 15.4 P/E (x) 11.0 8.9 P/BV (x) 1.6 1.4 EV/EBITDA (x) 3.6 3.2 EV/Sales (x) 1.0 0.8

Quarterly Bloomberg Brokers Consensus Estimate

Hero Moto Corp Ltd - (19/07/2012)
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 6,337 903 14.2 639 1QFY12 5,638 906 16.1 558 15 y-o-y (%) 12 0 4QFY12 5,963 1,030 17.3 604 6 q-o-q (%) 6 (12)

Kotak Mahindra Bank Ltd - Consolidated (19/07/2012)

Particulars (` cr) Net profit 1QFY13E 412 1QFY12 416 y-o-y (%) (1) 4QFY12 529 q-o-q (%) (22)

Dr. Reddy Laboratories Ltd - Consolidated (19/07/2012)

Particulars (` cr) Net sales Net profit 1QFY13E 2,581 376 1QFY12 1,978 263 y-o-y (%) 30 43 4QFY12 2,658 343 q-o-q (%) (3) 10

Asian Paints Ltd - Consolidated (20/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 2,734 465 17.0 312 1QFY12 2,260 392 17.3 272 15 y-o-y (%) 21 19 4QFY12 2,539 383 15.1 265 18 q-o-q (%) 8 21

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Market Outlook
July 19, 2012

Crompton Greaves Ltd - Consolidated (20/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 2,740 205 7.5 98 1QFY12 2,438 182 7.5 80 23 y-o-y (%) 12 13 4QFY12 3,077 213 6.9 96 2 q-o-q (%) (11) (4)

Hindustan Zinc Ltd - (20/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 2,949 1,494 50.7 1,383 1QFY12 2,821 1,592 56.4 1,495 (7) y-o-y (%) 5 (6) 4QFY12 3,094 1,659 53.6 1,413 (2) q-o-q (%) (5) (10)

Reliance Industries Ltd - (20/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 87,763 7,072 8.1 4,377 1QFY12 81,018 9,926 12.3 5,661 (23) y-o-y (%) 8 (29) 4QFY12 85,182 6,563 7.7 4,236 3 q-o-q (%) 3 8

United Phosphorous Ltd - Consolidated (20/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 2,168 395 18.2 177 1QFY12 1,822 345 18.9 184 (4) y-o-y (%) 19 15 4QFY12 2,119 387 18.2 202 (12) q-o-q (%) 2 2

Ultratech Cement Ltd - (20/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 4,995 1,248 25.0 743 1QFY12 4,365 1,227 28.1 683 9 y-o-y (%) 14 2 4QFY12 5,337 1,345 25.2 867 (14) q-o-q (%) (6) (7)

Zee Entertainment Ltd - Consolidated (20/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 815 194 23.7 152 1QFY12 684 156 22.8 127 20 y-o-y (%) 19 24 4QFY12 869 160 18.4 160 (5) q-o-q (%) (6) 21

Colgate - (23/07/2012)
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 719 155 21.6 123 1QFY12 611 136 22.3 100 23 y-o-y (%) 18 14 4QFY12 686 170 24.8 131 (6) q-o-q (%) 5 (9)

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Market Outlook
July 19, 2012

Dabur India Ltd - Consolidated (23/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 1,417 210 14.8 155 1QFY12 1,205 179 14.9 128 21 y-o-y (%) 18 17 4QFY12 1,364 224 16.4 171 (9) q-o-q (%) 4 (6)

Hindustan Unilever Ltd - (23/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 6,279 869 13.8 697 1QFY12 5,504 754 13.7 627 11 y-o-y (%) 14 15 4QFY12 5,660 833 14.7 687 1 q-o-q (%) 11 4

Larsen & Toubro Ltd - (23/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 11,021 1,247 11.3 816 1QFY12 9,483 1,126 11.9 746 9 y-o-y (%) 16 11 4QFY12 18,646 2,930 15.7 1,920 (58) q-o-q (%) (41) (57)

Idea Ltd - Consolidated (23/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 5,589 1,526 27.3 301 1QFY12 4,516 1,204 26.7 177 70 y-o-y (%) 24 27 4QFY12 5,273 1,155 21.9 190 58 q-o-q (%) 6 32

Tata Global Beverage Ltd - Consolidated (23/07/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY13E 1,636 143 8.7 81 1QFY12 1,456 118 8.1 169 (52) y-o-y (%) 12 21 4QFY12 1,724 167 9.7 98 (17) q-o-q (%) (5) (14)

Economic and Political News

CCEA to mull 17% hike in sugarcane price for 2012-13 Government asks developers to set up SEZs in backward states Power Minister in favor of hike in power tariffs every six months

Corporate News
Violence at Maruti' Suzukis Manesar plant halts production Sesa Goa seeks lifting of ban on ore transportation Dr Reddys launches Atorvastatin calcium tablets in US Reliance MediaWorks to raise `600cr from PE fund

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

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