Crogreav 20120802

AUGUST 2, 2012
Economy News Equity

 India's merchandise exports fell 5.5 per cent to $25 billion in June, % Chg
compared with $26.5 billion in the corresponding month last year, as 1 Aug 12 1 Day 1 Mth 3 Mths
demand in the struggling European economies continued to decline.
Imports recorded a much sharper fall - declining 13.5 percent to $35.4 Indian Indices
billion, compared with $40.9 billion in June 2011. SENSEX Index 17,257 0.1 (0.8) (0.3)
NIFTY Index 5,241 0.2 (0.7) 0.0
 With firming of oil prices in the international market, jet fuel or aviation BANKEX Index 11,952 0.3 (0.3) 0.8
turbine fuel (ATF) rates were increased by 4.5 per cent on Wednesday BSET Index 5,327 (0.3) (7.3) (7.3)
BSETCG INDEX 9,703 1.1 (3.8) 4.1
 Growth of eight core industries slipped to 3.6 per cent in June against four
BSEOIL INDEX 8,129 (0.4) 0.4 2.7
per cent in May, on the back of contraction in natural gas, fertilisers and
CNXMcap Index 7,231 0.9 (2.6) (2.9)
steel output. This will impact overall economic growth, given that
BSESMCAP INDEX 6,520 1.1 (1.4) (3.8)
agriculture might also remain lackluster due to a weak monsoon. (BS)
World Indices
 The securities market regulator has proposed a long-term policy to revive Dow Jones 12,971 (0.3) 0.8 (2.2)
mutual funds, which includes tax breaks for investors, higher minimum Nasdaq 2,920 (0.7) (1.1) (4.6)
capitalization norms, and an obligation on fund houses to push their FTSE 5,713 1.4 1.3 (0.8)
schemes in the hinterland. (ET) NIKKEI 8,642 (0.6) (3.7) (7.6)
HANGSENG 19,820 0.1 1.5 (7.4)
Corporate News
Value traded (Rs cr)
 State Bank of India (SBI) has brought interest rate relief to its new 1 Aug 12 % Chg - Day
home and automobile loan customers. It has slashed home, auto loan
rates by 25-85 bps. Other banks are expected to follow suit. (BS) Cash BSE 1,859 (6.0)
Cash NSE 9,000 (17.0)
 Jet Airways would have to wait for some time before the Ministry of Civil Derivatives 81,501 (28.3)
Aviation takes a decision on its application to join the Star Alliance. (BS)
Net inflows (Rs cr)
 L Capital Eco Ltd, a subsidiary of the $ 640-million global private equity 31 Jul 12 % Chg MTD YTD
(PE) firm L Capital Asia, will invest Rs 1.08 bn in lieu of equity stake in PVR
Ltd, boosting the theatre chain's growth plans in the cinema exhibition FII 928 (23.1) 11,201 53,281
and in-mall retail space. (BS) Mutual Fund (107) 1,306.6 (1,862) (7,922)
 Toll road development company IRB Infrastructure Developers said it is FII open interest (Rs cr)
the selected bidder for four-laning a 190-km stretch of NH 17.(BS) 31 Jul 12 % Chg
 After Oil Ministry veto, three state owned oil firms IOC, ONGC and BPCL FII Index Futures 13,329 2.8
have decided not to press for acquiring Asian Development Bank's stake FII Index Options 36,178 2.8
in Petronet LNG Ltd. (BS) FII Stock Futures 23,590 1.5
FII Stock Options 1,311 14.0
 The ongoing battle between joint venture partners of telco Uninor
escalated on Wednesday, with the company announcing an auction of its Advances / Declines (BSE)
assets, a move that has been strongly opposed by Unitech Ltd, the 1 Aug 12 A B T Total % total
smaller of the two stakeholders. (Mint)
Advances 132 1,290 293 1,715 58
 India's advertising regulator has told consumer goods major Hindustan Declines 68 761 267 1,096 37
Unilever to stop mentioning its Kwality Walls brand as 'ice cream' in Unchanged 2 80 45 127 4
certain advertisements following a complaint by top ice-cream brand
Amul.(ET) Commodity % Chg
1 Aug 12 1 Day 1 Mth 3 Mths
 The Children Investment Fund Management (UK) Llp, or TCI, filed a writ
petition in the Delhi high court against India's coal ministry and Coal India Crude (NYMEX) (US$/BBL) 88.8 (0.1) 6.1 (15.6)
Ltd, in which it is a minority shareholder, challenging their moves to keep Gold (US$/OZ) 1,603.3 (0.8) 0.1 (3.1)
prices artificially low.(mint) Silver (US$/OZ) 27.4 (2.3) (0.4) (10.1)
Debt / forex market

1 Aug 12 1 Day 1 Mth 3 Mths
10 yr G-Sec yield % 8.3 8.4 8.4 N/A

Re/US$ 55.5 55.7 55.4 52.7
Sensex
19,800
18,200
16,600
15,000
Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange
MORNING INSIGHT August 2, 2012
RESULT UPDATE JAIPRAKASH ASSOCIATES LTD

Teena Virmani
teena.virmani@kotak.com
+91 22 6621 6302 PRICE: RS.76 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.83 FY13E P/E: 23.4X
 Revenues of the company in Q1FY13 came lower than our estimates due
to lower than expected revenues from the cement and real estate divi-
sion. Company has demerged the south and west cement plants and
transferred it to Jaypee Cement Corporation Ltd so correspondingly it has
restated financials of Q1FY12.
 Operating margins in Q1FY13 stood strong at 26% and primarily led by
strong margins in construction and real estate division.
 Net profit for the quarter was slightly ahead of our estimates led by
strong operating margins and lower than expected interest outgo.
 At current price of Rs 76, stock is trading at 23.4x P/E and 11.6x EV/
EBITDA on FY13 estimates respectively. We maintain our FY13 estimates
and price target of Rs 83. We had upgraded the stock to BUY in our last
recommendation at Rs 61. Owing to limited upside from the current lev-
els, we now downgrade the stock to ACCUMULATE and would look for
dips in the stock to buy with a long term view.
Summary table Financial highlights

(Rs mn) FY11 FY12E FY13E (Rs mn) Q1FY13 Q1FY12* YoY (%)
Sales 129,665 127,429 141,493 Net sales 29,636 29,023 2
Growth (%) 29 -2 11
EBITDA 28,887 33,294 32,740
Expenditure 21,923 21,558 2
EBITDA margin (%) 22.3 26.1 23.1 EBITDA 7,713 7,465 3
PBT 12,402 13,143 10,447 EBITDA margin (%) 26.0 25.7
Adjusted net profit 6,521 10,264 6,895
Depreciation 1,763 1,413
EPS (Rs) 3.1 4.8 3.2
Growth (%) (28.4) 57.4 (32.8) EBIT 5,949 6,052 -2
CEPS (Rs) 8.3 7.7 6.9 Interest 4,653 3,836
BV per share (Rs) 44.2 48.4 51.1
EBT(exc other income) 1,297 2,216
Dividend / share (Rs) 0.4 0.5 0.5
ROE (%) 13.0 10.4 6.5 Other income 731 372
ROCE (%) 9.2 9.6 7.9 Excp inc on sale of shares in trust 9 -1
Net cash /(debt) (192,451) (213,686) (219,508) EBT 2,037 2,586 -21
NW capital (days) 127.6 127.6 127.6
P/E (x) 24.8 15.7 23.4
Tax 649 745
EV/EBITDA (x) 12.3 11.3 11.6 Tax (%) 32 29
EV/Sales (x) 2.7 2.9 2.7 Profit after tax 1,388 1,841 -25
P/BV (x) 1.7 1.6 1.5
Core business PAT 1,388 1,841 -25
Source: Company, Kotak Securities - Private Equity capital 4,253 4,253
Client Research
Core EPS 0.65 0.87
Source: Company; * Q1FY12 revenues and expenses are restated
Revenue growth lower than our expectations

 Revenues of the company in Q1FY13 came lower than our estimates due to
lower than expected revenues from the cement and real estate division. Com-
pany has demerged the south and west cement plants and transferred it to
Jaypee Cement Corporation Ltd so correspondingly it has restated financials of
Q1FY12.
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2
 Cement division performance: Cement volumes for Q1FY13 stood at 3.59MT as

against 3.25MT (restated) for Q1FY12. Cement volumes have witnessed an in-
crease due to commissioning of new capacities as well as entry into newer mar-
kets. Cement realizations stand at Rs 4354 per tonne as against Rs 3948 per
tonne in Q1FY12. Increase in realizations is on account of improvement in ce-
ment prices witnessed during Q1FY13. Reported revenues of cement division
would not include demerged southern and western cement plants for both
Q1FY13 and Q1FY12. Company's 5MT balaji plant in AP has commissioned. It
plans to commission another 2.6MT in North India over H1FY13, thereby taking
its total capacity to nearly 35.6 MT. Post demerger of cement assets, cement
capacity in standalone company would be 25MT approximately. We expect ce-
ment volumes to jump to 20MT for FY13 on a consolidated basis.
 Construction division performance: Construction division revenues during Q1FY13
was in line with our estimates led by execution of power projects as well as
Noida land parcel. It also includes one-time excess revenue billing of Rs 1 bn due
to some extra work carried out on Yamuna expressway. Construction revenue
growth from now on would be led mainly by execution of Bina, Nigrei and Bara
thermal power project. We expect Bina thermal power project to commission by
Q3FY13 and Nigrei Thermal power plant to commission by H1FY14. We expect
construction division revenues to remain largely flattish at Rs 55 bn for FY13.
 Real estate division revenues declined by 53% YoY for Q1FY13 due to lower
than expected revenue booking from its projects but is expected to ramp up
going forward. We expect this division to record revenues of Rs 10 bn for FY13.
 Company also expects Yamuna Expressway to open for tolling by end of Aug,
2012.
 We maintain our estimates and expect revenues to grow to Rs 141 bn for FY13.
Our estimates are subject to change post we get details about the demerged
entities financials.
Operating margins better than our estimates

 Operating margins in Q1FY13 stood strong at 26% and primarily led by strong
margins in construction and real estate.
 EBIT margins in cement division stood at 14.5% translating into EBITDA margin
of 18.4% for Q1FY13. Cement EBITDA per tonne stood at Rs 800 per tonne as
against Rs 786 per tonne in Q1FY12. Increase in EBITDA per tonne is not in pro-
portion with increase in realizations due to sharp increase in overall cost of
manufacturing cement. Construction division EBIT margins stood at 29.6% and
EBITDA margins stood at 31.3% for Q1FY13. Adjusted with Rs 1 bn excess rev-
enue booking, construction division margins would have been lower. Thus, on a
full year basis, we expect construction margins to be around 18% going forward.
 On a consolidated basis, we maintain our estimates and expect margins to be
23.1% for FY13.
Net profit growth boosted by improved margins and lower inter-

est outgo
 Net profit for the quarter was slightly ahead of our estimates led by strong oper-
ating margins and lower than expected interest outgo.
 Interest outgo has declined sequentially but continues to remain high on YoY
basis for the company on account of sharp increase in its borrowings led by
capex in cement and construction segment. Along with this, with FCCB redemp-
tion round the corner in Sep, 2012, we expect company to raise funds either by
selling stake in cement division or by sale of treasury shares or by selling stake in
Jaypee Infratech.
 Company has also demerged Cement Plants in Gujarat & Andhra Pradesh and its
other units viz. Asbestos Sheet Plants, Heavy Engineering Workshop & Hi Tech
Casting Centre / Foundry into its Wholly Owned Subsidiary, namely, Jaypee Ce-
ment Corporation Limited which is implementing 3 MTPA Cement Plant in
Karnataka. Total capacity of Jaypee Cement Corporation Limited is approxi-
mately 10MT and is expected to be 14MT by March, 2013. Company has been
in talks with several industry and PE players to sell stake in Jaypee Cement Cor-
poration Ltd to repay the debt.
 During the quarter, HP high court also imposed a penalty of Rs 1 bn on JP Asso-
ciates for violation of environmental clearance norms for its grinding and blend-
ing unit at Bagheri(HP). Company is filing special leave petition in Supreme
Court for the same and hence thus not made any provisions. CCI also imposed a
penalty of Rs 13.24 bn on company for alleged cartelization. This is also going to
be challenged by the company and hence no provisioning is being done for the
same.
 We maintain our FY13 estimates and expect net profits to be around Rs 6.9 bn
for FY13. Our estimates are subject to change post we get details about the
demerged entities financials.
Valuation and recommendation

 At current price of Rs 76, stock is trading at 23.4x P/E and 11.6x EV/EBITDA on
FY12 and FY13 estimates respectively.
We recommend ACCUMULATE on  We maintain our FY13 estimates and price target of Rs 83. We had upgraded the
Jaiprakash Associates with a stock to BUY in our last recommendation at Rs 61. Owing to limited upside from
price target of Rs.83 the current levels, we now downgrade the stock to ACCUMULATE and would
look for dips in the stock to buy with a long term view.
Sum of the parts valuation

SOTP FY13 Price
per share Rationale
Core business
Construction 79,319 37 At 8x EV/EBITDA
Cement 174,448 82 At $115/tonne for cement, inline with peers
Jaypee greens 9,757 5 NPV of land bank
Hotels 3,092 2 6x EV/EBITDA at a discount to peers
Less net debt(FY13) 219,508 103
Core business valuation 66,200 23 -
JPVL valuation 56,204 26 At 10% discount to the market price
Karwam Wangtoo valuation(44%stake) 12,508 6
Power assets valuation 32
Real estate valuation 44,699 21 At 10% discount to the market price
Treasury share 12,948 6 At 10% discount to the market price
Total 123,847 83
Source: Kotak Securities - Private Client Research
Dipen Shah holding 150 shares of

Jaiprakash Associates
RESULT UPDATE PHOENIX MILLS LTD

Teena Virmani
teena.virmani@kotak.com
+91 22 6621 6302
PRICE: RS.183 RECOMMENDATION: BUY
Result highlights: Revenues of the company were better than our estimates
led by improvement in rentals and also on account of reclassification of
electricity expenses recovered from licensees. Operating margins remained
strong. Net profit growth was slightly better than our estimates. Pune,
Kurla and Bangalore market cities are slowly witnessing increased trading
densities while Chennai market city is expected to commence operations by
Q2FY13. We maintain BUY on the stock.
 Phoenix mills had reported a growth of 17% in revenues for Q1FY13 primarily
led by improvement in rentals and also on account of reclassification of electricity
expenses recovered from licensees.
 Operating margins stood strong at 63% for Q1FY13 but adjusted with reclassifi-
Summary table
cation of electricity charges in revenues and expenses, margins stood at 74%.
(Rs mn) FY11 FY12E FY13E
 Net profit growth was boosted by growth in revenues and other income.
Sales 2,102 3,666 4,927
Growth (%) 71 74 34  Phoenix mills has entered into share purchase agreement to acquire stake in
EBITDA 1,406 2,114 3,172 Chennai market city during Q4FY12. Post completion of the transaction, PML
EBITDA margin (%) 66.9 57.7 64.4
would have a 50.01% stake in Chennai market city. Company is looking out for
PBT 1,151 1,053 1,511
Net profit 842 1,056 1,310 tax efficient structure and may decide later on whether it would be a part of its
EPS (Rs) 5.8 7.3 9.0 consolidated financials. We would incorporate the enhanced shareholding post
Growth % 36 25 24 completion of the transaction.
CEPS (Rs) 8.0 11.2 14.3
BV per share(Rs) 115.3 120.5 127.2  At current price of Rs 183, stock is trading at 20.2x P/E and 12.1x EV/EBITDA.
DPS (Rs) 1.8 2.0 2.0 We value the company on sum of the parts valuation and arrive at a target price
ROE (%) 5.1 6.2 7.3 of Rs 237 on FY13 estimates. We remain positive on the company due to its ro-
ROCE (%) 5.6 6.9 8.5
bust business model, excellent operating cash flows from HSP and expertise to
Net debt 8,605 12,377 11,919
NW Capital (Days) (29) (75) (75) capitalize on the upcoming opportunities in the retail sector in various cities. We
EV/Sales (x) 16.7 10.6 7.8 thus recommend BUY on the stock.
EV/EBITDA (x) 25.0 18.4 12.1
P/E (x) 31.5 25.1 20.2 Standalone Q1FY13 financials
P/BV (x) 1.6 1.5 1.4
(Rs mn) Q1FY13 Q1FY12* YoY (%)
Source: Company, Kotak Securities - Private
Client Research Net Sales 626.0 535.2 17.0%
Total Expenditure 231.7 204.6 13.2%
EBITDA 394.3 330.6 19.3%
EBITDA % 63.0% 61.8%
Depreciation 67.2 66.9
EBIT 327.1 263.7 24.0%
Interest 57.5 10.2
EBT(exc other income) 269.6 253.5 6.3%
Other Income 143.2 109.7
PBT 412.8 363.2
Tax 106.8 90.9
Tax% 25.9% 25.0%
PAT 306.0 272.3 12.4%
Equity Capital 289.7 289.7
Face Value (In Rs) 2.00 2.00
EPS (Rs) 2.11 1.88 12.4%
Source: Company; * Q1FY12 revenues and expenses are restated
Revenue growth led by improvement in rentals and reclassifica-

tion of electricity charges
 Phoenix mills had reported a growth of 17% in revenues for Q1FY13 primarily
led by improvement in rentals and also on account of reclassification of electricity
expenses recovered from licensees.
 Average rentals stood at Rs 177 per sq ft per month. Average sales per sq ft in-
creased from Rs 1485 in Q1FY12 to Rs 1756 in Q1FY13, though footfalls continue
to remain same at 4.4mn. PML also added 16,000 sq ft in Palladium Annexe
which was opened in Q4FY12 and houses mostly the luxury brands such as Bally,
Ermeneglido Zegna, Paul Smith etc. It currently has more than 70% occupancy.
It has also re-opened food court (6000 sq ft) with an international look and occu-
pancy stands at approx. 65% with brands like Ice cream Works and Haagen
Dazs.
 Phoenix mills ltd has entered into share purchase agreement to acquire stake in
Chennai market city during Q4FY12. Now Sharyans Resources Ltd, another
shareholder in Chennai Market city, has also expressed desire to increase its
stake. Thus correspondingly, post completion of the transaction, PML would have
now have a stake of 50% in Chennai market city instead of earlier planned
63%. We would incorporate the enhanced shareholding post completion of the
transaction which would be completed by FY14.
 We thus maintain our estimates and expect revenues to grow by 34% in FY13.
Status of market cities and Hotel Shangri-La

 Pune market city is 85 % leased with average rentals of nearly Rs 60-65 per sq
ft per month. Occupancy levels have remained same sequentially at 70% during
Q1FY13 but is expected to improve with opening of PVR Cinemas in Aug, 2012.
Company has also sold nearly 85% of phase 1 commercial area of nearly 0.26
mn sq ft at Rs 6100 per sq ft. Overall revenues are expected to improve going
forward due to improvement in occupancies as well as rentals.
 Bangalore market city was opened in Oct, 2011 and is currently 88% leased with
average rentals of nearly Rs 65-70 per sq ft per month. No. of opened stores
have now increased to 189 as against 178 in Mar, 2012. Occupancy levels have
also improved to 62% versus 60% during Mar, 2012. During the quarter, large
format stores like Croma, Home town, Tanishq were opened during the quarter.
 Kurla market city is currently 82% leased and has an occupancy of 59% with
average rentals of nearly Rs 90 per sq ft per month. Currently 189 stores have
opened as against 171 stores during Mar, 2012. During the quarter, Reliance
Mart and Freezing Rains @ Snow World have become operational. PVR is ex-
pected to open from Sep, 2012. Along with this, Amoeba has partially opened
with four Bowling Alleys which would ramp up to 14 lanes by mid-Aug, 2012.
 Launch of Chennai market city is delayed and is now expected to be launched
by Q2FY13. Key Brands viz. Big Bazaar Croma, Lifestyle, Pantaloons, Satyam
Cinemas, Man U, OOD life, etc. are undergoing fit-outs. Construction of residen-
tial space above mall structure is progressed up to 7th roof slab and out of total
0.25 mn sq ft (105 apartments), company has already sold nearly 0.2 mn sq ft at
an average sale price of Rs 7000 per sq ft. Phoenix mills had earlier entered into
share purchase agreement with Kshitij venture capital fund for buying out their
holding of 32% in Classic mall and classic housing which is executing Chennai
market city and residential project for a consideration of Rs 1.06 bn. Now
Sharyans Resources Ltd, another shareholder in Chennai Market city, has also
expressed desire to increase its stake. Thus correspondingly, post completion of
the transaction, PML would have now have a stake of 50% in Chennai market
city instead of earlier planned 63%. Thus, now company would have to pay only
Rs 620 mn for increasing its stake to 50%. It is looking for some tax efficient
structure to complete this transaction and hence whether it will be consolidated
or not would be known only when transaction gets closed.
 Launch of residential space in Bangalore(W) is expected by Aug, 2012. Project

comprises of high-rise towers and one luxury tower. It is expected to be devel-
oped over four and a half years.
 Phase wise handover of Shangri-La has commenced but PML had faced environ-
mental clearance related issues which have delayed the commencement. PML
has already given presentations to committee reviewing its clearance and an-
other meeting is scheduled for Aug, 2012. Post that PML expects hotel to open
from Sep, 2012.
Details of sales in residential and commercial projects in market cities

Location Project Type Area PML stake PML ec. Int Launch Sales till Jun,12
Pune Phase 1 Commercial 0.25 58.5% 0.15 Constructed 88%

Mumbai 15 LBS Commercial 0.28 24.3% 0.07 Constructed 91%
Orion Park Commercial 0.84 24.3% 0.20 Jan, 2012 37%
Graceworks Commercial 0.42 44% 0.18 Jan, 2012 12%
Chennai Phase 1 Residential 0.26 63% 0.16 June, 2011 77%
Classic Housing Residential 0.21 66% 0.14 FY12 29%
2.26 0.91
Source: Company
Operating margins continued to remain strong

 Operating margins stood strong at 63% for Q1FY13 but adjusted with reclassifi-
cation of electricity charges in revenues and expenses, margins stood at 74%.
 We maintain our estimates and expect operating margins to be 64.4% on con-
solidated basis. Margins on consolidated basis are expected to improve going
forward with improvement in occupancies, leasing as well as rentals in key mar-
ket cities.
Net profit growth led by growth in revenues and strong operat-

ing margins
 Net profit growth was boosted by growth in revenues and other income.
 Borrowings are likely to come down once operations stabilize in different market
cities.
 We maintain our estimates and expect net profits to grow by 24% on consoli-
dated basis for FY13.

 At current price of Rs 183, stock is trading at 20.2x P/E and 12.1x EV/EBITDA.
We recommend BUY on Phoenix  We value the company on sum of the parts valuation and arrive at a target price
Mills with a price target of Rs.237 of Rs 237 on FY13 estimates.
 We remain positive on the company due to its robust business model, excellent
operating cash flows from HSP and expertise to capitalize on the upcoming op-
portunities in the retail sector in various cities.
 We thus recommend BUY on the stock.
 Key risks for the stock would be further delays in launch of Shangri-La and lower
than expected ramp up in occupancies in key market cities.
Sum of the parts valuation

Phnx Avg rent Avg Rate Value Per share
Stake (Rs/sq ft/m) (Rs/sq ft) (Rs mn)
High Street Phoenix 100% 180 18195 126

Phase IV @ HSP 100% 12000 3000 21
Market cities
Pune 58.60% 60 6200 1792 12
Kurla 24.30% 95 9000 2232 15
Bangalore(E) 46.6% 65 3000 1075 7
Chennai* 31.00% 80 6500 1654 11
Bangalore(W)-Residential 70% 4500 2269 16
EWDL 40% 45-60 2091 14
Big Apple 70% 35-40 668 5
Shangri-La 53% 12000 1290 9
Total 237
CMP 183.00
* Stake in Chennai market city is likely to be enhanced to 50%; Source: Kotak Securities - Private Client Research
RESULT UPDATE INDIAN OVERSEAS BANK (IOB)

Saday Sinha
saday.sinha@kotak.com
+91 22 6621 6312
PRICE: RS.73 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.84 FY13 P/E: 5.6X, P/ABV: 0.7X
Q1FY13: Disappointment continues; near term outlook remains

challenging with ~12% of stressed assets along with thin margin
as well as need for recapitalization (tier-I capital at 7.92%).
 NII came at Rs.13.28 bn, a modest growth of 11.8% YoY, due to 26bps
(YoY) decline in NIM (2.59% in Q1FY13) despite strong growth in loan
book (24.5% YoY). Net profit grew 13.5% YoY (Rs.2.33 bn), slightly lower
than our estimates, on back of higher credit costs (NPA provisions shot
up QoQ from Rs.2.77 bn during Q4FY12 to Rs.4.07 bn during Q1FY12).
 Business growth has continued to moderate since Q4FY12; loan book
grew 24.5% YoY partly aided by overseas book (49.2% YoY; share at
12.5% of total loan book). Deposits grew 22.3% YoY but at the cost of
shrinking CASA mix (declined 250bps to 25.1%).
 NIM has been on the declining path (2.59% in Q1FY13; lowest in last six
years) due to deterioration in the liability franchise along with shift to-
wards lower yielding asset mix (corporate loan growth is faster than
other segments). IOB needs recapitalization as its tier-I capital stands at
7.92%. This does not bode well in the prevailing macro environment.
 Improving the asset quality remains the biggest challenge for IOB, in our
view. Their ~12% of loan book is facing stress (restructured book + gross
NPA), one of the highest in the industry. Gross slippage has remained at
the elevated levels (Rs.8.65 bn, 2.4% on annualized basis), while up gra-
dation and cash recovery was relatively subdued vis-à-vis previous quar-
ter.
 We believe, the near term outlook remains challenging for the stock with
~12% of stressed assets along with thin NIM as well as need for recapi-
talization (tier-I capital at 7.92%). IOB is likely to report subdued return
ratios (RoE: 10-11%, RoA: 0.5%) during FY13E/14E and hence, we retain
ACCUMULATE rating on the stock with lower TP of Rs.84 (Rs.96 earlier)
based on 0.75x its FY13E ABV. We advise our clients to remain cautious
on the stock and look for better entry opportunity in the future.
Result Performance
(Rs mn) Q1FY13 Q1FY12 YoY (%)
Interest on advances 39,091 30,089 29.9

Interest on Investment 10,345 8,932 15.8
Interest on RBI/ banks' balances 826 904 -8.7
Other interest - - NM
Total Interest earned 50,262 39,926 25.9
Interest expenses 36,979 28,050 31.8
Net interest income 13,283 11,876 11.8
Other income 3,767 3,392 11.1
Net Revenue (NII + Other income) 17,050 15,268 11.7
Operating Expenses 8,582 7,242 18.5
Payments to / Provisions for employees 5,620 5,023 11.9
Other operating expenses 2,962 2,219 33.5
Operating profit 8,468 8,026 5.5
Provisions & contingencies 5,204 5,449 -4.5
Provision for taxes 929 521 78.4
Net profit 2,334 2,056 13.5
EPS (Rs.) 2.93 3.32 -11.8
Source: Company
NII witnessed a modest growth of 11.8% YoY largely due to 26bps (YoY)
decline in NIM despite strong growth in loan book (24.5% YoY); reported
NIM lowest in last six years due to decline in CASA and change in asset mix.
NII came at Rs.13.28 bn, a modest growth of 11.8% YoY, due to 26bps (YoY) de-
cline in NIM (2.59% in Q1FY13) despite strong growth in loan book (24.5% YoY).
Net profit grew 13.5% YoY (Rs.2.33 bn), slightly lower than our estimates, on back
of higher credit costs (NPA provisions shot up QoQ from Rs.2.77 bn during Q4FY12 to
Rs.4.07 bn during Q1FY12).
NIM has been on the declining path (2.59% in Q1FY13; lowest in last six years) due
to deterioration in the liability franchise along with shift towards lower yielding asset
mix (corporate loan growth is faster than other segments). IOB needs recapitalization
as its tier-I capital stands at 7.92%. This does not bode well in the prevailing macro
environment.
Although management has guided for NIM to come at 2.85% for FY13, we are
more cautious and expect IOB to report NIM at 2.55% and 2.51%, respectively, dur-
ing FY13E and FY14E as against 2.75% achieved during FY12.
Business growth continued to moderate; liability franchise has

weakened (CASA mix declined 250bps YoY)
Business growth has continued to moderate since Q4FY12 - loan book grew 24.5%
YoY partly aided by overseas book (49.2% YoY; share at 12.5% of total loan book),
while domestic book grew at relatively moderate pace (21.6% YoY). All other seg-
ments expect corporate saw moderate growth while corporate segment witnessed
strong growth of 25.9% YoY.
However, on liability front, strong deposit mobilization (22.3% YoY) came at the
cost of weakening liability franchise (CASA share declined to 25.1%, 130 bps QoQ
and 250 bps YoY). Although current account floats declined (10.6% QoQ) during
Q1FY13 which is the normal trend seen every year during Q1 (in line with the indus-
try trend), subdued growth in demand deposits (8.9% YoY) has impact the overall
CASA deposits. We believe this is largely responsible for rise in the cost of deposits
(6bps QoQ), while yield on funds declined by 26bps QoQ on back of 25bps decline in
yield on advances.
Trend in deposits
(Rs. bn) 1Q2012 2Q2012 3Q2011 4Q2011 1Q2012 3Q2012 YoY (%)
Total deposits 1,512 1,636 1,670 1,784 1,849 22.3% 3.6%

Current Deposits 92 113 103 123 110 19.7% -10.6%
Saving Deposits 325 336 334 349 354 8.9% 1.5%
CASA (Rs. Cr) 416.7 449.1 436.8 471.5 463.6 11.3% -1.7%
CASA (%) 27.6% 27.5% 26.2% 26.4% 25.1%
Term Deposits 1,095 1,187 1,233 1,313 1,385 26.5% 5.5%
Source: Company
Gross slippage has remained at the elevated levels (Rs.8.65 bn,

2.4% on annualized basis); near term risk persists with ~12% of
stressed assets.
Gross slippage has remained at the elevated levels (Rs.8.65 bn, 2.4% on annualized
basis), while up gradation and cash recovery was relatively subdued vis-à-vis previ-
ous quarter. We believe this corroborates our view that IOB would continue to face
stress on its asset quality.
NPA Movement
(Rs bn) Q1FY12 H1FY12 9MFY12 FY12 Q1FY13
Gross NPA - Opening 30.9 30.9 30.9 30.9 39.2

Fress Slippage 4.9 10.0 7.0 10.2 8.7
Deduction due to write off 1.4 0.8 3.3 6.2 1.9
Reduction due to upgradation 0.4 0.7 1.1 2.2 0.8
Reduction due to recoveries (cash recovery) 1.0 2.5 1.8 2.3 1.1
Addition due to other factors 0.0 0.0 0.0 0.0 0.0
Gross NPA (Closed) 32.9 37.0 31.7 30.4 44.1
Source: Company
Sequentially, gross NPA and net NPA rose 12.5% and 12.8% in absolute terms and
now stand at 2.97% (2.74% in Q4FY12) and 1.48% (1.35% in Q4FY12), respec-
tively, at the end of Q1FY13.
Trend in NPAs
(Rs. bn) 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 YoY (%) QoQ (%)
Gross NPA 35.7 33.3 32.6 30.9 32.9 39.0 39.7 39.2 44.1 34.0% 12.5%
Gross (%) 4.30 3.78 3.26 2.72 2.76 3.07 3.00 2.74 2.97
Net NPA 17.9 17.6 14.9 13.3 12.6 15.0 16.0 19.1 21.5 71.1% 12.8%
Net (%) 2.21 2.04 1.51 1.19 1.08 1.21 1.23 1.35 1.48
Source: Company
During Q1FY13, Rs.8.34 bn of fresh loans were restructured while Rs.1.1 bn went off
the book, taking the cumulative restructured book to Rs.133.7 bn (9.0% of ad-
vances). The segments which are contributing to this are Power (21.4%), aviation
(10.8%), Textiles (8.7%) and Iron & steel (8.3%).
Main contributor to restructured portfolio

(%) Q1FY13 Q4FY12
Textiles 8.7 8.4

Iron & Steel 8.3 8.5
Infrastructure 6.4 13.0
Power 21.4 10.6
SMEs 5.2 5.6
Agriculture 1.3 3.1
CREs 1.7 2.4
Auto & Ancillary 4.2 3.6
Aviation 10.8 10.8
Trade 9.1 10.2
Telecom 7.8 9.6
Source: Company
Sector wise break up of NPA

Q3FY12 Q4FY12 Q1FY13
Domestic business Rs. Bn % of total Rs. Bn % of total Rs. Bn % of total
Agriculture 7.0 19.4 5.7 16.1 7.2 18.9

Industry 17.7 49.2 19.0 53.3 18.9 49.5
Services 7.9 21.8 8.8 24.8 9.3 24.5
Personal 3.4 9.5 2.0 5.7 2.7 7.2
Total 36.0 100 35.5 100 38.2 100
Source: Company
Improving the asset quality remains the biggest challenge for IOB, in our view.
~12% of its loan book is facing stress (restructured book + gross NPA), one of the
highest in the industry. The risks get aggravated due to lower cushion available in
terms of thin margin and need for recapitalization (tier-I at 7.92%)

We recommend Although IOB is currently trading close to its lower end of its historical valuation band
ACCUMULATE on IOB with a (0.7x FY13E ABV; 5.6x FY13E earnings), we believe, the near term outlook remains
price target of Rs.84 challenging for the stock on back of high share (~12% of loan book) of stressed
assets (restructured book + gross NPA) along with thin NIM as well as need for re-
capitalization (tier-I capital at 7.92%).
Rolling 1-year forward P/ABV band
325 CMP 0.5x 0.75x

1.0x 1.25x 1.5x
260
1.75x 2.0x 2.25x
195
130
65
0
Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12
Source: Company, Kotak Securities - Private Client Research
Rolling 1-year forward P/E band
400
CMP 2x 4x 6x
300 8x 10x 12x
200
100
0
Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12
IOB is likely to report subdued return ratios (RoE: 10-11%, RoA: 0.5%) during FY13E/
14E and hence, we retain ACCUMULATE rating on the stock with lower TP of Rs.84
(Rs.96 earlier) based on 0.75x its FY13E ABV. We advise our clients to remain cau-
tious on the stock and look for better entry opportunity in the future.
Key data
(Rs. bn) 2011 2012 2013E 2014E
Interest income 121.0 179.0 212.5 249.6

Interest expense 78.9 128.8 156.6 184.1
Net interest income 42.1 50.2 56.0 65.6
Growth (%) 32.8 19.2 11.6 17.2
Other income 12.3 16.8 18.3 21.6

Gross profit 28.6 35.3 37.1 43.2
Net profit 10.7 10.5 10.5 12.7
Growth (%) 51.7 -2.1 -0.3 20.8
Gross NPA (%) 2.7 2.7 3.1 3.2

Net NPA (%) 1.2 1.4 1.5 1.4
Net int. margin (%) 3.0 2.8 2.6 2.6
CAR (%) 14.6 13.3 12.4 11.7
RoE (%) 14.2 11.1 9.5 10.9
RoAA (%) 0.7 0.5 0.4 0.5
Dividend per share (Rs) 5.0 5.0 6.0 6.0
EPS (Rs) 17.3 13.2 13.1 15.9

Adjusted BVPS (Rs) 110.5 111.4 109.9 115.6
P/E (x) 4.2 5.6 5.6 4.6

P/ABV (x) 0.7 0.7 0.7 0.6
COMPANY UPDATE CROMPTON GREAVES (CRG)

Ruchir Khare
ruchir.khare@kotak.com
+91 22 6621 6448 PRICE: RS.119 RECOMMENDATION: REDUCE
 Crompton Greaves (CRG) has acquired ZIV group at an Enterprise Value of
EUR150 mn (~Rs 10 bn). ZIV is engaged in design. Engineering, manufac-
turing and support of Intelligent Electrical Device (IEDs) and automation
systems for Utilities and Industries.
 We interacted with various industry players to understand that market
dynamics of smart grid. US market has been the largest market for Smart
grid followed by Europe. Indian market is currently in a nascent stage
sized at Rs 8-9 bn per annum.
 With the acquisition Crompton marks its tenth overseas acquisition in
Summary table
the span of last six years. Management expects that the acquisition
(Rs mn) FY11 FY12 FY13E
would add substantially to company's offering in providing comprehen-
Sales 100051 112486 127850 sive energy saving solutions with latest technology.
Growth (%) 9.5 12.4 13.7
EBITDA 13438 8036 10555  We believe that the ZIV acquisition is likely to be value accretive in FY13
EBITDA margin (%) 13.4 7.1 8.3 and offer long term strategic advantage to Crompton. Acquisition value
PBT 12284 5497 7396 at EUR 150 mn looks reasonable.
Net profit 9261 3736 5251
EPS (Rs) 14.4 5.8 8.2  We highlight that currently overseas subsidies has been experiencing
Growth (%) 12.3 -59.7 40.6 headwinds of economic slowdown in certain geographies mainly in Eu-
CEPS (Rs) 17.5 9.9 12.8
rope; integration of existing subsidiaries and realignment of their core
BV (Rs/share) 51.0 56.3 63.4
Dividend/share (Rs) 1.3 2.3 3.3 business processes along with that of ZIV now continues to remain a
ROE (%) 32.0 10.9 13.7 challenge.
ROCE (%) 33.2 12.3 13.9
Net cash (debt) (971) (4873) (8082)  We therefore tweak our estimates and do not make substantial revisions
NW Capital (Days) 48.9 49.8 48.7 in FY13 earnings. Maintain 'Reduce' rating on the company's stock with
EV/Sales (x) 0.8 0.7 0.7 a one year DCF based revised target price of Rs 94 (Rs 90 earlier).
EV/EBITDA (x) 5.8 9.6 7.3
P/E (x) 8.2 20.4 14.5
P/Cash Earnings 6.8 12.1 9.3
Acquisition highlights
P/BV (x) 2.3 2.1 1.9  CRG has acquired Spain based ZIV group at an Enterprise Value of €150 mn
Source: Company, Kotak Securities - Private
(~Rs 10 bn). ZIV is engaged in design. Engineering, manufacturing and support
Client Research of Intelligent Electrical Device (IEDs) and automation systems for Utilities and In-
dustries.
 CRG through its subsidiary in Netherlands has acquired ZIV at 1.8x and 9x CY12E
sales and EBITDA (CRG management guidance) respectively. In CY11, ZIV has
reported revenue at EUR 52 mn and EBITDA at EUR 8.4 mn. ZIV has reported
substantial growth in CY12 (12-month trailing) with revenue at EUR 70 mn and
has maintained EBITDA at 21%.
 ZIV primarily focuses on two business verticals 1) Grid automation and 2) Smart
metering with 50% revenue and EBITDA contribution from both the segments.
 ZIV is currently present in several geographies but has a reasonable presence in
the European region mainly Spain which accounts for nearly 60% of company's
business. Currently ZIV's order book offers business visibility for next six months.
We believe that the metering is more of a commoditized business and is the
major revenue driver for ZIV and to that extent is not order book driven.
 ZIV sales growth is mainly driven by a large order from Iberdola in metering busi-
ness. Sales from grid automation segment remains flat for the company. Man-
agement has stated that sizable opportunities are available in US, UK and Po-
land markets and it expects to de-risk operations by achieving geographical di-
versification.
 CRG has stated that the acquisition would be funded by employing D/E of 1:1.
Management is targeting revenues of close to EUR 200 mn by FY14-15 through
ZIV. CRG has association with ZIV through a JV signed in 2010 with the later and
has been operational in the field of automation systems for substation.
 CRG aims to target large utilities for smart grid in India and abroad that is likely
to offer future growth for the company. ZIV offerings are complementary to CRG
current portfolio and it virtually fills the gaps in medium & high voltage segment.
Smart grid Industry is dominated by few large players; US/Europe

markets offer higher opportunity for investments and Indian
market though promising is currently at a nascent stage
We interacted with other industry players in sub-station /Automation segment to get
a perspective on the overall business opportunities in Indian as well as overseas
markets. Following are the key highlights.
What is smart grid?

A smart grid is an electrical grid that involves the application of various equipment
and electrical infrastructure to gather and subsequently act on the information about
the supply and consumption pattern in an automated fashion to improve the overall
efficiency.
Advantages over classical grid
 Improved fault detection
 Higher efficiency
 Peak curtailment.
 Increased sustainability of the Grid.
 Global Smart grid industry is expected to reach nearly USD 110 bn by 2020 (in-
dustry sources). Within the industry, smart meter manufacturers (in which ZIV is
present) are expected to benefit the most followed by software providers.
 US have been the key market for smart grid solutions so far. European market
has also been observing traction. China has developed a program to achieve
reduced energy consumption by means of smart grids and has planned for invest-
ments of close to USD 96 bn by 2020 (source: IEA).
 We believe that this is likely to offer substantial growth opportunity for various
players in the industry. High technological for manufacturing of smart grid prod-
ucts and software is likely to remain the major entry barrier of the new players.
 Currently industry is dominated by few large players like Siemens, Areva,
Schneider, ABB and Alstom. ZIV is relatively a smaller player whose operations
are mainly concentrated in Spain and therefore it would be a challenge to com-
pete with these established players.
 Indian smart grid market is at a nascent stage and is valued at close to Rs 8-9 bn
per year. PGCIL has envisaged an investment of nearly USD 1.7 bn in XII five
year plan. Smart grid opportunity is likely to gain momentum in the second half
of XII plan.
 We highlight that though ZIV acquisition equips CRG to bid for grid automation
and metering business in India, we remain skeptical on the overall prospects of
the business especially in India considering its smaller size w.r.t other global play-
ers and absence of required PGCIL qualification which other large players like
Siemens, ABB etc have in place.
Overseas subsidiaries have continued to disappoint by eroding

profits in past; realignment of various international operations
remains the key
CRG made ten acquisitions in last six years including QEI and Emotron in FY12.
These acquisitions have failed to achieve process integration and generate free cash
flow so far. Partly, CRG performance has also been affected by Europan slowdown
as majority of acquisitions lie in this region.
Management has been trying to curtail losses in these subsidiaries by taking various
cost restructuring measures. Company has been trying to curtail the administration
cost in Belgium unit and is also planning to reduce the workforce by 260 employees
out of currently employed 730 employees.
While QEI and Emotron are doing well, we remain cautious on the company's over-
all overseas business mainly in view of 1) ongoing economic crisis in European re-
gion and 2) continuous under achievement in integration between various overseas
subsidiaries.
We believe that while ZIV acquisition is likely to be marginally accretive in FY13,
major benefits shall follow only in the longer term.
Some of the key acquisitions company has made in last few years other than
Emotron are highlighted below.
Key acquisition
Company Year Operating Acquisition Areas of work
Country EV Rs (mn)
Pauwels 2005 Belgium 2100 Power and distribution transformers

Ganz 2006 Hungary 2290 Power transformers, GIS switchgear and rotating machines, as well as in the supporting areas
of design, erection and commissioning.
Microsol 2007 Ireland, USA, UK 685 sub-station automation for MV and HV substations
Sonomatra 2008 France 85 Power transformers and on-load tap changers, oil analysis, oil treatment and retro-filling.
MSE Power Sys Inc 2008 USA 750 engineering, procurement and construction (EPC) of electric power applications in renewable
energy segment
Power Tech (PTS) 2010 UK 2040 consulting as well as technical and engineering support to regional electricity companies
Three businesses of
Nelco Limited -
traction electronics,
SCADA and industrial
drives 2010 India 920 Railways and drives
JV with ZIV
Aplicaciones y
Tecnologia, SL 2010 India 70 Manufacturing of Substation Automation System-EHV/UHV range
Emotron AB 2011 Sweden 3670 Drive solutions-Variable freqency drives (VFDs)
QEI Inc 2011 USA 1350 Scada, Comtrol Systems
Financials: ZIV acquisition to remain moderately accretive, oper-

ating margins expected to remain under pressure over FY13 due
to increase in input prices and muted margin growth in overseas
business
 In view of recent ZIV acquisition, we project 13.7% YoY growth in consolidated
revenues for FY13E driven mainly by domestic business. We believe that the
company is likely to experience margin pressure over FY13 on account of 1)
lower volumes 2) restructuring cost for overseas subsidiaries and 3) increase in
overheads for funding company's future growth.
 In our projections, we build 8% EBITDA margins for FY13E. CRG would benefit
from the ZIV tax shelter of EUR 18 mn and also from the cheap funding from
Europe at nearly 5.5% pre-tax rate. We highlight that post ZIV acquisition, CRG's
financial leverage is likely to increase to 0.41 from current 0.27 levels.
 We believe that ZIV would be moderately accretive in FY13E and meaningful
contribution shall follow in the longer term. We build an EPS of Rs 8.2 for FY13
in our forecasts.
Valuation & Recommendation

We recommend REDUCE  At the current price of Rs 119, company's stock is trading at 14.5x P/E and 7.3 x
Crompton Greaves with a EV/EBITDA on FY13E earnings.
revised price target of Rs.94
 We maintain our 'Reduce' rating on the company's stock with a one year DCF
based revised target price of Rs 94 (Rs 90 earlier).
AUTO INDUSTRY UPDATE AUTO INDUSTRY VOLUME UPDATE - JULY 2012

Arun Agarwal
arun.agarwal@kotak.com July is seasonally a weak month for auto sales. Accordingly volumes during
+91 22 6621 6143 the month were on the weaker side. Most of segments (except LCV and UV)
continue to face headwinds from various factors such as economic
downturn, high interest rate, etc. Among companies, TVS Motors reported
below expected numbers on poor motorcycle volumes. HMC reported YoY
volume de-growth for the first time since December 2008. MSIL's
performance was impacted by lock-out at the Manesar plant. M&M
performed strongly in the auto division while tractor performance remained
under pressure. Tata Motors reported higher than expected numbers largely
due to higher passenger car dispatches. We expect the auto sales to remain
subdued in the near term. Monsoons have been weak and that in our view
will somewhat prolong the recovery.
Summary - July 2012 volumes (Nos)

July June July YoY gth MoM gth YTD YTD Growth
2011 2012 2012 (%) (%) FY12 FY13 (%)
Hero MotoCorp
2W 491,036 534,091 484,217 (1.4) (9.3) 2,020,613 2,126,509 5.2
TVS Motor
Scooters 49,333 38,166 40,895 (17) 7 166,856 153,727 (8)
Motorcycles 70,170 61,274 53,355 (24) (13) 285,221 246,729 (13)
Mopeds 67,169 65,998 63,704 (5) (3) 259,302 267,579 3
Total 2W sales 186,672 165,438 157,954 (15) (5) 711,379 668,035 (6)
2W Exports (incl. above) 26,324 17,545 17,132 (35) (2) 95,287 76,159 (20)
3W 3,290 3,255 3,301 0 1 14,713 12,380 (16)
Overall sales 189,962 168,693 161,255 (15) (4) 726,092 680,415 (6)
Maruti Suzuki
A1&A2 (M-800, Alto, Wagon-R,
Estilo, Ritz, Swift, A-Star) 47,127 56,822 44,757 (5) (21) 224,830 212,556 (5)
A3 (SX4, D'zire) 5,324 14,149 12,092 127 (15) 35,936 60,497 68
A4 (Kizashi) 32 6 2 (94) (67) 149 23 (85)
MUV (Grand Vitara, Gypsy, Ertiga) 642 5,638 7,294 1,036 29 2,144 26,259 1,125
C (OMNI, Eeco) 13,379 6,916 6,879 (49) (1) 54,128 34,953 (35)
Total Domestic 66,504 83,531 71,024 7 (15) 317,187 334,288 5
Export 8,796 13,066 11,210 27 (14) 39,639 43,842 11
Total Sales 75,300 96,597 82,234 9 (15) 356,826 378,130 6
M&M
Passenger Vehicles (incl. Verito) 17,312 19,792 22,011 27 11 65,526 83,515 27
4W Commercial 13,472 13,103 14,688 9 12 44,528 54,099 21
3W 5,395 4,836 5,149 (5) 6 19,453 18,964 (3)
MNAL 1,144 1,220 951 (17) (22) 4,096 4,409 8
Total Domestic 37,323 38,951 42,799 15 10 133,603 160,987 20
Export 2,310 2,371 4,260 84 80 8,027 12,101 51
Total Sales 39,633 41,322 47,059 19 14 141,630 173,088 22
Tractors 16,692 23,765 16,521 (1) (30) 76,844 76,102 (1)
Summary - July 2012 volumes (Nos)

2011 2012 2012 (%) (%) FY12 FY13 (%)
Tata Motors
M&HCV 15,838 12,663 12,786 (19) 1 61,380 47,729 (22)
LCV 24,960 28,363 29,601 19 4 92,788 109,956 19
Utility 3,195 3,649 5,087 59 39 13,631 15,916 17
Cars 13,997 13,595 21,153 51 56 68,342 70,729 3
Total Domestic 57,990 58,270 68,627 18 18 236,141 244,330 3
Export 5,583 6,071 5,532 (1) (9) 20,469 18,603 (9)
Total Sales 63,573 64,341 74,159 17 15 256,610 262,933 2
Source: Companies
HERO MOTOCORP (HMC)

Hero MotoCorp - sales volume (Nos)
2011 2012 2012 (%) (%) FY12 FY13 (%)
2W 491,036 534,091 484,217 (1.4) (9.3) 2,020,613 2,126,509 5.2
Source: Company
 HMC reported sales of 484,217 units in July 2012 as against 491,036 units in July
2011, a drop of 1%. Over June 2012, volumes dropped by 9%.
 July 2012 volumes were the lowest since February 2011. Volumes came in
slightly below our expectation.
 Inventory has increased from 2 weeks to 4 weeks over the past few months.
Given slowdown in retail demand and increased inventory levels, the volumes
saw a decline.
 In the scooter segment, the company will start promoting its newly launched
model "Maestro" in 2QFY13 and that should help the company improve volumes
in the scooter segment.
 In the motorcycle space too the company looking at re-launching its entire range
of premium motorcycles.
 On the export side, the company plans are moving on expected lines and the
company will enter the African and the Latin America market in the current cal-
endar year.
 We expect volumes to stay under pressure in the near term and expect improve-
ment in 2HFY13 on reasons mentioned above.
 Management expects the domestic 2W industry volumes in FY13 to grow under
10% and for HMC the volume growth to be in excess of the industry growth
rate.
HHML - 2W sales volume
Volume (Units - LHS) % YoY growth (RHS)

600,000 60
450,000 45
300,000 30
150,000 15
- -
(150,000) (15)
Source: Company
TVS MOTORS (TVSM)

TVS Motors - sales volume (Nos)
2011 2012 2012 (%) (%) FY12 FY13 (%)
Scooters 49,333 38,166 40,895 (17.1) 7.2 166,856 153,727 (7.9)

Motorcycles 70,170 61,274 53,355 (24.0) (12.9) 285,221 246,729 (13.5)
Mopeds 67,169 65,998 63,704 (5.2) (3.5) 259,302 267,579 3.2
Total 2W sales 186,672 165,438 157,954 (15.4) (4.5) 711,379 668,035 (6.1)
2W Exports (incl. above) 26,324 17,545 17,132 (34.9) (2.4) 95,287 76,159 (20.1)
3W 3,290 3,255 3,301 0.3 1.4 14,713 12,380 (15.9)
Overall sales 189,962 168,693 161,255 (15.1) (4.4) 726,092 680,415 (6.3)
Source: Company
 TVSM reported lower than expected dispatch numbers in July 2012. Company
dispatched a total of 161,255 units, 15% lower YoY and 4.4% lower MoM.
 2W volumes in the domestic market de-grew by 12% from 160,348 units in July
2011 to 140,822 units in July 2012 - the lowest since November 2010.
 2W export volumes dropped 35% YoY to 17,132 units. Company is facing pres-
sure in some of the export markets like Sri Lanka and Egypt.
 3W volume growth remained flat YoY at 3,301 units.
(continued ....)
Scooters sales volume trend Motorcycles sales volume trend

Volume (Units - LHS) % YoY growth (RHS) Volume (Units - LHS)
% YoY growth (RHS)
60,000 100 100,000 96
45,000 75 75,000 72
30,000 50 50,000 48
15,000 25 25,000 24
- - - -
(15,000) (25) (25,000) (24)
Source: Company Source: Company
Mopeds sales volume trend Exports sales volume trend

Volume (Units - LHS) Volume (Units - LHS)
80,000 % YoY growth (RHS) 40 % YoY growth (RHS)
28,000 80
60,000 30 21,000 60
40,000 20 14,000 40
7,000 20
20,000 10
- -
- -
(7,000) (20)
(20,000) (10) (14,000) (40)
 Scooter sales declined by 17% YoY to 40,895 units on overall subdued demand
and increase in capacity by the market leader. Sequentially though volumes
were up by 7%.
 Motorcycle dispatches were a major disappointment and the prime reason for
lower than expected volumes in July 2012. Company dispatched 53,355 units,
down 24% YoY and lowest since December 2009.
 Moped sales were lower by 5% YoY at 63,704 units.
 Overall subdued demand scenario has kept the company's volumes weak. Com-
pany will be launching a new motorcycle in the executive segment and a new
scooter in FY13. New launches along with expected pick-up in 2W demand will
help the company gradually improve volumes, going forward. However, in the
near term, we expect volumes to remain on the weaker side.
MARUTI SUZUKI INDIA LIMITED (MSIL)

MSIL - sales volume (Nos)
2011 2012 2012 (%) (%) FY12 FY13 (%)
A1&A2 (M-800, Alto, Wagon-R,

Estilo, Ritz, Swift, A-Star) 47,127 56,822 44,757 (5.0) (21.2) 224,830 212,556 (5.5)
A3 (SX4, D'zire) 5,324 14,149 12,092 127.1 (14.5) 35,936 60,497 68.3
A4 (Kizashi) 32 6 2 (93.8) (66.7) 149 23 (84.6)
MUV (Grand Vitara, Gypsy, Ertiga) 642 5,638 7,294 1,036.1 29.4 2,144 26,259 1,124.8
C (OMNI, Eeco) 13,379 6,916 6,879 (48.6) (0.5) 54,128 34,953 (35.4)
Total Domestic 66,504 83,531 71,024 6.8 (15.0) 317,187 334,288 5.4
Export 8,796 13,066 11,210 27.4 (14.2) 39,639 43,842 10.6
Total Sales 75,300 96,597 82,234 9.2 (14.9) 356,826 378,130 6.0
Source: Company
 MSIL dispatched 82,234 units in July 2012 as against 75,300 units dispatched in
July 2011. Over June 2012, volumes were down by 15%.
 MSIL's July 2012 volumes were impacted by worker violence and subsequent
lock-out at the Manesar facility. Accordingly production of Swift, Swift Dzire,
SX4 and A-star is believed to have been impacted.
(continued ....)
A1 & A2 segment domestic volume trend Domestic sales volume trend

% YoY growth (RHS) 200,000 240
85,000 300 % YoY growth (RHS)
150,000 180
68,000 240
51,000 180 100,000 120
34,000 120 50,000 60

17,000 60
- -
- -
(50,000) (60)
(17,000) (60)
Export volume trend Business Mix (Domestic)

Volume (Units - LHS)
% YoY growth (RHS) 100% D
18,000 210
C
75%
12,000 140 MUV
50% A3
6,000 70
A1 and A2
25%
- -
0%
(6,000) (70)
 Company's volumes in July 2011 too were abnormal as they were impacted by
1.Shifting of Swift Dzire's production from Manesar to Gurgaon plant and 2. Dis-
continuation of old Swift in wake of planned launch of new Swift.
 Volumes in the mini passenger car segment (Alto, WagonR, etc.) dropped from
38,028 units in July 2011 to 28,998 units in July 2012, a decline of 24%. Fall in
volumes in this segment is mainly because of weak demand for petrol run cars.
 Another segment where the company is facing pressure due to declining petrol
car demand is the van category. Volumes in this segment declined by 49% YoY
to 6,879 units in July 2012.
 Export volumes grew by 27% YoY to 11,210 units. Given weak demand in the
domestic markets, the company has stepped up focus on exports. Further weak
INR yields better realization and that adds as an for higher focus on exports.
 With the lock-out at the Manesar plant, the company is losing out on sales of
some of the best-selling models like Swift and Dzire. If the lock-out goes on for
longer period of time, we see competitor making in-roads in MSIL's dominance.
 Currently the company is facing a double whammy; subdued demand for petrol
run cars and losing production (due to lock-out) of in demand models. Given no
clarity on resumption of production at the Manesar plant, volumes for the com-
pany will remain impacted in the near term.
MAHINDRA AND MAHINDRA (M&M)

M&M - sales volume (Nos)
2011 2012 2012 (%) (%) FY12 FY13 (%)
Passenger Vehicles (incl. Verito) 17,312 19,792 22,011 27.1 11.2 65,526 83,515 27.5
4W Commercial 13,472 13,103 14,688 9.0 12.1 44,528 54,099 21.5
3W 5,395 4,836 5,149 (4.6) 6.5 19,453 18,964 (2.5)
MNAL 1,144 1,220 951 (16.9) (22.0) 4,096 4,409 7.6
Total Domestic 37,323 38,951 42,799 14.7 9.9 133,603 160,987 20.5
Export 2,310 2,371 4,260 84.4 79.7 8,027 12,101 50.8
Total Sales 39,633 41,322 47,059 18.7 13.9 141,630 173,088 22.2
Tractors 16,692 23,765 16,521 (1.0) (30.5) 76,844 76,102 (1.0)
Source: Company
 M&M reported strong dispatch figures in July 2012 in the auto segment.
Company's wholesale volumes in July 2012 stood at 47,059 units - its highest
ever. Volumes grew by 19% YoY and 14% MoM. In June 2012 there was few
days production shut down and hence the volume growth is higher MoM.
 Passenger UV volumes grew on strong note. Volumes increased by 32% YoY to
20,750 units. We believe the growth was largely aided by strong performance by
XUV500.
(continued ....)
4W - domestic volume trend Tractor - volume trend

% YoY growth (RHS)
40,000 % YoY growth (RHS)
100 32,000 80
32,000 80 24,000 60
24,000 60 16,000 40
16,000 40 8,000 20
8,000 20 - -
- - (8,000) (20)
Domestic volume trend (Automotive) Export volume trend (Automotive)

% YoY growth (RHS) 5,000 % YoY growth (RHS) 150
45,000 80
4,000 120
33,750 60 3,000 90
22,500 40 2,000 60
1,000 30
11,250 20
- -
- - (1,000) (30)
 Verito sales declined by 23% to 1,261 which we believe was on account re-
placement of old model with the new one. Company claims that the new Verito
launch has received good response.
 Volumes in 4W pick-up segment grew by 9% YoY to 14,688 units. Growth in this
segment was lower in July 2012 as compared to YTD growth rate of 21%.
 3W sales volume declined 5% YoY in line with the declining trend witnessed in
the segment. LCV and M&HCV sales was lower by 17% in July 2012.
 Exports saw a steep 84% YoY rise. Company exported 4,260 units which is the
highest ever monthly dispatches.
 After showing marginal growth in the past couple of months, tractor sales of
M&M was down by 1%. Company sold 16,521 tractors in July 2012 as against
16,692 tractors sold in July 2011.
 M&M's performance in the automotive space came in slightly ahead of expecta-
tion on account of strong performance in passenger UV segment and higher ex-
ports. We expect the company to continue with its strong performance in the au-
tomotive segment over near to medium term.
 In the tractor segment, we remain a bit cautious. Monsoons have been below
par which may add pressure to tractor sales in the near term.
TATA MOTORS (TAMO)

Tata Motors - sales volume (Nos)
June May June YoY gth MoM gth YTD YTD Growth
2011 2012 2012 (%) (%) FY12 FY13 (%)
M&HCV 15,838 12,663 12,786 (19.3) 1.0 61,380 47,729 (22.2)

LCV 24,960 28,363 29,601 18.6 4.4 92,788 109,956 18.5
Utility 3,195 3,649 5,087 59.2 39.4 13,631 15,916 16.8
Cars 13,997 13,595 21,153 51.1 55.6 68,342 70,729 3.5
Total Domestic 57,990 58,270 68,627 18.3 17.8 236,141 244,330 3.5
Export 5,583 6,071 5,532 (0.9) (8.9) 20,469 18,603 (9.1)
Total Sales 63,573 64,341 74,159 16.7 15.3 256,610 262,933 2.5
Source: Company
 Tata Motors reported dispatch figures higher than expectation in July 2012 on
account of improved passenger car volumes.
 Company's overall sales in July 2012 grew by 15.6% YoY to 73,491 units. Do-
mestic volumes grew by 18.3% while exports de-grew 13%.
 Sequentially volumes were up by 14.2% on account of lower base.
(continued ....)
M&HCV - domestic volume trend LCV - domestic volume trend

24,000 % YoY growth (RHS) 60 % YoY growth (RHS)
18,000 45 40,000 50
12,000 30 30,000 38
6,000 15 20,000 25
- -
10,000 13
(6,000) (15)
- -
(12,000) (30)
Cars - domestic volume trend Business Mix ( Domestic)
Volume (Units - LHS) % YoY growth (RHS) 100%

Cars
32,000 100
UV
24,000 75 75%
LCV
16,000 50
50% M&HCV
8,000 25
- -
25%
(8,000) (25)
(16,000) (50) 0%
 Passenger car volumes rose by 51% YoY to 21,153 units. Tata Nano reported
68% growth in volumes while Indica and Indigo range registered 51% and 40%
respectively. Growth in this segment comes on a poor July 2011 base. In
1QFY13, volumes in this segment de-grew and therefore YTD growth in this seg-
ment stands at 3.5% despite such high growth rate reported in July 2012.
 UV volumes increased by 59% YoY to 5,087 units. YTD growth in this segment
stands at 16.8%.
 Dispatches in the LCV space grew by 18.6% YoY. This is the only segment in
which TAMO is performed strongly on a consistent basis.
 TAMO reported de-growth in the M&HCV volumes for the 5th consecutive
month. During the month, the company reported volumes of 12,786 units,
19.3% lower over July 2011 volumes of 15,838 units. We do not see any near
term recovery in this segment.
 Exports de-grew in July 2012 to 4,864 units.
 Going ahead, we expect the volumes to largely remain under pressure. LCV vol-
umes continue to show robust performance but M&HCV performance remains a
matter of concern. Passenger car volumes are expected to remain erratic.
Bulk deals Trade details of bulk deals

Date Scrip name Name of client Buy/ Quantity Avg.
Sell of shares price
(Rs)
1-Aug 8k Miles Soft Vedawala Sangitaben Pareshkumar S 98,854 25.2

1-Aug 8k Miles Soft Shah Nikhil Dhirajlal Huf S 67,370 24.7
1-Aug ACIL Prakashkumar Devshilal Sheth B 1,575,000 0.2
1-Aug ACIL Jigar Mahesh Shah S 1,558,577 0.2
1-Aug Akar Tools Rahul Nareshbhai Shah B 29,751 27.4
1-Aug Amar Remedies Alkesh Satish Shah B 200,000 74.5
1-Aug Choice Intl Manasvi Consultancy Private S 37,555 39.6
1-Aug Cupid Trades Umeshbhai Mahashankar Purohit S 5,350 168.9
1-Aug Cupid Trades Rupal Vipulkumar Patel B 5,000 168.9
1-Aug Finalysis Cred Sagar Kadam B 56,500 58.1
1-Aug Finalysis Cred Darshan Mahendra Shah B 29,780 59.5
1-Aug Gcv Serv Sanjay Jaideo Poddar B 892,466 1.1
1-Aug Gcv Serv Saurabh Chandrakant Nagarsheth S 900,000 1.1
1-Aug Gujarat Narm Fly Goyal Financials (India) Ltd B 45,000 42.0
1-Aug IBIPL Fidelity Inv. Trust Fidelity Series S 7,517,085 4.6
1-Aug IBIPL Morgan Stanley Asia (Singapore) Pte B 6,455,713 4.6
1-Aug Inani Marbles Manish Rameshbhai Vyas S 22,500 210.7
1-Aug Jaihind Syn Sanjay S Dasrapuria Huf B 50,000 15.3
1-Aug Jaihind Syn Dinesh Jayntalal Doshi B 81,504 14.6
1-Aug Jaihind Syn Suresh Jayantilal Shah S 50,000 15.3
1-Aug Jaihind Syn Rekha Upesh Shah S 35,100 14.2
1-Aug Kaleidoscope Balmiki Agencies Pvt Ltd B 350,000 23.0
1-Aug Kaleidoscope Daulat Jain S 350,000 23.0
1-Aug Mahesh Agri Saurav B 4,160 39.8
1-Aug Marmagoa Steel Rukmani Finance Private Ltd S 8,000,000 2.4
1-Aug Marmagoa Steel Ashok Kumar Mittal B 7,989,000 2.4
1-Aug Nhc Foods Evolution Corporate Services B 30,000 20.3
1-Aug Nhc Foods Onyx Corporate Services B 17,325 20.3
1-Aug Nhc Foods Hansa Shah S 100,000 20.3
1-Aug Nhc Foods Emerald Corporate Advisory B 33,075 20.3
1-Aug Ortin Lab-$ Piyush Dharshi Koradiya B 28,900 17.3
1-Aug Osian Inds Rajkumar Shyamnarayan Singh S 36,000 159.0
1-Aug Parichay Invest Patel Dipal Virendrakumar B 11,143 232.7
1-Aug Parichay Invest Jhaveri Sanjeev Burman B 13,475 233.0
1-Aug Parichay Invest Vishnubhai Hargovandas Patel B 8,100 232.6
1-Aug Poddardev Rhodes Diversified S 70,000 92.2
1-Aug Poddardev Investment Professionals Ltd
Ac Hypnos Fund Ltd B 70,000 92.2
1-Aug Prabhav Inds Naina Sanjeev Malhotra S 250,000 3.0
1-Aug Prabhav Inds Jitendrakumar Babulal Shah B 298,152 3.0
1-Aug Prakash Steelage Haridarshan Sales Pvt Ltd S 125,000 155.2
1-Aug Rammaica India Paresh Dhirajlal Shah S 28,000 11.1
1-Aug Shalibhadra Fin Sanjay Babulal Pandya B 25,500 58.2
1-Aug SIEL Pnr Systems Pvt Ltd S 33,199 16.6
1-Aug Symphony Goodwill Warehousing Pvt Ltd B 305,841 309.7
1-Aug Symphony Gita Mehta S 182,930 310.1
1-Aug Vaishnavi Jaya Veera V D Prakash Maddula S 171,400 5.9
1-Aug Vaishnavi Parvathaneni Venkata Siva G Rao S 102,702 5.9
Source: BSE
Gainers & Losers Nifty Gainers & Losers

Price (Rs) chg (%) Index points Volume (mn)
Gainers
HDFC 700 1.3 4.1 3.1
Cipla 354 4.6 2.5 6.6
SBI 2,033 1.4 2.3 2.0
Losers
ONGC 280 (2.1) (3.3) 2.0
TCS 1,225 (1.5) (3.1) 0.6
Coal India 349 (2.8) (2.0) 2.7
Source: Bloomberg
Fundamental Research Team

Dipen Shah Saurabh Agrawal Ruchir Khare Amit Agarwal
IT, Media Metals, Mining Capital Goods, Engineering Logistics, Transportation
dipen.shah@kotak.com agrawal.saurabh@kotak.com ruchir.khare@kotak.com agarwal.amit@kotak.com
+91 22 6621 6301 +91 22 6621 6309 +91 22 6621 6448 +91 22 6621 6222
Sanjeev Zarbade Saday Sinha Ritwik Rai Jayesh Kumar
Capital Goods, Engineering Banking, NBFC, Economy FMCG, Media Economy
sanjeev.zarbade@kotak.com saday.sinha@kotak.com ritwik.rai@kotak.com kumar.jayesh@kotak.com
+91 22 6621 6305 +91 22 6621 6312 +91 22 6621 6310 +91 22 6652 9172
Teena Virmani Arun Agarwal Sumit Pokharna K. Kathirvelu
Construction, Cement, Mid Cap Auto & Auto Ancillary Oil and Gas Production
teena.virmani@kotak.com arun.agarwal@kotak.com sumit.pokharna@kotak.com k.kathirvelu@kotak.com
+91 22 6621 6302 +91 22 6621 6143 +91 22 6621 6313 +91 22 6621 6311
Technical Research Team

Shrikant Chouhan Amol Athawale Premshankar Ladha
shrikant.chouhan@kotak.com amol.athawale@kotak.com premshankar.ladha@kotak.com
+91 22 6621 6360 +91 20 6620 3350 +91 22 6621 6261
Derivatives Research Team

Sahaj Agrawal Rahul Sharma Malay Gandhi Prashanth Lalu
sahaj.agrawal@kotak.com sharma.rahul@kotak.com malay.gandhi@kotak.com prashanth.lalu@kotak.com
+91 22 6621 6343 +91 22 6621 6198 +91 22 6621 6350 +91 22 6621 6110
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AUGUST 2, 2012

Economy News Equity

Debt / forex market

10 yr G-Sec yield % 8.3 8.4 8.4 N/A

RESULT UPDATE JAIPRAKASH ASSOCIATES LTD

Summary table Financial highlights

Source: Company; * Q1FY12 revenues and expenses are restated

Revenue growth lower than our expectations

 Cement division performance: Cement volumes for Q1FY13 stood at 3.59MT as

Operating margins better than our estimates

Net profit growth boosted by improved margins and lower inter-

Valuation and recommendation

Sum of the parts valuation

Real estate valuation 44,699 21 At 10% discount to the market price

Treasury share 12,948 6 At 10% discount to the market price

Source: Kotak Securities - Private Client Research

Dipen Shah holding 150 shares of

RESULT UPDATE PHOENIX MILLS LTD

Source: Company; * Q1FY12 revenues and expenses are restated

Revenue growth led by improvement in rentals and reclassifica-

Status of market cities and Hotel Shangri-La

 Launch of residential space in Bangalore(W) is expected by Aug, 2012. Project

Details of sales in residential and commercial projects in market cities

Pune Phase 1 Commercial 0.25 58.5% 0.15 Constructed 88%

Operating margins continued to remain strong

Net profit growth led by growth in revenues and strong operat-

Valuation and recommendation

Sum of the parts valuation

High Street Phoenix 100% 180 18195 126

RESULT UPDATE INDIAN OVERSEAS BANK (IOB)

Q1FY13: Disappointment continues; near term outlook remains

Interest on advances 39,091 30,089 29.9

Business growth continued to moderate; liability franchise has

Total deposits 1,512 1,636 1,670 1,784 1,849 22.3% 3.6%

Gross slippage has remained at the elevated levels (Rs.8.65 bn,

Gross NPA - Opening 30.9 30.9 30.9 30.9 39.2

Main contributor to restructured portfolio

Textiles 8.7 8.4

Sector wise break up of NPA

Agriculture 7.0 19.4 5.7 16.1 7.2 18.9

Valuation and recommendation

Rolling 1-year forward P/ABV band

325 CMP 0.5x 0.75x

Source: Company, Kotak Securities - Private Client Research

Rolling 1-year forward P/E band

300 8x 10x 12x

Source: Company, Kotak Securities - Private Client Research

Interest income 121.0 179.0 212.5 249.6

Other income 12.3 16.8 18.3 21.6

Gross NPA (%) 2.7 2.7 3.1 3.2

EPS (Rs) 17.3 13.2 13.1 15.9

P/E (x) 4.2 5.6 5.6 4.6

Source: Company, Kotak Securities - Private Client Research

COMPANY UPDATE CROMPTON GREAVES (CRG)

Smart grid Industry is dominated by few large players; US/Europe

What is smart grid?

Overseas subsidiaries have continued to disappoint by eroding