Research Speak Week Ended – 16th April, 2010

Market Commentary

As explained in our last market commentary, Indian capital markets joined other global markets in downward
spiral last week. The reasons are global not local. Episodes of late 2008 also demonstrated that in short term
Indian market sentiments are very closely linked with global sentiments. But the silver lining is that this kinds of
kneejerk reaction are very good opportunity for cherry picking in the Indian context.

Index Return since Return till

August recent high
1,2009
Sensex 9.73 19.53
DJIA 9.16 19.98
FTSE 7.22 23.36
CAC (5.79) 12.12
BOVESPA 19.67 19.67
Hangseng (6.03) 9.48

Russia 20.72 55.32

KOSPI 1.83 11.17

Looking at the above table, some interesting facts emerge. Probably among all the 8 economies, India has the
best macro fundamentals. In terms of domestic consumption growth rate, recent growth rate,robust banking
system etc. India has been much ahead of any other economis listed above. Likewise Indian equity market has
not been terribly expensive in recent times. Indian stock market has been outperforming CAC of France, Kospi of
South Korea and Hanseng of Hong Kong for the last 8-9 months.Sensex has performed broadly in line with Dow
Jones of USA, Bovespa of Brazil and it has actually underperformed FTSE of UK and Russian indices.Thus
compared to its robust fundamentals, Indian stock market has not done anything extraordinary in last 9 months.
South Korea is a export dependent economy and slowdown abroad has its terrible affects on the South Korean
economy.Hang Seng weak performance broadly reflects nervousness about bubble like situation in Chinese
economy.The travails of USA are well chronicled and so is the commodity driven Brazilian economy.The biggest
surprise is the divergence in performance between FTSE of UK and CAC of France. Both these countries are not

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very different as far as economic state of affairs are concerned. But the second best performace of FTSE next only
to energy dependent Russian indices has been a big surprise in recent times.

Another interesting aspect about Indian indices has been that India’s weightage in the MSCI Asia index(ex Japan)
has been quite low despite the fact that India has the second largest nominal GDP after China. In the words of
Christopher Wood of CLSA, it accounts for 14% of region’s GDP but only 8% of MSCI benchmark index.There has
been hopes in recent times that India’s weightage in MSCI emerging market will go up as Taiwan and South Korea
have been promoted from emerging markets category to developed markets category in MSCI index.

What does it imply for Indian stock market in coming days? According to some rough estimate, every 50 basis
point increase in MSCI index has the potential to draw over US$10billion foreign funds inflow. This coupled with
the fact that India has not significantly outperformed many global markets despite resilient economy, after
recent correction, FII inflow may actually increase if something catastrophic does not happen in global financial
conditions.

On the domestic front also, things have started to fall in place slowly but steadily.These actions on the part of
policy makers have the potential to make the macro scenario even better going forward which in turn would
attract liquidity from abroad.Many recent government actions have demonstrtated Indian policy makers
determination to carry on the reforms mantle much faster compared to the previous incarnation of UPA
government. Allegations of rampant corruption in the latest round of 2G auctioning was raising question marks
about government sincerity regarding overcoming political compulsions and initiating second round of reforms
which has been much overdue since 1991-96.Recent successful auctioning of 3G spectrum and more than Rs.
67,000Cr inflow to government kitty has partially addressed this concern. Second important happening in recent
times was increasing APM gas prices from US$1.92/mmbtu to US$4.2/mmbtu. This has demonstrated
government’s willingness to do away with adhoc populist measures. This gas price was last revised in 2005 and
next revision would come only in 2015. Hence though cost of power and fertilizer producers would go up after
APM gas price revision, it was only inevitable.

There have been instances of investment capex coming back after nearly two years. Companies catering to
mostly domestic consumers have started to roll out much delayed capex in a gradual manner. Power,
infrastructure, PSU sectors capex plans, automobile companies etc are joining the bandwagon of capex rollout.
We feel that with rising domestic demand, capacity addition would lead to both revenue and profitability growth.
Additionally, due to Chinese concerns and Euro zone slowdown commodity prices are likely to be under pressure
for quite some time. Hence raw material prices would help companies to reap benefits both on capex programme
side and profitability side.

Another concern was on monsoon side. Last year’s below normal monsoon was a drag on Indian equity market as
less than satisfactory monsoon act as a drag both on rural demand side and hike in government subsidy. So far
evidence points to better monsoon scenario compared to last year. Moreover disbursements under budget
towards various rural welfare activities are likely to keep rural demand buoyant this year also.

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Easy liquidity conditions globally would be another beneficial aspect for Indian corporate and Indian equity
market in coming days. The much talked about risk aversion factor among foreign institutional investors needs to
be analyzed in new context. It is incomprehensible how India with its robust GDP growth, well laid out
democratic and legal framework, so much of hum an capital can be a risky investment destination among all the
gloom and doom scenario in most of the other countries.

One nagging concern in the minds of foreign investors has been India’s high fiscal and current account deficits.
They have been historically high compared to many developing countries. But it is also a well known fact that
unlike most of the other developing countries India never actively pursued an exports led model. Hence deficits
in Indian context may not be exactly out of turn. In fact non dependence on exports has helped India to escape
global meltdown quite well. Hence it is unlikely that just because of these twin deficits, FIIS would start
downgrading Indian market looks a remote possibility.

What may happen is that FIIs may try to play appreciating US currency game by withdrawing money from most of
the markets and repatriating back to USA. Already uptrend in US currency has been witnessed for quite some
time. This is coinciding with outperformance of broader US indices compared to most other markets including
India. Hence there is a likely hood that the sort of correction that has been oberserved in global markets may not
be over soon. But then it would be a golden period of cherry picking and building a long term portfolio. Absence
of runaway appreciation of Indian markets in near term would present ample time for long term investors to take
a balanced but optimistic view on their stock portfolio.

Stock update: ONGC

After much delay, Governme nt of India recently hiked the price of APM (administered pricing mechanism) gas. In
the context of Indian hydrocarbon industry, APM pricing has been a bone of contention for all stakeholders. On
one hand, it deprives exploration and production companies from realising market price of their product namely
gas and on the other hand it leads to unwise continuance of populist measures.

First of all a brief background on APM. Before the introduction of NELP bidding of oil and gas fields about a
decade ago, PSU exploration and production companies like ONGC and Oil India were handed out fields on
nominated basis. Existence of hydrocarbons on these fields was a known affair. Hence com panies like ONGC and
Oil India did not have to incur any exploration cost. Because of this gas price produced from these fields were
determined by government. The last APM price was notified 5 years ago. In those days, ONGC and Oil India were
making profit selling APM gas at US$1.92/mmbtu. But over the years, production and development costs
increased for ONGC and Oil India.In fact ONGC incurred a loss of about Rs5000Cr in selling APM gas.

Now that APM prices have been hiked to US$3.8/mmbtu, about Rs4000Cr would directly go to the profitability of
ONGC. Not only that, many of the marginal fields where ONGC is contemplating to start production in near future
would be viable in light of this hike. This new APM gas price would be valid till 2015.

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We believe that because of this move, ONGC’s EPS would go up by about Rs20 in every year. ONGC generally
enjoys PEx of 10-11. Hence this would increase our target price by about Rs 200. We rate ONGC as a “Buy” with
target price of Rs1450.

ITC - Q4FY10 Result update

ITC came out with good FY10 and Q4FY10 results. Net Turnover at Rs.18153.19 crores grew by 16.3% primarily
driven by a 20.9% growth in the non-cigarette FMCG businesses, a 19.8% growth in the Cigarettes business and a
17.4% growth in the Paperboards, Paper & Packaging segment. Operating profit increased by 26.44% to
Rs.5694.34 crores while net profit at Rs.4061.00 crores registered a growth of 24.4%. For the Q4FY10 Net sales at
Rs 5053.79 crores registered a growth of 27.9% driven by robust performance in Cigarettes, other FMCG
businesses and the Agribusiness segment. Operating profits at Rs.1664.10 crores and net profits at Rs. 1028.22
crores grew at an impressive rate of 26.96% and 27.1% respectively over the same quarter last year.

Particulars(Rs crore) Q4FY10 Q4FY09 % chg. FY10 FY09 % chg.

Net sales 5053.79 3950.32 27.93% 18153.19 15611.92 16.28%
Operating Profit 1464.10 1153.20 26.96% 5694.34 4503.75 26.44%
Net Profit 1028.22 808.99 27.10% 4061.00 3263.59 24.43%

Q4-Highlights

1. Cigarettes showed steady growth during the current quarter considering the recent price hikes taken
by the company.

2. FMCG business posted a smart growth with sales growing by 34% and considerable drop in losses to
Rs 78.69 crore compared to Rs 117.28 crore in the corresponding quarter of FY09.

3. Hotels business showed a recovery during the quarter with 15% growth on the back of recovery in
room rates and better occupancy.

4. Agribusiness reported good YoY growth of 87% and paper division posted stable performance with
growth of 12%.

Revenues Q4FY10 Q3FY10 % chg

(Rs crore)
Cigarettes 2452.95 2070.06 18.50%
FMCG 1122.70 836.79 34.17%
Hotels 256.21 221.03 15.92%
Agribusiness 988.09 525.89 87.89%
Paper 802.99 713.63 12.52%

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 Results
Cigarettes 1251.22 1081.35 15.71%
FMCG (78.69) (117.28) 32.90%
Hotels 78.20 71.10 9.99%
Agribusiness 58.31 53.06 9.89%
Paper 168.82 151.91 11.13%

We expect ITC to post steady growth in cigarette business in line with historical trends though volumes may
drop in the medium term owing to recent price hikes. Drop in losses in FMCG business is a positive and the
business is expected to breakeven in FY11. This along with steady performance in other businesses-hotels,
paper and agribusiness would ensure healthy performance in FY11. Valuations at 21-22(X) FY11 estimated
earnings are in line with historical multiples. Investors could buy the stock at every declines and existing
investors could continue holding the stock.

Planning Commission performance Report

The planning commission has come out with a performance report for FY10 along with the target for FY11. The
highlights of the same are as follows:

? Roads and highways target falls short by 36.55%: While it may suggest that the targets are falling short
again like every year, we should take heart from the fact that this sector has witnessed tremendous
growth in the year which has passed by. With the target of construction of 2500 Km of road in next year,
we expect the momentum to move even further. Moreover, a lot of policy changes have been witnessed
in the current year in the favour of concessionares, thereby making the process smoother.
? Rs 2635 Cr worth projects for Airports targeted in FY10: Out of the targeted Rs 2635 Cr projects in this
sector, a significant chunk (Rs 2280 Cr) is to be allotted to the CSI Airport, Mumbai. IGI Airport Delhi and
Bengaluru Airport are among the other targeted beneficiaries.
? 21 port projects to be awarded in FY11: The Commission has said that the ports sector has seen the least
progress of all infrastructure sectors and estimates that only 280-311 mmt is likely to be added to the
capacity as against the target of 512 mmt to be added during the Eleventh Plan.
? Power sector to be the biggest driver for infrastructure: In the power sector, the Commission estimates
that 20,359 MW of capacity addition will take place including 4,126.5 MW in the first quarter of the year

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 and 6,691.5 MW during the fourth quarter of 2010-11. Incidentally in 2009-10, the Commission had set a
target of 14,507 MW capacity addition in the power sector although only 9,585 MW was actually
achieved. Key projects facing delays include NTPC's Sipat super thermal and Koldam hydro projects and
NHPC's Chamera-III hydroelectric project. Similarly, it estimates that 830,769 million units (mu) of power
will be generated during 2010-11. During 2009-10, the country was able to generate 771,173 mu as
against the Commission target of 789,512 mu.
? Quarterly target also made for continuous improvements: It is the first time that the government has
set goals in a structured manner in consultation with the respective ministries concerned. They have also
made quarterly goals, so that the progress in each area can be reviewed at the end of each quarter and
the respective ministries would be held responsible for any unnecessary slippage of targets.

Roads & Highways 2009-10 2010-11

Name of the Scheme ( Kms) Target Achieved Target

NHDP-I GQ & Others 201 95.63 94.18

NHDP-II NS-EW & Others 1785.55 1366.57 1142.74

NHDP-IIIA 1102 505.52 984.68

NHDP-V 77 41.21 278.4

Totals 3165.55 2008.93 2500.00

Airports 2009-10 2010-11

Name of the Scheme (Rs. Cr) Target Achieved Target

CSI Airport Mumbai 0 1306 2280

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 IGI Airport Delhi 0 3910 162.5

Hyderabad Airport 0 84.87 0.4

Bengaluru Airport 0 19.84 192.71

Totals 0 5320.71 2635.61

Ports 2009-10 2010-11

Berths / Project Awarded Target Achieved Target

Haldia 0 4 2

Paradip 0 7 0

Vizag 0 5 4

Ennore 0 3 1

Chennai 0 2 0

Tuticorin 0 2 4

Cochin 0 3 2

New Mangalore 0 2 0

Mormugao 0 2 2

Mumbai 0 1 2

JNPT 0 3 2

Kandla 0 6 2

Totals 0 40 21

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 Power 2009-10 2010-11
Transmission Lines (circuit km) Target Achieved Target
Central 220 KV 632 206 481
Central 400 KV 6687 5494 7261
Central 500 KV HVDC 280 280 0
Central 765 KV 632 445 0
Sub-Total 8231 6425 7742
State 220 KV 6019 4612 5375
State 400 KV 2244 1552 2889
State 500 KV HVDC 0 0 0
State 765 KV 0 0 0
Sub-Total 8263 6164 8264
Private 220 KV 452 321 192
Private 400 KV 617 811 2365
Private 500 KV HVDC 0 0 0
Private 765 KV 0 0 0
Sub-Total 1069 1132 2557
Total 220 KV 7103 5139 6048
Total 400 KV 9548 7857 12515
Total 500 KV HVDC 280 280 0
Total 765 KV 632 445 0
Total 17563 13721 18563
Capacity Addition (MW) Target Achieved Target
Central 3402 2180 7639
State 4980 3118 6125
Private 6125 4287 6110
Total 14507 9585 19874
Power Generation (MU) Target Achieved Target
Central 329951 329608 340189
State 370315 348239 381082
Private 89245 93327 109498
Total 789511 771174 830769

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In the infrastructure space we presently have two stock s under our coverage. At this point we find them
attractive on valuation perspective. A brief review on their fundamentals is as follows:

IVRCL Infra

IVRCL is one of the few infrastructure companies which has exposure in almost all the areas of infrastructure and
construction sector. It has its presence in water, road, power, housing and industrial projects. As on 31 st
December, 2009, the company had an order book of Rs. 12000 Cr. The stock of IVRCL, has not performed as per
the expectation in FY10, FY11 may unfold a pleasant story. In the first three quarters of FY10, the company did
not show much of promise. It reported sales of Rs 1250 Cr for the first the same period. On the contrary the
company is expected to post surprisingly pleasant numbers in the last quarter. The management gives us a
guidance of Rs 5800 Cr of annual sales for the FY10.

Moreover, we also see tremendous value in IVRCL’s subsidiary, Hindustan Dorr Oliver (HDO) Ltd. Net Operating
Income of HDO for Q3FY10 stands at Rs 209 Cr (68% jump from Q3FY09). PAT for the same period is Rs 143 Cr
(93% up). The order book as on 29th March 2010 is Rs 1500 Cr. The current order book is 3 times FY09 earnings.
Thereby, looking at the average project execution cycle of 24-28 months, we can expect the revenue flow to be
robust in FY11 as well.

IRB Infra

IRB Infra is one of the leading players in the highway construction and maintenance with highest number of BOT
projects under construction and maintenance. The current order book of the company is about Rs 9000 Cr. The
company is maintaining a healthy ROE of 19% in the FY10. The company in the past was heavily dependent on
projects in the state of Maharashtra. In FY10, we saw significant geographical diversification in terms of revenue
dependence. Due to its in-house construction arm, it manages to earn a healthy margin as well. In FY10, company
has earned EBITDA margin of 47% and PAT margin of 27%. Moreover the company has enough construction
orders in its books to push the revenues northward even from the current level.

Both IRB Infra and IVRCL are uniquely placed at the moment. Where IRB enjoys the advantage of healthy margin
(47% EBITDA margin), IVRCL is backed by plenty of orders (3.8 times its expected FY10 sales). So if infrastructure
sector has to do well, these two companies are very likely to benefit out of it. An upswing in earnings shall also
reflect in stock prices as well.

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DISCLAIMER:
This report is for information purposes only and does not construe to be any investment, legal or taxation advice. It is not
intended as an offer or solicitation for the purchase and sale of any financial instrument. Any action taken by you on the basis
of the information contained herein is your responsibility alone and Eureka Stock & Share Broking Services Ltd [hereinafter
refereed as ESSBSL] and its subsidiaries or its employees or directors, associates will not be liable in any manner for the
consequences of such action taken by you. We have exercised due diligence in checking the correctness and authenticity of the
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associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any
inadvertent error in the information contained in this publication. The recipients of this report should rely on their own
investigations . ESSBSL and/or directors, employees or associates may have interests or positions, financial or otherwise in the
securities mentioned in this report.

Analyst Team

Analyst Name Sectors E-mail Contact Number

Samudrajit Gohain Oil & Gas, Engineering samudrajit@eurekasecurities.com +91 - 9748860335
Kinshuk Acharya Steel, Agriculture kinshuk@eurekasecurities.com +91 - 9681478735
Md. Riazuddin, FRM Banking, Economy, Power riazuddin@eurekasecurities.com +91 - 9903062346
Rajiv Agarwal Auto, Tea, Sugar rajiv.ag@eurekasecurities.com +91 - 9903076345
Ankit Kanodia Infrastructure ankit_kanodia@eurekasecurities.com +91 - 9163278562

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