Weekly Wrap

December 03, 2010

Investment Ideas

BUY BUY
Coal India Ltd CMP Rs322 Infosys Technologies CMP Rs3,115

Domestic coal deficit to widen to 25% of consumption by
FY17
By FY17, India's coal-based power generation is set to more than
double from the current capacity of 84GW leading to an incremental
demand of 396mn tons for coal (75% of current capacity). This,
coupled with the expansion in the various sectors, would lead to
an additional demand of 114mn by FY12 and 513mn tons by FY17.
We estimate an increase of 341mn tons in coal supply over FY10-
17, which is significantly lower than the demand. As a result, imports
would jump 3x and would account for 25% of consumption by
FY17.
Coal India is the best play on the rising coal deficit
Coal India Ltd (CIL) enjoys a near monopoly with a dominant 82%
share in domestic coal production and is the world's largest coal
producing company. At the end of FY10, CIL's total coal resources
stood at 64.8bn tons, comprising Proved Geological Reserves of
52.5bn tons, Indicated Geological Reserves of 10.3bn tons and
Inferred Geological Reserves of 1.9bn tons. Company's proven
reserves account for ~48% of India's proven reserves and the
reserves to production ratio for CIL stands at 122 years. Company
is currently operating out of 471 mines (163 open cast, 273
underground and 35 mixed) in 21 major coalfields across eight
states in India. The company has also recently undertaken various
initiatives for the acquisition of coal assets outside India.
Margin to expand; earnings to witness 15% CAGR
Being one of the lowest cost producers globally (US$16/ton) has
enabled the company to maintain healthy margins despite selling
coal at a huge discount to market price. We estimate OPM to expand
260bps over FY10-12 led by a 5.5% CAGR in volumes,
improvement in product mix and cost savings/productivity
improvement measures. The lower share of e-auction sales in total
volumes would be a headwind though. The expansion in OPM
would drive a higher-than-revenue CAGR in earnings of 15%. We
believe CIL would continue to trade at premium valuations (current
9x FY12E EV/EBITDA) considering its lower earnings volatility,
robust balance sheet and large resource base.
Robust business traction for large IT companies
Top tier IT companies have seen robust business traction in H1
FY11 reflected in robust volume growth and multiple large deal
wins. The demand environment continues to be sanguine with
meaningful up-tick in discretionary spends. Pricing has been stable
largely being only driven by changes in the services mix. Like-to-
like pricing improvement is expected from Q1 FY12 with return of
bargaining power with vendors. Another heartening feature has
been the broad breath of growth with almost all verticals, services
lines and geographies growing strongly. Large vendors remain
best placed to benefit from revival in Global IT spending due to
their diversified services portfolio and deep client relationships.
Higher exposure to discretionary spend driving growth
Infosys has one of the highest exposure to discretionary spends of
the clients. It has been witnessing strong traction in discretionary
services like engineering, consulting and package implementation
space with a large chunk of the recent incremental growth coming
from them. The increasing revenue share of discretionary services
has also reflected favourably in pricing of the company. The large-
deal pipeline (US$865mn TCV end Q2 FY11) is rich with multi-
service, consulting and transformational deals forming a large
part of it. The management is up-beat on near term demand and
continues to plan for growth (increased hiring target by 33% in
FY11). Infosys is poised to deliver high quality growth driven by
value added services (higher than average pricing) and non-linear
initiatives.
H2 FY11 guidance modest, expect outperformance
Infosys has guided for a modest 3% CQGR for H2 FY11 citing
lower number of working days and slower client decision making.
We expect the company to perform reasonably better vis-à-vis
guidance and further upgrade its annual guidance. The quality of
deal pipeline, strong hiring plans, expectation of decent increase
(3-5%) in CY11 budget bodes well. Margins are expected to remain
in narrow range with a possible up-tick due to better business mix
and price increases. With corporate governance of large chunk of
companies being questioned, Infosys with the most admirable
corporate governance practice should perform well in the near
term.

Valuation summary Valuation summary

Y/e 31 Dec (Rs m) CY08 CY09 CY10E CY11E Y/e 31 Mar (Rs m) FY09 FY10 FY11E FY12E
Revenues 422,806 479,103 546,220 594,020 Revenues 216,930 227,420 277,919 339,300
yoy growth (%) 19.0 13.3 14.0 8.8 yoy growth (%) 30.0 4.8 22.2 22.1
Operating profit 39,309 114,891 144,406 158,268 Operating profit 71,950 78,610 92,410 113,116
OPM (%) 9.3 24.0 26.4 26.6 OPM (%) 33.2 34.6 33.3 33.3
Reported PAT 20,754 96,224 116,114 127,441 Reported PAT 59,880 62,660 69,589 82,857
yoy growth (%) (56.0) 363.6 20.7 9.8 yoy growth (%) 28.5 4.6 11.1 19.1
EPS (Rs) 3.2 15.3 18.4 20.2 EPS (Rs) 103.0 108.7 121.9 145.1
P/E (x) 99.1 20.7 17.2 15.7 P/E (x) 29.6 28.1 25.0 21.0
Source: Company, India Infoline Research Source: Company, India Infoline Research

1
 India Infoline Weekly Wrap
Market review

Strong Q2 GDP number coupled with signs of inflation cooling off and FII & MF activity (Rs cr)
buoyant global cues translated into a 4% rally on the Nifty and the
FII MF
Sensex. A spate of other macro-economic data also supported the
Date Net Investment Net Investment
sentiment through the week. The investment focus shifted to large
caps, especially those with strong corporate governance, cash flows 25-Nov (532) (408)
and execution trackrecord. But, the revelation about a stock rigging 26-Nov (672) 235
scam sent shock waves across the market on Friday that hit the small- 29-Nov 272 (49)
caps and mid-caps badly. 30-Nov 1,191 (305)
01-Dec 446 229
S&P CNX NIFTY Total 2010 132,021 (28,428)

6,012 5,993
5,961 BSE Sensex & BSE 200 Top Five Gainers
BSE Sensex BSE 200
5,863 CMP % CMP %
5,830
Company (Rs) Chg Company (Rs) Chg
Tata Motors 1,315 12.7 Renuka 91 19.7
29-Nov 30-Nov 1-Dec 2-Dec 3-Dec Jindal Stl 680 10.7 Suzlon 52 15.1
Cipla 370 8.9 Adani Ent. 672 15.0
All the BSE sectoral indices ended in the positive terrain. The Realty Hindalco Ind. 216 8.0 Shriram Tran. 859 13.9
stocks, which got pounded recently owing to the bribes-for-loans SBI 3,071 7.4 HDIL 203 13.8
scam staged a strong come back. Banking stocks too rebounded.
Metals and Oil & gas stocks were among the other major gainers.
BSE Sensex & BSE 200 Top Five Losers
BSE FMCG 2.5% Sectoral Indices BSE Sensex BSE 200
BSE Power 3.1%
CMP % CMP %
BSE Pharma 3.5%
Company (Rs) Chg Company (Rs) Chg
BSE Small-Cap 3.6%
Hero Honda 1,832 (5.4) Welspun Corp. 160 (23.4)
BSE IT 3.7%
ACC 980 (2.0) Amtek Auto 118 (9.0)
BSE Cap Goods
4.2% Reliance Infra 837 (1.6) Videocon Ind. 204 (5.8)
BSE Auto 4.3%
BSE-200 4.4% Tata Power 1,290 (0.1) Hero Honda 1,832 (5.4)
BSE Oil & Gas 4.8% - - - ACC 980 (2.0)
BSE Metal 5.0%
BSE Bank 5.9%
7.6% Bulk deals
BSE Realty
Date Institution Scrip name B/S Qty (lacs) Price
0% 2% 4% 6% 8% 29-Nov Blackstone Asia Prakash Ind S 9.7 100.0
1-Dec UCO Bank Dhanus Tech S 0.9 15.1
The much-awaited bailout of Ireland failed to impress the world
market initially, but talk of fresh monetary measures by the ECB 1-Dec McDowell Hold SBI MF B 1.0 130.0
helped the euro recover against the dollar. A string of strong 1-Dec McDowell Hold SBI MF B 4.8 23.3
economic data from the US throughout the week sent Wall Street 1-Dec XL Telecom Goldman Sachs S 2.7 31.0
galloping while other risky assets also gained. A stronger than 2-Dec Hitech Plast Reliance Capital B 4.5 19.9
anticipated manufacturing PMI report from China to the US also
propped up the mood across equity markets. Though the ECB
eventually stopped short of expanding its bond buying programme, Book closures and record dates
well received debt auctions by Portugal and Spain supported the Company Date Purpose
markets.
Ess Dee Aluminium 07-Dec-2010 Dividend

6.0 Sadbhav Engr 07-Dec-2010 Stock Split

(%) Global Indices
4.3 4.2 Shiva Cement 09-Dec-2010 Bonus 1:10
4.0

1.6 1.9 1.4 Insider Trades

2.0 1.4
Company Name B/S Qty (‘000)
0.0 Lupin Rajeev Patil S 4.5
Reliance Cap Rajendra Chitale S 1.5
(2.0) (1.0)
Eicher Motors Vinod Aggarwal S 1.7
Sensex Nifty Dow Nasdaq* Hang Nikkei Shanghai
IndusInd Bank Paul Abraham S 25
Jones* Seng
*As per previous close

2
 India Infoline Weekly Wrap
Technical ideas

BUY BUY
ICICI Bank CMP Rs1,186 Cipla Ltd CMP Rs370

After forming an inverted head & shoulder on the hourly chart,
stock has signaled a breakout and has been sustaining above the
breakout levels of Rs1,160 quiet comfortably.
Adding to it the support trend line drawn from troughs of October
2010 is reinstated affirming the long term uptrend in the counter
and with prevailing positive crossover in the RSI and stock closing
above its 50 DMA, it has voided negative trend in the counter. One
can also see a formation of H&S bottom in RSI which support
buying argument in the counter.
We advise buying stock at current levels with stop loss of Rs1,150
for Target of Rs1,282.
The stock has given steady bounce back from the medium term
support levels of Rs335 leading to formation of ‘bullish belt hold’
pattern on candlestick. The pattern signifies trend reversal from its
short term consolidation along with resumption of bullish
momentum.Adding to it breakout on weekly chart from inverted
head and shoulder supports buying argument from the current
levels.
As stock is trading at all time high with the major obstacles been
cleared, stock is all set to make an up move of more than 10% in
coming week. Applying elliot wave principle, it suggest that wave 5
of intermediate degree is in process and can extend all the way to
Rs450.

We advise buying stock above Rs375 with stoploss of Rs358 for

Target of Rs420.

Positive open interest build-up Negative open interest build-up

Company Price % chg OI % chg Vol % chg Company Price % chg OI % chg Vol % chg
TCS 0.3 3.0 7.5 Reliance Power (1.4) 0.4 5.9
Infosys 0.8 2.8 (8.6) Glaxo (1.5) 0.4 (26.7)
Bajaj-Auto 1.7 1.3 23.8 Alstom Proj. (4.0) 0.3 (12.6)
HCL tech 0.9 1.3 (5.5) Reliance Media (3.2) 0.4 (41.0)
Bharti Airtel 0.1 0.4 15.6 Hind Zinc (0.4) 0.3 (19.7)

Technically strong Technically weak

10 days Total 10 days 10 days Total 10 days
Moving Traded Average Moving Traded Average
CMP Average Qty Traded Qty CMP Average Qty Traded Qty
Company (Rs) (Rs) (lacs) (lacs) Company (Rs) (Rs) (lacs) (lacs)
Bharat Forge 392 375 6.2 5.9 Anant Raj Ind. 114 117 8.9 4.9
Glenmark 375 357 16.0 10.9 BPCL 674 692 8.2 7.2
Renuka 91 86 189.8 135.0 Sesa Goa 308 316 60.9 38.0
Cipla 370 346 38.7 24.7 AB Nuvo 749 764 1.2 1.3
Hcl Tech 424 396 10.1 9.3 GDL 106 108 3.6 1.2

3
 India Infoline Weekly Wrap
Mutual fund round-up
India Infoline picks
Mutual Funds Assets NAV Absolute return (%) as on December 02, 2010
(Rs Cr) (Rs) 1wk 1mth 3mth 6mth 1yr 2yr 3yr 5yr
HDFC Top 200 (G) 9,358 226.0 3.4 (1.9) 8.8 23.1 26.3 170.4 40.9 200.3
IDFC Small & Midcap Equity –(G) 1,012 19.6 1.7 (4.2) 2.8 18.5 32.7 192.7 -- --
Reliance Equity Opportunities – (G) 2,694 38.0 2.8 (2.1) 4.9 22.7 39.6 207.7 27.9 178.1
ICICI Prudential Tax Plan (G) 1,337 147.5 2.4 (2.8) 5.8 17.6 27.1 195.5 27.5 110.9
HDFC Prudence Fund (G) 5,655 221.4 2.3 (1.7) 5.2 17.5 29.0 160.8 45.0 168.1

Fund this week: IDFC Small & Midcap Fund

Fund snapshot Asset allocation (%)
Fund Manager Kenneth Andrade Equity 89.0
Latest NAV Rs19.6 Debt 5.1
NAV 52 high/low Rs21/14 Cash/call 5.9
Latest AUM (cr) Rs1,193 Top 5 holdings (%)
Type Open-ended M&M Financial Services Ltd. 4.8
Class Equity - Diversified Central Bank Of India 4.3
Options Growth & dividend Shree Renuka Sugars Ltd. 3.9
Min investment Rs5,000 Vardhman Textiles Ltd. 3.8
Benchmark CNX Midcap Tulip Telecom Ltd. 3.8
No. of stocks 21 Top 3 sectors (%)
No. of sectors 15 Bank - Public 10.2
Expense ratio 2.1% Textile 5.4
Exit load 1.0% Lubricants 3.8

NFO update Dividend update

Fund Name Close Type Class Mutual Fund Dividend % Record date Class
ICICI Pru FMP Sr 53 - 1 Yr Pl C 7-Dec CE Debt - FMP UTI Half Yearly Interval FSr II 100.0 7-Dec Debt
DSP BlackRock FMP12M- Sr-10 7-Dec CE Debt - FMP ICICI Pru Qtrly Interval II Pl D 100.0 7-Dec Debt
Principal SMART Equity Fund 10-Dec OE Equity Kotak Qtrly Interval Pl Sr 8 100.0 8-Dec Debt

Commodity, debt and currency graphs

51 100 Crude (US$/bbl)
Currency 1,450 Gold $/OZ
49
1,250 80
47
1,050
45 60
43 850

41 40
650
May-09 Nov-09 May-10 Dec-10 May-09 Nov-09 May-10 Dec-10
May-09 Nov-09 May-10 Dec-10

8.5 10yr G-Sec Yield (%) 10,000 Copper (US$/ton) 2,700 Aluminium (US$/ton)
8.0
8,000 2,300
7.5
7.0 6,000 1,900
6.5
4,000 1,500
6.0
5.5 2,000 1,100
May-09 Nov-09 May-10 Dec-10 May-09 Nov-09 May-10 Dec-10 May-09 Nov-09 May-10 Dec-10
* As per previous close

IIFL, IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel (W), Mumbai 400 013
The information in this newsletter is generally provided from the press reports, electronic media, research, websites and other media. The information also includes information from interviews conducted,
analysis, views expressed by our research team. Investors should not rely solely on the information contained in this publication and must make their own investment decisions based on their specific
investment objectives and financial position and using such independent advisors as they believe necessary. The materials and information provided by this newsletter are not, and should not be construed
as an advice to buy or sell any of the securities named in this newsletter. India Infoline may or may not hold positions in any of the securities named in this newsletter as a part of its business. Past performance
is not necessarily an indication of future performance. India Infoline does not assure for accuracy or correctness of information or reports in the newsletter.