>YES BANK(INDIA BULLS)

Yes Bank’s net profit for Q1’10 surged 84.2% yoy to Rs. 1.0bn, driven by
a robust rise in non-interest income, which in turn increased primarily
because of higher treasury income of Rs. 850mn. During the quarter, the
Bank’s advances increased 2.2% q-o-q while deposits decreased by
5.1%. Our outlook for the next few quarter is negative for the Bank due to
heavy dependence on non-interest income (a key driver of the stock
price), a portfolio skewed towards corporate banking, and a volatile
deposits base with a low CASA ratio. Our DECF valuation suggests a fair
value of Rs. 177, indicating a potential downside of 9.9% over the current
stock price. Moreover, the stock is trading around its 52 week high with
the P/B ratio of around ~3.3x, which we believe is high given the volatile
nature of income and the growth prospects. Thus, we downgrade the
stock from Hold to Sell.
NPAs likely to continue trending upwards: At the close of Q1’10, the
Bank’s Gross NPA ratio stood at 0.48% and restructured advances worth
Rs. 1.2bn (0.94% of gross advances). However, being conservative, the
Bank increased its total provisioning by more than 4 times yoy to
Rs 455.3 mn leading to an increase in the coverage ratio from 18.2% in
Q1’09 to 50.5% in Q1’10. Our expectation regarding NPAs remains
unchanged as the Bank has high exposure to the corporate segment
(constitutes 64.7% of wholesale banking), thereby increasing the chances
of slippages where the probability of a sharp spike in NPAs is greater due
to large-ticket loans.

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>ABB Limited(INDIA BULLS)

For Q2’09, ABB Limited (India)’s revenue declined by 7.1% yoy to
Rs. 15.1 bn. EBITDA declined by 32.5% yoy to Rs. 1.4 bn due to an
increase in employee costs and other expenditures. In the
near-to-medium term, we expect the Company to benefit from the
increasing Infrastructure investments, expansion plans in the Power sector,
and a revival of corporate capex cycle, which should give a boost to the
Company’s order book.
Order book to improve: In Q2’09, ABB secured Rs. 21.1 bn worth of new
orders. Most of these orders have been placed by government utilities. At
the end of Q2’09, the Company had an outstanding order book of
Rs. 76.2 bn, which represents 1.1x of FY08 revenue. Going forward, we
expect the Power segment of the Company to get a boost from the
investments in the Power sector by the Government of India (GoI). GoI has
envisaged a capacity addition of more than 78,000 MW in XIth five year
plan, and around 100,000 MW in XIIth five year plan to address the current
power deficit and increasing demand for power in the country. Accordingly,
we expect robust order inflows for the Company in the
near-to-medium term.

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>INDIA STRATEGY(The next Asian Tiger)(UBS)

India—the next Asian tiger
􀂄 India provides significant potential for investors
1) We believe India’s economy could be entering a golden period—we expect real
GDP growth of 8-9% pa for the next 10-20 years. 2) The stock market is relatively
liquid (US$5bn average traded value) with several diversified sectors.
3) Penetration levels for most products and services are relatively low, implying
ample room for high-growth investment ideas. 4) Attractive demographics and a
high savings rate imply that demand for equity stocks and mutual funds is likely to
multiply in the next 10-15 years.
􀂄 Four themes: consumption; leverage; infrastructure; equity investment
We have identified four investment themes: 1) the consumption boom, driven by
low penetration, attractive demographics, and strong economic growth; 2) low
household leverage, which is likely to change and translate to higher demand for
financial services; 3) higher infrastructure investment—we estimate infrastructure
investment of US$2.5trn in the next 15 years; and 4) greater potential demand for
equities, as India’s relatively high household savings could be channelled into the
equity markets.
􀂄 March 2011 Sensex target of 20,000
Our March 2011 Sensex target of 20,000 is based on a forward PE multiple of
14.9x on FY12E EPS. We forecast a Sensex earnings CAGR of 12% in the next
15-20 years. Assuming a long-term average PE multiple of 15x, the Sensex could
reach a level of 100,000 by FY25 (it is 16,741 currently). Key overweight positions
in our model portfolio are: Maruti Suzuki India, public sector banks (Bank of
Baroda, Punjab National Bank and Union Bank), Unitech, Indiabulls Real Estate,
Infosys Technologies, Tata Consultancy Services, Tata Power, ACC and JSW
Steel.

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