>INDIA STRATEGY: FY11/12 Earnings: What do Analysts think?

Consensus downgrades moderating before Q2 season

Analysts are turning bullish for the first time in a year. Riding into the quarterly earnings season, we gauge consensus sentiment across sectors, and find that earnings revisions are no longer headed south. We aren’t seeing substantial upgrades just yet, but the trend of downward revisions is moderating. Economic growth is on track with a solid monsoon, robust consumption demand (and
perhaps, a booming market), leading analysts to take a second look at earnings. RCML’s Q2 PAT (ex-oil) estimate is 29% for the Sensex, and 21% for our broader 135-stock coverage universe.

■ Consensus signals a moderation in earnings downgrades: Earnings revisions
across the market have turned slightly positive in the last two months. The MSCI
India Earnings Revision Index*, a key measure of sentiment, which has been on a
downward trend (i.e., more downgrades than upgrades) since September ’09, has
now shown signs of a reversal before the quarterly earnings season commences.
Sentiments have been even more positive for the 600+ stock IBES India universe,
the set of all stocks under sell-side coverage. In the backdrop of prolonged global
weakness and the possibility of a double dip, analyst optimism is borne out of a
good monsoon season, strong consumption demand, and a resilient Indian
market post-crisis.

■ FY11 earnings growth at ~20%, but not on upgrades: Meanwhile, profit growth
for Sensex companies remains largely unchanged since the ‘Tata (Motors/Steel)’
spike in June, at 20% for FY11 and 18% for FY12 (Fig 2). Gross FY11 profits have
remained flat (-0.6%) during this period. In other words, analysts haven’t factored
in any rise in full-year profits post Q1FY11. Not yet anyway.

■ Autos remain the sector of choice, Telecom the least-liked: Sector-wise, Autos
(Fig 3) have seen the highest earnings growth since last year, riding on the strong
volume growth post-recovery. Telecom earnings in contrast have been pared
down by a third in this period. While the overhang of competitive intensity, 3GBWA,
and MNP (where in contrast to the costs, data-revenue estimates are still
hazy) explains the negative quarterly estimates, the latest round of downgrades is
largely due to consolidated (including Africa) figures for Bharti. High upgrades
also imply an increased risk of disappointment, with Autos, Metals, Health, and
Capital Goods seeing the highest upgrades in the last three months and remain as
sectors to watch this earnings season.

■ Earnings upgrades and market performance… may not go together: Ratings may
not always translate into performance, as we know. While Autos, Cement and
Metals outperformed the market in line with upward earnings revisions, Banks,
Telecom and Real Estate have seen outperformance despite flat or downward
earnings revisions.

■ Sectors to watch out for this earnings season: Sectors such as Real Estate and
Telecom are the ones to watch out for this earnings season as outperformance
ahead of earnings could well turn into sharp underperformance in case of any
negative earnings surprises.

To read the full report: FY 11/12 Earnings

>STERLITE INDUSTRIES: Project issues continue

■ Q2FY11 production numbers in line
Vedanta Group’s/Sterlite Industries’ (Sterlite) Q2FY11 declared production
numbers were largely in line with our estimates. Lead production, however, was
7% ahead of our expectations.

■ Copper, VAL, and BALCO expansions effectively on hold
The 100 ktpa lead capacity expansion has been delayed by a quarter and is now
expected to be completed in Q3FY11. The 400 ktpa brown field copper expansion
has been put on hold considering the high court order to shut the existing
smelter due to environmental/pollution issues and pending approval from the
State Pollution Control Board. The Supreme Court has currently issued a stay on
the above order and hearing on the matter is scheduled on October 18.
With the Ministry of Environment and Forests withholding clearance for Vedanta
Aluminium’s (VAL) bauxite mine and objecting to the alumina expansion, the
company has effectively put on hold the entire expansion—alumina expansion at
VAL to 5 mt from the current 1 mt, smelter expansions of 1.25 mtpa at
Jharsuguda and 325 kt at Korba—at VAL and BALCO.

■ Increased power available for merchant sales
The company had planned to source power from Sterlite Energy’s (SEL) 2,400
MW plant for its upcoming 1.25 mtpa aluminium smelter at Jharsuguda. With
that project being deferred, the power available now will be sold on merchant
basis. Similarly, the entire output from the 1,200 MW captive power plant at
BALCO (for 325 ktpa smelter III) will also be available for merchant sales.

■ Outlook and valuations: Project execution concerns; maintain ‘BUY’
We are revising down Sterlite’s FY11E and FY12E PAT 8% and 4%, respectively,
after factoring in lower volume growth in Hindustan Zinc (HZL) and project
delays in copper, VAL, SEL and BALCO. Cash costs at VAL are running higher
than expected at ~USD 1,900/t even after considering purchased bauxite. While
the various projects and environment related issues will be an overhang on the
stock, we believe this has been factored in the stock price. From a longer-term
perspective we see value in the business. We retain our ‘BUY/Sector
Performer’ recommendation/rating, but lower our fair valuation to INR 203
(earlier INR 214) considering the revision in estimates.

To read the full report: STERLITE INDUSTRIES

>PUNJAB NATIONAL BANK: Out Performer

In a recent development, Punjab National Bank (PNB) and other seven banks'
exposure to Zoom developers (a Mumbai based project development company)
has come into light. The banks' total exposure to the account is close to Rs26
bn (non-fund based exposure), out of this PNB's (the lead banker) exposure is
close to Rs4.5 bn. In accordance with the media reporting, in Q1FY11, the bank
already recognized Rs3.0 bn as NPAs and made provisions. According to our
communication with other banks' managements some of the banks made
provisions in Q4FY10 itself. Around 76% of the banks' exposure is insured with
ECGC (Export Credit Guarantee Corporation).

Though, it appears that ECGC may not fulfill the banks' claim for the account,
and banks are pushing the matter for corporate debt restructuring (CDR). The
CDR package could provide short term relief to the borrower and to ECGC. The
borrower has been aggressively trying to raise short-term funds for fulfilling
liabilities on account of employees' costs and overheads. Given the status of
the borrower, CDR package might not revive the borrower and banks could have
to write off the entire exposure.

Central Bureau of Investigation (CBI) would be investigating the foreign currency
irregularities and the central bank would investigate huge amount of banks'
non-fund exposure to single account.

To read the full report: PNB

>KSK ENERGY VENTURES LIMITED: High Project Visibility coupled with Attractive Valuations (EQUIRUS)

We expect KSK Energy Ventures Limited (KSKEVL) to commission a total of 4644 MW by FY16 comprising operational capacity of 601 MW, capacity of 313 MW which is expected to be commissioned by FY11 and further capacity under construction of 3730 MW. KSKEVL has pioneered the group captive business model along with a focus on long term off take agreements and fuel security which lead to lower volatility in the tariffs and fuel costs. This provides higher visibility and scalability to its power generation capacity. We see 35% upside in KSKEVL by 30th Sep, 2011 and initiate coverage recommending LONG position and suggest an overweight within the power sector. Our FCFE based DCF Target Price (TP) of ` 242 is based on projections till FY17 and 20 years of growth.

■ Existing Capacity of 601 MW to be ramped up to 914 MW by FY11 and 4644 MW by
FY15 leading to 75% Revenue CAGR and 51% EPS CAGR from FY10 to FY15: KSKEVL has commissioned 601 MW across multiple locations in India including the first two units of
135 MW at the 540 (4*135) MW Warora plant. The further expansion of 313 MW includes 2
remaining units of the Warora Plant and a 43 MW expansion of Arasmeta Phase II. KSKEVL
has also achieved substantial progress on the 3600 MW KSK Mahanadi Project at
Chhatisgarh in terms of placement of BTG orders, commencement of construction works
at the site and recent financial closure for the entire debt requirement. It has incurred a
Project Cost of ` 33 bn and has already infused equity of ` 21 bn. It has also received
equity commitment of ` 2500 mn by IFCI and expects to commission the first unit of 600
MW in Q1FY12 vis-à-vis our conservative assumption of Q2FY12.

■ Predictability of business model and innovative capital structuring enabling higher
financial leverage: KSKEVL has focused on fuel security in the form of long term fuel
supply agreements and has tied up most of its off-take on a long term basis which provide
higher predictability to its business model. It has also set up power plants on captive
basis where in it receives partial equity contributions from its equity partners. These
factors have enabled KSKEVL to finance its projects at higher leverage than its peers.

■ Overcoming the Lehman Hangover with High Investor Interest due to Improved
Visibility of Projects, Scalability of Business and Attractive Valuations: KSKEVL has
entered into a lock up agreement with Lehman Brothers Subsidiaries (LB Entities) to not
sell 12.2% of the shareholding till Oct 30, 2011 and has a right of first refusal over sale of
6.5% of the shareholding. This reduces the uncertainty on the sale LB entities and we
expect that several long term investors will be interested in KSKEVL due to improved
visibility of its projects, scalability of business model and its attractive valuations. This is
evident in the recent commitments of ` 3.5 bn by IFCI and L&T Infra.

■ Attractive Valuations and High Sensitivity to Project Cost Overruns: KSKEVL is
attractively priced on FY10 and FY11 Price/Book to Forward RoE. The advanced stages of
its projects provide assurance regarding the implementation of the projected capacity of
4644 MW within the estimated project costs.

To read the full report: KSKEVL

>ING VYSYA BANK: Business and margin scaling up; initiate with Buy

We initiate coverage on ING Vysya Bank with Buy and price target of `445/share. We expect the Bank’s RoE and RoA to expand to 17.3% and 1% respectively by FY13e on the back of business scaling-up as well as improvement in margins and productivity.

■ Business growth scaling up; margin expansion. We expect ING Vysya Bank to witness improved business growth and higher market share FY11 onwards. Rising CASA share is likely to aid margin expansion to 3.1% in FY13e from 2.7% in FY10.

■ Rising productivity. Core Cost-to-income (excluding trading and extraordinary gains) sharply declined to 60 % in FY10, falling 690bps over FY09. Cost-to-assets at 2.5% in FY10, though higher than peers, shows significant scope for further improvement in productivity.

■ Adequate capitalisation. With strong backing of its international parent and current CRAR of 14.5% (tier 1 capital of 9.9%), the Bank is adequately capitalised to support future growth and
protect itself from additional loan defaults.

■ Valuation and risks. At our target price of `445, the stock would trade at 1.9x FY12e and 1.7x FY13e ABV. Our target price is based on the two-stage dividend-discount model (CoE: 13.2%;
beta: 0.87; Rf: 7.5%). Risks include slower-than-expected credit growth and higher slippages on account of NPAs.

To read the full report: ING VYSYA BANK

>Stocks with 35-50%+ potential

Midcap monitor is a new product from the Religare Strategy team where we
would analyze and provide updates on midcap stocks. In our first edition, we
provide 10 midcap picks (market cap of US$500mn-US$2bn) that we believe
have 35-50% upside by Dec-11. To build a diversified portfolio, we have
chosen stocks across the entire spectrum of Indian growth story – consumption
(Ashok Leyland, Educomp, Glenmark Pharmaceuticals), investment (Voltas,
Sobha Developers, Shree Cement, KEC Intl), Energy (Petronet LNG), diversified
(Sintex), financials (M&M financial Services). We recommend investors to take
significant position in these stocks for alpha performance.

Large caps are not cheap: Indian markets have risen 14% this year, 9% of it in
this month alone, and with Sensex at 19x 12m forward earnings, valuations are
not cheap for most of the large caps. While we continue to be bullish on India’s
long-term fundamentals, we do accept that near-term upside is limited in large
caps. As such, we find most investors are looking for mid-caps that still offer
significant share price upside either due to higher earnings trajectory or
possibility of multiple re-rating or a combination of both. This is our effort to
provide names of some of the midcaps with such upside potential.

Historical performance supports mid-caps: In the Indian markets’ near one-way
trajectory since 2003, small and mid-caps have outperformed large-caps by a fair
margin in 4/6 years. This year too, the BSE Midcap and Small-cap indices have
outperformed the Sensex by 15 and 22% YTD. While past performance is no
guarantee for future returns, we believe there’s sufficient growth potential in each
of our picks to become a large/mega-cap tomorrow. In this context we also
expect hitherto low foreign participation (13% in midcaps, 7% in small-caps vs.
25% in Sensex) to become more broad-based going forward.

Show me the money: Most investors believe that the higher risk of buying
midcaps needs to be justified by higher returns. Hence while screening the
midcap space for value and growth potential; we have shortlisted picks that we
believe will generate 35-50% returns by Dec’11.

To read the full report: POTENTIAL STOCKS

>JSW ENERGY LIMITED

■ Capacity to increase ~2x by FY12
JSW Energy (JSWEL) plans to more than double its capacity to 3.1GW by FY12 from 1.4GW currently. It plans to sell ~56% of its expanded capacity in the short-term market, which would increase its earnings sensitivity. If we consider the 270MW Raj West extension, the share of merchant capacity increases further to ~60%.

■ Exposed to the spot market for 46% of total coal requirement
JSWEL has entered into long term coal supply contract with PT Sungai Belati and its South African company (South African Coal Mining Holding Ltd), which will together supply ~4mtpa. We believe
this will meet only ~54% of its total coal requirement of ~7mtpa in FY13, thus keeping it exposed to the spot market (on a steady state basis) for ~3.2mtpa. This dependence would be higher in
FY12E at ~4.8mn tons, as the company operates a part of its Rajasthan unit on imported coal.

■ Expect 13% downside; Initiate with SELL recommendation
Although, JSWEL is one of the fastest-growing power companies, we believe its high exposure to spot market only increases earnings sensitivity. Robust 66% earnings CAGR over FY10-12E, due to higher operational capacity, should allow the stock to trade at a premium in the near future. We expect the premium to contract as: 1) capacity addition slows; 2) short-term rates soften; and 3) fuel prices increase. Decline in profitability and higher interest outgo will contract its RoE going forward. Hence, further upside for the stock seems limited, in our view. We value the company on FCFE to arrive at our target price of Rs117, implying potential downside of 13%. We initiate coverage with a SELL recommendation.

To read the full report: JSW ENERGY LIMITED

>CLARIANT CHEMICALS: Capitalising on consumption boom

Supplier of specialty chemicals for value addition in host of consumption categories

Clariant Chemicals (India) (CCIL), a 63.4% subsidiary of Clariant AG, Switzerland, is a
leading specialty chemicals companies. India is witnessing one of the best growth rates ever
seen in consumption in various sectors including automobiles, paints, personal care, food
and beverages or textiles. With demand growing at a fast clip, CCIL is ideally placed to
capitalise on this favourable trend as it caters to most of the consumption categories.

Most of CCIL’s portfolio consists of specialty of products enjoying strong brand
and tremendous customer loyalty due to superior quality and technology. As the
consumption boom gathers steam, demand for value-added and well-finished products
will expand at a faster rate than the category growth. Hence, the company’s products
will enjoy faster growth.

The textile business of CCIL enhances the properties of apparel and other textiles in
applications as diverse as high fashion, home textiles, and special technical textiles. The
company is also a leading manufacturer and supplier of pigments and its preparations for
manufacturing paints, plastics, printing inks, cosmetics, detergents or special applications
like latex, and viscose. Its high performance pigments meet the exacting demands of the
automotive, coil and coating industries.

To read the full report: CCIL

>TELECOMMUNICATION SECTOR: The next round gets tougher

We maintain our medium-term cautious view on the telecom sector and downgrade Bharti
Airtel (Bharti) to ‘HOLD’ and Reliance Communications (Rcom) to ’REDUCE’. We maintain
‘HOLD’ on Idea Cellular (Idea) and ‘BUY’ on Tulip Telecom (TTSL). We anticipate tariff wars
to re-emerge with the implementation of Mobile Number Portability (MNP) and launch of 3G services. We believe, Bharti’s dominance in revenue market share and margins will be challenged by Idea, Aircel, and Tata Docomo. The entry of MVNOs will further make the market competitive. Over the longer term, we believe, the sector will witness de-leveraging of balance sheets and sustenance of healthy cash flows. But, at current valuations the street is in for a disappointment.

■ Resurgence of competitive intensity likely
In the past 10 months, headline tariffs have been stable, but revenue per minute (RPM)
has declined 22%. With implementation of MNP and launch of 3G services, we anticipate
re-emergence of tariff wars. In our view, Idea, Aircel and Tata Docomo will utilise the
MNP opportunity to target Bharti’s and Vodafone’s high usage customers. As per media
reports, the government is planning to allow entry of MVNOs, which will make the
market more competitive. Thus, Bharti’s dominance, with 32% revenue market share will
be severely challenged.

■ Margins to remain under pressure
MNP implementation and launch of 3G services will lead to escalation in costs. We
believe, the entry of MVNOs will lead to further pressure on business for incumbents.
While on one hand tariffs will be under pressure, on the other, we expect network
operating costs and customer acquisition/retention costs to escalate. This, combined with
expensing of interest cost and amortisation of 3G licence fee will lead to lower
profitability. In our estimate, Bharti will have to generate incremental ARPU of INR 622
per month from 3G services in Mumbai to breakeven and INR 800 to defend current
margins.

■ No meaningful consolidation expected
Street is expecting consolidation in the sector. We believe, a shake-out is imminent in
the new operator segment. Post-consolidation we expect the current top 7 operators,
who control 98% of industry revenues to continue. Thus, consolidation will not be
meaningful.

■ Tower and handset businesses offer attractive alternate options
The tower industry is fairly consolidated with five players mostly fulfilling infrastructure
requirements of telecom operators. We expect the tower industry to generate revenue of
INR 191 bn and EBITDA of INR 112 bn in FY12E. The handset industry, riding on
significant growth in subscribers, is expected to sell 295 mn handsets and report
revenues of INR 286 bn in FY12E.

■ Valuations and view: Await a better entry point
Bharti and Idea stock price has risen 40% in the past three months due to investor
optimism on stable tariff environment and as the stocks have under performed the broad
indices over the past two years. We don’t believe tariff wars have ended. Bharti is
trading at similar valuations as it did when its stock price peaked in February 2008
despite higher competitive intensity in business and inferior financials. We downgrade
Bharti to ‘HOLD’ and RCOM to ‘REDUCE’. Maintain ‘HOLD’ on Idea and ‘BUY’ on Tulip
Telecom.

To read the full report: TELECOM SECTOR

>INDIA CONSTRUCTION SECTOR: Concerns overdone; risk-reward ratio favourable

Strong order inflows, improved credit scenario and better execution capabilities are expected to accelerate revenue momentum for India construction sector in the coming quarters. We expect our coverage universe to report 16%/23% YoY growth in revenue for FY11/12 (8% in FY10).
With the recent correction, the risk-reward ratio for select construction companies has turned favourable, in our view. Revival in execution and pick-up in industrial/international orders will be the key triggers for construction companies in the near to medium term. Simplex Infrastructure (SINF) and Nagarjuna Construction (NJCC) are our top-picks in the sector with 20%+ potential upside from current levels.

Investment Highlights
■ Ordering opportunity for construction players pegged at US$109 bn between FY10-12E
We peg the ordering opportunity for construction companies at US$109 bn over the next two years led by acceleration in awarding of national highway projects and increasing opportunities in the power sector. Road/power/irrigation/railway sector are expected to contribute 40%/24%/14%/13% of the total orders.

■ Infrastructure investment robust despite slippages
Despite slippages in meeting target, infrastructure investment (ex-storage, oil & gas and telecom) has seen a 17% CAGR in the past five years. In FY10, infrastructure spending increased to US$69 bn or 5.8% of GDP (5.0% in FY04). As per revised projections, US$349 bn (ex-storage, oil & gas and telecom) is expected to be invested in the 11th Plan (US$170 bn in the 10th Plan), with private sector contribution expected at 25% (22% in the 10th Plan).

■ Strong order inflows in H2FY10 to accelerate revenue growth in H2FY11/FY12
Economic slowdown and general elections led to muted order inflows in H2FY09 and H1FY10. Order inflows, however, have picked-up since H2FY10 (up 74% YoY). Due to the back-ended nature of revenues, we expect our coverage universe (SINF, NJCC, IVRCL and HCC) to report a 16% YoY growth in revenues for FY11 (8% YoY growth in Q1FY11) and 23% YoY growth for FY12.

■ Risk-reward ratio favourable; SINF and NJCC our top-picks
After outperforming the broader markets during the pre-crisis period, construction stocks have been a consistent underperformer since May 2008. Against a 2% return generated by Sensex between May 2008 and August 2010, our coverage universe has delivered a negative 25% return.

With earnings momentum expected to pick-up in the coming quarters, select construction stocks are trading at attractive valuations (available at 9-12x our FY12 EPS). Within the construction space, we prefer SINF and NJCC due to their (1) diversified order book (2) better working capital position (3) conservative approach to BOT projects and (4) attractive valuations. We have valued construction companies based on SOTP methodology. For the core construction business, we have assigned earnings multiple in the range of 10-15x, based on certain quantitative and qualitative factors. The listed (unlisted) subsidiaries of construction companies are valued at 30% discount to CMP (1x book value). We initiate coverage on SINF, NJCC and IVRCL with a BUY rating and maintain our HOLD rating on HCC.

To read the full report: INDIA CONSTRUCTION SECTOR

>MIDCAP STOCKS MONITOR REPORT

We are suggesting 10 midcap stocks in this Midcap Monitor report which we believe have 35 -
50% upside by Dec.-2011. We have selected the following stocks from the entire gamut of
Midcap growth story -

1) Ashok Leyland
2) KEC International
3) Glenmark Pharmaceuticals
4) Educomp Solutions
5) Petronet LNG
6) Sintex Industries
7) Sobha Developers
8) Mahindra & Mahindra Financial Services Ltd
9) Shree Cement
10) Voltas

India’s medium-term economic growth story continues to remain healthy on account of a revival in demand - the current year looks particularly good given the better monsoon and its impact on rural demand.

Till September 29 this year, FIIs have invested about Rs 85,340 crore in the Indian markets, which is among the largest inflows in recent years and a lot of foreign money has flowed into the largecap stocks. Therefore, midcaps have underperformed in the recent past. The BSE Midcap index has delivered only 6.14% returns in the last one month vis-a-vis the Sensex’s 10.8% returns.

To read the full report: MIDCAP STOCKS

>JAIPRAKASH ASSOCIATES: Well placed to benefit from infrastructure creation

■ Jaiprakash Associates, has underperformed the broader market by around 39%
in the past one year on account of some overhangs in terms of a potential sale
of its treasury stock, a delay in the execution of its Yamuna Expressway project
due to farmers’ protests and its plan to enter into the non-related fertiliser
business.

■ With regards the farmers’ protests against the Yamuna Expressway project in
Uttar Pradesh for a justifiable compensation for land to be surrendered by
them, the government has decided to go back to the drawing board to create
an expressway authority and decide the funding pattern for the projects. Due
to the farmers’ protests, the work of the company suffered for about 20 days
at a particular stretch on the expressway. We believe the issue is negative for
the company as it may lead to a delay in the execution time of the project or
could lead to an increase in the cost of the project. On the real estate front,
the company could sell about 5.1 million square feet (sq ft; as on August 31). At
the moment the company is constructing almost 20 million sq ft and hopes to
start deliveries next year from June 2011.

■ Further, the company is also looking to make a foray in the business of
manufacturing and marketing of fertilisers, either on its own or through a special
purpose vehicle (SPV). As per media reports, JP Associates is looking to acquire
a controlling stake of nearly 74% in the fertiliser division of Duncans Industries.
The fertiliser division of Duncans Industries is proposed to be hived off into a
separate entity. Duncans Industries’ fertiliser unit is located at Panki in Uttar
Pradesh and is non-operational at present. We believe the company’s likely
foray into the fertiliser business is also an overhang on the stock as it is not
related to its present business model.

■ The re-rating triggers for the stock will be an improving outlook for the real
estate companies, better than expected execution of its expressway and power
projects, and a better than expected performance of its cement division, which
contributes around 40% of its overall revenue.

To read the full report: JAIPRAKASH ASSOCIATES

>HYDERABAD INDUSTRIES LIMITED

COMPANY BRIEF: Hyderabad Industries Ltd. (HIL) is one of the leading manufacturers of
Fibre Cement Sheets in India with a market share of about 20.5%. Its key product range include Fibre Cement Roofing Sheets sold under the brand name CHARMINAR, AAC Blocks and Panels called AEROCON, and Calcium Silicate Insulation Product (thermal insulation) called HYSIL.

Highlights
⇒ HIL has an extensive presence across the country and enjoys premium brand equity in the market based on superior quality, strength and durability.

⇒ The company has diversified into value added (environmental friendly green) products, which will de‐risk its business model and diversify its revenue stream. Given the diversification into value added products, we strongly believe that HIL is due to get re‐rated and command much higher multiple in times to come.

⇒ Demand of such green building products is increasing across the world on account of serious concerns about the environment and the impact on energy consumption.

⇒ HIL is increasing the cement sheet capacity by 180000 tpa to 1079500 tpa & thermal insulation by 3000 tpa to 11500 tpa in CY11. This will help the company to keep pace with the growing demand for its products and retain significant share in the market.

⇒ Relatively speaking, HIL has far superior earnings profile and return ratios in comparison to its peers. It has a stronger balance sheet with a Debt:Equity Ratio of 0.3, ROCE of ~44%. The company has the highest operating margins in comparison to its peers.

⇒ At the current price of ` 624, the stock trades at a P/E multiple of 4.1 x FY12E earnings and P/BV multiple 1.0 x FY12E earnings. We recommend a “BUY” on the stock with a price target of ` 754, assuming a P/E multiple of 5 x FY12E earnings, an upside of 21% from the current levels, over a period of 12 months.

To read the full report: HIL

>RANBAXY LABORATORIES: Multiple triggers ahead; Upgrade to Hold

■ Worst is behind; Multiple triggers ahead
■ These triggers present potential upsides of Rs120
■ Factored in only triggers like - hive-off of NCE R&D and monetization of Aricept FTF- which have already kicked in
■ Upgrade to ‘Hold’ and raise target price to Rs520. Have a positive bias on the stock but will factor in upsides only on occurrence of triggers

To read the full report: RANBAXY LABS

>SATYAM (CLSA)

Satyam – FAQs and what to expect on 29th Sep?

Satyam will report its financials on 29th September, 21 months after the fraud was
discovered. The impending result report and the 27% stock move in the last 1
month have generated considerable investor interest. This note attempts to answer
a few key investor queries.

#1: Financials for what period will be reported?

#2: Why is FY10 reported revenue not representative of current business status at Satyam?

#3: Can Satyam report YY growth in revenues in FY11?

#4: What is happening on the supply-side at Satyam?

#5: What could be Satyam’s margin trajectory in FY11?

To read the full report: SATYAM

>>STRATEGY: DECALOGUE: KIE'S TOP TEN RECOMMENDATIONS

■ Dearth of absolute low valuation ideas

■ Infrastructure and domestic consumption dominate the list

To read the full report: INDIA STRATEGY

>ENGINEERING, CAPITAL GOODS & INFRASTRUCTURE STRATEGY

To read the full report: ECI STRATEGY

>CRISIL: Putting cash to good use - acquires Pipal Research

■ CRISIL to by Pipal Research, for a sum of USD12.75mn. The
acquisition is at 1.6-3.2x EV/ Sales (assuming 50-100%
stake), which is lower than 2.2x it gave for Irevna in 2005

■ Looking at CRISIL’s history of acquiring smaller companies
and then quick scale up it will be able to scale up Pipal’s
business significantly leveraging their existing capabilities

■ The acquisition of Pipal alongwith recent buy back program,
we expect CRISIL’s ROEs to improve, which till date were not
optimized due to high cash on book

■ At CMP of Rs6,169, the stock trades at 26.6x CY10E EPS of
Rs232 and 21.7x CY11E EPS of Rs284. We will review our
numbers and rating after having more details on Pipal

To read the full report: CRISIL

>INDIA: Financial Services

Banking Sector – In good shape
We recently hosted an Indian Financials road trip, where investors hadextensive interaction with 25 corporates. Our key takeaways:

(1) Credit growth will likely accelerate and will be more broad based in 2H as corporates start drawing down on approvals,

(2) Deposit growth which has been sluggish so far (not indicted to be a concern) will improve as banks have raised deposit rates,

(3) Banks remain optimistic on CASA targets despite a rising rate environment,

(4) Not all banks were confident of margin improvement given less pricing power, which they expect to return with credit growth,

(5) Banks expect NPLs to rise in FY2011 on account of agri debt, and end of moratorium period for restructured assets, both of which could lead to some more slippage, though remain manageable and improve in FY2012,

(6) HR issues seem to be the major concern for PSU banks as they see a large number of senior staff retiring as well as debate about compensation packages to retain and attract talent. Branch expansion and shorter branch breakeven seem to be key drivers of growth for private banks to increase profitability.

Insurance Sector – Jury will be out for some time
Insurance industry interactions were more tepid in tone with the jury still likely to be out for some time on how recent regulations would impact growth and margins. Companies are currently in the process of calibrating strategies – product mix, and focus on cost, productivity and persistency to minimize impact.

From our interactions it emerged that insurance companies expect volume growth to be lower in 2H given a higher base, lower commissions and retraining of agency force to sell new products. Most companies we interacted with indicated a potential shift in product focus to traditional
products from ULIP, though these traditional products along with distributors may potentially be the next target area for the regulator.

We expect margins to fall to 12-15% from 19-20% pre-regulatory changes even despite the potential significant cost cuts planned by companies.

Most companies seem comfortable on capital at least for FY2011. Potential equity issuances are now not on the horizon.

To read the full report: FINANCIAL SERVICES