>Global Financial Events (October 10 - October 16, 2011)

China: In China, we expect CPI inflation to remain elevated in September, while exports growth is likely to show moderation. On the central bank policy front, we expect the Bank of Korea and Bank Indonesia to stay on hold and the Monetary Authority of Singapore to shift to a neutral SGD stance. In the US, retail sales would be key to watch for the latest trends in consumer spending.

India: We expect industrial production (IP) growth to remain weak at 4.5% yoy in August on the back of the poor performance of various activity indicators like the Infrastructure Index, the PMI etc.

Korea: We do not expect the Bank of Korea to raise the policy rate in the October Monetary Policy Committee meeting, given the elevated financial stress in Europe.

Singapore: We now think that an even greater reduction of the slope to a 0% appreciation

stance is the most likely scenario, in light of the increased downside risks to growth and given where the SGD NEER is currently trading.

To read full report: GLOBAL FINANCIAL EVENTS

>UNITED SPIRITS: Downgrade to Neutral on nearterm overhangs; core business valuation remains attractive

■ Action: Cutting estimates and downgrading to Neutral

We cut our FY12F and FY13F earnings estimates by ~30% and downgrade the stock to Neutral to reflect our lowered expectations for domestic business profitability. While we expect FY12F to be a year of consolidation marked by stable EBITDA per case in the domestic business, we expect marginal improvement into FY13F. We believe nearterm overhangs, particularly the group company Kingfisher Airlines, will hold back stock price performance; however, valuation at 15.3x FY13F P/E remains attractive, in our view.

Hangover to last for a while

■ Catalysts: Softening raw material prices a positive catalyst for FY13F

As the company continues to build more in-house capacity post the acquisitions of Pioneer and Sovereign distilleries, we believe it will be able to capture more of the distillation margins over the next couple of years. This should, in our view, help improve profitability of the domestic

business. However, we are not building in any material improvement in profitability in our numbers as visibility on that remains low.

■ Valuation: Near-term concerns outweigh valuations

On our revised numbers, UNSP trades at 15.3x FY13F P/E, a steep 38% discount to the FMCG sector average. While we expect UNSP to deliver 20% earnings growth in FY13F, we expect FY12F to be a year of consolidation. While valuation at 15.3x FY13F looks attractive, near-term

concerns over the balance sheet and funding requirement at group company Kingfisher Airlines will likely remain overhangs, in our view. We prefer to remain on the sidelines in the near term.

To read the full report: UNITED SPIRITS

>Hindustan Zinc: Silver boost in the price – little to look forward to

■ Action: Lack of catalysts either way

HZ has been one of the better performing metal stocks during the past two months (down 19.6% compared to the BSE metal index’s fall of 26.8%).

We believe the stock will have downside support on account of: 1) cash of INR192bn and 2) earnings visibility. However, upside will likely be capped as we expect: 1) earnings growth to taper since most of the expansion is already completed and given higher royalties on account of new mines and mineral acts and 2) we don’t expect yield on its cash and equivalents to improve for lack of investment opportunities. Maintain NEUTRAL with a target price of INR120.

Downside support, but upside capped

■ Catalysts: Not in the immediate future

The sale of the remaining stake in HZ by the government would be a key positive catalyst, in our view.

■ Valuations: Fairly valued, maintain NEUTRAL

We have valued HZ at 10x FY13E EPS of INR13. On our valuations the stock would trade at 7.6x FY13E EV/EBITDA and 1.8x FY12E P/B. Since cash contributes more than 35% of the total value, we believe there is a strong support for the stock on the downside.

■ Although zinc prices have corrected by 16% during the past two months, the impact was mitigated by a corresponding 10% depreciation of INR.

■ We have reduced our target price to INR 120 from INR 130 earlier, as our earnings estimates have come down due to higher royalties on account of new mines and minerals bill.

To read the full report: HINDUSTAN ZINC