>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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>IDBI(FIRST GLOBAL)

A few quarters back, we had subscribed to IDBI Bank Ltd.’s (IDBI.IN)/(IDBI.BO) long-term growth story, based on its improving return ratios and technology driven expansion plans, despite some legacy issues.
Quote: “IDBI isn’t a growth stock, so don’t look for eye-popping growth here. It’s a good, old-fashioned value play, the way value plays ought to be. And we don’t see much price downside from hereon. “
Unquote: (From First Global’s, “IDBI Bank Ltd. (IDBI.IN)/ (IDBI.BO): Contours of a turnaround are visible,”
dated July 30, 2008).
The price of the IDBI stock was Rs.77 then…hasn’t done too badly at all, for a value play…
IDBI has been exhibiting a significant improvement across all key parameters, such as growth,
margins and asset quality. The bank’s net interest margin, which had remained below industry
average, has also begun showing signs of
improvement and was up from 0.80% in FY07 to
1.06% in FY09. According to management, IDBI
is targeting a net interest margin of 1.2% for
FY10. Of late, the bank has been focusing
aggressively on the retail segment, with its retail
advances increasing by 47% Y-o-Y to Rs.249 bn
and agricultural advances recording a stellar
growth of 314% Y-o-Y to Rs.63 bn in FY09.
IDBI is targeting the retail segment both to garner
higher deposits, as well as increase its loan
disbursements. The Net NPA ratio stood at 0.92%
in FY09, as against 1.12% in FY07. At the end of
August 2009, IDBI has 578 branches and 1006
ATMs spread across 360 centres and intends to set up more branches over the next year, thus taking its total number of branches to 750 by March 2010. This will help garner more of Current Accountand Savings Account (CASA) deposits. In FY09, IDBI Fortis Life Insurance Company Limited (a joint venture with a holding of 48%) recorded a Gross Written Premium of Rs.3.19 bn, as against Rs.119 mn in FY08. IDBI is also looking to extend its operations beyond the domestic market and has already received approval for setting up a wholesale bank branch at Bahrain, an offshore banking unit at Singapore, a category-I branch at Dubai International Financial Centre (DIFC) and a representative office at Shanghai. Going forward, management has targeted a growth of 25-28% in advances, which, we believe, is achievable, given the strong pick up in demand in the infrastructure segment, where IDBI is well positioned due to its established client relationships and strong appraisal skills. Management has targeted a growth of 32-35% in deposits for FY10.

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>UNITED SPIRITS(NOMURA)

Investment Conclusion
We acknowledge the timing of the disclosures
leaves a lot to be desired and believe these issues
should have been highlighted earlier by
management. However, given the notional nature
of the losses and the possibility of a partial/full
recovery in the years ahead, we are not too
concerned about these developments and believe
the long-term value of the franchise remains
unaffected. Also, we do not believe the stock
deserves a de-rating owing to these developments
in the medium term. We expect the Street reaction
to die down in a day or two and believe investors
should use every fall as an opportunity to build a
position in the stock. We reiterate our BUY with an
unchanged target price of INR1,096.
Summary
􀂉 United Spirits reported a loss of INR4bn in its
recently announced audited and consolidated
FY09 results.
􀂉 However, the core business profitability is in line
with our estimates and the losses are on account
of: a) notional Fx loss, and b) mark-to-market
actuarial loss on pension liabilities in W&M
business.

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>TATA MOTORS(UBS)

Q1FY10 – JLR volumes lumes have bottomed
􀂄 JLR volumes likely to increase going forward
JLR reported an operating margin of (10.3%) for Q1FY10 driven by continued
weak sales. JLR volumes were down 52%YoY and up 10% QoQ. While wholesale
volumes remained weak retail volumes are showing signs of stabalizing at a higher
level. With limited inventory in the channel (Rs 60bn), we believe JLR volumes
will reflect the retail volumes for closely going forward.
􀂄 Unexplained shifts in JLR cost structure, FX gains reduce overall loss
JLR reported EBITDA margin of -3% for Q1FY10, as raw material cost (as %age
of sales) increase 850bps over FY09 and other expenses declined 1080bps. This is
despite decline in raw material prices for JLR from this qtr. Mgmt. maintained
there is no reclassification of costs at JLR. JLR capitalized GBP 100mn of product
development and capex was GBP 50mn during the qtr. Profitability of other key
subsidiaries continued to remain weak. Cons. PAT of Rs -3.29bn was aided by gain
of Rs 3.2bn on sale of stake in Tata Steel and FX translation gains of Rs 3.34bn.
􀂄 Significant capital raising required, debt reduced marginally
Gross debt declined qoq by Rs 11bn to Rs 338.5bn despite increase of Rs 5bn in
vehicle finance book and Rs 2bn increase in cash. We believe this decrease is
partly driven by advance money collected for Nano booking. We see limited
likelihood of free cash flow generation given high capex and R&D expense both at
parent and JLR and significant interest burden.
􀂄 Valuation: Maintain Sell, PT Rs 140
We value Tata Motors on 5x EV/EBITDA (avg. of FY10E and FY11E).

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