9th Oct, 2010: Gray Market Premium Prices for India IPO

Company Name	Offer Price	Premium
	(Rs.)	(Rs.)
Gallantt Ispat	50 (Fixed Price)	1 to 2
VA TechWabag	1310 (Upper Band)	395 to 425
Cantabil Retail	135 (Upper Band)	DISCOUNT
Tecpro Systems	355 (Upper Band)	40 to 45
Ashok Buildcon	324 (Upper Band)	23 to 26
Sea TV Network	100 (Upper Band)	10 to 15
Bedmutha Ind	95 to 102	8 to 9
Commercial Engg	125 to 127	DISCOUNT
Oberoi Realty	253 to 260	3 to 5
B S Trans	247 to 257	DISCOUNT
Coal India	250 to 270 (rumored)	1 to 2

HSBC's Preferred play: Smaller private banks: YES Bank, OW

Quarter-end credit growth picks up: For the fortnight ended on 24 September 2010,
system loan growth improved on YTD basis from 4.4% in the previous fortnight and 3.4%
from August end to 5.6% currently. Despite this increase, it shows the slowest pickup
over the last five years. Also, despite a lower base, YoY growth remained moderate at
19%. The question remains whether the traditional 2H pickup can comfortably exceed
RBI’s estimate of 20%.
Past trends give hope for credit growth: An analysis of the past five years’ trend indicates
that the busy season (2H of each year) sees 2H over 1H growth of an average of 16%.
Extrapolating this to the current year, we arrive at FY11 credit growth of 21%, above RBI’s
estimate but below Street estimates of 22% and much below our estimate of 25%.
Lagging deposit growth implies margin pressure: Deposit growth has remained
subdued, growing only 4.9% on a YTD basis and the lowest growth in the past six years.
In the event credit growth picks up in 2HFY11, the current liquidity situation implies
higher deposit rates and hence margin pressure.
Preferred play: We prefer smaller private banks with a higher comfort level on loan
growth. We highlight Overweight (V)-rated YES Bank with a INR402 target price.

HSBC downgrades HUL to underweight

Hindustan Unilever
We downgrade HUL from Neutral to Underweight on the back of the recent run up in the stock price.
While the prices of Tide and Rin have been increased by Procter & Gamble and HUL, respectively, the
price increase is much smaller than the price cut taken, i.e. only a small part of the price cut has been
recouped. This, in our view, does not signal the end of competition in the detergents category – other
elements of the mix (ad spends, trade spends, outlet expansion) – all suggest that competitive intensity is
still high. In our view, the increase in stock price of c12% on the back of this news is not justified.
Consensus EPS estimates are not likely to be revised upwards and have fallen continuously to date.
Hindustan Unilever has over 50% of its sales attributed to relatively mature and competitive segments
such as soaps and detergents. Competition even in relatively high growth categories of shampoos, oral
care and skin care is intensifying with international players such as L’Oreal aiming for a bigger share of
the pie. While HUL is attempting to grow in premium categories, the size of HUL will mean that these
categories, even 5 years later, are unlikely to contribute materially.
We believe that HUL will continue to disappoint on profit delivery and a large part of the upmove in the
stock is attributable to PE multiple expansion rather than EPS growth. This expansion in our view is not
justified by underlying fundamentals and hence multiples will contract. We downgrade from Neutral to
Underweight.

HSBC downgrade Nestlé to Neutral

Nestlé India
We downgrade Nestlé from Overweight to Neutral due to high valuations, possible downside risk to
our EPS estimate and increased competition in the long term.
Nestlé currently trades at c31x one-year forward EPS on our estimates, which is close to peak multiple –
the multiple on consensus estimates is even higher. This is the main reason we downgrade Nestlé to
Neutral. Another reason was that there could be a downside risk to our EPS estimates. Our EPS estimates
for CY10/11 are 10%/5% above consensus estimates as we believe that Nestlé will benefit from lower

milk prices due to a good monsoon. However, there is a risk that the quantum of benefit may be lower
than our estimate, or may come with a lag.
Lastly, competition is increasing for Nestlé, notably in the noodles segment, with new products such as
Horlicks Foodles and Soupy Noodles being launched. While these will take time to become significant
enough to pose a threat to Nestlé, we believe it could affect the long-term growth prospects. We like the
company but currently the stock is fairly priced, in our view. There are no obvious triggers for correction
that we identify, but we believe it may be worth waiting for a more reasonable price to enter. We
downgrade from Overweight to Neutral.

HSBC Research: downgrade Marico to underweight

Marico
We downgrade Marico from Neutral to Underweight as the stock has performed well in the recent
past and is fully valued, in our view. Moreover, copra prices are on the rise (up 18% from the bottom 2
months ago). Copra is a major input cost for Marico; c15% of overall company sales and c45% of
Parachute (its coconut oil brand) sales. While Marico may take price increases (indeed, it has already
taken some) to offset the cost increase, there is a possibility that this may not fully cover the cost
inflation, leading to downside risks to the EPS. Moreover, Marico is more leveraged to the oil table than
any other company in our coverage. This results in inherent volatility of margins for Marico, which
results in lower multiples compared to other FMCG stocks due to higher risk.
Marico has been trying to diversify its revenue base but has met limited success. Extending Saffola into
other health foods such as salt, atta and rice are projects, which even if successful, will give benefits only
in the long term. Coconut oil has been growing well in the recent past due to conversion from loose oil to
branded oil, but the past success on this front means that opportunity in future is diminishing. Given the
full valuations and short- and long-term risks, we downgrade Marico to an Underweight from a Neutral.

BNP Paribas on Reliance Industries: In underperformance limbo

Re-rating some time away
In early 2010 we switched to a market weight position on Reliance Industries (RIL) after being sellers of the stock for a large part of 2009. Since our upgrade to HOLD in our report “Refining Bottom in
Sight”, dated 17 February 2010, shares of RIL have gained 1.2% vs Sensex’s 25.1%
gain and BSE Oil’s 0.6% gain. While we did not expect any outperformance, the
magnitude of underperformance has surprised us. We believe the
underperformance started with the forayinto telecom and further weighed on the
stock due to the INR10.21b investment in EIH Ltd and delays in KG-D6 gas production. We still do not recommend an overweight position on the shares and believe a good time to revisit
RIL could be towards the end of the year or early next year as we get to
see some drilling results from D3 and D9. We continue to expect a
refining recovery in the second half of next year and reiterate that while
we believe that refining has bottomed, we see little reason for it to move,
barring the occasional spikes.
We lower our 2QFY11 EPS estimates by 4%
Our 2QFY11E EPS declines by 4% to INR15.10 (PAT of INR49.4b) as a
result of a shutdown in gas production at the Panna-Mukta field, sudden
decline in MA oil production and also slight weakness in refining post the
strength in July-August 2010. We expect blended refining margins at
USD8.00/bbl, slightly below our previous estimate of USD8.25/bbl. Our
checks with Middle East petrochemical producers indicate that pricing
may not decline at the same pace as expected, as supply remains
staggered. We believe consensus estimates will come down as delays in
gas production and an indifferent refining environment continue.
Range-bound in the near term; good for accumulating in
phases for long-term value
We reiterate our HOLD rating on RIL and retain our SoTP-based TP of
INR1,077/share. Our FY11E EPS estimates decline by 2.3%, adjusting
for lower PMT gas and MA oil production. We recommend investors to
accumulate the shares on dips (from a long-term perspective) as we see
limited downside from current levels. However, we do not expect material
outperformance in the near term as the delay in gas production and
continued flatness in the refining environment, combined with increasing
petrochemical capacity, will likely weigh on the shares. Downside risks:
Weaker-than-expected petrochemical business and further diversification
into non-core areas.

CLSA on India Power Sector: Storing up

India Power Sector: Storing up
We prefer companies with higher degree of fuel security.

Over the past 10 days we met with officials of the Ministry of Power and Coal,
principal adviser of the Planning Commission, Central Electricity Regulatory
Commission and 11 power firms. While all are encouraged by the increase in
private investment, fuel availability remains the biggest concern. Coal imports
are likely to rise over the next couple of years and will test ports and railway
infrastructure. Most expect the short-term tariffs to correct from current levels.
We like Jindal Steel & Power, Tata Power, NTPC and Adani Power.
Cost-plus regime is on the way out. The cost-plus regime for the
public-sector companies is most likely ending in January 2011 with CERC
also recommending the same. NTPC (NATP IS - Rs217.9 - O-PF) is thus
planning to sign power-purchase agreements (PPAs) for about 25GW by
December 2010 - before this regime ends. The cost-plus mechanism
however is likely to continue for very large and complex hydropower
projects
Domestic coal production not adequate. Domestic coal production is
likely to disappoint given the constraints faced by the coal-mining
companies in acquiring land and getting environmental clearance. The
production from captive mines allocated to the public and private sector is
expected to increase (the performance so far has been dismal) going
forward however it wont be enough and we expect the total requirement
of imports to exceed 100 million tonnes by FY13.
Merchant tariffs - sliding downwards. Merchant tariffs have been
declining MoM since April and with a strong monsoon this year it is likely
that the tariffs will remain between Rs4-5/kWh for the year as a whole.
The burgeoning losses of state-distribution utilities also imply that their
capacity to buy expensive merchant power is also limited especially when
there are no major elections.
We like JSPL, Tata Power, NTPC and Adani Power. Our preference in
the power-utility space lies with companies that have a higher degree of
fuel security together with decent growth in capacity and not very high
dependence on merchant power. On this theme, we like JSPL (JSP IB -
Rs731.5 - O-PF), Tata Power (TPWR IB - Rs1389.9 - BUY), NTPC and Adani
Power (ADANI IB - Rs134.3 - O-PF) and maintain our negative
recommendation on NHPC (NHPC IB - Rs32.1 - U-PF) and JSW Energy
(JSW IB - Rs119.0 - SELL).

JPMorgan: Sep-q earnings preview and order flow tracker -India Capital Goods

• Execution disappointments in Sep-q may brew disbelief in the promise
of a 2H recovery, especially for L&T, where topline growth expectation
has already been tempered down by management (JPMe 9% growth).
Implied 2H revenue growth est. is 32%, already challenging. Order inflow
expectation of Rs180-200B in Sep-q looks achievable if L&T books captive
development projects too. BHEL appears more likely to meet/exceed
high growth expectations in our view: Enhanced capacity of 15GW and
comfort of order book offers economies of scale and confidence in Sep-q
revenue and PAT growth est. of 22.5% and 27.7% respectively. Reported
order inflows of Rs89B are a tad low, but realizations are still intact.
• Weak Sep-q for Suzlon: Owing to weak volumes combined with sticky
fixed costs, we est. an EBITDA loss of Rs1.46B and PAT loss of Rs4B.
Reported inflows from India (~309MW) in Sep-q lend confidence to
1000MW domestic sales est. in FY12, but famine of overseas orders
continues (except a ~50MW order from China) which puts FY12 overseas
sales est. of 1050MW at risk.
• Potential upside to full year est. for CG, if it maintains 14% margins
despite 25-40% YoY hike in transformer input commodity prices, and
delivers 9%+ topline growth despite 13% YoY INR appreciation vs. Euro.
• We expect ~20% YoY dip in Punj Lloyd revenues in Sep-q, mainly on
account of sharp decline in pipeline segment revenues and weak pick up of
revenue booking in long gestation infra projects (Libya, 38% of OB).
• MNC T&D plays: Siemens expected to maintain execution momentum
from last quarter, with margin improvement on low base; JPMe healthy PAT
growth. Near term pain in ABB expected to continue, expect PAT dip of
8.6%YoY (link to recent ABB report) in Sep-q.
• Stock views in light of Sep-q results: On relative basis we prefer to play
BHEL (OW) over L&T (OW), latter is trading at a 18% P/E premium, with
higher risk to near-term growth in our view. We are sellers of Suzlon (UW)
and cautious on Punj Lloyd (N). We have no absolute buy in T&D, but
continue to prefer CG (N), over Siemens (N) over ABB (UW).

HSBC downgrades Godrej Consumer to Neutral

Godrej Consumer Products
We downgrade GCPL from Overweight to Neutral on the back of a strong run up in price. Household
insecticides are doing well, with the industry growing following outbreaks of malaria and dengue fever in
the monsoon. Moreover, GCPL is taking market share due to its innovations such as “low smoke coil”
and “Goodnight Advanced”. However, we believe that this news is in the price and it makes growth in
FY12 more difficult due to a higher base.
The soaps business is suffering intense competition from HUL and ITC. While we believe that it should
turn around from the next quarter onwards (i.e. post growth rather than a decline), this is mainly due to a
base effect. Moreover, the price of palm oil, the main raw material for the soaps division, is moving up
and there could be some margin contraction in spite of the price increase. Given the competitive nature of
the industry, the price increase may be lower than required. The hair colour market is likely to see more
competition with the entry of new players Emami and possibly P&G. While this may not impact GCPL
immediately, it is not good news in the long term. We downgrade from Overweight to Neutral.

HSBC Research: Downgrade HUL, Nestlé, GCPL and Marico.

No incremental good news likely. We believe the India FMCG sector is unlikely to
receive any positive triggers. Over the last year, we have seen continuous earnings
upgrades in the sector on the back of benign commodity prices. But that story is now wellknown,
and factored into estimates and stock prices. Incrementally, we do not envisage
any good news. Potential concerns are risk of cost inflation and increased competition.
Valuations are reaching peak levels with the MSCI FMCG index trading currently at 96
percentile – ie, in the past 10 years, the index has traded at or at a multiple higher than
current valuation only 4% of the time. We cannot identify currently strong, obvious
downside catalysts, but the valuations make us uncomfortable and lead us to believe that
multiples may correct disproportionately if downside risks materialise.
Downgrade HUL, Nestlé, GCPL and Marico. We roll forward all our multiples from
March '12 to Sept '12, which has resulted in a change in target price for all our stocks and
a downgrade to HUL, Nestlé, GCPL and Marico. We downgrade HUL from N to UW on
the back of a sharp run up in the stock price. We believe that the optimism on a small
price increase is overdone and competition is still intense. We downgrade GCPL from
OW to N as the current valuations are fair and longer-term risk in the hair colours
business is increasing with P&G and Emami as new entrants. We downgrade Nestlé from
OW to N as it is trading near peak multiples and competitive risk is increasing, especially
in noodles. We downgrade Marico from N to UW on the back of good run in the stock
price and due to downside risk to EPS given high exposure to rising copra prices and
increase in product prices not offsetting cost pressures completely.
Subsequent to the changes mentioned, we are Neutral on all stocks in our coverage except
HUL and Marico where we are Underweight. Amongst our Neutral stocks we like ITC as
a defensive (up until the budget in Feb ’11) and we like GCPL and Asian Paints for
growth. However, upsides are limited.

Prabhudas Liladhar: Relative Valuations Favor Switch into India Mid-Caps

India Market Outperformance versus Emerging Markets
Unfolds, as Expected. Relative Valuations Favor Switch into
India Mid-Caps
Over the past several weeks, Indian equities have massively outperformed
their emerging market peers, in line with our outstanding views. Such
outperformance has been fueled by several considerations, including: (1)
global equities' strong performance in September; (2) global markets'
growing appetite for growth exposures, especially in geographies for which
the majority of growth is fueled by local demand dynamics, such as is the
case in India; (3) the acceleration of Asian currency strength these past few
weeks, led by the Chinese Yuan, partly in response to pressures exerted from
Washington. These dynamics have resulted in an intensification of capital
inflows into the Indian share market.
While short term gyrations can never be ruled out, it is our expectation that
India's ability in continuing to attract foreign capital inflows, including of the
portfolio variety, is likely to extend at least over the next two years. We
hold such benign outlook on the foreign capital backdrop facing the Indian
share market on account of two principal considerations: (a) our
longstanding view that policy rates in Europe and the USA are likely to
remain low for several more years, and (b) the market's growing appetite for
growth exposures fueled by local market dynamics - on that score, India
represents one, if not the one, single most attractive market globally for the
years to come.
Admittedly, signs of overvaluation in pockets of the Indian share market have
begun to surface, including but not limited to large cap consumer staples
stocks which trade on exceedingly elevated valuations. It is precisely
valuation considerations that lead us to recommend a shift in investor
positioning away from Indian large into mid-cap stocks

JPMorgan: ICICI, Kotak and BOI are our Top picks in Banks

• Strong 2Q11: We expect 2Q11 to be a strong qtr for Banks/Financials,
especially for private banks as credit costs continue to come off. We
forecast PAT growth for our coverage universe at 24% y/y with private
banks expected to report PAT growth of 21% y/y. Sequentially we
expect margins and credit costs to remain flat leading to 3% q/q
improvement over a strong 1Q11.
• Stable margins and improving asset quality: Margins for the sector
are expected to remain stable with the exception of Kotak and Axis
Bank. PSU banks would continue to report strong NII growth given a
weak 2Q11.We expect credit costs for the private banks to decline from
1Q11 given improving outlook on retail asset portfolio, and slippages for
PSU banks to continue to be inline with 1Q11 trends.
• Tepid balance sheet growth: System loan growth has been slow and
hence we expect sequential NII growth to be low at 3% q/q. We expect
HDFC and IDFC to continue to report strong loan growth momentum.
• Key results to watch out for: ICICI Bank: With asset quality in
check, loan growth seems to be the larger market concern for ICICI. We
expect the retail book to stop contracting from this qtr. Treasury income
could be a negative surprise. SBI: Operating metrics improved in 1Q11
but slippages were high. We expect slippages to continue at 1Q11 levels
before improving in 2H11. Axis Bank: Margin is expected to contract in
this qtr but we do not expect margins to drop below 3.5% (3.7% in
1Q11); sharper margin moderation would be a negative surprise.
• ICICI, Kotak and BOI are our Top picks: With improving loan
growth and asset quality, ICICI Bank is our top pick among private
banks. We expect Kotak bank to surprise on asset quality and costs due
to operating leverage, and for consensus to be revised up. Among PSU
banks, BOI is our top pick to play the turnaround in asset quality.

Goldman Sachs: downgrade TCS to Neutral

Current view
Highest revenue growth in the sector: We expect TCS to post 18%
revenue CAGR over FY10-FY13E, mainly driven by resurgence in the BFSI
vertical. We also expect that various operating levers, such as utilization,
will help TCS sustain margins further in FY11E/FY12E, translating into 13%
EPS CAGR over FY10-FY13E.
BFSI to drive revenue growth: We maintain that TCS will continue to
benefit from global recovery in the BFSI vertical and our growth forecast is
driven by its high BFSI exposure (45% of revenues from this segment).
Strong 2QFY11: We expect 2QFY11 results to be strong and expect 9%/7%
sequential growth in revenue and earnings on the back of robust volumes.
Valuations: TCS is trading at a P/E of 20.1X on FY2012E EPS of Rs47.26, a
5% discount to Infosys (INFY.BO) and Wipro (WIPR.BO), both of which are
trading at 21.6X. This is at the higher range of its 6-year historical average
trading range of 17X-21X. Amongst the large caps, TCS is our preferred pick
owing to its better revenue and cash return profile, in our view. However, we
believe current valuations fully reflect its growth and earnings outlook.
Key upside risks: (1) Strong recovery in discretionary tech spending; (2)
faster-than-anticipated recovery for the broader market. Key downside
risks: (1) High attrition rates; (2) currency volatility.

JPMorgan on JSW Energy (Neutral): Execution hiccups; expect weak Sep-q

• Execution hurdles continue at Barmer (8X135MW): JSW expects to

commission six units in FY11 (our estimate is four units) and the other

two in FY12, as opposed to the full 1,080MW in FY11 as previously. The

second unit came online in Oct-10, lagging Unit 1 by ~3Qs indicating

execution difficulties due to water shortages and weather conditions.

Increased O&M expenses and a reduced PLF will translate into an underrecovery

of fixed charges (sub 80% PLF), in our view. We estimate ROE

of 1-13% through FY13, and this reduces our SOP by ~Rs.5.4/share.

• 2Q likely to be weak: MoP’s generation data show PLFs at Barmer

(~30% vs 42% in 1Q) and VI&II (~88% vs. 98% in 1Q) were low on

account of maintenance-related outages. We think Barmer’s Unit 1

operating for <1 year would have had more serious repair issues. We

estimate PAT of Rs2.2B, down 27% QoQ, despite an additional 300MW

unit operating for one month.

• 600MW of capacity tied at >Rs5/unit: JSW has entered into a bilateral

agreement to sell power from Vijaynagar-II at >Rs5/unit through May-11

to SEBs, starting Oct-10. Previously the plant was to sell 300MW to JSW

Steel at PPA rates (Rs3/unit) through FY11. Now 100% capacity will be

sold as merchant power with JSW Steel setting up its own captive plant.

An eight-month bilateral agreement at this rate is positive for JSW, in our

view, and provides an intermittent hedge for high fuel costs (Rs2.25/unit

in 1Q for VI&II) owing to 100% spot purchases from South Africa. We

increase merchant estimate for VI&II (860MW) to Rs5.5/unit (up Rs1)

and to Rs4.5/unit (up Rs0.5) in FY11 and FY12 respectively.

• Our Sep-11 PT of Rs116 (down from Rs128) includes Rs85 from

3.14GW of operational and under-construction projects and Rs21 from

pipeline projects. At 7.3x FY12E EV/EBITDA, JSW is at a discount to

other Indian IPPs (9-13x). Key downside risks: (1) slow development of

the Ichhapur mine (at exploratory stage) for the 1.6GW Salboni project

(CoD FY15, 17.5% of PT); (2) lower merchant rates with (46% of FY13

capacity); and (3) expensive spot coal purchases from South Africa. A key

upside risk is a coal mine acquisition guaranteeing fuel security.

Hold HCC says IDBI capital,

Although Q1FY11 revenue growth was marginally ahead of our estimates, higher interest cost led
to lower than expected earnings growth. With no respite on the working capital front and increased
leverage due to KSAG acquisition, HCC's balance sheet continues to remain under stress. Lavasa's
value unlocking remains the key potential driver for the stock in the short to medium term.
We maintain our HOLD rating on the stock.
Investment Highlights
􀂄 Construction business set to pick-up in FY11; Revenue to witness 20% CAGR
HCC's executable order book stood at 3.4x FY10 revenues. We expect 20% growth in construction
revenues over FY10-12E (8.5% in FY08-10), driven by 14% CAGR in order book.
􀂄 OPM to remain stable at around 13%; Adj. net profit to grow at 17% CAGR
We expect OPM to remain at ~13%, as the higher contribution of transportation segment to overall
revenues will come at the cost of water segment, which have similar margins of 10-12%. Due to higher
interest cost, adjusted earnings growth is expected to lag revenue growth.
􀂄 BOT: Scale-up in portfolio impressive but funding will be a challenge
Despite being a late entrant, HCC has scaled-up its BOT portfolio to 6 road projects worth Rs55 bn.
However, the significant investment of Rs7.8bn required in next 3 years, in the wake of an already
stretched balance sheet, remains a concern. We value the BOT portfolio at Rs8 (1x book value).
􀂄 247 Park: Phase 1 success reinforces HCC's ability to add value in real estate
HCC divested 74% stake in Phase 1 of 247 Corporate Park at an EV of Rs7.8 bn. Around 88% of the area
has been leased at an average rate of Rs70 psf. HCC will shortly commence work on Phase 2, which will
have 0.75 msf of leasable area. We value HCC's stake in 247 Park (Phase 1 & 2) at Rs2.
􀂄 Lavasa: Project time-line optimistic but listing may provide a good upside
Development plans for Lavasa has been extended from 12,500 to 18,000 acres (157 msf). It plans to sell
the balance 146 msf over FY10-22, which in our view is optimistic. We value HCC's 65% stake in Lavasa
at Rs28 based on DCF and land value.
􀂄 Valuation: Maintain HOLD
We maintain our HOLD rating on HCC, based on a SOTP based target price of Rs66 per share. We value
core construction business at Rs23 per share, based on 10x FY12 EPS, which is at a discount to IVRCL
and NCC. HCC's real estate and BOT portfolio contribute Rs34 and Rs8, respectively. Maintain HOLD.

Motilal Oswal is neutral on Bajaj Auto

Valuations factor in strong momentum
Limited probability of positive surprises; Peak margins, valuations
 Volume outlook positive, in line with estimates: Bajaj Auto's volume growth
outlook is positive with momentum in motorcycles and three wheelers continuing.
The management's FY11 volume guidance is positive, and in line with our estimate
of 3.94m units in FY11 and 4.43m units in FY12 (12.4% growth). Our FY12
estimates factor in 13.3% growth in two-wheeler volumes to 3.96m units and 6%
growth in three-wheelers to 469,800 units. Given normalization of the base, as
volumes recovered from September 2009, Bajaj's volume growth rate will slow
from 56% in 1HFY11 to 24% in 2HFY11, and is estimated at 12.4% in FY12.
 Margins peaked in 4QFY10, cost push pressurize margins: With limited levers
to improve margins, we believe margins peaked in 4QFY10 at 23% and will trend
downwards going forward. With an increase in rubber based component prices,
we believe 2QFY11 margins could be lower than our estimate of 21.2% and taper
off to 20% in 2HFY11 as metal prices have started strengthening. Besides, Bajaj
Auto expects spends on advertising and marketing will increase from 2QFY11.
 Competition stiffens with entry of M&M and Honda's probable exit from
Hero Honda: Honda's probable exit from Hero Honda will increase Honda's focus
and aggression regarding product launches and pricing. Besides, M&M's entry
into the motorcycle segment, with its brand and distribution strength, can add to
competitive pressure. This coupled with existing players sharpening focus on the
100cc segment will boost competition.
 Earnings upgrade cycle ending, limited levers to expand margins: Bajaj
Auto's stock performance over the past 12-15 months was driven by an earnings
upgrade cycle by the street. Earnings for FY12 has been upgraded multiple times
since April 2009, with the FY12 consensus EPS being upgraded from Rs34.9 to
Rs87.6 in September 2010. Our FY12 EPS estimate is Rs98.6, ~12.5% above
consensus estimates, is based on a 12.4% volume growth (scope for positive
surprise) and EBITDA margin decline of just 70bp to 19.8% (limited levers to surprise,
with potential of negative surprise).
 Peak margins, valuations: We downgraded Bajaj Auto to Neutral in our India
Strategy report, September 2010. It has been the best performing auto stock
with 64% outperformance since January 2010, driven by strong volume and margin
momentum. But with volume growth normalizing and there being limited levers to
boost margins, we believe peak margins are behind us. Consequently there is
little scope for the stock's re-rating and it should perform in line with markets. The
stock trades at 17.2x FY11E EPS of Rs90.3 and 15.7x FY12E EPS of Rs98.6.
Maintain Neutral with a target price of Rs1,480 (~15x FY12E EPS).

Motilal Oswal is neutral on Bajaj Auto

Valuations factor in strong momentum
Limited probability of positive surprises; Peak margins, valuations
 Volume outlook positive, in line with estimates: Bajaj Auto's volume growth
outlook is positive with momentum in motorcycles and three wheelers continuing.
The management's FY11 volume guidance is positive, and in line with our estimate
of 3.94m units in FY11 and 4.43m units in FY12 (12.4% growth). Our FY12
estimates factor in 13.3% growth in two-wheeler volumes to 3.96m units and 6%
growth in three-wheelers to 469,800 units. Given normalization of the base, as
volumes recovered from September 2009, Bajaj's volume growth rate will slow
from 56% in 1HFY11 to 24% in 2HFY11, and is estimated at 12.4% in FY12.
 Margins peaked in 4QFY10, cost push pressurize margins: With limited levers
to improve margins, we believe margins peaked in 4QFY10 at 23% and will trend
downwards going forward. With an increase in rubber based component prices,
we believe 2QFY11 margins could be lower than our estimate of 21.2% and taper
off to 20% in 2HFY11 as metal prices have started strengthening. Besides, Bajaj
Auto expects spends on advertising and marketing will increase from 2QFY11.
 Competition stiffens with entry of M&M and Honda's probable exit from
Hero Honda: Honda's probable exit from Hero Honda will increase Honda's focus
and aggression regarding product launches and pricing. Besides, M&M's entry
into the motorcycle segment, with its brand and distribution strength, can add to
competitive pressure. This coupled with existing players sharpening focus on the
100cc segment will boost competition.
 Earnings upgrade cycle ending, limited levers to expand margins: Bajaj
Auto's stock performance over the past 12-15 months was driven by an earnings
upgrade cycle by the street. Earnings for FY12 has been upgraded multiple times
since April 2009, with the FY12 consensus EPS being upgraded from Rs34.9 to
Rs87.6 in September 2010. Our FY12 EPS estimate is Rs98.6, ~12.5% above
consensus estimates, is based on a 12.4% volume growth (scope for positive
surprise) and EBITDA margin decline of just 70bp to 19.8% (limited levers to surprise,
with potential of negative surprise).
 Peak margins, valuations: We downgraded Bajaj Auto to Neutral in our India
Strategy report, September 2010. It has been the best performing auto stock
with 64% outperformance since January 2010, driven by strong volume and margin
momentum. But with volume growth normalizing and there being limited levers to
boost margins, we believe peak margins are behind us. Consequently there is
little scope for the stock's re-rating and it should perform in line with markets. The
stock trades at 17.2x FY11E EPS of Rs90.3 and 15.7x FY12E EPS of Rs98.6.
Maintain Neutral with a target price of Rs1,480 (~15x FY12E EPS).

JPMorgan is underweight on ABB,

Near-term pain remains. The foreclosure costs on ~Rs2B of legacy orders
from rural electrification business are yet to be incurred, negative impact
may continue through 1QCY11, as per company. Margins may continue to
be strained in power products and automation segments as we have not seen
any signs of lower competitive intensity. Sep-q PAT est. of Rs759MM
implies an 8.6% YoY dip. Our CY10 EPS est. is ~6% below consensus.
• Expectation of sharp recovery next year, will take PAT slightly above
CY08 level: The order inflows in 1H (Rs29B) were down 33% YoY. A
couple of large substation orders were slated to be finalized in Sep-q, and
2H inflows are likely to see a strong recovery, as per management. Healthy
revenue booking on long cycle orders (~50% of ~Rs85B order backlog) and
removal of rural electrification related overhang may lead to topline growth
recovery in CY11 (26% YoY est.), and PAT growth of 55%. However, we
note that the recovery is optical (on low base of CY09) and absolute PAT of
Rs5.6B would still be at CY08 levels.
• Irrational re-rating? As per Bloomberg, CY11 and CY12 consensus EPS
est. have been reduced ~17% and ~28% since Jan-10, while the stock has
delivered 20% returns over this period.
• Sustainability of high growth & margin recovery to historical levels is
doubtful: Based on our discussion with management, we infer that there are
concerns on excess capacity and competition, which may prevent recovery
in margins to historical peaks. Accordingly we model 10.5% sustainable
EBIT margin in the long term, ~100bps below CY07 peak. Our est. of
CY12-17 revenue CAGR is ~17% for ABB, slightly above Siemens
(16.5%) owing to its higher domestic focus.
• Valuation premium remains, RoE lowest in the sector: Our revised Sep-
11 DCF based PT of Rs765 (vs. Mar-11 PT of Rs700 earlier), implies 17%
downside, reiterate UW. The stock is trading at 33.4x FY12 fiscalized
EPS at a 22% premium to Siemens and 67% premium to CG. ABB's
RoE est. of 19% in CY12 is well below CG (27%) and Siemens (25.3%).
Key risk to UW: Ex-LIC free-float is just ~14%. Sharper than expected
growth, signs of easing competitive pressures are key upside risks.

Buy IVRCL recommneds IDBI capital,

We expect IVRCL Infrastructures & Projects Ltd. (IVRCL) to post 16% revenue growth in FY11, led
by pick-up in execution in the coming quarters. Order inflow continues to remain strong but
concentrated. Due to extension in working capital cycle, earnings growth for FY11 is expected to
come lower at 8%. Overall, we expect a 20%/15% CAGR in revenue/earnings over FY10-12E. Initiate
coverage with a BUY rating. However, we prefer SINF and NJCC over IVRCL.
Investment Highlights
􀂄 Strong order book (4.3x TTM sales) keeps revenue prospects high
Including L1 orders, IVRCL's order book stood at Rs233 bn as of June 2010 or 4.3x TTM revenue. The
order inflow continues to remain strong, with IVRCL booking Rs40 bn orders in Q1FY11 v/s Rs87 bn for
entire FY10. We have assumed an order inflow of Rs110 bn for FY11 and FY12 each, primarily led by
BOT projects.
􀂄 Execution set to pick-up in H2FY11; revenue CAGR of 20% over FY10-12E
IVRCL lost ~Rs2.5 bn in revenue during Q1FY11 as execution was held up in three projects due to clientled
delays. We expect a topline growth of 19% YoY for the rest of the fiscal led by pick-up in execution and
low base effect of Q2/Q3 FY10. We expect IVRCL to report 20% CAGR in revenue over FY10-FY12E.
􀂄 EBITDA margins to remain stable; higher interest cost to lower earnings growth
We have assumed an EBITDA margin of 9.6% over FY10-12E (9.7% in FY10). As a result, EBITDA
growth (18% CAGR) is expected to remain in line with revenue growth. We have factored Rs5.5 bn
increase in net working capital for FY11 (against Rs6 bn in Q1FY11), resulting in a 28% YoY increase in
interest cost. Consequentially, adj. PAT is set to grow at a CAGR of 15% over the next 2 years.
􀂄 Aggressive scale-up in BOT; subsidiary not dependent upon parent for funding
IVRCLAH, the listed subsidiary, has added 7 BOT projects worth Rs109 bn in the past one year, taking the
total BOT portfolio size to Rs129 bn (12 projects). Since, the subsidiary is not dependent upon parent for
its funding requirements, the aggressive scale-up in BOT portfolio is unlikely to put any strain on parent's
balance sheet/cash flows. However, equity IRRs of operational BOTs are in the range of 11-13%, well
below the initial expectation of 18-20% at the time of bidding.
􀂄 Valuations attractive; Recommend BUY with a TP of Rs190
We have valued IVRCL's core construction business at Rs126 based on 12x FY12 EPS. We believe
IVRCL should trade at a discount to NJCC (13x) given its concentrated order book and relatively lower
earnings growth. Based on 30% discount to current market-cap, IVRCLAH and HDOR, contribute Rs50
and Rs14 per share, respectively. Lower than expected execution and a further deterioration in working
capital are the key risks to our recommendation.

IDBI capital recommends buy Nagarjuna,

Nagarjuna Construction Company Ltd. (NJCC) is expected to post highest revenue growth within
our coverage universe at 18% in FY11, led by orders inflows that were well spread over FY10.
Diversified order book, recovery in execution rate and stable margins are expected to result in 19%
earnings CAGR between FY10-12E. While Sompeta Power and Dubai realty projects continue to
face headwinds, the concern seems to be overdone, in our view. Even after writing off the entire
investments made in the two projects, the stock offers 21% upside from current levels.
Investment Highlights
􀂄 Order book at 2.7x TTM revenue; diversified across various segments
As of June 2010, NJCC's standalone order book stood at Rs132 bn or 2.7x trailing TTM revenue. Unlike
HCC/IVRCL, NJCC's order book is diversified across several verticals including buildings, transportation,
water, electrical and irrigation. At Q1FY11-end, the maximum contribution to the order book came from the
buildings segment at 31%. For the standalone entity, we have assumed an order inflow of Rs80/90 bn for
FY11/12, compared to an average order inflow of Rs60 bn in the past three years (FY08-10). Consequently,
order book is set to grow at a CAGR of 17% between FY10-12E.
􀂄 Execution back on track; we expect 20% CAGR in revenue over FY10-12E
NJCC has witnessed a revival in execution since Q3FY10. In Q1FY11, NJCC reported a 9%/16% YoY
growth in standalone/consolidated revenues. We estimate standalone revenue of Rs56.5 bn for FY11.
With execution rate recovering to peak levels in FY10, we expect 20% CAGR in sales over FY10-12E.
􀂄 EBITDA margins of 9.8% over next 2 years; Adj. PAT CAGR at 19%
We assume an EBITDA of 9.8% in FY11/12E, compared to 10.1% in FY10. We thus expect an EBITDA
CAGR of 18% over the next 2 years. Despite a 15% YoY and QoQ drop in net interest expense in
Q1FY11, we expect a 9% YoY increase for FY11. We expect 19% CAGR in earnings over FY10-12E.
􀂄 Subsidiaries continue to face headwinds; 3 road BOTs to start operations in FY11
While Sompeta Power plant has run into environmental problems, Dubai real estate project continues to
pose new challenges due to bad market conditions. NJCC has so far invested Rs2.4 bn into the two
projects, with a further investment of Rs0.5 bn planned into Dubai Harmony. In the road BOT space, the
company expects commercial operation of its 3 remaining projects in Q2/Q3FY11.
􀂄 Concerns priced in; Recommend BUY with a TP of Rs194
Even after writing off the entire investments into Sompeta Power and Dubai real estate projects, the stock
offers 21% upside from current levels. We prefer NJCC over IVRCL due to better growth visibility,
diversified order book, and relatively higher earnings CAGR. We recommend BUY on NJCC with an
SOTP based TP of Rs194 per share based on (1) Rs141 for the standalone construction business on 13x
FY12 EPS (2) Rs24 for the international construction subsidiaries (3) Rs20 for the infra subsidiary, NCC
Infra (4) Rs8 for the real estate subsidiary, NCC Urban.

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Angel Broking on Page Industries: Jockeying for growth-Buy

Page Industries: Jockeying for growth
Page Industries is the exclusive licensee of Jockey International,
Inc. (USA). The company manufactures and distributes the
JOCKEY® brand of innerwear and leisurewear for men and
women in India, Sri Lanka, Bangladesh and Nepal. Considering
the company's dominant presence in a fast-growing market,
strong brand recall and consistent financial performance, we
believe Page Industries is an ideal contender to get re-rated.
Exclusive licensee for JOCKEY® through 2030: Page Industries
has entered into a new licensing agreement with
Jockey International, which makes Page Industries the exclusive
licensee to manufacture and distribute the JOCKEY® brand of
products up to the end of CY2030. Under this agreement,
United Arab Emirates (UAE) will be added to the list of existing
markets served by Page Industries. In essence, this agreement
of exclusivity for 20 years, of a well renowned global brand,
lends good growth visibility.
Huge market size, with a fast-growing premium segment: We
estimate the potential national innerwear and leisurewear
market size at Rs15,600cr. In India, JOCKEY® is positioned as
a premium innerwear and leisurewear brand, catering to the
premium and super premium segments. We estimate the current
market potential of these segments at Rs3,740cr.
Strong brand recall + Wide distribution network: JOCKEY® is
one of the most trusted and well-respected innerwear brands
in India. The company's advertising and branding budget is a
good ~6% of its net revenue. Page Industries commands a
wide, pan-India distribution network, encompassing 16,000
retail outlets in 1,100 cities and towns.
Financial performance
During FY2010, the innerwear segment contributed about 76%
to the company's net sales, the leisurewear segment added 21%
and the remaining 3% came in from sale of factory seconds.
We estimate the innerwear segment to witness a 32% CAGR,
the leisurewear segment to log in a 40% CAGR and the factory
seconds segment to witness a 35% CAGR over FY2010-12E.
All the segments put together, we estimate total net sales to
grow at a 34% CAGR over FY2010-12E. Due to rising yarn
prices, Page Industries may not be able to fully pass on the
prices, thus affecting the core operating EBITDA and PAT
Initiating Coverage
Research Analyst - Naitik Mody
margins. Also, considering the sound capex funding model with
a higher leveraging ratio aided by zero equity dilution and high
dividend payout ratio, we believe Page Industries will command
higher RoEs and RoCEs.
Outlook and valuation
Since its listing in FY2007, Page Industries has traded in the
one-year forward P/E band of 12x-20x. From FY2007 to
FY2010, the company has delivered a 32.5% earnings CAGR
and an average RoE of almost 40%.
Considering the company's predominant presence in a
fast-growing market, strong brand recall and consistent financial
performance, we believe Page Industries is an ideal contender
to get re-rated. Estimating the company's PAT to grow at a 28%
CAGR over FY2010-12E, we have assigned a P/E multiple of
24x FY2012E earnings.
For FY2011E and FY2012E, we have estimated an EPS of Rs44
and Rs58, respectively. Assigning a P/E multiple of 24x for
FY2012E earnings, we Initiate Coverage on Page Industries
with an Accumulate rating and a Target Price of Rs1,392.

IDBI capital says buy Simplex Infrastructures

Simplex Infrastructures Ltd. (SINF) is expected to report 15% revenue growth in FY11 (-5% in
FY10), led by revival in domestic order inflows. With operating and financial leverage kicking in,
earnings growth is expected to come higher at 26%. We expect foreign order flows to pick-up in
H2FY11, resulting in a higher 23%/28% growth in revenue/earnings for FY12. Focused approach on
construction business and highest earnings CAGR (27%) over FY10-12E, makes SINF our top pick
in the construction sector. Initiate coverage with a BUY rating.
Investment Highlights
􀂄 Order inflow back on track; we expect 19% CAGR in revenue over FY10-12E
Due to muted order inflows, SINF's order backlog remained stagnant at ~Rs100 bn for 7 quarters till
Q3FY10. However, SINF witnessed an average order inflow of Rs20 bn in the last two quarters, taking the
order backlog position to Rs123 bn at Q1FY11-end or 2.7x TTM revenue. We expect SINF to report 19%
revenue CAGR on the back of 18% CAGR in order backlog over the next 2 years.
􀂄 EBITDA margins stable at 9.8% in FY11/12; PAT CAGR of 27%
We have assumed an EBITDA margin of 9.8% in FY11/12E, compared to 9.7% in FY10. As a result, we
expect an EBITDA CAGR of over 19% in next 2 years. However, earnings growth is expected to come
higher at 26% CAGR led by higher asset utilization (lower depreciation).
􀂄 Conservative approach to BOT; pure construction player with diversified presence
Unlike peers who have taken substantial exposure to BOT projects in the last 5 years, SINF continues to
remain a pure play on the civil construction business. Instead of following the BOT bandwagon, SINF has
diversified its operations to 9 verticals currently, compared to just 3 verticals in 2001. In FY10, the maximum
contribution to the topline/order backlog came from power segment at 23%/27%.
􀂄 Superior working capital management; positive operational cash flows
Over the last five years (FY06-FY10), SINF's net working capital has averaged 28% of sales, compared
to 36-47% for its peers. Due to superior working capital management, the company has been able to
generate positive operating cash flow in the last three years, a trend we expect to continue over our
forecast horizon.
􀂄 Premium to sustain; Recommend BUY
At the CMP of Rs470, SINF is trading at 15.0x/11.7x our estimated FY11/12 EPS. SINF has historically
traded at a premium to other construction companies like HCC, NJCC and IVRCL due to its (1) focused
approach on construction business (2) diversified order book (3) superior working capital management
and (4) higher return ratios. In the last 4 years, SINF has traded at a median P/E multiple of 18x. We value
the company at 15x FY12E to arrive at a target price of Rs602 per share. SINF is our top-pick in the
construction sector.

IDFC research: buy IBN18

Viacom18 (a 50:50 JV between IBN18 and Viacom) has made an offer for acquisition of The Indian
Film Company (TIFC), a film fund listed on the AIM Stock Exchange where Network18 owns 80.4%
stake. Viacom18 has valued TIFC at GBP63.6m (or at 115.56 pence per share), which is 1x the total
capital deployed in TIFC. With Viacom18 proposing to launch a movie channel post this acquisition,
IBN18 (or the New TV18) would join the league of larger networks such as Star and ZEE.
􀂉 Details of the transaction:
Valuations – no surprises!
• TIFC is a film fund listed in AIM (current market capitalization of GBP21m), where Network18
owns 77%, Viacom 4.5% and another 3.45% is owned by BK Media (a wholly owned company of
Raghav Bahl). As a part of the restructuring exercise of Network18 Group in July 2010, the
management had indicated likely transfer of their 80.4% stake in TIFC to Viacom18 for an
estimated consideration of GBP50m-55m (thereby entailing a value of ~GBP64m to TIFC).
• On expected lines, Viacom18 has made a bid for TIFC to acquire 80.4% stake (Network 18 + BK
Media ownership) for a consideration of GBP51m and follow it with an open offer for the
remaining ~20% stake. Minority shareholders include HSBC, Altima Partners, Kellusa, etc. The
transaction values TIFC at GBP63.6m (or USD100m).
• In addition, the investment management firm which managed the AUM of TIFC will also be
folded into Viacom18 for a consideration of USD0.5m. The investment manager firm, which is
entitled to 1% of the film funds as management fees (2% earlier), has a 50% ownership of
Network18. There remains ambiguity with regards to the ownership of this management firm as
indeed the need for a separate investment managers.
TIFC – Financial details
• We analyzed the FY10 Annual report of TIFC to understand the proportion of the total capital
deployed in the company which is ‘monetizable’. Of the total BS size of GBP63.6m of TIFC,
GBP45.9m is in the form of movie assets. Of this, GBP30m are related to movies which have been
released over a year back (implying 60% of the cost amortized) and GBP16m relates to movies
currently under production.

IDBI Capital on construction sector

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.