20 February 2011

IDFC Ltd, IDFC IN:: HSBC - India Investor Conference Highlights

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Improving growth prospects
 Power and roads are the two largest growth segments in the infrastructure sector forming 60% of loans. But faster
execution is critical for the roads sector.
 Despite high interest rates, the current interest rate cycle is significantly different from the previous one. IDFC is
comfortable borrowing at current high rates with not much problem on the liquidity front.
 Current Tier-I ratio is ~24%. IDFC is looking to leverage its equity up to 7x, i.e. 14% Tier-I by FY13.
 IDFC is looking to grow its loan book at ~25-27% CAGR over the next two years.
 With IDFC given IFC status, it is planning to diversify its funding book. It is looking at making tax-free bonds ~5-7% of
its borrowings and ECBs 7-10%, thereby reducing reliance on bank term funding. It also plans to keep its short term to
long term funding ratio at 15:85 split.
 Assets under management have reduced by USD1bn to USD4.5bn from March 2010 levels. IDFC is planning to sell a
strategic stake in the AMC to a foreign partner in the near term.

LIC Housing Finance, LICHF IN:: HSBC - India Investor Conference Highlights

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Stable growth
 Loan book growth in excess of 35%. Base case expectation for the next year is 25% to 30%.
 Asset quality has been very strong as gross NPL is 0.67%, best in industry. Target NPL ratio is 0.5%.
 NIM likely to be stable even in the rising interest rate scenario as it is maintaining matched ALM.

Reliance Industries, RIL IN, N:: HSBC - India Investor Conference Highlights

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Betting on new business to drive future growth
 Confident of robust outlook in various business segments. Believes current refining margin is likely to be prolonged while
petrochemical earnings could double in next few years. Outlook from upstream business is that of maintaining current
production levels while it believes new businesses like retail and telecommunications offer long-term growth potential.
 Gross refining margin of USD9-9.5/bbl in CY2011 and USD10/bbl by CY2012.
 Expects to maintain current levels of production in KG-D6 block for next few quarters.
 Share of production from shale gas investment could reach 400bcf/d by CY2015.
 RCOM has already spent cUSD1.2bn on Retail business and expects to spend cUSD0.2bn more. Retail business could also
break even by next quarter.

Magma Fincorp, MGMA IN,:: HSBC - India Investor Conference Highlights

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High yield product contribution to build to 25-30%
 Customers are screened on their ability to make payments in the first 18 months. After that, the customer's equity is greater
than the company's equity, and so it is assumed that the customer will pay.
 Has offices at 172 locations across the country and expects to reach 240 by 2014. 80% are in semi-urban and rural regions,
which is a niche segment of the company. The loan book is 100% retail. Average ticket size of loan is INR7lacs.
 There are multiple filters for each loan to go through, including one which includes soft feedback in which the local
executive goes personally to the customer's location to get details.
 Industry practice is to make collections every 3-6 months, but Magma collects monthly.
 Competition is largely from companies like Sundaram Finance, Shriram Transport, Tata Finance rather than banks.
 Funding sources are working capital limits from banks, securitisation, and term loans/bonds/debentures.
 NIM is at 5.1% in the first 9 months. NIM has dropped from Q2 to Q3 due to higher cost of funds.
 Increased contribution of high yielding products to 19% from 9% in FY09 and 13% in FY10. Expects to increase it to 20%
by end FY10 and further target to increase to 25% by FY11 and 30% by FY12.

Mahindra & Mahindra Financial, MMFS IN:: HSBC - India Investor Conference Highlights

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De-risking growth for high profitability
 Mahindra portfolio proportion has declined from 65% to ~55%.
 Customer profile has become much more diversified today than two years ago, along with the loan book diversification.
This has de-risked the loan book to a certain extent.
 Does not see significant benefit of UID implementation over the next few years as they believe it will not impact farmers'
income in a big way.
 While asset quality has been a concern over the last few years, it has de-risked its loan book by diversifying. However,
overall write-offs remain low at 1.6-1.8%.
 MMFS aims to maintain a Tier-I CAR of 15%. At 4% RoA and 6x leverage, it aims to maintain sustainable ROE of 24%.
MMFS is looking to raise equity in the near term.
 Mahindra Rural Housing Finance (MHRF) subsidiary has started gaining traction in loan growth. It is likely to close FY11
with a loan portfolio of INR2.5bn and plans to double its loan book for the next 4 years to INR40bn by FY15.
Management sees significant potential to grow in the rural home finance market, which is untapped.

UCO Bank, UCO IN,:: HSBC - India Investor Conference Highlights

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Focus on CASA to offset high borrowing costs
 Targeting 1000 ATMs by FY11 and 3000 by FY13.
 Targeting 70% provision coverage by March 2011.
 Deposit growth has been lower as bank has consciously shed long-term high deposits.
 Reliance on short-term CDs has increased to take repricing advantage when interest rates decline.
 Plans to scale up presence in CASA-rich North Indian states like UP.
 Targeting to take CASA up to 30% in one year.

Indian Hotels, IH IN,:: HSBC - India Investor Conference Highlights

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The worst is behind us
 Q3 was not as good as expected but it seems that the worst is now over. Pick up has started from the bottom of the market,
ie budget hotels. There is a visible improvement in rates and demand. Expect 9% growth in demand for industry. Overall,
India has a supply shortage but may have interim periods of oversupply in some micromarkets due to timing of build-out.
 Situation in micromarkets: Delhi very good – peak volumes. North Mumbai doing very well, Bangalore picking up, Goa
very well, seasonality in Goa vanished. Rajasthan also good. Hyderabad, Pune, south Mombay not doing that well.
 Indian Hotels has c40 projects in the pipeline. To date, it has nearly 13,000 rooms including international.
 Company plans to deleverage balance sheet – has paid off USD debt by taking rupee debt, and migrated short term to long
term debt. Interest expense has declined. Equity has been infused by Tata Sons. Next year more infusion from warrant
conversion (INR4b). Debt likely to come down from INR44b to INR33b.
 Capital expenditure will be funded from internal accruals. Need to spend INR500-600m per year as routine maintenance
capex. Two main projects are Dwarka Delhi – INR3b project, and Gauhati INR1b. Hotel Sea Rock housed in a SPV and
work will begin soon.
 Payroll costs have gone up due to one-time hit on retiree benefits due to interest rate and salary hike assumption changes.
Moreover, results have been depressed by a one-time hit on launch of Vivanta brand and Falaknuma hotel.
 International business: Under pressure due to entry into US. Targeting successful turnaround of the Pierre. Pierre is averaging
USD650 ARR (average room rent), ie a discount to comparable properties. Strategy is to increase occupancies of suites to get
room rates up. Boston averaging USD300, again at a discount to comparable properties. Need to get ARRs up there, too. The
company is losing USD20m PBT annually on US business right now. Breakeven in 12 months is expected.

HDFC Standard Life:: HSBC - India Investor Conference Highlights

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Looking for calmer waters
 Bancassurance has made a difference in 3QFY11. HDFC Bank collected 60% of incremental premium.
 On the cost front, the company has rationalised the cost structure by laying off employees on performance issues and
closure of redundant branches.
 3QFY11 was a rock bottom performance. Now looking to stabilise the company's performance.

GRUH Finance, GRHF IN:: HSBC - India Investor Conference Highlights

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A differentiated lender
 Most of its loans given to cities with population less than 50,000.
 Loan to value ratio at 68%.
 GRUH Housing Finance is the only Housing Finance Company (HFC) whose pricing of the loan is linked to credit
scoring. There are 21 parameters on which a borrower is assessed, resulting in loan yields being on the higher side.
 Prepayment ratio has come down to 10%.
 Asset quality has been very strong. Coverage ratio stood at 118%.
 Expansion is inclusive, including states other than Maharashtra and Gujarat which were its focus region.

Glenmark Pharma, GNP IN:: HSBC - India Investor Conference Highlights

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Guiding for 18-20% sales growth in FY12
 NCE pipeline can throw out surprises. The company has outlicensed its NCE “GRC 15300” to Sanofi-Aventis for a total
deal value of USD350mn. Glenmark received upfront payment of USD20mn and expects to receive 13-15% in royalty
income as the molecule proceeds through clinical trials to receive regulatory approval. Other key pipeline products include
Crofelemer, GRC 4039, and GBR 500.
 For Crofelemer, Glenmark has exclusive rights in markets excluding the US, EU, Japan and China. Glenmark will supply
API for regulated markets as well. Crofelemer is expected to be an USD80mn product in RoW markets and it is in
development for multiple indications. The Phase III trial in adult acute diarrhoea met with a positive outcome.
 Branded generic business in India expected to grow 20% and likely to end FY11 at USD180mn. The company has 10
divisions and c2000 reps. Ex-India focus is on other big markets like Russia and Brazil; expects operating margin in
LatAm market to grow 2-3ppts in the next fiscal year.
 Generic business in US to stay flat, essentially due to impact of adverse Tarka ruling and nitroglycerin withdrawal. Filings
for derma, oral contraceptives, controlled substances and modified release products are in progress for US market. The
company is also filing oncology products in the US market, though material contribution will be post FY13/14. US generic
business is expected to grow 20% yoy, assuming timely Malarone launch in Q3FY12 as per settlement. Western EU
business is small at cUSD10mn with presence in UK, Germany, Netherlands. Oncology business is at cUSD4-5mn.
 API business expected to grow 15%; SRM (Africa, Asia, Russia) to grow 20-25%. API margins will remain in low
double-digits.
 Debtor days stand at 125 and net debt is INR18bn. Glenmark has paid off its FCCBs. The company doesn’t hedge its
exports using derivative products.

Federal Bank, FB IN:: HSBC - India Investor Conference Highlights

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Liability-focused growth
 SME is the focus sector for loan growth. Target loan growth is 18-20%.
 CASA ratio moved up from 25% to 29%. No signs of shift from CASA deposit to term in the rising interest rate scenario.
 Remittances have been strong but were not able to make it into deposits; working on strategy to convert them into
deposits.
 Due to higher collateralised lending, write-backs have always been higher.
 Bank not planning to roll out credit cards till the end of this calendar year.

Andhra Bank, ANDB IN,:: HSBC - India Investor Conference Highlights

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Small, but smart
 Expecting to grow loan book at 2% above industry growth.
 Will concentrate on improving market share on pan-India basis. But will not allow NIM compression beyond a point for
gaining market share.
 Current account growth will be moderate while that of savings account will be good.
 Have provided for pension liability on a 3-year basis, rather than 5 years as done by other banks. Pension liability is
around INR600cr.
 May take a hit of 15-20bps on NIM over a period of time, but expects to be better than market.
 Expecting capital infusion of ~INR12bn from the government to take ownership to 58%. Bank does not have concerns on
capital over the next 2-3 years.
 Provide 100% for all loans below INR1lac, so any recovery on these accounts would be used to provide for future losses in
these accounts.
 Expect Insurance JV to break-even in 5 years, normally takes 10 years.
 Working towards having an outlet abroad soon if regulator permits.
Consolidated

Yes Bank, YES IN, OW:: HSBC - India Investor Conference Highlights

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Near term margin concerns, but long term growth outlook intact
 Balance sheet growth to be about twice industry average for Yes at 15% in FY12.
 YES is no more wholesale funded than other banks as it is in the middle of the pack in terms of proportion of top 20
depositors.
 Expects NIM to be better than 2.7-2.9% as liquidity to come in April and cost of funds likely to be reduced as deposits are
repriced earlier.
 Restructured loans are low despite high loan growth because risky consumer lending proportion is small. Focus sectors are
agri, telecom, IT and infrastructure which have not been hit as badly as others like cement, steel, metals and commodities.
 Expects to set up 100 branches over the next year.
 Will have to raise capital after one year.

Welspun Corp, WLCO IN, OW:: HSBC - India Investor Conference Highlights

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Moderately bullish on overall outlook for pipes
 Sounding moderately bullish on demand in the near term but expecting strong demand in coming years.
 Expect line pipe demand to emerge largely from North America, Latin America and Middle East.
 Optimistic on achieving higher utilisation rates from Middle East-based plant as they expect to get orders from Saudi
Aramco.
 Expects plate mills to show improved utilisation rates from FY12 as they get more approvals from large international
consumers.

Voltas, VOLT IN, N(V) :: HSBC - India Investor Conference Highlights

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Cautiously optimistic on the outlook
 International business reach has increased significantly; now has a presence in seven countries with strong focus on Saudi
Arabia and Oman and increasing focus on Singapore and Hong Kong. Management also highlighted that while
competition is intensifying in the Middle East, the environment in Saudi Arabia remains fairly benign.
 In the domestic market, Voltas is focusing on increasing the scope of its products and services. From being primarily an
HVAC supplier, the company is now aiming to provide a full range of MEP services. We believe this transition should
allow Voltas to continue to grow above market over the next few years.
 Demand in the commercial property segment has softened significantly, but industrial and power segment remains strong.
Order growth in domestic market remains strong y-o-y, whereas order growth in international markets has softened.
Management remains cautiously optimistic on the overall demand outlook.
 In terms of business segments, management highlighted that EBIT margins in Segment 1 should soon be back to c9-10%.
Segment 2 is entering a 4-year upcycle and seeing strong demand from textile machinery and metal-handling segments.
The growth rate in Segment 3 should stabilize now at c25-30% compared to c50-55% growth seen over the last few years.
However, management expects Voltas to continue to win market share in this segment.

Tulip Telecom, TTSL IN, OW:: HSBC - India Investor Conference Highlights

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Focus on fibre to expand share and margins
 First phase of the data centre will focus on 88,000 square feet. This should allow benefits of scale longer term. While the
first step is introduction of a strategic partner, data centre operations should begin over the next six months.
 Fibre continues to be the focus; expecting c60-70% of revenues in FY13e to come from fibre-based business. This should
allow margin expansion and market share gains.
 Capex estimates for next year are unlikely to exceed cUSD90m all-inclusive. The company is comfortable with net
debt/EBITDA of 2.5x and debt/equity of 1.25x.
 The infrastructure created via radio is unlikely to lose value as the investments are allowing the company to participate in
various government projects like APDRP.
 Biggest challenge will be execution so that the company can maintain its unique value proposition of faster response/lower
downtimes.

TCS, TCS IN, OW:: HSBC - India Investor Conference Highlights

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Pipeline robust, confident on demand
 Remains confident of the demand environment.
 Demand from Banking, Retail, Energy and Utilities markets is robust with growing pipeline. Telecom remains weak.
 Supply side pressures are easing and attrition is declining gradually every month.
 We expect margins to remain stable in FY12 at c27% EBIT.

Sun Pharma, SUNP IN, N:: HSBC - India Investor Conference Highlights

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US reaches a base, Taro expands reach
 India growth is primarily volume-driven (15%) with price increase and new product contribution at less than 5%; domestic
growth expected to continue to grow above industry. Sun has launched latanoprost reformulated version and baclofen GRS
capsule in domestic market. DPI product expected to launch by next fiscal year. Current contribution of DPCO products is
at c12%.
 US business has formed a base after Taro consolidation. Though Taro’s operating margin at 20% is impacting consolidated
numbers, the company expects to realign API sourcing and staff costs to improve overall margins at Taro. Taro has strong
sales and marketing strength in the US and gives access to Canadian market as well. It brings a strong pipeline in niche
therapies including dermaceuticals.
 Product-specific opportunities in the US including docetaxel and oxaliplatin could be material but timelines are uncertain.
 Sun Pharma is looking for more acquisitions in the US; Caraco will take time to recover from FDA woes. Increasing focus
on RoW markets as well, like Russia, Brazil, Mexico and S. Africa. Current sales force in these markets cumulatively is
c.600 people.
 Dividend payout to continue at 20%. The company is hedging c50-70% net exports on a 6-month forward basis. Core ROE
expected to remain over 30%.

Sterlite Industries, STLT IN, OW:: HSBC - India Investor Conference Highlights

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Going ahead with aluminium expansion
 Aluminium: In line with earlier communication, the company is going ahead with aluminium expansions, will complete
the BALCO smelting pots, which is in the last stage, and partially execute the project at subsidiary, VAL (maybe two pots
out of four).
 Expects VAL’s cash cost of aluminium production at USD1700-1750 after third party bauxite; will decide to eventually
produce based on LME price.
 Zinc: Expects cash costs of Anglo American zinc assets at USD1000-1080/t, which is higher than Indian cash costs, but
much lower than ruling LME prices of zinc.
 Arbitration ruling: Not clearly decided yet; may appeal or look for an outside settlement.

State Bank of India, SBIN IN, N:: HSBC - India Investor Conference Highlights

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Asset quality bottoming out
 Looking at another 25-50 bps hike in deposit and lending rates, to peak in the current interest rate cycle.
 Incremental CASA last year was 70%. Bank is targeting incremental CASA at 50%. Current cumulative CASA 48%.
 Expecting to keep cost/income ratio flat at 46% in the current fiscal year and targeting to take it to 40%.
 Gross NPL at 3.17%; targeting gross NPL ratio at under 3% in FY12.
 Mid-corporates saw maximum delinquencies. Bank is now expecting asset quality to improve in this segment.
 Restructured book at INR327.5bn; domestic at INR300bn, approximately 5% of loans. Restructured book breakdown:
Corp Accounts Group – INR62.5bn, Mid-corporates group – INR173.5bn, SME – INR53bn.

Simplex, SINF IN, N(V):: HSBC - India Investor Conference Highlights

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Domestic order book will lead growth
 Simplex believes book to bill ratio of 2.8x provides enough revenue visibility over the next two years. Maintaining its
stance that it will not bid for road projects with an equity IRR below 20% to accelerate order inflow accretion.
 Expects diversified construction capabilities to help mitigate risk of slowdown in any particular segment. The company
plans to maintain a healthy mix of project size/quality to achieve a minimum EBITDA margin of 10-10.5%.
 Near-term revenues are likely to be dependent on domestic order book, with the international segment likely to pick up in
the medium to long term.
 Revenue guidance for FY11 lowered to 10% from 15%; expects EBITDA margin to remain at 10-10.5%.
 Simplex has cut back its entry into Libya (cancelled existing order – 5% of order book) and re-mobilized resources
(booked INR32m loss on re-mobilization during H1 FY11).
 While working capital demand remains high at c125-130 days, Simplex has initiated actions to bring it down by
concentrating on private sector orders and short duration projects.

Shoppers Stop, SHOP IN, UW:: HSBC - India Investor Conference Highlights

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Building a robust retail model
 Shoppers Stop has a total of 3.2m sq ft and 111 stores in 15 cities across 8 formats. The move from “premium” to “bridgeto-
luxury” positioning is resulting in better sales and margins.
 Model is being de-risked by expanding consignment/concessionaire proportion from 40% in FY07 to 60% currently. Trade
working capital has reduced from INR442 per sq ft to INR101 per sq ft over three years as a result.
 EBITDA margin could go up 100bps on introduction of GST as service tax can then be offset against VAT.
 1.9m first citizen members, 73% of sales comes from these members. Any stock over 18 months fully written off as per
company policy ensuring no surprises on inventory write-off.
 Store openings – expect 8 Shoppers Stop stores, ie total of c0.4m sq ft in FY12. Hypercity – to expand from 0.9m to 2.5m
sq ft in next 3-4 years. Breakeven expected by FY12 on EBITDA and FY14 on net profit.

RCOM, RCOM IN, N:: HSBC - India Investor Conference Highlights

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Thinks better placed for data with more fibre backhaul and CDMA spectrum
 India is a data-starved market and RCOM has the maximum 3G spectrum relative to the competition. ARPU on the data
side is 3-4x that of voice. 3G drives growth at a sector level.
 RCOM sees itself as much better placed than competition with 200,000kms of fibre backhaul. We understand that Bharti is
next in line with 120,000kms of fibre backhaul.
 Significant CDMA advantage allows it to offer pan India EV-DO based products without getting into roaming
arrangements. Only Tata and RCOM are dual technology players and benefit from a robust spectrum bank. RCOM
believes that the CDMA flexibility should allow it to lead the data card market. RCOM currently segments data card
offerings by speed and covers all types of user. 5 MHz of 3G spectrum with pure GSM operators may be inadequate in the
medium term.
 Believes that, globally, technologies such as CDMA and GSM will converge to LTE in the longer term.
 Presence in both satellite TV (Direct to Home) and cable TV gives RCOM a larger addressable market and lower costs for
both content and set top boxes.

Persistent, PSYS IN, N(V):: HSBC - India Investor Conference Highlights

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Still confident on demand for OPD services
 The company remains confident of the growing demand for OPD (outsourced product development) services, around
cloud computing and mobility.
 Wage pressure continues to be high, however, the targeted approach of hiring around Pune and Nagpur and favorable
employee pyramid in FY12 should help sustain margins in the range of c18% PBT.
 Tax rate outlook remains unchanged.

Pantaloon Retail, PF IN, N:: HSBC - India Investor Conference Highlights

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Focus on foods, restructuring into a retail pure-play
 Overall, Pantaloon expects to achieve 30-35% sales growth (half via new stores) with 8-10% EBITDA margin in FY12.
Current debt is cINR35b, with a target to reduce to INR20b over 18 months by monetising investment in subsidiaries.
Pantaloon is aiming to become a retail pure-play.
 HomeTown (home improvements) has been engineered to rely less on imports, making the supply chain more responsive
and lowering working capital. Current sales is INR5000 per sq ft; target is to ramp up to INR7000. HomeTown has also
tied up with realtors to provide fully furnished houses and it will focus on services, ie solutions instead of products. Format
could break even by the end of the year. For electronics (E Zone), the strategy is to lean more towards online sales.
However, given the lower margins, break even is not visible for two years.
 Big Bazaar (hypermarket) currently has sales psf of INR8250 (aims to ramp up to INR9500) with 26-27% gross and 6-8%
EBITDA margins. Food is currently c35% of sales, aiming to ramp up to 45-50% in the next 4 years. This will result in
lower margins but higher sales and lower interest cost (due to faster inventory turn).

Oil India Limited, OINL IN, N:: HSBC - India Investor Conference Highlights

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Lowered production target but being conservative
 Domestic production outlook is a shade lower than previous guidance, while overseas investments are turning out to be a
mixed bag.
 Oil India is lowering its crude oil production target for FY12 by 3.5% to 3.76mn t/yr. However, they are quite confident of
exceeding the revised target.
 While the company believes it can produce c10% more natural gas, it is constrained by lack of offtake.
 OIL is likely to write off its expenses in exploration blocks in Timor and Iran. We therefore believe the higher write-off
witnessed in Q3FY11 is likely to continue in the next few quarters as well.
 Investment in the Carabobo-1 project in Venezuela is likely to add c20% to OIL’s existing production by 2013.

NIIT, NIIT IN, OW(V):: HSBC - India Investor Conference Highlights

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Margin squeeze likely near term due to investments but revenue robust
 NIIT continues to see momentum in its Corporate Learning Services (CLS) and Individual Learning Services (ILS)
business. Enrolments are growing in ILS and should result in stronger revenue growth in FY12.
 Deal pipeline in the CLS business remains robust. However, assuming the company is able to close more mega deals,
margins in the near term would be impacted by the initial investments.
 On the ILS side (all individuals including banking, financial and BPO training services, such as IFBI, Imperia), the
company is looking to consolidate the centers to improve utilization.
 Investments are being made to integrate the IT and VSAT systems in the centers. This may put pressure on margins in the
near term and result in a modest decline in EBITDA margins in 4Q y-o-y to c22%, which will be 12% downside risk to 4Q
ILS EBITDA and 7% risk to overall group 4Q EBITDA.

National Aluminium Company, NACL IN, UW:: HSBC - India Investor Conference Highlights

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Expects to complete bauxite expansion by April 2011
 Expansion: Expects to complete bauxite expansion to 6.3 mt and alumina refinery by Apr-11; this is in line with previous
communication. Damanjodi expansion trial run to start in Apr-11 as well.
 Cash costs: Current mining cost of INR457/t to come down to INR412/t.
 Aluminium production target for FY12 is 4.4mt; this is lower than our current estimates due to technological upgrade at
smelting pots and power cost issues. Pot upgrades will free an additional 92ktpa capacity.
 Power sales are currently unviable due to OERC norms.
 Coal mines: all mines at Talchiri (Coal India) are now closed; the company is finding it difficult to source coal locally.

Marico Industries, MRCO IN, UW:: HSBC - India Investor Conference Highlights

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Price increases unlikely to result in volume decline
 32% price increases have been taken on Parachute coconut oil due to input cost pressure. This could in turn put pressure on
volumes but they are unlikely to turn negative. Price increases are occurring across all brands and loose oils, so
competitive pricing does not change much. Marico will drop prices on small packs as soon as input cost falls; price cuts on
rigid packs will be slower. Coconut crop expected to be normal, but correlation to palm may result in coconut oil prices
remaining firm. Looking at 7% volume growth for Parachute in FY12. Some amount of shift from coconut to other hair
oils is possible but this is not seen as a problem as Marico is present there, too.
 International business: Egypt is a base for MENA manufacturing. Egypt is 3% of sales but sales serviced out of Egypt
amounts to 7-8%. Three factories shut down temporarily but two have restarted as of 6th Feb, although shipment has not
yet commenced. Apart from this problem, international business is and can grow at 20-25% pa. This quarter will see the
loss of one month’s sales for the MENA region.
 Kaya: Seeing signs of recovery in India – SSS growth of 8% in Q3. Price points made more attractive with INR999 price
point per sitting. Also product sales as a percentage of revenue have gone up in India from 13% to 17% due to the
introduction of Derma Rx products. Incremental store rollout to be gradual. ME performing well, to add 3-4 stores there.
 Saffola: Safflower oil has inflated but price increase of 15% taken, which is ahead of cost increase to date. Input prices
may still go up in future. Overall income tax rate for FY11e 16% and FY12e 17%.

Maruti Suzuki, MSIL IN, OW:: HSBC - India Investor Conference Highlights

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Refreshed portfolio to drive volumes even as cost concerns persist
 Maruti Suzuki is considering new launches in the MUV and SUV segment; additionally, it is likely to launch variants of
the existing models with alternative fuels and engine capacity options.
 On the commodity front, Maruti has already negotiated steel contracts for Q4 FY11. Although the company had taken
price hikes in January to counter input cost pressure, it has not passed on the entire cost to consumers. The company is
planning to bring down vendor imports to half from current levels, in order to increase the localization rate.
 The waiting period on popular models is expected to reduce (Swift Dzire c2 months, Swift c1 month) as additional
capacity comes onstream at the beginning of FY12, with overall capacity reaching 1.9m units by FY13. In case of a slow
demand scenario, the company is unlikely to ramp up production as it does not prefer to build inventory.

Lupin, LPC.IN, OW. Target (INR) 560.00:: HSBC - India Investor Conference Highlights

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Generics portfolio remains strong, niche pipeline swells
 US branded business forms c29% of US sales with growth in recent quarters not comparable on a y-o-y basis due to a
change in accounting, inventory destocking and higher base effect in FY10. The growth in terms of prescriptions is strong
(Suprax Rx 17% y-o-y, Antara Rx growing in a declining fenofibrate market).
 Generics business outlook is strong with slew of opportunities in next two years of which generic Fortamet, Glumetza,
Renagel, Fosrenol, TriCor, Cipro OS could be meaningful. Existing molecules including Lotrel have seen some price
erosion. Lupin has cumulative ANDA filings of 137 ANDAs with the FDA of which 16 are “First-to-File”, six are
exclusive and 60 are Para-IV applications. The management expects one AG entry and one FTF in this calendar year.
 Lupin expects to launch 3-4 oral contraceptive products by Nov-Dec 2011. AllerNaze launch is also anticipated in this
calendar year. Long-term filings including ophthalmic products will start contributing meaningfully in the next two years.
The company plans to also enter derma and aerosols market.
 India growth is strong and expected to continue at c20%. Lupin is not concentrating on acute therapies (chronic therapies
c60%). The company is planning to launch biosimilars in domestic market in near-term. Current field force is c3,500.
 Ex-US/EU Lupin has interests in markets like Brazil, Turkey and Mexico. Japan has seen 12% volume growth but
competition is anticipated to increase with the number of local players entering generics.
 The company expects sales growth of c18-20% for FY12. R&D to continue at 7-7.5% of total sales.

ShareKhan, Fertiliser Sector - Government to revise fertiliser subsidy

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In an attempt to ward off further inflationary impact on
already high food prices and to cushion the farmers from
the impact of high global raw material prices, the group
of ministers (GoM), in a meeting held on February 15,
2011 headed by the finance minister, has decided to hike
the quantum of subsidy under the Nutrient Based Subsidy
(NBS) scheme payable to fertiliser manufacturing
companies.

Accumulate AIA ENGINEERING ; target Rs 370; Kotak Sec,

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AIA ENGINEERING LTD. (AIA)
 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.370
CONS. FY12E P/E: 13.6X
q AIA reported Q3FY11 results; marginally below our estimates on revenue
and profitability front.
q Margins pressure exists due to increasing input prices; currently company
is finding difficulty in passing on these increases to the end user
q We tweak our earning estimates slightly downward for FY11 and FY12
taking into account 1) marginal decline on volume estimates 2) increase
in realization to factor in input price inflation.
q We change our recommendation to 'ACCUMULATE' from 'REDUCE' in
view of recent correction to the stock price. Revised target price of Rs.370
(Rs.450 earlier).

Larsen & Toubro, LT IN, OW:: HSBC - India Investor Conference Highlights

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Company estimates order inflow delays to be temporary
 L&T has indicated that order inflow slowdown for the company and the system have been due more to delays rather than
cancellations, which suggests order inflows will accelerate during FY12. The company will not sacrifice margins for the
sake of new orders as it expects the current slowdown is more a timing issue than anything structural.
 Company highlighted that some of the government orders have seen land acquisition and environment clearance delays.
However, it expects new projects to have such clearances, which will reduce delays during construction.
 While the domestic oil & gas sector has witnessed new order growth stagnation, the company has witnessed increased
traction in the Middle East. L&T has tied up with a Korean company for a mid-sized order and expects project specific tie
ups to increase in the future.
 Past bitter experience in the road sector has guided company not to bid for any new projects with post-tax equity IRR of
less than 18%.
 L&T has said it will declare comparable earnings for FY12 under the new International Financial Reporting Standards
(IFRS) although the new rules will mandate companies to declare comparables only from the second year. After the
business restructuring, L&T plans to declare more granular data on its various business segments.

JSW Steel, JSTL IN, N(V):: HSBC - India Investor Conference Highlights

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Sufficient coking coal stocks until March, spot prices not viable
 Coking coal: JSTL has sufficient stocks until March-2011; in addition it has sourced c75,000t from the US at USD225/t;
expects end-production demand destruction at USD300/t and therefore sees recent spike in spot prices as unviable.
 Inline with previous communication, the company expects strong 4Q FY11 EBITDA/t (at USD170+).
 ISPAT acquisition: expects near term improvement in EBITDA/t at INR3,500-4,000.
Key synergies outlined:
 INR900-1,000/t saving on transportation costs.
 VAT benefits from ISPAT to the tune of INR1,400/t.
 Iron ore sourcing from Bellary much cheaper than Orissa.
 Cheaper power from JSW Energy (INR4.5 unit vs INR6 unit that ISPAT currently pays).
 US subsidiary: company has a new CEO. Sees breakeven PAT at 35% utilization (15% currently).

Jet Airways, JETIN IN, OW(V):: HSBC - India Investor Conference Highlights

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Fuel contract renegotiations key; interest savings to further boost earnings
 With rising concerns of oil price increase, Jet’s fuel contracts with its suppliers will give it a competitive advantage. The
airline is planning to further reduce its 60 day credit period and consequently get more price discounts from its fuel
suppliers. Further, Jet believes that passing on fuel price increases to customers will not affect demand growth.
 Jet does not intend to increase its debt going forward. Additions to its fleet will be done through sale and lease back
transactions.
 Jet is confident about its favourable outlook and plans to increase domestic and international market share as new aircraft
join the fleet.

ITC, ITC IN, N:: HSBC - India Investor Conference Highlights

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Budget to determine volume growth, EBIT growth to be managed
 FY11 saw steep tax hikes followed by steep price increases (c17 %). FY11 cigarettes volumes likely to be flat. Next year’s
volume growth to depend on budget: expect mid-high single digit growth if budget is benign. If excise duty increases
c10%, volume growth could be in low single digits. VAT rate is 14.5% currently on average (plus 2.5% local taxes). This
burden could increase by c300bps when GST is implemented (April 2012 expected). Expect 30-40 bps margin expansion
CAGR in cigarettes over 3-4 yrs.
 Marlboro compact has negligible volumes despite 6-7 months of launch. It seems that Marlboro smokers prefer Kings
segment – the smaller stick does not have much appeal.
 Foods: good momentum in top and bottom line. Foods segment is already breaking even, even including new products like
Bingo and Yippee. FY12: 25% growth expected in top line, higher at bottom line. Personal products will take time to break
even, as the company is investing in brands right now. Soaps 6% market share and shampoo 4% market share achieved.
 Hotels in pipeline: Kolkotta 500 rooms in 3 years, 100 rooms in Gurgaon, Ahmedabad sand Hyderabad properties starting
construction this year. cINR800m incremental depreciation from the new Chennai property likely to come in FY12.

IRB Infrastructure Ltd, IRB IN, OW(V):: HSBC - India Investor Conference Highlights

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Targets 7-8% market share, input costs remain stable
 IRB is targeting to win orders for c400-500km of roads up to FY12, which will put its market share at 7-8%. The company
expects the National Highways Authority of India (NHAI) to award five new road projects in March and seven in April.
 The company indicated that its raw material cost has remained stable over the past six months, with average cost of
aggregates at cINR500 per tonne. With majority of the aggregates are being sourced from its in-house mines, the company
expects cost escalation to remain moderate. IRB expects bitumen prices to remain stable and has hence has not bought any
bitumen tankage this year.
 Three out of its recent five projects – Amritsar-Pathankot, Jaipur-Deoli and Talegaon Amravati – expected to become
operational by H2 CY12, while IRDP Kolhapur should be completed in 1Q FY12. The company expects to start booking
construction revenues on its Tumkur-Chitradurga project from Q4 FY13.
 While IRB has indicated that it has not experienced any land acquisition problems on projects under construction, its Goa-
Panji project (project cost INR8.3bn) is yet to start construction as the NHAI has yet to allocate 36km of the required land.
 While new project orders from NHAI have slowed down, the company has indicated that it would not bid aggressively for
new projects, even if it has to hold out for 3-6 months.

Infosys, INFO IN, OW:: HSBC - India Investor Conference Highlights

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Demand remains strong, supply side pressure easing
 Restructuring likely to be announced soon, however unlikely to be any significant upheavals, in our view.
 Demand remains strong and the company expects to see better hiring and retention in 2011 as i-Race (role reorganization
program) aftermath fades away.
 Supply side pressures are easing and attrition is declining gradually every month.

IndusInd Bank, IIB IN, OW:: HSBC - India Investor Conference Highlights

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On its way to match the best in class
 The current and next quarter are likely to pose challenges in terms of margin maintenance as deposits reprice upwards and
lags in asset repricing. However, beyond 1Q FY12, things are likely to normalize with the upward trajectory of CASA and
NIM likely to resume.
 About 10-15 bps of incremental margin expansion likely to come from its foray into unsecured products like credit cards.
Credit cards seen as completing the product offering rather than as a core business driver.
 Vehicle finance book yields 16%. Of the vehicle portfolio of cINR110bn, approx INR25-30bn is financed through longterm
loans and the rest by CASA deposits.
 The target is for fee income to grow faster than loan book growth. Investment banking is one of the key focus areas, where
they are targeting to increase revenue from current INR650m to INR2.5bn.
 Goals for the next three years are: 4% NIM, RoA above 1.6%, 15x leverage, cost/income ratio at 45%, branch expansion
to 700 branches from 300 in March 2011.

ICICI Bank, ICICIBC IN, OW:: HSBC - India Investor Conference Highlights

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Near-term margin concerns, but good medium-term outlook
 Liquidity likely to remain tight to Mar 2011 as government carries surplus balances into FY12 and then eases up post April.
 System retail and corporate loan demand likely to be affected after another 100bps hike in lending rates.
 ICICI Bank’s corporate and retail mix likely to shift towards corporates as corporate capex is picking up.
 4,000 branch target in medium term (vs 2,500 currently); likely to maintain CASA at 40% even as current account
component declines slightly as corporates execute capex.
 Margins to see near term pressure given liquidity situation but to rise medium term beyond 2.6%; international margins at
80bps, peak was 125bps.
 System asset quality: NPL cycle has peaked for retail and corporate but not yet for SMEs. For ICBK, small and focused
SME exposure implies that NPLs have peaked.
 Budget: may see some talk on new bank licences and consequently some irrational pricing in short term. Also, any efforts
to collect black money via a new scheme may bode well for bank deposits.

Hindustan Unilever, HUVR IN, UW:: HSBC - India Investor Conference Highlights

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Margins unlikely to move up in near term
 Category wise value trends (y-o-y December quarter): Laundry – gaining; soaps – holding (premium segment growing);
skincare – FAL holding, premium end growing; hair – growing; oral care – improved.
 Soaps price hikes a possibility (in a calibrated manner), which could impair the current trend of up trading, but unlikely to
result in substantial down trading. Soaps and detergents margins seem to have bottomed out, unless there is further cost
inflation.
 Within soaps: Dettol continues to do well, ITC quite active, Santoor is holding market share, smaller players under
pressure. Lux almond has done well in the north; GCPL has been under some pressure. Within laundry: substantial
promotions on Tide Natural going on. Rin is likely the fastest growing within HUL’s portfolio. Within personal products:
uptrading is happening. HUL is investing heavily in market development for new categories. Operating margin for the
overall category is down because of this investment; operating margins excluding A&P would be up. No price war in
shampoo – it’s an attempt to make two consumers to use a sachet instead of one (increased quantity at same price).
 For HUL tax rate next year could increase to 23-24% and in FY13 to 25%.

HPCL, HPCL IN, UW :: HSBC - India Investor Conference Highlights

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Don't expect fuel price deregulation
We believe the company is going through a process of planning new projects and reorienting the existing asset base. In the
meantime, we get a sense that the ad hoc approach to the fuel pricing is likely to continue, particularly in the current crude oil
price environment. The discussion with investors included:
 Company expects its 9 million tonne a year refinery at Bhatinda to be operational in May 2011.
 There is a general perception that fuel price deregulation is unlikely in the near term but the company believes it will get
adequate subsidy from the government to be able to report robust profits.
 HPCL is planning a new 9m tonne a year refinery in Ratnagiri, where land acquisition is at an advanced stage. However, a
firm decision on the existing 8m tonne/year refinery in Mumbai has not been made yet.

HCC, HCC IN, OW(V):: HSBC - India Investor Conference Highlights

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Expect clarity on Lavasa issue very soon
 Order book mix continues to remain strong with c44 projects contributing c50% of the order book (INR185bn).
 Company has sufficient cash balances to repay the USD100m foreign currency convertible borrowing in April 2011.
 Construction continues to be at a standstill at the Lavasa project. However, management discussions with government,
including the Ministry of Environment and Forests over environmental clearance, suggest a solution is likely to be reached
over the next 30 days.
 HCC expects the total impact of the delay in the Lavasa project at INR0.9bn, of which INR0.6bn is interest cost. The
entire impact, including any future contingencies, is estimated at INR2bn. While this will increase the peak funding
requirement, major shareholders in the project are likely to contribute towards the additional funds.
 Management would like Lavasa to tap the capital markets with an initial public offering. We would expect to see the
environment issue resolved first.
 Despite recent issues, the company says no sales at the Lavasa project have been cancelled over the past three months.
Contrary to market perceptions, the Lavasa project has received an increased number of booking inquiries, although the
company is yet to reopen bookings.

HDFC Bank, HDFCB IN, OW:: HSBC - India Investor Conference Highlights

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High growth, high profitability
 Expect some moderation in commercial vehicles lending.
 Infrastructure loans are around 5% of loan book. Given the growth in retail and working capital lending, it will by and
large remain at current levels.
 Plans to keep adding 150-200 branches per year for at least the next five years.
 CASA at current levels of 50% is unsustainable, more likely to sustain at 46-48%.
 Cost/income ratio may not decline from here due to factors like wage inflation, talent acquisition, branch addition.
Comfortable with 47-48% ratio.
 Exports, aviation, gems and jewellery continue to remain problem assets.

HDFC Ltd, HDFC IN, OW:: HSBC - India Investor Conference Highlights

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The steady performer
 No plans to merge with HDFC Bank as of now as both businesses growing successfully separately.
 No immediate needs for capital.
 Lack of clarity on FDI resulting in indecision on listing insurance subsidiary.
 Although rate hikes have been sharp, the company is only 25bps higher than 2008 levels and hence demand unlikely to be
affected even after another 25-50bps of rate hikes; Key concern is real estate property prices which are unaffordable.
 Property prices likely to correct triggered by liquidity crunch faced by developers as banks have become more
conservative lenders; NPLs for non-individual loans at 45bps.
 Expect spreads to correct slightly to 2.25% in 4Q vs. 2.3% currently.
 Exposure to scam-hit companies is limited to two out of 23 named.

HCL Tech, HCLT IN, OW:: HSBC - India Investor Conference Highlights

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Order pipeline at historical high, positive on margins medium to long term
 Management very confident – current order pipeline at historical high, with continued strong conversion rates.
 It expects margins to improve in 3Q and 4Q and reiterated its guidance that 4Q11 margins will be similar to 4Q10 in
constant currency.
 Supply side pressures are easing and attrition is declining gradually every month.
 Expect margins to improve in the long term, as the company gains more experience in managing mega deals.

GMR Infra., GMRI IN, UW(V):: HSBC - India Investor Conference Highlights

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Equity requirement over next two years in place with cash
 Airport profitability: The airports operated by GMR at Delhi and Hyderabad are both reporting losses due to financing and
capital costs. The company expects them to turn PAT positive in next 2-3 years.
 Funding for power and road projects: Over the next two years, GMR needs to contribute equity of INR32bn for its power and
road projects under construction. The company is well funded with cINR31bn of cash and cash equivalents and expects to
receive INR10bn by end April 2011 from the completion of the sale of its stake in Intergen announced in Nov 2010.
 Sale of stake in GMR Energy: Temasek and IDFC injected private equity of INR13.5bn into GMR Energy (a subsidiary of
GMR Infra) last year. We estimate this will result in dilution of GMR Infra's stake in the power subsidiary to an extent of
15-20%, depending on the valuation at the time of exit over the next two years.

GAIL, GAIL IN, N :: HSBC - India Investor Conference Highlights

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Expect to sign 2mt long-term LNG contract in 2011
The company seems confident of having adequate volumes of natural gas for the new pipelines it is in the process of laying or
completing. Salient points that emerged during discussions with the company are listed below:
 The company thinks gas supply could increase to 250mmscmd in FY14 from the current 170mmscmd. A large part of this
volume increase is expected to come from LNG imports. GAIL is also actively pursuing medium term LNG contracts and
could sign these shortly.
 Phase 1 of the Dhabol-Bangalore pipeline is likely to be operational by March 2012, connecting Goa on its way to
Bangalore. This is line with the previous guidance. The second phase to Bangalore is expected to be completed by Dec
2012. In the meantime, orders for the Kochi-Bangalore-Mangalore pipeline have been placed. The aim is to begin
operations ahead of the opening of the Kochi LNG terminal, scheduled for March 2013.
 The expansion of the petrochemical capacity unit to 900,000 tonnes from the current level of 400,000 tonnes is expected to
be completed by Dec 2013, a few months ahead of schedule.

Dabur, DABUR IN, OW :: HSBC - India Investor Conference Highlights

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Price increases will start happening
 It sees FY12 as less challenging than FY11 on bottom-line growth as a further increase in the tax rate is unlikely; price
increases of c4% likely in FY12 and the overall climate for price increases is starting to look favourable.
 Steep inflation seen on edible oils, packing material, LLPO. Inflation for overall Dabur product basket is 8%. Buying spot
as prices are too volatile to predict. High inflation a risk to demand and the company sees volume growth at 8-10% and
value growth of 12-15% for the domestic part of the business.
 A&P as % sales to be at 12-13%. Current products fully supported but new product development has slowed down.
 Eight new OTC healthcare products in the pipeline to be launched over 9-18 months.
 International business: Egypt forms 3% of top line, hence no major impact. c25% of business is international and it is
growing faster than the domestic business both organically and inorganically; y-t-d international margins are 23%, higher
than the domestic business. Margins have expanded 900 bps over three years due to product mix improvement and
operating leverage. When making acquisitions, Dabur makes sure that businesses are EPS accretive in the first year.