Macquarie Research, Weekly US oil data

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Weekly US oil data
Opec drama overshadows decent data
This week‟s batch of US oil data finally showed some alignment (albeit a month late)
with seasonal supply and inventory trends that we have been flagging for some time.
We believe this week is something of a „turning of the tide‟, as the next several weeks
should result in higher refinery runs, crude draws, and seasonal product builds.
“This is one of the worst meetings we have ever had”
This quote from Saudi Oil Minister Ali al-Naimi truly underlines the divergences
taking place across Opec. Marking the first time in 20 years that the cartel has failed
to reach an agreement, half of the 12-member group opposed lifting output quotas
from 29mb/d to 30.3mb/d. Not surprising was the six countries who voted against
action – they have been fairly vocal in their desire for higher prices. Regardless, the
lack of a united front is certainly bullish crude, and underlines concerns regarding
spare capacity and ability to ramp up production. This is occurring in an already
tightening crude market, as we forecast global demand to increase by 2.1mb/d from
2Q11 to 3Q11, and an additional 160kb/d into 4Q. For the Saudis, they will no longer
seem like the bad guys. They can, and will, increase output as they see fit, but will
simultaneously be able to deflect much of the blame for higher prices by pointing to
the six cartel members who voted against their proposed quota increase. Political
tensions within Opec will likely remain heightened as prices trend higher in the
months leading up to the next meeting, which is scheduled for December.
Top three numbers in today’s weekly US oil data
 Crude oil inventories drew significantly lower, -4.8mbs. The decrease was
concentrated in the Midwest and Gulf Coast regions. Levels at Cushing, OK fell by
-1.0mbs.
 Downstream stocks turn upward, +6.3mbs, with increases coming from nearly
every category. Most significant were builds of +2.2mbs in gasoline and +3.2mbs
in other products.
 Demand growth remains negative at –3.9% (four week MA, y/y), dragged lower
by nearly every product.

IT Services: Back Up Truck on Cognizant; Accenture Outlook Solid; Capgemini's Pipeline Comment Misunderstoo: Bernstein Research,

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IT Services: Back Up Truck on Cognizant; Accenture Outlook
Solid; Capgemini's Pipeline Comment Misunderstoo


Highlights
Today's piece summarizes findings from our latest channel checks on the consulting/systems integration
and offshore markets and from Capgemini's analyst day, including offline discussions with several
Capgemini executives.  In addition, we've further studied recent concerns hurting Cognizant's stock, and we
address basic questions facing Accenture ahead of its June 23
rd
earnings report.  Key conclusions include:
 Heightened concerns of late about Cognizant's Q2 are unfounded, and we think investors should take the
opportunity to aggressively buy Cognizant following its recent pullback.  We are reinstating Cognizant
as our best idea.
 Capgemini's Analyst Day comment about "a plateau in its systems integration pipeline" has been
misunderstood.  This comment should not be cause for concerns about a "double dip" in demand, with
our view on this front confirmed by our discussion with Capgemini's CFO.
 Following its pullback off of its all-time high stock price due to Cognizant / Capgemini related concerns
that we think are unfounded / misunderstood, Accenture's risk/reward now looks more attractive ahead of
its upcoming May quarter earnings report.
Findings from Capgemini's analyst day and from our broader industry checks on the consulting/
systems integration and offshore markets

11 June 2011:: IFCI Bonds; Timbor Home; Vaswani Ind.VMS Industries; Gray Market IPO Premium

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Company Name	Offer Price (Rs)	Expected Listing Price Premium
VaswaniInd.	49	Discount
VMS Industries	40	Discount
Timbor Home	63	Discount
IFCI Bonds	10,000	5% - 7%

Maruti Suzuki India (MRTI.BO; –Takeaways from Citi India Investor Conference – Day 1

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Maruti Suzuki India (MRTI.BO; Rs1,227.90; 2L)
 Takeaways from Mumbai — Maruti presented at the Citi India Investor
Conference in Mumbai. Below are key takeaways.
 Consumption signals are mixed — MSIL management noted that whilst
consumer enquiries are up 28% Y/Y, consumers are deferring the purchase
decision on account of factors like rising consumer expenditure, and also a
combination of factors like inflation, fuel price hikes, et al. that are negatively
impacting consumer sentiment. Management alluded that incentives might be

increased to stimulate demand over the next few months. The positives are
healthy liquidity and continued availability of bank credit to the auto sector as
banks haven’t (yet) imposed more stringent credit evaluation criteria.
 Growth - yes - but in pockets — Regionally, growth is strong in south and west
India, but decelerating in north and east India. Across cities, growth is robust in
the top 10 cities and in rural India (>15%), but is faltering in tier 2/3 cities.
 Pricing - and margins - constrained over the short term — Management
noted that MSIL, in aggregate, has a cost+ pricing strategy; within segments
however, it might not fully pass through costs as it seeks to counter competition.
Input costs - primarily steel and rubber - have risen 10%/20% respectively YoY
and MSIL hasn’t fully passed through these costs to counter competition. Over
the next 1-2 years, management endeavours to increase margins by 100-
200bps.
 Long term growth outlook robust — MSIL management noted that by FY16,
annual sales should be around 4.5-5m units for the market. MSIL is expanding
capacities to 1.9m units (end FY13) and will commission a new 1m unit plant (in
Gujarat) to ensure it has sufficient capacity to cater to demand over the next 5
years. The long term outlook is supported by factors like rising income levels,
younger first time buyers, increasing purchases of additional cars, and a faster
replacement cycle.

Macquarie Research, :Unconventional Wisdom --Backward looking markets

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Unconventional Wisdom
Backward looking markets
Event
 Weak data releases in the US have been interpreted as a sign of slower
economic growth ahead.
Impact
 The US data releases say a lot about the past, especially the impact of the
Japanese earthquake, and very little about the future.
 One-off developments have played havoc with the US data for some time and
the assumption that there has been a sudden change of trend in the US
economy is questionable.
 It is far more likely that US growth will show a considerable improvement as
low interest rates and a cheap currency once again exert their power.
Analysis
 Financial markets have a reputation as being forward looking. Yet this
reputation deserves to be examined closely.
 This is particularly the case for the US bond market which is often alleged to
be giving a message about the state of the US economy. Well in October last
year the US 10-year yield dropped to 2.4%, climbed to 3.7% by February
2011 and is now down at 3%. Apparently the US economy was in recession,
then roared and is now weakening again. All in the space of about six months!
 History shows that the first two parts of this trilogy just did not happen. Yet it
was not just the bond market that p
 roved to be misleading. Other indicators also gave false signals.
 A good example was the US leading indicator. Normally this works quite well
as a broad guide to likely trends in US growth. But the acceleration in the twoquarter
growth rate of the leading indicator that started in mid-2010 and
continued into 2011 did not anticipate the slowdown in GDP growth last
quarter.
 This was by no means the first time that there had been a forecasting miss.
Another example was during the Asian crisis of 1997/98 when US growth
defied a downturn in the leading indicator. That period was a warning that
factors outside the US economy can break normal relationships and that
warning should not be forgotten today. For Q1 2011 the key factor was
extremely adverse weather conditions early in the quarter.

Expect another 100 bps rate hike in India: Leif Eskesen, HSBC (ET)

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In an interview with ET Now, Leif Eskesen, Chief Economist India & ASEAN, HSBC talks about interest rates, crude price movements, BRIC economies and QE3. Excerpts:

When do you believe interest rates are actually going to peak out for India?

We have to go a lot further in terms of rate hikes in India. We are expecting another 100 basis points in rate hikes during the course of this fiscal year. It is true that growth in India is finally showing signs of cooling. That is partly in response to the rate hikes that the RBI has undertaken so far. It also reflects basically that you have seen inflation coming quite elevated, there is uncertainty about the macroeconomic outlook that is also in essence dented growth and then finally in our assessment, India exceeded its potential in terms of output last year. So effectively the economy is facing a natural speed limit and we are seeing that basically embossed tight capacity in the economy.

Reliance Industries: Cash may not be king in this case:: Kotak Securities

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Reliance Industries (RIL)
Energy
Cash may not be king in this case. RIL’s recent AGM did not address the key issues
facing RIL and RIL stock—(1) use of cash, (2) future growth areas than can create
meaningful value and (3) conservative approach towards extant and new growth areas.
We have reduced our 12-month SOTP-based TP to `1,020 from `1,100 previously. In
our view, RIL stock may continue to get de-rated unless it can demonstrate ability to
successfully invest cash generated over the next few years to create meaningful value.

Tech Mahindra (TEML.BO;–Takeaways from Citi India Investor Conference – Day 1

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Tech Mahindra (TEML.BO; Rs701.95; 3M)
 Takeaways from Mumbai — Tech Mahindra (TechM) presented today at our
India Investor Conference in Mumbai. Below are the key takeaways:
 What’s new — Discussions on discretionary spends have increased and the
deal velocity has improved on a YoY basis; deals are getting closed now vs.
delays seen previously. Both TechM and Satyam have a significant margin lever
in the form of employee pyramid.
 Telecom sector still has opportunities — There are still plenty of opportunities
available as the telecom operators try to enhance revenues through VAS (value
added services), try and control costs through network modernization &
rationalization of applications and address the still largely untapped opportunity in
the emerging markets space.
 Where does TechM see opportunities? — (1) Mining of existing clients –
though BT and AT&T (in terms of volume, AT&T still offshores only a small part of
its IT efforts) are large customers, TechM sees many other potential customers
that can ramp up over a period of time to significant sizes. (2) New segments like
Infrastructure Services, VAS, BPO, Network Services, etc.


 Outlook on BT — Management continues to expect this account to remain
flattish over the near term. BT globally is going through its own unique challenges
and hence has deferred several new initiatives – the company does not have
clarity when these may come back.
 Other issues — (1) Employee pyramid is a big margin lever, while the currency
is the biggest unknown. (2) BT shareholding is an issue and the company has no
clarity on that – M&M has waived its right of first refusal.
 Update on Satyam — The bulk of cost restructuring is done and the margin
driver going forward will primarily be revenue growth, though there is still some
scope for cost optimization. Most of the legal issues have been resolved; the
ones pending are: (1) tax dispute with authorities, and (2) cases by the Raju
group of companies. However, these in no way can be an impediment to the
impending TechM-Satyam merger.

Investing in Indian markets today would be a contrarian call: Hiren Ved, Alchemy Capital (Economic Times)

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In an interview with ET Now, Hiren Ved, Director & CIO, Alchemy Capital , talked about contra investing and Indian markets. Excerpts: 

Define contra investing for us. 

Contra investing is when you invest against the popular perception in the market. We have these waves in markets which happen where generally people tend to follow a certain consensus and when you tend to be against the consensus; and there are times when it is very profitable to be against the consensus because you are still in a minority, people are not falling over each other to express that particular view on the market. But you have to be very careful about contra investing because you do not need to be a contrarian just for the sake of being a contrarian because market has its own wisdom; and in its own collective wisdom, it might have chosen to act in a certain manner. 

There are certain phases when there is a difference between the perception and reality, and generally people do tend to get swayed by what the consensus is and that is the time when it is profitable to take a contrarian bet. When you are in the minority and have a very strong conviction about something and you think that the market is mispricing, that is the time when you take a contra bet. 

So give us an example of contra idea which has worked very well for you. 

Two things worked well for us. One was when we bought Maytas. It was a completely contrarian bet. The stock was down significantly because of what had happened in terms of the scam and then it fell to a value where we felt that probably the view is completely on the other side. We took the contra bet when there was a change in management and that is what worked for us. When IL&FS stepped in and we took a contra bet and said that well, now it looks like that with IL&FS on the seat, they understand the business extremely well and they will recapitalise this business and the value will increase and that is a time that we took a contra bet. So there is a time and context. The context for us was the change in management in Maytas which took a contra bet. 

The other thing was that we stuck to the consumer theme in India and we have seen that people time and again have said that these stocks have become highly overvalued. And in essence by holding on to those investments, you are taking a contra bet because there is a phase in the market where quality is of extreme importance and with all the uncertainty that we are seeing today, globally, the market is very clearly telling you that I am going to go for quality and I am going to reward quality and sustainability and maybe in this phase, the valuations will not matter so much as the quality of the business would. 

So the fact that some of these businesses cannot be justified at current PE multiples but the fact of the matter is that today the consensus is that these are very expensive but these businesses will continue to be valued the way they are valued today. For us, staying invested in those names also in many manners has been a contrarian bet and that has worked well for us. 

Do you still like Maytas? 

This year should be a year of consolidation but next year onwards, you shall see growth because the first round of re-rating is over. Now people will focus on the numbers and it will take them about a year for them to start showing numbers. So this year is going to be more a year of consolidation. Maybe next year onwards is when really the earnings growth momentum will start and then which should be interesting at that point. 

Indian markets for the current calendar year which is FY11, they are one of the worst performing markets in the entire emerging markets region, do you think buying Indian markets itself is a good contra call? 

I would think so. India is facing cyclical headwinds within a structural growth story and the developed markets are seeing a structural tailwind because of the liquidity impetus which is being given to those markets but they will face a structural headwind. So investing in Indian markets today is a contrarian call in itself. Today fixed income investments are giving 10-10.5% return and people say why should I put money in equities if I am going to get 10% return and just for 4% or 5% additional returns, why should I take all the volatility and the uncertainty in the marketplace. 

But eventually on a post-tax basis, it is when you face headwinds and the best time to invest because that is a minority view and today, investing in equity markets at least in India right now locally is a minority view. Most of the allocation is either happening to precious metals or it is happening to fixed income and to some extent to real estate. So equities have taken a backseat. So investing today in equities would be a contrarian call. It is not a popular asset class to invest in today. 

Yes Bank (YESB.BO; –Takeaways from Citi India Investor Conference – Day 1

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Yes Bank (YESB.BO; Rs300.55; 1M)
 Takeaways from Mumbai - Yes Bank presented at our India Investor
Conference in Mumbai. Below are key takeaways.
 Loan growth likely to moderate from current high levels - While loan growth
has been a key positive for the bank, the management said that signs of a loan
growth slowdown are now visible. While some of this is linked to a lower
underlying demand, the higher base should also soften headline growth.
However, growth should still track well ahead of the industry at 30-35%yoy over
the next few years. The focus would continue to be on the corporate segment
which currently forms around 65% of the loan book. However, the management
is also expanding into the retail segment, where it has tied up with housing
finance companies for mortgages, albeit we expect this shift would be more
gradual.
 Margin outlook likely to remain firm - Management believes that there are
macro headwinds near term which would pressure margins over the next few
quarters. The cost of funds should climb, though with their pricing power, they are
confident of passing this hike on to the borrowers, keeping their margins
relatively stable. NIMs for the bank should stay close to 4QFY11 levels in
1HFY12, though there should be a pickup in the latter part of the year and overall
for FY12, margins are expected to remain stable near 290bps levels.
 Strong asset quality - The management appeared confident of maintaining its
strong asset quality performance in the coming quarters. There could be some
pressures emanating from the Commercial Real estate book which currently
forms around 2-2.5% of the loan book, but given their strong risk management
and underwriting skills, they believe the risk can be well managed going ahead.
 Capital raising - While the Tier I capital for the bank is comfortable at over 9%
levels, with the strong growth planned, management guided to a capital raising
cycle around the same time, next year. They are comfortable with a Tier I of 8.25-
8.50% and would look to raise capital and shore their Tier I capital adequacy to
above 12% post money.
 Distribution rollout - Yes Bank's second phase of growth seems well on track,
with a continuous build-out of their branch network, which currently stands
around 250 branches. They plan to position their liability focused strategy on this
expansion over the next few years, as their branches break even and reach
critical mass.

Voltas: Buy; PT Rs225 􀁑 :: UBS India Mid-Cap Premier League - Season 1

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Voltas: Buy; PT Rs225
􀁑 Management continues to expect a muted few quarters, as the Qatar projects
need to be completed faster (higher resource allocation could keep margins
low). Overall execution remains lack-lustre.
􀁑 Consumer durables business had weaker sales in April, which picked up in
the latter months. This could slightly dampen the yearly sales growth in the
segment.
􀁑 Rohini Electricals will break-even in FY12.
􀁑 The Engineering products segment performance and margins will depend on
the mix between commission based and manufacturing related mix.
􀁑 While, management is positive over the long term based on structurally
under-invested markets like India and Middle East, near to medium term
outlook remains cautious.
􀁑 Working capital requirement has increased due to higher receivables days
primarily due to weaker execution in the domestic market.

VIP Industries: Buy; PT Rs925 􀁑 :: UBS India Mid-Cap Premier League - Season 1

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VIP Industries: Buy; PT Rs925
􀁑 VIP Industries continues to see robust growth in soft luggage segment
compared to hard luggage. Soft luggage is more profitable compared to hard
luggage. Contribution margins of soft luggage are 10-12% higher than hard
luggage and hence mix shift will continue to drive margin expansion.
Business bags, backpacks, duffels are doing well and growing rapidly.

􀁑 Women's handbag launch -- the company will spend Rs100-120mn on
advertising annually. VIP will leverage its strengths in design, sourcing,
distribution to launch women's handbags. Once the product succeeds VIP
may engage separate retail channel for the product.
􀁑 Trade margins are close to 25% for VIP. These margins are comparable to
Samsonite's dealer margins.
􀁑 Tax rate to increase from 20% in FY11 to 28% in FY12 driven by expiration
of tax benefit in Haridwar plant.
􀁑 Debtor days in Q4FY11 were higher than normal as CSD (Canteen Store
Dept) paid late. This is a government owned distribution channel and hence
it is difficult to enforce collection policies.

Tube Investments: Buy; PT Rs206 􀁑 :: UBS India Mid-Cap Premier League - Season 1

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Tube Investments: Buy; PT Rs206
􀁑 Cold welded tubes - The company doesn't foresee any de-growth in auto
sector and is happy with an 8-9% growth in the sector. It is planning
expansion in north in one year entailing investment of Rs3bn, as more than
40% of auto component requirements are from North. The company plans to
garner market share in this segment with increase in its capacities and its
flexibility to supply various size of products.
􀁑 It is difficult for the company to pass through any increase in raw material
prices immediately but can manage if quarterly fluctuations are low. Tube's
products sell at 5-6% premium versus the competitor products. The company
remains focused in reducing the revenue contributions from auto sector
through its presence in railways, fine blanking products and others.
􀁑 Cycles - The company’s strong brands with improved service will ensure its
presence in standard bicycles market. Tube entered in the specials segment
(high-end bicycles) due to rising demand and has seen strong growth in this
segment over last 2 years. Tube targets to gain strong market share in north
and east markets.
􀁑 The company has capex plans of Rs5-6bn to be funded through internal
accruals and borrowings.

TTK Prestige (not-rated) :: UBS India Mid-Cap Premier League - Season 1

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TTK Prestige (not-rated)
􀁑 FY11 growth for the cookers was at 31% (2.8mn in FY10 to 3.7mn in
FY11), with the inner lid cookers growth of 80% (3.5mn in FY10 to 6.63mn
in FY11). The inner lid cookers represent 65% of the cookers market with a
market size of 6.4mn and the company has a 10% market share in the same.
The outer lid cookers growth for the company was around 5%. Outer lid
cookers market is a saturated market and the company plans to maintain the
growth in this market through its wide range of product with varied
applications. TTK is a forerunner in induction based cookware and is
introducing electrical and microwave pressure cookers this year.
􀁑 The average life for cooker is around 5yrs and for non stick cookware its
even faster replacement at 2.3yrs. The company believes even if there is a
slowdown in new sales, it still has replacement demand. As per company,
growth in worst case could be 20% and best case could be 40%. Margins for
cooker/cookware stable at 12% and higher for appliances at 20%.
􀁑 The company plans to increase its outlets from 295 presently to 400 by year
end and add another 200 outlets in next 2 years. Its plan is to increase

throughput through the same existing number of outlets and also penetrate in
Indian market though PSKs (franchisee model). Average turnover from a
PSK is 40 lakhs p.a. Presently 65% of PSKs are in South, so the company
plans to add PSKs in north east markets.
􀁑 Sales distribution (dealers - 60%, modern retail outlets - 10-12%, own
galleries - 18%, exports - 3-4% and rest from uninstitutional sources like
large format stores). Margins for dealers are around 17-18% compared to
MRP and around 6% for wholesalers/authorized re-distributors.
􀁑 The cookware and others segment grew by 75% and 60%, respectively in
FY11. For appliances the company has a manufacturing facility in
Uttaranchal which the company plans to develop over 3-4 years. The
company doesn't consider itself an expert in electrical appliances.
􀁑 The company doesn't see much of an impact of rising inflation with good
sales volumes in April and May 2011. However, it will wait to see if any
impact of fuel hike.

Triveni Engineering: Buy (U/R); Rs63.61 (U/R)-- UBS India Mid-Cap Premier League - Season 1

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Triveni Engineering: Buy (U/R); Rs63.61 (U/R)
􀁑 Water and gear divisions to continue to grow at robust rates -- expects 40%+
revenue CAGR in water and 30% in gears over next 2 years.
􀁑 Water division growth to be driven by industrial water treatment projects --
especially boiler feed water and effluent treatment projects for power plants;

and municipal water treatment projects. Triveni is focused on complex water
treatment projects where the gap between impurity level in water pre
treatment and post treatment is high. This approach ensures Triveni is not
competing in very competitive water segment (drinking water treatment and
water transmission and distribution projects).
􀁑 Huge growth potential is evidenced by the fact that cities in India have only
25% sewage treatment plant coverage. Triveni Engineering to invest in water
BOT assets -- explore this opportunity over time.
􀁑 Gear division focused on high speed gears, primarily for turbines below 75-
80 MW. This division requires expertise high precision and complex
metallurgy; Triveni Engineering has expertise in making gears up to 65,000
rpm for space application
􀁑 Triveni Turbines-
— Domestic order inflow is flat YY. However, the JV is pursuing order
book of over 200M USD.
— In domestic market -- paper, metal, chemical industries are driving order
inflow. Cement has been flat/weak.
— IPP market is seeing growth. The GE JV will enable Triveni to participate
in the lower end IPP market.
— Opportunities for capital deployment
— Triveni Engineering will seek opportunities in water BOT projects.
— Triveni Turbines will consider dividend payout at a later stage. May
consider setting up service centers outside India.

Titan Industries: Buy; PT Rs5,000:: UBS India Mid-Cap Premier League - Season 1

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Titan Industries: Buy; PT Rs5000 (Analyst –
Sunita Sachdev)
􀁑 Discretionary consumption growing strong despite price headwinds
􀁑 Price inflation; volume growth key metric: Over the last 2-3 months while
gold prices are up ~8% but the prices of diamonds are up ~60-70%. The
~30% of jewellery sales that is diamond jewellery has seen the highest price
inflation. The risk is on slowing diamond jewellery sales. Titan passes on all
diamond cost increases; Q1FY12E should see a margin expansion due to
inventory gain from diamond stocks.
􀁑 Margin and growth targets; in line with our estimates: Over the next 2-3
years, Titan would like to expand EBIT margins from the current 8.5% to
10% levels. We have built in 9.3% EBIT margins for FY13-14E. We have
built in 16% and 18% volume growth in the watch and jewellery segments
(FY12) in our estimates which are in line with the company's benchmarked
expectations.
􀁑 Expansion, growth strategies: Apart from the retail chain expansion across
store openings in watches, jewellery and optics. Titan is opening Helios
stores - retailing mid-luxury watches and Tanishq landmark stares to drive
market leadership in the large cities in India. Titan may also look for an
acquisition of a watch brand to augment the watch business as a proportion
of total sales.

Sintex Industries: Buy, PT Rs240:: UBS India Mid-Cap Premier League - Season 1

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Sintex Industries: Buy, PT Rs240
􀁑 Key growth drivers for Sintex are monolithic construction and pre-fabs, apart
from scale-up of earlier acquisitions

􀁑 Advantages of pre-fabs and monolithic as compared to conventional
construction method should facilitate their growth as overall social spending
increases.
􀁑 Significant benefit in monolithic due to backward integration of plastic
formwork manufacturing; execution ability and astute supervision by Sintex
engineers. Typically construction/real estate companies outsource monolithic
EPC to specialists. Focus will remain on low cost housing, as management
expects high market growth. Also, management expects monolithic margins
to be retained for 3-5 years.
􀁑 In our view, working capital could be maintained at FY11 levels, as share of
monolithic will remain high.
􀁑 Management continues to focus on core business and will not venture into
un-related areas.

Pidilite Industries: Buy, PT Rs200 :: UBS India Mid-Cap Premier League - Season 1

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Pidilite Industries: Buy, PT Rs200
􀁑 Construction and paint chemicals continue to be the fastest growing segment
of the company. The company expects this segment to drive growth over
next 2-3 yrs, largely from the retail end of the market.
􀁑 The company plans to maintain growth in its consumer products business by
introducing product variants, improving distribution, educating consumers
about wide product applications.
􀁑 International subsidiaries - Brazil subsidiary's performance not in line with
company's expectations. It continues to make losses as the company faces
several problems in the country (cost inflation, raw material and supply
disruptions) but the company views the country as an attractive market given
the strong economic growth and fragmented nature of the market. It remains
focused on growing its business there by strengthening management team.
The US (auto aftermarket products and trading operations) and Bangladesh
subsidiary (Fevicol) are doing well and are generating positive cash profits.
Dubai subsidiary has been making losses for last 3-4 years but FY11 losses
higher due to one-time provisioning. The Egypt (manufacturing facility,
involved in Fevicol business) business is getting back to normalcy and the
company's objective is to tap the neighboring local markets with its strong
brand.
􀁑 Elastomer project is on track with equipments ordered and civil work started,
the company expects to start the plant in 1HFY13. Only 5 players have
access to this technology globally. Dynamics - 20,000 p.a capacity (scalable
beyond this at marginal capital investment) and outlay of Rs530crs out of
which the company has already spent Rs3bn. The company expects very
attractive margin at 30% and annual turnover of $100mn at full capacity,
assuming normalized pricing levels.
􀁑 Pricing trends - company will ensure that margins are protected by increasing
prices as cost increases though with a lag of one quarter. Last year the
company took price hikes of 4-5% in consumer & bazaar products and 6-8%
in industrial products.

Page Industries: Buy; PT Rs2200 :: UBS India Mid-Cap Premier League - Season 1

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Page Industries: Buy; PT Rs2200
􀁑 The company plans to increase annual capacity from 87mn in FY12 to
110mn in FY13 and 140mn in FY14. Existing physical infrastructure can
support this expansion and only additional equipment and labor is required.
􀁑 Management expects sales volumes to grow at 25% for FY12 and revenues
at 35%. Only 10% of target market penetrated so long-term outlook remains
positive
􀁑 Leisurewear continues to be the fastest growing segment. The company
earlier estimated 1% drop in EBITDA margins for FY12 given the rising
cotton prices but with the cotton prices softening now again, it might be able
to maintain its previous year margins, as per the management

No demand slowdown seen despite 30% increase in prices last year.
􀁑 Page takes care of wage inflation (around 15%) through price increases.
􀁑 The company expects to begin sales in U.A.E market by middle or end of
this year.

Petronet LNG: Buy; PT Rs150 :: UBS India Mid-Cap Premier League - Season 1

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Petronet LNG: Buy; PT Rs150
􀁑 Expect Dahej capacity to increase from 10 MMTPA to 15 MMTPA by
FY14, as they construct a LNG jetty (capex of Rs10bn) and put additional
storage tank and vaporizers (cRs20bn capex).
􀁑 Kochi terminal expected by July 2012 and full commissioning by Nov-12.
LNG market there needs to be developed, and management is exploring
export to Sri Lanka, Lakshadweep, can sell through cryogenic trucks and
small barges. Expect regas charges at Rs60-70/mmbtu.
􀁑 Minimum ROEs are benchmarked at 16%, current are much higher.
􀁑 Expect PLNG to target 25-30 MMTPA by 2025.
􀁑 Currently, PLNG can expand processing and sales to 10.5-11.0 MMTPA and
night berthing (if possible) could take optimal capacity higher to 11.0-11.5
MMTPA.
􀁑 Signed an MOU with Gazprom for gas supply to both Dahej and Kochi. Will
take at least 2 years to sign an SPA and possible LNG supply to both
terminals.

Motherson Sumi: Buy; PT Rs280 :: UBS India Mid-Cap Premier League - Season 1

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Motherson Sumi: Buy; PT Rs280
􀁑 Management continues to be positive on the future with the scale up of SMR
acquisition and higher content cost per car.
􀁑 Management believes MSSL’s strongest attributes are focused execution,
manufacturing efficiency; focus on ROCE of 40%.
􀁑 The management highlighted that while evaluating M&A, they want
segments/products where there is a business gap, and don’t believe in
complex structures for currency/raw material hedging.

􀁑 Continue to guide for a US$5bn target by 2015 and hoping to achieve the
same earlier by 2013-2014.
􀁑 MSSL management believes it is a customer driven company and continue to
enter into newer products based on customer requirement. They highlighted
newer capacities in Brazil, Macedonia, Hungary and in India.
􀁑 Complex holding structure is largely for geo-graphical, operational and
strategic reasons (product patents, ring-fencing business risk).
􀁑 Management indicated ability to pass on raw material price changes to
OEMs. Believe that companies need to make their own products obsolete
before their competitors do.

Manappuram Finance: Buy; PT Rs155 :: UBS India Mid-Cap Premier League - Season 1

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Manappuram Finance: Buy; PT Rs155 (Analyst –
Ajitesh Nair)
􀁑 Growth: No constraints on either demand side or ability (CAR at 30%) can
easily double the loan book. Question is regulatory changes. How much does
RBI allows to grow is the question. Worst case the company is looking at a
40% growth in loan book this year.
􀁑 NIMs: Cost of funds has witnessed an increase of 150 bps over last three
months primarily due to removal of PSL status (also due to tight liquidity in
March). Incrementally MGFL is borrowing at 12.5% while lending at 25%.
On an average cost of borrowings are at 11.5%, lending yields at 24%,
maintaining spreads between 12-13%
􀁑 Opex to assets to come down to 6% from 8% primarily due to lower
advertising spend of Rs750mn compared to Rs1bn in FY11. Operational
efficiency will also help as 1000 branches are less than 12 months old and
not on full productivity levels.
􀁑 Regulatory environment is uncertain and its in RBI’s hand what changes do
they recommend. No expectations as such as PSL status has already been
removed, minimum CAR levels has already been increased to 15%, RBI
inspects the NBFCs once a year as in the case of banks.
􀁑 Happy in case banks enter the space as market will grow strongly due to
wider acceptance and more awareness. Customer segment for banks and
NBFCs are different as banks focus of >1 lakh ticket size. NBFCs have
advantage in terms of cost and faster turnaround.
􀁑 Growth in North India is picking up. Currently non south contributes 13% of
book, the proportion is expected to grow to 20% in FY12.
􀁑 Removal of PSL has not impacted availability of funds but has increased the
cost of it. ICICI Bank, Yes Bank, most PSU banks are the preferred bankers.

Jai Balaji: Buy; PT Rs450 �� :: UBS India Mid-Cap Premier League - Season 1

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Jai Balaji: Buy; PT Rs450
�� The company expects its coking coal (Rohne 17mn MTPA) and non-coking
coal plants (Dumri - 37mn MTPA) to become operational by FY12 end to
provide raw material security.
�� The company's coke oven plant of 0.26mn MTPA is on track and is expected
to get commissioned by Nov 2011.
�� The company plans to achieve its earlier capacity utilization level of 75-78%
which had fallen to 67% last year due to bottlenecks.
�� The company already has funding in place for Phase 1A of its Purulia
expansion project requiring investment of Rs18.7bn (Rs6bn through internal
accruals and Rs12.7bn through debt) and expects to complete it by 2Q of
FY14.
�� The Phase 1B of Purulia expansion project requires an investment of Rs
25bn and it will increase the company’s capacity to 3mn tonnes by FY16.
�� The company presently has leverage of 1.67x (excluding Rs12.7bn debt
required for Purulia expansion) and expects the leverage to peak at 1.9x till
which level the company is comfortable.


􀁑 The company made an EBITDA of $115 per tonne last year and targets to
increase it to $250 per tonne with the commissioning of its backward
integration facilities which is expected to provide significant cost savings.

Jindal Saw: Buy; PT Rs283 :: UBS India Mid-Cap Premier League - Season 1

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Jindal Saw: Buy; PT Rs283
􀁑 Growth impetus for the pipes industry is oil and gas transportation capex,
water projects and E&P activity. However, expect moderate flow of orders
for FY12.
􀁑 Management guided low EBITDA margins for HSAW, US$175-200/MT for
LSAW and US$150-200/MT for DI pipes, and high margins for Seamless.
􀁑 Positive on DI capacity in Middle East and believe margins could be much
higher.
􀁑 The company expects iron ore mine commissioning by H2FY12 and pellet
plant in the next year. On successful execution EBITDA could significantly
rise in FY13/14.
􀁑 MTM adjustment likely against net worth in Q1FY12 and contracts expected
to close by Dec-12.
􀁑 The company expects to unlock value by demerging Hexa securities (which
holds investments in other group companies like JSPL, JSW Steel, Jindal
Saw Holding, Nalwa Sons) by August 2011.
􀁑 Has moved into other businesses through Jindal ITF, of which it expects
good growth to come from Jindal Urban (waste conversion plant) by setting
up 20MW power plant in Delhi, and Jindal Waterways, and Jindal Rail Infra
(manufacturing stainless steel wagon).

Jagran Prakashan: Buy; PT Rs145 �:: UBS India Mid-Cap Premier League - Season 1

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Jagran Prakashan: Buy; PT Rs145
􀁑 Jagran Prakashan (Jagran) expects revenues to grow at an average of 17%-
18% every year over next few years, partly led by higher growth in new
launches, such as I-next (Bilingual compact daily in Hindi and English
languages) and Citiplus. However, revenue growth could come under
pressure in case of GDP growth slowdown, given significant dependence on
advertising revenues (69% of total revenues in FY11).
􀁑 Jagran believes that competitive intensity has peaked in its key markets,
except Bihar. Jagran expects competitive intensity to stabilize by Sep 2013.
􀁑 Jagran expects newsprint prices to increase 10% in FY12. Jagran also plans
to increase circulation (number of copies) by 10% in FY12 to 3.5m. Jagran
holds 10-15 days of newsprint inventory, of which 25% is imported.
􀁑 Jagran is likely to look for inorganic growth in the regional space. It is also
open to partnering with the smaller regional players.
􀁑 Jagran continues to focus on bottom-line and will not chase market-share. It
expects to be in businesses or regions where it expects minimum return of
25% in next 3-4years.
􀁑 Jagran believes that advertising yields are low for Hindi newspapers (vs.
English) and expects the disparity to reduce going forward.

IGL: Buy, PT Rs400 􀁑 :: UBS India Mid-Cap Premier League - Season 1

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IGL: Buy, PT Rs400
􀁑 Expect the APM gas allocation to be clubbed for Ghaziabad. This will
slightly ease the requirement for price hikes, given the lower cost of gas.
􀁑 Management indicated that APM gas allocation will be retained by IGL and
they have a 5-6 years contract with GAIL (almost perpetual and will be
renewed).
􀁑 Common investor concern seemed the curbing of their pricing freedom.
However, given the strong gas economics, rising LNG sourcing and
significant capex, management does not expect any challenges in hiking
prices to pass on raw material costs. Also, the partly regulated pricing will be
retained.
􀁑 Expect CNG growth of 14-15%, domestic PNG growth of c30% and
industrial/commercial segment growth of 80-100% in gas sales volumes.
􀁑 As on 31 March 2011, 213 CNG stations were operational and c278 have
been commissioned.
􀁑 Supreme Court verdict in the PNGRB case is positive for IGL and has a clear
directive on Ghaziabad. Also, broader board decision making will likely ease
regulatory concerns.

IBN18: Buy; PT Rs130 􀁑 :: UBS India Mid-Cap Premier League - Season 1

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IBN18: Buy; PT Rs130
􀁑 IBN18 expects subscription revenues to increase from 11% in FY11 to 20%-
25% over next 2-3 years. This is likely to be driven by Sun18 Media Services
(distribution tie-up with Sun TV), digitalization of analog cable subscribers
and high growth in DTH subscriber base.
􀁑 Viacom18 Motion Pictures (earlier referred to as The Indian Film Company
or TIFC) is likely to contribute c15% to Viacom18’s revenue in FY12.
􀁑 The company expects the business restructuring to complete and the new
shares to get listed in next 3-4 weeks.
􀁑 IBN18 plans to launch AETN-18 - a history channel in India in the next few
months.

HT Media: Buy; PT Rs180 􀁑:: UBS India Mid-Cap Premier League - Season 1

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HT Media: Buy; PT Rs180
􀁑 HT Media expects strong revenue growth to come from primarily advertising
yield improvement in Mumbai as readership expands further and gains
market share. HT Media expects its Hindi newspaper (Hindustan) revenues
to grow at an average 20% per year for next three years, led by high growth
in Uttar Pradesh (UP).
􀁑 HT Media launched Mint – its business newspaper – in Hyderabad and has
now completed the geographical expansion. It plans to increase circulation of
Mint in its existing markets by 50,000 copies (daily) in FY12. HT Media
expects Mint to achieve EBITDA breakeven over the next few quarter.
􀁑 HT Media expects newsprint prices to remain in the range of US$725/t to
US$775/t (landed cost, including freight).
􀁑 HT Media does not expect 1QFY12 to be a strong quarter due to the late
pick-up in education sector advertising, given the delay in examination
results.
􀁑 HT Media is likely to look for acquisition opportunities in the regional print
space (excluding UP), internet business and education sector.
􀁑 The HT Burda joint venture is expected to achieve EBITDA break-even in
FY12. HT Burda is operating at near full capacity level for the next two
months.

Havells India: Buy; PT Rs510 􀁑 : UBS India Mid-Cap Premier League - Season 1

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Havells India: Buy; PT Rs510
􀁑 Sylvania has taken 5-7% price hike to narrow the pricing gap with larger
competitors such as Phillips and Osram. This should help margins in FY12.
Even if revenues stay flat in Europe, there is opportunity for further 200 bps
margin expansion.
􀁑 Havells has launched new products in Europe such as CMI lamps and
switchgear (under Sylvania brand). Europe to benefit from carry forward
losses. To enjoy low tax rate for next 2-3 years.


􀁑 New product launches to contribute meaningfully to revenue growth during
FY12. Revenue growth likely to be 15-18% (please remember that Havells
had earlier guided 15-18% revenue growth in domestic business and
delivered 20% revenue growth). Revenue from new products to be Rs1.5
during FY12 compared to Rs0.2bn in FY11.
􀁑 EBITDA margins to be flat in domestic business.

Exide Industries: Buy (U/R); PT Rs162 (U/R) 􀁑 :: UBS India Mid-Cap Premier League - Season 1

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Exide Industries: Buy (U/R); PT Rs162 (U/R)
􀁑 The company has auto replacement business margins of 20%, auto OEM
margins of 5-8% and industrial battery margins in the range of 16-18%.
􀁑 Exide plans to increase its 4W capacity from 9.5mn in FY11 to 12mn in
FY12 and increase its 2W capacity from 16.5mn in FY11 to 21.5mn in
FY12.
􀁑 The automotives is running at 100% capacity utilization and the company
plans to add 15% capacity year for the next 2 years to cope with higher
demand.
􀁑 The growth in industrial battery segment is seasonal in nature – strong in
summer and weak in winter. The company estimates overall volume growth
of 12-14% in future in this segment.

Emami: Buy; PT Rs535 􀁑 :: UBS India Mid-Cap Premier League - Season 1

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Emami: Buy; PT Rs535
􀁑 Management expects to retain market leadership and maintain 14-18% sales
growth in top 4-5 brands. Expect Rs400-600mn spending every year in
developing new brands with 2-3 product launches each year.

􀁑 Strong focus on personal care category and also aim to revive Zandu’s OTC
products.
􀁑 Newer products like Navratna Extra Thanda Oil, Navratna Cooling Talc has
recorded high sales growth. Accordingly it believes that given the
competition and lower product-life cycle, brand extension remains the key to
lower the break-even period of product.
􀁑 Management indicated raw material costs are likely to be maintained and
company is evaluating price hikes and grammage reductions. Advertising
expenses are likely to remain at 18%, and slight tapering could be likely.
􀁑 M&A potential will likely depend on synergistic opportunities and
management has earlier indicated that they could value deals at a premium if
it makes strong business sense over the long term. Their break-even
benchmark is 5-7 years.
􀁑 Strategy of deeper penetration, strong distribution, focused advertisements
should drive category growth. Today’s lifestyle and ayurvedic products
(given its good acceptance) should drive the growth. Ayurveda is not wellmarketed
in India.

DB Corp: Buy; PT Rs310 􀁑:: UBS India Mid-Cap Premier League - Season 1

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DB Corp: Buy; PT Rs310
􀁑 DB Corp launched Dainik Divya Marathi – a daily newspaper in Marathi
language – in Aurangabad on May 29, 2011. DB Corp launched 82-83k
copies per day, of which c70k copies have been already subscribed. DB has
launched the newspaper at a cover price of Rs3 and is offering the annual
subscription at Rs739 (Rs199 upfront and Rs45 per month for 12 months).
DB Corp mentioned that daily circulation of the largest newspaper in
Aurangabad – Lokmat – has declined post DB’s launch.
􀁑 DB Corp is likely to launch Dainik Divya Marathi in Nasik (in Maharashtra)
in July 2011. It is also likely to launch a Hindi daily in Bihar in 2HFY12.

Coromandel International: Buy; PT Rs416 􀁑 :: UBS India Mid-Cap Premier League - Season 1

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Coromandel International: Buy; PT Rs416
􀁑 The company’s phosphoric acid plant in Tunisia is 95% complete - it was
delayed by 3-4 months, so now expected to finish by Oct-Nov.
􀁑 Sabero acquisition driven by 2 factors - focus on non-subsidy business and to
become a leading player in crop protection.
􀁑 Retail business- The company is filling gaps in Andhra Pradesh – it will
increase retail centres from 423 presently to 500 by FY12 and add another
100 centres in Karnataka.
􀁑 Organic manure business - growing well, the company is sourcing
infrastructure for it, targets to increase sales to 300k tons by FY12. ASP is
Rs4000-5000/ton with gross margins around 25%.
􀁑 Farm mechanization - in pilot stage, company charges Rs5000/acre for
providing service. The company faces challenge in terms of maintaining its
22 machines and convincing farmers to accept this idea. The company has
spent 5crs on its machines.
􀁑 The company remains focused to increase EBITDA contribution from nonsubsidy
business from 30% to 50%, largely driven by crop protection and
compost business. Company has no plans to get into seeds business.

Cholamandalam: Buy; PT Rs252 �� :: UBS India Mid-Cap Premier League - Season 1

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Cholamandalam: Buy; PT Rs252
�� The company plans to start gold financing business as a pilot in FY12.
�� The company made a NI spread of 6% in FY11 and estimates it to be 5.5%
for FY12.
�� Chola also plans to increase its branches to 345 by FY12.
�� The company will run down its entire personal loan book by September this
year and will also not book any securitization income from this year
onwards.
�� The company will gain an AFC (Asset financing company) status in this
year, potentially aiding lower borrowing costs.

�� Chola will now have no Priority sector loans (PSL) benefit on any fresh
borrowing, thus the cost of lending for the company will increase by 50-
60bps.

Apollo Tyres: Buy; PT Rs84 ��:: UBS India Mid-Cap Premier League - Season 1

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Apollo Tyres: Buy; PT Rs84
�� Indian operations are more exposed to raw material volatility compared to
European operations (Vredestein). Raw material is 70% of revenue for
Indian operations compared to 35% of revenue for European operations.
�� Domestic business to see 10-15% volume growth and 12-15% pricing
growth. Margins in domestic business to improve on the back of price
increases taken.
�� Chinese imports in truck radial segment -- has stabilized and half the radial
imports are branded imports by MNC tyre companies.
�� Chennai capacity ramp up and utilization on schedule. Chennai plant to
increase production from 150 TPD during Q4FY11 to 350-400 TPD during
Q4FY12.

Apollo Hospitals Enterprise: Buy; PT Rs650 􀁑 :: UBS India Mid-Cap Premier League - Season 1

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Apollo Hospitals Enterprise: Buy; PT Rs650
􀁑 New hospitals launched within last 18 months progressing well.
Bhubaneswar and Karimnagar are EBITDA positive within second year of
operation. Karimnagar has ARPOB of 4400 Rs/bed day and Bhubaneswar
has ARPOB of 13,500 Rs/bed day (including hospital based pharmacy
revenue). New launches in Hyderguda on schedule and expected during
H1FY12.
􀁑 Hyderabad cluster can grow EBITDA at above company average growth
rate, driven by improvements in ARPOB and EBITDA margins, as well as
occupancy. We have been pointing out upside in Hyderabad cluster.
􀁑 ROICs in standalone hospitals are attractive. We have published a note on
June 3, 2011 with analysis of Apollo Hospitals ROIC.
􀁑 Funding - Apollo Hospitals needs Rs9bn over next two years to fund
expansion. It plans to raise Rs3bn through debt, Rs3bn as equity and Rs3bn
through internal accruals.

Tata Motors (TAMO.BO; –Takeaways from Citi India Investor Conference – Day 1

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Tata Motors (TAMO.BO; Rs1,028.40; 1M)
 Takeaways from Mumbai - Tata Motors presented at the Citi India Investor
Conference in Mumbai. Below are key takeaways.
 "Cautious optimism" was the takeaway from Tata Motors' mgmt – Macro
overhangs exist, including rising interest rates, fuel costs, and decelerating
industrial production activity. That said, mgmt reiterated overall FY12 volume
guidance for the domestic MHCV and LCV business was 10% / 20% respectively.
Management noted that dealer inventory is healthy at ~2.5 weeks, vs. trend level
of four weeks.
 Stable margins - Management noted that the endeavour is to improve margins
in the domestic business to around 10%, through a combination of higher prices
(hiked 2-2.5% in April) and cost cutting initiatives. Within JLR, management
noted that margins should be ~16%, excluding any currency impacts, and after
factoring in the mix shift for the Evoque.
 JLR volume outlook was affirmed at 300k units in FY12 - vs. ~243k in FY11
– A large proportion of the growth (~25k units) should be driven by the Range
Rover Evoque, which has received 10,000 firm bookings and 150,000 enquiries.
China is expected to contribute ~40k units.

 JLR capex reaffirmed at £1.5bn / annum - Management noted that capex will
be funded through internal accruals; balance-sheet integrity will be of prime
importance; in the event of a deterioration in profits, the capex might be deferred.
The overall longterm debt-equity target was stated as 0.5-0.7x net debt/equity.
Separately, management noted that the news flow (source: CNBC) saying that
the company plans to raise US$500m was incorrect.

RBI urged to re-look tight money policy as industry output dips :: Business Line

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With hardening interest rates impacting consumer demand, the Chief Economic Advisor (CEA) to the Finance Ministry, Dr Kaushik Basu, on Friday virtually called the Reserve Bank of India to re-look its tight monetary stance.

“The RBI will have to balance its monetary policy tightening in view of growing concerns, particularly in consumer goods front, where higher interest rates are impacting demand,” Mr Basu told reporters here.

This comment comes less than a week before the central bank is to hold a mid-quarter review of its monetary policy. As part of its anti-inflation measures, the RBI has raised its key policy rates nine times since March 2010.

According to the latest Index of Industrial Production (IIP) data, the output in the consumer goods sector slowed to 2.9 per cent in April 2011 from 13.8 per cent in the year-ago period.

Even as there are fears of economic growth moderation, the RBI is widely expected to raise policy rates as part of its current tight monetary stance to tame inflation. The central bank may, however, desist from an aggressive increase (last time it went in for 50 basis points hike) given the slowdown in industrial output in April this year.

India's April 2011 industrial output grew 6.3 per cent compared with 13.1 per cent a year ago period, on account of poor showing in consumer goods, manufacturing and mining sectors.

Concerned over the falling industrial growth rate, the Finance Minister, Mr Pranab Mukherjee, told reporters today that “the IIP growth figures are disturbing. We need to wait for the longer-term IIP growth to see the trend”.

FACTORY OUTPUT NUMBERS

Meanwhile, the growth in factory output numbers for the fiscal 2010-11 has been revised upward to 8.2 per cent in the new series (with base as 2004-05) from 7.8 per cent projected in the series with 1993-94 as base year. Dr Basu said there will be a marginal upward revision in 2010-11 GDP figures following change in IIP growth for that year.

“There will be a small upward revision in 2010-11 GDP growth figure due to change in IIP growth. We are in the midst of re-calculation of our growth prospects. We will be able to come out with clear assessment by the end of the month,” Dr Basu said.

On the diesel price hike, Dr Basu said that the government should soon take a decision in this regard.

“We are committed to our fiscal consolidation target. We don't want to divert from it. We will very soon have to take stock of diesel prices,” Dr Basu said

Macquarie Research, Copper mine supply: on track for no growth in 2011

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Copper mine supply: on track for no growth in 2011
Feature article
 Antofagasta management on Wednesday announced that full year production
from Esperanza on current run-rates would be between 80-100kt, compared
to the company’s already downgraded number of 130kt (from 160kt). In this
article we highlight that should current disruption run rates continue through
the remainder of the year, copper mine supply would fall by a marginal 0.3%
YoY in 2011. Our view on copper is very bullish over the next 3-12 months.
Latest news
 US dollar appreciation on the back of Bernanke’s commentary saw precious
metals under pressure on Wednesday. Base metals were mixed, with copper
the worst performer, down 1.2% on the day.
 The Chinese copper import arbitrage has been slightly positive for the past 4
business days, which if sustained will result in stronger Chinese copper
imports in June/July than we have seen in through the first 4 months of the
year. May copper import numbers are to be released this week - we expect a
modest MoM uptick from very low levels in April.
 The latest high frequency data from CISA highlights that, as expected,
Chinese steel output edged down in late May. The average daily output was
1.915mt, or 699mtpa, down 3.5% sequentially. We expect further drifts
downward in the coming weeks, potentially amplified by power rationing, but
certainly no collapse.
 The potential for a strike at BHP Billiton Mitsubishi Alliance’s Queensland met
coal mines is growing by the day, with unions potentially stopping work next
Monday and Tuesday. The mines affected cover around 140,000tpd of met
coal output. At present, we do not believe a strike will be prolonged however
the spectre is certainly adding support to the premium hard coking coal spot
market price, which has now rebounded back above $300/t FOB Australia.
 North American lead-acid battery shipments increased by 10% YoY to an
annualised rate of 128m units in March. For Q1 2011 as a whole, total
shipments were up by 12% YoY to 31.1m units, which marks the second
highest quarterly volume on record (after Q4 2010; battery shipments in the
fourth quarter of the year are usually higher for seasonal reasons) and reflects
solid demand for lead in a market that accounts for almost 20% of world
consumption.
 BHP Billiton will roll over prices for manganese ore for shipments in July, from
current levels for June, leaving medium-grade (43%-44% Mn) lump
unchanged for the third month in a row at $5.30/dmtu CIF China and lower
grade siliceous material at $4.75/dmtu. Prices for manganese ore had fallen
steeply from peak levels of well over $8/dmtu in May / June 2010 but prices
now appear to have found a floor. However, we are not expecting any
significant rise in the short term with stock levels at some points along the
supply chain still high but at least now falling.

State Bank of India (SBI.BO; –Takeaways from Citi India Investor Conference – Day 1

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State Bank of India (SBI.BO; Rs2,293.25; 1L)
 State Bank of India presented at our India conference today. Key takeaways:
 Loan growth likely to remain healthy - Management has been seeing relatively
healthy growth levels over the last couple of months and expects FY12 loan
growth to remain quite strong at around 19-20% levels (in-line with industry
growth). Loan growth is expected to remain quite broad-based with growth
across all segments especially in the corporate and SME segments. While

management has started to see some growth moderation in mortgage loans,
incremental disbursements remain healthy and expects overall retail loans likely
to grow at a relatively more moderate pace of around 15-17% levels.
 Net Interest Margins expected to improve - SBI's NIMs declined substantially
in 4Q11 (to 306bps), however, management says that adjusted for one-offs, NIMs
were more in the region of 325bps. Higher lending rate increases recently
(+100bps over the last 5 months) should lead to better NIMs in the near terms as
well as for FY12 (expect 350bps NIMs for FY12).
 Delay in capital issuance not to impact loan growth - While there is a
possibility of a delay in the government approvals for capital raising, it will not
impact loan growth as they have sufficient room before hitting regulatory limits.
Also management looking to improve capital efficiency though various measures
such as better utilization of sanctioned credit limits, increasing proportion of rated
corporate assets, etc.
 Increase in pension liability was a one-off and not likely to recur –
Management clarified further on the increase in pension liabilities and mentioned
that a hike in wage costs not directly linked to a hike in pension costs and has
only been prospective historically, the impact this time was larger as it was
implemented on a retrospective basis since Nov 2007. In future, they are likely to
provide for such hikes on an ongoing basis – at least partially.
 Asset quality a key focus area - Remains a key focus area for the management
and suggests improvements in overall slippages and credit costs for FY12 over
the previous year. Management does not see any significant signs of slippages in
the retail segment, though there could be some slippages from the restructured
corporate loans in 1Q12.
 Overall profitability to improve on cost/productivity gains - SBI's
costs/employee remain among the highest relative to peers and suggests that
they will have to focus on driving more productivity gains to improve return ratios
over the medium term; expects ROEs to move up to 18% over the medium term.

Palladium on the move as autos begin recovery:: Macquarie Research,

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Palladium on the move as autos begin
recovery
Latest news
 Base metals were mostly higher in Monday trading, with Nickel
underperforming in what was a quiet day for metals markets.
 Preliminary shipping data for May shows that iron ore exports from Brazil
recovered slightly in May, up 5.4% MoM and 9.3% YoY to 308mtpa. The big
gain was to ex-China, with shipments of 166mtpa, the highest since October
2010. Exports to Europe were up 10.8% MoM, highlighting that steelmaker
purchasing is continuing despite falling steel prices and the potential for
seasonal production weakness into early 3Q. Exports in the year to date have
averaged 293mtpa, up 7% YoY but 11% below 2H 2010 averages,
highlighting the weather-related difficulties faced in 2011 thus far.
 Exports to China rose 4.8% MoM to 142mtpa, still 15% below February
levels. Vale has previously stated that it expects its overall exports to China to
be flat YoY. With 5 months of the year gone, Vale exports (ex-Samarco) have
reached 50mt, up 7.8% (or 3.6mt) compared to 2010. We have factored in a
slight increase in exports from Vale to China this year, but there remains risk
that either weaker 2H production than 2010 or increased ex-China demand
could limit the material available. We would reiterate our expectation that the
spot iron price will reaccelerate through 3Q as Chinese demand returns.
 The 400,000tpa El Teniente copper mine has seen output disrupted since last
Friday, 3 June, following an incident where contractors attacked some of the
buses that transport the Codelco´s workers into the mine. We heard on
Monday that El Teniente was running at ~40% of its normal capacity. Codelco
is taking measures to counteract the action of the contractors on the buses
but will not negotiate directly with them, so the base case is that the
conflict will continue for some time. Every week the strike lasts (with the mine
running at 40% capacity) will result in the loss of 4-5,000t of copper.
 Ollanta Humala has claimed a narrow victory in Sunday's Peruvian election.
Given the populist demand for a larger piece of the “commodity boom” pie
(~35% of Peruvians still live in poverty), a rise in the tax burden on Peruvian
miners is almost inevitable. In our view, Humala's election win is the worst
case scenario for miners with operations in Peru, given Humala's proposed
policy to double royalties & impose a windfall profits tax of 40%. Peru is an
important commodity producer, accounting for over 5% of global supply of
copper, zinc and lead. For copper alone, Peru is set to account for one-third of
new supply in the long term. Given uncertainty over proposed rises in the tax
burden for miners and the potential negative impact, we believe that there
may be a significant effect on new copper projects. Specifically, we believe
that investment in new mines may be delayed and marginal projects may
even be cancelled. As a result, any delay in investment decisions will further
tighten the supply side for the red metal, especially in 2015/16. This further
supports our view that after small surpluses in 2013/14, the copper market will
again move into deficit in 2015/16.