12 June 2011

12 June 2011:: Grey 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%


Shriram Transport Finance (SRTR.BO; –Takeaways from Citi India Investor Conference – Day 1

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Shriram Transport Finance (SRTR.BO; Rs672.25; 2M)
 Shriram Transport Finance presented at our India conference today. Key
takeaways are as below:
 Impact of recent regulatory changes - Management suggests that impact of
the recent change in classification norms for bank lending to NBFCs is not
material for Shriram's net interest margins. NIMs could decline marginally by
around 10-15bps more in 1Q12, however, they should stabilise between 7.5-8%
levels. Assuming priority sector benefits are also disallowed for securitised loans
(one third of total assets), the impact on NIMs is likely to be around 50bps, over a
period of 2-3 years.
 Loan growth likely to remain around 15-20% levels - Management expects
near term loan growth to remain around 15-20% levels (and maintains its
guidance of Rs500bn of total loan assets by end FY13). While new CV growth is
expected to slow down to 10-15% levels in FY12, Shriram expects used CV
growth to remain strong and the kicker to come from its newer portfolio of
construction-equipment loans.
 No near-term threat on asset quality - Shriram's loan book remains quite
niche, which suggests asset quality is not a function of interest rates as its loans
are fixed rate in nature and an inflationary environment is beneficial for the
borrowers' income (with interest payments fixed). The key to asset quality would
be the impact on the overall economic growth environment, especially in the rural
segments. So far, management does not see any pockets of asset-quality
pressure and NPLs remain well under control.
 Capital is not a concern - Shriram's capital adequacy remains quite comfortable
with Tier 1 ratios over 15% currently and ROEs comfortably in excess of 20%
levels. Even with some moderation in NIMs and ROEs, management expects
ROEs to remain above 20-22% levels and should also remain ahead of expected
loan growth levels. This suggests it is not likely to need additional capital over the
medium term.

Appreciating iron ore degradation :: Macquarie Research,

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Appreciating iron ore degradation
Feature article
 We have long been of the opinion that grade degradation in iron ore is a
growing issue for the industry, particularly with the supply chain stretched to
the limit. However, with the fall in Indian exports being skewed towards the
high grade end, it is also very much an issue in the here and now. Grade
degradation has two distinct potential impacts for iron ore; firstly any
technological gains in the blast furnace could be outweighed by the need to
accommodate lower grades, a ‘reverse efficiency’ which is to the detriment of
steelmakers. Meanwhile, high cost Chinese domestic ore again needs to take
up the slack, putting an even higher floor under the iron ore spot price.
Latest news
 Base metals were mostly up in Tuesday trading, while palladium was the best
performer rising 1.9%. As outlined in yesterday’s commodities comment, we
think there are further gains ahead for palladium as auto production recovers.
 Drought-affected regions in Central and Southern China have experienced
heavy rains over the past 4 days, with Hunan, Jiangxi, Guizhou, Anhui,
Zhejiang and Hubei experiencing rainfall of 50-100mm over the past week.
While it is too early to fully gauge the impact, the forecast for further rain does
mitigate the risk of coal prices surging higher in China as hydro generation
should improve.
 The NDRC has moved to further enforce stable contract pricing and is looking
to fine producers up to 5 times of revenue earned by charging above
contracted levels. Prices set under the last round of contract negotiations
early in the year were flat compared to 2010 levels following official
intervention, although there have been reports of varying qualities and
quantities delivered under these contracts.
 In the market for manganese ore, major producers continue to think that
prices will remain fairly flat for the next six months or so but we note there is
an emerging confidence about the outlook beyond this and, in the medium
term, prospects are more promising as realistic assessments of the timeline
for substantial expansion of rail infrastructure in South Africa recede further
into the future.
 We understand some talks have now started for settlement of ferrochrome
contract prices in Q3 2011. Spot prices remain under strong pressure, with
reports of South African charge chrome selling into China at prices in the lowto-
mid 90c/lb range CIF. We continue to think the outcome will see a fall of
~10c/lb, fully reversing the headline increase that was secured for Q2
2011. South Africa charge chrome producers are reducing output but this is
for seasonal reasons, with winter power tariff rises taking effect for three
months from late May, and already anticipated in the market.
 Contract workers for Codelco working at the El Teniente mine are reported to
have stepped up protests after some contract workers were arrested on
Monday, union spokesman Marco Alarcon has said. Production at the mine
has fallen to 20-30% of capacity on Tuesday, from 40% during the preceding
Friday-Monday period.

ULIPs losing ground to traditional life insurance:: Business Line

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Unit-Linked Insurance Plans (ULIPs), highly popular among life insurance buyers, are slowly losing favour.
The market share of ULIPs has come down significantly in the last 6-8 months giving space to traditional insurance plans, according to industry experts.
The loss of patronage for ULIPs is quite noticeable both among private life insurers and Life Insurance Corporation (LIC) of India.
“In general, the share of ULIPs in the private life insurance segment had dipped from 85 per cent before September last year to 65 per cent now,” Mr M. Suresh, Managing Director, Tata AIG Life Insurance, told Business Line on the sidelines of a conference held here recently.
Apparently, the new regulatory regime effected by the Insurance Regulatory and Development Authority (IRDA) “did not augur well” neither for insurers nor for the buyers of insurance, said the MD of a leading private life insurance company.

IRDA NORMS

In September 2010, the IRDA had mandated a host of norms for ULIPs, including a compulsory lock-in period of five years and a tab on commissions for agents.
This resulted in withdrawal of over 270 ULIP products from the market and their reintroduction in line with new norms subsequently.
However, the business mix (of ULIPs and traditional products) has been changing in favour of traditional/pure life products since then.
“Obviously, people are coming back to conventional life insurance plans. The business mix in life insurance sector (including private and state insurer) is now at 55:45 between ULIPs and conventional products,” Mr A. K. Sahoo, Head of South Central Zone of LIC, said.

WHY THE SHIFT

Some of the reasons behind increasing preference for traditional insurance were the clause of minimum lock-in period of five years in ULIPs, general scepticism about market volatility and health of economy, among others, he added.
When asked whether the IRDA is concerned over adverse impact of the ULIP norms, Mr J. Hari Narayan, Chairman, IRDA, said: “The norms introduced last year certainly dampened the growth. But a healthy growth is always preferable to unbridled, unhealthy growth. But the so-called effects of September 2010 norms have already been absorbed by the industry to some extent,” he said.
In 2010-11, the total premium collected by the life insurance industry was Rs 2,86,500 crore as against Rs 2,65,450 crore in the previous year, as per IRDA and Life Insurance Council data

PSU Follow-on candidates:: Business Line

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The public offers of disinvestment candidates until 2009 were received with much enthusiasm.
This led to a run-up of most of the prospective FPOs from May 2009, when the present political alliance came back to power.
However, two years hence, not only have FPO stocks disappointed retail investors, FPO announcements have begun to cast a shadow on PSU stock prices.
BHEL and SAIL are classic examples in recent times, where the news of disinvestment partly contributed to the fall in stock price.
BHEL, for instance, fell 4.2 per cent on day of announcement of a possible FPO. This gives long-term investors an opportunity to enter them.
Five out of six companies that raised FPOs which tapped the market since January 2010 are trading at or below their FPO prices. A few IPOs have also suffered a similar under-performance in the recent past.
Barring a few IPOs, such as Oil India and Coal India, many others failed to attract investor interest and are languishing below their offer price. Cases in point are NHPC and SJVN.
Among the above FPO stocks, investors can consider Manganese Ore India and NTPC for investment.
NTPC, given its stable margins cost plus tariffs, is hedged against various risks, even as huge capacity additions are expected over the next year

Hindustan Unilever (HLL.BO;:: Takeaways from Citi India Investor Conference – Day 2

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Hindustan Unilever (HLL.BO; Rs312.55; 2L)
 Takeaways from Mumbai - Hindustan Unilever presented at the Citi India Investor
Conference in Mumbai. Below are the key takeaways.
 FY12 revenue outlook will be driven by price hikes – This is reminiscent of
FY09, and in contrast to the revenue growth over the past two years, which was
driven by volumes. Mgmt noted that price hikes will fully reflect in 1QFY12. Cost
inflation continues to be intense, and HUVR has hiked prices in key categories to
offset cost pressures that stem from higher packaging costs and palm oil prices.
 Competition continues to be intense – Consequently, A&P should remain
elevated. Mgmt didn't guide to a specific A&P / net sales ratio, but did indicate that
spends will be a function of a) HUVR's innovation and product launches, and, b)
ensure HUVR remains competitive from a share of voice / share-of-market
perspective.
 An interesting perspective on modern trade (MT) - Modern trade accounts for
~10% of the retail landscape, and is forecast to increase to 18% in the next five
years. At present, MT is ~30% of retail in major cities. Mgmt noted that profitability in
MT is similar to general trade. Higher receivables are offset by higher inventory
turns.
 Rural distribution - Mgmt noted that rural India accounts for around 40-45% of the
FMCG industry, and is a similar proportion of HUVR revenues. HUVR's thrust in
rural India has increased - it has tripled its direct reach in rural India.

Hindalco (HALC.BO; :: Takeaways from Citi India Investor Conference – Day 2

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Hindalco (HALC.BO; Rs183.10; 1M)
 Takeaways from Mumbai — Hindalco presented at the Citi India Investor
Conference in Mumbai. Below are the key takeaways.
 Update on greenfield expansions — Hindalco’s 1.5mtpa Utkal alumina project
is likely to be commissioned by 2H 2012 (delayed, leading to an increase in
capex). The delay has been on account of execution issues and Hindalco has
had to change its contractors (all approvals are in place). Hindalco’s 359kt
Mahan smelter is likely to be commissioned by end-2011 and the ramp-up period
is likely to be 12-14 months. They are likely to operate at 50% utilization in FY13
(170kt). With the delay in Utkal’s commissioning, Hindalco would need to import
alumina (about 80kt-100kt) to meet part of Mahan's requirements. The Aditya
Aluminium smelter (359kt) has been delayed to early 2013 on account of delays
in obtaining clearances.
 Other updates — Hindalco's smelting capacity is set to go up from the current
550ktpa to 610ktpa in FY12 and later to 1.3mtpa in FY14. Hindalco is expecting

capex of ~$6bn till FY14. Of this, $1.8bn is likely to be for power and the rest for
alumina and aluminium.
 Coal uncertainty — Hindalco’s Mahan Coal Block is in a ‘No Go’ forest area.
However, Hindalco feels that the coal block approval will come through as its
projects are in advanced stages of implementation. Meanwhile, it has applied for
tapering linkage.
 Novelis' strategy — (1) Enhancing volumes - despite shutting down more than
500ktpa of capacity, the company has managed to maintain a 3mtpa rate. (2)
Lowering costs - closing inefficient operations, transfer of assets (3) Focus on
product portfolio - (a) auto demand will improve with the stress on emission
norms, (b) demand for cans is fairly inelastic, (c) improving demand for industrial
electronics led by consumption in China and some other growing economies.
 Novelis' performance — Novelis is a pure converter and earned an EBITDA of
$1.1bn in FY11 (EBITDA/t of $360). Novelis believes that the EBITDA/t can
improve from these levels supported by strong performance of the emerging
economies.
 Novelis balance sheet restructuring — Novelis has completed refinancing
transactions to recapitalize its balance sheet and give both Hindalco and Novelis
greater flexibility in financing capex and growth plans. Novelis has raised $4.8bn
of debt and returned $1.7bn to its parent, a wholly owned subsidiary of Hindalco.
The funds will be used to reduce overall group debt and fund Hindalco’s
expansion plans.

GSPL: All transmission companies seem to be bullish on the Indian gas story:: Kotak Securities

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GSPL (GUJS)
Energy
All transmission companies seem to be bullish on the Indian gas story. GSPL
management (in the analyst meeting) painted a bullish scenario on (1) sharp ramp-up in
supply in the existing network, (2) good utilization levels in the recently-awarded pipelines
and (3) no cut in transmission tariffs from existing levels. We retain our REDUCE rating on
the stock given 9% potential downside to our 12-month DCF-based target price of `92.
We have revised our earnings estimates to reflect lower gas transmission volumes.

Godrej Properties (GODR.BO; :: Takeaways from Citi India Investor Conference – Day 2

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Godrej Properties (GODR.BO; Rs666.90; Analyzed Not Rated)
 Takeaways from Mumbai — Godrej Properties presented at our India Investor
Conference in Mumbai. Below are the key takeaways
 What's new? — (1) The company is looking to do project additions at a much faster
pace now versus last year. While the intention is to strengthen its presence in cities
where it is now present, entry into newer cities is not ruled out and would be
opportunistic. Company has already made one acquisition in Q1 in Chembur,
Mumbai (2) Company reiterated its focus on redevelopment projects in Mumbai, for
which it has put together a separate team; and (3) FY11 dividend was a total of 25%
of PAT and company is looking to maintain a similar payout going forward.
 Commentary on presales — The company is looking to increase the annual sale
run rate to ~10msf p.a gradually over next 2-3 years. It recorded ~4.0msf in FY11 vs
~1.4msf in FY10. Focus would remain on mid-income housing where it believes
demand would always remain robust in India. Garden City Ahmedabad recorded
~4.0msf sales since launch in Q4FY10. ~85% area stands sold in company's
maiden project in Gurgaon where prices have been pushed up by 40% since launch
in Jan-11.
 Other key updates — (1) Pune and Kalyan township to be launched this FY; (2)
Construction has begun in Jan-11 for Godrej One – flagship commercial project at
Vikhroli, Mumbai. The company has begun discussions with prospective tenants.

Engineers India: Buy:: Business Line

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Investors with a three-year perspective can consider buying the stock of Engineers India. Catering to the entire hydrocarbon value chain, dominant market position through its unique business mix of high-end engineering consultancy and turnkey projects, and the ability to quickly tap new business opportunities make Engineers India a superior play in the engineering and infrastructure space.
At the current market price of Rs 280, the share trades at 11 times its expected per share earnings for FY-13. The price is close to the follow-on offer price in July 2010. A marginal premium to peers is justified on account of superior profit margins, return on equity as well as zero-debt status. Investors can consider accumulating the stock on any steep declines linked to broad markets.

UNIQUE PLAY

Engineers India is a play on the technology and engineering segments in the oil and gas and other infrastructure industries. The company's presence in the lucrative hydrocarbon industry spanning commissioning of refinery and petrochemical units, consultancy services for offshore and onshore oil and gas and laying of pipelines have provided it a market leadership in the local arena. Besides, it has emerged as a sound competitor for overseas projects.
This has led to the company enjoying high EBITDA margins hovering over 20 per cent; such profitability is uncommon in the infrastructure space. With hardly any peers with similar skill sets in the domestic arena, Engineers India can be expected to be a beneficiary of upgradation and capacity additions in the refinery space under the Plans. Such activity is set to increase by 25 per cent (capacity) in the 12th Plan.

CHANGING MIX

Engineers India is known to have lumpy revenues across quarters as a result of its consultancy division accounting for a chunk of revenues compared with lump sum turnkey (called LSTK or engineering procurement and construction) projects. In FY-07, for instance, consultancy accounted for as much as 85 per cent of the revenues. This has now shrunk to 40 per cent in FY-11. There are both benefits and disadvantages to such a change in mix.
For one, consultancy jobs offer high margins in the range of 30-40 per cent, this explains why the company has so far enjoyed superior operating margins. This shift towards EPC would mean a reduction in profit margins. EBITDA margins for FY-11, in fact, fell 2 percentage points to 23 per cent over a year ago.
On the positive side, focus on EPC projects provides a wider universe and larger opportunity for Engineers India to participate in projects that it was only advising earlier. It has also helped the company to diversify in infrastructure and water and waste management projects.

SURGE IN ORDER FLOWS

A faster increase in top line growth could, perhaps, ensure that margins do not suffer much. The EPC segment's contribution to revenue would also be relatively steady, based on the proportion of work completed. Revenue has, in fact, grown at a compounded annual rate of 55 per cent to Rs 2823 crore in FY-11, since EPC contracts saw a gradual increase in sales contribution over the last four years. Revenues remained volatile over 2005-08 when consultancy dominated income flow.
The above shift in focus also resulted in a surge in order flows by 166 per cent in FY-11, taking the order book to Rs 7,500 crore or 2.6 times sales in the latest ended fiscal. The mix of 65:35 in favour of EPC and consultancy can be expected to provide sound top line growth and support to margins as well.
Engineers India, interestingly, has a slightly varied approach to its EPC/LSTK contracts. Called Open Book Estimate convertible to LSTK, the contracts entail a quick preliminary design that would suffice for entering into a contract.
This is said to reduce the bidding period, after which prices governed by market conditions are decided. Design too is left open to change. This is a key positive as contractors often reach a deadlock with owners of projects due to freezing of designs and any changes required at a later stage. This often leads to cost-overruns and delays; an issue prevalent in projects awarded by the likes of ONGC or refineries.
The OBE-LSTK combination, therefore, balances the requirements of owners of the project as well as the contractor. Such a strategy has helped the company deal with high-end projects without major disputes.
Engineers India has re-entered the fertiliser space, bagging a brown-field project and has also plans to tap in to opportunities in the nuclear and gas distribution space. With sufficient accruals and debt-free status, an approach of taking strategic stakes in the above businesses may help the company cautiously test waters in new areas

Bharat Electronics -Management contact update ::RBS

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Bharat Electronics
Management contact update
BEL reiterated its FY12 revenue guidance of Rs62bn, though order book has
doubled to Rs236bn, as some deliveries begin only by FY13. Over the long term,
BEL expects a gradual increase in system integration projects and expects PBT
margins to stabilise at 16-17%. It continues to be our preferred Defence play.
Bharat Electronics management reiterated its FY12 revenue guidance of Rs62bn, though it
has doubled its order book in the past one year from Rs114bn to Rs236bn. The reason for
this is that majority of orders, won in 2HFY11, will start delivery only in FY13. Its current order
book implies 3.8x FY12F sales and provides strong visibility in term of future revenues.
The largest order in recent times has been the order for Akash missiles at Rs36bn. However
BEL is the system integrator for this project and c.60% of the order value would be direct BEL
products and the remaining would be outsourced. A further Akash order of Rs100bn (along
with Bharat Dynamics Ltd, an unlisted Defence PSU) is also likely to happen in 1HFY12.
The company currently has 35-40% of its order book mix in the form of system integration
projects, where margins are lower. However company expects fall in staff cost to sales to
offset these lower margins. The company's current wage settlement is until December 2016.
Over a longer term, the company is looking at a revenue mix of 60:40 for system integration
and products and expect PBT margins to stabilize at 16-17%.
The company currently spends ~6% of its turnover on R&D and is targeting increasing this to
8% to keep expanding its offerings. However this will have limited impact on margins since
70% of R&D costs is manpower, which gets accounted in staff costs.
The company's current cash balance is Rs60bn, including Rs35bn of customer advances.
The company remained non committal on the use of this cash.
We believe BEL offers the best way to play the Indian defence capex story. It has expertise in
niche areas, making it the sole vendor for several defence orders. It is a preferred supplier to
the Ministry of Defence by virtue of being partly government-owned. In addition, its
relationships with foreign vendors help it to gain offset orders (where a specified percentage

of the order value must be met locally) over competitors.
We maintain our Buy rating on the stock. Stock trades at 15x FY12F earnings and 13x FY13F
earnings.

UBS:: Triveni Engineering & Industries - Deep value post demerger ' target Rs85

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UBS Investment Research
Triveni Engineering & Industries
Deep value post demerger
 
„ Triveni Engineering (TREI) demerged its turbine division
Triveni Engineering and Industries (TREI) demerged its turbine division. We
change the price target to reflect the demerger. The demerged Triveni Turbines is
not listed yet. We expect it to be listed within the next two to three months. Post
the demerger, the listed TREI comprises of the sugar, water treatment, and high
speed gear divisions, and has a 21.8% stake in Triveni Turbines.

Morgan Stanley Research:: New IP Index – More Representative of Underlying Growth Trend

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New IP Index – More Representative of Underlying  Growth Trend 
New IP index with 2004-05 base year launched: The
Ministry of Statistics today released the new Industrial
production (IP) index with base year revised from F1994
to F2005. The new series (F2005 base) takes into
account the item basket as per more recent production
behavior and thus can be considered to be a much
closer reflection of the present industrial scenario. The
Ministry has indicated that they will be releasing the IP
growth as per old and new index for the next two months,
but considering that the two series of IP contain different
item baskets and different weights, the respective
growth rates computed are likely to be different.
Industrial production (IP) growth decelerated to
6.3% in April 2011 as per new index: IP growth
decelerated to 6.3% in April compared with growth of
8.8%YoY in March and 6.5%YoY in February 2011. On
a seasonally adjusted sequential basis, the IP index was
down 1.5% MoM (vs. +2.7% MoM in March). On a
3MMA basis, IP growth decelerated to an average of
7.2%YoY during the three-months ended April 2011
from 7.6% during the quarter ended March 2011. For full
year F2011 (year-end March), IP growth (average)
stood at 8.2% YoY vs. 5.3% YoY in F2010.
Industrial production (IP) growth decelerated to
4.4% in April 2011 as per old index: As per F1994
base, IP growth decelerated to 4.4% in April compared
with growth of 7.8%YoY in March (revised upwards from
7.3%) and 3.7%YoY in February 2011. For full year
F2011 (year-end March), IP growth (average) stood at
7.8% YoY vs. 10.5% YoY in F2010.
Manufacturing growth decelerated in April as per
new index: In the manufacturing segment, growth
decelerated to 6.9%YoY (vs. 10.4%YoY in March)


Within manufacturing, accounting & computing machinery has
shown the highest growth of 96.5%, followed by motor vehicles,
trailers & semi-trailers (22.9%) and fabricated metal products,
except machinery & equipment (22.3%). On the other hand,
furniture manufacturing n.e.c. has declined by 15% followed
by wood & products of wood & cork except furniture, and
articles of straw & plating materials (-13.5%). While growth in
the mining segment picked up to 2.2%YoY (vs. 0.3%YoY in
March), it decelerated in the electricity segment to 6.4%YoY
(vs. 7.2%YoY in March).
Growth in consumer goods slowed sharply in April as per
new index: On the use-based classification, the consumer
goods growth slowed to 2.9%YoY in April 2011 compared with
11.7%YoY in the previous month. Within consumer goods,
durables and non-durables growth decelerated to 3.8% YoY
(partly on base effect) and 2.1%YoY (vs. 13.9% YoY and 9.9%
YoY in March), respectively. The capital goods segment grew
14.5%YoY in April compared to 15.4%YoY in the previous
month. The growth was driven by components, including heat
exchangers (130.9%), computers (115.2%), sugar machinery
(80.3%), textile machinery (55.2%) and boilers (51.2%).
Growth in intermediate and basic goods accelerated to
3.4%YoY and 7.3%YoY (vs. 1.9% YoY and 6.3% YoY in
March), respectively.
New Index series seems a more appropriate
representation of the underlying growth trend: As we have
been highlighting in our research earlier, we believe the new
index will help improve the quality of this data series, as the
monthly IP growth for the last few months (per the old base)
has been significantly underestimating underlying growth trend.
The new index (F2005 base) supports our expectation of IP
growth having been in the range of 6-9%YoY over the past
months, in line with the underlying growth trend, compared with
the 2-5%YoY range (except for March 2011 data point)
registered as per the old index (F1994 base).
Growth outlook – continue to see downside risks: We
expect GDP growth to decelerate to 7.7% in F2012 (year-end
April) from 8.5% in F2011. We expect government spending
and consumption growth to slow in 2011. We also expect
exports to remain strong, but not enough to offset slower
growth in domestic demand. However, considering that the
cost of capital may stay higher for longer, as well as continued
high global commodity prices, we see downside risks to our
growth outlook – to the extent of 0.5%pts.

Sell Steel Authority of India-- Things are looking down :RBS

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Steel Authority of India
Things are looking down
We expect strong downwards earnings momentum in the coming quarters driven
by high coking coal prices, as the cooling in prices is taking much longer than we
expected. With no new capacity to be added this year, the wait for volume growth
continues. We cut our FY12/13F EPS by 31%/2%. Downgrade to Sell.

JPMorgan:: Godrej Consumer -- Darling Group Acquisition - Management Call Highlights

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Godrej Consumer Products Limited
Neutral; GOCP.BO, GCPL IN
Darling Group Acquisition - Management Call Highlights


• Darling Group Holdings (DGH): Brief overview. DGH is a leading
hair extension company in Africa with 20% market share (pan-African).
It has operations and manufacturing facilities in 14 African countries. It
had posted revenues of Rs9bn ($200mn) last year and has operating
margins of c20%. Revenue CAGR has been c15% over past 5 years.
DGH has been in hair extension business for over 30 years and has two
popular brands - Darling and Amigos in US$1bn hair extension market in
Africa which has no significant MNC competition. With penetration
levels at 25% for hair extension, mgmt believes there is enough
headroom for sales to grow on the back of increased penetration,
frequency of usage and upgradation.
• Transaction to be completed in three phases. GCPL announced
purchase of 51% stake in DGH. This transaction will be completed in
three phases - 1) Phase 1(over 2-3 months): GCPL will acquire countries
which contribute 45% of Group’s revenues, 2) Phase 2 (over 12 months)
: GCPL will acquire countries which contribute upto 70% of Group’s
revenues, 3) Phase 3 (over 24 months) : acquires remaining
countries/businesses. Also GCPL may acquire remaining 49% equity
stake in DGH in a 3-5 year period through a combination of put and call
options. Importantly these transactions will be done at a pre-fixed
valuation multiple. Existing management team will continue to run the
business for next five years at least.
• Acquisition to be accretive by Rs200mn in FY12 accounting for the
first phase (51% stake in 45% of business for 7-8 months of operations)
which implies 3% accretiveness for FY12. However this accretiveness
could be higher at 6-7% for FY13 assuming it for 70% of business and
for full 12 months. Management refrained from providing exact
valuation details for this deal though payments will be made in
proportion to phase completion as stated above.
• Acquisition to be funded via low cost debt (@3-4% interest cost).
Management noted that debt/equity could go beyond 1:1 post this
acquisition and company will utilise current cash on books too for this
transaction. Post 51% stake acquisition in DGH, Africa will account for
13% of GCPL’s consolidated revenues and overseas exposure for GCPL
will increase from 35% earlier to 40% now.
• Potential synergies from integration of Kinky and DGH. GCPL
expects near term benefits from integrating Kinky and DGH operations
as both operate in hair extension category. Currently Kinky imports its
products whose manufacturing could now be handled by DGH locally
making way for margin benefits here. GCPL is also exploring possibility
of launching Household Insecticides in African markets, leveraging on
DGH and Rapidol's distribution strengths in this region.

JPMorgan:: GVK Power & Infrastructure- Hydropower project falls victim to environmental protests

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GVK Power & Infrastructure
Neutral; GVKP.BO, GVKP IN
Hydropower project falls victim to environmental protests


• The Financial Express has reported that GVK’s under-construction
330MW Alaknanda hydropower project at Uttarakhand has
received a notice from the environment ministry. The order says that
ministry is reviewing compliance to the environmental clearance issued
to the project, amongst other things. It has disallowed further
construction work other than safety and electricity works up to 200 mw
on the project site.
• The order follows protest led by senior leader of BJP (a political party),
Ms Uma Bharati. The project, as per protests, would lead to
submergence of an important Hindu temple. Ministry officials will
inspect the site and submit their report to Mr Jairam Ramesh, Minister,
on June 21st before a final order is passed.
• Alaknanda was at an advanced stage of construction with estimated
COD of Mar-12. From a recent investor presentation, we gather that
major work on the dam, powerhouse, intake structure, switchyard, power
channel, desilting basin and headrace tunnel have been completed. We
estimate capex of Rs20B has already been incurred on the project
including equity of Rs4B, vs approved capex of Rs26B. The project
accounts for Rs1.1 in our SOP (3% of value).
• Unlike other hydroprojects that were scrapped mid-way due to
environmental / religious protests (Eg: NTPC’s 600MW Loharinag
Pala), we believe Alaknanda is at a much advanced stage and we
would be surprised if the project is abandoned at this stage. The
project might however get delayed and might see some cost overrun
if additional capex has to be incurred towards meeting
environmental cost if any.

JPMorgan:: HDFC Bank- Continues on a firm footing: Annual report analysis

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HDFC Bank
Overweight
HDBK.BO, HDFCB IN
Continues on a firm footing: Annual report analysis


• Our annual report analysis reaffirms our positive view on HDFC
Bank. Margins remain resilient as deposit franchise remains strong,
and the relatively less risky corporate loan book and high provisions
buffer should continue to keep credit costs under control.
• Liability franchise remains strong: Strong deposit franchise was not
only reflected in improvement in CASA but also low concentration of
deposits. Top-20 depositors contribute ~8.8% of total deposits (8.4% in
FY10) for HDFCB vs 10-18% for large private peers indicating low
reliance on wholesale funding.
• Conservative provisioning continues: Asset quality improvement was
broad based with gross NPA levels coming off for Agri and services
sector, and significant improvement in retail asset quality. Credit costs
at 100bps included Rs6.8bn of floating provisions which is ~12% of
FY12 PBT. Exposure to power increased 2x in FY11 but at ~2% of total
exposure, power exposure remains lower than other private banks
implying low risks from any IPP related asset quality issues.
• Some red flags in the investment book: Priority sector related
investment in NABARD/SIDBI bonds has increased by ~69% in FY11.
PSL investment book at ~3.5% of interest earning assets is inline with
other large private banks. Though PSL book has grown by 36% CAGR
over FY09-11, increase in PSL investments is due to higher NABARD
calls. With increased regulatory constraints, we believe meeting PSL
requirements will be a challenge for private banks.
• Maintain Overweight: We maintain our positive view as we think the
strong liability franchise will cushion any margin pressure, and relatively
higher NPA coverage provides a large buffer and should help sustain
premium valuations.

Unitech-- Execution risks, but in the price; upgrading to Hold:: Deutsche Bank

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Unitech
Reuters: UNTE.BO Bloomberg: UT IN
Execution risks, but in the
price; upgrading to Hold
While underperformance captures risks, the stock lacks near-term triggers
This sector trend-setter faces big challenges – execution risks on aggressive
launches and pre-sales since March 2009, and margin pressures on high inflation
and a higher proportion of low-margin pre-sales. These risks are aggravated in
non-Gurgaon locations, where more inventory is unsold. A poor FY11 (more so in
4Q margins) forces us to cut estimates and the target price. However, these risks
have largely been factored into the 10% underperformance since January 2009
and 17% underperformance in the past six months to sector; we upgrade to Hold.

Puravankara Projects -- Significant strengths but offset by concerns:: Deutsche Bank

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Puravankara Projects
Reuters: PPRO.BO Bloomberg: PVKP IN
Significant strengths but offset
by concerns
Considerable strengths but neutralised by liquidity and execution concerns
Puravankara Projects’ (PVKP) strengths (brand equity, strong B/S and disclosures
and a largely paid, low-cost land bank), coupled with a robust IT sector and
Bengaluru outlook, should drive its real estate demand. However, we are
concerned about the near-term, INR3.8bn debt repayment in 12 months and a
spike in projects under construction (>22msf in FY11 vs. <11msf in FY10) despite
a cumulative execution of only c.7msf. With macro headwinds, we cut FY12-13
estimates by up to 42% and reduce our target price to INR90; maintaining Hold.

Indiabulls Real Estate:: Coherent strategy and robust execution momentum :: Deutsche Bank

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Indiabulls Real Estate
Reuters: INRL.BO Bloomberg: IBREL IN
Coherent strategy and robust
execution momentum
Flexibility to adapt new strategy and focus on execution drives growth
With a few of its high-potential projects not taking off, Indiabulls now focuses on
smaller projects and continues to add value-adding new land parcels in key
metros. While demand for both its high-end residential & office at central Mumbai
is lacklustre, execution momentum continues with every quarter witnessing few
new projects crossing the revenue recognition threshold. We believe high-margin
Mumbai residential projects will flow into P&L in FY12 as profit from associates;
thus, we revise our financials. We cut our target price to INR175; maintain Buy.

HDIL-- Play on high-potential Mumbai redevelopment :: Deutsche Bank

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HDIL
Reuters: HDIL.BO
Play on high-potential Mumbai
redevelopment
Redevelopment: significant upside potential and political risk
Mumbai's topography has resulted in redevelopment offering significant benefits,
entry barriers, attractive margins and high RoIs (+40%). The low price of land
offers HDIL the flexibility to launch attractively priced projects. Robust execution
resulted in the completion of Phase I of MIAL rehab. After a significant delay, the
commencement of government processes should enable HDIL to begin the next
phases. Due to a delay in approvals, we cut our FY12-13 estimates by up to 32%
and our target price to INR 225. With c.35% upside potential, we maintain Buy.

HDFC Bank (HDBK.BO:: Takeaways from Citi India Investor Conference – Day 2

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HDFC Bank (HDBK.BO; Rs2,360.80; 2L)


 HDFC Bank management presented at our India conference today. Key
takeaways are as below:
 Loan growth to remain stable at 25% in FY12 - HDBK management sounded
confident on achieving 25% loan growth in current year, though slightly more retail
biased than last couple of years. Growth is likely to remain widespread across
segments - more likely from business banking and personal loans, while CVs and
auto are expected to slow. Corporate book should continue to be working capitaldriven
with low project finance exposure.
 Net interest margins to remain stable - HDBKs' NIMs have been stable between
the 4.1-4.3% range across interest rate cycles and management does not expect
this time to be any different. While the hike in the savings bank rate has impact cost
of funds by around 10-15bps, this has been passed on and will not lead to an NIM
impact. NIM protection largely coming from its well matched asset-liability duration
(around 1.3-1.4yrs for both).
 Asset quality currently in a sweet spot - Management does not see this changing
over the next couple of quarters, and expects delinquencies to remain low and will
continue to provide for counter cyclical provisioning buffer. Overall credit costs are
likely to remain stable at 1.2-1.3% levels.
 Fee growth muted, cost ratios likely stable - Management expects lower feeincome
levels in third-party product distribution to moderate overall fee growth
levels – it could be slightly lower than asset growth near term, though is likely to
pick up from FY12 onwards. Operating costs do have inflationary pressure, but
cost/income ratios likely to remain stable at around 47-48%.
 Thrust on rural for longer-term growth and priority sector requirements -
HDBK management is increasingly focusing on rural/agriculture segments as
longer-term growth drivers; risk/return ratios on this book are in line with the overall
bank and it does not see this as a profitability/risk drag. Going ahead this will also
increasingly help in meeting priority sector requirements.
 Comfortable on capital - HDBK's current Tier 1 ratio is at 12.2% and management
suggests this should be sufficient for the next three years at current growth levels.
Also, it does not expect Basel 3 implementation to impact capital significantly.

DLF - Peaking rate cycle to benefit; upgrading to Buy:: Deutsche Bank

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DLF
Reuters: DLF.BO Bloomberg: DLFU IN
Peaking rate cycle to benefit;
upgrading to Buy
Twin drivers - operational flexibility and financial leverage; upgrading to Buy
Our rating upgrade is premised on DLF's operational flexibility and financial
leverage (84% gearing) in an era of peaking interest rates. While its aggressive
accounting policy and inflation force us to cut EPS (a lag indicator) by 40%, we
believe that this is the end of EPS downgrade momentum for DLF. Peaking
interest rates with price cuts should kick-start demand, driving its leverage.
Despite an 8% cut in the target price, with 22% upside potential, we upgrade
DLF to Buy.

Sobha Developers- Levered play on Bangalore IT :target price to INR 350: Deutsche Bank

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Sobha Developers
Reuters: SOBH.BO Bloomberg: SOBHA IN
Levered play on Bangalore IT
Robust execution momentum and IT sector outlook augur well for Sobha
Unlike its peers, Sobha continued its robust execution momentum in real estate in
FY11, with deliveries > pre-sales > new launches. It now proposes aggressive
launch plans. A robust outlook for the IT sector bodes well for Sobha, as
Bengaluru accounted for ~76% of FY11 pre-sales and ~50% of future land bank.
With ~64% net gearing (March 2011), Sobha remains a levered play on Bangalore
IT. However, with increasing macro headwinds, we cut our estimates by up to
18% and our target price to INR 350. With 34% upside potential, we maintain
Buy.
Sobha’s focus on execution…
Unlike peers, which pre-launch to drive cashflows, Sobha’s focus on execution in
FY11 – deliveries (4.1msf) > pre-sales (2.8msf) > launches (2.0msf) – enhances its
brand franchise. Hence, real estate projects under construction fell from 9.1msf in
FY10 to only 7msf in FY11. It plans aggressive launches of ~11msf in FY12. In the
low gestation contractual segment, projects under construction spiked to 7.4msf
in FY11 (4.2msf in FY10). Land monetization and fresh equity helped reduce net
gearing from 180% in end-FY08 to 65% in end-FY11.

Post-office savings bank deposits likely to fetch 4% interest:: Business Line

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A government committee has suggested raising interest rates on post-office savings bank deposits to 4 per cent, a suggestion that could benefit lakhs of small depositors.
The Committee on Small Savings also recommended linking returns on other small savings schemes with interest rates on government securities.
It has also suggested that Kisan Vikas Patra (KVP) be withdrawn and annual investment limit for the popular Public Provident Fund (PPF) be raised to Rs 1 lakh from Rs 70,000 at present.
The committee recommended that interest rates for post-office savings deposits be raised to 4 per cent from 3.5 per cent at present, in line with the Reserve Bank's decision to hike rates on savings bank deposits.
Under the new formula, suggested by the committee headed by RBI Deputy Governor, Ms Shyamala Gopinath, small savings schemes would provide better returns to investors.
Interest rate for one-year deposit scheme would go up to 6.8 per cent from 6.25 per cent, while returns for the PPF would improve to 8.2 per cent from 8 per cent.
With regard to taxing returns on the small savings schemes, the committee said the issue should be considered by the government while firming up the Direct Taxes Code (DTC), which seeks to replace the Income-Tax Act, 1961.
Noting that the small savings schemes are agent-driven, the committee suggested that the commission on them should be gradually reduced from 4 per cent to 1 per cent.
While recommending to raise the interest rate on savings deposits by 50 basis points to 4 per cent, the Committee said the government should introduce the system of calculation of interest rate on a daily basis on post-office schemes as is being done by banks.
It further suggested that the interest rates on various small saving instruments be benchmarked to the secondary market yields on Central Government securities of comparable maturities.
Taking a cue from Reddy and Rakesh Mohan committees, it said the administered interest rates on the schemes should neither be raised nor reduced by more than 100 basis points above or below the benchmark rate.
It recommended a positive spread of 25 basis points over the rates of government securities of similar maturities. The new rates should be notified by the government every year from April 1, 2012.

KYC NORMS

To prevent money laundering and generation of black money, the Committee recommended strict enforcement of the Know Your Customer (KYC) norms.
On investment ceilings for different small savings schemes, it said that the Government should retain them. In case of removal of ceilings, the Government may consider taxing the accruals on the schemes.
To improve the liquidity of the 5-year recurring deposit scheme, it said that the government may reduce the lock-in period to one year from three years with a penalty for premature withdrawal. The penalty could be one per cent less interest rate

Expect India's growth to be significantly lower this year: Jim Walker (ET Now)

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In an interview with ET Now, Jim Walker, Founder & Managing Director, Asianomics, shares his growth outlook for India. Excerpts:
ET Now: Let us talk about the GDP growth. What kind of GDP growth are you expecting from India particularly in FY12 because we have got pretty much a target of about 8% to 8.5% within that range?
Jim Walker: Yes, unfortunately we are looking for significantly lower growth in India this year, around about 7% mark after it being at around about 9% over the last year or so. And that is really because of what has been happening with interest rates which are beginning to take an effect on the capital expenditure cycle and the signs we were seeing from industrial and manufacturing production. So significantly lower growth this year which has put the budget deficit under pressure.

India Property -On the cusp of a bounce-back; upgrading to Outperform:: Deutsche Bank

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Underperformance despite fundamentals offers favourable risk-reward
After the sector’s near-100% underperformance (worst-performing sector) since
Jan'09, we believe pessimism is overdone, even discounting further short-term
macroeconomic deterioration. With risk-return turning favourable after a long gap,
we upgrade the sector to Outperform. A peaking interest rate cycle (we expect a
75bps increase after the 250bps hike in the past 15 months) and property price
cuts, which will bring back demand, should be key sector catalysts (as in 2009).
We upgrade DLF to Buy and Unitech to Hold; we prefer Sobha, a low-beta stock.

Semiconductors: iCloud benefits storage ::Macquarie Research,

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Semiconductors: iCloud benefits storage
Event
 On 6 June, Apple unveiled its much-anticipated iCloud service. iCloud is a
free service that will come with the arrival of iOS 5 this autumn (with some
services provided in beta prototype form now). This looks to be positive for the
storage industries, both solid-state and hard disk drives.
Impact
 There had been concerns that iCloud would be a music streaming service,
displacing on-device storage – which would be negative for NAND flash. An
example of such a service is Amazon's Cloud Drive and Cloud Player, which
allows users to store music in the cloud and stream it to multiple devices.
 Instead, iCloud can be seen as a synchronisation service that complements,
rather than displaces, on-device storage of content such as iOS Apps, music,
video, photos, ebooks and documents. Content is stored on-device to be used.
The role of iCloud is to ease the sharing of content across connected devices
(akin to the DropBox service/software). This can best be appreciated in the
case of photo synchronisation. iCloud only holds up to 1,000 photos taken
over 30 days. If users want to keep photos they will need to save it to their
Photo Roll or other folders on the device, be it iPhone, iPad or Mac/PC.
 As for music, this is purchased on iTunes, and stored both on the device and
in iCloud. This content is then also pushed to other devices include Macs/PCs
and Apple TV. Previously purchased content will also be downloadable to all
devices from iCloud. Apple pitches this as "New Purchases. Automatically
Everywhere" and "Your Past Purchases, Available on all your devices".
 For US$24.99 a year, Apple also offers iTunes Match, which allows access to
iCloud for music that has not been purchased from iTunes. This provides for
18 million songs for matching. Apple is marketing this against Amazon and
Google's cloud streaming services by touting the lower price compared to
Amazon's (US$50/year for 5,000 songs, US$100/year for 10,000 songs) and
the absence of any need to upload music into the cloud.
 We believe that by making it easier for consumers to have copies of the same
content (photo, videos, photos) across multiple devices, the net impact of
iCloud on consumer storage needs may be positive (on top of driving demand
for centralised datacentre storage). History suggests that when ease of data
interchange is increased and when cost/bit falls across technologies,
consumers’ total usage of storage bits increases. For example, the USB flash
drive was a breakthrough because it allowed large quantities of data to be
easily shared using a small portable device, and we think the resulting ease of
copying increased total quantity of data storage due to replication on multiple
devices. iCloud essentially does the same without an intermediate device.
Outlook
 We are positive on semiconductors. In the NAND flash sector, we have
Outperform ratings on Samsung Electronics (005930 KS, Won885,000,
Outperform, TP: Won1,300,000, Daniel Kim), Toshiba (6502 JP, ¥397,
Outperform, TP: ¥500, Damian Thong) andHynix Semiconductor (000660 KS,
Won27,650, Outperform, TP: Won42,000, Daniel Kim). Macquarie’s tech
team highlights that the cloud computing trend would also be positive for
relevantly-exposed firms, such as Hynix (server DRAM).

JSW Steel (JSTL.BO; –Takeaways from Citi India Investor Conference – Day 1

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JSW Steel (JSTL.BO; Rs923.85; 1M)
 Takeaways from Mumbai — JSW Steel presented at the Citi India Investor
Conference in Mumbai. Below are the key takeaways.


 Raw material update — JSW Steel (JSTL) has begun iron ore mining operations
in Chile and expects sales of 1mt in FY12 and 2mt in FY13 (FOB cost $60-63/t),
giving it a hedge. JSTL has obtained three out of eight permits for its US coking
coal assets and expects to produce 0.5mt in FY12 (includes thermal coal) at an
FOB cost of around $160/t. In India, the company has set up 10mtpa of iron ore
beneficiation capacity and expects to set up another 15mtpa by mid FY12.
 Expansion plans — JSTL’s capacity (excl Ispat’s 3.3mtpa) should rise to 11mtpa
(from 7.8mtpa) by 1QFY12 and another 2mtpa at Karnataka (capex Rs27bn) by
Jun13. JSTL completed the expansion of a HSM (hot strip mill) in FY11 and will
commission another 1.5mtpa by FY12 to enhance its product mix and reduce
sale of semis. It has plans to set up a 2.3mtpa cold rolling mill in two phases by
1QFY14and 1QFY15 – at an estimated capex of Rs40bn. The first phase of the
West Bengal project is now likely to be 3mt (4.5mtpa earlier) based on existing
clearances.
 Ispat acquisition — JSTL hopes to achieve synergies, such as rationalization of
marketing effort, sourcing of iron ore, and captive availability of pellets/coke,
lower cost of power from JSW Energy (vs the grid) for Ispat to help cut costs.
Ispat restarted operations in Dec10 and produced 0.73mt during Jan-Mar11 (88%
utilization) and reported a profit of Rs700m. EBITDA/t was ~$100. JSW Steel
hopes that Ispat is able to make a sustainable EBITDA of Rs 5,000/t (which
appears difficult).
 Steel outlook — Domestic prices were flat in April and May but have been
increased by Rs 500/t (1.5%) in June 2011. Management indicated that it was not
bogged down by cost pressures and has been able to achieve its targeted
volumes over the last few months. It expects EBITDA/t for FY11 to be around
$170/t.
 Balance sheet – Cons. D/E was 0.84x as of Mar 11 vs 0.74x as of Dec 10. Cons.
Net debt/EBITDA was 2.9x. Net debt stood at Rs142bn ($3.1bn).

Wipro (WIPR.BO :: Takeaways from Citi India Investor Conference – Day 2

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Wipro (WIPR.BO; Rs438.75; 1L)
 Takeaways from Mumbai – Wipro presented at our India Investor Conference in
Mumbai. Below are key takeaways.
 Restructuring in focus – The focus of the recent restructuring has been to give
a single access point to the client (the client engagement manager) and to align
the goals of the organization to the client’s. Previously there used to be multiple
teams that used to be the touch points for the clients. Now these have been
aligned to the vertical which serves as the single touch point. The vertical has the
P&L responsibility now, while the horizontals are measured in terms of different
goals.
 How are the customers taking it? – The customers are happy: (1) they
appreciate the fact that Wipro is fully aligned to their goals; and (2) have a single
touch point. In general there is a lot of positivity among the customers regarding
the recent restructuring.
 Demand trends – The demand scenario continues to remain positive with the
cost arbitrage continuing to play its role, as far as cost take-outs are concerned.
Discretionary spends are looking up with different business models (like Cloud
etc) seeing decent traction. New drivers include analytics, mobile enablement
and "cloud"- based offering/advisory.
 Pricing stable – The pricing environment is stable with COLA (cost of living
adjustments) happening. Wipro is also seeing some hikes in a reasonable
proportion of T&M (time and material) clients.
 Vertical trends – In terms of outlook for the various verticals, the pecking order
for Wipro stands as: Financial Services; Energy & Utilities; Retail/CPG,
Manufacturing/Healthcare and Telecom.

Voltas (VOLT.BO:: Takeaways from Citi India Investor Conference – Day 2

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Voltas (VOLT.BO; Rs162.25; 2M)
 Takeaways from Mumbai — Voltas presented at the Citi India Investor
Conference in Mumbai. Below are key takeaways.
 What's New: Unitary Cooling Products — The company is expecting slower
growth in this segment in FY12 due to weak sales in April and the early advent of
the monsoons. However, management indicated that Voltas has been growing
faster than the market and has been continually gaining market share (currently
~17%). Voltas and its competitiors have rolled back recent price hikes.
 Electromechanical Projects — Voltas has an order book of ~Rs49bn (~Rs20bn
domestic). With the exception of ~Rs2bn metro rail order, the domestic orders
are executable over 12-13 months. Rising competitive intensity in the Middle
East is putting pressure on margins. Voltas sees good potential in Saudi Arabia,
where large orders are being tendered. Management also expects a few metro
rail and airport orders to be given out in Hong Kong. In Qatar, the company has
been mandated to step up execution in the ~Rs9bn Cidra Medical project, and is

expected to be completed over the next 15 months. Management expects
additional resource mobilization in the execution to compress margins to ~7.5%-
8% in this segment. The company is expecting the Rohini subsidiary to achieve
EBIT breakeven in FY12.
 Engineering Products — Voltas expects textile machinery and the mining &
construction segments to post robust growth. The company believes that with the
hiving off of the forklift business to the Kion JV, ~17%-18% margins in this
segment are sustainable.

Tata Steel (TISC.BO; :: Takeaways from Citi India Investor Conference – Day 2

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Tata Steel (TISC.BO; Rs577.05; 1M)
 Takeaways from Mumbai — Tata Steel presented at the Citi India Investor
Conference in Mumbai. Below are the key takeaways.
 Expansion plans and capex — The 3mtpa Jamshedpur brownfield project is on
track. Upon its completion, Tata Steel will have ~10mt of capacity there, against the
current 6.8mt. This will consist of 6.4mt of Flat Product capacity and 3.3mt of Long
Product capacity. Thus, domestic capacity will account for a larger share of total
capacity (32% vs. 25% now) by Dec 2011.
 Orissa project update — Of the planned 6mt Orissa project ($8bn), 3mt is likely to
be up by FY15, with the rest likely to be completed within another 2 years. At the
group level, the planned capex is ~$2.2bn in FY12 (similar to last year).
 Overcapacity fears in India — Management does not believe there will be
oversupply in the market with the significant capacities that are being added by
major steel players - they are of the view that this capacity will take time to stabilize,
that there will be some degree of import substitution and demand will increase at
the same time. Also, most of the capacity that is being added by Tata Steel will be
diverted towards value-added products (2mt of the incremental 3mt).
 European update — In Europe, realizations are expected to be higher qoq in
1QFY12 but volumes are likely to be lower. The European operations have been
restructured in order to better mitigate the volatile steel environment. The debt
restructuring in Europe means that the major repayments are due in 2014-2015.
The long product market continues to be difficult and initiatives such as mothballing
capacity, improving raw material sourcing and modernization should help in the
company's quest to reach its target EBITDA/t of $100 over the medium term vs. $63
in FY11. The volume target for Europe in FY12 is 15.5mt vs. 14.8mt in FY11.
 Riversdale coal asset — Tata Steel effectively holds around 50% of Riversdale
(27% of the parent and 35% of the project company). It has plans to develop the
asset in 3 phases, with 1.7-2mt of coking coal production in the first phase. Since
Tata Steel has a 40% offtake share in Riversdale's Mozambique coking coal project,
it will get ~ 800kt from the asset once the capacity is fully ramped up (expected by
end CY12).

Reliance Communications (RLCM.BO; :: Takeaways from Citi India Investor Conference – Day 2

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Reliance Communications (RLCM.BO; Rs93.05; 1H)
 Takeaways from Mumbai – Reliance Communication presented at the Citi India
Investor Conference in Mumbai. Below are the key takeaways.
 Minutes rebalancing will take 1-2 more quarters – The rebalancing of low margin
PCO minutes is likely to take 1-2 more quarters. The primary reason behind the
rebalancing has been to free up the CDMA spectrum for high speed data services
(on EVDO), which the company has aggressively expanded in the last quarter.
 Rev/min has stabilized – Voice rev/min should remain broadly stable/slightly
decline and any large-scale tariff cuts by new entrants looks unlikely given operating
losses and funding constraints. Blended rev/min could move up if data pickup is
strong. Current non-voice wireless revenues at 20% are higher compared to the
GSM incumbents and the EVDO/3G services should help increase this proportion
further.
 Focus on B/S – Capex guidance for FY12E is Rs15bn; low versus our current
estimates of Rs27bn and should help improve the net debt position (FY11E net debt
ex-equipment supplies payable stood at Rs320bn). We believe the low capex

guidance is unlikely to hurt the company in the near/medium term given it has
cushion of a relatively low network utilization.
 Other updates – 1) Absolute subscriber loss at ~4m from MNP is low (in context to
overall sub base) and the company has been a net gainer in overall value terms
from MNP (in the last 3-4 weeks), and 2) tower portfolio is currently at 50,000
towers with 1.75x tenancy (captive tenancy is at 1.6x).