10 September 2011

Reliance Industries: Dry well ::, Target Rs 1,045:: Kotak Sec

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Reliance Industries (RIL)
Energy
Dry well. The final CAG report on performance audit of hydrocarbon PSCs tabled in
the Parliament is similar to the draft report released in June 2011 and may not have a
material impact on RIL. In our view, RIL’s stock price largely factors in concerns
pertaining to the E&P segment and we retain our positive stance despite the 13% runup
in the stock price in the past 10 days. Our 12-month SOTP-based fair valuation is
`1,045 and trough-case valuation `890. Key risk stems from weaker-than-expected
global economic conditions.


Concerns relate to technical and procedural issues and highlights lapses by DGH and MOPNG
The CAG audit revealed several technical and procedural lapses, which were ‘approved’ by the
DGH and MOPNG contrary to PSC provisions. (1) RIL was allowed to retain the entire block area of
7,645 sq. km at the end of Phase I in June 2004 and Phase II in June 2005 contrary to the PSC
provision of phased relinquishment of areas (25% after each phase). The operator also received
approval from MOPNG to treat the entire contract area as a ‘discovery area’ in February 2009.
(2) RIL initiated activities pertaining to a revised field development plan even before the DGH’s
approval of the addendum to the initial development plan (AIDP).
Difficult to prove reasonableness of costs incurred in large procurement contracts
The CAG audit has also raised concerns on the award of 10 large procurement contracts in
FY2007-08 on single financial bids including eight contracts awarded to Aker Group by RIL.
However, the auditor could not establish the reasonableness of (1) costs incurred and (2) major
revisions in scope, quantities, and specifications, which may have adverse implications for cost
recovery and government’s share of profit petroleum. We note that CAG has sought an in-depth
review of these contracts.
No material impact on RIL unless unfair escalation of capex is proved
We do not see any material implications on RIL from the technical and procedural lapses, given
that key activities were executed either in consultation with or the approval of DGH and MOPNG.
We see a material impact on RIL, only if unfair cost-inflation of capex on KG D-6 block, is proved.
However, this is unlikely to be the case and would be difficult to establish, in our view.
Stock still below our trough-case valuation; maintain BUY rating
We maintain our BUY rating on the stock with an SOTP-based target price of `1,045 based on
FY2013E estimates. We compute a trough-case value of RIL at `890 (see Exhibit 1), assuming
(1) lower multiples for refining and petrochemical segments at 5.5X FY2013E EBITDA, (2) peak
production of KG D-6 block at 50 mcm/d, (3) no tax exemption on gas production from KG D-6
block and (4) nil value from the upstream blocks under development/appraisal.

Cipla: Restructuring steps positive::Kotak Sec,

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Cipla (CIPLA)
Pharmaceuticals
Restructuring steps positive. Cipla on Wednesday announced the closure of two
marketing divisions. We view this as a positive step taken to address the muted, belowindustry
growth reported in the domestic business. Cipla said the reorganization will
improve existing productivity though no cost savings will accrue from it. (1) Lack of
clarity on inhaler launches, (2) high capex and (3) poor asset turnover lead to Cipla
having below-peer ROE at 16-17% during FY2012-13E. Improving return ratios is
contingent upon rapid utilization of its facilities, likely post a potential supply deal with
a big pharma. Given the lack of visibility on these drivers, we maintain REDUCE despite
recent underperformance (16% in three months).


Cipla’s two marketing divisions, Protec and Omnicare, shut down—a positive step
Cipla has announced the closure of two marketing divisions— Protec and Omnicare. Cipla has
around 15 marketing divisions in India with nearly 7,000 MRs (medical representatives). These two
divisions generated sales of Rs5 bn (18% of FY2011 domestic sales) and contained products across
the branded generic and generic-generic segments, mainly consisting of old, established products
across antibiotic and other anti-infective therapy areas. According to Cipla, there will be no
downsizing in manpower or products through this initiative as the MRs from these two divisions
will be redeployed in other divisions while the products will be marketed by other divisions.
First visible step taken to address twin problems affecting domestic growth
Cipla has reported poor domestic sales growth for the past two years—12% in FY2010 and
FY2011. Among many reasons for this poor growth, this initiative addresses two key reasons—
(1) lower growth of the generic-generic segment (15-20% of domestic sales) which has grown at
single digit in FY2010-11, many of the products marketed by these divisions belong to this
segment, and (2) declining sales force productivity due to significant increase in sales force to
nearly 7,000. Cipla said products will be marketed by other divisions, putting more MRs behind
these products and leading to increase in productivity over time. Our analysis shows Cipla enjoys
MR productivity of Rs0.3 mn/MR/month, lower than Glaxo despite having higher chronic exposure.
What we need to see before turning positive?
Besides lower domestic market growth, two other concerns are (1) supernormal capex leading to
poor utilizations. In three years ending FY2009, Cipla has incurred a capex of Rs20 bn, in FY2011,
capex was Rs6.5-7 bn and Cipla expects to invest Rs6 bn in FY2012E. This has led to poor
utilizations and lower asset turnover, a key reason for the poor return ratios of 16-17%, and
(2) exports to regulated markets have been declining (37% of exports in FY2011 from 46% in
FY2009) with exports being driven by Africa, partly due to low margin ARV export (40%, up from
35%). Due to lack of clarity on timelines for inhaler combination approvals, we believe a supply
deal with a big pharma is critical to improve utilizations

News Round-up 􀁠 5 Sept: Kotak Sec,

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News Round-up
􀁠 FIIs exit India funds in favour of safer assets, global funds sold stock worth USD 2.4bn
in Aug., the highest since global turbulence hit markets. (ECNT)
􀁠 Food inflation was back in single-digit territory at 9.55% for the week ended Aug 27
after rising to double digits the week before. (BSTD)
􀁠 The CAG has attacked the petroleum ministry and the Reliance Industries Ltd (RIL IN),
for violations in the production-sharing (PSC) contract governing Reliance's crown
jewel, the KG-D6 block. In its final report on the functioning of hydrocarbon PSCs
tabled in Parliament, the government auditor has recommended revisiting the profitsharing
formula. It is, however, silent on the loss that an increased capex in D6 may
cause to the government. (BSTD)
􀁠 The Comptroller and Auditor General (CAG) has pulled up the government for
"risky" acquisitions of a large number of aircrafts worth USD 9.95 bn, funded almost
entirely through debt, and creating no cost benchmarks before negotiating with
manufacturers. (BSTD)
􀁠 Britain's BG is keen to expand its portfolio in India & is eyeing stakes in ONGC's
(ONGC IN) deep water block & considering investment in an LNG terminal, but the
company wants natural gas prices to be freed from govt. control. (ECNT)
􀁠 IOC (IOCL IN) has barred Switzerland-based Vitol, from participating in its tenders and
other government-run refiners may follow suit. (FNLE)
􀁠 RBI has told private lender Axis Bank (AXSB IN) that the proposed acquisition of
Enam's broking & investment banking businesses has to be an all-cash deal. The
regulator's stand on the matter puts a question mark on the ambitious deal that was
structured as an all-stock transaction. (ECNT)
􀁠 Bharti Airtel (BHARTI IN) is understood to have agreed to give dividend to its minority
partner in Rajasthan circle, TCIL, this year at the rate of 20% or equivalent to the
amount it would give to its shareholders. (BSTD)
􀁠 Bharti Airtel (BHARTI IN) has acquired license to offer 2G and 3G mobile services in
Rwanda, Africa and will invest about USD 98 mn in the same in the next three years.
(BSTD)
􀁠 RCom (RCOM IN) gets USD 304 mn order from HDFC Bank (HDFCB IN) for
construction and maintenance of a data centre. (FNLE)
􀁠 SAIL's (SAIL IN) expansion to increase steel production capacity to 21.40 million
tonnes per annum (MTPA) at an investment of USD 13.39 bn is expected to be
completed by 2012-13. (BSTD)
Source: ECNT= Economic Times, BSTD = Business Standard, FNLE = Financial Express, THBL = Business Line.

Markets tumble on global woes:: Edelweiss,

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August was witness to sharp sell offs in global as well as domestic equity
markets. While this undoubtedly makes domestic markets inexpensive on
several parameters, headwinds (mostly global) such as growth scare in
advanced economies, the European crisis spreading to core European
countries, and recognition of the fact that policy actions (both fiscal and
monetary) are reaching their limits, continue to linger. Domestically, the
Q1FY12 GDP data indicated that growth is weakening, but not falling off
sharply. Inflation, meanwhile, remains elevated although prices pressures
are receding. In September policy meeting, the RBI may hike rates by 25
bps but expect a pause thereafter.
Global economic conditions deteriorate sharply
The incoming macroeconomic data from the western economies point towards
significant weakness in economic activity. Q2 GDP data, both in the US and Europe,
have been lower than expected, with momentum stalling even in core European
countries such as Germany. More worryingly, leading indicators are hinting at further
deterioration in the coming months. In such a backdrop, recognition that policy support
may be reaching its limits is rattling markets. Notably, in Europe, lack of political will on
the part of creditor governments to extend meaningful support to weak countries and
ECB’s reluctance with regards to any aggressive policy support are adding to the
jitteriness in the financial markets.
India’s growth moderates but does not falter
Real GDP grew ~7.7% Y‐o‐Y in Q1FY12, broadly in line with expectations. On the sector
front, mining was weak and construction slumped, reflecting the ongoing monetary
tightening and government policy paralysis. On the expenditure side, consumption
eased and investments rebounded after a prolonged soft patch, although the
momentum was well below trend. Meanwhile, exports grew strongly, but firmer
imports led to a sharp widening in trade deficit. In a nutshell, though growth has turned
softer, it is not falling off sharply. Going ahead, the weakness is expected to persist
through Q2FY12 with some improvement thereafter. We, therefore, maintain our FY12
GDP growth forecast at ~7.7%. On the rate front, the RBI may hike the repo rate by
25bps in September, but we anticipate a pause thereafter.
Earnings trajectory continues to soften; valuations become cheaper
FY12 and FY13 earnings expectations continue to be scaled down with downgrades
more pervasive than upgrades ‐ two thirds stocks in the Sensex universe being
downgraded during the recently concluded Q1FY12 earnings season. Within the larger
BSE‐100 universe, downgrades were most sharp within cyclical sectors with IVRCL, JSW
Steel and Unitech impacted the most. However, given the correction in markets,
valuations, both on an absolute as well as relative basis, have begun to look attractive.
On absolute basis, the Sensex trades at 13x NTM PE, which, except the weeks
succeeding the Lehman crisis, is the lowest in almost six years.

Director’s Cut-- Seeking real value in European IBs ::Macquarie Research,

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Director’s Cut
Seeking real value in European IBs
With the European investment banks looking cheap on traditional metrics, Piers
Brown has done a deep dive into the sector to identify the true bargains.
One of the key themes in his detailed, 100 page industry report is the challenge
facing European investment banks in terms of recapitalising their balance
sheets, which remain well below target levels. Keep in mind, the operating
environment is already tough, while the task is not being made any easier by the
ongoing regulatory risk. It’s therefore no surprise investors are looking for some
big discounts to base case valuations as some protection against the tail risk
posed by potential game changers such as ring-fencing and litigation.
In terms of stock recommendations, Piers favours investment banks that are
meeting earnings expectations, with high capital levels and a low risk of
regulatory change in their home country. On this basis, his key pick in the space
is Deutsche Bank (DBK GR), as it offers many defensive qualities that others
lack such as low funding spreads, low risk from regulator driven structural
remedies and low sovereign debt exposures. Deutsche’s capital position is still a
negative but this is somewhat offset by its resilient earnings. In contrast, UBS
(UBSN VX) and Credit Suisse (CSGN VX) are rated Underperform on the back
of their weak earnings and weak capital positions


Highlights
 Michael Kurtz believes the latest correction has moved Asia ex-Japan
stocks into value territory and recommends overweighting China.
 Jason Gammel believes the market cannot continue to ignore strong profits
of the integrated oil sector and would buy Chevron and Oxy.

Bharti Enterprises::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Core essence: The Indian telecom sector is at a turning point, with increasing rationality
in competition, sustainable voice growth (led by the rural market), large data opportunity,
and peak investments already behind. The best in the Africa business is yet to come.
Industry insights
 Increasing rationality in competitive activity as underscored by recent pricing actions,
focus on paying customers as well as sales and distribution cost management.
 Real wireless subscribers in India are estimated at ~600m, with actual rural
penetration at just 20-22%.
 Non-voice revenue at 13.5% for the industry has significant room for improvement.
However, the industry will need to work hard to achieve the full potential of data
opportunity.
 Africa market penetration in Bharti's footprint is relatively low at ~30%.
 Telecom operators are keenly looking at the New Telecom Policy 2011 (NTP 2011).
Bharti expects the policy to (1) be comprehensive, (2) provide exit opportunities to
unviable operators, and (3) provide a level-playing field.
Company vision and strategy
 Bharti is best positioned to capture rural and data opportunities.
 The company has demonstrated its leadership in the market, with initiatives like
passive infrastructure sharing and recent tariff corrections.
 Relentless focus on efficiency improvement, as underscored by the recent organization
restructuring.
 Focus on continued execution in the Africa business. The business delivery model
has been aligned similar to India. Bharti would be looking to expand the Africa
footprint in the long-term.
Key triggers/milestones/challenges
 NTP 2011 would be a key event to watch for.
 Bharti aims to bring down its net debt/EBITDA ratio to 2x over the next one year
v/s 2.6x currently.


Mr Akhil Gupta is Deputy Group
CEO and Managing Director of Bharti
Enterprises and a Director at Bharti
Airtel. He spearheaded the group's
transformational initiatives including
outsourcing deals in the areas of
information technology (IT) with IBM,
network management with Ericsson
and Nokia and outsourcing of call
center management to leading
international BPOs. He
conceptualized and implemented the
separation of passive mobile
infrastructure and formed Indus
Towers, a JV with Vodafone and
Idea, the largest tower company in
the world.
In June 2010, Mr Gupta was
instrumental in executing the
acquisition of the Zain Group's mobile
operations in 15 countries in Africa
for an enterprise valuation of
USD10.7b, the second largest
outbound deal by an Indian
company. For this, he was awarded
the Asia Corporate Dealmaker
Award at the Asia-Pacific M&A Atlas
Awards in September 2010.
He led the formation of partnerships
for Bharti with leading international
operators like British Telecom,
Singapore Telecom and most recently
Vodafone, besides the induction of
financial investors like Warburg
Pincus, Asia Infrastructure Fund and
New York Life.

Shoppers Stop::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Consumption sentiment remains positive; expects LTL sales growth of 8-10%
 Consumer sentiment remains positive though there has been some deterioration in
the past few months, mainly led by various scams and high inflation.
 Shoppers Stop (SHOP) has seen lower LTL sales growth of 7% in 1QFY12, with
volume decline of 5% and customer entry growth of only 3%. The management
expects to sustain 8-10% LTL sales CAGR.
 SHOP believes that its model is scalable in 35 cities, as against its current presence
in 19 cities. Though store additions in same cities will result in some cannibalization
in the near term, this will enable economies of scale and help increase margins.
Incremental investments largely in well-established core portfolio
 SHOP has launched four stores in FY12, and plans to end the year with the addition
of 10 stores. It would also look at adding 15-20 specialty stores like EL and MAC.
 The company has largely used the funds raised from QIP. It is confident that standalone
operations would be able to fund growth in the near term.
 Margins are likely to remain around current levels in the near term; however, GST,
lower store openings and lower import duty on beauty products will boost margins
in the medium term.
 FDI in retail will not impact the departmental store format, as departmental store
chains have less global character.
Hypercity to turn EBITDA positive by FY13
 Hypercity is likely to close the year with 12 stores (10 currently), with likely addition
of ~4 stores every year. The management is confident of making it EBITDA positive
by FY13.
 Stores in tier-2 cities like Amritsar and Ludhiana are performing below expectations,
while the one in Jaipur has started improving. The management plans to add another
couple of stores in the Mumbai region by end of FY12.
 The proportion of food and grocery has increased to 61% of sales from 55% a year
ago, which has impacted profitability. The management intends to increase sales of
apparel and general merchandise to enhance profit margins.
Valuation and view
 SHOP plans to increase retail space at a fast clip across formats. Decline in LTL
sales growth in Shoppers Stop and increasing loss in Hypercity Retail are key
headwinds.
 SHOP is one of the best plays on rising consumerism in Urban India. However, the
stock trades at 33.3x FY12E EPS of INR11.8 and 25.7x FY13E EPS of INR15.3.
Neutral

NTPC::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Capacity addition to accelerate, 14GW expected over FY12-14
 NTPC expects to accelerate capacity addition, adding 14GW over FY12-14 against
capacity addition of 10.4GW over FY06-11.
 Targeted capacity addition of 5GW a year from FY12 until 2032 against ~1GW over
the past 35 years.
 The FY12 capacity addition target is maintained at ~4.3GW (including the 500MW
Mauda project on a best effort basis. NTPC incurred ~65% capex for projects targeted
for commissioning in FY12, providing higher visibility.
Fuel sourcing: Comfortably placed in FY12, working on LT strategy
 In FY12, NTPC plans to meet its need for 135mt of fuel supply from domestic long
term linkages, 23mt through imports (actual at 14mt) and 5mt through the bilateral
route, implying ~14% blending.
 The management is hopeful of a revocation of mine de-allocation, given the
substantial progress made. A mine developer and operator (MDO) for Pakri Barawidh
and Talaipalli mines has been appointed and NTPC is in advanced stages of
development of the Kerandari mines. NTPC expects to produce 2.3mt of coal from
its captive mines in FY13 and 47mt by FY17.
 NTPC indicated the possibility of more mines being allocated to it given its progress
in developing its mines has been better than the average time taken for mine
development.
 NTPC signed an agreement with Jindal ITF to set up an inland waterways transport
system (IWTS). The MoU was signed in August and the system will become
operational in 15 months' time. This will solve coal supply logistics issues at its
Farakka and Kahalgaon projects.
Twelfth Plan capacity addition 25GW+, bouquet of projects offers flexibility
 NTPC plans to have installed capacity of 128GW by FY32 and commission 26GW in
Twelfth Plan. The management indicated that 6GW of bulk tendering, which is subjudice
would not impact its Twelfth Plan capacity addition plans, as NTPC is working
on several projects and a slippage in one could be offset by other projects particularly
brownfield expansion.
 NTPC's 60GW project portfolio provides visibility on targets for capacity addition
until FY17.
Valuation and view
 We expect NTPC to report net profit of INR88b (up 11% YoY) in FY12 and INR104b
in FY13 (up 19% YoY). The stock quotes at a PER of 16x FY12E and 14x FY13E. P/BV
is 2.0x FY12E and 1.8x FY13E. Maintain Buy.

Pantaloon Retail India::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
PF expects ~30% sales CAGR over FY11-13 led by 14-15% SSS growth, space
addition
 Pantaloon Retail (PF) expects to deliver ~30% growth over the next two years led
by 14-15% same-store-sales growth and by space addition. However FY12 growth
may be lower than 30%.
 Lack of quality real estate will be a key issue in future, which PF plans to address by
aggressively expanding. It plans to add 2-2.5msf of space a year over the next 3-4
years.
Demand environment improves marginally MoM; 2HFY12 to be better than
1HFY12
 After a 16-17% price increase in apparel taken in April, consumer demand has
been weak in April and May. However there was marginal improvement in June and
July and the management expects demand to be back on track in 2HFY12.
 GST is likely to be a major boost for organized retail with likely saving of 20% on
supply chain cost, if implemented in the true spirit.
PF to cut inventory by 6-7 days; Monetizing non-core retail assets, FDI in
retail to help cut debt
 Inventory reduction targets were not met in FY11 because of high cost apparel
inventory. The management aims to cut inventory to 100 days in FY12 and by 6-7
days a year thereafter. The target is 65 days.
 PF had debt of ~INR40b at the end of FY11 in the core retail business, ~55% of
which was towards the value retail business. Current debt equity is 1.1x. PF plans to
cut this to 0.75x by monetizing its financial services business (possibly Future Capital)
and benefiting from an impending FDI in retail legislation.
 The management however stated that the book value of non-core investments was
USD800m-1b some of which will be monetized within the next 12 months.
Capex of INR8b for space addition, store refurbishment
 Space addition of 2-2.5msf and refurbishments of 8-9 year old stores will require
capex of INR8b in FY12, 60% of which will be funded through internal accrual.
 Investment in the financial services business continues to be a drag. INR2b outflow
will be required to fund the businesses from PF's balance sheet.
Valuation and view
 We believe PF is the best play on retail in India with a strong reach across formats
and will be the biggest beneficiary of FDI in retail in India. However, surging debt,
high inventory and continued investment in financial services are key concerns.
 We estimate 35% EPS CAGR over FY11-FY13. The stock trades at 22.8xFY12E EPS
of INR12.4 and 17.6xFY12E EPS of INR16.1x. Maintain Buy.

Macro-economic Challenges::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Core essence: Interest rates will remain a function of inflation. Even if FY12 growth
slows down a bit, there would be no major adverse impact on corporate profitability
and investment climate.
On global risk
 India cannot be decoupled from the world economy and global downturn would
affect us. However, nobody knows its full impact or shape of things to come as these
crisis happens once in many decades.
On inflation and growth
 Inflation to come down: Inflation would need to come down on its own as per
the trajectory given by RBI in this regard. Improved productivity and removal of
supply-side constraints are the only enduring solutions to control inflation.
 Rising rates to protect savings: RBI's anti-inflationary measures do not imply
that it takes growth for granted. However, as long as inflation remains high, RBI
would need to take appropriate measures. The real interest rates should be high
enough to attract the savers to park their funds into deposits rather than other
forms of saving. In an inflationary environment banks would start raising rates even
if RBI does not.
 Growth outlook: Growth should be 8% in FY12 and is achievable; but even if it is
a bit lower, there would be no adverse impact on corporate profitability and investment
climate.
On monetary transmission
 International experience: Worldwide, monetary transmission has been found to
have worked imperfectly, depending upon the environment.
 Indian lag: In India the response at the shorter end of the market has been found
to be immediate. It is also believed that the longer end responds with a lag of 3-6
months.
 Asymmetric response from banks: However, the response of the banks have
been found to be asymmetric in the two situations of rising and falling interest
rates. While banks have been prompt in their response in a rising interest rate
scenario, the lag is more in case of falling interest rate.
On exchange rate
 No target: RBI does not have any target for Rupee and intervenes only to curb
volatility in the exchange rate market


 No micro management: Isolated events, e.g., oil price movement, payments to Iran,
etc. do not shape exchange rate policy.
On data issues
 There are several data issues that affect policy making, mainly inflation data and trade
data.
 CPI v/s WPI: As far as issues between WPI and CPI is concerned, there are multiple
CPI indices that are available and over a longer period there is a convergence.
 Trade data: Similarly, data related to exports and imports need to be taken as an input
for policy even if it deviates from trend after six months.
On savings rate de-regulation
 Desirable: Deregulation is being discussed to protect the interest of depositors.
 Not much impact: Interest rates, and even more so average cost of deposits may not
go up very significantly as a result of deregulation.
On securitization and priority sector lending
 KYC: If the bank is buying a portfolio from an NBFC, they must demonstrate that KYC is
in place and that the portfolio is for priority sector lending.
 Pricing: Pricing of the securitized portfolio should largely be similar to the existing
portfolio of priority sector. Various other conditions should also be considered like true
sale, maturity of the asset, etc.
 New guidelines: RBI expects to release new guidelines on securitization and priority
sector shortly.
On asset quality
 Not a concern: Asset quality is not a great concern till GDP growth is 7.5%+.
 Various measures to ensure financial stability: RBI will ensure financial stability
and consider various regulations from time to time. 70% PCR requirement, increased
provisioning requirement in various buckets of NPAs are some of such examples.
 Farm waiver and moral hazard: Dr Chakrabarty specifically denied that farm waiver
scheme has led to moral hazard as (1) the design of the scheme was targeted, and (2)
the failure to repay had arisen out of extraordinary conditions.
Competition and bank licensing
 Necessary …: Competition in the banking sector would enhance customer service.
 … but based on proper criteria: However, fit and proper criteria are critical for
issuing new bank licenses.


Dr K C Chakrabarty is the Deputy
Governor of Reserve Bank of India
(RBI). He is a seasoned banker, with
an accomplished banking career
spanning over three decades. Dr
Chakrabarty has earlier graced the
seat of Chairman & Managing
Director (CMD) for Punjab National
Bank and before that, for Indian
Bank. He has had a long and
distinguished career of 26 years at
the Bank of Baroda in various
capacities. He has also been the
Chairman of the Indian Banks'
Association (IBA) for a brief period.
Dr Chakrabarty's current
assignments include guiding and
overseeing the areas pertaining to
Rural and Urban Cooperative Banks,
Information Technology, Payment
and Settlement Systems, Customer
Services, Human Resource and
Personnel Management at the
Reserve Bank of India. He
represents India in the Committee
of Payment and Settlement Systems
(CPSS) constituted by Bank for
International Settlements (BIS) as a
Member. Dr Chakrabarty is also the
RBI Nominee on the Board of
Directors of NABARD and the
Chairman of the Institute for
Development and Research in
Banking Technology (IDRBT).


BPCL::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
New government initiatives to reduce subsidy in medium term
 The management expects the recently announced government initiatives on PDS
kerosene and domestic LPG to help reduced subsidy over the medium term.
 The LPG initiative will be implemented in two phases; phase-1 (internal systems are
ready) will limit the number of cylinders per household while phase-2 (post UID
scheme implementation) will involve selling LPG cylinders at market price and
transferring subsidy in cash directly to the eligible LPG customers' bank accounts.
E&P reserves to be published by end-2013
 The reserve estimates for BPCL's successful E&P discoveries in Brazil (2) and
Mozambique (4) are likely to be announced by end-2013, post appraisal by thirdparty
consultants.
 BPCL plans to spend INR100b (USD250m each in FY12/13, INR24b spent till date) on
E&P (BPCL share) over the next five years and expects production to commence in
2017/18, first in Mozambique.
 Gas production at Mozambique is likely to be evacuated through LNG route.
To spend INR400b in next five years v/s INR250b in last five
 As against INR250b spent in the last five-year plan, BPCL expects to spend ~INR400b
in the next five-year plan, driven by refinery expansion and E&P spends.
 Capex includes planned capacity expansion of Kochi refinery from 9.5mmtpa to
15mmtpa and petrochem complex with an investment of INR60b. Kochi refinery
complexity will increase from the current 5 to 9.
Bina refinery utilization rate to reach 80% by 4QFY12
 Most of the processing and support facilities like SPM, crude oil terminal, and 935km
crude pipeline have already been commissioned.
 Despite some power plant related delays, the management expects utilization to
reach 80% in 4QFY12 at its new 6mmpta, INR122b Bina refinery (JV with Bharat
Oman, BPCL stake 49%).
 Once the Bina refinery stabilizes and operates for a full year, the management plans
to further increase capacity from 6mmtpa to 8.5mmtpa by FY15/16.
Valuation and view
 In the event of subsidy rationalization and decontrol of retail fuel prices, marketing
profits would improve and the stock could see a re-rating.
 The stock trades at 13.1x FY12E EPS of INR52.6 and 1.4x FY12E BV. E&P business
could provide upside potential. Buy.

ICICI Bank::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Core essence
 To accelerate growth, with focus on 5Cs (Credit growth, CASA ratio, Cost efficiency,
Credit quality and Customer centricity).
 To enhance RoA from current level of 1.4% on the back of improved liability structure
and leverage capital better by resuming growth; standalone RoE to increase to 14-
15% in FY13.
 Targets 14-15% consolidated RoE in FY12.
Industry insights
 Inflationary pressures still persist in the economy, with manufacturing inflation also
moving up. ICICI Bank expects inflation to decline from October on the back of a
favorable base. Interest rates are near the peak and the bank expects some stability
now.
 New sanctions have come down due to various macroeconomic factors. However,
the current level of sanctions will drive growth at least for the next 12-18 months.
 Asset quality remains largely stable and no significant stress is seen so far. Retail
asset quality remains strong and large corporate loans are doing well, though there
might have been some segment-specific issues in SME loans. Corporates have a
much larger scale of operations as compared to the 1990s and are better positioned
to take higher interest rates. Project-specific modalities will have to be looked at to
judge infrastructure asset quality and it may not be correct to take a generalized
view.
 Focus on efficiency, superior customer service and quality growth will remain the
keys to success. Large private sector banks will continue to have an advantage.
 If the savings rate is deregulated, the management expects other charges also to
be deregulated, which will keep profitability intact.
Company vision and strategy
 Focused 5Cs strategy and quality growth: ICICI Bank will continue to focus on
its 5Cs strategy and quality growth. The management mentioned that at current
RoA of 1.4%, there is some room for improvement from margins, opex and lower
provisions.
 Credit growth: Balance sheet growth is likely to be ~18%, with equal contribution
from domestic and overseas business. Within the domestic business, corporate
loans (project finance, working capital financing) and secured retail loans (auto and
home loans) remain areas of focus. High domestic interest rates are leading to
higher arbitrage on the international front, which is fuelling international loan growth.

 Cost efficiency: Operating expenses are likely to grow 20% due to (a) increase in
headcount from 43,000 to 60,000 employees, (b) wage increase of 11% in FY11, (c)
increase in branch network to 2,500+ (up 25%+). Overall, ICICI Bank expects to maintain
cost to average assets at 1.7% and cost to income ratio at 40-42% on long-term basis.
 CASA: Focus remains on retail liability driven growth strategy. CASA deposits are likely
to grow in line with overall growth. The bank expects to maintain CASA ratio at 40% for
the long term.
 Credit quality: Credit quality is gradually improving, with net accretion to NPAs coming
down and the management does not expect any issues in the near future. About 60% of
its power exposure is to entities with own coal mines and the rest 40% is to entities that
have coal linkages in place. Restructured loans declined to INR19.7b from INR37.4b YoY.
The management continues to guide credit cost of 80bp for FY12 and expects to maintain
this over the long term.
 Customer centricity: Focusing on enhancing customer service capability and leveraging
on branch network to acquire new customers.
Focused on de-risking the portfolio
 ICICI Bank, UK has scaled down investments in bonds/notes of financial institutions
from USD2.1b as of 1QFY10 to USD640m as of 1QFY12. It does not have any exposure
to peripheral European countries.
 Credit derivative exposure (including off balance sheet) has been scaled down to
INR21.3b from INR54.1b. In case of derivative exposure, the underlying comprises of
Indian corporates.
Domestic subsidiaries impacted by regulatory changes: Regulatory headwinds coupled
with tough market conditions impacted Insurance, Asset Management and Securities
businesses. ICICI Bank remains committed to building the franchise in various businesses to
capitalize its long-term growth potential. Consolidation of operations remains a mantra for
overseas subsidiaries in view of changing regulations.
Other highlights
 Overseas margins are likely to improve from 90bp as of 1QFY12 to 125bp by the end of
the year, led by re-pricing on the liability side. The management expects domestic
margins to remain at current levels. However, there remains an upward bias in FY13,
led by fall in securitization losses. For FY12, it expects NIM of 2.6%.
 Fee income growth is likely to remain in line with asset growth, with focus on transaction
banking, forex/derivatives and remittance fees. However, growth in corporate fees would
depend on movement in new project announcements and financial closures.
Key triggers/ milestones/challenges
 Managing quality growth is a key challenge in the current uncertain macroeconomic
scenario.
 There would be no immediate unlocking of value from Insurance business, considering
change in regulatory environment. Further, as the Insurance business is profitable, it
does not need fresh capital.


Ms Chanda Kochhar is the
Managing Director and CEO of ICICI
Bank. She began her career with
ICICI as a Management Trainee in
1984 and has risen through the
ranks, handling multidimensional
assignments and heading all the
major functions in the bank.
She is widely recognized for her role
in shaping India's retail banking
sector and for her leadership of the
ICICI Group. She took on the
challenge of building the nascent
retail business, with strong focus on
technology, innovation, process
reengineering and expansion of
distribution and scale.
Ms Kochhar led ICICI Bank's
corporate and international banking
businesses during a period of
heightened activity and global
expansion by Indian companies. She
was the Joint Managing Director &
Chief Financial Officer during a critical
period of rapid change in the global
financial landscape.
Ms Kochhar is a member of the Prime
Minister's Council on Trade &
Industry, US-India CEO Forum and
UK-India CEO Forum. She was
conferred with the Padma Bhushan
in 2011.


Wipro::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Restructuring on track, efforts to translate into growth in a couple of quarters
 The restructuring exercise is largely behind Wipro (WPRO) and the management
stated that indicators of the new strategy bearing fruit were present.
 WPRO is confident some of the recent wins will start showing in revenue growth in
a couple of quarters' time, facilitating stated objective to match/beat peer growth.
Budgets intact thus far, industry maybe hit with a lag, mayhem of 2008 unlikely
 It has been only weeks since the turmoil has picked up in magnitude, after the S&P
downgrade of the US; and hence, too early for clients to react with budget cuts.
 However, WPRO does not expect large customers to be fighting for survival this
time, unlike in 2008. But any slowdown will be after a lag as, even after the Lehman
collapse, it took clients nearly two months to announce significant volume cuts.
Margins to be hit in the near term, target of maintaining current levels
 While WPRO aims to manage its margins within a narrow band (22.1% EBIT margin
in IT Services in 1QFY12), headwinds are expected to pull down margins in the near
term because: (1) Two months of wage inflation impact in 2Q; (2) Continued
investment in growth as it aligns its sales force to focus verticals; (3) 2QFY12 will
witness the full quarter impact from SAIC, which are at much lower profitability.
 WPRO expects to limit the impact of lower margins through the following levers: (1)
revenue productivity, (2) employee pyramid management, (3) cost cuts on subcontracted
employees and (4) increase in proportion of non-linear revenue.
Attrition scenario not alarming, re-org driven exits largely behind WPRO
 WPRO has witnessed higher attrition than peers and the exits in the top cadre after
the organizational re-jig were in line with its expectations. WPRO believes key
personnel are in place and the exits are largely behind it and expects attrition to
decline going forward despite the wage hikes.
 WPRO brings freshers onboard through three threads of hiring: (1) Visiting key
campuses; (2) Non-engineers, who go through a four-year work-cum-study program
and end up with a Masters degree, hence have high retention rate; (3) Off-campus
hires, which happen during the mid to second half of a calendar year.
Valuation and view
 Performance on customer additions and client mining lends increasing confidence
that WPRO's FY13 revenue growth should match that peers like TCS (FY13 USD
revenue growth of 19.1%) and Infosys (FY13 USD revenue growth of 19.2%).
 Our EPS estimates are INR23.2 for FY12 and INR27.4 for FY13. Maintain Buy with a
target price of INR466 based on 17x FY13E earnings.

Economic and Political News 􀂄 10 Sept: Angel Broking,

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Economic and Political News
􀂄 ECB, Bank of England hold rates as recession fears mount
􀂄 Food inflation slips to below 10%
􀂄 Food inflation to moderate after the festive season: Finance Minister
􀂄 Government earmarks `22k crore for setting up ports
Corporate News
􀂄 SAIL's expansion drive expected to be completed by FY2013
􀂄 M&M commences construction of new plant in China
􀂄 RCom gets `1,400cr order from HDFC Bank to build data centre
􀂄 Essar Shipping to spend US$1bn to acquire 12 vessels, 2 rigs
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

Zee Entertainment Enterprises::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Core essence: Despite near-term sluggishness in the ad environment, medium to
long-term opportunity remains attractive, led by consumption growth and efforts to
improve subscription revenue.
Industry insights
 Increasing regionalization and fragmentation of content remain dominant themes in
the Indian broadcasting space.
 General entertainment and movies remain the dominant genres in India, accounting
for ~67% of total viewership.
 Sports is a loss-making proposition due to lack of subscription revenue and majority
(~75%) of viewership and revenue coming from cricket.
 Digitization would lead to (1) greater fragmentation, (2) better monetization of
niche genres and sports content, and (3) higher subscription revenue, reducing the
cyclicality associated with ad revenue.
 Indian broadcasting industry revenue is likely to grow at ~16% CAGR over the next
four years.
Company vision and strategy
 With its diversified network, Zee remains the leading broadcaster of Indian content
globally.
 Media Pro, the recent distribution JV between Zee Turner and Star Den, is aimed at
getting the rightful share of pay revenue from LCOs.
 The company will maintain its cost discipline and refrain from going after high-cost
GRPs, which do not generate adequate returns.
Key triggers/milestones/challenges
 Lack of profitability in the sports genre and sluggish ad revenue environment remain
the key challenges.
 Mandatory sunset for analog signals would be a significant milestone for the sector.


Mr Punit Goenka is Managing
Director and CEO of Zee
Entertainment Enterprises. His
strong work ethics and hands-on
approach have been instrumental in
steering the Zee Empire to new
frontiers of success. Under his
leadership, Zee TV has emerged a
leader among General Entertainment
Channels in India.
Mr Goenka has grown up the ranks,
handling various responsibilities
across the Essel conglomerate for
over 14 years. He started his career
with Zee TV in 1995 as head of the
Music division and went on to
shoulder additional responsibilities
across Essel Group Companies. He
serves as a Director of other public
limited companies such as: Essel
Infraprojects, Essel Telecom
Holdings, Rochan (India), Zee
Sports, Agrani Wireless Services,
Agrani Satellite Services, ASC Mobile
Communication, and Diligent Media
Corporation.
Mr Goenka is a great mentor. He has
shared his experiences and
knowledge at management
education programs such as Young
Managers Program at INSEAD,
France, and 'Birthing of Giants' by
Young Entrepreneurs' Organization
and MIT Enterprise Forum, Inc,
Boston, USA.

VA Tech Wabag::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Healthy order book provides revenue visibility; large pipeline in industrial space
 VA Tech Wabag (VATW) has an order book of INR33.3b (73% domestic and 27%
international), with a BTB of 2.7x TTM revenue as at the end of 1QFY12. Key orders
include Chennai Desalination Project (INR7.4b), Water Treatment Plant and
Distribution System in Sri Lanka (INR3.6b), APGENCO of Kakatiya and Rayalaseema
BoP (INR2.9b) and IOPL Paradip Project for Total Water Management (INR2.5b).
 The management sees healthy pipeline and very good level of inquires in the domestic
market, mainly in the industrial space, with the possibility of some very large orders
from private players in the medium term. The management mentioned that the
municipal sector is yet to see a pick up in orders. The international market is
experiencing a slowdown due to ongoing unrest in the MENA region. VATW has
framework orders (orders in the pipeline) of INR11.3b as of 30 June 2011, which
will be taken to firm order book once the LCs/advances are received.
Execution on track; revenue guidance for FY12 maintained
 The management stated that execution is well on track. The largest project in hand,
the Chennai Desalination Project, is progressing satisfactorily and 56% of the EPC
project has been completed till now. The project is likely to be completed by the end
of 1QFY12.
 Other key projects such as Sri Lanka project, APGENCO, Rayalaseema BoP, Water
Treatment Plant and Distribution System in Sri Lankla, and IOPL Paradip are also
making good progress.
Risk management remains priority; outsourcing model mitigating risk
 High concentration to municipal clients (75% of order book) has escalated working
capital days. Keeping working capital low is critical in the business model. Also, top-
5 clients account for 60% of the order book, putting near-term growth at risk.
 Almost 80% of the work in the value chain is outsourced to civil contractors and
electro-mechanical contractors. 30% of the work involves civil construction while
50% of the work is electro-mechanical in nature. Both of these jobs are outsourced.
The outsourcing business model mitigates the risk of non payment from customers.
Valuation and view
 The stock has declined by nearly 30% since its listing in October 2010. VATW
disappointed in FY11, with revenue growing just 1%, though profit grew 36%. Though
near-term outlook appears uncertain, the company should be able to post strong
growth over 3-5 years.
 The stock trades at 17x FY12E consensus EPS of INR72. We do not have a rating on
the stock. Growth in order inflows will be the key re-rating catalyst for the stock.

Idea Cellular::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Core essence: Significant opportunity available in the Indian voice as well as data
markets over the medium term. Current focus only on tariff hikes, tower deals, etc
could be misplaced.
Industry insights
 Penetration of voice services in India is still relatively low at ~50% v/s the 80-90%
benchmark.
 Virtual consolidation in the industry is evident from increase in revenue market
share of top-three operators from ~55% to ~65% in the last 3-4 years despite
hyper-competition.
 Wireless is a heterogeneous sector, with different operators having leadership in
different circles.
 The share of non-voice services in revenue is set to increase, as most subscribers
will upgrade their handsets over the next few years and eco-system for 3G is being
developed.
 While incremental operating cost for 3G is only a fraction of the current operating
costs, amortization and finance costs related to 3G spectrum will negatively impact
the bottomline of all operators.
Company vision and strategy
 Idea has a strategy of over-investing in its established circles, which drives its
leadership in these operations.
 Idea is focused on deepening its coverage and driving rural growth. 67% of net
subscriber additions for Idea come from rural markets.
 Focus is on building scale, with 1.2b minutes/day. Idea is the eighth-largest operator
globally in terms of traffic.
 Enhancing revenue market share, driven by (1) focus on quality of subscribers, (2)
cash profits to sustain investments, and (3) higher-than-industry traffic growth.
 Idea is expanding its 3G reach and is rolling-out 3G services in 10 towns/day, as
significant growth is expected from wireless broadband on the handsets.
Key triggers/milestones/challenges
 NTP 2011 would be a key event to watch for.
 Continued overcapacity in the industry remains a challenge.
 Potential exit of unviable operators could be an important milestone for the industry.
 Increase in smart-phone penetration to drive data revenue.


Mr Himanshu Kapania is
Managing Director of Idea Cellular.
Before he took up this office on 1
April 2011, he was Deputy Managing
Director.
He joined Idea in September 2006,
with over 21 years' industry
experience. He has served the
company as Chief Operating Officer,
Corporate and Director of
Operations.
Mr Kapania has worked with Reliance
Infocomm as Chief Executive Officer
for Northern Operations, with
Network Limited as Deputy General
Manager - Marketing, with Shriram
Honda as Manager - Marketing, and
with DCM Toyota.
He is a BE (Electrical & Electronics)
from Birla Institute of Technology,
Ranchi and a postgraduate from the
Indian Institute of Management,
Bangalore.

Bajaj Auto::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Core essence: Create a market position, rather than chase a slice of the existing
market. Lead with the right brand and the brand will lead you.
Industry insights
Focus on 4P's: The motorcycle industry can be understood on 4Ps - Position, Product,
Performance and Price. Product differentiation can be limited, performance is a given,
and market drives pricing. Thus, only controlable factor is positioning of the product.
On new competition: Difficult to comment till Honda's product launch plans are known.
However, as media reports suggest, its probability of success would be limited if their
low cost 100cc bike targets existing products. Honda's past launches of 4-5 motorcycles
were not successful (except Honda Shine), as targeted towards existing segment.
Company vision and strategy
Continued focus on segment creation in domestic market: It continues to focus
on creating new segments in the domestic market, based on the principle that curiosity
excites and not familiarity. Its to-be-launched Boxer 150cc is aimed at creating a new
segment in rural markets, with high performance but plain looks and a very competitive
price of ~INR42,000 as very few parts are different from its existing product.
Adaptation and specialization: It believes in adaptation. It has adapted to an evolving
market, where it lost its dominance in scooters, by specializing in motorcycles and
sacrificing its plant and retrenching people. It spent ~INR10b to close the plant and
offer VRS. Its specialization in motorcycles has enabled it to align its back-end and
front-end to leverage its product platform, driving smart recovery in performance.
Region-specific export strategy: It started with exports to neighboring markets
that were similar to India, like the ASEAN market and then explored similar markets like
Indonesia, which were more competitive. In Indonesia, it tied up with Kawasaki to
leverage its distribution network to sell Pulsar and Discover. For the African market,
where it faces Chinese competition, it is engaging an offense strategy of creating brands
and selling at premium, which has enabled it to become the market leader. To penetrate
more evolved market like Brazil, it plans to use KTM's brand and network.
Key triggers/milestones/challenges
Four-wheeler launch in FY13; not focused on cars: Its four-wheeler project, which
started as an ultra-low cost car in partnership with Renault-Nissan, has evolved from
the skill sets and cost structure of a two/three-wheeler maker. While it did not disclose
its strategy for four-wheelers, it plans to to evolve its three-wheelers to four-wheelers.
Leveraging KTM investment: It plans to align KTM's frontend and Bajaj's backend to
penetrate Brazil & other developed markets. It has initiated production of KTM 125cc in
India and plans to export ~12,000 units in FY12.


Mr Rajiv Bajaj, Managing Director
of Bajaj Auto, graduated first in class,
with distinction, in Mechanical
Engineering from the University of
Pune in 1988, and then completed
his masters in Manufacturing
Systems Engineering, with
distinction, from the University of
Warwick in 1990.
He has since worked at Bajaj Auto in
the areas of manufacturing and
supply chain (1990-95), R&D and
engineering (1995-2000), marketing
and sales (2000-05) and has been
its Managing Director since April
2005.
His current priority is the application
of the scientific principles of
homoeopathy to the task of building
a brand centered strategy at Bajaj
Auto with the objective of achieving
its vision of being one of the world's
leading motorcycle manufacturers.
Mr Bajaj has been on the Board of
Bajaj Auto since March 2002. He is
also on the Boards of Bajaj Auto
Finance and Bajaj Auto Holdings.

NTPC::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Core essence: Converting challenges into opportunities; capacity addition of 93GW
over the next 20 years v/s 35GW in the past 35 years.
Industry insights
 Energy demand in India has grown at a CAGR of 5.5%, vs average GDP growth of
7% over FY03-11. Over FY11-17E, demand grow expected at 7.5%.
 The Transmission and Distribution (T&D) sector needs high focus, given ~28.5% of
AT&C losses, limited open access, and high SEB losses.
 India produced 490mtpa of coal, with proved reserves of 106b tons v/s 2761mtpa
production by China, with proved reserves of 110b tons.
 Financing of new projects, equipment supplies (lead time) and statutory clearances
are key execution bottlenecks
Company vision and strategy
 93GW addition over next 20 years, 30GW in next 5 years: NTPC plans to
attain capacity of 128GW by 2032, an addition of 93GW over the next 20 years v/s
35GW in the past 35 years. Target to reach 67GW of installed capacity by FY17
(30GW in 5 years). 40GW of projects are under various stages of execution.
 Multi-pronged approach to overcome challenges: Key initiatives taken include:
(a) bulk tendering, (b) delegation of power to enable quick decision, (c) project
monitoring cell at corporate office, (d) limited notice to proceed to project construction
adopted, and (e) land acquisition cell established at the corporate center.
 Insulating fuel risk: FY12 coal requirement of 164m tons will be met from domestic
linkages (135m tons), bilateral contracts (5m tons) and imports (23m tons), indicating
blending of 14%. Long-term coal supply is being augmented by (a) pursuing linkages
for new projects, (b) developing captive coal mines - target to produce 47mtpa by
FY17, and (c) acquisition of coal blocks overseas /LT imports.
Key triggers/milestones/challenges
 Bulk tendering: Plans to conclude ordering by end FY12 would help improve visibility
on 12th Plan period capacity addition.
 Captive coal block: NTPC is pursuing restoration of de-allocated coal blocks with
the help of Ministry of Power and continuing development on blocks. Plans to produce
2.3m tons of coal from Pakri Barwadih mines in FY13.
 Payment security high: NTPC has been receiving 100% of dues from the customer
for eight successive years, as it is covered under tri-partite agreement till 2016.
 Capacity to drive efficiency/profitability: Man/MW ratio has gone down from
0.89x in FY07 to 0.77x in FY11, while PAT/employee has improved from INR29m in
FY07 to INR38m in FY11. Man/MW ratio would further decline to 0.5x


Mr Arup Roy Choudhury is
Chairman and Managing Director of
NTPC. Since he assumed this office
on 1 September 2010, he has taken
several steps to make NTPC a worldclass
organization. Mr Roy
Choudhury has worked in prominent
public and private sector companies
since 1979. He became the youngest
CEO of a Central Public Sector
Enterprise (CPSE) at the age of 44
years when he joined National
Buildings Construction Corporation
Limited on 3 April 2001 as Chairman
and Managing Director. He is a
graduate in Civil Engineering from
Birla Institute of Technology, Mesra
and a Post Graduate in Management
and Systems from IIT Delhi.
Mr Roy Choudhury is Chairman, for
the second consecutive term,
commencing April 2011, of the
Standing Conference of Public
Enterprises, the apex forum of the
Central Public Sector Enterprises in
India and a permanent invitee on the
Board of Reconstruction of Public
Sector Enterprises, a forum engaged
in turning around underperforming
CPSEs.

India's Troubled Neighborhood::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Core essence: There are is a complementary and reflexive relationship between national
security and economic development.
What is national security?
Unlike the past, modern-day countries are unlikely to wage war with other countries for
territorial expansion, as they will not be accepted by the "conquered" people. In this
context, national security has three implications -
1. It does not only mean defending territorial integrity and preserving the nation's
sovereignty;
2. It also means development of trade and commerce with the rest of the world; and
3. It is necessary to be an important actor in international affairs.
National security can be mainly analyzed as (1) External and (2) Internal.
India's external security position
 Geopolitically, India is bordered mainly by small nations ex China - Pakistan,
Afghanistan, Nepal, Bhutan, Bangladesh and Sri Lanka.
 Security equation with Pakistan: Pakistan has several major internal problems
on hand - economic, political, sectarian - and hence, in no position to wage any
major attack on India. So, the threat is mainly that of cross-border terrorism, which
may continue for some time. Still, the security equation is in India's favor and the
gap is only increasing.
 Security equation with China: Unlike Pakistan, the security equation with China
is increasing in the latter's favor. China has created more pressure points, both on
the ground and in international diplomacy. Also, it sells weapons to all neighboring
countries like Myanmar, Nepal, Sri Lanka, etc. However, one need not expect any
major war with China.
 Other nations: The other nations are too small to be of any security worry to
India. On the other hand, any security trouble in India will have repercussions for
these nations and the entire ASEAN region.
Internal security issues
In modern-day geopolitics, internal security assumes more importance than external.
The major issues here are -
1. Perception more adverse than reality: The popular perception is that internal
security in India is worsening e.g. rising spread Maoism in east and north-east
India. However, the reality is that casualties on account of internal hostilities are
actually coming down every successive year for the past several years

2. Police and Policy: A strong police is a key factor in maintaining internal law and order.
However, increasingly, the local policemen are being used for VVIP security. Also, police
human resources are underdeveloped ("the man behind the gun is more important than
the gun"). There is also need for significant improvement in the intelligence system. On
policy, there is a high correlation between governance and security. Poor governance is
likely to trigger civil disobedience movements (e.g. the ongoing protest by Anna Hazare
and his supporters), which anti-social elements can take advantage of and create threats
to security and law & order.
Other issues
 India's import dependence for weapons: 70% of India's weapons are imported.
This is not a healthy situation to be in, as in times of need, the required weapons may
not be available or may need to be procured at exorbitant cost. Hence, there is need to
create a level-playing field for the private sector in defense equipment business.
 Silo-ism at the Center: Various security-related arms of the government need to
work in closer co-ordination with each other.
The bottomline
Based on Genl Malik's experience at Kargil, he is convinced that the typical Indian soldier is
an extraordinary human being. And so long as he is there, Indians can rest assured that
there will be no major threat to national security.




General Ved Prakash Malik, a
recipient of the Ati Vishisht Seva
Medal (AVSM) and the Param Vishisht
Seva Medal (PVSM) is an alumnus of
the National Defense Academy,
Khadakvasla and the Indian Military
Academy, Dehradun.
He assumed charge of the Indian
Army, becoming the nineteenth
Chief of Army Staff on 1 October
1997. He became Chairman, Chiefs
of Staff Committee of India from 1
January 1999. He coordinated and
oversaw the planning and execution
of Operation Vijay to successfully
defeat Pakistan's attempted intrusion
in Kargil over May-July 1999.
He was commissioned to the Third
Sikh Light Infantry on 7 June 1959.
He commanded the Infantry Brigade
in Jammu & Kashmir, where he was
awarded the Ati Vishisht Seva Medal
(AVSM). In December 1989, he was
appointed General Officer
Commanding, Mountain Division and
in August 1992, he assumed
command of the Corps in Punjab,
where he oversaw anti-militancy
operations in the state. In July 1995,
he was appointed General Officer
Commanding-in-Chief Southern
Command before moving to Army
Headquarters as Vice Chief of Army
Staff in August 1996. He was
decorated with the Param Vishisht
Seva Medal (PVSM) in 1996.

Titan Industries::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Core essence: Titan Industries is best placed to capture the growing demand in the
Indian lifestyle consumption space, led by rising income levels and demographic dividend.
Industry insights
 There are nearly 25 luxury watch brands in India, but only a few brands in the mid
segment are highly profitable.
 India does not have any large established jewelry brands as against quite a few in
China. This increases the attractiveness of the Indian market.
 The Eyewear business offers huge opportunity to change in a large and underserviced
market.
 In Jewelry, Titan has ~5% market share, led by migration from small and local
players; 60% of its customers are repeat customers.
Company vision and strategy
 Sales likely to touch INR140b by FY15; Jewelry sales likely to be INR100b.
 Helios is likely to be a key growth driver in Watches; being the only format by any
brand owner globally, selling watches of other brands. Titan plans to have 100
stores in two years and lead the development of the premium and luxury watch
market in India.
 Titan plans to play across the value chain, from manufacturing to branding to retailing,
so as to capture the value at every end.
 Titan has 177 Eyewear stores and plans to increase these to 300 in another two
years. Its long-term plan is to take the number of its stores to levels similar to US
eyewear retailers that have even 1,500 stores.
 The company does not have any plans to sell watches in developed markets due to
low growth and profitability.
Key triggers/milestones/challenges
 Titan is cautious on near-term demand due to rising interest rates - while demand
growth in Jewelry is intact, demand for watches might suffer. Overall growth rates
in 2Q are lower, post unprecedented high growth in 1QFY12.
 The company is positive on demand in the premium end, as LTL sales growth of
watches in departmental stores has increased by 26%.
 The company plans to end the current year with sales exceeding INR1b for Precision
Engineering, with positive bottomline contribution.


Mr Bhaskar Bhat is the Managing
Director of Titan Industries. He has
been associated with the Tata Watch
Project, which later became Titan
Watches Limited, and is now Titan
Industries Limited, since 1983.
He is a BTech (Mechanical
Engineering) from IIT Madras (1976)
and completed his Post Graduate
Diploma in Management from IIM
Ahmedabad (1978). Most of his
working experience has been in sales
& marketing. He started work as a
Management Trainee at Godrej &
Boyce in 1978. After spending five
years there, he joined the Tata
Watch Project, which was initiated
at Tata Press Limited. He has handled
sales & marketing, HR, international
business and general managerial
assignments at Titan, and became
Managing Director in April 2002.
Mr Bhat is a member of the Governing
Council at the TA Pai Management
Institute, Manipal and the SDM
Institute of Management and
Development, Mysore. He was
appointed Chairperson of the Board
of Governors at the National
Institute of Technology established
in Uttarakhand. He is also Director
at Virgin Mobile India Limited, a joint
venture of Tata Teleservices and the
Virgin Group, UK.

Infosys::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Core essence: Any impact of global headwinds on the industry will only persist in the
short run; growth rates are likely to sustain over the medium to long term.
Industry insights
 Compared to 2008, businesses are better prepared now to respond to any global
meltdown. Companies had already braced themselves for a slow, gradual recovery
rather than a quick turnaround. Macro-led impact on business will be short-lived.
The long-term picture is positive, given new areas of opportunity.
 The industry will continue to witness double-digit growth over the medium to long
term, given multiple levers around new markets and new solutions.
Company vision and strategy
 Focus to return to clients after restructuring: Infosys is prepared to cater to
the next wave of growth in the industry. With the restructuring process behind,
focus will be fully channelized to the clients.
 To be more relevant to clients: The company will look to be more relevant to
clients in trying to help them build tomorrow's enterprises by focusing on themes
around which the clients will seek growth: [1] emerging markets, [2] sustainability,
[3] mobility, [4] healthcare, and [5] social networking.
 Focus on Consulting and Non-linear growth: Infosys intends to continue focusing
on the Consulting/SI segment (~30% of revenue) and growth in the Non-linear
segment will be a thrust area. Revenue from platform-based/Cloud streams may
be small to start with, but afford greater visibility over the long run. The company
currently derives ~8.5% of its revenue from the Non-linear segment.
 Productivity improvement to be the focus in Operations segment: The
global delivery model offers little scope for differentiation. Business IT Services
(ADM, BPO, IMS; ~61% of revenue), will struggle to see higher growth in rates.
Here, Infosys will try to leverage technology to increase revenue productivity.
Key triggers/milestones/challenges
 ~25% of Infosys' clients and ~50% of its top-50 accounts engage with the company
in Consulting/SI services. Infosys' SI component involves very little pass-throughs,
differentiating it from competition and helping it to achieve superior revenue quality.
 As employee costs continue to grow by 8-12% every year, Infosys will need to delink
its revenue growth from employee growth, by focusing on non-linear revenues.
 The company continues to expand its global delivery network by penetrating into
countries like China, Germany, France, Mexico, Brazil and Costa Rica.
 While Infosys will be hiring more employees onsite, lower utilization at onsite could
impact its margins. It will seek to achieve this by increasing the Consulting/SI
engagements onsite, where utilization is typically lower.\


Mr S Gopalakrishnan is the
Executive Co-Chairman of Infosys.
Before assuming his current office in
July 2007, he served as Infosys' Chief
Operating Officer, President and
Joint Managing Director, responsible
for customer services, technology,
investments and acquisitions.
One of the founders of the company,
Mr Gopalakrishnan served as Director
(Technical) and his initial
responsibilities included the
management of design,
development, implementation, and
support of information systems for
clients in the consumer products
industry in the US.
Mr Gopalakrishnan has represented
Infosys and India in international
forums such as: The Indo-US CEO
Council, President's Council of New
York Academy of Sciences, and
Member of UNESCO High Level Panel
on Women's Empowerment and
Gender Equity. He is Chairman of The
Business Action for Sustainable
Development 2012 (BASD), a
coalition of international business
groups committed to sustainable
development. In January 2011, the
Government of India awarded Mr
Gopalakrishnan the Padma Bhushan,
India's third highest civilian honor.

Takeaways Motilal Oswal Annual Global Investor Conferences

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THE INDIAN ECONOMY has been facing several headwinds in the form of high oil
prices, unrelenting inflation, rising interest rates, earnings downgrade cycles and
governance issues. These factors have led to a significant fall in Indian equities,
putting the Indian stock market among the worst performing markets in CY11. This has
had an impact on FII inflows, which have been marginally negative in YTD CY11 after
inflows of over USD20b in each of the preceding two years. All this has led to valuations
turning attractive, pushing them below their long-term averages. The prospects of a higher
share of domestic savings in equities will be a key positive as India achieves the Second
Trillion Dollar GDP in FY12. It was against this backdrop that we hosted the 7th Motilal
Oswal Annual Global Investor Conference, 22-24 August 2011, at the Grand Hyatt in Mumbai.
The Motilal Oswal Annual Global Investor Conferences in 2009 and 2010 were
arguably the biggest in India. In 2011 we maintained this trend of hosting the largest India
conference of the year. During 22-24 August, over 100 leading Indian companies interacted
with more than 500 investors from all over the world, translating into 2,500+ companyinvestor
meetings. Over the remaining two days (25-26 August) we had very successful
visits to Gujarat, Delhi and Bihar, where a large group of investors interacted with the
Chief Minister of Gujarat, the Deputy Chief Minister of Bihar and several state and central
government officials.
 CEO Track: During the first two days of the conference 13 CEOs of India's leading
companies shared their vision, strategies and success stories.
 Four thematic presentations: There were four thematic presentations by eminent
personalities on a diverse range of themes:
1. Dr K C Chakrabarty, Deputy Governor, RBI had an interactive session with investors
on "Several Macroeconomic Issues".
2. General VP Malik (Retd), Chief of the Indian Army during the Kargil War discussed
his views on "National Security Challenges".
3. Mr Prakash Jha, reputed film-maker and six times National Award winner, provided
"India Insights" (key social issues) through his lens.
4. Prof Arun Kumar, of JNU, and author of the book, "Black Economy", shared his
knowledge on "India's Hidden GDP".
 Two luncheon panel discussions: On each of the first two days there was a panel
discussion over lunch. On Day 1, the topic was "Indian Entrepreneurship:
Exponential Growth Engine", and on Day 2 it was "Indian Financial Services:
Diversity & Opportunities". The panelists were leading CEOs across sectors.
Re-shaping India! As India slowly, silently and dramatically awakes to the challenges of
governance and inclusive growth, the three Cs (central government, corporates and civil
society) will manage 3G (global headwinds, governance and growth). We hope the
conference lived up to its theme, leaving investors with interesting insights, winning themes,
greater conviction and the best investment ideas.

RIL reiterates that it adhered to PSC provisions :: Angel Broking,

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RIL reiterates that it adhered to PSC provisions
The Comptroller and Auditor General (CAG) of India reported that RIL had violated the
terms of its production sharing contract (PSC) for its blocks in the KG Basin off the Andhra
Pradesh coast. As per CAG, the company entered the second and third phases without
relinquishing 25% each of the contract area, hoarded D6 exploration and front loaded the
capex, amongst other things. However, the company reiterated that it had complied with
the PSC provisions and adopted Good International Petroleum Practices (GIPIP) at its
operations. We continue to maintain our Buy rating on the stock with a target price of
`1,099.

Derivative Report India Research Sep 10, 2011 :Angel Broking,

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Comments
 The Nifty futures’ open interest decreased 0.97% while
Minifty futures’ open interest increased by 4.93% as
market closed at 5153.25 levels.
 The Nifty Sep future closed at a premium of 1.75 point
against a discount of 7.45 points. The October Series
closed at a Premium of 13.05 points.
 The Implied Volatility of at the money options is
increased from 23.29% to 23.52%
 The PCR-OI is unchanged to 1.43 points.
 The total OI of the market is `1,28,397.70cr and the
stock futures OI is `28,645.21cr.
 Stocks where cost of carry is positive are TULIP, GVKPIL,
FSL, MLL and BEML.


View
 FII’s were inactive in yesterday’s trading session on
net activity basis. There was no net buying in cash
where as in FNO market they sidelined index and
were buyers in stock futures.
 5000 and 5100 calls saw some unwinding but the
quantum of unwinding is very less. Same strike price
puts have added meaningful open interest as market
sustained above 5100 levels.
 RPOWER is consolidating in the narrow range of `82
– 85/-. Some long positions are getting added and
we believe there will be further addition. Buy with
target of `94/- and stop loss of `81/-.
 There has been no addition of OI in entire rally in
JPASSOCIAT. It is now running into its resistance of
`72 – 75/-. Avoid forming fresh longs here. And
around resistance zone go short with stop loss of
`76/- with target price of `64/-.
Historical Volatility
SCRIP HV
RANBAXY 39.54
DELTACORP 73.15
VIPIND 77.53
GSPL 49.72
HINDUNILVR 16.76

Sept10: News (click on link to read article) IFCI research,

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Morning News (click on link to read article)

Economic Times

Business Standard

Business Line
Mint

Financial Express

Financial Chronicle

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