BSE, Bulk deals, 17/1/2012

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Deal Date	Scrip Code	Company	Client Name	Deal Type *	Quantity	Price **
17/1/2012	511706	Action Fin	SHRISH L KENIYA	S	100000	24.80
17/1/2012	590006	Amrutanjan Health-$	VORA FINANCIAL SERVICES PRIVATE LIMITED	B	19373	782.91
17/1/2012	590006	Amrutanjan Health-$	Quadeye Securities Pvt Ltd	B	24975	774.12
17/1/2012	590006	Amrutanjan Health-$	CROSSEAS CAPITAL SERVICES PRIVATE LIMITED	B	74827	762.80
17/1/2012	590006	Amrutanjan Health-$	A K G STOCK BROKERS PRIVATE LIMITED	B	19499	772.03
17/1/2012	590006	Amrutanjan Health-$	A K G SECURITIES AND CONSULTANCY LTD	B	82819	777.73
17/1/2012	590006	Amrutanjan Health-$	CHANDARANA INTERMEDIARIES BROKERS PRIVATE LIMITED	B	51805	776.78
17/1/2012	590006	Amrutanjan Health-$	EUREKA STOCK & SHARE BROKING SERVICES LTD	B	18471	775.61

17/1/12: Categories Turnover (Rs. crore) Clients NRI Proprietary Trade Data

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Categories Turnover

(Rs. crore)
	Clients			NRI			Proprietary
Trade Date	Buy	Sales	Net	Buy	Sales	Net	Buy	Sales	Net
17/1/12	1,716.10	1,781.39	-65.29	2.32	0.65	1.67	607.83	594.84	12.99
16/1/12	1,439.15	1,432.61	6.54	0.62	1.22	-0.59	508.41	500.80	7.62
13/1/12	1,763.11	1,783.37	-20.25	1.21	0.62	0.59	633.03	617.11	15.93
Jan , 12	17,866.42	18,014.41	-147.99	8.06	6.59	1.46	6,280.83	6,109.13	171.70
Since 1/1/12	17,866.42	18,014.41	-147.99	8.06	6.59	1.46	6,280.83	6,109.13	171.70

17/1/12: FII & DII Turnover (BSE + NSE) (Rs. crore)

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FII & DII Turnover (BSE + NSE)

(Rs. crore)
	FII			DII
Trade Date	Buy	Sales	Net	Buy	Sales	Net
17/1/12	2,963.72	1,937.97	1,025.75	1,292.91	1,722.14	-429.23

NSE, Bulk deals, 17-Jan-2012

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Date	Symbol	Security Name	Client Name	Buy / Sell	Quantity Traded	Trade Price / Wght. Avg. Price	Remarks
17-Jan-2012	ALCHEM	Alchemist Ltd	BP FINTRADE PRIVATE LIMITED	BUY	1,41,176	54.93	-
17-Jan-2012	ALCHEM	Alchemist Ltd	BP FINTRADE PRIVATE LIMITED	SELL	1,17,936	56.31	-
17-Jan-2012	ALCHEM	Alchemist Ltd	MANSI SHARE & STOCK ADVISORS PRIVATE LIMITED	BUY	69,398	54.97	-
17-Jan-2012	ALCHEM	Alchemist Ltd	MANSI SHARE & STOCK ADVISORS PRIVATE LIMITED	SELL	59,394	56.92	-
17-Jan-2012	AMRUTANJAN	Amrutajan Health Ltd	CHANDARANA INTERMEDIARIES BROKERS P. LTD	BUY	51,781	779.36	-
17-Jan-2012	AMRUTANJAN	Amrutajan Health Ltd	CHANDARANA INTERMEDIARIES BROKERS P. LTD	SELL	51,781	777.78	-
17-Jan-2012	AMRUTANJAN	Amrutajan Health Ltd	CROSSEAS CAPITAL SERVICES PVT. LTD.	BUY	74,730	763.37	-
17-Jan-2012	AMRUTANJAN	Amrutajan Health Ltd	CROSSEAS CAPITAL SERVICES PVT. LTD.	SELL	74,730	763.20	-
17-Jan-2012	AMRUTANJAN	Amrutajan Health Ltd	DINESH MUNJAL	BUY	31,267	787.37	-
17-Jan-2012	AMRUTANJAN	Amrutajan Health Ltd	DINESH MUNJAL	SELL	31,267	787.72	-
17-Jan-2012	AMRUTANJAN	Amrutajan Health Ltd	EXCEL MERCANTILE PRIVATE LIMITED	BUY	26,529	781.00	-

TCS - 3QFY12 Result Update - 17 Jan 2012(IFIN)

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Trend of outperformance versus peers ends

Strong INR revenue growth; healthy expansion in PAT: TCS reported strong revenue growth of 13.5% QoQ to Rs132,040mn led by moderate volume growth, uptick in pricing, and rupee depreciation. EBIT margin expanded 214bps QoQ to 29.2% led by positive impact of currency and higher pricing. PAT grew 19.8% QoQ to Rs29,162 mn despite forex losses of Rs3,000mn.

Moderate volume growth; positive surprise in pricing: Volume growth moderated to 3.2%, lower than our expectation. Pricing surprised positively, growing 1.98% QoQ on the back of change in mix of contracts.

Broad-based growth across geographies; BFSI vertical records muted growth: US revenue grew 2.4% QoQ and Europe was muted with 2% QoQ growth. Continental Europe outperformed with 6.5% QoQ growth led by large deal signings. The BFSI vertical grew a mere 1.9% QoQ whereas retail/distribution outperformed with 4.1% QoQ growth.

EAS and IMS emerge strong among services; two new large clients added: Enterprise solutions grew 5.2% QoQ proving no dip in demand for discretionary IT spends. IMS surged 13.1% QoQ.  ADM was muted with 0.8%QoQ growth. The company added two new large clients in the USD100mn+ category, taking total clients to 14 in that category.

Outlook – TCS is expected to add 15,000 employees for Q4FY12 (gross), surpassing its guidance of 60,000 employees for FY12. Deal pipeline remains strong with 10 large deals won in Q2FY12; however management expects sluggishness in discretionary IT spends going forward. IT budgets for CY12 are flat and as per expectations. The management expects recovery in growth in second half of CY12.

Technology - Key Highlights of the Quarter:: Karvy

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In our view, the Top‐6 IT companies are likely to report 11.3% QoQ rise in revenue
(2.5% in USD terms, muted on account of macro uncertainty and seasonal
weakness) in the quarter ended December 31, 2011, while the net profit may
increase by 16%. The margins are likely to be higher by 145 bps sequentially,
primarily due to 11.4% rupee depreciation in the quarter. In the reporting quarter,
the average INR/USD conversion rate was 51.0, as against 45.8 in the previous
quarter. In our view, Tech Mahindra would be hurt the most owing to its greater
billing in Pounds & Euros (both currencies having moved unfavourably against
the USD). Forex losses on account of hedges could limit the gains at the PAT level
and we believe that Infosys is best placed being the least hedged. While Infosys
may indicate bias towards lower end of FY12 USD revenue guidance (17.1‐19.1%),
the Company may however raise the EPS guidance to Rs. 146‐147 on account of
rupee depreciation.
Result Expectations
Cross‐currency Movements – Unfavorable for Q3FY12E: In Q3FY12, the IT
companies are expected to be hurt by 0.5‐1.5% due to unfavourable cross‐currency
movements, following 1‐2% unfavourable cross currency movements in the
previous quarter. Tech Mahindra will be hurt to the tune of 130‐150 bps in USD
terms, as the Company has highest exposure to billing in Pound.

Maruti Suzuki: Upgrade to BUY:: Kotak Securities

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Maruti Suzuki (MSIL)
Automobiles
Upgrade to BUY. We upgrade Maruti Suzuki to BUY (from ADD) due to a 10%
correction in the stock price over the past three months and we have changed our
target price to Rs1,225 (from Rs1,240 earlier). We expect Maruti to regain most of its
lost market share in FY2013, driven by an increase in diesel engine capacity, launch of
new models (Ertiga and mini-Dzire) and no significant incremental competition in the
small car segment in FY2013, which will be a key driver of the stock price in our view.

Buy GREAT EASTERN SHIPPING COMPANY (GESCO) Target: RS.270 ::Kotak Sec

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GREAT EASTERN SHIPPING COMPANY (GESCO)
PRICE: RS.220 RECOMMENDATION: BUY
TARGET PRICE: RS.270 FY13E P/E: 8.8X
Shipping markets globally continue to go through a bad phase and GESCO is
not immune to it. Shipping asset prices have declined by ~15% QoQ which
has resulted in the Net Asset Value per share falling from Rs329 per share to
Rs 280 per share QoQ. Good news is that, oil price continue to stay above
$100 per barrel which would help the offshore subsidiary - Greatship India
Limited (GIL) to do well and add significant value to the consolidated entity.
We value the shipping business at 40% discount to NAV which = Rs 170/ per
share, while we value the subsidiary at 6x FY13 EV/EBIDTA which comes to
~Rs100 per share. We re-iterate BUY rating on GESCO with a reduced price
target of Rs 270. The reduced target price factors in fall in asset prices in the
last one quarter and weakness in the shipping market. However we expect
the poor performance of the shipping business would be partly
compensated by the robust performance of GIL.

Infosys Technologies:: TP: INR3,225 Buy:: Motilal Oswal

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 Infosys (INFO) reported a 3.1% volume growth in 3QFY12, lower than its implied volume growth guidance of
4.2-6.4% (our est. of 4% volume growth)
 USD revenue growth of 3.4% and EBIT margin expansion of 300bp were ahead of street expectations (our
expectations of 260bp increase), largely driven by a higher INR realization v/s estimates (INR51.37/USD v/s
our estimate of INR50.5/USD). USD revenue growth guidance of 0-0.2% growth for 4Q implies a 0.5-0.7%
volume growth (guidance assumes a 50bp impact from cross currencies), which is disappointing.
 Infosys' commentary during the quarter and 4Q guidance indicate rapid deterioration in the environment.
 Key positives in 3Q are a 0.8% increase in revenue productivity in constant currency , 5 large deal wins with
2 deals having a TCV of over USD500m and 49 new client additions - the highest in many quarters. Post
conversations with offshore advisors we note that all vendors will report strong deal wins in the current
quarter, however client additions and deal wins from 4QFY12 onwards will be critical.
 The currency trade is now over and the market will increase its focus on Infosys' core business fundamentals.
We cut our USD revenue growth estimates for FY13 to 10.5% from 13.6% earlier. We also increase our INR
assumption to INR50/USD from INR48/USD earlier. Our EPS estimates remain unchanged at INR161.3. Assuming
a worst case multiple of 16x FY13E, INR2,580/share is the worst case valuation for the stock.
 We maintain our P/E multiple of 20x on the stock despite the deterioration as we will rollover our estimates
to FY14 next quarter. We reiterate our Buy rating with a target price of INR3,225.

Buy IDFC: Risk-reward turns favorable; upgrading to Buy :: Motilal oswal

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Risk-reward turns favorable; upgrading to Buy
Healthy fundamentals; multiple re-rating catalysts
 IDFC has corrected 17%/23%/37% in the last 3M/6M/12M-period,
underperforming the broader indices by a wide margin. Concerns relating
to slowing growth momentum and possible worsening of asset quality
have impacted stock performance.
 However, IDFC’s focused strategy of profitable growth, proven track record
of qualitative growth across cycles, and higher standard asset provisioning
makes it well positioned v/s its peers in the infrastructure financing space.
 The stock is trading at historical low valuations. Multiple re-rating catalysts
exist: (1) expected monetary easing, leading to improvement in liquidity
scenario and fall in interest rates, (2) government intervention to address
key issues faced by the Indian Infrastructure sector.
Expect loan growth to pick up; positive surprises likely: Asset growth was muted
in 1HFY12, with loans growing just 4% YTD (14% YoY) – the slowest in the last five
years. However, we expect loan growth to pick up despite the uncertain environment,
given IDFC’s focused strategy to improve wallet share in existing projects. We have
built in 18% loan CAGR (a conservative estimate) over FY12/13. Government
intervention to address some key issues faced by the Indian infrastructure sector
(which is highly likely) could significantly alter the growth outlook for IDFC.
Asset quality risks lower; diversified loan book: IDFC’s loan book is fairly diversified
with its exposure distributed across Energy (43%), Transportation (24%) and Telecom
(22%). Though majority of its portfolio is under the Energy segment, Power Generation
constitutes just 28% of its overall portfolio. Moreover, IDFC’s exposure to power projects
under construction is only 15%. While it has 7% exposure to IPP/Merchant Power,
~60% of the projects it is exposed to have linkage to captive mines. Moreover, factors
like no direct exposure to SEBs, impeccable asset quality track record (with GNPA
at ~20bp), and loan loss reserve of 1.6% provide comfort on the asset quality front.
Spreads back to normalized levels, monetary easing to provide relief: IDFC’s
spreads have returned to normalized levels of 2.2-2.4% from the peak of 2.7%. With
(1) the interest rate cycle nearly peaking out, (2) wholesale rates stabilizing/cooling
off, and (3) increased FII limit/lowering of lock-in period in bonds issued by IFCs
resulting in relatively low cost borrowings, IDFC should be able to maintain a tight
leash on its cost of funds. We expect IDFC to pass on the fall in cost of funds to
borrowers, which will help to gain market share. Spreads are likely to remain stable
at 2.2-2.4% over FY12/13.
Risk-reward favorable; upgrade to Buy: Monetary easing and expected government
intervention to address the key issues faced by the Indian infrastructure sector could
act as major catalysts in improving the growth and profitability outlook for IDFC,
leading to its re-rating. Among the IFCs, IDFC is well poised (compared to peers) to
tide through the current phase of moderation in economic growth. We believe riskreward
is favorable and upgrade our rating to Buy, with an SOTP-based price target of
INR150.

INFO 3Q: In-line results; guidance disappoints:: Nomura research

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Guidance disappoints but stock correction exaggerated
Infosys stock has corrected by ~8% today, compared to a 0.8% fall in the
SENSEX on its guidance disappointment (cut in FY12F revenue growth
guidance and flat revenue growth guidance for 4QFY12F), despite
ahead-of-consensus results. We think the stock price correction is
exaggerated and do not expect to see any material change to our TP or
estimates as: 1) our revenue growth estimate of 13% in FY13F already
factors in demand moderation from the slowness in client decision
making, 2) we believe there is no structural impairment of demand – as
reflected in management commentary that clients have the budget, but
are only cautious in spending it, 3) pricing has increased on a constant
currency basis and management sees a stable outlook – which we think
counters fears of a pricing-related de-rating in valuation multiples and
4) cost moderation accompanying growth moderation and rupee
depreciation would lead to EPS growth ahead of USD revenue growth in
FY13F, on our estimates. We maintain our BUY rating with a TP of
INR3,300 and prefer Infosys over TCS/Wipro.
Positive demand indications and traction in Europe/client mining
Five large deals (with two greater than US$500mn in total contract
value), 49 new client additions in 3Q of which ~14 in Europe, strong
growth in Europe (17% q-q growth in constant currency terms), strong
growth in products (18% q-q growth), traction in non top-five accounts
(growth ahead of company average) are positive indications, in our view,
and indicate to us that Infosys’ restructuring has started to yield results.
We believe demand moderation in package implementation and
consulting is largely due to the macro-economic environment and slow
decision making, and we expect this to correct during the course of
FY13F as decision making velocity improves.
Pain in top clients at Infosys could imply similar pain at TCS
Infosys’s top client revenue share declined to 4.1% (from 4.6%) – which
indicates some pain in the Bank of America account. However, revenue
share from the top 6-10 clients have increased revenue contribution,
which indicates there continues to be broad-based momentum in growth,
in our view. Bank of America is a top-5 client at TCS too, and similar
issues might be present at TCS too, in our view. An additional concern is
TCS’ higher top client dependence (7% of revenue) and higher BFSI
dependence (44% of revenue).
Infosys likely to be the strongest results among tier 1 Indian IT
names
We continue to believe that Infosys’s result would be the strongest in 3Q
among tier 1 IT on parameters such as revenue growth, margin increase
and profit growth. This is partly because of lower hedging and lower
cross currency impacts. We continue to prefer Infosys over TCS and
Wipro.

Buy ITC: Tackling taxes Cigarette profits shrug off excise hikes; non-cigarette outlook strong  Motilal Oswal

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Tackling taxes
Cigarette profits shrug off excise hikes; non-cigarette outlook strong
 Cigarette EBIT CAGR 15% since 2000 despite excise CAGR of 9.2%.
 Only consumer company to benefit from INR depreciation
 Non-cigarette EBIT to post 25% CAGR over FY11-13; Outlook positive
 Strong cash flows and improving payout ratio positive; Maintain Buy
Cigarette EBIT CAGR 15% since 2000 despite excise CAGR of 9.2%: The ITC
stock gets a drubbing every year ahead of the Union Budget due to concerns over an
increase in excise duty on cigarettes. However, ITC's cigarette EBIT posted 15%
CAGR since 2,000 despite excise, VAT increases and regulatory changes. We believe
increase in excise duty should not act as a drag as cigarettes are placed under
specific excise duty, which does not cover the impact of inflation in duty collection
unlike in other products. Excluding the impact of a sharp increase in excise on micros
and plains in FY09, excise has increased in line with WPI. However we believe VAT is
a key factor because (1) it is an ad valorem tax and has a greater cascading impact
and (2) VAT has a wide range of 12.5-40% as it is a state subject. ITC has already
taken a pre-emptive price increase of 2% in the month of December.
State taxes on non-cigarette tobacco are steps in the right direction: Currently
excise on cigarettes is 25x the excise duty on bidis as cigarettes are looked on as
being harmful. In FY12 some states imposed VAT on non-cigarette tobacco at par
with cigarettes and a few states increased it significantly. Imposition of a similar
strategy at the excise duty level can have far-reaching implications on government
revenue and growth in cigarettes. We expect volume growth in cigarettes to accelerate
as it becomes a preferred tobacco option for the younger generation. We model 7%
and 6% volume growth for ITC in FY12 and FY13 respectively with 17% EBIT CAGR.
Non-cigarette EBIT to post 25% CAGR over FY11-13; INR depreciation to provide
upside: ITC is the only consumer company to benefit from INR depreciation due to
net exports of INR18b and higher margins in paper. We estimate for every 1%
depreciation of the INR, ITC EPS will increase by 0.4%. ITC posted non-cigarette
EBIT of 25% CAGR over the past five years and EBIT of 27.4% in 1HFY12. We
estimate 25% CAGR in ITC's non-cigarette business over FY11-13, driven by 31%
CAGR in loss reduction in FMCG, EBIT of 22% CAGR in hotels and EBIT of 15-17%
CAGR in paperboards and the agri business.
Strong cash flow, improving payout ratio positive; Maintain Buy: ITC's dividend
payout jumped from 45-50% until FY09 to 115% and 80% in FY10 and FY11
respectively, due to payment of one-time dividend. We believe there is a strong case
for ITC's dividend payout ratio being higher than in the past as (1) capex as a proportion
of cash flows declined from 62% to current levels of 18-19% and (2) ITC's cash and
liquid investment will increase to INR95b from INR67b at a payout ratio of ~50%. We
expect ITC to post 19% PAT CAGR over FY11-13 powered by 17% growth in cigarette
EBIT and 24% EBIT growth in its non-cigarette businesses. Upside to estimates can
come from (1) higher volume growth in cigarettes, (2) gains from rupee depreciation in
the agri and paper and (3) faster recovery of the hotels business. The stock trades at
26.4x FY12E EPS and 22.3x FY13E EPS. Maintain Buy with a target price of INR230.

Mutual Fund Talk: 2012 Jan: Business Line,

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Building a portfolio with different types of funds depends on your risk appetite, time horizon and return expectations.

I am a software engineer, aged 21. I have made investments in the following funds in the form of SIPs.

In ICICI Pru Focused Bluechip Equity, Rs 4,000, HDFC Top 200 – Rs 3,000, Rs 2,000 each in HDFC Prudence and IDFC Premier Equity, and Rs 1,000 each in Birla Sun Life Dividend Yield Plus, Reliance Banking and ICICI FMCG.

I have been investing in mutual funds for the past two months. Please let me know if I need to make any modifications. My goal is to achieve a corpus of Rs 2 crore in 20 years.

Vignesh

It is wonderful to note that you have started investing for the future so early into your career. This would leave you with sufficient time to achieve all goals.

If you invest Rs 14,000 every month for the next 20 years, you will end up with a little over Rs 2 crore, assuming that the portfolio yields a 15 per cent annual return.

Coming specifically to the funds that you hold, most of them are quite good with strong track records across market cycles.

But with some minor tweaking, your portfolio will look even better.

Continue investing in ICICI Pru Focused Bluechip Equity. Invest Rs 4,000 each in HDFC Top 200 and IDFC Premier Equity. This would give you a blend of large and mid-cap funds with a moderate risk profile.

The balance Rs 2,000 can be invested in Fidelity Equity, a multi-cap fund with a steady track record. But if you have a lower risk appetite, you can consider parking this Rs 2,000 in HDFC Prudence, a balanced fund with a long history of delivering sound returns.

Although Birla Sun Life Dividend Yield Plus has performed well over the past few years, we believe that the above funds should suffice for achieving your target.

Exit ICICI Pru FMCG and Reliance Banking as these are sector funds and need active tracking.

Rupee to lead Asian currencies' rebound in 2012 ::ET

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Asian currencies will rebound this year led by India's rupee, the worst performer in 2011, said Oversea-Chinese Banking, the most-accurate forecaster for the region in the past six quarters.

The rupee will advance 5.1% to 50.5 per dollar by year-end followed by a 3.9% rally to 8,730 by Indonesia's rupiah, according to Singapore's second-largest bank. Barclays Capital, the second-best forecaster as measured by Bloomberg News, expects South Korea's won to outpace the other currencies, climbing 12% to 1,025. "We'll probably see more signs of a nascent recovery perhaps sometime into the second quarter," said Emmanuel Ng, a strategist at OCBC in Singapore. "You should see more structural foundation for capital inflows into Asia."

A recovering US economy and a shift in policy focus in China to bolster growth will support Asian currencies this year even as Europe struggles with its debt crisis, according to Barclays Capital, which predicts Malaysia's ringgit, the Thai baht, the rupee and the Taiwan dollar will rise more than 10% in 2012. ING Groep, the third-best forecaster, is less optimistic, expecting moves to range from a 4% gain in the rupee to a 0.4% decline in the rupiah.

OCBC ranked as the top forecaster with an average margin of error of 2.81%, compared with 3.01% for Barclays and 3.34% for ING.

US RECOVERY

The Bloomberg-JPMorgan Asia Dollar Index dropped 1.1% in 2011, halting two years of gains. The gauge lost 3.1% in the second half as the debt crisis prompted investors to pull funds from emerging-market assets. The rupee slumped 16% last year, followed by a 5% decline in the baht, and 3.5% losses for the won and the ringgit, according to data compiled by Bloomberg.

This year, India's currency has already gained 2.9%. Equity funds focused on Asia excluding Japan had redemptions of $24 billion in 2011 after attracting $22 billion the previous year, according to fund researcher EPFR Global. So far this year, overseas investors have pumped $2.4 billion into Taiwanese, South Korean and Indian shares, exchange data show.

Inflows into dedicated Emerging Asia Bond Funds slowed to $2.8 billion in 2011 from $6.84 billion in 2010, EPFR said. US data released this year showed December payroll growth beat forecasts, the unemployment rate dropped to the lowest level in almost three years and manufacturing rebounded.

Reliance Communications: Leverage, low returns on capital to limit upside ::Nirmal Bang

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Leverage, low returns on capital to limit upside
Given Reliance Communications’ (RCOM) worsening operating and financial
metrics over the past several quarters, likely single-digit returns on capital even
until FY13, slowdown in incremental subscriber addition, low active subscriber
proportion compared with peers and low 2G revenue coverage of 56.6%, we see
little scope for significant appreciation in its share price. Nonetheless, further
downside may be limited owing to a steep 45% decline over the past one year.
We assign a Hold rating to the stock with a target price of Rs86. It should be
noted that our FY13 EPS estimate is 12.3% below consensus estimates.
High financial leverage; deleveraging depends on tower stake sale: At the end of
FY11, RCOM’s net debt-equity ratio stood at 0.8x (0.6x in FY10) and net debt-EBITDA
ratio at 3.7x (3.2x in FY10). The respective figures at the end of 2QFY12 rose to 0.9x
and 5x, respectively. As much as Rs173.8bn of debt is due for repayment in FY12. A
major repayment due is in respect of foreign currency convertible bonds (FCCBs)
issued in February 2007. Including interest costs, the outstanding amount is
US$1.15bn (Rs62.1bn at current FX rates). We expect RCOM to borrow Rs60bn to pay
back FCCB holders. Assuming a 10% interest rate for incremental debt, this
translates into incremental interest costs of Rs3bn for swapping FCCB debt with
rupee debt. This has an adverse impact of 21.4% on our FY12 PBT estimate. We
believe the best way for RCOM to deleverage is by selling stake in its tower business,
Reliance Infratel. However, given the challenging market and economic conditions, this
is likely to be a tall order. Funding debt repayment through equity issuance is also likely
to be a challenging task under difficult market conditions and a 45% fall in its share
price over the past one year.
Single-digit returns on capital likely to continue until FY13: Post-FY09, RoE and
RoCE steadily deteriorated, particularly post the tariff wars witnessed after October
2009. RoE and RoCE in FY11 stood at just 3.2% and 3.3%, respectively, which is
considerably below the average cost of capital of over 10%. Even going forward, we
expect RoE to be a mere 2.3% in FY12 before recovering to 3% in FY13, while we
expect RoCE to decline to 3% in FY12 before moving up slightly to 3.7% in FY13.
Therefore, we expect RCOM’s return ratios to remain sub-standard until FY13.
Valuation: We assign an EV/EBITDA multiple of 4.5x to RCOM, an 18% discount to
Bharti Airtel and arrive at a valuation of Rs28/share, while we value Reliance Infratel at
a 50% discount to book value given the low third party tenancies, which translates into
Rs58/share. Thus, we arrive at a TP of Rs86, implying 11% upside from the current
market price. We thus assign a Hold rating to RCOM with a target price of Rs86

Sadbhav Engineering: Buy: Business Line,

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The past six months has seen the stock of Sadbhav Engineering slip 29 per cent, leaving it at an attractive level for investors with a three-to-five year perspective. Buoying prospects are Sadbhav's strong order book, healthy growth in toll collections from road projects, a good track record of completing projects well ahead of time, earning it early-completion bonuses and consistent growth in revenues and profits.

Sadbhav has nine road projects on a build-operate-transfer basis, of which three are operational. Three more are set to be complete by the end of this fiscal, all of which are ahead of the expected completion date. Road projects constitute 71 per cent of the order book, irrigation projects form 17 per cent, with the rest coming in from mining.

At Rs 103, the stock trades at a PE multiple of 11.5 times the trailing 12-month earnings and 9.6 times the estimated earnings for 2012-13. While at a premium to other road construction/infrastructure companies such as Ashoka Buildcon, Sadbhav has managed better earnings growth.

STRONG ORDER BOOK

Order inflow in the first half of this fiscal has been sedate; outstanding orders at end-September '11 stood at Rs 6,259 crore against Rs 6,956 crore at end-March '11. Even so, the current order book is a good 2.9 times the revenues for FY-11, which will help Sadbhav tide over the tepid inflow of road projects.

New orders in the June quarter were in irrigation projects, with Rs 212 crore likely to flow in by the end of this fiscal.

Sadbhav has bids worth over Rs 2,000 crore in the mining space and Rs 1,139 crore in irrigation projects, though these may not all be won by the company. Awarding of road projects has recently begun to pick up, with the company securing a Rs 101 crore project in the September '11 quarter.

TOLL REVENUE GROWTH

Sadbhav has a combination of pure construction as well as developer contracts in roads. Of its nine BOT road projects, two have been operational for the past two years. Toll revenues from these two have been clocking steady growth.

In 2010-11, revenues grew 36 per cent, while the June '11 quarter saw toll revenues grow 22 per cent. Traffic on these roads has also risen a good 13-15 per cent, auguring well for sustained toll income. Its third BOT project turned operational in 2010-11.

With three more projects scheduled to turn revenue-generating in the next financial year, toll revenues are set to increase. Successful completion of large-scale projects will help improve Sadbhav's technical and financial qualification for larger contracts.

CONSISTENT EARNINGS GROWTH

Revenues grew at a compounded annual rate of 36 per cent over the past three years, while net profits expanded 23 per cent in the same period. For the six months ending September '11, revenues rose 52 per cent and net profits 32 per cent. Sadbhav has managed consistent revenue and profit growth over the past several quarters unlike peers. Projects have not been stalled due to problems with land or funds. The company has focused on a small number of high-value projects, has a degree of diversification in order book and has maintained its working-capital cycle.

Execution of road BOT contracts is undertaken by Sadbhav itself, leading to better margins. Irrigation projects, which inherently have higher margins than road projects, have helped Sadbhav maintain operating margins well above 10 per cent over the past several years. For 2010-11, operating margins stood at 16 per cent, though higher labour and material costs have brought margins down to 12 per cent for the six months ending September '11. Margins are still on a par with peers.

Further, according to the company, it will receive Rs 100 crore in bonus spread over the current fiscal and the next for the early completion of two road projects. Though this is a one-time income, Sadbhav has completed most of its projects ahead of the scheduled time, and could well do the same for its other projects as well.

The bonus could give Sadbhav a reprieve from interest costs, which currently take up about 4 per cent of revenues. Interest and depreciation together have resulted in net margins at 4 per cent, despite the high operating margins. With three more projects becoming operational in the next fiscal, debt could also reduce in conjunction with a rise in revenues. Consolidated debt-to-equity at end-March '11 stood at two times, though current interest cover is at a satisfactory 4.3 times.

Bharti Airtel: High leverage, slowdown, regulatory risks abound ::Nirmal Bang

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High leverage, slowdown, regulatory risks abound
Consistent deterioration in operating metrics, a steep increase in leverage,
regulatory risk and a slowdown in incremental subscriber addition drive our
negative view on Bharti Airtel and we argue against its perceived ‘defensive’
nature. We believe, going forward, the above factors are likely to continue
exerting pressure on the stock. We assign a Sell rating and a SOTP-based target
price of Rs300 to the stock, implying 9% downside from the CMP. It should be
noted that our FY13 EPS estimate is 17.7% below consensus estimates.
‘Defensive’ argument not a convincing one: Given that Bharti is largely a domestic
theme not dependent on global economic prospects, some views on the street imply
that the stock is a defensive bet in a volatile market. We do not concur with the
defensive stock argument for the following reasons: (1) Significant deterioration in
operating metrics over the past few quarters as against the perceived stability of a
defensive stock (2QFY12 net profit fell 38.2% YoY, the seventh consecutive quarter of
decline), (2) A significant increase in financial leverage (over 500%) and a steep rise in
goodwill and intangibles (964% increase, 42% of balance sheet size in 2QFY12), all of
which do not characterise a defensive bet, and (3) Ever-present regulatory risks,
leading to a Rs138.6bn NPV relating to licence renewal and ‘excess spectrum’
charges, thereby shaving off Rs36 from our TP. Given 73% dollar-denominated debt,
this exposes Bharti to currency risks and if the rupee remains weak against the
dollar, it is likely to adversely impact cash flows by nearly Rs12bn in FY12.
Net subscriber addition slowdown signifies rising saturation level: Over the past
few months, Bharti’s subscriber addition in India has fallen significantly and
stood at just 0.96mn in November 2011, the lowest in nearly six years. This, we
believe, is a sign that the Indian telecom market is nearing saturation and going
forward, subscriber addition will continue to steadily taper down. Going forward, it is
apparent that incremental subscriber addition will consist of rural subscribers who
typically take time to ramp up their usage. Thus, Bharti needs to grow revenues not
merely through subscriber addition but also through better pricing, which may not be
easy. Data revenue growth through 3G services is likely to take time to ramp up. Nonavailability
of vernacular content is another issue that could hamper 3G off-take.
Valuation: We value Bharti on SOTP basis. We assign an EV/EBITDA multiple of 5.5x
for the India business, 4.5x for the consolidated Africa business and EV/tower of
Rs4.8mn for the passive infrastructure services business. Regulatory risks (one-time
‘excess spectrum’ fee and current value of licence renewal costs), knock off Rs36 from
our TP. We arrive at an implied equity value of Rs1,139bn resulting in a TP of Rs300,
which implies 9% downside from the CMP. Hence we assign a Sell rating to Bharti with
a target price of Rs300.

Indian IT Services Decent revenues; INR weakness to boost margins::IDFC Cap

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We expect the top4 IT Services companies to report 2-4% qoq USD revenue growth – volume growth of 4-5% would be
offset by 1-2% decline in realization (cross-currency impact). We believe this is reasonable especially given that the
Oct-Dec quarter has lower billing days due to holidays (Diwali, Christmas), which typically impacts T&M projects. We
expect commentary on the environment from all players to be incrementally cautious and see Infosys further lowering
guidance for FY12 USD revenue growth to 17-18% (from 17-19%). Even the smaller players are expected to report
decent revenue growth of 2-6% and also a sharp improvement in margins. Rupee depreciation of ~11% (on periodaverage
basis) should aid EBIT margins by 330-390bp, though the actual increase may be lower due to cross-currency
headwinds (50-70bp) and re-investment of gains back into the business. We also incorporate rupee estimates of Rs51/
USD for H2FY12 and Rs49/ USD for FY13. With the continued macroeconomic uncertainty we expect 2012 IT budgets
to be largely flat, adversely affecting FY13 revenue growth. We reiterate our underweight stance on the sector and
believe larger names like Infosys and TCS are better placed in the uncertain macroeconomic environment.
We expect decent revenue growth amid weak seasonality
We expect the top4 companies to report 2-4% USD revenue growth (vs. 6-8% in Q3FY11), which we believe is
reasonable given the seasonal weakness (holidays) associated with the quarter. We expect 4-5% qoq volume growth
and a 1-2% decline in blended realization (cross-currency impact). Tier2 companies are likely to deliver 2-6% qoq
revenue growth, with a few companies benefiting from a lower base. Key observation: We expect similar USD revenue
growth rates (~4% qoq) from TCS and Infosys despite divergent commentaries during the quarter.
Rupee depreciation of ~11% to boost margins
The recent sharp depreciation of the INR will be a key margin lever for our coverage universe. We estimate 3.3-3.9%
INR-related tailwinds and 50-70bp cross-currency headwinds for operating margins. EBIT margins would improve by
~200bp for Infosys/ TCS and ~120bp for Wipro-IT/ HCL Tech. Tier2 companies are expected to benefit more from the
weak rupee and see margin expansion of 100-450bp. Key exceptions: Mahindra Satyam – ~70bp margin decline due
to negative impact of wage hikes; eClerx – 600bp margin improvement due to higher offshore mix/ wage seasonality.
Incorporating weak INR into our forecasts
We have applied revised INR/USD forecasts of Rs51/Rs49 for H2FY12/FY13 across our coverage universe now, after
having revised estimates for top4 companies, Mphasis and Persistent in Dec 2011. This raises our FY12/13 earnings
estimates for the rest of the companies by 3-15%. (Please refer to exhibit 7 for details)
Expect mixed commentary; maintain cautious stance; stick to Tier1 stocks
We expect the companies to maintain a cautiously optimistic stance on CY12 IT spend and FY13 revenue growth. We
expect Infosys to cut its FY12 USD revenue growth guidance to 17-18% yoy, but raise its INR earnings guidance
factoring in a weaker rupee. We maintain our cautious stance on the sector as we expect the business headwinds to
persist despite a benign currency helping margins/ earnings. Infosys and TCS remain our key picks (Outperformerrated);
Wipro, HCL Tech and Mphasis are Neutral and the rest Underperformers

Energy: Refining cycle: CY2009 revisited:: Kotak Securities

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Energy
India
Refining cycle: CY2009 revisited. We expect global refining margins to follow a
similar pattern seen in CY2009—(1) margin decline, (2) capacity closures and (3) margin
improvement. We expect global refining margins to improve from current low levels led
by capacity shutdowns of 1.3 mn b/d over the past four months; more will likely follow.
We discuss the implications of the recent weak refining margins for RIL (negative but
we have assumed low multiple in our SOTP valuation) and Indian PSU refiners (not
material in the context of their other problems).

Idea Cellular: All Positives Priced In :Nirmal Bang

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All Positives Priced In
We believe Idea Cellular’s stock price outperformance over the past one year is
ahead of fundamentals and the street appears to be over-enthused by the tariff
hikes effected in July 2011. The hikes were undertaken after years of tariff
reduction; we believe margins are unlikely to rise to the extent factored in by
consensus as the hikes are more a reflection of higher costs rather than an
improvement in pricing power. Apart from this, regulatory risks, notably ‘excess
spectrum’ charges and licence renewal knock off Rs29 from our target price. We
assign a Sell rating to Idea Cellular with a target price of Rs75. It should be noted
that our FY13 EPS estimate is 11.9% below consensus estimates.
Stock outperformance ahead of fundamentals: Idea Cellular has outperformed the
Sensex by as much as 39% over the past one year. The tariff hikes effected by the
company have led to optimism about a considerable improvement in margins and
earnings, as reflected in FY13 consensus estimates. However, we believe the tariff
hikes are more a reflection of higher costs rather than improved pricing power and
consequently, our margin forecasts are below consensus. We believe the need to build
3G networks to boost penetration in order to recover the huge investments made in 3G
spectrum is likely to keep network operating costs at a higher level, thereby ensuring
that margin expansion is unlikely to be achieved to the extent factored in by consensus
forecast. We therefore believe the street’s enthusiasm in respect of tariff hike is
overdone and stock price upside owing to this factor is not likely to be significant. Our
FY13 margin estimate is below consensus estimates by 111bps.
Regulatory risks slash Rs29 from our TP, account for 35% of current market-cap:
We believe the current share price does not fully capture regulatory risks, notably
‘excess spectrum’ charges and licence renewal. Idea will have to pay Rs13.3bn for its
‘excess spectrum’ holdings based on the rates recommended by TRAI’s expert
committee, which translates into an impact of Rs4/share. As regards licence renewal, it
will have to pay Rs136bn for renewing its licences over 2015-27 assuming the quantum
of spectrum awarded on renewal is capped at the ‘prescribed limit’ (10MHz for Delhi
and Mumbai and 8MHz for other circles). The current value of this based on a risk-free
rate of 8% amounts to Rs82.7bn (~US$1.57bn), or Rs25/share. Thus, regulatory risks
knock off Rs29 from our target price.
Valuation: We value Idea Cellular based on the SOTP method. We assign an
EV/EBITDA multiple of 5x for its mobility business and EV/tower of Rs4.8mn for its
tower business. We adjust for regulatory risks faced by the company, which knock off
Rs29 from our target price. Thus, the implied equity value comes to Rs249.1bn,
resulting in a target price of Rs75. This implies 9% downside from the CMP. Therefore,
we assign a Sell rating to Idea Cellular with a target price of Rs75.

Telecom Sector: Defensive No More :: Nirmal Bang

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Defensive No More
We initiate coverage on the Indian telecom sector with Sell ratings on Bharti
Airtel and Idea Cellular and a Hold rating on Reliance Communications (RCOM).
Bharti and Idea have outperformed the Sensex over the past one year, partly on
optimism generated by tariff hikes. However, in our view, current stock prices do
not adequately factor in high leverage, regulatory risk, slowing subscriber
addition and low returns on capital. Thus, we see little scope for upside going
forward. It should be noted that our FY13 EPS estimates are below consensus
estimates for Bharti, Idea and RCOM by 17.7%, 11.9% and 12.3%, respectively.
Stocks outperform due to tariff hikes; leverage, regulatory risks not factored in:
Bharti Airtel and Idea Cellular have outperformed the BSE Sensex by 15% and 39%,
respectively, over the past one year, as the perception is these stocks are defensive
bets and optimism generated by tariff hikes enabled them to remain resilient amid
turbulent market conditions. We believe tariff hikes are unlikely to sustain given the
Telecommunications Regulatory Authority of India’s (TRAI) aversion to such steps by
operators, apart from the likelihood that even in the event of consolidation the market
will still be fairly competitive, thereby preventing any structural upside in tariff. Apart
from this, we believe a significant rise in financial leverage, intangibles and
regulatory risks including ‘excess spectrum’ charges and licence renewal risks
have not been adequately factored in current share prices. Regulatory risks
account for 11-35% of the current market capitalisation for Bharti and Idea.
Slowdown in subscriber addition reflects rising saturation: Over the past few
months, the industry’s net subscriber addition fell significantly, from over 20mn
in March 2011 to just 7.8mn in October 2011, as per TRAI data. This, we believe,
is a clear sign that the Indian telecom market is nearing saturation point and
going forward, net subscriber addition will continue to taper down steadily.
Therefore, companies need to drive revenue growth through new services like 3G.
However, in our view, 3G is likely to take time to ramp up and attempting to sustain
revenue growth through tariff hikes is unlikely to be an easy task either.
Returns on capital employed at a multi-year low: Due to significant fund
requirements of telecom companies in FY11 owing to spectrum auctions and poor
financial performance because of price wars, return on equity (RoE) and return on
capital employed (RoCE) declined to multi-year lows. Going forward, we do not expect
a significant improvement in performance on this front. In fact, we expect Idea and
RCOM to register single-digit RoE and RoCE even in FY13, not even equal to
their cost of capital.
We assign Sell ratings to Bharti and Idea, Hold to RCOM: We assign Sell ratings to
Bharti and Idea, while we have a Hold rating on RCOM. Rise in financial leverage,
regulatory risks, multi-year low returns on capital and slowing subscriber growth are
common threads connecting all these companies and we believe this is not adequately
factored into current stock prices. Faster-than-expected monetisation of tower assets,
which would enable deleveraging and thus improved financial metrics and valuations,
are key upside risks to our negative view on the sector. It should be noted that our
FY13 EPS estimates are below consensus estimates for Bharti, Idea and RCOM
by 17.7%, 11.9% and 12.3%, respectively.