Budget expectations ::Bold economic budget after a long gap? :: Deutsche Bank

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Five strategic threads to weave the tapestry of FY13 budget
Budget FY13 to be woven around the following five strategic threads (1) fiscal
consolidation through subsidy rationalization – through raising diesel,
kerosene and LPG prices and partial decontrol of urea prices (these may be the
UPA government’s boldest economic decisions). Food subsidy however may be
raised as government introduces food security bill (2) withdrawal of fiscal
stimulus – through raising excise and service tax rates – across the board – by
200bps and widening service tax net (3) stimulating investments and
jumpstarting capital formation (4) accelerating retail investment in equity
markets – through lowering of short term capital gains tax on equities and
increasing tax allowances for retail investment in equity mutual funds allowing
channelization of personal savings from real assets to equities and (5)
socialization of personal tax structure – through raising maximum income tax
exemption limit and reintroducing personal tax surcharge on high tax bracket
assesses and doubling corporate tax surcharge. This may probably be the last
opportunity for Finance Minister to present an economic budget in the current
term of UPA, as FY14 union budget (being last full-fledged budget before General
Elections in 2014) will likely be guided by the imperatives of a popular democracy.
Priority shift - from excessive focus on Aam Admi (Common Man) to capital
formation… for now
We believe that allocations to welfarist programs like National Rural Employment
Guarantee Scheme (NREGS) are unlikely to rise from FY12 levels, allowing the
government to keep expenditure under control. However we expect to see
government increasing its focus on plan expenditure on projects aimed at reviving
capital formation (pertaining particularly to roads, railways and irrigation). With the
gross fixed capital formation showing compression in Jul-Sep qtr, we expect
several fiscal measures (through budgetary allocations, tax exemptions/benefits,
easier financing etc.) to kickstart the capex cycle. As per our infrastructure
analysts, the government may adopt following key measures: (i) Sun-set clause on
tax incentives for infra projects likely to be extended by one more year; (ii) We
expect government to announce fiscal incentives for new capex; (iii) Increased
focus on Accelerated Power Development and Reform Program (APDRP); (iv)
Setup of National Electricity Fund to provide interest subsidy to SEBs for
investments in T&D sector for reducing the losses.
Implications for portfolio construction
Higher taxes & reined in expenditure on populist schemes should result in
curtailing domestic consumption modestly. Terms of trade may shift from rural to
urban India, albeit temporarily. We cut exposure to both consumer discretionary
and staples in our model portfolio. Increased focus on capital formation through
incentivizing infrastructure investments will benefit infrastructure stocks. Our Top
Picks are: Axis Bank, ICICI Bank, SBI, Coal India, L&T, TCS, Bharti, DLF

Union Budget FY2013: Markets wait for spring cheer in a March budget:: ICICI Sec

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Union Budget FY2013: Markets wait for spring cheer in a March
budget
The budget would be
tabled at a time when
growth has slowed down
and fiscal targets set in
the previous budget, that
had looked optimistic at
the outset, have been
breached
This would be one of the
few March budgets and
markets would hope that
the Finance Minister can
spread some cheer
Our concerns over
achieving the ambitious
budget deficit target of
4.6% in FY2012, have
been founded
On the revenue front,
there was a shortfall on
the back of lower
collections on corporate,
income tax and excise
duty due to economic
slowdown
On the expenditure front,
the targets were missed
due to lower budgeting of
subsidies coupled with
increase in under
recoveries and higher
import prices of fertilizers
In the run up to Union budget FY2013, the Indian economy continues to
present a mixed picture, in the wider context of a tepid global economy. The
budget would be tabled at a time when growth has slowed down, albeit with a
retreat in inflation. However, fiscal targets set in the previous budget, that had
looked optimistic at the outset, have been breached, with April-January FY2012
accounting for 105.4% of the budgeted fiscal deficit. As such, correctives are
called for on this front. Indeed, with General elections due in FY2014, there is a
small window of opportunity in the FY2013 Budget to take meaningful steps
towards fiscal consolidation, and more generally give a direction to policy.
This budget would be one of the few March budgets (to be presented on March
16th as against the usual norm of the last working day of February), which are
typically associated in years that had General Elections. The Government has
made this year an exception, as it would want to assess its political strength at
the Centre. Thus the state election results due on March 6th hold a special
significance for this year’s budget if the UPA were to muster enough support to
undertake some much-needed reforms.
FY2012: A year of fiscal slippages
In our post FY2012 budget analysis we had expressed our concerns over the
ambitious budget deficit target of 4.6% of GDP, given the very optimistic
revenue collection target and subsidy estimates, especially on petroleum
subsidy (for details refer to our report “Budget FY2012: A fine balancing act”
dated February 28, 2011). Moreover, we had also estimated that the
Government would have to increase its dependence on market borrowing as it
had set very ambitious targets of collections through small saving schemes.
What complicates any credible move towards fiscal consolidation is the muted
growth environment. With the third quarter GDP for FY2012 witnessing a steep
decline and printing 6.1% YoY, the Indian economy is on the brink of
registering one of the slowest episodes of growth since the Lehman crisis
struck in FY2009. On the revenue front, the Government had budgeted a tax
revenue growth of 17.8% and we expect the actual growth to be lower at
15.5%. This big shortfall is on the back of lower collections on corporate,
income tax and excise duty due to economic slowdown. The total tax collection
is also lower due to reduction in customs and excise duties on crude and
petroleum products in June 2011.
On the expenditure front, the targets were missed due to lower budgeting of
subsidies coupled with increase in under recoveries due to rise in oil prices and
weaker Rupee and higher import prices of fertilizers.

Import surge sends China trade to decade-deep deficit :ET

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China's trade balance plunged $31.5 billion into the red in February as imports swamped exports to leave the largest deficit in at least a decade and fuel doubts about the extent to which frail foreign demand or seasonal distortion drove the drop.

Import growth of 39.6 per cent on the year in February was the strongest in a year, well ahead of the 27 per cent expected and more than twice the rate of export growth of 18.4 per cent that was barely more than half the pace forecast -- albeit at a six month high.

Union Budget Preview 2012-13 :: SBI Cap

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The government on March 16, 2012 will table its Union Budget 2012-13 on the
backdrop of global uncertainties and a weak domestic macroeconomic environment.
Investors are hoping that the government would recognise the immediate need to
convey its commitment to revive growth outlook and fiscal consolidation. In India,
Budget is perceived to be determined more by political economy considerations than
purely economic ones. Therefore, the outcome of State elections may have a
significant bearing on this Union Budget. We expect the Union Budget 2012-13 to
focus on:
􀂙 Striking a balance between fiscal consolidation and public spending while
maintaining sustainable inclusive growth
􀂙 Increase investment in infrastructure sector
􀂙 Higher allocation on education and health
􀂙 Road map on implementation of GST and DTC
􀂙 Road map to reduce non-merit subsidy and leakage in social welfare schemes
spending using Aadhaar (unique identification number)
􀂙 To increase revenue collection – extending net for service tax, duty hike on
selected items such as cigarettes and increase in the rate of MAT.

Godrej Consumer Products Ltd. (GCPL) Way2Wealth

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GCPL is present in 3 segments namely soaps, household insecticides & hair
colours. In each of these segments the company is a market leader or at
No. 2 position. The company has been continuously investing behind its
brands to gain ground over competition & have created super brands over
the decade. The company’s 3x3 strategy (presence in 3 continents and 3
categories) shows its clear focus to attend to its strengths rather than
diversify into the unknown. Cross synergies from continents will enable
growth across geographies & segments & help the company achieve its
target of 20%+ topline grow for next 3-4 years.

Union Budget 2012-13 Preview Pushed against the wall ::Religare research,

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Union Budget 2012-13 Preview
Pushed against the wall
The Union Budget this year is being watched closely, even as progressively, it has lost
significance for the markets in the past few years. Given the investment-led slowdown
in the economy, with a need for fiscal pump-priming on one hand, and steadily
deteriorating public finances on the other, the budget needs to be frugal, reformist and
pro-growth at the same time. Not an easy task, especially so given the (populist)
demands of the realpolitik.
We believe the government will do all it can to improve sentiment and redeem its
image, at least some of it credible. Besides the FY13 fisc (we estimate 5.2%, although
the Govt.’s initial estimate would be lower), the market is also looking for the market
borrowing figure (our est. Rs5trn), esp. for its impact on the RBI’s easing stance.
And for the market, recent outperformance and the headwind of high crude oil price
risk a negative reaction if the budget fails to deliver on expectations.
v Last reformist budget ahead of general elections in 2014: The 2012-13 Union
Budget is the last chance for the government for a course correction towards growthoriented
reforms, and prudent expenditure, two years being essential for tangible
change before General Elections in 2014. While monetary policy would get easier, a
turn in sentiment would require policy incentives as well. A broad-based macro
slowdown, led by stalled investment, stubborn inflation, and high cost of funds,
lately joined by resurgent commodity prices ought to make it the case serious
enough.
v Fiscal pump-priming difficult this time around: Let’s face it: Growth is down to
6.5% in FY12E, and little better in FY13E (We expect 7.1%). The last time that
happened was in FY09, with the fisc at 6% (except that FY10 saw 8.4% growth. i.e.,
no bounce this time around). Our FY12 assumption of 5.9% leaves little room for
fiscal manoeuvring, with subsidies and interest payments taking up more than 60%
of total tax receipts. Corporate investment in the economy has been flat for the last
three years, but the Govt. is no position to take over.
v Budget likely to look frugal, reformist and pro-investment: Clearly, expense
rationalization (subsidies) is as important as raising revenues (tax off-take, spectrum
sales, divestment). While it’s time to take hard decisions, the budget would do well
to lay down concrete roadmaps (e.g., fuel deregulations, GST), short of destabilizing
fragile economic growth. We believe this will translate into increase in select indirect
taxes, lower subsidies, incremental clarity on long-pending reform measures and a
push for investments/ infrastructure through better incentives. One might also see a
smattering of ‘forward’ reforms like direct cash transfers.
v However, expectations increase risks of a disappointment? Markets tumbled in
2011 on inflation and policy paralysis, the early rally has pushed valuations from
cycle-low multiples. Ample liquidity, improved risk appetite (and of course, rangebound
oil) may continue to re-rate the markets further. However, widely-held
expectations of a reformist budget, fiscal consolidation and reforms (amidst serious
need for it) have increased the risk of a disappointment if the budget fails to deliver.

ENGINEERING & CAP GOODS Media reports: L&T Infotech in race to buy Hexaware ::Edelweiss

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According to news reports, Hexaware’s top brass is believed to have met
Mr. AM Naik (CMD, L&T). Though details of the discussion are still not
known, timing of the meeting has triggered large‐scale speculation about
L&T Infotech, the engineering company’s IT arm, exploring options to buy
out Hexaware. While L&T management did not comment on the
development, Hexaware Tech denied of any such meeting with L&T
Infotech.
L&T Infotech may bid for Hexaware; deal likely at over USD800mn
As per a recent news article, Hexaware top brass is believed to have met Mr. AM Naik,
CMD of L&T. Hexaware founder and Chairman Atul Nishar and his two private equity
(PE) shareholders, General Atlantic and ChrysCapital, recently roped in investment
banks, Morgan Stanley and Credit Suisse to advise them on selling a majority stake in
the company. While the promoter stake stands at 28%, General Atlantic owns a little
less than 15% and ChrysCapital 9.77%. Several foreign technology giants like NEC, NTT
Group and US PC manufacturer and services player, Dell along with a clutch of large PE
buyout funds like Providence and Advent have also been approached, as per reports.
Promoters expect the company’s value to be USD700mn‐800mn which is 15x CY11
EBITDA and around 2.5x CY11 sales, say media reports.
Our view: Negative in the near term
If the deal takes place, this is negative in the near term given L&T’s sizeable
commitment to developmental projects which coupled with this deal could put further
pressure on the company’s balance sheet. We believe that L&T is in a divestment
mode, looking to sell stakes in non‐core businesses like switchgear, material handling
JVs, etc hence buying out another IT company at this juncture looks unlikely. Our IT
team believes that if the deal goes through, the target valuation would be atleast 13x
forward P/E, implying INR43bn. We have a `BUY/SO’ rating on Larsen & Toubro

India: A fiscal horror show? :: Credit Suisse,

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India: A fiscal horror show?
Previewing the 2012/13 budget
First, the good news. Contrary to the belief of many, India is a long way
from experiencing the kind of fiscal horror show that has engulfed many
developed world countries in recent times. While the country’s (central and
state) budget deficit is running at around 8% of GDP, similar to that of many
western countries, India has the huge advantage of double-digit money GDP
growth. With bond yields pegged back by captive buyers, in the form of the
commercial banks, this means general government debt is falling rather than
rising as a share of GDP in India.
But this is not to say that the Finance Ministry can relax and kick back
ahead of the budget. The Reserve Bank of India, for one, will be looking for
some tough measures to be delivered, while a lower budget deficit would help
reduce the current account deficit and the ‘crowding out’ of private investment.
Budget measures. As such, we believe Finance Minister Pranab Mukherjee is
likely to announce an increase in the breadth of the services tax and, possibly, a
rise in the excise and services tax rate itself, as well as an increase in
subsidised fuel prices on 16 March. He may also set out a medium-term fiscal
consolidation plan, involving further details concerning the introduction of the
Direct Tax Code (DCT) and Goods and Services Tax (GST), both of which have
been delayed. The finance minister will, however, do well to convince
stakeholders of the credibility of such a program, in our view.
Fiscal forecasts. Put such measures together with a roughly 8% real GDP
growth forecast as well as an upbeat assessment of divestment and telecom
spectrum receipts and we suspect Mukherjee will forecast a 5% of GDP central
government deficit in 2012/13, down from a revised 5.6% in 2011/12.
RBI likely to cut rates in mid-March and beyond. Although we doubt such a
figure will be achieved (we forecast a 5.8% outturn in 2012/13), we suspect the
budget will deliver just about enough to start the repo rate cutting ball rolling at
the 15 March RBI meeting. It seems inconceivable that the contents of the
budget will not have been presented to the central bank by the time of its
meeting. A further big upward move in the oil price is the main risk to this view.
We continue to look for a total of 175bps of repo rate reductions by early-
2013. With wholesale price inflation falling a little further and staying in the
comfort zone through 2012 and the economy experiencing a further protracted
period of sub-trend real GDP growth, the RBI is likely to take back some of the
500bps in effective tightening it delivered during 2010-11.
We expect the curve to bull steepen and 10y bond yields to fall below 8%
in 3 months and trade to 7.5% by end 2012. The easing cycle and
expectations of some moderation of the significant liquidity deficit should
support bonds. We do not expect much market reaction from the FY13
borrowing total, INR4.1tn net, as markets will likely be focused on RBI’s policy
rate actions and guidance coupled with the outlook for liquidity conditions.

Moderation in 3QFY12 GDP to 6.1% Priced In -::Citi Research

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Moderation in 3QFY12 GDP to 6.1% Priced In - Implementation of
PMO’s Recent Measures Key for FY13 Upgrades
 3QFY12 GDP slows to 6.1% — Following the 7.7% and 6.9% growth in 1Q and
2QFY12 respectively, GDP growth slowed further to 6.1%YoY during 3QFY12 ( Citi &
Consensus: 6.3%). Cumulative 9MFY12 growth was 6.9%YoY, vs. 8.1% last year. This
implies that, in order for the government to meet its first advance GDP estimate of
6.9% for FY12 (see Govt Pegs FY12 GDP at 6.9%; Trends Appear to Have Bottomed
Out, but Tough Tasks Ahead for ~7% Growth in FY13), growth in 4Q is likely to be
6.9%. The deceleration seen in growth supports our view of cumulative easing of
100bps, although oil remains a wildcard.
 GDP by Activity: Industry is the Key Drag — Weak growth was due to a slowdown in
industry, to 2.6%YoY – led by a deceleration in manufacturing (+0.4%) and a
contraction in mining (-3.1%). However, this has already been largely priced in (the
Index of Industrial Production averaged 1% during 3Q). Service sector growth held up
at 8.9%YoY, supported by healthy trends in trade and communication (+9.2%) and
financing and insurance (+9%). Agri growth remained lackluster at 2.7%YoY (see p. 2)
 GDP by Expenditure: Investments in the Red, Again — On the expenditure front,
Gross fixed capital formation posted a contraction (-1.2%YoY) for the second
consecutive quarter, a result of policy-related bottlenecks and coal/gas shortages. A
point to note is that past data has been revised down significantly (e.g growth during
1HFY12 was revised from ~3.5%YoY to 0.5%). However, consumption growth edged
higher to 5.9%YoY, with trends supported by private consumption (+6.2%) while public
consumption slowed marginally (+4.4%). Net exports widened to -7.8% of GDP as
export growth moderated, even as imports posted double-digit growth.
 Policy Thrust is Key to Outlook — As highlighted earlier, the deceleration in growth
in FY12 has been due to a collapse in investments. While we are maintaining our 7%
GDP estimate for FY13 (see p. 4) , recent steps taken by the Committee of Secretaries,
headed by Principal Secretary to the PM Singh - Pulok Chatterjee - are positive and
could result in the investment cycle recovering in the latter half of the year. Key
proposals include: (a) Fast track clearances for power and coal projects; (b) expansion
in coal production of existing mines without fresh clearance; (c) Coal India instructed to
sign Fuel Supply Agreements with power plants that have implemented PPAs.
 Policy Implications — Soft GDP data supports our view of the RBI easing the repo
rate by 100bps in 2012, but the recent rally in commodities could influence rate
decisions. Given that RBI has said that the quantum/timing of rate cuts would be
dependent on fiscal consolidation, we expect the repo rate to be cut post the budget
(on 16 March), during the RBI’s 17 April policy. However, given tight liquidity conditions
we expect the RBI to cut the CRR by 50bps in the March 15th policy.

TTK Prestige -Target Price: `3,647; Market leader, large distribution network, strong growth; Buy: Anand Rathi

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TTK Prestige, India’s largest kitchen appliances company, has deep
penetration into rural and urban markets (30,000 retailers and 340
exclusive stores), strong brand recall, product innovation, increasing
capacity and focus on high-growth segments. These factors, in our view,
should lead to 36% earnings CAGR over FY11-14e. We initiate coverage
with a Buy and price target of `3,647.

India – Time for a bold budget  Standard Chartered Research,

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India – Time for a bold budget
 FY13 budget should attempt fiscal consolidation; the deficit should shrink to 5.3% of GDP from 5.8%
 Expenditure compression will be difficult to achieve; the proportion of capital spend should rise
 Indirect tax rates might be increased and the emphasis will be on non-tax revenue to reduce the deficit
 RBI OMOs will be required to relieve supply pressure as gross market borrowing is likely to be INR 5.4trn

Broadcasting: Not a great year but an exception for few Ad Revenue 􀁺 PINC

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Broadcasting: Not a great year but an exception for few
Ad Revenue
􀁺 TV continued to capture the dominant position in the total Ad revenue pie increasing
its ad contribution from 44.5% in 2010 to 44.8% in 2011.
􀁺 TV ad revenues grew just 9% as a result of saturating demand mainly led by cut in
FMCG ad spends. FMCG advertising contribution declined from 54.5% in 2010 to
52.8% in 2011.
􀁺 The year 2011 saw a fall in demand for advertising. There was no growth in the TV ad
space sold during the last six months despite festive season which usually contributes
to an uptrend in ad spends. In retrospect, the first half of the year turned out to be
better than the performance in the second half.
􀁺 Star and Sony witnessed a double digit advertising growth, but most other channels
including Sun TV and Zee TV recorded lower single digit growth.
􀁺 Regional market is expected to grow at a faster pace than national market owing to
greater consumption and penetration in the regional area.
􀁺 Sports properties: The sentiment for the IPL 5 is at an all-time low, with very few
sponsors tied up till now.

India Economics -- Previewing the 2012/13 budget :: Credit Suisse

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● This note is a summary of a longer report analysing India’s fiscal
position and previewing the country’s 16 March budget.
● While India has the highest budget deficit of the Non-Japan Asian
economies we cover, it would be wrong to suggest that the
country is facing an unsustainable rise in government debt of the
sort plaguing many developed countries. The key difference is
that India’s money GDP is growing at a double-digit rate.
● Nevertheless, it would still be prudent for the government to
tighten the fiscal purse strings and indeed we expect the finance
minister to announce a few restrictive measures. These together
with an upbeat assumption about divestment proceeds and a
robust growth forecast is likely to lead to an official central
government budget deficit forecast of around 5%. Our own
projection is for a 5.8% outturn.
● We expect the budget to deliver just about enough to allow the
RBI to start cutting the repo rate at its 15 March meeting. In our
view, the repo rate will be reduced 175bps by January next year,
leading the 10 year bond yield to drop to 7.5% by end-2012.

DR. REDDY’S LABORATORIES Ziprasidone launch; positive for Dr. Reddy’s, Lupin ::Edelweiss

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Dr. Reddy’s (DRRD) has launched generic Geodon (Ziprasidone) under
shared exclusivity with Lupin and Sandoz. Ziprasidone has a total branded
value of USD864mn and is used for indication of schizophrenia, acute
mania and bipolar disorder. DRRD has launched this generic in multiple
strengths 20 mg, 40 mg, 60 mg and 80 mg.
Impact
We estimate USD32‐35mn sales from the generic over next six months for DRRD and
USD 25‐26mn at PBT level. We have assumed 70% price erosion to innovator value and
25% market share, assuming a four‐player market including an anticipated launch of
authorized generic (AG) by Pfizer. Its NPV value works out to be INR6.3per share.
Outlook and valuations
Ziprasidone launch is accretive by 2‐4% to FY12E and FY13E earnings, respectively, and
has been factored in our estimates. We thus maintain our FY12‐13 EPS estimates of
INR98.1 and INR106 per share, respectively.
We highlight that DRRD has a robust pipeline targeting potential ~USD25bn market
opportunity in CY12, with a couple of undisclosed potentially high value launches not
build in the Street’s and our estimates. These products give significant upside to FY13
earnings estimates. Total NPV value of exclusive opportunities is INR100 per share. We
maintain ‘BUY/SO’ recommendation/ rating on the stock.

LUPIN PHARMACEUTICALS Lupin announces launch of Ziprasidone ::Edelweiss

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Lupin Pharma (LPC) has launched generic Geodon (Ziprasidone) under
shared exclusivity with Dr. Reddy’s (DRRD) and Sandoz. Ziprasidone has a
total branded value of USD864mn and is used for indication of
schizophrenia, acute mania and bipolar disorder. LPC has launched this
generic in multiple strengths 20 mg, 40 mg, 60 mg and 80 mg. We
highlight that all three companies have launched the generic the same
day.
Impact
We estimate USD32‐35mn sales from the generic over next six months for LPC and
USD25‐26mn at PBT level. We have assumed 70% price erosion to innovator value and
25% market share, assuming a four‐player market including an anticipated launch of
authorized generic (AG) by Pfizer. Its NPV value works out to be INR2.15per share.
Outlook and valuations
Ziprasidone launch is accretive by 3‐5% to LPC’s FY12E and FY13E earnings, respectively,
and has been factored in our estimates. We thus maintain our FY12‐13 EPS estimates of
INR21.5 and INR27.3 per share, respectively.
FY13 is anticipated to be a strong year for LPC, led by 23‐25 product launches including
6 FTFs. We expect strong traction to continue beyond FY13, with the company
continuing to be a frontrunner in mining limited opportunities. We maintain ‘BUY/SO’
recommendation/ rating on the stock.

Thermax - Looking beyond the near‐term weakness ::Prabhudas Lilladher,

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We hosted the management of Thermax. Following are the key takeaways of the
meeting:
􀂄 Base business orders to grow, large orders taking time: Thermax reiterated its
ability to win base business orders of at least Rs5-6bn per quarter and hence,
does not expect the order flow to be below the Q3FY12 levels (Rs5.9bn). The
peak base business order flow was Rs10.5bn in FY08. The current capacities can
take base business orders up to Rs14bn per quarter. However, with very few
enquiries for large and captive power plants, the order flow is likely to be muted
for the next two quarters due to the given current issues like coal availability
and higher cost of funds. The company expects the recovery to happen by
H2FY13. Sectors like Cement, Steel and Oil & Gas (refineries) are likely to lead
the recovery apart from sectors like Food processing, Hotels and Hospitals which
are already investing. Power sector is likely to take time to recover.
􀂄 Margins can be maintained if recovery happens in the next two quarters:
Given the reduced order carry, sales are likely to de-grow by 8-10% next year.
However, efforts are being made to curtail the fall. Though business like
Chemical, Water, Absorption chiller, Services O&M, Standard boilers etc. are
likely to show growth, large business segments like EPC and Boiler & Heating
are likely to de-grow, leading to over all de-growth. Thermax will try and
maintain margins at ~11% range despite lower turnover by various levers it has
in the employee cost (Rs500m in variable pay and Rs350m in variable man
power). However, if the recovery does not happen by H2FY13, then it will have
to start taking orders even with lower margin to cover fixed cost.

Banking - CRR cut: Predicted move, unpredicted timing and magnitude; Edelweiss PDF link

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In not a totally unexpected move, RBI has unleashed its liquidity injection measures by cutting CRR by 75 bps (consensus expectation: 50 bps) effective 10^th March (consensus expectation on the 16^th March).

STANDARD CHARTERED PLC Hong Kong, Singapore leads; India, Korea disappoints ::Edelweiss

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We met the top management team (Asia region) of Standard Chartered
Bank (SCB) for a better understanding of its performance in CY11 and
growth outlook and strategies going forward (particularly India). The bank
delivered PAT growth of 12% (USD4.7bn) despite moderating growth in
Asia, political/economic stress in Euro zone/Middle East and regulatory
changes. While two of its largest markets viz., India (down 33%) and Korea
(down 56%) faltered, the overall performance was offset by surge in Hong
Kong (up 41%) and Singapore (up 40%) earnings. Global NIMs improved
10bps to 2.3% on account of strong liquidity surplus and higher liability
margins; global advances grew ~9% led by wholesale banking.

COAL INDIA Q4FY12 production likely to exceed estimates ::Edelweiss

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Based on media reports, Q4FY12 production volume of Coal India (CIL)
could touch 139mt, but rakes availability issues may cap despatches to
125mt (our estimate for both production and despatches is 125mt). Yet,
considering the weak performance in H1FY12, this is a significant scale‐up
and improves visibility for FY13 volume.
Coal India produces 45.8mt of coal in Feb‐12, up 17% YoY
As per media reports, CIL produced 45.8mt of coal in Feb-12, up from 39mt in Feb-
11 and 44.7mt in Jan-12. Coal despatches increased 12% YoY in Feb-12 to 39.3mt.
Q4FY12 production to exceed expectations but logistics a concern
Assuming the daily run-rate of 1.6mt achieved in Feb-12 sustains, Mar-12
production could be 49mt and accordingly Q4FY12 production could touch 139mt,
up ~5.4% YoY. However, rakes availability would need to improve to 216
rakes/day (currently 197) for Q4FY12 despatches to exceed our estimate of 125mt.
Q4FY12 to be hit by higher employee costs
We have assumed a 28% QoQ rise in CIL’s employee costs to INR 71.9bn, owing to
new wage settlement. Final impact would depend on actuarial valuation.
Outlook and valuation: Production growth remains the key
The last quarter of every fiscal has always been the best for CIL; sustaining such
performance for FY13 and FY14, as a whole, is not possible. We are building in
production of 440mt for FY13 against management guidance of 463mt. However,
we are structurally positive on CIL, led by: (i) strong pricing power, (ii) production
increase in FY14 led by faster approvals in FY13, and (iii) reduced overhang of
wage increase and cash usage. We maintain ‘BUY/ Sector Outperformer’
recommendation/ rating on the stock (Target Price: INR430).

MEDIA & ENTERTAINMENT -CONFERENCE NOTE :Pinc

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We hosted PINC Media & Entertainment Conference on 28th Feb, 2012. Players from across the platforms of media
participated in the event. Sony Entertainment, Industry Experts, Media planners and unlisted players helped us
understand better about the Industry scenario and the competitive landscape of the respective segment. The
conference clearly elucidated short term apprehensions and integral long term growth story.
Given below are the key highlights of the conference.
Broadcasting: Not a great year but an exception for few
The year started on a positive note, however slowdown in the economy and high inflationary environment resulted in ad
budgets being hampered and hence only necessary advertising was done especially for second rung channels and regional
players like Sun TV. However, lead channels like Sony Entertainment and Star Plus performed well. TV advertisement
registered growth of 9% in 2011. In 2012 Television is expected to maintain a marginal growth rate of 10%.
Print: Regional outperformed English
The Print advertising segment grew at 8% in 2011. The growth rate was down mainly in English press advertising (regional
print revenue in double digits, however English Print grew at low single digit rate) which led to slow growth in the entire print
segment. Advertisers, specifically from BFSI and telecom spent cautiously on print in the second half of the year. No big
IPOs and no big launches impacted the advertising revenues. The entire focus was on regional consolidation with existing
players launching new editions into existing and new markets. Print media advertising is expected to reflect a growth of 6%
in 2012.
Radio: Bleak performance
Radio advertisements grew marginally by 2% in 2011 owing to lack of innovation in the medium. The only happening factor
was Phase III policy announcement by the government. Radio advertisement growth rate in 2012 is expected to be better at
5% mainly because of Phase III.
Outdoor: Blank period
Outdoor advertising revenue fell 10% in 2011 with its share in the total ad pie falling from 6.1% in 2010 to 5.1%. Spends on
outdoor have decreased in the major metros but some respite is seen on the back of rising spends in Tier II and Tier III cities.
2012 is expected to see some revival with a modest growth of 5%.
Cinema: Blockbuster year
The segment performed exceptionally well on account of blockbuster releases like – Ready, Bodyguard, Dabaang, Don 2,
RaOne, Rockstar etc. The Ad revenue grew 18% in 2011 pocketing Rs1.4bn revenues. Cinema advertising is expected to
increase its contribution in 2012 to 0.6% of the total ad pie from the current 0.4%.
Our View:
We reiterate that regional players will be better placed during the current economic slowdown. Despite slowdown in national
advertising, local spending (Automobile, FMCG, Clothing) will provide support to the regional players. Rising newsprint cost
for print players and surging content cost for broadcasting players remain a concern. With mandatory digitisation we expect
MSOs and broadcasters to gain immensely on account of increase in the declared subscriber base and higher subscription
revenue.

L&T bags orders worth `1,306cr ::Angel Broking

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L&T bags orders worth `1,306cr
Larsen & Toubro's (L&T) construction arm bagged new orders worth over
`1,306cr under various divisions during February 2012. The power T&D segment
secured orders worth `514cr from various clients, which includes a major order
from Power Grid Corporation for the construction of a transmission line. The
buildings and factories division won orders worth `451cr for the construction of
residential towers and for civil, structural and mechanical erection works for the
construction of a cement plant. L&T construction also secured an order worth
`220cr for the construction of 23MW Solar PV plant on EPC basis in Rajasthan.
Lastly, `121cr order was received from Kolkata Metro Rail for the construction of
2.7km viaduct, station building and other related works.
At the CMP of `1,299, the stock is trading at PE of 18.3x FY2013E earnings,
which is below the historical trading multiple for L&T. We have used the SOTP
methodology to value the company to capture all its business initiatives and
investments/stakes in the different businesses. Ascribing separate values to its
parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and
mcap basis, our target price works out to `1,607, which provides 23.7% upside
from current levels. Hence, we maintain our Buy rating on the stock.

Cement Dispatches – February 2012 :Angel Broking

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Cement Dispatches – February 2012
ACC’s cement dispatches for February 2012 stood at 2.15mn tonnes, up by
healthy 7.5% yoy. UltraTech’s cement dispatches stood at 3.52mn tonnes, up by
modest 5.7% yoy. However, on mom basis, dispatches declined for both the
companies, by 3.6% and 5.5%, respectively. Growth in dispatches of UltraTech
and ACC for February 2012 has come in lower than 12.7% yoy growth reported
by Ambuja Cements. We continue to remain Neutral on ACC and UltraTech, as
they are trading at EV/tonne of US$140 and US$147, respectively, on
CY2012E/FY2013E capacity.

Auto monthly sales numbers – February 2012 ::Edelweiss

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Auto monthly sales numbers – February 2012
Ashok Leyland (AL)
AL reported 13.3% yoy (7.8% mom) growth in its total volumes to 11,103 units,
driven largely by Dost sales, which reported 1,582 units during the month.
Excluding Dost, volumes declined by 3% yoy.
Bajaj Auto (BJAUT)
BJAUT reported modest 5.2% yoy (1.7% mom) growth in its total volumes to
343,777 units on account of moderate volume growth in the two-wheeler as well
as the three-wheeler segments. Motorcycle sales grew by 5.3% yoy (2.6% mom)
and three-wheeler volumes increased by 4% yoy (down 3.7% mom). Exports
growth also witnessed slight moderation, registering growth of 19.8% yoy (4.9%
mom) to 122,727 units.

BHARAT PETROLEUM Large upsides from E&P investments :Edelweiss

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Recent developments in Bharat Petroleum’s (BPCL) upstream venture
(Bharat Petroresources, BPRL), especially in Mozambique (10% stake),
have catapulted BPCL in the global E&P map. After incorporating increase
in reserves and potential upsides, we raise our estimate of BPCL’s E&P
business to INR 166/share. We also note that a bull case may lead to
further upside by INR 223/share. BPCL remains our favourite among the
three OMCs. We retain ‘BUY’ on the stock with TP of INR 843/share.
Mozambique discoveries catapult BPCL in global oil & gas map
Recent successes in the Rovuma offshore block, Mozambique, have catapulted BPCL in
the global oil & gas map. With total nine successful wells, Anadarko (operator)
estimates recoverable reserves at 16.5‐31.5+ tcf of gas. With a hectic exploration
programme of eight wells in FY13 and potential oil‐bearing targets in the block’s
southern area, we see further rise in news flows with potential upgrade in reserves
estimates. Reserves are expected to be certified in mid‐CY13 as Anadarko expects FID
to be announced in CY13. At 13% WACC, we assign a value of INR130/BPCL share with
bull case, pegging the same at INR298. The recently announced Cove Energy bid of
USD1.7bn implies BPCL value at INR240/share (assigning 80% value to Mozambique).
Drilling activity in Brazil to intensify; news flows every 1‐2 months
Drilling activity in Brazil is expected to intensify as the company plans to drill nine
wells in FY13 (six in past 3.5 years). BPCL is excited on potential targets, especially in
the Espiritos Santos basin (discoveries present in all four corners of blocks; close to
Jubarte complex of ~2.0 bn bbls) and Sergipe Alagoas basin (appraisal of recent large
discovery + exploration targets). Triggers: News flows every 1‐2 months. At USD
5.0/boe, we value Brazilian assets at INR 45/share and bull case of INR 95/share.
Outlook & valuations: Increasing TP to INR843/share; ‘BUY’
We peg BPCL’s E&P assets at INR166/sh (base case) and bull case at INR389/sh. As a
result, we raise our TP to INR843/sh (INR753/sh earlier). Our confidence of substantial
value in E&P asset stems from recently announced bid of USD1.7bn for Cove Energy
(8.5% in Mozambique block). Apart from E&P, we also like BPCL due to trigger of
potential increase in diesel prices post parliament session (April end). Triggers: Newsflows
every month from Mozambique and Brazilian blocks. Maintain ‘BUY’.

UNITED PHOSPHORUS Adverse weather killjoy ::Edelweiss

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Adverse weather conditions have delayed the start of cropping season in
United Phosphorus’ (UNTP) key geographies viz Europe and the US.
Management has, therefore, lowered revenue guidance for FY12 to 25‐
30% against 30‐40% earlier. However, UNTP maintains that it will realize
most of the lost sales of Q4FY12 in Q1FY13. As we are already at the lower
end of the earlier revenue guidance, we have factored in only a slight cut
in revenues for FY12 and FY13, while we maintain our EBITDA margin
estimates; our EPS estimates are down 7% and 4% for FY12 and FY13,
respectively. While lower revenue guidance is weighing on the stock price,
we believe current valuations are attractive and, hence, maintain ‘BUY’
with a revised target price of INR177 (INR185 earlier).
Revenue guidance cut considerably
Extended and severe winter in Europe and parts of the US has delayed the start of the
new season for UNTP. Generally, the last quarter is the strongest for UNTP in these
geographies. Hence, delay in cropping is likely to hit the company hard. The
management has, therefore, lowered its FY12 revenue guidance to 25‐30% from 30‐40%
earlier, which they had been maintaining for the past two quarters. Nevertheless, the
company guides for considerable spillover to Q1FY13.
Performance to be muted in Q4FY12
While UNTP’s 9mFY12 revenue surged 41%, lower revenue guidance for FY12 implies
muted revenue growth for Q4FY12. At the higher end of the band, we could see Q4FY12
revenue grow 6% and at the lower end decline 10%.
Outlook and valuations: Attractive; maintain ‘BUY’
All along we have considered UNTP’s revenue growth at the lower end of the guidance
(31% for FY12). Now, we have lowered it further to 27%, resulting in revenue of
INR73.3bn. For FY13 too, we reduce our revenue estimate to INR83.5bn from INR84.4bn
earlier. We, however, maintain our EBITDA margin estimates at 18.5% for FY12 and 19%
for FY13. Further, we have lowered our EPS estimates to INR14.0 (INR15.0 earlier) and
INR17.7 (INR18.5 earlier) for FY12 and FY13, respectively. Owing to attractive
valuations, we maintain ‘BUY’ on UNTP, with a revised TP of INR177 at 10x FY13E EPS.

Cement Channel Check - Rail freight hike to induce price rise; Edelweiss PDF link

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With railway freight increasing ~20% w.e.f. March 6, 2012, cement prices across regions are set to increase by INR 8-10/bag. Prices are expected to rise by another INR 5-10/bag if the 2% expected excise duty hike in the forthcoming budget goes through. While the proposed cement price hike can be margin accretive in the busy season—Q4FY12 and Q1FY13— (we estimate the impact to be INR2-4/bag while a INR10/bag increase in cement prices transforms to a net realisation increase of ~INR7/bag, net of current excise and VAT), it will hurt the industry in the lean season—Q2 and Q3FY13—as we perceive these price hikes unsustainable due to continued low industry utilisation of 78% for FY13E versus 77% in FY12E.       

Economy - RBI cuts CRR by 75bps ::Edelweiss PDF link

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In a surprise move, RBI has cut cash reserve ratio (CRR) by 75bps today (effective March 10th). Both the timing and the extent of the move came as a surprise as markets had been expecting a 50bps cut on 15th March mid-quarter monetary policy review. The move will inject ~INR480bn of primary liquidity into the system, and is purely aimed at tackling persistently high liquidity deficit in recent months. Advance tax outflow in the coming week and frontloading of cash balances by banks in the first week of reporting period would have only added to the liquidity deficit. With this move, we now expect a status quo (no change in policy rates) in the forthcoming monetary policy review.

Chemicals: Chemical Monthly Tracker, March 2012 ::Kotak Securities, PDF link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily09032012.pdf

Chemical Monthly Tracker, March 2012
Asia ethylene prices increase sharply
Contraction in margins for key polymers
Margins increase for PSF and PFY

Bajaj Holdings takes 3% in MCX

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Rahul Bajaj-promoted Bajaj Holdings and Investment Ltd has picked a 3.06 per cent stake in the listing-bound Multi Commodity Exchange (MCX). In a notice to investors, MCX indicated Bajaj purchased 1.56 million MCX shares from Passport Capital LLC. The deal would lead to a change in the list of top 10 shareholders in the prospectus, the company added. Passport Capital, which operates as a hedge fund, was the fourth largest shareholder in the company with 2.5 million shares or 4.9 per cent stake as on February 10, when the company filed a draft red herring prospectus. After this deal, Bajaj Holdings will take a joint ninth slot in the top shareholders list, holding an identical number of shares as Nabard. Passport Capital, with less than one million shares, will drop out of that list. According to sources, transfer agreement between Passport and Bajaj Holdings was struck at Rs 800 per share, a fews days before the MCX offering opened for subscription. The source added the Forward Markets Commission (FMC) is set to clear the share transfer. Passport Capital had acquired these MCX shares in two tranches in the past, at Rs 860 and Rs 1,155 per share. Thereafter, MCX had issued bonus shares in the ratio of 1:4 to shareholders. After adjusting for the bonus issue, the cost of each share acquisition for Passport comes to Rs 900 plus, said sources. HT Media, another shareholder with 0.2 per cent stake, also exited the company in the run up to the IPO, according to the above notice. MCX shareholders have raised Rs 663 crore in an offer for sale, pricing each share at Rs 1,032. The issue is getting listed in early March. In June 2011, Passport had sold 1.6 per cent stake for Rs 62 crore in Financial Technologies (India) Ltd, one of the promoters of MCX. Passport had been cutting its stake in MCX since 2009, when it held 10 per cent in the company. Passport Capital had started building up stakes in Financial Technologies during January 2007, when its share was trading at around Rs 1,700. The hedge fund continued to build up stake in the firm as its stock price reached over Rs 3,000 per share and was trading between Rs 2,400 and Rs 2,700 during late 2007, thus, increasing its stake to 4.23 per cent by March 2008. The fund had later averaged out its investment by buying more shares after the financial meltdown in 2008, raising its stake to 10 per cent in March 2009. San Francisco-based Passport Capital LLC, founded by John H Burbank III in 2000, manages approximately $4.7 billion in assets. It has invested in other Indian companies like VA Tech Wabag and Koutons Retail. Other shareholders of MCX include Euronext, Merrill Lynch, IFCI, Intel Capital and New Vernon Private Equity, besides ad-for-equity investors HT Media and Bennett, Coleman & Co, among others. --

Rupee is undervalued by 25%; fair value would be Rs 40/dollar (ET)

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By Minhaz Merchant, Chairman, Merchant Media

On a cool late winter evening 20 years ago, India's finance minister pulled a rabbit out of the hat. Dr Manmohan Singh was delivering his second Union Budget on February 29, 1992. The first had been an interim Budget on July 24, 1991, to stitch together an economy battered by near-financial bankruptcy with 67 tonnes of treasury gold mortgaged by the Indian government to the Bank of England and the Union Bank of Switzerland under the stern gaze of the International Monetary Fund.

Infra-Bond :: Apply to save additional tax upto Rs. 20000 U/S 80CCF

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Details	PFS (PTC India)	L&T Infra Bond	PFC Infra Series 86	IFCI Infra Bonds Series V
OPENS	30.12.2011	10.01.2012	29.02.2011	29.02.2012
CLOSES	16.03.2012	12.03.2012	23.03.2012	27.03.2012
FACE VALUE	5000	1000	5000	5000
MINIMUM APP.	5000	5000	5000	5000
OPT I	8.93% (10 yrs) Cumm.	8.70% (10 yrs) (Annual)	8.43% (10 yrs) (Annual)	8.50% (12 yrs) (Cumm)
OPT II	8.93% (10 yrs) Annual	8.70% 10 yrs (Cumm)	8.43% (10 yrs) (Cumm)  .	8.50% (12 yrs) (Annual)
OPT III	9.15% (15 yrs) Cumm.		8.72% (15 yrs) Annual	8.72% 15 yrs (Cumm)
OPT IV	9.15% (15 yrs) Annual		8.72% (15 yrs) (Cumm)	8.72% 15 yrs (Annual)
Buyback	5th Year & 7th Year	5th Year & 7th Year	5th Year – 10 Yrs Option & 6th Year – 15 Yrs Option	5th Year & 7th Year for 12 Year option : 5th & 10th Year for 15 Year Option
Rating	BWR AA’, CARE‘A+’, ‘A+’ by ICRA	CARE AA, AA+ BY ICRA	“AAA” by CRISIL & ICRA	“A+” BY CARE & “LA” by ICRA
Cheque in favor of	PFS Infra Bond Account	L&T Infra Bonds 2012A”	PFC Infrastructure  Bonds Collection A/c	“IFCI limited – Infra Bond”

Thanks & Regards,