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NOVEMBER 2, 2011
Economy News Equity
4 India's exports grew by 36.3% on an annual basis to $24.8 billion in % Chg
September, 2011, demonstrating impressive year-on-year expansion 1 Nov 11 1 Day 1 Mth 3 Mths
despite a slowdown in the US and Europe.During the April-September
Indian Indices
period, India's exports grew by 52% to $160 billion from $105.2 billion in SENSEX Index 17,481 (1.3) 6.2 (3.5)
the same period last year.(BS) NIFTY Index 5,258 (1.3) 6.4 (3.6)
4 The Government may revise the fiscal deficit target in the mid-year BANKEX Index 11,278 (1.5) 3.9 (8.1)
BSET Index 5,777 (0.9) 9.5 (0.4)
economic review. This review will be tabled in the Parliament during the
BSETCG INDEX 10,849 (1.1) 1.0 (16.1)
winter session starting from November 22. The Finance Ministry has set a
BSEOIL INDEX 8,890 (1.1) 4.7 0.2
fiscal deficit target of 4.6 per cent of the gross domestic product (GDP) CNXMcap Index 7,205 (0.8) 1.6 (8.9)
for 2011-12. But according to latest data from the Controller General of BSESMCAP INDEX 6,936 (0.5) 0.8 (15.0)
Accounts, it has already reached over 70 per cent in first six months of
World Indices
this fiscal.(BL) Dow Jones 11,658 (2.5) 6.8 (1.8)
4 Rise in output and new export orders pushed up the country's Purchasing Nasdaq 2,607 (2.9) 7.9 (2.3)
Managers' Index (PMI) to 52 points in October, from 50.4 points in FTSE 5,422 (2.2) 5.7 (5.2)
NIKKEI 8,836 (1.7) (0.4) (12.0)
September (ET)
HANGSENG 19,370 (2.5) 8.5 (14.9)
4 State-owned oil companies are pressing for a Rs 1.82 per litre increase in
petrol prices because of rupee depreciation and hardening of crude oil Value traded (Rs cr)
1 Nov 11 % Chg - Day
prices. (BS)
Cash BSE 2,200 1.9
Corporate News Cash NSE 9,772 (8.8)
Derivatives 93,325 27.4
4 The country's largest car-maker Maruti Suzuki India reported a 53.25%
fall in sales in October to 55,595 units due to labour unrest at its Manesar Net inflows (Rs cr)
plant, which severely affected production. (BS) 31 Oct 11 % Chg MTD YTD
4 Reliance Industries, owned by Mukesh Ambani, is likely to use the FII 481 (79.6) 2,469 940
Mutual Fund (150) (4.5) (278) 4,596
towers and fibre optic cables of a telecom company controlled by younger
brother Anil to provide high-speed data services (ET) FII open interest (Rs cr)
31 Oct 11 % Chg
4 State Bank of India (SBI), the country's largest lender, ruled out any
immediate hike in savings deposit rates, even as private sector lenders FII Index Futures 15,105 (5.0)
have raised interest within days of the Reserve Bank of India (RBI) FII Index Options 37,878 2.3
deregulating such rates.(BS) FII Stock Futures 28,498 0.5
FII Stock Options 540 9.2
4 Pratibha Industries said that it bagged two orders in the buildings and
water segment. The combined value of both the orders amounts to Rs Advances / Declines (BSE)
5.71 bn.(BS) 1 Nov 11 A B S Total % total
Advances 62 893 221 1,176 40
4 Punjab National Bank has kicked off the biggest loans restructuring
Declines 140 1,217 251 1,608 55
exercise by Indian lenders to a sector - power - by converting Rs 25 bn of
Unchanged 1 96 32 129 4
short-term loans into long-term ones to avoid imminent defaults. (ET)
Commodity % Chg
4 Hospital chain Fortis Healthcare (India) said it will buy Singapore-based
sister firm Fortis Healthcare International for $665 million 1 Nov 11 1 Day 1 Mth 3 Mths
(approximately Rs 32.50 bn).(BS) Crude (NYMEX) (US$/BBL) 91.5 (0.7) 15.6 (2.4)
Gold (US$/OZ) 1,714.3 (0.6) 6.0 5.1
4 The Rs 16 bn Surya Pharmaceutical has launched its Super speciality Silver (US$/OZ) 33.2 (3.7) 10.8 (16.4)
Neuropsychiatric division called ALVIN and is eyeing sales of Rs 150 mn
from the division in a year's time. (ET) Debt / forex market
1 Nov 11 1 Day 1 Mth 3 Mths
4 Reliance Industries has seen natural gas output from its eastern
offshore KG-D6 field drop to 42 million standard cubic meters per day. 10 yr G-Sec yield % 8.96 8.92 N/A 8.55
Re/US$ 48.7 48.7 49.0 44.1
The current output is a far cry from 61.5 mmscmd achieved in March last
year and is almost at the 2009 production levels. (ET) Sensex
4 IVRCL is close to selling two of its operational road projects to 21,500
construction and engineering firm Larsen and Toubro for an undisclosed 20,000
sum to unlock value and raise funds for projects under execution. (ET)
18,500
17,000
15,500
Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, Nov-10 Feb-11 May-11 Aug-11 Nov-11
BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange
MORNING INSIGHT November 2, 2011
RESULT UPDATE ORACLE FINANCIAL SERVICES LTD (OFSL)
Dipen Shah
dipen.shah@kotak.com
+91 22 6621 6301 PRICE : RS.2100 RECOMMENDATION : ACCUMULATE
TARGET PRICE : RS.2196 FY13E P/E: 16.7X
Oracle's 2QFY12 numbers were lower than estimates largely due to lower
product revenues and margins. We believe this could be because of the
volatile nature of product revenues. Product revenues rose by 4% YoY and
9% QoQ. The new license signings at $9mn ($13mn) was lower QoQ. The
management has indicated strong pipeline for the products business with
US providing much of the strength. The company is not seeing in major
signs of budget deferrals or project cancellations. Services business
continued to lose employees during the quarter, though. We largely
maintain our FY12E earnings at Rs.115 per share. We introduce FY13
earnings estimates where we expect the EPS to be Rs.126. We arrive at a
target price of Rs.2196 based on FY13E earnings (Rs.2110 based on FY12E
earnings, earlier). Based on the limited upsides, we recommend
ACCUMULATE. There can be potential gains from Oracle's offer, if any, to
buy-back shares and de-list the company. A delayed recovery in user
economies and a sharper-than-expected rupee appreciation are key risks to
our earnings estimates.
Summary table 2QFY12 results
(Rs mn) FY11 FY12E FY13E (Rs mns) 1QFY12 2QFY12 % QoQ 2QFY11 % YoY
Sales 29,956 31,888 35,399 Revenues 7121 7562 6.2 7436 1.7
Growth (%) 4.2 6.4 11.0
EBITDA 11,207 11,483 12,789
Expenditure 4825 5078 4745
EBITDA margin (%) 37.4 36.0 36.1 EBIDTA 2295 2484 8.2 2691 -7.7
PBT 12,467 13,769 15,119 Depreciation 101 99 91
Net profit 11,097 9,667 10,584
EBIT 2195 2385 8.7 2600 -8.3
EPS (Rs) 132.3 115.2 126.1
Growth (%) 43.3 (12.9) 9.5 Interest 0 0 0
CEPS (Rs) 137.1 120.2 131.9 Other inc 750 1393 336
BV (Rs/share) 644.3 742.7 861.5
PBT 2945 3778 28.3 2936 28.7
Dividend / share (Rs) 6.0 6.0 7.0
ROE (%) 22.9 15.1 15.7 Tax 903 826 301
ROCE (%) 25.7 25.1 22.4 PAT 2042 2952 44.6 2635 12.0
Net cash (debt) 29,033 37,146 45,167 Share of Pft / (loss) 0 0 0
NW Capital (Days) 100.1 87.8 92.1
P/E (x) 15.9 18.2 16.7
Adjusted PAT 2042 2952 44.6 2635 12.0
P/BV (x) 3.3 2.8 2.4 E.O items 0 -866 0
EV/Sales (x) 4.9 4.4 3.7 EPS (Rs) 24.3 35.2 31.4
EV/EBITDA (x) 13.1 12.1 10.3
Ratios
Source: Company, Kotak Securities - Private OPM (%) 32.2 32.8 36.2
Client Research
GPM(%) 30.8 31.5 35.0
NPM(%) 28.7 39.0 35.4
Source : Company
Product revenues grow by 4% YoY
n On a consolidated basis, revenues for Oracle grew by about 6% YoY.
n Product revenues rose by 4% YoY, led by higher implementation and AMC rev-
enues. License revenues were down by nearly 76% YoY.
n We view the lower license revenues as a result of the volatile nature of the prod-
uct revenues. These revenues vary based on completion of large product imple-
mentations and can be very volatile.
n OFSS is also consolidating its operations in order to create a more customer-fo-
cused organization.
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2
MORNING INSIGHT November 2, 2011
n AMC revenues continued to grow and rose by 7% YoY for the quarter. AMC
revneus now form about 26% of the overall product revenues.
n The rise in AMC revenues is a positive as they are a stable source of revenues
and may reduce the volatility in the overall product revenues of the company.
n Oracle added 7 customers for its products business. 16 customers completed de-
ployment during the quarter.
n Services revenues de-grew by 5% QoQ.
n The business continued to witness lackluster growth. The number of employees
in the services business fell further by about 4.5% (14% fall in 1Q).
n According to the management, this was largely due to attrition. However, we
believe that, the consistent reduction could be due to the higher focus of the
company on its products business and lack of scale up in the services business.
Macro scene
n We understand that, the macro scene is still uncertain as compared to the previ-
ous quarter.
n While developed economies are showing signs of weakness, clients continue to
be sanguine about their businesses. The sentiment has remained healthy, ac-
cording to the management and decision making has not been impacted signifi-
cantly.
n The company is witnessing strong demand trends from US but at the same time,
it is seeing some weakness in the pipeline from Western Europe.
n According to the management, the transformation agenda of the clients, which
was suspended, is being revived by clients. Moreover, compliance programs of
clients are driving growth for products like Reveleus.
Order bookings lower
n Oracle booked new license orders worth $9mn ($13mn) during the quarter.
n Due to lower execution during the quarter, the tank size is at around $112mn,
we understand.
n We need to watch the order bookings closely and any further strength in the
medium term will only add to our confidence. However, we under stand that,
the volatile nature of the business may result in lower bookings in any quarter.
EBIDTA margins
n On an overall basis, margins were almost flat QoQ.
n Product business margins fell steeply on a YoY basis (from 48.5% to 38.9%) on
the back of lower license revenues.
n In services business, margins rose on a YoY as well as QoQ basis, due to a reduc-
tion in employee strength and other cost optimization initiatives.
n Oracle's margins in the services business have been surprisingly erratic, making it
difficult to estimates the future trend.
n We believe that, a higher proportion of license revenues will be a key determi-
nant of margins going forward.
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 3
MORNING INSIGHT November 2, 2011
Financial projections and Recommendation
n We almost maintain our FY12 earnings estimates with an EPS of Rs.115.
n We introduce FY13 estimates. We expect product revenues to grow by 14% and
services revenues to be almost flat YoY.
n EBIDTA margins are expected to be largely flat for the products business. We
expect license revenues to form about 20% of product revenues v/s about 19%
in FY12. Margins in services business are expected to fall on the back of salary
increments and the expected rupee appreciation v/s 2HFY12 levels.
n We expect the rupee to average 46 / USD in FY13 as compared to about 48 /
USD in 2HFY12.
n We have assumed tax at 30% of PBT in FY12 as well as in FY13. Consequently,
PAT is expected to rise by about 9% in FY13E, leading to an EPS of Rs.126.
Recommendation
n We see the Oracle relationship as a key differentiator for OFSL and believe this
could open up significant business opportunities for the company in addition to
having endowed it with an MNC parentage.
We recommend ACCUMULATE n The valuations are not undemanding especially in the backdrop of a still uncer-
on Oracle Financial Services tain macro scene. We, thus, recommend ACCUMULATE with a revised PT of
with a price target of Rs.2196 Rs.2196 based on FY13E earnings (v/s Rs.2110 based on FY12E earnings), after
according a discount as compared to valuations of large peers.
n We note that, the quarterly earnings are pretty volatile and may surprise on ei-
ther side.
n A revised open offer by Oracle, if any, with a view to increase its stake further
and de-list the stock from the bourses, will be an upside trigger, though we as-
sign low probability to the same, for now.
Risks
n A delayed recovery in major user economies may impact our projections.
n A sharp acceleration in the rupee beyond our estimates may impact our earnings
estimates for the company.
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 4
MORNING INSIGHT November 2, 2011
RESULT UPDATE ACC
Teena Virmani
teena.virmani@kotak.com
+91 22 6621 6302 PRICE : RS.1184 RECOMMENDATION: REDUCE
TARGET PRICE : RS.1085 CY12E PE: 16.3X
q Company's revenues for Q3CY11 were in line with our estimates and
were impacted by fall in average cement realizations. Operating margin
for Q3CY11 declined sequentially led by lower average cement prices and
higher costs for the quarter.
q Net profit performance was marginally better than our estimates due to
higher other operating income as well as lower tax rate. PAT is up by
67% YoY but down by 50% QoQ due to higher costs and lower cement
realizations.
q Cement volumes for the company are likely to improve going forward.
However, current valuations are too steep and hence we continue to
maintain REDUCE on the stock with a target price of Rs 1085 based on
CY12 estimates.
Summary table Financial highlights
(Rs mn) CY10 CY11E CY12E (Rs mn) Q3CY11 Q3CY10 YoY (%)
Sales 77,173 93,421 106,784
Net Sales 21,500 16,372 31
Growth (%) -3.9 21.1 14.3
EBITDA 15,540 18,770 22,573 Expenditure 19,296 14,672
EBITDA margin (%) 20.1 20.1 21.1 Inc/Dec in trade -145 560
PBT 14,615 16,659 19,502
RM 3,628 2,493
Net profit 11,200 11,661 13,651
EPS (Rs) 59.6 62.1 72.7 As a % of net sales 16.9 15.2
Growth (%) (30.3) 4.1 17.1 Staff cost 1,383 1,174
CEPS (Rs) 80.5 87.3 99.8 As a % of net sales 6.4 7.2
BV (Rs/share) 344.6 383.2 432.5
Dividend / share (Rs) 20.5 20.5 20.5
Power and fuel 5,524 3,615
ROE (%) 17.9 17.1 17.8 As a % of net sales 25.7 22.1
ROCE (%) 22.4 24.5 25.5 Transportation & Handling 3,329 2,255
Net cash (debt) 5,562 5,745 14,490
As a % of net sales 15.5 13.8
NW Capital (Days) (22.1) (22.1) (22.1)
EV/Sales (x) 2.6 2.1 1.7 Purchase of traded cement 357 258
EV/EBITDA (x) 12.9 10.5 8.3 As a % of net sales 1.7 1.6
P/E (x) 19.9 19.1 16.3
Other expenditure 5,221 4,316
P/BV (x) 3.4 3.1 2.7
As a % of net sales 24.3 26.4
Source: Company, Kotak Securities - Private
Operating Profit 2,204 1700 30
Client Research
Operating Profit Margin (%) 10.3 10.4
Depreciation 1,199 911
EBIT 1,005 789 27
Interest 253 162
EBT(exc other income) 752 627
Other Income 1,561 809
Sales tax benefits 0 0
Extraordinary Items 0 0
EBT 2,312 1,436 61
Tax 637 435
Tax Rate (%) 27.5 30.3
PAT 1,676 1001
Net Profit 1,676 1001 67
NPM (%) 7.8 6.1
Equity Capital 1,879.5 1879.4
EPS (Rs) 8.9 5.3
Source: Company
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 5
MORNING INSIGHT November 2, 2011
Revenue growth in line with our estimates
n Company's revenues for Q3CY11 were in line with our estimates and were im-
pacted by fall in average cement realizations on a sequential basis. However,
revenues for the Q3CY11 reported a growth of 31% YoY led by improvement in
cement dispatches as well as realizations as against same period last year.
n Dispatches of the company witnessed an improvement of 17.8% on YoY basis
and stood at 5.69 MT in Q3CY11 as against 4.83 MT in Q3CY10. Dispatch
growth for ACC has outperformed the industry due to commissioning of its new
capacities at Wadi and Chanda. Dispatches during 9MCY11 improved by 13.4%
on YoY basis.
n Net realizations for Q3CY11 stood at Rs 3779 per tonne vs Rs 4052 per tonne
during Q2CY11 and Rs 3390 per tonne in Q3CY10. Cement prices had declined
during Q3CY11 in most of the regions due to monsoons as well as lower than
expected offtake. However, despite low demand growth, cement prices have
started recovering post monsoons.
n During the quarter, production has stabilized from the new line at Chanda and
Wadi plant. We thus expect volumes to witness an improvement going forward.
n We expect volumes to grow to 23.9MT and 26MT in CY11 and CY12 and ex-
pect pricing to improve by 5% next year. We thus expect revenues to grow at a
CAGR of 17.6% between CY10-CY12.
Operating margins lower than our expectations
n Operating margin for Q3CY11 declined sequentially led by lower average ce-
ment prices and higher costs for the quarter. Margins stood at 10.3% for
Q3CY11 vis-à-vis 22.9% for Q2CY11 and 10.4% for Q3CY10.
n EBITDA/tonne during the quarter stood at Rs 387 per tonne as against Rs 352 per
tonne during Q3CY10. However, sequentially, EBITDA/tonne witnessed a sharp
decline due to decline in cement realizations and increase in raw material,
power and fuel and other expenditure.
n On a sequential basis, raw material costs are up during the quarter due to in-
crease in fly ash and gypsum prices. Power and fuel costs for the company con-
tinue to stay high due to higher prices of coal. Out of the total coal requirement,
60% comes from linkage coal, 30% comes from e-auctions and remaining 10%
comes from imports. However, company feels that linkage coal may get reduced
due to higher demand from other sectors for coal. If that happens, it may in-
crease power and fuel cost further going forward.
Per tonne analysis
Q3CY11 Q3CY10 Q2CY11
Dispatches(mn tonne) 5.69 4.83 5.93
Net Realisation/tonne 3779 3390 4052
YoY growth (%) 11.5
QoQ growth (%) -6.8
Costs per tonne 3391 3038 3124
Raw material 612 632 459
Staff cost 243 243 202
Power and fuel 971 748 959
Transporation &Handling 585 467 587
Purchase of traded cement 63 53 73
Other expenditure 918 894 845
EBITDA per tonne 387 352 928
Source: Company
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 6
MORNING INSIGHT November 2, 2011
n Though overall costs may remain at the current levels in near term, cement
prices have started recovering post monsoons in most of the regions. We thus
expect EBITDA/tonne to improve in the coming quarters.
n We tweak our CY11 estimates and increase our cost assumptions marginally. We
thus expect margins to be 20.1% and 21% respectively for CY11 and CY12.
Net profit growth boosted by higher other operating income and
lower tax
n Net profit performance was marginally better than our estimates due to higher
other operating income as well as lower tax rate. PAT is up by 67% YoY but
down by 50% QoQ due to higher costs and lower cement realizations.
n Higher other operating income during the quarter includes Rs 617 mn pertaining
to incentives and sales tax written back for previous years. This has resulted in
boosting net profit growth.
n We tweak our estimates marginally and expect net profits to grow at a CAGR of
10.5% between CY10-CY12
Valuation and recommendation
n At current price of Rs 1184, stock is trading at 16.3x P/E and 8.3x EV/EBITDA for
CY11 and CY12.
We recommend REDUCE on n Stock has been trading at high valuations due to healthy balance sheet and re-
ACC with a price target of turn ratios as well as MNC parentage. However, we believe that stock is cur-
Rs.1085 rently factoring in the best case scenario of higher cement realizations as well as
EBITDA/tonne.
n Based on steep valuations, we continue to recommend REDUCE on the stock
with a price target of Rs 1085 based on $125 EV/tonne and 7.5x EV/EBITDA on
CY12 estimates.
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 7
MORNING INSIGHT November 2, 2011
RESULT UPDATE PUNJAB NATIONAL BANK (PNB)
Saday Sinha
saday.sinha@kotak.com
+91 22 6621 6312 PRICE : RS.1013 RECOMMENDATION: BUY
TARGET PRICE : RS.1300 FY13 P/E: 5.3X, P/ABV: 1.2X
Q2FY12 results: Core performance marginally ahead of our ex-
pectations; slippage also lower than the average run rate of pre-
vious 4 quarters.
q NII growth at 16.0%, slightly better than our expectations mainly aided
by better than expected NIM (3.95% during Q2FY12; 11 bps QoQ im-
provement) along with 19.3% growth in loan book. Similarly, net profit
growth (12.1% YoY) surprised positively on back of lower loan loss pro-
visions (Rs.3.19 bn; down 43.6% QoQ).
q Core fee-based income witnessed healthy growth of 26.9% while 'Recov-
ery from W/O A/Cs' and 'Dividend income from MF' continued to aid
healthy growth in overall non-interest income. NIM during Q2FY12 came
at 3.95%, higher than our expectations mainly on the back of 54bps im-
provement in yield on advances, while cost of funds rose by only 10 bps.
We are a bit conservative and have modeled NIM at 3.65% and 3.42%
during FY12E and FY13E, respectively.
q Although reported slippage (1.64% annualized) may look slightly on
higher side, it came lower than the average run rate of previous 4 quar-
ters (2.16% annualized). However, cumulative restructured book now
stands at Rs.199.7 bn (~8.0% of loan book), which is higher than the in-
dustry average.
q Asset quality remained stable QoQ with gross NPA and net NPA coming
at 2.05% and 0.84%, respectively. In absolute terms, gross NPA rose by
5.2% QoQ as bank completely shifted to system based NPA recognition
system (loans >1.0 mn migrated during Q2FY12). Their coverage ratio is
also healthy at 75.1% at the end of Q2FY12.
q At CMP of Rs.1013, the stock is trading at 5.3x its FY13E earnings and
1.2x its FY13E ABV. Although we like its positioning strategy of a domi-
nant player in the Indo-Gangetic belt as well its strong liability franchise,
we opine ~10% of stressed assets (restructured book + gross NPA) is
likely to be an overhang on the stock, going forward. We have cut the TP
to Rs.1300 (Rs.1400 earlier) but maintain BUY rating on the stock; at TP
stock would trade at 1.5x FY13E adjusted book value.
Result Performance
(Rs mn) Q2FY12 Q2FY11 YoY (%)
Interest on advances 70,447.5 50,352.0 39.9
Interest on Investment 18,523.8 13,971.8 32.6
Interest on RBI/ banks' balances 483.5 204.5 136.4
Other interest 65.3 26.1 150.2
Total interest earned 89,520.1 64,554.4 38.7
Interest Expended 54,994.4 34,787.4 58.1
Net interest income (NII) 34,525.7 29,767.0 16.0
Other income (Non-interest income) 8,888.6 7,182.5 23.8
Net Revenue (NII + Other income) 43,414.3 36,949.5 17.5
Operating Expenses 18,136.6 15,948.5 13.7
Payments to / Provisions for employees 12,404.2 11,130.9 11.4
Other operating expenses 5,732.4 4,817.6 19.0
Operating profit 25,277.7 21,001.0 20.4
Provisions & contingencies 7,103.2 5,160.3 37.7
Provision for taxes 6,124.2 5,095.2 20.2
Net profit 12,050.3 10,745.5 12.1
EPS (Rs.)_ 38.04 34.08 11.6
Source: Company
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 8
MORNING INSIGHT November 2, 2011
NII growth at 16.0%, slightly better than our expectations; PAT
also came higher on back of lower loan loss provisions
PNB reported NII at Rs.34.53 bn (16.0% growth YoY). This is slightly ahead of our
expectations, mainly aided by better than expected NIM (3.95% during Q2FY12; 11
bps QoQ improvement) along with 19.3% growth in loan book.
Similarly, net profit growth (12.1% YoY) surprised positively on back of lower loan
loss provisions (Rs.3.19 bn; down 43.6% QoQ).
Healthy growth in core fee-based income; NIM also surprised
positively
Core fee-based income witnessed healthy growth of 26.9% while 'Recovery from
W/O A/Cs' and 'Dividend income from MF' continued to aid healthy growth in over-
all non-interest income. Overall non-interest income grew 23.8%, which was also
aided by 39.5% growth in treasury profit.
Trend in non-interest income
(Rs bn) 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 YoY (%)
C/E/B 4.36 4.13 4.70 5.98 4.73 8.5
Profit on Exchange transaction 0.31 1.25 1.09 1.31 1.33 NM
Miscellaneous fee income 0.76 0.88 1.7 0.65 0.83 9.2
Trading Profit 0.38 0.87 0.53 0.48 0.53 39.5
Miscellaneous Income 1.38 1.44 3.43 2.40 1.48 7.2
Total non-interest income 7.18 8.57 11.45 10.84 8.89 23.8
Source: Company
NIM during Q2FY12 came at 3.95%, higher than our expectations mainly on the
back of 54bps improvement in yield on advances, while cost of funds rose by only
10 bps. We are a bit conservative and have modeled NIM at 3.65% and 3.42%
during FY12E and FY13E, respectively.
Business grows at healthy pace; CASA mix also remains at
healthy level. We are modeling loan growth of ~17% and ~19%
during FY12 & FY13, respectively.
Total business of the bank rose 22.5% during Q2FY12 with advances and deposits
growing at 19.3% and 25.0%, respectively.
n Advances grew 19.3% YoY to Rs.2490.2 bn at the end of Q2FY12 mainly driven
by large Industry (24.9% YoY) and retail segments (20.2% YoY).
n Total deposits rose 25.0% YoY to Rs.3417.8 bn at the end of Q2FY12. CASA mix
also remained healthy at 36.3% at the end of Q2FY12, despite recent rise in the
interest rates offered on saving deposits and FDs.
PNB enjoys one of the highest CASA among Indian banks which helps in better NIM
as compared to its peers. During Q2FY12, saving account deposits grew at healthy
pace (15.1% YoY) while current account floats remained flat QoQ; term deposits
grew at 34.1% leading to some compression in CASA share (decline from 40.6% at
the end of Q2FY11).
Slippage lower than the average run rate of previous 4 quarters;
however, cumulative restructured book (~8.0% of loan book) is
higher than the industry average.
Although reported slippage (1.64% annualized) may look slightly on higher side, it
came lower than the average run rate of previous 4 quarters (2.16% annualized).
However, cumulative restructured book now stands at Rs.199.7 bn (~8.0% of loan
book), which is higher than the industry average.
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 9
MORNING INSIGHT November 2, 2011
Asset quality remained stable QoQ with gross NPA and net NPA coming at 2.05%
and 0.84%, respectively. In absolute terms, gross NPA rose by 5.2% QoQ as bank
completely shifted to system based NPA recognition system (loans >1.0 mn migrated
during Q2FY12). Their coverage ratio is also healthy at 75.1% at the end of Q2FY12.
Trend in NPAs
Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12
Gross NPA (Rs. bn) 36.1 40.3 45.4 43.8 48.9 51.5
% of Net NPA 1.82 1.91 2.03 1.79 2.00 2.05
Net NPA (Rs. bn) 12.8 14.3 15.8 20.4 20.9 20.9
% of Net NPA 0.66 0.69 0.72 0.85 0.86 0.84
Source: Company
Valuation & recommendation
At CMP of Rs.1013, the stock is trading reasonable at 5.3x its FY13E earnings and
1.2x its FY13E ABV. We are modeling earnings to grow 16.5% CAGR during FY11-
13E, while return profile is also expected to remain healthy (FY13E - RoA: 1.3%,
RoE: 21.7%) during next two years.
We maintain BUY rating on Although we like its positioning strategy of a dominant player in the Indo-Gangetic
Punjab National Bank with a belt as well its strong liability franchise, we opine ~10% of stressed assets (restruc-
revised price target of Rs.1300 tured book + gross NPA) is likely to be an overhang on the stock, going forward.
We have cut the TP and maintain BUY rating on the stock with revised TP of
Rs.1300 (Rs.1400 earlier) based on P/ABV of 1.5x its FY12E adjusted book value.
Key Data
(Rs bn) 2010 2011 2012E 2013E
Interest income 214.22 269.86 358.14 415.50
Interest expense 129.44 151.80 224.34 268.33
Net interest income 84.78 118.07 133.80 147.17
Growth (%) 20.6% 39.3% 13.3% 10.0%
Other income 36.10 36.13 40.93 48.77
Gross profit 73.26 90.55 103.00 118.33
Net profit 39.05 44.33 49.03 60.20
Growth (%) 20.7% 13.5% 10.6% 22.8%
Gross NPA (%) 1.7 1.8 2.0 1.9
Net NPA (%) 0.5 0.9 0.8 0.6
Net int. margin (%) 3.5 3.9 3.6 3.4
CAR (%) 14.2 12.4 12.4 11.8
RoE (%) 24.6 23.0 21.1 21.7
RoA (%) 1.4 1.3 1.2 1.3
Dividend per share (Rs) 22.0 22.0 24.0 25.0
EPS (Rs) 123.9 139.9 154.8 190.0
Adjusted BVPS (Rs) 483.6 568.1 692.6 855.3
P/E (x) 8.2 7.2 6.5 5.3
P/ABV (x) 2.1 1.8 1.5 1.2
Source: Company, Kotak Securities - Private Client Research
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MORNING INSIGHT November 2, 2011
RESULT UPDATE INDIAN BANK
Saday Sinha
saday.sinha@kotak.com
+91 22 6621 6312 PRICE : RS.216 RECOMMENDATION: BUY
TARGET PRICE : RS.290 FY13E P/E: 4.2X, P/ABV: 1.0X
Q2FY12 Results: Core performance ahead of expectations, how-
ever asset quality deteriorated.
q Indian bank's reported earnings came slightly ahead of our expectations.
NII growth came at 15.5% to Rs.11.35 bn in Q2FY12 on back of 23.4%
growth in loan book along with flat margin (3.76%). Net profit also came
slightly higher than our expectations (Rs.4.69 bn; 12.7% growth YoY) on
back of strong non-interest income and muted operating expense, de-
spite higher provisions done during Q2FY12.
q Loan growth continued to grow at moderate pace for third quarter in a
row (23.4% YoY in Q2FY12 as compared to 28-29% YoY growth wit-
nessed only till few quarters ago); now focus has shifted to large corpo-
rate (30.0% YoY), while retail and MSME continue to witness moderate
growth.
q NIM also came ahead of our expectations; it grew 33 bps QoQ to 3.76%
in Q2FY12 (flat YoY). We are expecting NIM to come at 3.56% and 3.30%
during FY12E and FY13E, respectively as compared to 3.75% witnessed
during FY11.
q Asset quality deteriorated sharply during Q2FY12 - gross NPA rose 15.9%
YoY and 30.0% QoQ while net NPA rose 17.9% YoY and 42.1% QoQ. We
have modeled higher slippage (1.8%) during FY12E & FY13E as compared
to 1.5% witnessed during FY11. We maintain BUY rating on the stock
with revised TP of Rs.290 (Rs.305 earlier) based on 1.3x of its FY13E ad-
justed book value.
Result Performance
(Rs mn) Q2FY12 Q2FY11 YoY (%)
Interest on advances 23,561.7 17,258.7 36.5
Interest on Investment 6,752.2 5,388.3 25.3
Interest on RBI/ banks' balances 34.3 109.3 -68.7
Other interest - -
Total Interest earned 30,348.2 22,756.2 33.4
Interest expenses 18,994.5 12,924.0 47.0
Net interest income 11,353.7 9,832.2 15.5
Other income 3,423.2 2,836.6 20.7
Net Revenue (NII + Other income) 14,776.8 12,668.8 16.6
Operating Expenses 5,568.0 5,279.4 5.5
Payments to / Provisions for employees 3,666.8 3,692.2 -0.7
Other operating expenses 1,901.2 1,587.2 19.8
Operating profit 9,208.8 7,389.4 24.6
Provisions & contingencies 2,203.4 1,329.7 65.7
Provision for taxes 2,318.5 1,902.0 21.9
Net profit 4686.9 4157.7 12.7
EPS (Rs.) 10.64 9.40 13.2
Source: Company
Reported earnings came slightly ahead of our expectations; NIM
remained healthy at 3.76% (improvement of 33 bps QoQ)
Indian bank's reported earnings came slightly ahead of our expectations. NII growth
came at 15.5% to Rs.11.35 bn in Q2FY12 on back of 23.4% growth in loan book
along with flat margin (3.76%).
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 11
MORNING INSIGHT November 2, 2011
Net profit also came slightly higher than our expectations (Rs.4.69 bn; 12.7% growth
YoY) on back of strong non-interest income and muted operating expense, despite
higher provisions done during Q2FY12.
Loan growth continued to moderate for third quarter in a row;
focus has shifted to large corporate during last few quarters.
Loan growth continued to grow at moderate pace for third quarter in a row (23.4%
YoY in Q2FY12 as compared to 28-29% YoY growth witnessed only till few quarters
ago). Corporate segment has been driving overall loan growth; this segment grew
30.0% YoY during Q2FY12, while retail (8.4% YoY) and MSME (8.6% YoY) con-
tinue to witness moderate growth. Overseas book also witnessed strong growth
(45.6% YoY; 35.0% QoQ), partly aided by depreciating rupee.
During the same period, deposit grew at 18.6% YoY (5.2% QoQ) mainly on back of
22.9% growth in term deposits; CASA growth was moderate at 9.5% (CASA mix
declined 246 bps YoY).
Trends in CASA (%)
Source: Company
NIM also came ahead of our expectations; it grew 33 bps QoQ to 3.76% in Q2FY12
(flat YoY). Yield on advances improved 185 bps YoY during Q2FY12 while cost of
deposits grew 123 bps during the same period. Apart from the rise in FD rates in
recent times, decline in CASA mix (246 bps YoY) has also led to rise in its cost of
deposits.
We are expecting NIM to come off from the current levels over next few quarters, as
its weak liability franchise will not be able to shield them from rising funding costs.
We are expecting NIM to come at 3.56% and 3.30% during FY12E and FY13E, re-
spectively as compared to 3.75% witnessed during FY11.
Trends in NIM (%)
Source: Company
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 12
MORNING INSIGHT November 2, 2011
Asset quality deteriorated sharply during Q2FY12; we are model-
ing higher slippage (1.8%) during FY12 & FY13E as compared to
1.5% witnessed during FY11.
Asset quality deteriorated sharply during Q2FY12 - in absolute terms, gross NPA rose
15.9% YoY and 30.0% QoQ while net NPA rose 17.9% YoY and 42.1% QoQ. De-
spite of this spike, gross NPA and net NPA stand at comfortable levels - 1.21% and
0.69%, respectively at the end of Q2FY12.
The bank has been following conservative provision policy. Apart from providing
100% for unsecured book, it provides 25% for substandard as against 20% provided
during FY11. They are providing as per the RBI policy for all D1 and D2 categories.
We have modeled higher slippage (1.8%) during FY12E & FY13E as compared to
1.5% witnessed during FY11.
Valuations and recommendation
We maintain BUY on Indian At the current market price of Rs.216, the stock is trading at 4.2x its FY13E earnings
Bank with a price target of and 1.0x its FY13E ABV. We are modeling earnings to grow 13.5% CAGR during
Rs.290 FY11-13E, while return profile is also expected to remain healthy (FY13E - RoA:
1.4%, RoE: 21.4%) during next two years.
We maintain BUY rating on the stock with revised TP of Rs.290 (Rs.305 earlier)
based on 1.3x of its FY13E adjusted book value.
Key data
(Rs bn) 2010 2011 2012E 2013E
Interest income 77.14 93.61 119.49 140.13
Interest expense 45.53 53.25 73.90 90.10
Net interest income 31.61 40.36 45.59 50.03
Growth (%) 21.2% 27.7% 12.9% 9.7%
Other income 13.16 11.82 12.12 14.40
Gross profit 27.47 32.92 36.27 41.09
Net profit 15.55 17.14 18.94 22.07
Growth (%) 24.9% 10.2% 10.5% 16.5%
Gross NPA (%) 0.8 1.0 1.3 1.3
Net NPA (%) 0.2 0.5 0.8 0.6
Net interest margin (%) 3.5 3.7 3.5 3.2
CAR (%) 12.2 12.8 13.0 13.0
RoE (%) 24.0 22.4 20.6 21.4
RoA (%) 1.7 1.5 1.4 1.4
Dividend per share (Rs) 6.5 7.5 7.5 7.5
EPS (Rs) 36.2 39.9 44.1 51.4
Adjusted BVPS (Rs) 151.3 175.2 209.5 223.0
P/E (x) 6.0 5.4 4.9 4.2
P/ABV (x) 1.4 1.2 1.0 1.0
Source: Company, Kotak Securities - Private Client Research
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 13
MORNING INSIGHT November 2, 2011
RESULT UPDATE BAJAJ ELECTRICALS LTD (BAEL)
Ruchir Khare
ruchir.khare@kotak.com
+91 22 6621 6448 PRICE : RS.195 RECOMMENDATION: BUY
TARGET PRICE : RS.272 FY13E P/E: 10X
q BAEL has reported Q2FY12 results, which ahead of our estimates mainly
driven by lighting and consumer durable business.
q Engineering & Project segment reported marginal profits in the quarter
vis-à-vis loss in Q1FY12. However, we believe that over FY12 margins in
this segment are likely to remain under pressure on account of delays in
pick up in major infrastructure projects.
q Pick-up in demand for lighting and consumer business in tier ii cities
augers well for company's growth. However rising interest rate and in-
put price trend would remain the key variable to monitor for next few
quarters.
q We tweak our estimates downward for FY12 to factor in margin pressure
on account of increase in input prices and interest rates; maintain 'BUY'
rating on the company's stock with a one year DCF based revised price
target of Rs 272 (Rs 285 earlier).
Summary table Quarterly performance
(Rs mn) FY11 FY12E FY13E
(Rs mn) Q2FY12 Q2FY11 YoY% Q1FY12 QoQ %
Sales 27408 32023 37471
Net Sales 7008 5880 19.2 5443 28.8
Growth (%) 23.0 16.8 17.0
EBITDA 2580 2825 3357 Other Income 7 11 (34.3) 7 6.0
EBITDA margin (%) 9.4 8.8 9.0 Raw material cost 399 116 244.5 (374) (206.6)
PBT 2239 2357 2920
Purchase of traded goods 4810 4327 11.2 4485 7.2
Net profit (adjusted) 1453 1555 1927
EPS (Rs) 14.7 15.7 19.5 Employee cost 463 375 23.5 315 47.1
Growth (%) 22.1 7.0 23.9 other expenditure 811 613 32.3 715 13.4
CEPS 15.8 16.8 20.6 Total expenditure 6483 5430 19.4 3308 96.0
BV (Rs/share) 60.0 72.8 89.2
Dividend / share (Rs) 2.4 2.5 2.5
EBITDA 525 450 16.7 302 74.2
ROE (%) 26.3 23.1 23.6 Depreciation 29 23 24.8 31 (4.9)
ROCE (%) 25.0 24.1 24.1 PBIT 503 437 15.0 271 85.8
Net cash (debt) (544) (354) 85
Interest expense 128 76 68.7 107 20.3
NW Capital (Days) 68 71 76
EV/Sales (x) 0.7 0.6 0.5 PBT 375 361 3.7 171 119.3
EV/EBITDA (x) 7.7 7.0 5.7 Tax Expense 125 128 (2.3) 60 107.7
P/E (x) 13.3 12.4 10.0
PAT 250 234 7.0 111 125.6
P/Cash Earnings 12.4 11.7 9.5
P/BV (x) 3.2 2.6 2.2 EPS (Rs) 2.5 2.4 7.0 1.1 125.6
EBITDA (%) 7.5 7.7 5.5 35.3
Source: Company, Kotak Securities - Private
Client Research Tax (%) 33.2 35.3 35.1 (5.3)
RM/Sales (%) 74.3 75.5 75.5 (1.6)
Source: Company
Result Highlights
n In Q2FY12, consolidated revenues stood at Rs 7 bn driven by lighting and con-
sumer durable business.
n Consumer appliances division revenues stood at Rs 3.3 bn vis-à-vis Rs 2.9 bn in
Q2FY11. Lighting division reported 25% YoY growth in revenues at Rs 1.8 bn in
the quarter. We believe that the Indian consumer space has been undergoing a
change in terms of consumer preference toward the branded products manufac-
tured by the company and peer group (Havells, Crompton Greaves etc) over the
unorganized sector.
n Company has reported increase in inventory levels of Rs 39 bn mainly on account
of piling up of finished goods inventory. It has observed sluggish demand for fans
and air-coolers this year due to lighter summer.
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MORNING INSIGHT November 2, 2011
n On Consolidated basis, operating margins for the quarter stood at 7.5% vis-à-vis
7.7% in Q2FY11. Company has been able to effectively manage cost overheads
and pass on the increase in price hike to the customers.
n E&P segment has been observing the major pressure due to the sluggish growth
and building up of overcapacity in the T&D space.
n In the quarter under review, E&P segment has reported operating profit of Rs 65
mn vis-à-vis Rs 48 mn in Q2FY11.
n Company has been taking several measures to contain the overhead costs and
increase efficiency in the E&P business. For instance, it has been striving to re-
duce the project sites from current 60 locations to 32 locations.
Segment Results
(Rs mn) Q2FY12 Q2FY11 YoY (%) Q1FY12 QoQ (%)
Consolidated revenues
Lighting 1892 1514 25 1274 48.5
Consumer Durables 3394 2980 14 3031 12.0
Engg Projects 1712 1560 10 1136 50.7
PBIT
Lighting 113 68 67 62 82.3
Consumer Durables 315 317 (1) 291 8.0
Engg Projects 65 48 35 (76)
PBIT (%)
Lighting 6.0 4.5 4.9 22.7
Consumer Durables 9.3 10.7 9.6 (3.5)
Engg Projects 3.8 3.1
Source: Company
n Company has been incurring additional cost for business promotion activities. It
has been increasing its focus on deeper brand penetration especially in the rural/
semi urban areas. We believe that this likely to have a diminishing effect on the
margins in the short term.
n Interest charges have gone up significantly for the company due to significant
increase in interest rates. We believe that the increase in channel inventory has
led to increase in the working capital requirement. Company has built consider-
able amount of finished goods inventory over Q3-Q4FY11.
n In Q2FY12, company has reported 39% increase in capital employed in con-
sumer durable SBU due to increase in finished goods inventory, mainly in the air-
cooler segment.
n Despite sluggish demand scenario in E&P business and increasing working capital
Company has been able to maintain a healthy D/E ratio of 0.3. It has reported
cash levels of Rs 2.8 bn in the quarter vis-à-vis Rs 3.9 bn in the previous year.
Valuation & Recommendations
n At current price of Rs.195, company's stock is trading at 10x P/E and 5.7 x EV/
EBITDA on FY13E earnings.
We maintain BUY on Bajaj n We opine that the company is well positioned to benefit from increasing dispos-
Electricals with a price target able income among Indian households and changing consumer preference for
of Rs.272 branded products.
n We build recovery in E&P business over FY13E on back of pickup in infrastructure
spending..
n We tweak our estimates downward for FY12 to factor in margin pressure on
account of increase in input prices and interest rates; maintain 'BUY' rating on
the company's stock with a one year DCF based revised price target of Rs 272
(Rs 285 earlier).
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MORNING INSIGHT November 2, 2011
AUTO INDUSTRY UPDATE AUTO INDUSTRY VOLUME UPDATE - OCTOBER 2011
Arun Agarwal
arun.agarwal@kotak.com Automobile sector volumes for October 2011 were weak though on
+91 22 6621 6143 expected lines. Demand generally fizzles out post festive season. For most
auto companies, we expect volumes to decline further (on sequential basis)
in November and December. Demand scenario remain weak for car and
M&HCV segment, while the LCV and two wheeler segment are relatively
better placed with respect to demand.
Summary - October 2011 volumes (Nos)
October Sep October YoY MoM YTD YTD Growth
2010 2011 2011 gth (%) gth (%) FY11 FY12 (%)
Hero MotoCorp
2W 505,553 549,625 512,238 1.3 (6.8) 3,025,536 3,586,130 18.5
Maruti Suzuki
A1&A2 (M-800, Alto, Wagon-R,
Estilo, Ritz, Swift, A-Star) 80,133 57,046 35,868 (55) (37) 461,712 371,283 (20)
A3 (SX4, D'zire) 11,621 9,607 5,321 (54) (45) 71,941 60,613 (16)
A4 (Kizashi) - 14 3 - (79) - 174 -
MUV (Grand Vitara, Gypsy) 422 412 270 (36) (34) 4,229 4,116 (3)
C (OMNI, Eeco) 15,379 11,737 9,996 (35) (15) 90,496 88,361 (2)
Total Domestic 107,555 78,816 51,458 (52) (35) 628,378 524,547 (17)
Export 11,353 6,749 4,137 (64) (39) 87,508 64,881 (26)
Total Sales 118,908 85,565 55,595 (53) (35) 715,886 589,428 (18)
M&M
Passenger Vehicles (incl. Verito) 16,987 19,447 18,756 10 (4) 101,323 119,393 18
4W pick-up/Gio/Maxximo 9,277 13,419 13,101 41 (2) 56,112 83,611 49
3W 5,410 7,302 6,332 17 (13) 34,075 39,481 16
MNAL 817 968 1,163 42 20 6,743 7,362 9
Total Domestic 32,491 41,136 39,352 21 (4) 198,253 249,847 26
Export 2,004 3,001 2,154 7 (28) 10,464 15,110 44
Total Sales 34,495 44,137 41,506 20 (6) 208,717 264,957 27
Tractors 24,281 24,673 31,838 31 29 119,938 149,358 25
Tata Motors
M&HCV 13,640 18,155 16,822 23 (7) 102,539 113,058 10
LCV 20,689 28,092 21,892 6 (22) 136,032 169,116 24
Utility 3,389 5,308 4,176 23 (21) 22,490 26,436 18
Cars 21,089 21,011 20,948 (1) (0) 151,164 123,809 (18)
Total Domestic 58,807 72,566 63,838 9 (12) 412,225 432,419 5
Export 5,950 6,217 4,171 (30) (33) 32,648 35,061 7
Total Sales 64,757 78,783 68,009 5 (14) 444,873 467,480 5
Source: Companies
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 16
MORNING INSIGHT November 2, 2011
HERO MOTOCORP
Hero MotoCorp - sales volume (Nos)
October Sep October YoY MoM YTD YTD Growth
2010 2011 2011 gth (%) gth (%) FY11 FY12 (%)
2W 505,553 549,625 512,238 1.3 (6.8) 3,025,536 3,586,130 18.5
Source: Company
n HMC dispatched 512,238 units in October 2011 registering a 1.3% YoY growth
over October 2010. Last year high base was the prime reason for such a low
growth rate. Company's volumes in 1HFY12 have grown by 22% YoY.
n Company also reported their highest ever monthly retail sales in October 2011.
Retail sales during the month stood at ~650,000 units - surpassing the previous
high of 600,000 units achieved in October 2008.
n Strong retail sales point towards acceptance of new brand identity.
n Company recently launched the 150cc motorcycle "Impulse" at a price point of
Rs66,800 (ex-showroom Delhi) and is expected to launch a new scooter "Mae-
stro" in 2HFY12.
n While volumes in absolute terms are expected to grow, we expect the growth
rate to taper down in 2HFY12 given higher base. For FY12, we expect 17% vol-
ume jump as against 22% achieved in 1HFY12.
HHML - 2W sales volume
Volume (Units - LHS) % YoY growth (RHS)
600,000 60
450,000 45
300,000 30
150,000 15
- -
Jul-11
Feb-11
Mar-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
Oct-10
Oct-11
Sep-11
Aug-11
Apr-11
Source: Company
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MORNING INSIGHT November 2, 2011
MAHINDRA AND MAHINDRA (M&M)
M&M - sales volume (Nos)
October Sep October YoY MoM YTD YTD Growth
2010 2011 2011 gth (%) gth (%) FY11 FY12 (%)
Passenger Vehicles (incl. Verito) 16,987 19,447 18,756 10.4 (3.6) 101,323 119,393 17.8
4W pick-up/Gio/Maxximo 9,277 13,419 13,101 41.2 (2.4) 56,112 83,611 49.0
3W 5,410 7,302 6,332 17.0 (13.3) 34,075 39,481 15.9
MNAL 817 968 1,163 42.4 20.1 6,743 7,362 9.2
Total Domestic 32,491 41,136 39,352 21.1 (4.3) 198,253 249,847 26.0
Export 2,004 3,001 2,154 7.5 (28.2) 10,464 15,110 44.4
Total Sales 34,495 44,137 41,506 20.3 (6.0) 208,717 264,957 26.9
Tractors 24,281 24,673 31,838 31.1 29.0 119,938 149,358 24.5
Source: Company
n For M&M, October 2011 was yet another month of strong volume performance
in the current financial year. Growth remained robust in both the automotive and
the tractor division.
n In the automotive segments, volume grew by a strong 20% YoY to 41,506 units.
Sequentially though volumes dropped on expected lines.
(continued ....)
UV - domestic volume trend Tractor - volume trend
Volume (Units - LHS) Volume (Units - LHS)
36,000 150 32,000 60
% YoY growth (RHS) % YoY growth (RHS)
30,000 120 24,000 45
24,000
90
18,000 16,000 30
60
12,000 8,000 15
30
6,000
- - -
-
(6,000) (30) (8,000) (15)
Jul-11
Feb-11
Mar-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
Oct-10
Oct-11
Sep-11
Aug-11
Jul-11
Feb-11
Mar-11
Apr-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
Oct-10
Oct-11
Sep-11
Aug-11
Apr-11
Source: Company Source: Company
Domestic volume trend (Automotive) Export volume trend (Automotive)
Volume (Units - LHS) 3,500 150
Volume (Units - LHS)
44,000 % YoY growth (RHS) 80
2,800 % YoY growth (RHS) 120
33,000 60
2,100 90
22,000 40
1,400 60
11,000 20
700 30
- -
Jul-11
Feb-11
Mar-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
- -
Oct-10
Oct-11
Sep-11
Aug-11
Apr-11
Jul-11
Feb-11
Mar-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
Oct-10
Oct-11
Sep-11
Aug-11
Apr-11
Source: Company Source: Company
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 18
MORNING INSIGHT November 2, 2011
n In the passenger vehicle segment, volume grew by 10.4% which in our view was
helped by launch of XUV500. Furthermore Verito sales increased from 1079 units
in October 2010 to 1818 units. We therefore believe that Scorpio, Xylo and Bo-
lero dispatches (put together) did not witness any meaningful growth.
n 4W pick-up/Gio/Maxximo sales jumped by 41% YoY to 13,101 units. This seg-
ment has been the key volume driver for the company in FY12 with YTD volume
growth of 49%.
n 3W sales remained healthy at 6,332 units, registering a 17% growth over last
October.
n Overall automotive domestic volumes grew by 21% whereas export increased by
a modest 7.5%.
n M&M's performance in the tractor division has been very robust and the same
continued in October 2011 where the company reported 31% YoY increase with
overall tractor volumes at 31,838 units - their highest ever.
n Ssangyong too reported a healthy 22.6% jump in sales at 9,125 vehicles. Do-
mestic sales at 2,011 units were 32% lower YoY while exports at 7,114 units
witnessed 58% YoY growth. In the current calendar year, company's YTD (Jan-
Oct) sales have grown by 47% to 95,365 units.
n We expect M&M volumes for the balance part of FY12 to grow at robust pace.
However due to higher 2HFY11 base, we expect the growth rate in 2HFY12 to
remain lower than that witnessed during 1HFY12.
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MORNING INSIGHT November 2, 2011
MARUTI SUZUKI INDIA LIMITED (MSIL)
MSIL - sales volume (Nos)
October Sep October YoY MoM YTD YTD Growth
2010 2011 2011 gth (%) gth (%) FY11 FY12 (%)
A1&A2 (M-800, Alto, Wagon-R,
Estilo, Ritz, Swift, A-Star) 80,133 57,046 35,868 (55.2) (37.1) 461,712 371,283 (19.6)
A3 (SX4, D'zire) 11,621 9,607 5,321 (54.2) (44.6) 71,941 60,613 (15.7)
A4 (Kizashi) - 14 3 - (78.6) - 174 -
MUV (Grand Vitara, Gypsy) 422 412 270 (36.0) (34.5) 4,229 4,116 (2.7)
C (OMNI, Eeco) 15,379 11,737 9,996 (35.0) (14.8) 90,496 88,361 (2.4)
Total Domestic 107,555 78,816 51,458 (52.2) (34.7) 628,378 524,547 (16.5)
Export 11,353 6,749 4,137 (63.6) (38.7) 87,508 64,881 (25.9)
Total Sales 118,908 85,565 55,595 (53.2) (35.0) 715,886 589,428 (17.7)
Source: Company
n MSIL's volmes in October 2011 were impacted by labor issues at the company's
Manesar plant. Strike at the Suzuki Powertrain impacted production at the
Gurgaon plant to a certain extent. Due to the strike the company lost production
of 40,000 units in October 2011.
n Accordingly dispatches for the month were down by 53% YoY and 35% MoM to
55,595 units.
(continued ....)
A1 & A2 segment domestic volume trend Domestic sales volume trend
Volume (Units - LHS) Volume (Units - LHS)
% YoY growth (RHS) 125,000 % YoY growth (RHS) 120
85,000 360
300 100,000 90
68,000
240 75,000 60
51,000
180 50,000
34,000 30
120 25,000
17,000 - -
60
- (25,000) (30)
-
(17,000) (60) (50,000) (60)
Jul-11
Feb-11
Mar-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
Oct-10
Oct-11
Sep-11
Aug-11
Apr-11
Jul-11
Feb-11
Mar-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
Oct-10
Oct-11
Sep-11
Aug-11
Apr-11
Source: Company Source: Company
Export volume trend Business Mix (Domestic)
Volume (Units - LHS) 100% D
% YoY growth (RHS) C
18,000 210
75% MUV
A3
12,000 140 A2
50% A1
6,000 70
25%
- -
(6,000) (70) 0%
Feb-11
Jun-11
Dec-10
Oct-10
Oct-11
Aug-11
Apr-11
Jul-11
Feb-11
Mar-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
Oct-10
Oct-11
Sep-11
Aug-11
Apr-11
Source: Company Source: Company
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MORNING INSIGHT November 2, 2011
n Production of almost all the models were hit during the strike as dispatches were
down across segments. Accordingly comparison does not hold any relevance.
n Overall demand scenario for petrol cars remains weak on account of high inter-
est rates, expensive fuel and slowing economy. Company's product portfolio is
heavily tilted towards the petrol run cars. During 2QFY12, diesel run cars formed
22% of the company sales. Company is taking steps to increase supply of diesel
driven cars in their portfolio.
n Going ahead we expect the company's volume to grow sequentially on account
of enhanced production of high selling Swift and Dzire. However demand for
other petrol driven model is expected to remain subdued. Therefore on YoY ba-
sis, volume growth is expected to remain poor.
n Competition has intensified once again for MSIL with competitors launching new
models in the volume driven compact car segment.
n Company's YTD volumes have declined by 18%. For full year we expect the
company's volumes to de-grow by 12%. However moving ahead in FY13, we
expect a 15% volume growth on lower FY12 base.
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 21
MORNING INSIGHT November 2, 2011
TATA MOTORS (TAMO)
Tata Motors - sales volume (Nos)
October Sep October YoY MoM YTD YTD Growth
2010 2011 2011 gth (%) gth (%) FY11 FY12 (%)
M&HCV 13,640 18,155 16,822 23.3 (7.3) 102,539 113,058 10.3
LCV 20,689 28,092 21,892 5.8 (22.1) 136,032 169,116 24.3
Utility 3,389 5,308 4,176 23.2 (21.3) 22,490 26,436 17.5
Cars 21,089 21,011 20,948 (0.7) (0.3) 151,164 123,809 (18.1)
Total Domestic 58,807 72,566 63,838 8.6 (12.0) 412,225 432,419 4.9
Export 5,950 6,217 4,171 (29.9) (32.9) 32,648 35,061 7.4
Total Sales 64,757 78,783 68,009 5.0 (13.7) 444,873 467,480 5.1
Source: Company
n Tata Motors reported October 2011 sales volumes were marginally ahead of our
expectation. After posting a strong volume in September 2011, the volumes re-
turned to normal levels in October 2011.
n TAMO dispatched 68,009 units in October 2011, which was 5% higher than vol-
umes reported in similar period last year. Sequentially though volumes dropped
by 14% on back higher last month base.
(continued ....)
M&HCV - domestic volume trend LCV - domestic volume trend
Volume (Units - LHS) Volume (Units - LHS)
% YoY growth (RHS) % YoY growth (RHS)
24,000 40 30,000 50
18,000 22,500 38
12,000 20 15,000 25
6,000 7,500 13
- - - -
Jul-11
Feb-11
Mar-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
Oct-10
Oct-11
Sep-11
Jul-11
Feb-11
Mar-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
Oct-10
Oct-11
Sep-11
Aug-11
Apr-11
Aug-11
Apr-11
Source: Company Source: Company
Cars - domestic volume trend Business Mix ( Domestic)
Volume (Units - LHS) % YoY growth (RHS) 100%
28,000 100 Cars
21,000 75 75% UV
14,000 50 LCV
50% M&HCV
7,000 25
- - 25%
(7,000) (25)
(14,000) (50) 0%
Jul-11
Feb-11
Mar-11
Jan-11
May-11
Jun-11
Nov-10
Dec-10
Oct-10
Oct-11
Sep-11
Feb-11
Jun-11
Dec-10
Oct-10
Oct-11
Aug-11
Apr-11
Aug-11
Apr-11
Source: Company Source: Company
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 22
MORNING INSIGHT November 2, 2011
n Domestic volumes were up by 8.6% YoY. M&HCV segment led the growth for
the company.
n Car volumes remained largely flat both YoY and MoM. While Nano and Indica
range reported growth, Indigo witnessed a steep YoY drop. Company dispatched
3,868 Nano's (up 26% YoY), 10,812 Indica range (up 11% YoY) and 6,268
Indigo's (lower by 24% YoY) during the month.
n UV sales for the month grew by 23% YoY to 4,176 units but was down 21%
MoM .
n At 21,892 units, LCV sales in October 2011 were weak (lowest in the past one
year). We believe that huge stocking done at the dealers end ahead of the fes-
tive season might have led to some inventory correction. We expect sequential
improvement in LCV sales going forward.
n M&HCV sales were ahead of expectation. Volumes tend to dip sharply post a
strong September period. Company dispatched 16,822 units, growth 23% over
lower last October base. Given various macro headwind, company's YTD growth
rate of 10% in this segment has been relatively strong, in our view.
n For exports, October 2011 was a weak month, as export volumes dropped 30%
YoY and 33% MoM.
n Going ahead (balance part of FY12) we expect the company's volumes will re-
main largely similar to October 2011 dispatch figures. We expect the company's
FY12 volumes to grow at a flat rate over FY11.
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 23
MORNING INSIGHT November 2, 2011
Bulk deals Trade details of bulk deals
Date Scrip name Name of client Buy/ Quantity Avg.
Sell of shares price
(Rs)
1-Nov Aia Engineering Nalanda India Equity Fund Limited B 1,200,000 310.0
1-Nov Aia Engineering Reliance Capital Trustee Co
A/C Reliance Growth Fund S 1,200,000 310.0
1-Nov Aroma Ent Volga International Limited B 36,000 90.0
1-Nov Aroma Ent Shreebhuvanakaram Tradinvest B 36,000 90.0
1-Nov Aroma Ent Shree Suprinit Tradinvest Pvt.Ltd B 36,000 90.0
1-Nov Aroma Ent Shreemallikarjun Tradinvest B 36,000 90.0
1-Nov Aroma Ent Pinac Stock Brokers Private Limited B 36,000 90.0
1-Nov Aroma Ent Priyal International Private Limited B 200,000 90.0
1-Nov Aroma Ent Kanchanbhai Baldevbhai Patel B 27,000 89.5
1-Nov Aroma Ent Sheetal P Jain S 80,000 90.0
1-Nov Aroma Ent Chunilal Mishrimal Sanghvi S 27,000 89.5
1-Nov Aroma Ent Manoj Prakash Sanghvi S 300,000 90.0
1-Nov Ashutosh Paper Kpm Infotech Private Limited B 46,800 174.4
1-Nov Choice Infra Umanath Raghunath Agarwal B 27,000 40.5
1-Nov Choice Infra Rekha Lalit Jain S 50,000 40.5
1-Nov Delta Mag Ramesh Purshottam Modi B 32,000 28.0
1-Nov Delta Mag Kiran Radiografix Pvt Tldradiografix S 32,000 28.0
1-Nov Dhvanil Chem Mayurbhai Dhirubhai Vekariya B 42,000 24.4
1-Nov Dhvanil Chem Samjuben Dhirubhai Vekariya B 41,000 24.4
1-Nov Dhvanil Chem Viral Malaybhai Bhow S 40,500 24.4
1-Nov Dhvanil Chem Rohitkumar Shantilal Bhow S 42,100 24.4
1-Nov Dhvanil Chem Neelaben Rohitkumar Bhow S 34,700 24.4
1-Nov Diamant Nishil Surendrabhai Marfatia B 200,000 15.7
1-Nov Diamant Jigar Praful Ghoghari S 375,000 15.8
1-Nov Gujarat Medi B Desai Rajubhai S 27,500 18.9
1-Nov Kanchan Intl Dharmendra Harilal Bhojak B 19,519 46.5
1-Nov Kirloskar Pneu PCA Securities Investment Trust Co. Ltd
A/C. Pca India Eq Fund B 256,335 475.0
1-Nov Kosha Cubidor Suman Gupta S 60,000 38.9
1-Nov Krishna Deep Ganga Jamuna Financial Advisor B 25,000 146.6
1-Nov Kwality Cred Rajiv Chandrakant Gandhi S 31,817 24.1
1-Nov Nikki Global Nilliampathy Tracon Pvt Ltd B 22,000 342.7
1-Nov Onelife Capital Babulal V Shah B 90,000 230.0
1-Nov Onelife Capital Prakashbhai Ishwarbhai Rana S 100,014 228.3
1-Nov Pasupati Fin Amit Krishnakant Thakker S 25,000 16.7
1-Nov Pasupati Fin Pasupati Olefin Ltd S 50,000 16.7
1-Nov Polytex India Kiran Bhiku Bhanaes B 70,000 126.0
1-Nov Rama Paper Manisha Vikas Shinde B 43,500 101.1
1-Nov Rcl Foods Varun Prem Budhrani B 24,478 98.0
1-Nov Rcl Foods Blue Peacock Securities B 22,984 100.6
1-Nov Sky Inds-$ D.C.Securities Services S 26,000 36.8
1-Nov Tera Software Niraj Rajnikant Shah B 72,321 89.4
1-Nov Vertex Sec Manish Rameshbhai Vyas B 235,000 43.0
1-Nov Vertex Sec Tripurari Properties Private Limited S 240,000 43.0
Source: BSE
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MORNING INSIGHT November 2, 2011
Forthcoming events Company/Market
Date Event
2-Nov Allahabad Bank, Andhra Bank, Hindustan Motors, Hindustan Org, ICRA,
Navneet Pub, Rico Auto, Trent, Tube Investments earnings expected
3-Nov Ashok Leyland, Gujarat Gas, JSL, Jubilant Food, Kesoram Ind, Manappuram Fin,
SAIL, Sun TV Network, Tata Teleservices, TVS Motor, Whirlpool earnings expected
4-Nov Apollo Hosp, Bharti Airtel, HCL Infosystems, Marico, NCC, Nestle India, ONGC
TV Today, TV18 Broadcasting, UB Engg earnings expected
Source: Bloomberg
Gainers & Losers Nifty Gainers & Losers
Price (Rs) chg (%) Index points Volume (mn)
Gainers
Hindustan Unilever 388 3.3 4.2 9.2
PNB 1,013 3.7 1.6 2.4
Bharti Airtel 395 0.7 1.1 1.6
Losers
ICICI Bank 895 (3.9) (13.7) 5.5
Reliance Ind 861 (1.9) (9.4) 3.8
ITC Ltd 208 (2.3) (8.5) 10.6
Source: Bloomberg
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MORNING INSIGHT November 2, 2011
Fundamental Research Team
Dipen Shah Saurabh Agrawal Ruchir Khare Amit Agarwal
IT, Media Metals, Mining Capital Goods, Engineering Logistics, Transportation
dipen.shah@kotak.com agrawal.saurabh@kotak.com ruchir.khare@kotak.com agarwal.amit@kotak.com
+91 22 6621 6301 +91 22 6621 6309 +91 22 6621 6448 +91 22 6621 6222
Sanjeev Zarbade Saday Sinha Ritwik Rai Jayesh Kumar
Capital Goods, Engineering Banking, NBFC, Economy FMCG, Media Economy
sanjeev.zarbade@kotak.com saday.sinha@kotak.com ritwik.rai@kotak.com kumar.jayesh@kotak.com
+91 22 6621 6305 +91 22 6621 6312 +91 22 6621 6310 +91 22 6652 9172
Teena Virmani Arun Agarwal Sumit Pokharna K. Kathirvelu
Construction, Cement, Mid Cap Automobiles Oil and Gas Production
teena.virmani@kotak.com arun.agarwal@kotak.com sumit.pokharna@kotak.com k.kathirvelu@kotak.com
+91 22 6621 6302 +91 22 6621 6143 +91 22 6621 6313 +91 22 6621 6311
Technical Research Team
Shrikant Chouhan Amol Athawale Premshankar Ladha
shrikant.chouhan@kotak.com amol.athawale@kotak.com premshankar.ladha@kotak.com
+91 22 6621 6360 +91 20 6620 3350 +91 22 6621 6261
Derivatives Research Team
Sahaj Agrawal Rahul Sharma Malay Gandhi Prashanth Lalu
sahaj.agrawal@kotak.com sharma.rahul@kotak.com malay.gandhi@kotak.com prashanth.lalu@kotak.com
+91 22 6621 6343 +91 22 6621 6198 +91 22 6621 6350 +91 22 6621 6110
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