Equipedia 2012 everything about stock markets

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					                                                                             Table of Contents
    Strategy ........................................................... 1   Canara Bank ............................................. 86            Colgate ...................................................... 172
                                                                             IDBI Bank .................................................. 88         GCPL ........................................................ 174
    Agri-Chemicals ............................. 7                           Union Bank of India ................................ 90                 GSKCHL .................................................. 176
                                                                             Central Bank of India ............................. 92                  Marico ........................................................ 178
    Rallis India .................................................. 10
                                                                             Syndicate Bank ........................................ 94              TGBL ........................................................ 180
    United Phosphorous ............................... 12
                                                                             Allahabad Bank ........................................ 96              Britannia .................................................. 182
                                                                             Corporation Bank .................................... 98
    Automobile ................................... 15                        Indian Bank ............................................. 100           Infrastructure ........................... 185
    Four-Wheeler                                                             Andhra Bank .......................................... 102
                                                                                                                                                     E & C Companies
    M&M ............................................................. 22     United Bank of India ........................... 104
                                                                                                                                                     L&T ............................................................ 190
    Tata Motors ................................................ 24          Vijaya Bank ............................................. 106
                                                                                                                                                     JP Associates ........................................ 192
    Maruti Suzuki ............................................ 26            Bank of Maharashtra ........................... 108
                                                                                                                                                     Sadbhav Eng. ........................................ 194
    Ashok Leyland .......................................... 28              J&K Bank ................................................. 110
                                                                                                                                                     Punj Lloyd ............................................... 196
    Two-Wheeler                                                              NBFCs                                                                   HCC .......................................................... 198
    Bajaj Auto ................................................... 30        HDFC ....................................................... 112        NCC .......................................................... 200
    Hero MotoCorp ........................................ 32                LIC Housing Finance .......................... 114
                                                                                                                                                     IVRCL ....................................................... 202
    TVS Motor .................................................. 34
                                                                                                                                                     Simplex Infra ........................................... 204
    Auto Ancillary                                                           Capital Goods ........................... 117                           Patel Engineering ................................. 206
    Bosch .......................................................... 36      BTG                                                                     Madhucon Projects .............................. 208
    Exide Industries ........................................ 38             BHEL ........................................................ 122       CCCL ....................................................... 210
    Amara Raja Batteries ............................. 40                    BGR Energy ........................................... 124              Road Developers
    Apollo Tyres ............................................... 42
                                                                             T&D/Industrials                                                         IRB Infra .................................................. 212
    Ceat .............................................................. 44
                                                                             ABB INDIA ............................................. 126             ITNL ........................................................... 214
    JK Tyre and Industries ........................... 46
                                                                             Crompton Greaves .............................. 128                     Ashoka Buildcon ................................... 216
    Motherson Sumi ....................................... 48
                                                                             Thermax .................................................... 130
    Bharat Forge ............................................. 50
    FAG Bearings ........................................... 52
                                                                             KEC International ................................. 132                 Media .......................................... 219
                                                                             Jyoti Structures ..................................... 134              DB Corp .................................................. 222
    Automotive Axles ..................................... 54
    Subros ......................................................... 56                                                                              HT Media ................................................. 224
                                                                             Cement ........................................ 137                     Jagran Prakashan ................................. 226

    Banking ......................................... 59                     UltraTech .................................................. 144        PVR ........................................................... 228
                                                                             ACC .......................................................... 146      SUN TV Networks ................................ 230
    Private Sector Banks                                                     Ambuja Cements .................................. 148
    ICICI Bank ................................................. 66          Shree Cement ....................................... 150
                                                                                                                                                     Metals ......................................... 233
    HDFC Bank ............................................... 68             India Cements ....................................... 152
    Axis Bank .................................................... 70        Madras Cements .................................. 154                   Ferrous
    Yes Bank ..................................................... 72        JK Lakshmi Cement ............................. 156                     Tata Steel ................................................ 236
    Federal Bank ............................................. 74                                                                                    SAIL .......................................................... 238
    South Indian Bank ................................... 76                 FMCG .......................................... 159                     JSW Steel ............................................... 240
                                                                                                                                                     Bhushan Steel ....................................... 242
    Public Sector Banks                                                      ITC ............................................................. 162
                                                                                                                                                     Monnet Ispat .......................................... 244
    State Bank of India ................................. 78                 HUL ........................................................... 164
    Punjab National Bank ............................ 80                     Nestlé ....................................................... 166      Mining
    Bank of Baroda ........................................ 82               Asian Paints ............................................ 168           NMDC ...................................................... 246
    Bank of India ............................................. 84           Dabur ......................................................... 170     Sesa Goa ................................................ 248


4   January 2012                                                                                                               Please refer to important disclosures at the end of this report
Coal India ................................................ 250        Power .......................................... 305                   Telecom ....................................... 355
MOIL ......................................................... 252
                                                                       NTPC ........................................................ 308      Bharti Airtel ............................................. 360
Non-Ferrous
                                                                       CESC ....................................................... 310       Idea Cellular ........................................... 362
Hindustan Zinc ...................................... 254
                                                                       GIPCL ...................................................... 312       Reliance Comm. .................................... 364
Sterlite Industries ................................. 256
Hindalco ................................................... 258                                                                              Mid-Cap
Nalco ......................................................... 260
                                                                       Real Estate ................................ 315
                                                                                                                                              Abbott India ............................................ 368
                                                                       DLF ............................................................ 318
                                                                                                                                              Bajaj Electricals ..................................... 370
                                                                       HDIL .......................................................... 320
Oil & Gas .................................... 263                     Anant Raj ................................................. 322
                                                                                                                                              Blue Star .................................................. 372

Reliance Inds. ........................................ 266                                                                                   CRISIL ...................................................... 374

ONGC ...................................................... 268                                                                               Finolex Cables ........................................ 376

GAIL ........................................................... 270
                                                                       Software ..................................... 325                     Goodyear India ....................................... 378

Cairn India ................................................ 272                                                                              Graphite ................................................... 380
                                                                       Large Caps
                                                                                                                                              Greenply .................................................. 382
                                                                       TCS ........................................................... 330
                                                                                                                                              HAIL .......................................................... 384
Pharmaceuticals ...................... 275                             Infosys ...................................................... 332
                                                                                                                                              HEG .......................................................... 386
Sun Pharma ............................................ 280            Wipro ........................................................ 334
                                                                                                                                              Hitachi Home & Life ............................ 388
Dr. Reddy's Lab. ................................... 282               HCL Technologies ................................ 336
                                                                                                                                              INEOS ABS ........................................... 390
Cipla .......................................................... 284   Mid Caps                                                               ITD Cementation ................................... 392
Lupin ......................................................... 286    Tech Mahindra ....................................... 338              Lakshmi Machine .................................. 394
Ranbaxy .................................................... 288       Mahindra Satyam .................................. 340                 MRF ........................................................... 396
Glaxo Pharma ........................................ 290              MphasiS ................................................... 342        NIIT ............................................................ 398
Cadila Healthcare ................................. 292                MindTree .................................................. 344        Page Industries ..................................... 400
Aventis ...................................................... 294     Infotech Entreprises ............................ 346                  Relaxo Footwear ................................... 402
IPCA Labs ............................................... 296          Hexaware ................................................. 348         Sintex ........................................................ 404
Aurobindo Pharm. ................................. 298                 KPIT Cummins ....................................... 350               Siyaram Silk Mills ................................. 406
Alembic Pharm. ..................................... 300               Persistent ................................................ 352        SpiceJet ................................................... 408
Indoco Remedies .................................. 302
                                                                                                                                              Taj GVK .................................................... 410
                                                                                                                                              Tata Sponge Iron .................................. 412
                                                                                                                                              TVS Srichakra ........................................ 414
                                                                                                                                              Vesuvius India ........................................ 416




January 2012                                                                                                            Please refer to important disclosures at the end of this report                               5
                                                                           Dawn of a new cycle
TOP PICKS                                                  Self-correcting mechanisms in place
Companies                                  `          `
                                      CMP (`) Target (`)   Looking back at 2011, Indian equity markets were struck by a multitude of
Large Caps                                                 issues, ranging from persistently high inflation, monetary tightening, stalling
                                                           mining activity to sinking capital formation. The Eurozone crisis made matters
Ashok Leyland                              27         32
                                                           worse, causing global financial markets to become all the more risk-averse.
Axis Bank                                 952      1,361   But self-correcting mechanisms are already at play, which should make 2012
ICICI Bank                                796      1,061   a better year for Indian equities.

Infosys                                  2,592     3,047   Most importantly, cooling of inflation and consequently interest rates should
                                                           end the spell of margin compression, which has afflicted corporate earnings
L&T                                      1,274     1,608
                                                           in the past several quarters. Also, India's widening current account deficit
Lupin                                     442        593   has been another macro overhang. But, here again, even at 49-50 levels, the
NMDC                                       175       231   10-12% INR depreciation, in our view, should provide the requisite boost to
                                                           India's exports to gradually self-correct the deficit.
RIL                                       785        923
TCS                                      1,076     1,262
                                                           Expect 19,300 Sensex by December 2012
United Phosphorus                         142        182   Sensex FY2012 earnings growth is likely to be modest as high inflation and
                                                           interest rates have battered margins. But with this scenario on its way to
                                                           changing in FY2013, we expect the earnings growth rate to improve from
Mid Caps                                                   9.5% in FY2012 to 16.2% in FY2013. Also, in our view, risks that the government
                                                           inertia continues and GDP growth remains at ~7% have already been largely
Abbott India                             1,490     1,852
                                                           factored in valuations by the market. We believe this offers a favorable
Bajaj Electricals                          171       201   risk-return trade-off, considering that several domestic negatives can be reversed
CEAT                                       84        125   by quick, simple and rational policy actions. For instance, quick approval of
                                                           FDI reforms in aviation and insurance, among others, as well as pick-up in
Goodyear India                            305        401
                                                           infrastructure ordering activity are low-hanging fruits. Already, ordering activity
Greenply Inds.                            181        286   by NHAI and Power Grid is reasonably robust, and it is a matter of time before
Hitachi Home                               112       157   others would follow suit. The financial troubles of SEBs is another unnecessary
                                                           crisis that is finally changing with recent tariff hikes. Amongst more difficult to
Jagran Prakashan                           98        137   push-through are measures to end the mining logjam, but in our view the
Relaxo Footwear                           281        420   government will soon have to balance environmental concerns and expedite
                                                           mining and land acquisition to step up GDP growth.
Siyaram Silk Mills                        267        426
Tata Sponge Iron                          253        382   In fact, we do not expect domestic factors alone to have the capacity to trigger
                                                           new lows for the markets. It is only the Eurozone crisis that may still lead to
Note: Prices as of January 19, 2012
                                                           volatility in the near term, but policymakers there as well are taking steps to
                                                           avert any crisis event - accordingly, as of now we are basing our market view
                                                           on a likely orderly outcome in the Eurozone. Considering that valuations are also
                                                           reasonable, with domestic macro indicators improving and with earnings trajectory
                                                           likely to follow suit, we have a target of 19,300 for the Sensex by December 2012.

                                                           Select stocks to give better returns
                                                           Looking beyond the Sensex, there are a host of good investment opportunities
                                                           in our view in companies across several sectors, such as banking, IT and
                                                           pharma. On the other hand, there are sectors such as capital goods and cement
                                                           where we still remain cautious. In this compendium, we have therefore given
                                                           an overview of our entire coverage universe of 160+ stocks, having a combined
                                                           market capitalization of ~`40lakh cr. Currently, we have a Buy recommendation
                                                           on 82 of these, broadly preferring companies having high-quality cyclical businesses
                                                           rather than high-quality defensives. Also, we have covered several mid caps,
                                                           which in our view offer enormous potential - either because they are leading
                                                           brands within their sectors trading cheaply or belong to high-growth sectors
                                                           benefitting from rural, export or consumption themes.


January 2012                                                                      Please refer to important disclosures at the end of this report   1
                                                                                                                                                                                                                                                                                                                 Strategy

    Self-correcting mechanisms in place                                                                                                                                                                                          past 4-5 months due to concerns of slower global growth prospects.
                                                                                                                                                                                                                                 However, crude oil prices have remained sticky at elevated levels,
    Looking back at 2011, Indian equity markets were struck by a                                                                                                                                                                 with Brent averaging ~US$113/barrel in FY2012YTD as compared
    multitude of issues, ranging from persistently high inflation,                                                                                                                                                               to FY2011 average of US$87/barrel. But looking at earlier trends
    sledgehammer monetary policy, surging subsidies, plunging INR                                                                                                                                                                in peak crude oil expenditure as a percentage of global GDP
    to falling domestic gas production, stalling mining activity and                                                                                                                                                             over the past decade, we believe crude prices are close to
    sinking capital formation. The Eurozone crisis made matters                                                                                                                                                                  their peak levels and expect crude to moderate going forward,
    worse, causing global financial markets to become all the more                                                                                                                                                               thereby increasing headroom for monetary easing and lowering
    risk-averse. But self-correcting mechanisms are already at play,                                                                                                                                                             the current account deficit.
    which should make 2012 a better year for Indian equities.
                                                                                                                                                                                                                                 Reversal of rate cycle expected to boost corporate earnings
    Multiple benefits out of reversal of inflation and interest                                                                                                                                                                  growth in FY2013: Cooling of inflation and consequently interest
    rate cycle: In spite of slowing domestic growth, inflation has                                                                                                                                                               rates should end the spell of margin compression, which has
    stubbornly remained above the RBI's indicated comfort level                                                                                                                                                                  afflicted corporate earnings in the past several quarters.
    of 5-5.5% for two years now and above the 9% mark for 14                                                                                                                                                                     We expect the scenario to improve in FY2013E with the peaking
    consecutive months. However, finally the WPI inflation trajectory                                                                                                                                                            of inflation and interest rate cycle. Hence, while FY2012 earnings
    has moderated, as evident from the 7.5% reading in December                                                                                                                                                                  growth is likely to be modest, cooling inflation and interest rates
    2011, after hitting the double-digit mark in September 2011.                                                                                                                                                                 should underpin healthier growth in FY2013. Hence, we expect
    Most importantly, primary inflation is on retreat and it is only a                                                                                                                                                           Sensex EPS growth to improve from 9.5% in FY2012 to 16.2%
    matter of time before manufacturing inflation also cools off in                                                                                                                                                              in FY2013.
    the backdrop of the policy-induced growth slowdown.
                                                                                                                                                                                                                                 Exhibit 3: Sensex EPS estimates
                                                                                                                                                                                                                                  (`)
    Exhibit 1: Inflationary pressures moderating                                                                                                                                                                                                                                                         row
                                                                                                                                                                                                                                                                                                            th
    12.0                                                                                                                                                                                                                25.0     1,350                                                                 %g
                                                                                                                                                                                                                                                                                         h       16.2
                                                                                                                                                                                                                                                                                   growt
                                                                                                                                                                                                                                                                                                                  1,290
    10.0
                                                                                                                                                                                                                        20.0     1,150                                      9.5%
                                                                                                                                                                                                                                                               th
     8.0
                                                                                                                                                                                                                                                      %   grow                                1,110
                                                                                                                                                                                                                                                 21.6
     6.0                                                                                                                                                                                                                15.0       950                              1,014

     4.0                                                                                                                                                                                                                10.0       750        834
     2.0
                                                                                                                                                                                                                        5.0
     0.0                                                                                                                                                                                                                           550
                                                                                                                                                            Feb-11
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                                                                                                                                                                              Jun-11
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                       Feb-09
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              Dec-08




                                                                                            Feb-10
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                                                                                                              Jun-10
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     (2.0)                                                                                                                                                                                                              0.0
                                                                                                                                                                                                                                   350
                                                                                                                                                                                                                                             FY2010                 FY2011                   FY2012E             FY2013E
                                                          WPI Inflation (%)                                               Food Inflation (%, RHS)
                                                                                                                                                                                                                                 Source: Angel Research
    Source: MOSPI, Angel Research

                                                                                                                                                                                                                                 INR depreciation to boost export growth: India's widening
    With inflation declining, the RBI has signalled a softening of                                                                                                                                                               current account deficit has been another macro overhang of
    its monetary policy stance to stimulate the slowing domestic                                                                                                                                                                 late, ballooning from the already high 3% levels, but this was
    growth momentum. The Central Bank has started with infusing                                                                                                                                                                  being masked by capital flows earlier. But with this kind of a
    `70,000cr of liquidity through Open Market Operations (OMO)                                                                                                                                                                  high current account deficit, we had maintained the view that
    and `30,000cr through a CRR cut. In the months to come, this                                                                                                                                                                 the INR was likely to depreciate, and this finally got accentuated
    is likely to be followed up with more liquidity infusion and eventually                                                                                                                                                      once capital flows diminished recently. Now, even after retracing
    rate cuts as well, provided inflation keeps cooling on expected                                                                                                                                                              some of the losses, at 49-50 levels the 10-12% INR depreciation
    lines. Capital-intensive sectors have been battered with elevated                                                                                                                                                            (not just against the USD but also the Chinese Yuan) in our
    interest burden for quite a while now; hence, relief on this front                                                                                                                                                           view should provide the requisite boost to India's exports to gradually
    is likely to be a major catalyst in pushing up overall growth.                                                                                                                                                               self-correct the deficit. Within our coverage universe, the major
                                                                                                                                                                                                                                 beneficiaries of INR depreciation are not surprisingly expected
    Exhibit 2: Expect at least 100bp cut in repo rate in CY2012
    9.0
                                                                                                                                                                                                                                 to be the IT, pharma and export-oriented auto ancillary companies.
    8.0                                                                                                                                                                                                                          Amongst these, in our view, while valuations do not leave much
    7.0                                                                                                                                                                                                                          upsides in IT, we still have a positive outlook on pharma.
    6.0
                                                                                                                                                                                                                                 Policy reforms could add further boost: The risk that government
    5.0

    4.0
                                                                                                                                                                                                                                 inertia continues and GDP growth remains at ~7% is, in our
    3.0
                                                                                                                                                                                                                                 view, already largely factored in valuations by the market.
    2.0                                                                                                                                                                                                                          We believe this offers a favorable risk-return trade-off, considering
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             Mar-10
                       May-10


                                                Sep-10
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                                                                  Nov-10




                                                                                                                                                                                                                                 that several of the policy issues can be reversed by quick, simple
                                                                                                                                                                                                                                 and rational policy actions that can have an immediate positive
                                                                     Repo rate (%)                                                  Reverse Repo rate (%)
                                                                                                                                                                                                                                 impact and minimal negative fallout for all stakeholders.
    Source: RBI, Angel Research
                                                                                                                                                                                                                                 Infrastructure spending: Pick-up in infrastructure ordering activity
    Oil too may soften in-line with the fall in other commodities:                                                                                                                                                               by government bodies in roads, ports and power transmission,
    Almost all commodities (be it metals, iron ore or coal) have                                                                                                                                                                 among others, is one of the low-hanging fruits that would only
    corrected by a considerable 20-25% in USD terms over the                                                                                                                                                                     have beneficiaries. Already, ordering activity by NHAI and Power


2   January 2012                                                                                                                                                                                                                         Please refer to important disclosures at the end of this report
                                                                                                                                                                                                                                                  Strategy

Grid is reasonably robust and it is a matter of time before other       Indian equities have already got de-rated and are now trading
government bodies would follow suit.                                    at a substantial discount to their long-term trading range, factoring
                                                                        in the negatives. Based on one-year forward earnings, the Sensex
Quickly pushing non-contentious FDI reforms: The balance
                                                                        is trading at 13.4x, which translates into a considerable 20%
of payments concerns can be addressed further by potential
                                                                        discount to its five-year trading average.
FDI reforms in aviation, education and insurance to begin with,
which are not contentious like retail FDI.
                                                                        Exhibit 4: Sensex one-year forward P/E
Resolving SEB woes: The financial troubles of SEBs is another            (x)
                                                                        27.0
example of irrational policies that can and should be quickly
                                                                        24.0
set straight. So far, reported losses have been as high as `63,550cr,   21.0
owing to inadequate/nil tariff hikes, power theft and high AT&C         18.0
losses. This unnecessary crisis is finally changing with much           15.0
required tariff revisions recently - 22 states have hiked tariffs -     12.0

and we continue to hold the view that SEBs are unlikely to               9.0

become NPAs for banks or the main culprits for low PLFs of               6.0




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                                                                                                                                                                                                                                                           Jul-10
                                                                                                                             Jan-00
power companies (in our view, fuel availability is the key issue
for the power sector).                                                                                    Sensex 1 year forward P/E                                                         15 year Avg                                       5 year Avg

Addressing the fuel crisis: Fuel shortage due to the mining             Source: Bloomberg, Angel Research

logjam is one of the more serious issues that the government
needs to addres sooner rather than later. It does not make sense        Earnings likely to get a fillip from reversal of inflation and
that a developing country like India, with a demographic dividend       interest rate cycle: Sensex FY2012 earnings growth is likely
to take advantage of, is importing increasing quantities of even        to be modest as high inflation and interests have battered margins.
those resources that are abundantly available to it (read coal).        But with this scenario on its way to changing in FY2013, we
Even in case of steel, we are a net importer; while, on the other       expect the earnings growth rate to improve from 9.5% in FY2012
hand, we have been exporting 50% of our annual iron ore production      to 16.2% in FY2013. Also, the risk that the government inertia
(now mired in mining bans).                                             continues and GDP growth remains at ~7% is, in our view,
                                                                        already being largely factored in valuations by the market.
In fact, despite being the fifth largest in reserve size, India's
                                                                        We believe this offers a favorable risk-return trade-off, considering
expensive coal imports continue to rise alarmingly on account
                                                                        that several of the domestic negatives can be reversed by quick,
of domestic shortage. Considering growth in user industries
                                                                        simple and rational policy actions.
(power, cement and metals), India's coal demand is expected
to grow from 625mn tonnes in FY2011 to 855mn tonnes in                  In fact, we do not expect domestic factors alone to have the
FY2015. While production has been constrained, India's coal             capacity to trigger new lows for the markets. It is only the Eurozone
imports are likely to surge from 89mn tonnes in FY2011 to               crisis that may still lead to continued volatility in the near term,
175mn tonnes in FY2015. Production from newer mines has                 but policymakers there as well are taking steps to avert any
been lower on account of time-consuming clearance processes             crisis event. While fiscal discipline and resultant deflation in
(mainly environment clearance and forest clearance). Further,           the weaker countries could improve economic competitiveness,
land acquisition issues have been a big bottleneck.                     this would be a more painful solution for their respective citizens.
                                                                        We believe an orderly exit by some of the weaker countries
Hence, we hold the view that considering the small land requirement
                                                                        from the Euro and subsequent currency devaluation by them
and deforestation implications for mining coal and iron ore as
                                                                        to boost exports and employment would be a more long-lasting
compared to the economic benefits, eventually in the near-to-
                                                                        solution. But in either of the two scenarios, as of now we are
medium term the government will have to balance environmental
                                                                        basing our market view on a likely orderly outcome in the Eurozone.
concerns and expedite mining and land acquisition bills as well
as the actual auctioning and regulatory clearance of coal and           Considering that valuations are also reasonable and several of
iron ore blocks in order to step up GDP growth.                         the domestic macro indicators such as inflation, interest rates
                                                                        and current account are either already improving or set to improve
                                                                        in the coming quarters with earnings trajectory likely to follow
Expect 19,300 Sensex by December 2012                                   suit, we have a positive outlook on markets. We have a target
                                                                        of 19,300 for the Sensex by December 2012, assigning a multiple
Valuations are cheap; Earnings downgrades behind us: Indian             of 15x FY2013E earnings, in-line with the long-term average.
markets fell sharply in CY2011 and were one of the worst                Our target implies an upside of ~15% from current levels.
performers across the globe. This was mainly due to high inflation
                                                                        Select stocks to give better returns: Looking beyond the Sensex,
and interest rates taking a toll, reflected in GDP growth falling
                                                                        there are a host of good investment opportunities in our view
to 7%. Consequently, earnings growth trajectory for India Inc.
                                                                        in companies across several sectors such as banking, IT and
also weakened considerably, as evident from poor 2QFY2012
                                                                        pharma. For instance, we remain positive on Axis Bank and
earnings and similar expectations in the immediate short term
                                                                        L&T, which we believe are strong structural stories available at
as well.
                                                                        cyclically low valuations. On the other hand, there are sectors
All this has resulted in the most important ingredient for healthy      such as capital goods and cement where we still remain cautious.
stock returns to fall in place - cheap valuations. Valuations of


January 2012                                                                      Please refer to important disclosures at the end of this report                                                                                                                                     3
                                                                                                                                                     Strategy

    In this compendium, we have therefore given an overview of                     Exhibit 7: Top 5 buys - cheapest on P/E basis
    our entire coverage universe of 160+ stocks, spanning all major                Company                   Sector           Upside (%)               P/E (x)
    sectors of the economy and having a combined market capitalization                                                                           FY13E/CY12E
    of ~`40lakh cr. Currently, we have a Buy recommendation on
                                                                                   Siyaram Silk Mills         Mid Cap                    60               3.8
    82 of these, broadly preferring companies having high-quality
    cyclical businesses rather than high-quality defensives.                       TVS Srichakra              Mid Cap                    51               4.0
                                                                                   Tata Sponge Iron           Mid Cap                    51               4.2
    Our Buys range from high-ROE businesses like TCS, Lupin
    and Jagran Prakashan to deep-value stocks like Ceat, IVRCL                     Greenply Inds.             Mid Cap                    58               5.1
    and Finolex Cables. There are several Buys from the mid cap                    Relaxo Footwear            Mid Cap                    50               6.0
    space too, which in our view offer enormous potential - either                 Source: Company, Angel Research
    because they are leading brands within their sectors trading
    cheaply or belong to high-growth sectors benefitting from rural,               Exhibit 8: Top 5 buys - highest on RoE basis
    export or consumption themes. These include stocks like Siyaram,               Company                 Sector             Upside (%)              RoE (%)
    Greenply and Relaxo.
                                                                                                                                                 FY13E/CY12E
    Overall, with the environment begining to turn positive and a                  Bajaj Auto              Automobile                    20              44.7
    host of stocks to pick from, we firmly believe that 2012 is set
                                                                                   Jagran Prakashan        Media                         40              33.8
    to be a much better year for Indian equities!
                                                                                   TCS                     Software                      17              33.3
    Exhibit 5: Angel Universe Recommendation Summary                               NMDC                    Metals & Mining               32              31.1
                                       Sector                           Neutral/   Lupin                   Pharma                        34              28.6
    Sector (No of Companies)             view         Buy      Accum.    Reduce    Source: Company, Angel Research

    Auto & Auto Anc. (18)              Positive          9         7          2
                                                                                   Exhibit 9: Companies with highest earning growth
    Capital Goods (7)                  Neutral           2         0          5
                                                                                   Company              Sector                Reco       Upside Adj PAT Gr.
    Cement (7)                         Neutral           1         0          6                                                             (%)    FY13E /
    Financials (25)                    Positive        13          5          7                                                                  CY12E (%)
    FMCG (11)                          Neutral           0         5          6    Hitachi Home         Mid Cap                   Buy          40       170.2
    Infrastructure (14)                Positive        10          0          4    ITD Cementation Mid Cap                        Buy          28       135.9
    Media (5)                          Positive          3         0          2    HEG                  Mid Cap                   Buy          16       111.6
    Metals & Mining (13)               Positive          4         4          5    ABB                  Capital Goods             Sell        (41)      100.3
    Oil & Gas (4)                      Positive          3         0          1    JK Tyre              Auto Ancillary            Buy          27        96.4
    Real Estate (3)                    Neutral           2         0          1    Blue Star            Mid Cap              Neutral             -       91.8
    Pharma/                                                                        Ranbaxy              Pharma               Neutral             -       79.3
    Agri-Chemicals (14)                Positive          7         3          4    Shree Cement         Cement               Neutral             -       75.9
    Power (3)                          Neutral           3         0          0    JSW Steel            Metals & Mining Accumulate              5        71.5
    Software (12)                      Positive          4         6          2    Relaxo Footwear      Mid Cap                   Buy          50        66.6
                                                                                   Source: Company, Angel Research
    Telecom (3)                        Neutral           0         0          3
    Mid Cap (25)                       Positive        21          0          4
                                                                                   Exhibit 10: Companies with lowest earning growth
    Angel Universe (164)                                82        30         52
                                                                                   Company                 Sector              Reco      Upside Adj PAT Gr.
    Source: Angel Research; Note; No. represents no. of companies
                                                                                                                                            (%)    FY13E/
                                                                                                                                                CY12E (%)
    Exhibit 6: Top 5 buys - cheapest on P/BV basis
                                                                                   Jyoti Str.              Capital Goods          Buy          22       (14.1)
    Company               Sector                  Upside (%)          P/BV (x)
                                                                                   BHEL                    Capital Goods     Neutral             -       (9.3)
                                                                  FY13E/CY12E
                                                                                   Andhra Bank             Financials        Neutral             -       (8.6)
    JK Tyre               Auto Ancillary                 27                 0.30
                                                                                   BGR                     Capital Goods     Neutral             -       (6.8)
    CEAT                  Auto Ancillary                 48                 0.44
                                                                                   Thermax                 Capital Goods     Neutral             -       (5.6)
    IVRCL                 Infrastructure                 40                 0.49
                                                                                   Source: Company, Angel Research
    Syndicate Bank        Financials                     26                 0.55
    Finolex Cables        Mid Cap                        51                 0.58
    Source: Company, Angel Research




4   January 2012                                                                             Please refer to important disclosures at the end of this report
                                                                                                                                                                                Strategy

Exhibit 11: Companies trading at cyclically higher valuations                                       Exhibit 12: Companies trading at cyclically lower valuations
Company Sector                         Reco          `           `
                                               CM P (` ) Target (` ) Upside (%)                      Company           Sector                          `           `
                                                                                                                                              Reco CMP(` ) Target (` ) Upside (%)
Aventis           Pharma             Reduce        2,230          1,937                 (13)         United Phos.      Agri -Chemicals         Buy        142           182             28
Marico            FMCG               Neutral           152                  -              -         RIL               Oil & Gas               Buy        785           923             18
Page Inds.        Mid Cap            Neutral       2,505                    -              -         L&T               Infrastructure          Buy       1,274         1,608            26
CRISIL            Mid Cap            Neutral           914                  -              -         Axis Bank         Financials              Buy        952          1,361            43
Ambuja            Cement             Neutral           160                  -              -         NMDC              Metals & Mining         Buy        175           231             32
Source: Company, Angel Research                                                                     Source: Company, Angel Research


Exhibit 13: Contrarian Buys                                                                         Exhibit 14: Contrarian Avoids
                                                                        Bloomberg                                                                                         Bloomberg
Company                     Sector              Angel Reco.           Buy   Hold/Sell                Company                Sector                   Angel Reco.        Buy   Hold/Sell
Britannia                   FMCG                Accumulate              7                  8         KEC                     Capital Goods                 Neutral       24              7
TGBL                        FMCG                Accumulate              3                  9         Bharti Airtel           Telecom                       Neutral       41             16
Ashok Leyland               Automobile                    Buy          25                 26         PVR                     Media                         Neutral        9               -
Mahindra Satyam             Software            Accumulate             11                 12         Shree Cement            Cement                        Neutral       25             17
Mphasis                     Software            Accumulate             12                 29         India Cements           Cement                        Neutral       27             16
Source: Bloomberg, Angel Research                                                                   Source: Bloomberg, Angel Research


Exhibit 15: Angel Universe Estimate Summary
                                               `
                                        Sales (` cr)            Sales Gr. (%)                        `
                                                                                          Op. Profit(` cr)    Op. Profit Gr. (%)                 `
                                                                                                                                        Adj. PAT(` cr)       Adj. PAT Gr. (%)       Market
                                                                                CAGR                                      CAGR                                          CAGR
 Sector                              FY12E       FY13E       FY13E     FY12-13E          FY12E       FY13E FY13E       FY12-13E      FY12E       FY13E     FY13E FY12-13E             `
                                                                                                                                                                                 Cap (` Cr)
 Auto & Auto Anc.                328,375        373,706       13.8               14.7    38,282     43,822     14.5        10.7      22,817      25,725      12.7         7.3      276,043
 Capital Goods                       88,364      91,912         4.0              10.1    13,505     13,462     (0.3)         6.6      8,685       8,479      (2.4)        2.6      100,497
 Cement                              48,521      54,356       12.0               17.8    10,729     12,196     13.7        19.7       5,253       6,122      16.6        19.2       91,845
 Financials                      234,600        271,719       15.8               15.0   135,042   154,968      14.8        15.9     63,568       71,687      12.8        13.3      655,260
 FMCG                                93,457    108,439        16.0               16.3    18,412     22,049     19.8        19.0      23,887      28,223      18.2        18.0     386,809
 Infrastructure                   117,029       133,370       14.0               13.9    17,836     20,373     14.2        11.5       5,926       7,111      20.0         7.6      111,179
 Media                                 7,356      8,186       11.3               10.5     2,840       3,179    11.9          8.0      1,485       1,666      12.2         8.0       21,626
 Metals & Mining                 430,082       485,414        12.9               12.2    85,136    100,744     18.3        10.3     53,431       61,206      14.6         9.4      550,253
 Oil & Gas                        487,316      522,917          7.3              10.8   105,744    114,243       8.0         6.3     57,854      63,251          9.3      9.5     602,600
 Real Estate                         13,238      15,247       15.2               13.4     5,973       7,001    17.2         17.0      2,583       3,222      24.7        10.6       40,926
 Pharma/Agri-Chemicals               65,996      76,892       16.5               17.4    14,184     17,692     24.7        23.9     10,105       13,174      30.4        22.2      200,997
 Power                               69,888      78,187       11.9               11.8    17,260     19,552     13.3        16.4     10,250       11,213          9.4      5.9      145,429
 Software                        168,612       195,833        16.1               20.8    41,677     47,933     15.0        20.5     30,854       35,743      15.8        18.5      520,170
 Telecom                         109,927       126,253        14.9               13.9    34,829     41,953     20.5        14.1       6,730      10,655      58.3        13.6      176,407
 Mid Cap                             49,834      57,817       16.0               16.8     4,900      6,325     29.1        14.1       2,395       3,342      39.6        10.4       32,974
 Angel Universe         2,312,595 2,600,248                   12.4               13.7   546,348    625,493     14.5         12.8    305,822     350,819      14.7        11.9    3,913,015
Source: BSE, Company, Angel Research




January 2012                                                                                                  Please refer to important disclosures at the end of this report                 5
                   This page is left intentionally blank




6   January 2012                              Please refer to important disclosures at the end of this report
Agri-Chemicals                                                                                                             POSITIVE


COVERAGE                                            Industry arguments
Companies                 `
                     CMP (`)           `
                               Target (`)   Reco    Indian domestic market to post steady growth: The Indian organized agrichemical
United Phosphorous       142         182     Buy    industry is estimated at ~US$1bn (`5,000cr, as of FY2009) i.e., 0.1% of the
                                                    country's total GDP and 0.6% of agriculture GDP. Currently, the industry is mostly
Rallis India             131            - Neutral
                                                    dominated by unorganized players. This provides a scope for organized players
                                                    to grow higher than the industry's growth of 13-14%. We believe organized players
                                                    are well placed to seize this high-growth opportunity on account of their
                                                    well-spread distribution network, strong brands and robust new product pipeline.
                                                    Agro-generic markets can at least expect a 6-8% CAGR, in-line with historical
                                                    performance: Apart from domestic opportunities, the global agrichemical industry
                                                    also offers opportunities in the form of generics. Agrichemical companies have
                                                    been reducing their manufacturing capacity of low-value off-patent proprietary
                                                    products, thus paving way for the growth of generic players.
                                                    Consequently, generic firms, especially in the Indian space, are in a sweet
                                                    spot, given their cost advantage. The global agrichemical industry, valued at
                                                    US$40bn (CY2008), is dominated by the top six innovators, who enjoy a
                                                    large market share of the patented (28%) and off-patent (32%) market. Pertinently,
                                                    the top six innovators also enjoy a large share of the off-patent market due to
                                                    high entry barriers for pure generic players. Thus, one-third of the total pie
                                                    worth US$13bn (controlled by the top six innovators through proprietary
                                                    off-patent products) provides a high-growth opportunity for larger integrated
                                                    generic Indian players such as United Phosphorus (UPL).
                                                    Generic players have been garnering a high market share, increasing from
                                                    32% levels in 1998 to 40% by 2006-end. The industry registered a 3% CAGR
                                                    over 1998-2006, while generic players outpaced the industry with a 6% CAGR.
                                                    Going ahead, assuming this trend plays out in terms of growth for the agrichemical
                                                    industry and the same rate of genericisation occurs, the agrichemical generic
                                                    industry could log in 6-8% yoy growth during the period.
                                                    CRAMS - An opportunity on the anvil: Global agrichemical companies have
                                                    been reducing the manufacturing capacity of low-value products to concentrate
                                                    on higher-value products. Conversely, they are maintaining their strong hold
                                                    on off-patent active ingredients (AI) through outsourcing the same. For instance,
                                                    Bayer CropScience reduced its portfolio by 29 actives during 2000-06.
                                                    Sales of patented products constituted approximately one-third of the total
                                                    and another one-third is proprietary off-patent (patent of the molecule has
                                                    expired but no credible generic brand has been able to garner significant
                                                    market share from the patented brand). China has come to be known as the
                                                    world's factory and this fact remains the same for agrichemicals as well. However,
                                                    to diversify risks arising from a single location manufacturing base, many MNCs
                                                    have been looking at other countries. Here, Indian agrichemical manufacturers
                                                    can position themselves as suitable alternatives to their Chinese counterparts.
                                                    Many players, including Rallis India (RAIL), plan to selectively target this opportunity
                                                    by supplying AI to top industry players. As an illustration, RAIL is targeting
                                                    cumulative revenue of `1,000cr over the next five years from this segment alone.
                                                    Outlook and valuation: The outlook for the Indian agrichemical industry, given
                                                    the growth opportunities, is likely to remain strong. However, currently given
                                                    the low breadth of our coverage, our top pick is UPL, given its attractive
                                                    valuations, which discount most of the negatives.



January 2012                                                                Please refer to important disclosures at the end of this report    7
                                                                                                                                                                               Agri-Chemicals

    The Indian organized agrichemical industry is estimated at                                    Generic segment’s market share to increase
    ~US$1bn (`5,000cr, as of FY2009) i.e., 0.1% of the country's
    total GDP and 0.6% of agriculture GDP. Currently, the industry                                Generic players have been garnering a high market share, increasing
    is mostly dominated by unorganized players (50% of the industry).                             from 32% levels in 1998 to 40% by 2006. Over 1998-2006,
    This provides a scope for organized players to grow higher                                    while the industry registered a CAGR of 3%, generic players
    than the industry's growth of 13-14%. We believe organized                                    outpaced the industry by posting a 6% CAGR during the period.
    players are well placed to seize this high-growth opportunity                                 Going ahead, given the opportunities and drop in rate of new
    on account of having a well-spread distribution network, strong                               molecule introduction by innovators, we expect generic players
    brands and robust new product pipeline.                                                       to continue to outpace the industry's growth and increase their
                                                                                                  market share in the overall pie. Historically, the global agrichemical
    Exhibit 1: Low consumption and penetration of the Indian agrichemical                         industry has been logging in-line growth with global GDP. Going
    (Kg/ha)                                                                                       ahead, over CY2009-11E, the global economy is expected to
     18.0         17.0
                                                                                                  grow by 3-4%. Assuming this trend plays out in terms of growth
     16.0
     14.0
                                                                                                  for the agrichemical industry and the same rate of genericisation
     12.0                        10.7            10.5                                             occurs, the agrichemical generic industry can log in growth of
     10.0                                                                                         6-8% during the period and garner a market share of 44-45%.
      8.0                                                 6.6
                                                                    5.8
      6.0                                                                         4.5
      4.0
                                                                                                  Exhibit 3: Market share trend of generic players
      2.0                                                                                  0.5
                                                                                                  45
      0.0
                 Taiwan          Japan      Holland     S. Korea   France         USA     India   40
    Source: Industry, Angel Research
                                                                                                  35
    Agro-generic markets can at least expect a 6-8% CAGR,
                                                                                                  30
    in-line with historical performance: Apart from domestic
    opportunities, the global agrichemical industry also offers                                   25
    opportunities in the form of generics. Agrichemical companies
    have been reducing their manufacturing capacity of low-value                                  20
    off-patent proprietary products, thus paving way for the growth                                      1998      1999      2000     2001        2002         2003          2004       2005   2006
    of generic players.                                                                           Source: Company, Angel Research

    Innovators dominant in the off-patent space; Generic players                                  High investments - Formidable entry barrier
    in a sweet spot
                                                                                                  The global agrichemical industry is highly consolidated, primarily
    The global agrichemical industry is dominated by the top six                                  due to high entry barriers of significant and upfront investments
    innovators, viz. Bayer, Syngenta, Monsanto, BASF, DuPont and                                  required for product registration and to set up manufacturing
    Dow, which enjoy a large market share of patented (28%) and                                   facilities. As a result, price competition is limited due to the
    off-patent (32%) markets. Pertinently, the top six innovators                                 subst antial investments involved. Moreover, unlike the
    also enjoy a large share of the off-patent market due to the                                  pharmaceutical sector, where bioequivalence of molecule can
    high entry barriers for pure generic players. Thus, one-third of                              help a company get the permission to sell medicines, companies
    the total pie worth US$13bn (controlled by the top six innovators                             in the agrichemical sector have to compulsorily undergo field
    through proprietary off-patent products) provides a high growth                               trials for each molecule and in each geography where the products
    opportunity for larger integrated generic players like UPL.                                   would be marketed. Field trials are carried out by independent
                                                                                                  agencies across crops and seasons, which could take anywhere
    Exhibit 2: Global agrichemical market (US$40bn)                                               between 2-5 years, depending on the market (U.S. and EU)
                                                                                                  and government regulations. Thus, the process requires high
                                                                                                  investments both monetary and time, thereby restricting
              Proprietary Off                                                                     competition.
              Patent (Top -6)
                   32%
                                    Generic                                 Generic     Generic
                                    off patent                               Top -5     Others    Exhibit 4: Timeline for the development of agrichemical products
                                      40%                                     61%        39%
            Proprietary Patent                                                                                                      Development          Field Trials (2-5 years)
                                                                                                                     Discovery
                 (Top -6)                                                                                                                           I                II           III
                   28%
                                                                                                   Agrichemicals

                                                                                                   New                                                       No Short cut
    Source: Industry, Angel Research
                                                                                                   Generic                                                                                Approval
                                                                                                                                                                                         and Product
    Additional products going off-patent to boost growth                                           Pharma                                                                                  Launch
                                                                                                   New
    As per NuFarm and MAI, patents worth US$3bn-4bn (sales as                                                                     Prove Bio-
                                                                                                   Generic
    of 2007) would expire during 2009-14, further widening the                                                                   Equivalence

    opportunity for generic players.                                                              Source: Company, Angel Research


8   January 2012                                                                                             Please refer to important disclosures at the end of this report
                                                                                                                                    Agri-Chemicals

The trend is already well established - Top generic companies                      CRAMS - An opportunity on the anvil
getting stronger
                                                                                   Global agrichemical companies have been reducing the
New entrants are also faced with another challenge of gaining                      manufacturing capacity of low-value products to concentrate
entry into the existing distribution network. In most markets,                     on higher-value products. Conversely, they are maintaining their
agrichemical sales and distribution have evolved to become                         strong hold on off-patent AI through outsourcing the same. For
organized businesses and are controlled by few players. For                        instance, Bayer CropScience reduced its portfolio by 29 actives
instance, Tenkoz, Inc. is the largest agrichemical distributor in                  during 2000-06.
the U.S., with combined purchases representing 25% of the
                                                                                   Sales of patented products constituted approximately one-third
U.S. agrichemical market. Hence, to enter this market, a new
                                                                                   of the total and another one-third is proprietary off-patent (patent
player needs to have a basket of products to gain shelf space.
                                                                                   of the molecule has expired but no credible generic brand has
But, a large product offering entails substantial investments in
                                                                                   been able to garner a significant market share from the patented
terms of time and money. This is evident from the fact that 53%
                                                                                   brand). China has come to be known as the world's factory
of the generic market (one-third of the agrichemical industry)
                                                                                   and this fact remains the same for agrichemicals as well. However,
is controlled by the four largest generic players, including UPL.
                                                                                   to diversify risks arising from a single location manufacturing
In all, around 81% of the industry is controlled by few players,
                                                                                   base, many MNCs have been looking at other countries. Here,
making agrichemicals a highly consolidated sector.
                                                                                   Indian agrichemical manufacturers can position themselves as
                                                                                   suitable alternatives to their Chinese counterparts.
Exhibit 5: Trend in the market share of the top four generic players
(%)                                                                                Many players, including RAIL, plan to selectively target this
 60
                                                                   53              opportunity by supplying AI to the top industry players. As an
 50
                                               43
                                                                                   illustration, RAIL is targeting cumulative revenue of `1,000cr
            39                 40                                                  over the next five years from this segment alone.
 40

 30
                                                                                   Outlook and valuation: The outlook for the Indian agrichemical
                                                                                   industry, given the growth opportunities, is likely to remain strong.
 20
                                                                                   However, currently given the low breadth of our coverage,
 10                                                                                our top pick is UPL, given its attractive valuations, which
 0
                                                                                   discount most of the negatives.
          CY2005           CY2006           CY2007             CY2008

Source: Company, Angel Research


Exhibit 6: Recommendation summary
 Company                Reco        CMP    Tgt Price      Upside                      FY2013E                        FY11-13E            FY2013E
                                      `
                                     (`)             `
                                                    (`)       %         PE (x)   EV/Sales (x) EV/EBITDA (x)   CAGR in EPS (%)      RoCE (%)    ROE (%)
 United Phosphorous     Buy         142         182         28.0         10.4            1.3            6.7               13.8          16.0        16.1
 Rallis                 Neutral     131               -        -         13.8            1.5            8.6               21.4          30.3        25.4
Source: Company, Angel Research




January 2012                                                                              Please refer to important disclosures at the end of this report   9
                                                                                                                                                   TOP
                                                                                                                                                   PICK

     Agriculture                                                                          United Phosphorous
                                                                                          CMP/TP/Upside: `142 / `182 / 28%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                   172 / 121    United Phosphorus Ltd. (UPL) is a global generic crop-protection, chemicals
                  `
      MARKET CAP (` CR)                                         6,560   and seeds company. The company is fully integrated, which enables it to
                                                                        take advantage of the consolidated opportunities within the agrichemical
      LIQUIDITY                                           MEDIUM
                                                                        industry. UPL is the largest Indian agrichemical company, reporting revenue
                                                                        of ~US$1.3mn as of March 2011.
      SHAREHOLDING PATTERN (%)
      PROMOTERS                                                  27.3   Structural Snapshot
      FII                                                        35.5
                                                                        Growth opportunity: The Indian agrichemical industry, estimated at ~US$1bn
                                                                        (`5,000cr) at the end of FY2009, contributed 0.1% to India's total GDP
                                                                        and 0.6% to its agriculture GDP. The pesticides industry can easily grow at
      STOCK RETURNS
                                                                        13-14%, in-line with GDP growth, with organized players, such as RAIL,
      (%)                   3M          1Y        3Y      5Y     10Y    likely to grow at a higher rate because of greater share of unorganized players.
      UPL                 (2.7)       (8.2)      11.6    (2.9) 82.9     Apart from domestic opportunities, the global agrichemical industry also
      SENSEX              (2.6) (12.3)           21.3     3.3    17.3   offers opportunities in the form of generics and contract manufacturing.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  Agrichemical companies have been reducing the manufacturing capacity of
                                                                        low-value off-patent proprietary products. Approximately, one-third of total
                                                                        agrichemical sales are estimated to be that of proprietary off-patent. Assuming
      FINANCIAL PERFORMANCE OVERVIEW                                    this trend plays out in terms of growth for the agrichemical industry and the
      (%)                    3M          1Y       3Y      5Y     10Y    same rate of genericisation occurs, the agrichemical generic industry could
                                                                        log in 6-8% yoy growth during the period. With drugs going off-patent each
      SALES GROWTH*         40.5         7.3     17.1    27.6 42.8      year, generics represent a major outsourcing opportunity for agrichemical
      PAT GROWTH*         (40.7)        4.1      16.7    20.2       -   producers in India.
      OPM#                  15.7       19.7      16.0    15.1    17.0   Competitive position: UPL figures among the top five global generic agrichemical
      ROE#                        -    17.0      18.1    18.4    19.9   players, with presence across major markets, including the U.S., EU,
                                                                        Latin America and India.
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        Nature of business: Highly dependent on monsoons; Highly competitive
                                                                        domestic industry, while exports possess high legal barriers.
      ANGEL ESTIMATES
      PARTICULARS                             FY2012E      FY2013E
      PAT GROWTH (%)                             20.3             7.7   Current Investment Arguments
      ROE (%)                                     17.1           16.1   Innovators dominant in the off-patent space: The global agrichemical industry,
      P/E                                        11.2            10.4   valued at US$40bn (CY2008), is dominated by the top six innovators, who
                                                                        enjoy a large market share of the patented (28%) and off-patent (32%) market.
      P/BV                                        1.8             1.6   Pertinently, the top six innovators also enjoy a large share of the off-patent
                                                                        market due to high entry barriers for pure generic players. Thus, one-third of
                                                                        the total pie provides a high-growth opportunity for larger integrated generic
      BLOOMBERG CONSENSUS RECOMMENDATION                                players such as UPL.
      BUY / HOLD / SELL                                    20 / 0 / 2   Generic segment's market share to increase: Generic players have been
                                                                        garnering a high market share, increasing from 32% in 1998 to 40% by
                                                                        2006-end. The industry registered a 3% CAGR over 1998-2006, while generic
                                                                        players outpaced the industry with a 6% CAGR. Given the opportunities
                                                                        and a drop in the rate of new molecule introduction by innovators, we expect
                                                                        generic players to continue to outpace the industry's growth and increase
                                                                        their market share in the overall pie garnering a market share of 44-45%.
                                                                        Valuation: Generics are expected to register healthy growth due to increasing
                                                                        penetration and wresting market share from innovators and patent expiries
                                                                        during 2009-14. We maintain our Buy rating with a target price of ` 182.

10   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                   BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010      FY2011    FY2012E   FY2013E              `
                                                                           Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
TOTAL OPERATING INCOME             5,408      5,805      6,935     7,424   SOURCES OF FUNDS
% CHG                                9.7         7.3      19.5       7.0   EQUITY SHARE CAPITAL                88         92         92         92
TOTAL EXPENDITURE                  4,461      4,694      5,604     5,991   RESERVES & SURPLUS                2,904     3,359      3,939      4,544
EBITDA                              947        1,111     1,332     1,433   SHAREHOLDERS FUNDS                2,992      3,753     4,305      4,897
(% OF NET SALES)                    17.9       19.7       19.7      19.7   MINORITY INTEREST                    14         14        14         14
DEPRECIATION & AMORTISATION         215         214       263        277   TOTAL LOANS                       2,382     2,500      2,459      2,483
EBIT                                732         897      1,068     1,156   DEFERRED TAX LIABILITY              116       116        116        116
INTEREST & OTHER CHARGES            145         312       250       250    TOTAL LIABILITIES                 5,503     6,383      6,894       7,510
OTHER INCOME                         34          94        20         51   APPLICATION OF FUNDS
RECURRING PBT                       621         678       838       956    GROSS BLOCK                       2,519     3,690      3,939      4,096
% CHG                               23.8         9.2      23.5      14.1   LESS: ACC. DEPRECIATION           1,229      1,442     1,706      1,983
EXTRAORDINARY EXPENSE/(INC.)        (23)        (14)         -         -   NET BLOCK                         1,290      2,247     2,233       2,113
PBT (REPORTED)                      598         664       838       956    CAPITAL WORK-IN-PROGRESS            41         74         79         82
TAX                                  81          73        126       191   GOODWILL / INTANGILBLES            482       1,135     1,540      1,540
PAT (REPORTED)                       517        591        712       765   INVESTMENTS                        761        761       761         761
ADD: SHARE OF EARNINGS OF ASSO.      19         (14)      (14)      (14)   CURRENT ASSETS                    4,324     4,368      5,013      5,872
LESS: MINORITY INTEREST (MI)             6       10         10        10   CURRENT LIABILITIES               1,462     2,269      2,259      2,396
PAT AFTER MI (REPORTED)             526         558       688        740   NET CURRENT ASSETS                2,863     2,099      2,281      3,013
ADJ. PAT                            549         572       688        740   OTHERS                              67         66         41         17
% CHG                               24.7         4.1      20.3       7.7   TOTAL ASSETS                      5,503     6,383      6,894       7,510




 CASH FLOW STATEMENT                                                       KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010      FY2011    FY2012E   FY2013E   Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                   598         664       838       956    VALUATION RATIO (X)
DEPRECIATION                        215         214       263        277   P/E (ON FDEPS)                     13.3       13.4       11.2      10.4
CHANGE IN WORKING CAPITAL           653          51      (362)     (265)
                                                                           P/BV                                2.4        2.0        1.8        1.6
LESS: OTHER INCOME                       -        -          -         -
                                                                           EV/EBITDA                           8.3        8.1       6.9        6.7
DIRECT TAXES PAID                   (81)       (73)      (126)     (191)
                                                                                           `
                                                                           PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS          1,384        857        613       777
                                                                           EPS (BASIC)                        12.5       12.4      14.9       16.0
(INC.)/ DEC. IN FIXED ASSETS         52      (1,204)     (254)     (161)
(INC.)/ DEC. IN INVESTMENTS        (328)          -          -         -   EPS (FULLY DILUTED)                12.5       12.4      14.9       16.0

INC./ (DEC.) IN LOANS AND ADV.           -        -          -         -   CASH EPS                           17.4       17.0      20.6       22.0

OTHER INCOME                             -        -          -         -   BOOK VALUE                         68.1       81.2      93.1      105.9
CASH FLOW FROM INVESTING           (276)     (1,204)     (254)     (161)   RETURNS (%)
ISSUE OF EQUITY                          -      312          -         -   ROCE (PRE-TAX)                     14.1       15.1      16.1       16.0
INC./(DEC.) IN LOANS               (315)      (118)        41       (24)
                                                                           ANGEL ROIC (PRE-TAX)               23.4       19.2      19.7       18.2
DIVIDEND PAID (INCL. TAX)           (77)      (103)      (108)     (135)
                                                                           ROE                                19.4       17.0       17.1      16.1
OTHERS                              308       (455)          -         -
                                                                           TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING            (84)      (364)       (67)     (159)
                                                                           RECEIVABLES (DAYS)                  81         87         81         85
INC./(DEC.) IN CASH                1,024      (712)       292        457
OPENING CASH BALANCES               554       1,578       866      1,158   PAYABLES (DAYS)                     90        105        120        105

CLOSING CASH BALANCES              1,578        866      1,158     1,615   WC CYCLE (EX-CASH) (DAYS)           139       105        101        128
Note: Financials on Consolidated basis

January 2012                                                                      Please refer to important disclosures at the end of this report     11
     Agriculture                                                                            Rallis India
                                                                                            CMP/TP/Upside: `131 / - / -



      RATING                                             NEUTRAL        Company Background
      52 WEEK HIGH / LOW                                 186 / 114      Rallis India (RAIL), part of the Tata Group, is one of the oldest and second
                  `
      MARKET CAP (` CR)                                        2,553    largest pesticide agrichemical companies in the country. The company has
                                                                        a credible presence in the international market. Pesticide accounts for 97%
      LIQUIDITY                                          MEDIUM
                                                                        of the company's total revenue, while plant nutrients, seeds and leather
                                                                        chemicals constitute the balance. Historically, contribution from the domestic
                                                                        business has stood at ~77%, while exports accounted for the balance.
      SHAREHOLDING PATTERN (%)
      PROMOTERS (TATA GROUP)                                     51.0
      FII                                                         8.7   Structural Snapshot
                                                                        Growth opportunity: The Indian agrichemical industry, estimated at ~US$1bn
                                                                        (`5,000cr) at the end of FY2009, contributed 0.1% to India's total GDP
      STOCK RETURNS
                                                                        and 0.6% to its agriculture GDP. The pesticides industry can easily grow at
      (%)                   3M          1Y        3Y     5Y      10Y    13-14%, in-line with GDP growth, with organized players, such as RAIL,
      RAIL               (23.8)       (0.6)      73.1   45.7     47.9   expected to grow at a higher rate on account of greater share of unorganized
                                                                        players.
      SENSEX              (2.6) (12.3)           21.3    3.3     17.3
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  Apart from domestic opportunities, the global agrichemical industry also
                                                                        offers opportunities in the form of generics and contract manufacturing.
                                                                        Agrichemical companies have been reducing the manufacturing capacity of
      FINANCIAL PERFORMANCE OVERVIEW                                    low-value off-patent proprietary products. Approximately, one-third of total
      (%)                    3M          1Y       3Y     5Y      10Y    agrichemical sales are estimated to be that of proprietary off-patent. Assuming
                                                                        this trend plays out in terms of growth for the agrichemical industry and the
      SALES GROWTH*         18.6       21.4      16.5   12.5      0.6   same rate of genericisation occurs, the agrichemical generic industry could
      PAT GROWTH*         (22.2)       27.7      36.6   34.2        -   log in 6-8% yoy growth during the period. With drugs going off-patent each
                                                                        year, generics represent a major outsourcing opportunity for agrichemical
      EBITDA MARGIN#          7.3      18.2      14.9   11.0      4.4
                                                                        producers in India.
      ROE#                        -    27.2      25.2   19.5     19.4
                                                                        Competitive position: RAIL is the second largest pesticide agrichemical
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        companies in the country with a market share of ~13%.
                                                                        Nature of business: Highly dependent on monsoons; Highly competitive
      ANGEL ESTIMATES                                                   domestic industry, while exports possess high legal barriers.
      PARTICULARS                             FY2012E     FY2013E
      PAT GROWTH (%)                             27.9            15.3
                                                                        Current Investment Arguments
      ROE (%)                                    27.7            25.4
                                                                        Set to seize rising opportunities in the domestic pesticides market: India's
      P/E                                        15.9            13.8
                                                                        overall pesticide consumption is one of the lowest in the world, and we
      P/BV                                        3.9             3.2   believe RAIL is well placed to seize this opportunity on the back of its wide
                                                                        distribution network, strong brands and robust new product pipeline.

      BLOOMBERG CONSENSUS RECOMMENDATION                                Contract manufacturing to be the next growth driver: RAIL plans to focus
                                                                        on contract manufacturing for exports and selectively target and supply to
      BUY / HOLD / SELL                                   11 / 3 / 0    top players. To facilitate the same, the company is setting up a new plant at
                                                                        Dahej. Overall, RAIL targets to achieve cumulative revenue of `1,000cr over
                                                                        the next five years from this segment alone.
                                                                        Valuation: Management is confident of the prospects for key crops (cotton and
                                                                        paddy) due to generally normal monsoons, which should aid continued healthy
                                                                        growth in the agrichemical industry. RAIL expects to outperform the industry,
                                                                        given its product pipeline. At current levels, the stock is trading at fair valuations
                                                                        of 13.8x FY2013E EPS. Hence, we remain Neutral on the stock.




12   January 2012                                                                             Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                    BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011   FY2012E   FY2013E               `
                                                                            Y/E MARCH (` CR)                FY2010     FY2011    FY2012E   FY2013E
TOTAL OPERATING INCOME               901       1,093     1,342     1,570    SOURCES OF FUNDS
% CHG                                 5.2       21.4      22.7       17.0   EQUITY SHARE CAPITAL                20         19         19        19
TOTAL EXPENDITURE                    726        894      1,095     1,289    RESERVES & SURPLUS                 405        485        622       774
NET RAW MATERIALS                    506         634      785        926    SHAREHOLDERS FUNDS                 424        505       659        807
OTHER MFG COSTS                      137        188        170      199     MINORITY INTEREST                     -         2          -         -
PERSONNEL                             67          73       113       132    TOTAL LOANS                          8         117       121       120
OTHER                                 15           -        27        31
                                                                            DEFERRED TAX LIABILITY                -         3          -         8
EBITDA                               175        199        247      281
                                                                            TOTAL LIABILITIES                  433        628       780        824
(% OF NET SALES)                     19.4       18.2      18.4       17.9
                                                                            APPLICATION OF FUNDS
DEPRECIATION& AMORTISATION            18          17        34        38
                                                                            GROSS BLOCK                        309        404       504        604
INTEREST & OTHER CHARGES                 5         3         1         1
                                                                            LESS: ACC. DEPRECIATION            156        174       208        247
OTHER INCOME                             7         5         3         6
                                                                            NET BLOCK                          153        229       348        370
RECURRING PBT                        158        185       215       248
                                                                            CAPITAL WORK-IN-PROGRESS            112       169        129       129
% CHG                                49.5       16.6      16.5      15.3
                                                                            GOODWILL                              -       125        125       125
EXTRAORDINARY EXPENSE/(INC.)          (8)          -         -         -
                                                                            INVESTMENTS                         140        26        28         28
PBT (REPORTED)                       150        185       215        248
TAX                                   51         58         54        62    CURRENT ASSETS                     326        467        627       731

(% OF PBT)                           32.3       31.4      25.0      25.0    CURRENT LIABILITIES                304        389        478       559

PAT (REPORTED)                        99         127      161        186    NET CURRENT ASSETS                  22         77       150        172
ADJ. PAT                              99         126      161        186    MIS. EXP. NOT WRITTEN OFF            5          1          -         -
% CHG                                53.8       27.7      27.9      15.3    TOTAL ASSETS                       433        628       780        824




 CASH FLOW STATEMENT                                                        KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011   FY2012E   FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E   FY2013E
PROFIT BEFORE TAX                    153        185       215       248     VALUATION RATIO (X)
                                                                            P/E (ON FDEPS)                     25.9      20.3       15.9       13.8
DEPRECIATION                          18          17        34        38
                                                                            P/CEPS                             21.9       17.8      13.1       11.4
INC/DEC IN WORKING CAPITAL            110        88         97        86
                                                                            P/BV                                6.0        4.8       3.9        3.2
DIRECT TAXES PAID                    (67)        58       (47)      (55)
                                                                            EV/SALES                            2.7        2.3       1.8        1.5
CASH FLOW FROM OPERATIONS             61         114       152       200    EV/EBITDA                          14.0       12.9      10.0        8.6
(INC.)/ DEC. IN FIXED ASSETS         (95)      (152)      (60)     (100)                    `
                                                                            PER SHARE DATA (`)

(INC.)/ DEC. IN INVESTMENTS           (4)        115       (2)         -    EPS (BASIC)                         5.1        6.5       8.3        9.5
                                                                            EPS (FULLY DILUTED)                 5.1        6.5       8.3        9.5
INC./ (DEC.) IN LOANS AND ADVANCES
                                                                            CASH EPS                            6.0        7.4      10.0       11.5
CASH FLOW FROM INVESTING             (99)       (37)      (61)     (100)
                                                                            DPS                                 1.2        1.1       1.5        1.7
ISSUE OF EQUITY                           -        -         -         -    BOOK VALUE                         21.8       27.3      33.8       41.4
INC./(DEC.) IN LOANS                 (74)        109         4       (1)    RETURNS (%)

DIVIDEND PAID (INCL. TAX)            (44)       (36)      (25)      (34)    ROCE (PRE-TAX)                     36.2       34.3      30.2      30.3
                                                                            ANGEL ROIC (PRE-TAX)               79.9      35.0       38.9      38.2
OTHERS                               153       (154)      (52)      (60)
                                                                            ROE                                25.5       27.2      27.7      25.4
CASH FLOW FROM FINANCING              35        (81)      (73)      (95)
                                                                            TURNOVER RATIOS (X)
INC./(DEC.) IN CASH                   (3)          4        18         5
                                                                            INVENTORY / SALES (DAYS)            60         65        68         64
OPENING CASH BALANCES                    7        10         5        23    RECEIVABLES (DAYS)                  39         43         53        51
CLOSING CASH BALANCES                    10       15        23        28    PAYABLES (DAYS)                     115       115        105        95
Note: Financials on Consolidated basis

January 2012                                                                       Please refer to important disclosures at the end of this report    13
                    This page is left intentionally blank




14   January 2012                              Please refer to important disclosures at the end of this report
Automobile                                                                                                                   POSITIVE


COVERAGE                                               Structural growth potential intact
Companies                   `
                       CMP (`)            `
                                  Target (`)   Reco    The Indian automotive industry has been one of the biggest beneficiaries of
Four-Wheeler                                           the consistent economic growth in the country over the past decade. While
                                                       India's GDP expanded at an 8.6% CAGR over FY2002-11, overall auto sales
Mahindra and Mahindra      674          801     Buy
                                                       grew by 14.2%. This can be attributed to structural growth drivers such as
Tata Motors                219          242 Accum.     GDP growth (leading to increasing affluence of rural and urban consumers),
Maruti Suzuki             1,129        1,195 Accum.    favorable demographics, low penetration levels, entry of global players and
                                                       easy availability of finance. Given our expectations of healthy medium-term
Ashok Leyland               27           32     Buy    economic growth of 8%, we believe long-term structural growth drivers are
                                                       intact, which should support a 12-13% CAGR in auto volumes.
Two-Wheeler                                            India's automotive industry, though one of the fastest growing, is still dominated
Bajaj Auto                1,467        1,755    Buy    by two-wheelers (2W), which account for 76% of the total industry, while
                                                       passenger vehicles (PV) and commercial vehicles (CV) make up for 16% and
Hero Motocorp             1,901        2,025 Accum.    4%, respectively. We estimate the growth opportunity to be significantly higher
TVS Motor                   50           66     Buy    in the PV and CV segments than the 2W segment on account of low penetration
                                                       levels when compared to other emerging economies such as China and Brazil.

Auto Ancillary                                         Near-term environment to improve: We expect the near-term environment to
                                                       turn positive for the PV and CV industry, with the likely easing of interest rates.
Bosch India               7,160        7,514 Accum.    Our volume growth estimates for FY2013 across segments are enumerated below.
Exide Industries           120          137 Accum.     Passenger vehicles: We forecast PV volume growth to rebound and grow
Amara Raja Batteries       206          250     Buy    over 13% in FY2013 (vs. 2% in FY2012), led by revival in demand for passenger
Apollo Tyres                65           74     Buy    cars (PC) with likely easing of interest rates. We believe India's PC industry
                                                       is at an inflexion point, with GDP per capita (PPP basis) crossing US$3,000
CEAT                        84          125     Buy    levels, considered to be a tipping point for motorization to take off.
JK Tyre                     70           89     Buy    Commercial vehicles: While freight rates continue to hold up well, industrial
Motherson Sumi             150          169 Accum.     activity is expected to pick up on the likely easing of interest rates, which is
                                                       expected to revive medium and heavy commercial vehicle (MHCV) demand
Bharat Forge               277          299 Accum.
                                                       going ahead. We forecast MHCV demand to register 12-13% growth in FY2013
FAG Bearings              1,141       1,359     Buy    from moderate 6-7% growth expected in FY2012. We expect the light commercial
Automotive Axles           428             - Neutral   vehicle (LCV) segment to grow at a faster rate (18% CAGR over FY2011-13E)
                                                       than the overall CV segment (14.5% CAGR), as we expect penetration of the
Subros                      24             - Neutral
                                                       hub and spoke models to increase to more cities and towns going ahead.
                                                       Two-wheelers: We expect 2W volume growth to moderate and post a 13.3%
                                                       CAGR over FY2011-13E, after reporting a strong 26% CAGR over FY2009-
                                                       11. Motorcycle sales are expected to post a 13.2% CAGR, while scooters
                                                       sales are expected to outperform with an 18.5% CAGR over FY2011-13E.
                                                       Competition to intensify: We expect competition to remain intense across all
                                                       the automotive segments; however, it is likely to be tougher in the 2W segment as
                                                       Honda Motorcycle and Scooters India (HMSI) has announced its plans to launch
                                                       new models at aggressive price points in FY2013. Also, the PV segment is likely
                                                       to witness heightened competition, led by new model launches, which are expected
                                                       to keep Maruti Suzuki's (MSIL) market share under threat. Further, competition in
                                                       the MHCV space is expected to be higher, marked by the entry of Mahindra and
                                                       Mahindra (M&M) and Daimler. Despite higher competitive intensity affecting pricing
                                                       power, softening of commodity prices recently is expected to provide margin stability.
                                                       Outlook and valuation: Against the backdrop of likely easing of interest rates, we
                                                       expect demand revival in the four-wheeler (4W) segment. Hence, we remain positive
                                                       on Ashok Leyland (AL) and M&M. We also prefer Bajaj Auto (BJAUT) in the 2W
                                                       space due to its strong growth traction in exports markets and superior margin profile.


January 2012                                                                   Please refer to important disclosures at the end of this report   15
                                                                                                                                                                                                                                                                                                                 Automobile

     Passenger vehicles                                                                                                 Exhibit 3: GDP per capita (PPP basis) growth trend
                                                                                                                         (US$)

     Low penetration levels offer a long-term growth opportunity                                                         8,000
                                                                                                                         7,000
                                                                                                                         6,000
     The Indian passenger vehicle (PV) industry, which comprises
                                                                                                                         5,000
     passenger cars (~80%, of which ~78% is dominated by the                                                             4,000
     small car segment), utility vehicles (~13%) and vans (~7%) is                                                       3,000
                                                                                                                         2,000
     amongst the largest PV markets in the world. However, this
                                                                                                                         1,000
     belies the fact that as compared to developed markets and                                                                0




                                                                                                                                                                                  FY2004




                                                                                                                                                                                                                          FY2006




                                                                                                                                                                                                                                                                             FY2008


                                                                                                                                                                                                                                                                                                    FY2009
                                                                                                                                          FY2002


                                                                                                                                                               FY2003




                                                                                                                                                                                                     FY2005




                                                                                                                                                                                                                                                                                                                          FY2010


                                                                                                                                                                                                                                                                                                                                               FY2011
     most developing markets, India's PV penetration remains relatively




                                                                                                                                                                                                                                                  FY2007
     low at 12 per 1,000 people compared to 451, 158 and 27 per
     1,000 for U.S., Brazil and China, respectively. With India's GDP                                                                                                                                              India                                       China

     expected to grow at a sustainable rate of ~8% in the medium                                                        Source: Bloomberg, Industry, Angel Research
     term, we expect GDP per capita (PPP basis, currently at
     US$3,586) to also grow at a healthy rate. Noticeably, as seen                                                      The PV industry in India registered strong volume growth of
     through cross-country analysis, motorization rates tend to accelerate                                              17% over FY2002-11, driven largely by buoyant economic growth,
     when G DP per capita (PPP basis) crosses ~US$3,000.                                                                rising income levels and favorable demographics. Further, new
     Accordingly, we believe the domestic PV industry is at an inflexion                                                model launches, easy availability of finance and growth in tier
     point and likely to witness sustainable long-term growth,                                                          II and III cities and semi urban areas maintained the strong
     driven by strong per capita income levels and a favorable                                                          growth momentum.
     demographic profile.
                                                                                                                        Exhibit 4: Passenger vehicle sales volume trend
                                                                                                                          (units)
     Exhibit 1: PV penetration levels                                                                                   16,000,000
                                        50,000
                                                                                                     US                 14,000,000
      GDP per capita (US$, PPP based)




                                        45,000
                                                                                                                        12,000,000
                                        40,000
                                                                                                             Germany    10,000,000
                                        35,000                                            Japan      UK                  8,000,000
                                        30,000
                                                                                                                         6,000,000
                                        25,000
                                                                                                                         4,000,000
                                        20,000
                                                                                                                         2,000,000
                                        15,000                    Brazil
                                                                                                                                      0
                                                                           Mexico
                                                                                                                                                                                           FY2004




                                                                                                                                                                                                                                    FY2006




                                                                                                                                                                                                                                                                                      FY2008


                                                                                                                                                                                                                                                                                                             FY2009
                                                                                                                                                      FY2002


                                                                                                                                                                         FY2003




                                                                                                                                                                                                              FY2005




                                                                                                                                                                                                                                                                                                                                   FY2010


                                                                                                                                                                                                                                                                                                                                                        FY2011
                                        10,000




                                                                                                                                                                                                                                                           FY2007
                                                         China
                                         5,000
                                                       India
                                             0
                                                 0.0      100.0       200.0      300.0       400.0   500.0      600.0                                                                                                              India                                 China

                                                                 Penetration (per 1,000 people)                         Source: Bloomberg, Industry, Angel Research
     Source: Bloomberg, Industry, Angel Research
                                                                                                                        Being a cyclical industry, demand has witnessed a sharp slowdown
     Exhibit 2: Growth opportunity on offer                                                                             since the beginning of FY2012 on account of rising inflation,
                                                             GDP per capita (PPP based)                      PV's       interest rates and fuel prices. Nonetheless, we expect volume
                                                                                  (US$)               (per 1'000)       growth to recover in FY2013, backed by the likely easing of
                                                                                                                        interest rates coupled with structural growth drivers. Thus, we
     India                                                                                   3,586                12
                                                                                                                        expect the domestic passenger vehicle industry to register a
     U.S.                                                                                  47,184                451    8-10% CAGR over FY2011-13E.
     Growth opportunity (x)                                                                   13.2              37.6
     Source: Bloomberg, Industry, Angel Research
                                                                                                                        Exhibit 5: PV growth story
                                                                                                                        ('000 units)                                                                                                                                                                                                                     (%)
                                                                                                                           3,500                                                                                                                                                                                                                         35.0

     Drawing parallels to China                                                                                           3,000                                                                                                                                                                                                                          30.0
                                                                                                                          2,500                                                                                                                                                                                                                          25.0
     In 2002, China's PV market was 1.2x the size of India's PV                                                           2,000                                                                                                                                                                                                                          20.0
     market. However, over FY2002-11, PV demand in China has                                                              1,500                                                                                                                                                                                                                          15.0

     risen at a meteoric rate, reporting a 38.4% CAGR, driven by                                                          1,000                                                                                                                                                                                                                          10.0
                                                                                                                            500                                                                                                                                                                                                                          5.0
     strong sustainable economic growth, rising per capita income
                                                                                                                                  0                                                                                                                                                                                                                      0.0
     levels and structural changes. This is extremely high compared
                                                                                                                                                                                  FY2004




                                                                                                                                                                                                                       FY2006




                                                                                                                                                                                                                                                                    FY2008


                                                                                                                                                                                                                                                                                           FY2009
                                                                                                                                             FY2002


                                                                                                                                                                FY2003




                                                                                                                                                                                                    FY2005




                                                                                                                                                                                                                                                                                                                 FY2010


                                                                                                                                                                                                                                                                                                                                      FY2011
                                                                                                                                                                                                                                             FY2007




     to a 17% CAGR witnessed in India's PV demand over the same
     period. Consequently, China's PV market is now ~6x the Indian                                                                                                                          PV sales                                                       yoy growth (RHS)
     PV market. However, importantly, India's GDP per capita in                                                         Source: Bloomberg, SIAM, Angel Research
     FY2008 was similar to that of China in 2002, the year when its
     motorization started to gain momentum. Therefore, we believe
     Indian markets also offer similar opportunities, led by improving
     road infrastructure, urbanization, larger segment of population
     entering the affordability zone and rising aspiration levels of
     Indian consumers.


16   January 2012                                                                                                                     Please refer to important disclosures at the end of this report
                                                                                                                                                                                                                                          Automobile

Exhibit 6: PV sales and GDP growth                                                                                                          Exhibit 8: Market share trend
(%)                                                                                                                                  (%)                            FY2008            FY2009              FY2010              FY2011 YTD FY2012
35.0                                                                                                                                 12.0
30.0
                                                                                                                                            Maruti Suzuki                   45.9               47.0                45.2            45.9                     38.0
                                                                                                                                     10.0
25.0
                                                                                                                                 8.0        Hyundai                         14.0               15.9                16.4            14.6                     15.6
20.0
                                                                                                                                 6.0        Tata Motors                     14.8               13.9                13.5            12.1                     13.3
15.0
                                                                                                                                 4.0        M&M                              8.4                7.8                 8.1                 7.3                  9.6
10.0
 5.0                                                                                                                             2.0
                                                                                                                                            Toyota                           3.6                3.1                 3.3                 3.4                  5.8
 0.0                                                                                                                             0.0
                                                                                                                                            GM                               4.3                4.0                 4.5                 4.3                  4.6
                                  FY2004




                                                        FY2006




                                                                              FY2008


                                                                                           FY2009
          FY2002


                   FY2003




                                             FY2005




                                                                                                           FY2010


                                                                                                                     FY2011
                                                                    FY2007




                                                                                                                                            Ford                             2.2                1.8                 1.9                 4.0                  3.8
                                           Domestic PV sales                           Real GDP (RHS)                                       Volkswagen                       0.0                0.1                 0.3                 2.3                  3.5
Source: Bloomberg, SIAM, Angel Research
                                                                                                                                            Honda                            4.0                3.4                 3.2                 2.4                  2.0

Semi urban India holds a strong potential                                                                                                   Others                           2.8                3.0                 3.6                 3.7                  3.8
                                                                                                                                            Source: Bloomberg, Crisil, SIAM, Angel Research
According to industry sources, ~40% of PV sales in India are
derived from the top 10 cities, suggesting that demand in other                                                                             Commercial vehicles
parts of the country remains untapped. Further, while 70% of
total households in India reside in rural and semi-urban areas,                                                                             Demand for the commercial vehicle (CV) industry in India is
automobile penetration levels there are still very low (just 3%                                                                             driven by GDP growth in general and IIP growth in particular.
for PV as per NCAER). However, government initiatives such                                                                                  Over FY2002-11, India's GDP and IIP grew at CAGRs of 8.6%
as higher MSP for agricultural commodities and implementation                                                                               and 8.9%, respectively, driving domestic CV volumes, which
of the Sixth Pay Commission coupled with increasing land prices                                                                             registered a 18.9% CAGR over the same period. Further, it
across the country are putting more disposable income in the                                                                                has been observed that whenever MHCV sales fall, LCV sales
hands of semi-urban consumers, thereby fuelling growth.                                                                                     follow suit and tend to decline. However, the trend has been
Additionally, with OEMs now actively focussing on semi-urban                                                                                divergent since FY2006, with LCV sales growing faster than
markets and tier II and III cities by increasing their reach,                                                                               MHCV sales, thereby shielding overall CV growth to a certain
we expect demand to remain strong and, hence, drive overall                                                                                 extent from the cyclical downturn. During April-November 2011,
industry demand.                                                                                                                            while the domestic CV industry posted strong growth of 20.0%
                                                                                                                                            yoy, riding on robust 29.3% growth in LCVs, MHCV sales posted
Competitive intensity expected to remain high                                                                                               modest 9.4% yoy growth.
Growth potential of the Indian car market and strong performance
                                                                                                                                            Exhibit 9: Domestic CV sales trend
reported by the industry in the last decade have attracted many
                                                                                                                                             (units)                                                                                                          (%)
global OEMs to India. To gain a foothold in the domestic market,                                                                            800,000.                                                                                                         12.0
most OEMs have launched new models (especially in the compact                                                                               700,000
                                                                                                                                                                                                                                                             10.0
                                                                                                                                            600,000
segment) designed specifically for the Indian consumers, thereby                                                                                                                                                                                             8.0
                                                                                                                                            500,000
increasing competition in the market. However, among the new                                                                                400,000                                                                                                          6.0
launches in FY2012, we believe Eon from Hyundai, Liva from Toyota                                                                           300,000
                                                                                                                                                                                                                                                             4.0
                                                                                                                                            200,000
and Brio from Honda will be key threats to market leader Maruti                                                                                                                                                                                              2.0
                                                                                                                                            100,000
Suzuki. We expect the competitive intensity in the industry to remain                                                                              0                                                                                                         0.0
                                                                                                                                                                             FY2004




                                                                                                                                                                                                 FY2006




                                                                                                                                                                                                                     FY2008

                                                                                                                                                                                                                               FY2009
                                                                                                                                                          FY2002

                                                                                                                                                                   FY2003




                                                                                                                                                                                      FY2005




                                                                                                                                                                                                                                          FY2010

                                                                                                                                                                                                                                                   FY2011
                                                                                                                                                                                                          FY2007




high, with 10 to 12 new product launches planned in 2013.

                                                                                                                                                                            Domestic CV sales                             Real GDP (RHS)
Exhibit 7: New vehicle launches trend
                                                                                                                                            Source: Bloomberg, SIAM, Angel Research
                   FY2008                    FY2009                 FY2010                     FY2011               YTD FY2012
Maruti Suzuki SX4, Dzire                      A-star              Ritz, Eeco,            new Wagon R, new Swift
                                                                 SX4 upgrade,               Alto K10,
                                                                                                                                            MHCV demand to follow IIP growth
                                                                 new Zen Estilo                 Kizashi                                     Demand for MHCV is cyclical and correlates with the level of
Hyundai                     i10                   i20                                         new i20                         Eon           industrial activity in the economy. MHCV volumes fell sharply
Tata Motors        Indigo CS               Indica Vista,             Indigo                         Aria            new Indica              in FY2009 due to slowdown in industrial production and contraction
                                               Nano                 Manza                                                                   in liquidity. However, volumes recovered over FY2009-11
M&M                                              Xylo                                                               new Bolero,             (~33% CAGR), driven by strong economic activity and improvement
                                                                                                                     XUV5OO                 in the operating environment for fleet operators, which benefited
Toyota                                                             Fortunner                        Etios                     Liva
                                                                                                                                            from higher freight availability, firm freight rates and relatively
                                                                                                                                            lower financing rates.
GM                                                                Cruz, Beat
Ford                                                                   Figo                                         new Fiesta              With the expected easing of interest rates from 1QFY2013
Volkswagen           Passat                     Jetta                  Polo                         Vento                                   and GDP to register a 8% CAGR over FY2011-13, we expect
Honda                                                                  Jazz                                                   Brio          the demand scenario for MHCV to improve, leading to a
Nissan              Teanna                                                                          Micra                                   10-12% CAGR over the same period. Further, government initiatives
Source: Crisil, Angel Research                                                                                                              such as improving road connectivity, infrastructure development


January 2012                                                                                                                                           Please refer to important disclosures at the end of this report                                              17
                                                                                                                                                                                                                                                 Automobile

     Exhibit 10: MHCV-IIP – Co-relation                                                                                   Exhibit 11: MHCV market share trend
      50.0                                                                                                         14.0    (%)
      40.0                                                                                                                70.0                          62.9                                                                         63.3
                                                                                                                   12.0          62.0                                              60.5                     61.9                                              60.1
      30.0                                                                                                                60.0
                                                                                                                   10.0
      20.0                                                                                                                50.0
      10.0                                                                                                         8.0
                                                                                                                          40.0
       0.0                                                                                                                         27.0                     27.9                      27.5                     25.7                                              25.5
                                                                                                                   6.0    30.0                                                                                                          23.3
     (10.0)
                                                                                                                   4.0    20.0
     (20.0)                                                                                                                             7.4                                                  8.2                      7.4                      8.6                      9.3
                                                                                                                                                                   6.8
                                                                                                                          10.0
                                           FY2004




                                                             FY2006




                                                                               FY2008


                                                                                        FY2009
                                                                                                                   2.0
              FY2002


                       FY2002


                                FY2003




                                                    FY2005




                                                                                                 FY2010


                                                                                                          FY2011
                                                                      FY2007
     (30.0)
                                                                                                                           0.0
     (40.0)                                                                                                        0.0
                                                                                                                                   FY2006                  FY2007                    FY2008                   FY2009                   FY2010                   FY2011
                                         MHCV sales                       IIP growth (RHS)                                                             Tata Motors                 Ashok Leyland                      Eicher Motors                  Others

     Source: Bloomberg, SIAM, Angel Research                                                                              Source: Bloomberg, Crisil, SIAM, Angel Research

     and significant capacity addition in steel, power, cement and                                                        While Tata Motors continues to dominate the LCV space with
     automobile sectors also augur well for MHCV demand.                                                                  a 56% market share, led by the success of Tata Ace, it has
     LCV to outperform MHCV                                                                                               been losing market share to MM post the launch of Maxximo in
                                                                                                                          2010. Strong growth witnessed in the SCV segment and its
     LCV's, which are used primarily for last mile transport applications,                                                growing market size have prompted several players to enter
     have posted a strong 22.6% CAGR between FY2002 and FY2011,                                                           the segment. Piaggio, Force Motors and Ashok Leyland (JV
     playing a vital role in the overall growth of the CV industry. This                                                  with Nissan) have already rolled out new products in the markets,
     strong growth, in part, is primarily due to the creation of a new                                                    leading to higher competition. As such, we expect Tata Motors
     segment of small CVs (SCV), with a payload of less than one                                                          to continue to lose its market share going ahead.
     tonne (initiated by Tata Motors with the launch of the Ace in
     2005). Over the past few years, the number of SCV applications                                                       Exhibit 12: LCV market share trend
     has expanded significantly, not only within cities but also in                                                        (%)
     smaller towns and rural markets. As a result, LCV sales as a                                                         70.0                          65.4
                                                                                                                                                                                  62.1
                                                                                                                                 60.1                                                                       59.9                     58.5
     proportion of total CV volume increased from 35% in FY2001                                                           60.0                                                                                                                                56.0

     to 53% in FY2011.                                                                                                    50.0

                                                                                                                          40.0                                                                                                                                  32.7
     Despite headwinds building up, the LCV segment continues to                                                                                                                                               27.8                     30.0
                                                                                                                          30.0     26.1                    24.3                      25.6
     grow steadily and has so far managed to buck the overall slowdown
                                                                                                                          20.0
     witnessed in other segments. The SCV segment, which accounts
                                                                                                                          10.0          5.0                        3.8                       5.0                      3.9                      4.0                      4.8
     for over 75% of the LCV market, is driving growth on the back
     of strong demand for transportation of consumer goods within                                                          0.0
                                                                                                                                   FY2006                 FY2007                     FY2008                   FY2009                   FY2010                   FY2011
     cities and replacement demand from upper-end three wheelers.                                                                                        Tata Motors                         MM              Force Motors                      Others
     Thus, we expect the LCV segment to grow at a 15% over                                                                Source: Bloomberg, Crisil, SIAM, Angel Research
     FY2011-13E, driven by increasing structural factors such as
     preference for low payload vehicles, proliferation of the hub
                                                                                                                          Two wheelers
     and spoke model and new launches.
                                                                                                                          The Indian 2W industry posted a strong 13.4% CAGR over
     Competition: New entrants to join in                                                                                 FY2002-11, led by various fundamental factors such as sustainable
     The Indian CV industry is currently operating as a duopoly, with                                                     economic growth, low penetration levels, new launches, swelling
     the top two players accounting for over 85% market share in                                                          replacement demand, inadequate public transport system and
     the MHCV and LCV segments each.                                                                                      rising income levels, particularly in rural India. While demand is
                                                                                                                          likely to sustain going ahead supported by rising income levels,
     The MHCV segment is dominated by Tata Motors and Ashok
                                                                                                                          young population, increasing demand from rural India and huge
     Leyland with a market share of 60% and 26%, respectively.
                                                                                                                          potential for exports, we expect growth in 2W volumes to moderate
     However, several international OEMs, including Daimler, Man,
     Navistar (through JV with MM) and Volvo (through JV with Eicher
                                                                                                                          Exhibit 13: Industry growth trend
     Motors), have entered the MHCV space and have either launched
                                                                                                                            (units)                                                                                                                                       (%)
     or are in the process of introducing their vehicles in the domestic                                                  14,000,000                                                                                                                                      30.0

     market, thereby increasing competition. We believe MM could                                                          12,000,000                                                                                                                                      25.0
                                                                                                                                                                                                                                                                          20.0
     emerge as a formidable competitor, given its strong brand equity                                                     10,000,000
                                                                                                                                                                                                                                                                          15.0
                                                                                                                           8,000,000
     in the pick-up and UV segments, knowledge of the domestic                                                                                                                                                                                                            10.0
                                                                                                                           6,000,000
     market and established vendor and distribution network. Also,                                                                                                                                                                                                        5.0
                                                                                                                           4,000,000
                                                                                                                                                                                                                                                                          0.0
     Daimler has invested EUR700mn for its new product Bharat                                                              2,000,000                                                                                                                                      -5.0
     Benz and is likely to compete aggressively in the market.                                                                     0                                                                                                                                      -10.0
                                                                                                                                                                                                                                                               FY2011
                                                                                                                                                                                                             FY2007
                                                                                                                                              FY2002




                                                                                                                                                                                    FY2005


                                                                                                                                                                                                   FY2006




                                                                                                                                                                                                                                      FY2009
                                                                                                                                                          FY2003




                                                                                                                                                                                                                                                     FY2010
                                                                                                                                                                         FY2004




                                                                                                                                                                                                                            FY2008




                                                                                                                                                                                  2W sales                       yoy growth (RHS)

                                                                                                                          Source: Bloomberg, SIAM, Angel Research



18   January 2012                                                                                                                 Please refer to important disclosures at the end of this report
                                                                                                                                                                                                                                                                                                Automobile

and increase in-line with the historical CAG R of 13.3%                                                                                                    Rural demand - The key growth driver
over FY2011-13E, after witnessing a strong 26% CAGR over
FY2009-11 and increasing dependence on replacement demand.                                                                                                 Demand for 2Ws is expected to have grown faster in rural areas
                                                                                                                                                           compared to urban markets over the last few years, as reflected
Exhibit 14: 2W - Segmental trend                                                                                                                           by the fact that Hero MotoCorp's (industry leader) contribution
 (%)                                                                                                                                                       to sales from rural India has increased from ~38% in FY2009
 100                                                                                                                                                       to ~46% in 2QFY2012.
  90
  80
  70                                                                                                                                                       2Ws are the cheapest and efficient medium of commuting; thus,
  60
                              76            77          78             80          82              83       80            78       78             76       we expect 2W growth buoyancy in rural markets to continue,
  50
  40                                                                                                                                                       led by increasing government spending and rising income levels
  30
  20
                                                                                                                                                           on the back of increased MSP for crops and other non-agrarian
  10                          18            17          16             15          13              12       14            15       16             18       sources of income for rural consumers.
   0
                                                        FY2004




                                                                                     FY2006




                                                                                                            FY2008


                                                                                                                          FY2009
                              FY2002


                                            FY2003




                                                                          FY2005




                                                                                                                                   FY2010


                                                                                                                                                  FY2011
                                                                                                   FY2007




                                                                                                                                                           Exhibit 17: MSP for key crops
                                                          Scooters                   Motorcycles                     Mopeds                                (` per quintal)
                                                                                                                                                               4,000
Source: Bloomberg, Crisil, SIAM, Angel Research
                                                                                                                                                               3,000

Penetration levels to improve on rising income levels                                                                                                          2,000

Despite rapid growth in the 2W industry over the last decade,                                                                                                  1,000
2W penetration level in India remains low at ~7% compared to
                                                                                                                                                                    0
~9% and ~14% in emerging countries like China and Indonesia,



                                                                                                                                                                                                                 FY2004




                                                                                                                                                                                                                                    FY2006




                                                                                                                                                                                                                                                            FY2008


                                                                                                                                                                                                                                                                              FY2009
                                                                                                                                                                                  FY2002


                                                                                                                                                                                                    FY2003




                                                                                                                                                                                                                           FY2005




                                                                                                                                                                                                                                                                                                FY2010


                                                                                                                                                                                                                                                                                                              FY2011


                                                                                                                                                                                                                                                                                                                        FY2012
                                                                                                                                                                                                                                              FY2007
respectively. Penetration in terms of total households is also
lower at ~36% as compared to other emerging markets such                                                                                                                                             Paddy (common)                              Cereals                                                          Wheat
as Indonesia, China and Thailand. However, it appears higher                                                                                                                                         Gram                                        Arhar                                                            Moong

at ~74%, considering households with income levels above                                                                                                   Source: MOSPI, Angel Research
`90,000 (assuming that households having annual income less
than `90,000 do not have the ability to own a 2W). This suggests                                                                                           Exhibit 18: Trend in agri GDP growth
that strong growth, driven primarily by increased                                                                                                          (%)
                                                                                                                                                           30.0
penetration levels, will be difficult to sustain over an extended
                                                                                                                                                           25.0
period. Therefore, we expect domestic 2W sales growth to
                                                                                                                                                           20.0
decelerate in the longer run.
                                                                                                                                                           15.0

                                                                                                                                                           10.0

Exhibit 15: Penetration levels (Population wise)                                                                                                            5.0
                  35                                                                                                                                        0.0
                                                         Thailand
                  30                                                                                                                                        (5.0)
                                                                                                                                                                                                             FY2004




                                                                                                                                                                                                                                     FY2006




                                                                                                                                                                                                                                                                     FY2008



                                                                                                                                                                                                                                                                                       FY2009
                                                                                                                                                                         FY2002


                                                                                                                                                                                           FY2003




                                                                                                                                                                                                                           FY2005




                                                                                                                                                                                                                                                                                                         FY2010



                                                                                                                                                                                                                                                                                                                       FY2011
                                                                                                                                                                                                                                                   FY2007




                  25
Penetration (%)




                                       Vietnam
                  20                                                                                                                                                                                                      Nominal agri GDP growth
                                             Indonesia                                                      Japan                                          Source: Bloomberg, Angel Research
                  15
                                                     China
                  10

                      5            India
                                                                 Brazil
                                                                                                                                             US
                                                                                                                                                           Huge export potential
                      0
                                                                                                                                                           India's motorcycle exports have registered a substantial 25%
                          0                      10,000                     20,000                 30,000                 40,000                 50,000
                                                                                                                                                           CAGR over FY2006-11, backed by India's low-cost manufacturing
                                                                      GDP per capita (US$ PPP basis)
                                                                                                                                                           capabilities, reliance on offering quality products and exploring
Source: World Road Statistics-2008, Yamaha investor presentation, Angel Research
                                                                                                                                                           newer geographies. Key export markets for Indian players include
                                                                                                                                                           Africa (Nigeria, Kenya and Uganda), Middle East, South Asia,
Exhibit 16: Penetration levels (Number of households)                                                                                                      Latin America (Colombia and Peru) and Southeast Asia
 (%)
 120
                                                                                                                                                           (Sri Lanka and Bangladesh). Though Indian players compete
                                                                                                                     98                                    with recognized global majors like Honda and Yamaha and cost-
 100                                                                                          93
                                                                                                                                                           efficient Chinese manufacturers, they have been successful in
          80                                                                                                                                               increasing their market share in existing geographies and venture
          60
                                                                                                                                                           into newer ones. BJAUT and TVSL are the two largest motorcycle
                                   36
                                                                 42
                                                                                                                                            38             exporters in the country, accounting for ~64% and ~14% of
          40
                                                                                                                                                           the total motorcycles exported from India, respectively.
          20

                  0
                                 India                    China                    Thailand                 Indonesia                   Brazil

Source: Crisil, Angel Research




January 2012                                                                                                                                                            Please refer to important disclosures at the end of this report                                                                                          19
                                                                                                                                                                                                                                              Automobile

     Exhibit 19: Exports growth                                                                                                                   has announced significant capacity expansion plans (4mn units
       (units)                                                                                                                        (units)     by 1HCY2013 from 1.6mn in March 2011) coupled with new
     1,200,000                                                                                                                      2,000,000
                                                                                                                                                  model launches, importantly in the <125cc motorcycle segment.
     1,000,000
                                                                                                                                    1,500,000     Currently, HMCL leads the <125cc motorcycle segment (71%
       800,000                                                                                                                                    share), led by Splendor and Passion; whereas, BJAUT commands
       600,000                                                                                                                      1,000,000     a leadership position in the >125cc motorcycle segment (51.4%)
       400,000                                                                                                                                    on the back of the strength of Pulsar. However, with the impending
                                                                                                                                    500,000
       200,000                                                                                                                                    launch of new motorcycles by HMSI, HMCL's market share seems
             0                                                                                                                      0             more vulnerable to rising competition as compared to BJAUT.
                             FY2007                 FY2008                FY2009                     FY2010          FY2011
                                BJAUT                                      TVSL                                            HMCL
                                Others                                     Total exports (LHS)                                                    Exhibit 21: Motorcycle market share trend
                                                                                                                                                  (%)
     Source: Bloomberg, ICRA, Angel Research
                                                                                                                                                  60
                                                                                                                                                                                         52.4                51.9
                                                                                                                                                                       49.4                                                     48                 47.5
                                                                                                                                                  50    45.8
     Exhibit 20: Share of Indian players in global markets on the rise
      (%)                                                                                                                                         40           33.5                                                                                       33.3
                                                                                                                                                                            32.7                                                       32.3
                                                               93.0                                                                                                                              28             29.7
     100.0
                                82.0                                                                                                              30
      90.0                                      80.0
      80.0                                                                                                  74.0
                                                       67.0
      70.0                                                                                                                                        20            13
      60.0                                                                                                                                                                      9.4              9.3                 7.6                 8
                                                                                                                                                                                                                                             7.1           7.5
      50.0                                                                                                                 40.0                   10                                                  5.9              6.2                                       6.6
                                                                                                                                          38.0                   2.4             4.3
      40.0                                                                  33.0              29.0
      30.0             23.0                                                                                                                        0
      20.0       8.0                                                                                                                                      FY2007         FY2008                FY2009          FY2010             FY2011               YTDFY12
      10.0                                                                                            0.0            0.0            0.0
       0.0                                                                                                                                                             HMCL            BJAUT          TVSL    HMSI            Yamaha          Others
                   Nigeria




                                                                                                                           Angola
                                                                                   Colombia
                                                              Srilanka




                                                                                                                                          Kenya
                                                                                                            Uganda
                                       Bangladesh




                                                                                                                                                  Source: Bloomberg, ICRA, Angel Research


                                                                         FY2008                 FY2010                                            Exhibit 22: HMSI leads scooter market
     Source: Bloomberg, ICRA, Angel Research                                                                                                      (%)
                                                                                                                                                   70
                                                                                                                                                                                          58.5               56.9
                                                                                                                                                   60                  56
     With a sizeable market size and rising per capita income in                                                                                        50.3                                                                    50.3
                                                                                                                                                   50                                                                                              42.7
     developing nations, which have demographic profiles similar
                                                                                                                                                   40
     to India, we believe Indian players are favorably placed to leverage
                                                                                                                                                   30          24.7           26.5               24.2
     upon their domestic experience and enter newer geographies                                                                                                                                                     21.2               20.7               21.9
                                                                                                                                                                                                                                                             17
     (Brazil and few African countries). As a result, we expect motorcycle                                                                         20                                                               13.3                 14.4
                                                                                                                                                                                9.5               9.7                                                             10.9
                                                                                                                                                                                                                        7.1                 9.5
     exports to continue to grow at a faster rate than domestic growth                                                                             10                                                 2.3
                                                                                                                                                                1.5
     and register a CAGR of 14-15% over FY2011-13E.                                                                                                0
                                                                                                                                                          FY2007         FY2008                FY2009          FY2010             FY2011               YTDFY12

     Competition to get tougher                                                                                                                                                HMSI        TVSL         HMCL          Suzuki         Others

                                                                                                                                                  Source: Bloomberg, ICRA, Angel Research
     The overall 2W industry in India is dominated by HMCL, BJAUT
     and TVS Motor (TVSL), with a market share of 40.5%, 25.4%                                                                                    Outlook and valuation: Against the backdrop of likely easing
     and 15.1%, respectively. The motorcycle segment (~78% of                                                                                     of interest rates, we expect demand revival in the four-wheeler
     the total 2W market) is expected to witness intense competition                                                                              (4W) segment. Hence, we remain positive on Ashok Leyland
     in the wake of the termination of the joint venture between the                                                                              (AL) and M&M. We also prefer Bajaj Auto (BJAUT) in the 2W
     Hero Group and Honda Motors and Scooters India (HMSI).                                                                                       space due to its strong growth traction in exports markets and
     Post the split with HMCL, HMSI has turned aggressive and                                                                                     superior margin profile.




20   January 2012                                                                                                                                              Please refer to important disclosures at the end of this report
                                                                                                                                         Automobile

Exhibit 23: Recommendation summary
                         Reco              CM P        TP    Upside          P/E (x)            EV/EBITDA (x)           RoE (%)         EPS CAGR (%)
                                               `
                                              (`)       `
                                                       (`)      (%)     FY12E     FY13E        FY12E     FY13E      FY12E     FY13E       FY2011-13E
 Four-Wheeler
 Mahindra and Mahindra   Buy                 674      801       18.8      14.7         12.9       8.9       7.6       23.3     21.4              10.0
 Tata Motors#            Accumulate         219       242       10.7        7.7         7.5       5.2      4.8        39.8     31.1               1.0
 Maruti Suzuki           Accumulate        1,129    1,195        5.9      22.1         14.2      14.1      8.3        10.2     14.3               1.1
 Ashok Leyland           Buy                  27       32       19.0      12.5         10.2       6.8      5.9        13.9     15.6               5.4

 Two-Wheeler
 Bajaj Auto              Buy               1,467    1,755       19.6      13.4         12.5       8.8       7.6       55.0     44.7              11.0
 Hero Motocorp           Accumulate        1,901    2,025        6.5      16.2         14.1       9.3       7.7       66.2     55.0              21.0
 TVS Motor               Buy                  50       66       31.6        9.2         8.4       4.5      3.9        23.7     21.8              17.4

 Auto-Ancillary
 Bosch India*            Accumulate        7,160     7,514       5.0      21.0         19.1      12.9     11.2        21.3     19.5              17.2
 Exide Industries        Accumulate         120       137       13.9      22.7         15.4      12.8      8.8        15.6     20.3               2.4
 Amara Raja Batteries    Buy                206       250       21.5        9.8         8.6       5.6      4.8        24.7     22.9              17.3
 Apollo Tyres#           Buy                  65       74       15.0        9.0         7.0       5.4      4.5        12.4     15.0               3.0
 CEAT                    Buy                  84      125       47.8          -         4.1      10.5      6.1        (3.1)    11.2              60.8
 JK Tyre #               Buy                  70       89       26.9     114.2          3.2       6.9      5.5         5.3        9.8            17.7
 Motherson Sumi#         Accumulate         150       169       11.8      16.6         12.5       8.0      6.7        20.2     22.7              10.0
 Bharat Forge #          Accumulate          277      299        7.8      15.3         13.8       7.6      6.4        19.9     18.7              27.1
 FAG Bearings*           Buy               1,141    1,359       19.2      11.0         10.1       5.9      4.8        26.3     22.9              24.5
 Automotive Axles^       Neutral             428         -         -        8.8         7.7       4.9      4.0        27.6     26.2              29.4
 Subros                  Neutral              24         -         -        7.4         6.0       4.5      3.8         8.3     10.0              (7.5)
Source: Company, Angel Research; Note: * December year end, ^ September year end, # Consolidated basis




January 2012                                                                            Please refer to important disclosures at the end of this report   21
     Automobile                                                                            M&M
                                                                                           CMP/TP/Upside: `674 / `801 / 19%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                875 / 585       Mahindra and Mahindra (M&M), a flagship company of Mahindra Group, is
                  `
      MARKET CAP (` CR)                                       41,406    the largest manufacturer of UV and tractors in India with a 52% and 42%
                                                                        market share, respectively. The company is also the second largest player
      LIQUIDITY                                                HIGH
                                                                        in the LCV space, with a 33% market share. M&M is also the only company
                                                                        in India that is present across all the automotive segments. M&M has an
                                                                        installed capacity of 6lakh and 2.3lakh units/year in the automotive and farm
      SHAREHOLDING PATTERN (%)
                                                                        equipment segments, respectively. In FY2011, M&M acquired a 70% stake
      PROMOTERS (MAHINDRA GROUP)                                 25.3   in Ssangyong Motor Co. (SYMC), transforming itself into a global UV player.
      FII                                                        32.1   Apart from the core auto business, the company has subsidiaries/associates
                                                                        in various businesses such as IT, NBFC, auto ancillaries, hospitality and
                                                                        infrastructure.
      STOCK RETURNS
      (%)                   3M         1Y        3Y     5Y       10Y
                                                                        Structural Snapshot
      M&M                (16.8) (10.1)          63.5    7.7      37.3
                                                                        Growth opportunity: We expect the Indian tractor industry to maintain its
      BSE AUTO INDEX (2.7)           (5.9)      51.0   9.3 25.6         healthy growth rate (12-13% CAGR over FY2011-13E) backed by structural
      SENSEX              (2.6) (12.3)          21.3   3.3       17.3   drivers such as rising rural income, labor shortage, improving credit availability
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  and diversifying usage of tractors. The UV industry is also likely to continue
                                                                        its growth momentum (11-12%), given the commercial usage (people carrier)
                                                                        of vehicles in rural and urban India as well as increasing acceptance in
      FINANCIAL PERFORMANCE OVERVIEW                                    personal usage. M&M, with its strengths in the UV and tractor segments, is
      (%)                    3M          1Y      3Y     5Y       10Y    expected to leverage upon the growth opportunity and register a strong
                                                                        16.9% volume growth over FY2011-13E.
      SALES GROWTH*         35.4      25.5      26.9   23.2 20.7
                                                                        Competitive position: M&M enjoys a strong competitive advantage in the
      PAT GROWTH*            1.4      25.0      38.9   30.0 35.5
                                                                        tractor industry, given its dominant brands (Yuvraj, Swaraj and Arjun), wide
      OPM#                  12.3      13.0      11.6   11.0      10.1   distribution and service network, presence of a financing arm, and high resale
      ROE#                       -    28.0      25.7   27.7 23.7        value. In the UV space as well, M&M has a commanding position on account
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          of a strong and proven product development capability and popular brands
                                                                        like Bolero, Scorpio and Xylo.
                                                                        Nature of business: Failure of monsoon and a significant increase in interest
      ANGEL ESTIMATES
                                                                        rate impacts demand; Branding and R&D create entry barriers.
      PARTICULARS                            FY2012E     FY2013E
      PAT GROWTH (%)                             6.2             13.9
      ROE (%)                                   23.3             21.4   Current Investment Arguments
      P/E                                       14.7             12.9   New launches to help sustain the automotive segment's growth momentum:
                                                                        M&M's strong focus on product development has led to several new product
      P/BV                                       3.0              2.6
                                                                        launches (Maxximo, Gio and XUV 500) in the automotive segment since
                                                                        FY2010. Further, with its pipeline of new products, introduction of SYMC's
                                                                        products in India and a strong diesel portfolio, we expect M&M's automotive
      BLOOMBERG CONSENSUS RECOMMENDATION                                segment to sustain its growth momentum and witness strong growth of
      BUY / HOLD / SELL                                 40 / 9 / 4      18.3% over FY2011-13E.
                                                                        Investments constitute 71% of the balance sheet: M&M has majority stakes
                                                                        in various listed companies in sectors like technology, hospitality, real estate
                                                                        and finance. The high-growth potential of M&M's subsidiaries has supported
                                                                        M&M's valuation in the past and may continue to do so in the long term as well.
                                                                        We value M&M's investments at `174/share.
                                                                        Attractive valuations: We maintain our Buy rating as we expect M&M to leverage
                                                                        upon its dominant position in the UV and tractor segments, given its strong
                                                                        rural-centric product portfolio. Our SOTP target price for M&M works out to `801.
22   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                      BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E               `
                                                                              Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
NET SALES                         18,363      23,044     29,108     33,641    SOURCES OF FUNDS
% CHG                                  42.1     25.5       26.3       15.6    EQUITY SHARE CAPITAL               283        294        307        307
TOTAL EXPENDITURE                 15,647      20,038     25,491     29,395    RESERVES & SURPLUS                7,544     10,020    13,539     15,841
EBITDA                             2,716       3,006      3,617      4,245    SHAREHOLDERS FUNDS                7,827     10,313    13,846     16,148
% CHG                              204.5         10.7      20.3        17.4   TOTAL LOANS                       2,880     2,405      2,705      2,405
(% OF NET SALES)                       14.8      13.0       12.4       12.6
                                                                              DEFERRED TAX LIABILITY             240        354        354        354
DEPRECIATION & AMORTIZATION            371       414        527        590
                                                                              TOTAL LIABILITIES                10,947     13,073    16,906     18,907
INTEREST & OTHER CHARGES               157        71         81         72
                                                                              APPLICATION OF FUNDS
OTHER INCOME                           658       998        771        781
                                                                              GROSS BLOCK                       5,276     6,228      7,986      8,947
EXTRAORDINARY ITEMS                    (59)    (125)           -          -
                                                                              LESS: ACC. DEPRECIATION           2,538      2,842     3,369      3,959
PBT (ADJUSTED)                     2,788       3,394      3,780      4,364
                                                                              NET BLOCK                         2,739     3,386      4,617      4,988
TAX                                    759       858        964      1,156
                                                                              CAPITAL WORK-IN-PROGRESS           964        986        639        716
(% OF PBT)                             27.2     25.3       25.5       26.5
PAT (REPORTED)                     2,088       2,662      2,816      3,207    GOODWILL                              -          -         -          -

PAT (ADJUSTED)                     2,029       2,537      2,816      3,207    INVESTMENTS                       6,398     9,325      11,158    12,101

% CHG                              158.1        25.0        11.0       13.9   CURRENT ASSETS                    6,047      6,143     8,184      9,359

(% OF NET SALES)                       11.0      11.0        9.7        9.5   CURRENT LIABILITIES               5,200     6,768      7,692      8,256

           `
BASIC EPS (`)                          36.9     45.3       45.9       52.2    NET CURRENT ASSETS                 847       (624)       492       1,103

              `
ADJUSTED EPS (`)                       35.9      43.2      45.9       52.2    MIS. EXP. NOT WRITTEN OFF             -          -         -           -
% CHG                              148.7        20.5         6.2       13.9   TOTAL ASSETS                     10,947     13,073    16,906     18,907




 CASH FLOW STATEMENT                                                          KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                  2,788       3,394      3,780      4,364    VALUATION RATIO (X)

DEPRECIATION                           371       414        527        590    P/E                                18.8       15.6       14.7      12.9

CHANGE IN WORKING CAPITAL          (394)         342      (195)      (474)    P/CEPS                             15.9       13.4       12.4      10.9
                                                                              P/BV                                4.9        3.8        3.0       2.6
OTHERS                                 990       685           -          -
                                                                              EV/SALES                            1.7        1.3        1.0       0.9
OTHER INCOME                       (658)       (998)      (771)      (781)
                                                                              EV/EBITDA                          12.6       10.7        8.9        7.6
DIRECT TAXES PAID                  (759)       (858)      (964)     (1,156)
                                                                                              `
                                                                              PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS          2,337       2,980      2,377      2,543
                                                                              EPS (BASIC)                        36.9       45.3      45.9       52.2
(INC.)/DEC. IN FIXED ASSETS        (700)       (973)     (1,411)    (1,038)   EPS (ADJUSTED)                     35.9       43.2      45.9       52.2
(INC.)/DEC. IN INVESTMENTS         (612)      (2,927)    (1,832)     (943)    CASH EPS                           42.4       50.2      54.5       61.9
OTHER INCOME                           658       998        771        781    DPS                                 9.7       12.0       12.5      12.5
CASH FLOW FROM INVESTING           (653)      (2,903)    (2,472)    (1,201)   BOOK VALUE                        138.1      175.4     225.3      262.8

ISSUE OF EQUITY                        719      1,006      1,613          -   RETURNS (%)

INC./(DEC.) IN LOANS              (1,173)      (475)        300      (300)    ROCE (PRE-TAX)                     23.2       21.6      20.6       20.4
                                                                              ANGEL ROIC (PRE-TAX)               18.7       15.8      15.0       15.6
DIVIDEND PAID (INCL. TAX)              312       624        898        898
                                                                              ROE                                31.0       28.0      23.3       21.4
OTHERS                             1,353       2,373           -          -
                                                                              TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING          (1,494)     (1,219)     1,015     (1,198)
                                                                              ASSET TURNOVER (GROSS BLOCK)        3.6        4.0        4.1       4.0
INC./(DEC.) IN CASH                    189    (1,141)       921        144
                                                                              INVENTORY / SALES (DAYS)            22         23         23         24
OPENING CASH BALANCE               1,567        1,756       615      1,535    RECEIVABLES (DAYS)                  23         21         21         21
CLOSING CASH BALANCE               1,756         615      1,535      1,680    PAYABLES (DAYS)                     69         65         65         66
Note: Financials on Standalone basis

January 2012                                                                         Please refer to important disclosures at the end of this report     23
     Automobile                                                                             Tata Motors
                                                                                            CMP/TP/Upside: `219 / `242 / 11%



      RATING                                            ACCUMULATE        Company Background
      52 WEEK HIGH / LOW                                   261 / 138      Tata Motors (TTMT) is the largest CV manufacturer in India with a domestic
                  `
      MARKET CAP (` CR)                                          58,824   market share of 60% and 63% in the MHCV and LCV segments, respectively.
                                                                          The company is also India's third largest PV manufacturer, with a domestic
      LIQUIDITY                                                   HIGH
                                                                          market share of 12%. The company operates from its plants in Jamshedpur,
                                                                          Pune, Lucknow, Sanand, Pantnagar and Dharwad. TTMT acquired U.K. based
                                                                          luxury car manufacturer Jaguar Land Rover (JLR) in June 2008; it now accounts
      SHAREHOLDING PATTERN (%)
                                                                          for ~57% of its consolidated revenue.
      PROMOTERS (TATA GROUP)                                       35.0
      FII                                                          41.2
                                                                          Structural Snapshot
                                                                          Growth opportunity: The global luxury car market has managed to weather economic
      STOCK RETURNS
                                                                          uncertainty and has grown at a healthy rate, led by robust growth in China. With
      (%)                   3M          1Y        3Y       5Y      10Y    an eye on increasing the current 5% market share of China's luxury car market,
      TATA MOTORS          17.1       (8.4)      93.8      3.5 24.6       JLR intends to start assembly operations and expand its dealership network in
                                                                          China. On the domestic front, while the LCV industry is expected to maintain its
      BSE AUTO INDEX (2.7)            (5.9)      51.0      9.3 25.6       strong growth momentum, led by structural factors, we expect MHCV volumes
      SENSEX              (2.6) (12.3)           21.3      3.3     17.3   to continue to grow at 1.5x GDP growth rate in the long term.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                          Competitive position: Land Rover is competitively positioned currently, with
                                                                          presence across the premium SUV segments and series of new products
      FINANCIAL PERFORMANCE OVERVIEW                                      that are lined up. Jaguar, however, is not present in the lower end of the
                                                                          luxury segment (~40% of luxury car market), which makes it vulnerable to
      (%)                    3M          1Y       3Y       5Y      10Y    competition. In spite of increasing competition in the domestic CV space,
      SALES GROWTH*         25.8       33.1      51.5     39.1 33.9       TTMT continues to enjoy its leadership position, led by innovative products,
                                                                          superior technology and a widespread distribution network.
      PAT GROWTH*           10.5 494.0           67.3     40.7        -
      OPM#                  12.4       13.7       8.1      9.4     10.3   Nature of business: Cyclical and rate sensitive sector; Branding and R&D
                                                                          create entry barriers.
      ROE#                        -    65.8      18.1     22.8 22.2
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                          Current Investment Arguments
      ANGEL ESTIMATES                                                     JLR growth momentum to continue on new launches: We expect JLR
      PARTICULARS                             FY2012E        FY2013E      volumes to remain strong, driven by robust growth in China (sales up 94%
                                                                          in 1HFY2012), recent launch of Evoque and new XF 2.2 coupled with the
      PAT GROWTH (%)                             (0.3)              2.3
                                                                          introduction of new Range Rover and Jaguar XE in FY2013. Further, favorable
      ROE (%)                                    39.8              31.1   market mix (China's contribution increased from 11% in FY2011 to 15.7%
      P/E                                          7.7              7.5   in 1HFY2012) and sourcing from low-cost countries are likely to partially
                                                                          offset the impact of higher cost pressures at JLR.
      P/BV                                        2.7               2.1
                                                                          Domestic business to thrive on the strength of the CV segment: While
                                                                          we expect the CV segment to maintain its healthy growth rate (13% CAGR
      BLOOMBERG CONSENSUS RECOMMENDATION                                  over FY2011-13E) on the back of the strong volume momentum in LCV
                                                                          sales, the PV segment is likely to remain under pressure and register a
      BUY / HOLD / SELL                                    39 / 10 / 3
                                                                          moderate 8% volume CAGR led by sluggish domestic demand and weak
                                                                          product offerings. Further, led by cost pressures and higher discounts in
                                                                          the PV segment, we expect standalone margins to remain under pressure.
                                                                          Valuations: At `219, the stock is trading at 7.5x and 4.8x FY2013E earnings
                                                                          and EV/EBITDA, respectively. We recommend Accumulate on the stock
                                                                          with an SOTP target price of ` 242 - assigning a value/share of `68
                                                                          (10x FY2013E EPS) to domestic business, `153 (6.5x FY2013E EPS) to
                                                                          JLR and `21 to other subsidiaries.


24   January 2012                                                                              Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                      BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010      FY2011     FY2012E    FY2013E               `
                                                                              Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
NET SALES                         92,519      123,133    144,712   162,452    SOURCES OF FUNDS
% CHG                               30.5        33.1        17.5       12.3   EQUITY SHARE CAPITAL               571        635        635       635
TOTAL EXPENDITURE                 84,747     106,316     127,335   143,608    RESERVES & SURPLUS                7,827     18,537    25,663     32,606
EBITDA                             7,772      16,817      17,378    18,844
                                                                              SHAREHOLDERS FUNDS                8,398     19,171    26,297     33,241
% CHG                              414.9        116.4        3.3        8.4
                                                                              MINORITY INTEREST                   214       247        247        247
(% OF NET SALES)                      8.4        13.7       12.0       11.6
                                                                              TOTAL LOANS                      35,108    32,791     35,791     34,291
DEPRECIATION & AMORTIZATION        3,887       4,656      5,168      5,980
                                                                              DEFERRED TAX LIABILITY            1,154      1,464     1,464      1,464
INTEREST & OTHER CHARGES           2,465       2,385      2,505      2,400
OTHER INCOME                       1,058         452        926        454    TOTAL LIABILITIES                44,873     53,673    63,799     69,243

EXTRAORDINARY ITEMS               (1,045)      (209)           -          -   APPLICATION OF FUNDS
PBT (ADJUSTED)                     3,523      10,437     10,630     10,918    GROSS BLOCK                      63,823     71,463    86,138     99,664
TAX                                1,006        1,216      1,648      1,747   LESS: ACC. DEPRECIATION          34,232    39,699     44,867     50,847
(% OF PBT)                          28.6         11.7       15.5       16.0   NET BLOCK                        29,590     31,764    41,271     48,817
PAT (REPORTED)                     2,517       9,221      8,983       9,171   CAPITAL WORK-IN-PROGRESS          8,916     11,729     11,198    11,960
ADD: SHARE OF EARNINGS OF ASSOC.      85         101        122        146
                                                                              GOODWILL                          3,423     3,585      3,585      3,585
LESS: MINORITY INTEREST (MI)          30          49         67         74
                                                                              INVESTMENTS                       2,219      2,544     3,030      3,289
PAT AFTER MI (ADJUSTED)            1,526       9,065      9,037      9,244
                                                                              CURRENT ASSETS                   42,446     51,035    57,792     60,044
% CHG                                    -     494.0       (0.3)        2.3
                                                                              CURRENT LIABILITIES              41,721    46,984     53,077     58,451
(% OF NET SALES)                      1.6         7.4        6.2        5.7
           `
BASIC EPS (`)                         9.0       29.2       28.5       29.1    NET CURRENT ASSETS                 725      4,051      4,715      1,592

              `
ADJUSTED EPS (`)                      5.3       28.6       28.5       29.1    MIS. EXP. NOT WRITTEN OFF             -          -         -          -
% CHG                                    -     434.1       (0.3)        2.3   TOTAL ASSETS                     44,873     53,673    63,799     69,243




 CASH FLOW STATEMENT                                                          KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010      FY2011     FY2012E    FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                  3,523      10,437     10,630     10,918    VALUATION RATIO (X)

DEPRECIATION                       3,887       4,656      5,168      5,980    P/E                                40.9        7.7        7.7       7.5

CHANGE IN WORKING CAPITAL          5,099      (1,122)       821      (186)    P/CEPS                             11.5        5.1        4.9       4.6
                                                                              P/BV                                7.6        3.6        2.7       2.1
OTHERS                            (1,448)     (1,063)          -          -
                                                                              EV/SALES                            1.0        0.7        0.6       0.5
OTHER INCOME                      (1,058)      (452)      (926)      (454)
                                                                              EV/EBITDA                          12.0        5.3        5.2       4.8
DIRECT TAXES PAID                 (1,006)     (1,216)    (1,648)    (1,747)
                                                                                              `)
                                                                              PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS          8,997       11,240    14,045      14,511
                                                                              EPS (BASIC)                         5.3       28.6      28.5       29.1
(INC.)/DEC. IN FIXED ASSETS      (3,736)     (10,453)   (14,145)   (14,287)   EPS (ADJUSTED)                      5.3       31.8       31.7      29.1
(INC.)/DEC. IN INVESTMENTS         (962)       (325)      (486)      (259)    CASH EPS                           19.0       43.2      44.8       48.0
OTHER INCOME                       1,058         452        926        454    DPS                                 3.0        4.0        5.0       6.0
CASH FLOW FROM INVESTING         (3,640)     (10,327)   (13,704)   (14,092)   BOOK VALUE                         25.9       60.0      82.4      104.3

ISSUE OF EQUITY                    1,405       4,700           -          -   RETURNS (%)

INC./(DEC.) IN LOANS                 135      (2,317)     3,000     (1,500)   ROCE (PRE-TAX)                      8.9       24.7      20.8       19.3
                                                                              ANGEL ROIC (PRE-TAX)               11.5       30.4      25.3       22.7
DIVIDEND PAID (INCL. TAX)            365        1,002     1,856      2,228
                                                                              ROE                                21.3       65.8      39.8       31.1
OTHERS                              3,113      2,094           -          -
                                                                              TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING          (1,209)      1,291       1,144    (3,728)
                                                                              ASSET TURNOVER (GROSS BLOCK)        1.5        1.8        1.8       1.7
INC./(DEC.) IN CASH                4,148       2,205       1,484    (3,308)
                                                                              INVENTORY / SALES (DAYS)            44         38         39        40
OPENING CASH BALANCE               3,984       8,743     10,948      12,432   RECEIVABLES (DAYS)                  24         21         21        21
CLOSING CASH BALANCE               8,743      10,948     12,432       9,124   PAYABLES (DAYS)                     134        110       109        108
Note: Financials on Consolidated basis

January 2012                                                                         Please refer to important disclosures at the end of this report    25
     Automobile                                                                               Maruti Suzuki
                                                                                              CMP/TP/Upside: `1,129 / `1,195 / 6%



      RATING                                             ACCUMULATE        Company Background
      52 WEEK HIGH / LOW                                   1,345 / 906     Maruti Suzuki (MSIL), a subsidiary of Suzuki Motor Corporation, Japan (with
                  `
      MARKET CAP (` CR)                                           32,609   a 54.2% stake), is the largest passenger car (PC) company in India, accounting
                                                                           for 48.7% of the domestic PC market. MSIL derives ~77% of its overall
      LIQUIDITY                                                    HIGH
                                                                           sales from the compact car segment and has a dominant position in the
                                                                           segment with a market share of ~50%, led by popular models like Alto,
                                                                           Wagon R and Swift. The company operates from two facilities in India (Gurgaon
      SHAREHOLDING PATTERN (%)
                                                                           and Manesar) and is in the process of expanding its manufacturing capacity
      PROMOTERS (MNC)                                               54.2   to 1.9mn units (currently 1.65mn) by FY2013. MSIL has also steadily increased
      FII                                                           19.4   its presence internationally and exports now account for ~11% of its
                                                                           overall sales volume.

      STOCK RETURNS
      (%)                   3M           1Y         3Y       5Y     10Y
                                                                           Structural Snapshot
      MARUTI SUZUKI         5.9       (11.3)      25.0      4.4        -   Growth opportunity: We expect the domestic PV industry to report a healthy
                                                                           rate in the long term, as we believe the Indian PV industry is at an inflection
      BSE AUTO INDEX (2.7)            (5.9)       51.0      9.3 25.6       point with GDP per capita (PPP basis) crossing US$3,000 levels - a tipping
      SENSEX              (2.6) (12.3)            21.3      3.3     17.3   point for motorization to take off. MSIL, with its strong product offering,
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                     new launches in the pipeline and strong competitive advantage over foreign
                                                                           entrants due to its widespread distribution network (nearly 3,006 and 968
                                                                           service and sales outlets, respectively), is likely to emerge as the key beneficiary
      FINANCIAL PERFORMANCE OVERVIEW                                       of the long-term growth potential.
      (%)                    3M          1Y         3Y       5Y      10Y   Competitive position: Growth potential of the Indian PC market and compact
      SALES GROWTH* (14.4)              24.7      26.6     24.7     18.4   car segment in particular (~78% of the total PC market) has attracted many
                                                                           global OEMs, leading to 6-8 new small car launches over the past two years.
      PAT GROWTH*         (59.8)       (6.9)      10.5     13.5        -
                                                                           Thus, MSIL's domestic market share has declined to 48.7% (down 350bp)
      OPM#                   6.3         8.1       8.9     10.6      9.8   in FY2011. While MSIL's market share is expected to remain under pressure
      ROE#                        -     17.5      16.6     18.6     16.3   in purview of increasing competition, its strengths include dominance in the
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS             compact car segment suited for Indian conditions and wide distribution reach.
                                                                           Nature of business: Cyclical and rate-sensitive sector; Branding and R&D
                                                                           create entry barriers.
      ANGEL ESTIMATES
      PARTICULARS                              FY2012E        FY2013E
      PAT GROWTH (%)                             (34.4)             55.9   Current Investment Arguments
      ROE (%)                                      10.2             14.3   Operating margins to improve in FY2013: We expect EBITDA margins to
      P/E                                         22.1              14.2   improve by ~200bp in FY2013 on account of operating leverage benefits
                                                                           due to volume improvement, softening of commodity prices and a 2-3%
      P/BV                                          2.2              1.9
                                                                           decline in imported raw-material content, led by localization initiative (imports
                                                                           in JPY forms ~26% of net sales).

      BLOOMBERG CONSENSUS RECOMMENDATION                                   Suzuki focusing to make MSIL a small car manufacturing hub: Suzuki
                                                                           Motor Corp., Japan, intends to make MSIL a manufacturing hub to leverage
      BUY / HOLD / SELL                                    27 / 21 / 14
                                                                           upon India's low-cost manufacturing capability and tap the increasing global
                                                                           demand for small cars due to rising fuel prices and stricter emission standards.
                                                                           Thus, we believe there is a huge potential for MSIL to increase its presence
                                                                           in the exports market.
                                                                           Valuation: At `1,129, MSIL is trading at 14.2x FY2013E earnings. We maintain
                                                                           our Accumulate rating on the stock with a target price of ` 1,195, valuing
                                                                           it at 15x FY2013E earnings (in-line with our Sensex target multiple of 15x).



26   January 2012                                                                                Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                      BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E               `
                                                                              Y/E MARCH (` CR)                FY2010     FY2011    FY2012E   FY2013E
NET SALES                         29,099      36,300     33,517     39,474    SOURCES OF FUNDS
% CHG                                  42.3     24.7       (7.7)       17.8   EQUITY SHARE CAPITAL                145       145        145       145
TOTAL EXPENDITURE                 25,672      33,376     31,741     36,513    RESERVES & SURPLUS               11,691     13,723    14,946     16,952
EBITDA                              3,427      2,924       1,776     2,961    SHAREHOLDERS FUNDS               11,835     13,868    15,090     17,097
% CHG                               139.1      (14.7)     (39.2)      66.7    TOTAL LOANS                        821        309       459        459
(% OF NET SALES)                       11.8       8.1        5.3        7.5
                                                                              DEFERRED TAX LIABILITY              137       164        164       164
DEPRECIATION & AMORTIZATION            825      1,014      1,070     1,255
                                                                              TOTAL LIABILITIES                12,794     14,341    15,714     17,720
INTEREST & OTHER CHARGES                34        24         37         37
                                                                              APPLICATION OF FUNDS
OTHER INCOME                        1,024       1,223     1,339      1,465
                                                                              GROSS BLOCK                      10,407     11,738    14,263     17,313
EXTRAORDINARY ITEMS                    (79)     (36)           -          -
                                                                              LESS: ACC. DEPRECIATION           5,382     6,208      7,278      8,533
PBT (ADJUSTED)                      3,514      3,073      2,009       3,133
                                                                              NET BLOCK                         5,025     5,529      6,985      8,780
TAX                                 1,095        820        532        830
                                                                              CAPITAL WORK-IN-PROGRESS           388       1,429     1,141       693
(% OF PBT)                             31.2     26.7       26.5       26.5
PAT (REPORTED)                      2,498      2,289       1,477     2,303    GOODWILL                              -          -         -          -

PAT (ADJUSTED)                      2,419      2,252       1,477     2,303    INVESTMENTS                       7,177      5,107     5,500      6,202

% CHG                               125.5       (6.9)     (34.4)      55.9    CURRENT ASSETS                    3,772     6,356      6,077      6,642

(% OF NET SALES)                        8.3       6.2        4.4        5.8   CURRENT LIABILITIES               3,568     4,080      3,988     4,596

           `
BASIC EPS (`)                          86.4     79.2        51.1      79.7    NET CURRENT ASSETS                 205       2,277     2,089      2,046

              `
ADJUSTED EPS (`)                       83.7      77.9       51.1       79.7   MIS. EXP. NOT WRITTEN OFF             -          -         -          -
% CHG                               125.5       (6.9)     (34.4)      55.9    TOTAL ASSETS                     12,794     14,341    15,714     17,720




 CASH FLOW STATEMENT                                                          KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E   FY2013E
PROFIT BEFORE TAX                   3,514      3,073      2,009       3,133   VALUATION RATIO (X)
DEPRECIATION                           825      1,014      1,070     1,255    P/E                                13.5       14.5      22.1       14.2
CHANGE IN WORKING CAPITAL               48       338        177        (16)   P/CEPS                             10.1       10.0      12.8        9.2

OTHERS                                 764       669           -          -   P/BV                                2.8        2.4       2.2        1.9

OTHER INCOME                      (1,024)     (1,223)    (1,339)    (1,465)   EV/SALES                            0.8        0.6       0.7        0.6

DIRECT TAXES PAID                 (1,095)      (820)      (532)      (830)    EV/EBITDA                           7.6        8.7      14.1        8.3
                                                                                              `
                                                                              PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS           3,032      3,050      1,384      2,077
                                                                              EPS (BASIC)                        86.4       79.2      51.1       79.7
(INC.)/DEC. IN FIXED ASSETS       (1,212)     (2,372)    (2,237)    (2,602)
                                                                              EPS (ADJUSTED)                     83.7       77.9      51.1       79.7
(INC.)/DEC. IN INVESTMENTS       (4,003)       2,070      (393)      (702)
                                                                              CASH EPS                          112.2      113.0      88.1      123.1
(INC.)/DEC. IN LOANS AND ADVANCES       75       116           -          -
                                                                              DPS                                 6.0        7.5       7.5        8.8
OTHER INCOME                        1,024       1,223     1,339      1,465
                                                                              BOOK VALUE                        409.5      479.8     522.2      591.6
CASH FLOW FROM INVESTING          (4,116)       1,037    (1,291)    (1,840)
                                                                              RETURNS (%)
ISSUE OF EQUITY                           -         -          -          -
                                                                              ROCE (PRE-TAX)                     22.6       14.1       4.7       10.2
INC./(DEC.) IN LOANS                   123     (512)        150           -
                                                                              ANGEL ROIC (PRE-TAX)               47.1       28.4       9.2       18.8
DIVIDEND PAID (INCL. TAX)              202       252        254        296
                                                                              ROE                                22.8       17.5      10.2       14.3
OTHERS                            (1,081)     (1,416)          -          -   TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING            (757)     (1,677)     (104)      (296)    ASSET TURNOVER (GROSS BLOCK)        3.0        3.3       2.6        2.5
INC./(DEC.) IN CASH               (1,841)      2,410        (11)      (59)    INVENTORY / SALES (DAYS)             13         13        15        15
OPENING CASH BALANCE                1,939         98      2,509      2,498    RECEIVABLES (DAYS)                   11         9          9         9
CLOSING CASH BALANCE                    98     2,509      2,498      2,439    PAYABLES (DAYS)                     37         33        38         33
Note: Financials on Standalone basis

January 2012                                                                         Please refer to important disclosures at the end of this report    27
                                                                                                                                       TOP
                                                                                                                                       PICK

     Automobile                                                                            Ashok Leyland
                                                                                           CMP/TP/Upside: `27 / `32 / 19%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                     31 / 21    Ashok Leyland (AL) is the country's second largest CV manufacturer. The
                  `
      MARKET CAP (` CR)                                         7,157   company has a strong presence in the MHCV segment, with a domestic
                                                                        market share of ~23%. AL enjoys a dominant position in southern India,
      LIQUIDITY                                           MEDIUM
                                                                        with a ~48% market share, and is currently focusing on expanding its presence
                                                                        in northern India by increasing its touch points in the region. The company,
                                                                        through its JV with Nissan Motor and John Deere, intends to expand its
      SHAREHOLDING PATTERN (%)
                                                                        product portfolio and has recently launched new vehicles Dost (to tap the
      PROMOTERS (HINDUJA GROUP)                                  38.6   growing LCV demand) and Backhoe Loader (construction equipment segment),
      FII                                                        16.6   respectively.



      STOCK RETURNS                                                     Structural Snapshot
      (%)                   3M          1Y        3Y       5Y    10Y    Growth opportunity: Given the healthy GDP growth expectation over the
      ASHOK LEYLAND         8.7       (7.7)      52.5     2.7 22.5      long run, government's thrust on infrastructure development and normal
                                                                        monsoons, we expect MHCV volumes to continue to grow at 1.5x GDP
      BSE AUTO INDEX (2.7)            (5.9)      51.0     9.3 25.6      growth rate in the long term. AL being a core CV player is expected to
      SENSEX              (2.6) (12.3)           21.3     3.3    17.3   benefit from the upswing in MHCV demand.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                        Competitive position: Increased competitive activity due to the emergence
                                                                        of new players in the MHCV segment (Eicher Motors, Mahindra Navistar
      FINANCIAL PERFORMANCE OVERVIEW                                    and Daimler) and slowdown in demand in southern India (AL's stronghold)
                                                                        have weakened AL's domestic MHCV market share to 23.7% in 2QFY2012
      (%)                    3M          1Y       3Y       5Y    10Y    from 27.6% in 2QFY2011.
      SALES GROWTH*         14.0       53.4      12.7    16.4    17.2
                                                                        Nature of business: Cyclical and rate-sensitive sector; Branding (to a lesser
      PAT GROWTH*           (7.8)      64.2      11.8    15.8 21.4      extent than passenger vehicle segment) and R&D create entry barriers.
      OPM#                  10.7       10.7       9.5     9.6    10.2
      ROE#                        -    16.5      17.2    20.4    19.4
                                                                        Current Investment Arguments
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        Demand scenario to improve with easing interest rates: MHCV demand,
                                                                        which has moderated recently due to high interest rates and slowdown in
      ANGEL ESTIMATES                                                   industrial activity, is expected to pick up with the likely easing of interest
      PARTICULARS                             FY2012E       FY2013E     rates from 1QFY2013. Therefore, we expect AL's volume growth to rebound
                                                                        to ~12% in FY2013E from near flat levels in FY2012.
      PAT GROWTH (%)                             (9.0)           22.0
      ROE (%)                                    13.9            15.6   Pantnagar plant ramp-up to mitigate raw-material cost pressures: AL
                                                                        plans to ramp-up production at its Pantnagar facility (relatively more profitable
      P/E                                        12.5            10.2   with cost savings of ~`35,000/vehicle) to ~35,000 vehicles in FY2012 from
      P/BV                                        2.4             2.1   12,800 in FY2011. We expect these benefits to partially offset the impact
                                                                        of raw-material cost pressures, enabling AL to maintain its operating margins
                                                                        at 10-11% over FY2011-13.
      BLOOMBERG CONSENSUS RECOMMENDATION                                Attractively valued: At `27, AL is trading at attractive valuations of 10.2x its
      BUY / HOLD / SELL                                  25 / 12 / 14   FY2013E earnings. We maintain our Buy rating on the stock with a target
                                                                        price of ` 32, valuing the stock at 12x its FY2013E earnings.




28   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                     BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E              `
                                                                             Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
NET SALES                          7,407      11,366     12,474     14,315   SOURCES OF FUNDS
% CHG                                  21.5     53.4        9.7       14.8   EQUITY SHARE CAPITAL                133       133       266        266
TOTAL EXPENDITURE                  6,648      10,148     11,208     12,849   RESERVES & SURPLUS                3,536     3,830      4,037      4,425
EBITDA                                 760     1,218      1,266      1,466   SHAREHOLDERS FUNDS                3,669     3,963      4,303      4,691
% CHG                                  66.6     60.3        4.0       15.8   TOTAL LOANS                       2,280     2,658      2,958      2,958
(% OF NET SALES)                       10.3     10.7       10.2       10.2
                                                                             DEFERRED TAX LIABILITY             385        444        444        444
DEPRECIATION & AMORTIZATION            204       267        342        376
                                                                             TOTAL LIABILITIES                 6,334      7,065     7,705      8,093
INTEREST & OTHER CHARGES               102       189        231       231
                                                                             APPLICATION OF FUNDS
OTHER INCOME                            91        41         32        38
                                                                             GROSS BLOCK                       6,019     6,692      7,425      8,180
EXTRAORDINARY ITEMS                     40         2          -          -
                                                                             LESS: ACC. DEPRECIATION           1,769     2,058      2,400      2,776
PBT (ADJUSTED)                         505       800        726       897
                                                                             NET BLOCK                         4,250      4,634     5,025      5,404
TAX                                    121       171        152        197
                                                                             CAPITAL WORK-IN-PROGRESS           561        358        371       409
(% OF PBT)                             24.0     21.3       21.0       22.0
PAT (REPORTED)                         424       631        573        700   GOODWILL                              -          -         -          -

PAT (ADJUSTED)                         384       630        573        700   INVESTMENTS                        326       1,230     1,348      1,400

% CHG                              114.6        64.2       (9.0)      22.0   CURRENT ASSETS                    4,152     4,367      4,441      4,955

(% OF NET SALES)                        5.2      5.5        4.6        4.9   CURRENT LIABILITIES               2,961     3,528      3,486      4,079

           `
BASIC EPS (`)                           1.6      2.4        2.2        2.6   NET CURRENT ASSETS                1,191       839       956         876

              `
ADJUSTED EPS (`)                        1.4      2.4        2.2        2.6   MIS. EXP. NOT WRITTEN OFF            5          4          4          4
% CHG                              114.6        64.2       (9.0)      22.0   TOTAL ASSETS                      6,334      7,065     7,705      8,093




 CASH FLOW STATEMENT                                                         KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E   Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                      505       800        726       897    VALUATION RATIO (X)

DEPRECIATION                           204       267        342        376   P/E                                18.7       11.4      12.5       10.2

CHANGE IN WORKING CAPITAL              366     (185)       (96)       (11)   P/CEPS                             12.2        8.0        7.8       6.7
                                                                             P/BV                                3.1        2.7       2.4        2.1
OTHERS                                 227      (80)          -          -
                                                                             EV/SALES                            1.1        0.7       0.6        0.6
OTHER INCOME                           (91)     (41)       (32)       (38)
                                                                             EV/EBITDA                          11.3        6.9       6.8        5.9
DIRECT TAXES PAID                  (121)       (171)      (152)      (197)
                                                                                             `
                                                                             PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS          1,090         591        787      1,027
                                                                             EPS (BASIC)                         1.4        2.4       2.2        2.6
(INC.)/DEC. IN FIXED ASSETS        (643)       (470)      (746)      (793)   EPS (ADJUSTED)                      1.4        2.4       2.2        2.6
(INC.)/DEC. IN INVESTMENTS             (63)    (904)      (118)       (52)   CASH EPS                            2.2        3.4       3.4        4.0
OTHER INCOME                            91        41         32        38    DPS                                 0.8        1.0       0.8        1.0
CASH FLOW FROM INVESTING           (614)      (1,333)     (833)      (807)   BOOK VALUE                          8.8       10.0       11.3      12.7

ISSUE OF EQUITY                           -         -         -          -   RETURNS (%)

INC./(DEC.) IN LOANS                   322       378        300          -   ROCE (PRE-TAX)                      9.2       14.2      12.5       13.8
                                                                             ANGEL ROIC (PRE-TAX)               12.4       17.0      14.9       16.3
DIVIDEND PAID (INCL. TAX)              156       233        233        311
                                                                             ROE                                10.7       16.5      13.9       15.6
OTHERS                             (523)       (209)          -          -
                                                                             TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING               (45)      402         67      (311)
                                                                             ASSET TURNOVER (GROSS BLOCK)        1.4        1.8        1.8       1.8
INC./(DEC.) IN CASH                    430     (340)         21       (91)
                                                                             INVENTORY / SALES (DAYS)            73         62         64         63
OPENING CASH BALANCE                    85       515        175       196    RECEIVABLES (DAYS)                  49         35         35        35
CLOSING CASH BALANCE                   515       175        196        105   PAYABLES (DAYS)                     110        90         90         92
Note: Financials on Standalone basis

January 2012                                                                        Please refer to important disclosures at the end of this report    29
     Automobile                                                                             Bajaj Auto
                                                                                            CMP/TP/Upside: `1,467 / `1,755 / 20%



      RATING                                                      BUY    Company Background
      52 WEEK HIGH / LOW                                1,823 / 1,190    Bajaj Auto (BJAUT) is the second largest 2W manufacturer in the country
                  `
      MARKET CAP (` CR)                                         42,453   (~26% market share) and a market leader in the 3W segment (~55% market
                                                                         share). BJAUT has three manufacturing facilities in India, located at Waluj,
      LIQUIDITY                                                  HIGH
                                                                         Chakan and Pantnagar, with a total installed capacity (2W - 4.5mn and 3W
                                                                         - 0.5mn) of 5mn units. BJAUT also happens to be one of India's largest auto
                                                                         exporters, with exports forming ~28% of revenue (~32% of total volumes) in
      SHAREHOLDING PATTERN (%)
                                                                         FY2011. Led by two dominant brands, Discover and Pulsar (~65% of motorcycle
      PROMOTERS (BAJAJ GROUP)                                     50.0   volumes), BJAUT reported a strong 32% volume CAGR over FY2009-11.
      FII                                                         16.1

                                                                         Structural Snapshot
      STOCK RETURNS
                                                                         Growth opportunity: While the Indian 2W industry is expected to report a
      (%)                   3M          1Y        3Y       5Y     10Y    CAGR of 13.3% over FY2011-13E, we also expect competition in the markets
      BAJAJ AUTO         (10.4)        11.2      80.5       -        -   to intensify. However, given BJAUT's strong focus in the premium motorcycle
                                                                         segment and significant exposure to the 3W and exports markets, we expect
      BSE AUTO INDEX (2.7)            (5.9)      51.0     9.3 25.6       BJAUT to sustain its healthy growth momentum and register a 13-14% volume
      SENSEX              (2.6) (12.3)           21.3     3.3     17.3   CAGR over the same period.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                         Competitive position: Although HMCL dominates the overall 2W industry,
                                                                         it has limited presence in the higher-end motorcycle segment (>125cc),
      FINANCIAL PERFORMANCE OVERVIEW                                     where BJAUT commands a ~51.4% market share. While we expect BJAUT
                                                                         to be impacted by increasing competition in the domestic motorcycles space,
      (%)                    3M          1Y       3Y       5Y     10Y    strong focus on the premium motorcycle segment and exposure to exports
      SALES GROWTH*         21.2       39.3      22.6    16.7     18.1   offer a strong competitive advantage to the company.
      PAT GROWTH*           19.2       54.1      50.4    21.4 24.7       Nature of business: The 2W business is relatively stable, less dependent
      OPM#                  21.0       19.7      17.0    15.7     16.5   on interest rates and has moderate entry barriers. The 3W business, however,
                                                                         is subject to new permits and licenses issued by various state authorities.
      ROE#                        -    70.2      64.7    47.9 34.1
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                         Current Investment Arguments
      ANGEL ESTIMATES                                                    Continued focus on Discover and Pulsar brands to aid market share
      PARTICULARS                             FY2012E       FY2013E      gains: BJAUT revamped its strategy in FY2010 and focused on its dominant
                                                                         brands Discover and Pulsar, which enabled it to strengthen its competitive
      PAT GROWTH (%)                             15.6              6.5
                                                                         position in the motorcycle segment, leading to an increase in market share
      ROE (%)                                    55.0             44.7   from 28% in FY2009 to 32.3% in FY2011. With the launch of Discover
      P/E                                        13.4             12.5   125cc (May 2011) and likely new launches of Pulsar and Discover by
                                                                         FY2012-end, we expect BJAUT to further strengthen its position and improve
      P/BV                                        6.4              5.0
                                                                         upon its market share.
                                                                         Exports to remain the key growth driver: BJAUT has registered a strong
      BLOOMBERG CONSENSUS RECOMMENDATION                                 CAGR of ~35% in export volumes over FY2006-11, aided by ~43% and
                                                                         ~25% volume CAGR in the 2W and 3W segments, respectively. With a
      BUY / HOLD / SELL                                   41 / 15 / 8
                                                                         strong focus and expansion in Africa, Latin America and Asia, we estimate
                                                                         BJAUT to sustain its sales momentum and register a ~24% volume CAGR
                                                                         over FY2011-13E.
                                                                         Attractive valuations: We prefer BJAUT over HMCL in the 2W space, owing
                                                                         to its diversified business model and healthy revenue and earnings visibility.
                                                                         The stock is currently trading at attractive valuations of 12.5x FY2013E earnings.
                                                                         We recommend Buy on the stock with a target price of ` 1,755, valuing it
                                                                         at 15x FY2013E earnings.


30   January 2012                                                                             Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                      BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E               `
                                                                              Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
TOTAL OPERATING INCOME            11,921      16,609     20,002     22,830    SOURCES OF FUNDS
% CHG                                  35.3     39.3       20.4        14.1   EQUITY SHARE CAPITAL                145       289        289       289
TOTAL EXPENDITURE                  9,515      13,329     15,955     18,412    RESERVES & SURPLUS                2,784     4,621      6,361      8,222
EBITDA                             2,406       3,280      4,047      4,418    SHAREHOLDERS FUNDS                2,928      4,910     6,650      8,512
% CHG                              145.0        36.3       23.4         9.2   TOTAL LOANS                       1,339       325        175        175
(% OF TOTAL OP. INCOME)                20.2     19.7       20.2       19.4
                                                                              DEFERRED TAX LIABILITY                2        30         30         30
DEPRECIATION & AMORTIZATION            136       123        136        149
                                                                              TOTAL LIABILITIES                 4,269     5,265      6,855      8,716
INTEREST & OTHER CHARGES                 6         2         21          2
                                                                              APPLICATION OF FUNDS
OTHER INCOME                           144      1,193       321        357
                                                                              GROSS BLOCK                       3,379     3,395      3,688      3,921
EXTRAORDINARY ITEMS                    (82)      590           -          -
                                                                              LESS: ACC. DEPRECIATION           1,900      1,912     2,049      2,198
PBT (ADJUSTED)                     2,489       3,758      4,210      4,624
                                                                              NET BLOCK                         1,480      1,483     1,639      1,723
TAX                                    705     1,008      1,032      1,239
                                                                              CAPITAL WORK-IN-PROGRESS             42        70         37         39
(% OF PBT)                             28.3     26.8       24.5       26.8
PAT (REPORTED)                     1,703       3,340      3,179      3,385    GOODWILL                              -          -         -          -

PAT (ADJUSTED)                     1,784       2,750      3,179      3,385    INVESTMENTS                       4,022     4,795      6,169      7,845

% CHG                              132.0        54.1       15.6         6.5   CURRENT ASSETS                    1,584      2,873     5,255      6,261

(% OF NET SALES)                       15.5      17.2      16.6       15.3    CURRENT LIABILITIES               2,858     3,955      6,246      7,151

           `
BASIC EPS (`)                          58.8    115.4      109.9       117.0   NET CURRENT ASSETS               (1,274)   (1,083)     (991)      (891)

              `
ADJUSTED EPS (`)                       61.7     95.0      109.9       117.0   MIS. EXP. NOT WRITTEN OFF             -          -         -          -
% CHG                              132.0        54.1       15.6         6.5   TOTAL ASSETS                      4,269     5,265      6,855      8,716




 CASH FLOW STATEMENT                                                          KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                  2,489       3,758      4,210      4,624    VALUATION RATIO (X)

DEPRECIATION                           136       123        136        149    P/E                                24.9       15.4       13.4      12.5

CHANGE IN WORKING CAPITAL              790       815        171        212    P/CEPS                             23.1       12.3       12.8      12.0
                                                                              P/BV                               14.5        8.6       6.4        5.0
OTHERS                                 171     (481)           -          -
                                                                              EV/SALES                            3.3        2.2        1.8        1.4
OTHER INCOME                       (144)      (1,193)     (321)      (357)
                                                                              EV/EBITDA                          16.5       11.4       8.8         7.6
DIRECT TAXES PAID                  (705)      (1,008)    (1,032)    (1,239)
                                                                                              `
                                                                              PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS          2,737       2,014      3,165      3,389
                                                                              EPS (BASIC)                        58.8      115.4     109.9       117.0
(INC.)/DEC. IN FIXED ASSETS            (49)     (44)      (260)      (235)    EPS (ADJUSTED)                     61.7      95.0      109.9       117.0
(INC.)/DEC. IN INVESTMENTS        (2,213)      (774)     (1,374)    (1,675)   CASH EPS                           63.6      119.7      114.6     122.1
OTHER INCOME                           144      1,193       321        357    DPS                                20.0       40.0      42.5       45.0
CASH FLOW FROM INVESTING          (2,117)        375     (1,314)    (1,554)   BOOK VALUE                        101.2     169.7      229.8      294.1

ISSUE OF EQUITY                           -      145           -          -   RETURNS (%)

INC./(DEC.) IN LOANS               (231)      (1,013)     (150)           -   ROCE (PRE-TAX)                     58.8      66.2       64.5       54.8
                                                                              ANGEL ROIC (PRE-TAX)               54.5       67.0      64.8       56.3
DIVIDEND PAID (INCL. TAX)              372     1,345      1,439      1,524
                                                                              ROE                                74.4       70.2      55.0       44.7
OTHERS                             (796)      (2,810)          -          -
                                                                              TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING           (655)      (2,333)    (1,589)    (1,524)
                                                                              ASSET TURNOVER (GROSS BLOCK)        3.5        4.9       5.6        6.0
INC./(DEC.) IN CASH                    (35)       55        262        312
                                                                              INVENTORY / SALES (DAYS)             12         11        12         12
OPENING CASH BALANCE                   137       101        156        419    RECEIVABLES (DAYS)                    9         7          9          9
CLOSING CASH BALANCE                   101       156        419        731    PAYABLES (DAYS)                      51        51         48         47
Note: Financials on Standalone basis

January 2012                                                                         Please refer to important disclosures at the end of this report     31
     Automobile                                                                             Hero MotoCorp
                                                                                            CMP/TP/Upside: `1,901 / `2,025 / 7%



      RATING                                           ACCUMULATE         Company Background
      52 WEEK HIGH / LOW                                2,248 / 1,378     Hero MotoCorp (HMCL) is a leading 2W manufacturer in the world and the
                  `
      MARKET CAP (` CR)                                          37,956   market leader in the domestic motorcycle segment with a 54.6% market
                                                                          share (48% market share including exports). HMCL has three manufacturing
      LIQUIDITY                                                   HIGH
                                                                          facilities in India, located at Gurgaon (1.95mn), Dharuhera (1.95mn) and
                                                                          Haridwar (2.25mn), with a total capacity of 6.15mn units/year. Over 2006-
                                                                          11, HMCL recorded a healthy volume CAGR of 12.5% (in-line with industry
      SHAREHOLDING PATTERN (%)
                                                                          CAGR of ~12%), backed by its strong brands (Passion and Splendor) and
      PROMOTERS (MUNJAL GROUP)                                     52.2   a well-entrenched dealership network, which has a good presence across
      FII                                                          33.8   rural areas (~45% of total volumes).



      STOCK RETURNS                                                       Structural Snapshot
      (%)                   3M         1Y        3Y        5Y      10Y    Growth opportunity: We expect the Indian 2W industry to post a 13.3%
      HERO MOTOCORP (8.0)              7.8      33.1     22.1 20.9        CAGR over FY2011-13E, driven by rising income levels, strong sustainable
                                                                          rural demand and huge exports potential. HMCL is well equipped to capitalize
      BSE AUTO INDEX (2.7)           (5.9)      51.0       9.3 25.6       on this opportunity backed by its strong brands, new product launches and
      SENSEX              (2.6) (12.3)          21.3       3.3     17.3   wider reach. Therefore, we expect HMCL to post a 12.7% volume CAGR
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                    over FY2011-13E.
                                                                          Competitive position: While HMCL continues to dominate the domestic
      FINANCIAL PERFORMANCE OVERVIEW                                      motorcycle industry, competitive pressures primarily from Bajaj Auto, Honda
                                                                          (post the split from Hero) and Yamaha have led to loss of market share
      (%)                    3M          1Y      3Y        5Y      10Y    (domestic motorcycle market share of 54.6% in FY2011 compared to 58.5%
      SALES GROWTH*         16.9      22.1      23.0      17.2     19.8   in FY2010) and lower pricing power.
      PAT GROWTH*           20.5 (11.5)         28.0      15.5 22.2       Nature of business: Relatively stable as it is less dependent on interest
      OPM#                  15.6      12.4      14.3     13.5 14.7        rates; Moderate entry barriers.

      ROE#                       -    57.4      50.8     45.2 56.2
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS            Current Investment Arguments
                                                                          Increase in competitive activity to restrict volume growth: We believe
      ANGEL ESTIMATES                                                     competition in the domestic motorcycle segment is set to intensify further
      PARTICULARS                            FY2012E        FY2013E       as HMSI is planning to launch a new 100cc motorcycle in 4QFY2012. With
                                                                          ~93% of HMCL’s total motorcycle volumes being derived from the <125cc
      PAT GROWTH (%)                            27.4               14.9
                                                                          segment, we expect HMCL to slightly underperform the industry and report
      ROE (%)                                   66.2               55.0   a 12.7% volume CAGR during the period.
      P/E                                       16.2               14.1   Limited room for margin expansion on higher advertisement and R&D
      P/BV                                       9.2                6.7   spends: While HMCL managed to maintain its margins in 1HFY2012, led
                                                                          by operating leverage benefits and softening of raw-material prices, we expect
                                                                          the company's EBITDA margin to remain under pressure due to rising competition,
      BLOOMBERG CONSENSUS RECOMMENDATION                                  leading to higher advertisement spends. Further, increased R&D spends to
                                                                          develop indigenous technology will also impact margins.
      BUY / HOLD / SELL                                  23 / 17 / 25
                                                                          Valuation: At `1,901, HMCL is trading at 14.1x FY2013E earnings. We
                                                                          recommend Accumulate rating on the stock with a target price of ` 2,025,
                                                                          valuing it at 15x (in-line with historical multiple) FY2013E earnings.




32   January 2012                                                                             Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                       BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010        FY2011    FY2012E    FY2013E               `
                                                                               Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
NET SALES                         15,758       19,245     23,276     26,345    SOURCES OF FUNDS
% CHG                                  27.9       22.1      20.9        13.2   EQUITY SHARE CAPITAL                 40        40         40         40
TOTAL EXPENDITURE                 13,096       16,865     19,845     22,512    RESERVES AND SURPLUS              3,425     2,916      4,094      5,622
EBITDA                             2,662        2,380      3,431      3,833    SHAREHOLDERS FUNDS                3,465     2,956       4,134     5,662
% CHG                                  58.0     (10.6)      44.1        11.7   TOTAL LOANS                          66      1,491     1,491      1,491
(% OF NET SALES)                       16.9       12.4       14.7       14.6
                                                                               DEFERRED TAX LIABILITY              153       247        247        247
DEPRECIATION & AMORTIZATION            191        402       1,118      1,063
                                                                               TOTAL LIABILITIES                 3,684     4,694      5,872       7,400
INTEREST & OTHER CHARGES                  2        16         12         21
                                                                               APPLICATION OF FUNDS
OTHER INCOME                           363        443        509        539
                                                                               GROSS BLOCK                       2,519     5,308      6,046      6,861
EXTRAORDINARY ITEMS                    150         86           -          -
                                                                               LESS: ACC. DEPRECIATION           1,092      1,458     2,577      3,640
PBT (ADJUSTED)                     2,982        2,491      2,810      3,288
                                                                               NET BLOCK                         1,427     3,850      3,469      3,221
TAX                                    600        477        464        592
                                                                               CAPITAL WORK-IN-PROGRESS             48       125        121        137
(% OF PBT)                             20.1       19.1      16.5        18.0
                                                                               GOODWILL                            232       231        231        231
PAT (REPORTED)                     2,232         1,928     2,346      2,696
                                                                               INVESTMENTS                       3,926      5,129     6,459       8,510
PAT (ADJUSTED)                     2,082         1,842     2,346      2,696
% CHG                                  76.3     (11.5)       27.4       14.9   CURRENT ASSETS                    2,883      1,505     2,759      3,268

(% OF NET SALES)                       13.2        9.6       10.1       10.2   CURRENT LIABILITIES               4,831      6,145      7,167      7,967

           `
BASIC EPS (`)                          111.8     96.5       117.5     135.0    NET CURRENT ASSETS               (1,949)   (4,640)    (4,408)    (4,699)

              `
ADJUSTED EPS (`)                   104.2          92.2      117.5     135.0    MIS. EXP. NOT WRITTEN OFF             -          -          -          -

% CHG                                  76.3     (11.5)       27.4       14.9   TOTAL ASSETS                      3,684     4,694      5,872       7,400




 CASH FLOW STATEMENT                                                           KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010        FY2011    FY2012E    FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                  2,982        2,491      2,810      3,288    VALUATION RATIO (X)

DEPRECIATION                           191        402       1,118      1,063   P/E                                18.2      20.6        16.2       14.1

CHANGE IN WORKING CAPITAL          2,581          807        830        585    P/CEPS                             16.7       16.9       11.0       10.1
                                                                               P/BV                                11.0      12.8        9.2        6.7
OTHERS                            (2,104)       (492)           -          -
                                                                               EV/SALES                             1.9       1.7        1.3        1.0
OTHER INCOME                       (363)        (443)      (509)      (539)
                                                                               EV/EBITDA                           12.1      14.4        9.3        7.7
DIRECT TAXES PAID                  (600)        (477)      (464)      (592)
                                                                                               `
                                                                               PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS          2,687        2,288      3,785      3,805
                                                                               EPS (BASIC)                        111.8     96.5       117.5      135.0
(INC.)/DEC. IN FIXED ASSETS        (137)       (2,865)     (734)      (831)    EPS (ADJUSTED)                    104.2       92.2      117.5      135.0
(INC.)/DEC. IN INVESTMENTS         (557)       (1,203)    (1,330)    (2,051)   CASH EPS                           113.8     112.4      173.5     188.3
OTHER INCOME                           363        443        509        539    DPS                                110.0     105.0      50.0       50.0
CASH FLOW FROM INVESTING           (331)       (3,626)    (1,555)    (2,343)   BOOK VALUE                        173.5      148.0      207.0     283.5

ISSUE OF EQUITY                           -          -          -          -   RETURNS (%)

INC./(DEC.) IN LOANS                     12    (1,425)          -          -   ROCE (PRE-TAX)                     64.1       47.2       43.8       41.7
                                                                               ANGEL ROIC (PRE-TAX)              109.6       34.3      40.8       38.0
DIVIDEND PAID (INCL. TAX)          2,568        2,437      1,168       1,168
                                                                               ROE                                 57.3      57.4      66.2       55.0
OTHERS                           (4,887)          303           -          -
                                                                               TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING         (2,307)         1,315    (1,168)    (1,168)
                                                                               ASSET TURNOVER (GROSS BLOCK)        6.5        4.9        4.1        4.1
INC./(DEC.) IN CASH                      49       (23)     1,062        294
                                                                               INVENTORY / SALES (DAYS)              9         9          9         10
OPENING CASH BALANCES                    13        62         39       1,101   RECEIVABLES (DAYS)                    3         2          2          2
CLOSING CASH BALANCES                    62        39       1,101     1,395    PAYABLES (DAYS)                      62        84         86         88
Note: Financials on Standalone basis

January 2012                                                                          Please refer to important disclosures at the end of this report     33
     Automobile                                                                           TVS Motor
                                                                                          CMP/TP/Upside: `50 / `66 / 32%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                  71 / 44       TVS Motor (TVSL), a flagship company of TVS Group, is the third largest
                  `
      MARKET CAP (` CR)                                       2,373     2W manufacturer in India. The company is present across the motorcycles,
                                                                        scooters and mopeds segments, having a market share of 8%, ~22% and
      LIQUIDITY                                         MEDIUM
                                                                        100%, respectively. The company successfully ventured into the 3W segment
                                                                        in FY2009 and garnered a 5% market share as of FY2011. The company
                                                                        has three manufacturing facilities in India, located at Hosur (Tamil Nadu),
      SHAREHOLDING PATTERN (%)
                                                                        Mysore (Karnataka) and Solan (Himachal Pradesh) with 2W and 3W capacity
      Promoters (TVS GROUP)                                      59.3   of 2.75mn and 75,000 units, respectively. TVSL is also the second largest
      FII                                                         4.7   exporter of two-wheelers in the country. Exports accounted for ~14% of its
                                                                        total revenue in FY2011.

      STOCK RETURNS
      (%)                   3M         1Y        3Y     5Y       10Y
                                                                        Structural Snapshot
      TVS MOTOR          (23.2) (18.6)          82.6    4.8 14.9        Growth opportunity: We expect the Indian 2W industry to report a 13.3%
                                                                        CAGR over FY2011-13E, driven by rising income levels, strong sustainable
      BSE AUTO INDEX (2.7)           (5.9)      51.0    9.3 25.6        rural demand and huge exports potential. While TVSL's motorcycle segment
      SENSEX              (2.6) (12.3)          21.3    3.3      17.3   is likely to remain vulnerable to competition, scooters, mopeds and exports
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  are expected to register healthy performance going ahead.
                                                                        Competitive position: TVSL has seen a decline in its two-wheeler market
      FINANCIAL PERFORMANCE OVERVIEW                                    share to ~15% from ~19% in FY2006 mainly due to weakness in the motorcycle
                                                                        segment, led by intense competition from market leaders. However, with
      (%)                    3M          1Y      3Y     5Y       10Y    the successful launch of Wego, TVSL has been able to claw-back its market
      SALES GROWTH*         23.2      42.0      24.3   13.9 13.1        share in the scooters segment and retain its number two position in the
                                                                        segment.
      PAT GROWTH*           39.7      71.8 308.1       14.7 12.6
      OPM#                   6.9       6.2       5.2    4.6       6.8   Nature of business: Relatively stable as it is less dependent on interest
                                                                        rates; Moderate entry barriers.
      ROE#                       -    22.1      13.4   10.5      16.9
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        Current Investment Arguments
      ANGEL ESTIMATES                                                   New product launches to drive volume growth: TVSL recorded robust
      PARTICULARS                            FY2012E     FY2013E        volume growth of 33.2% yoy in FY2011, led by recovery in the 2W industry's
                                                                        volumes and new product launches like Jive, Wego and Max4R. With the
      PAT GROWTH (%)                            25.8              9.6
                                                                        expected launch of new models like Victor 125cc and variants of Apache,
      ROE (%)                                   23.7             21.8   we expect TVSL to ramp up its production and post a healthy volume CAGR
      P/E                                        9.2              8.4   of 11% over FY2011-13E.

      P/BV                                       2.0              1.7   Better product mix to sustain operating margins: With growing proportion
                                                                        of higher-margin 3W in the total volume mix (3W expected to post a 14%
                                                                        CAGR vs. 11% for 2W over FY2011-13E) and successful launch of
      BLOOMBERG CONSENSUS RECOMMENDATION                                higher priced Wego, we expect TVSM's overall realization to improve, thereby
                                                                        helping it to sustain its operating margins at ~6.5% in FY2012 and FY2013.
      BUY / HOLD / SELL                                26 / 12 / 4
                                                                        Attractive valuations: Due to the recent correction in the stock price,
                                                                        TVSL is trading at attractive valuations of 8.4x FY2013e earnings. We maintain
                                                                        our Buy recommendation on the stock with a target price of ` 66, valuing
                                                                        it at 11x FY2013E earnings.




34   January 2012                                                                           Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                    BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011   FY2012E    FY2013E              `
                                                                            Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
TOTAL OPERATING INCOME             4,430       6,289     7,383      8,425   SOURCES OF FUNDS
% CHG                                  18.5     42.0       17.4      14.1   EQUITY SHARE CAPITAL                24         48         48        48
TOTAL EXPENDITURE                  4,243       5,896     6,878      7,879   RESERVES & SURPLUS                 842        952       1,144     1,362
EBITDA                                 187      393       504        546    SHAREHOLDERS FUNDS                 865        999      1,192      1,409
% CHG                                   0.4    109.6      28.4        8.2   TOTAL LOANS                       1,003       785        760       760
(% OF TOTAL OP. INCOME)                 4.2      6.2       6.8        6.5
                                                                            DEFERRED TAX LIABILITY              115          -         -          -
DEPRECIATION & AMORTIZATION            103       107       116        122
                                                                            TOTAL LIABILITIES                 1,983      1,785     1,952      2,170
INTEREST & OTHER CHARGES                75        70        53         57
                                                                            APPLICATION OF FUNDS
OTHER INCOME                            67        33        10         12
                                                                            GROSS BLOCK                       1,909      1,972     2,102      2,222
EXTRAORDINARY ITEMS                     32      (11)         -          -
                                                                            LESS: ACC. DEPRECIATION            953       1,035     1,150      1,273
PBT (ADJUSTED)                          44      259       346         379
                                                                            NET BLOCK                          956        938        952       949
TAX                                    (12)       54        86        95
                                                                            CAPITAL WORK-IN-PROGRESS            27         57         53        56
(% OF PBT)                        (26.7)        20.6      25.0       25.0
PAT (REPORTED)                          88      195       259        284    GOODWILL                              -          -         -          -

PAT (ADJUSTED)                         120      206       259        284    INVESTMENTS                        739        661        703       759

% CHG                              306.6        71.8      25.8        9.6   CURRENT ASSETS                     965       1,202     1,455      1,773

(% OF NET SALES)                        2.7      3.3       3.6        3.4   CURRENT LIABILITIES                734       1,073     1,211      1,368

           `
BASIC EPS (`)                           1.9      4.1       5.5        6.0   NET CURRENT ASSETS                 231        129        245       405

              `
ADJUSTED EPS (`)                        2.5      4.3       5.5        6.0   MIS. EXP. NOT WRITTEN OFF           30           -         -          -
% CHG                              306.6        71.8      25.8        9.6   TOTAL ASSETS                      1,983      1,785     1,952      2,170




 CASH FLOW STATEMENT                                                        KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011   FY2012E    FY2013E   Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                       44      259       346         379   VALUATION RATIO (X)
DEPRECIATION                           103       107       116        122   P/E                                19.8       11.5       9.2        8.4
CHANGE IN WORKING CAPITAL              103         7        19       (30)   P/CEPS                             10.7        7.6       6.3        5.8

OTHERS                                 144      (85)         -          -   P/BV                                2.7        2.4       2.0        1.7

OTHER INCOME                           (67)     (33)      (10)       (12)   EV/SALES                            0.6        0.4       0.3        0.3

DIRECT TAXES PAID                        12     (54)      (86)       (95)   EV/EBITDA                          13.5        6.3       4.5        3.9
                                                                                            `
                                                                            PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS              339      202       384        364
                                                                            EPS (BASIC)                         1.9        4.1       5.5        6.0
(INC.)/DEC. IN FIXED ASSETS            (30)     (93)     (125)      (122)
                                                                            EPS (ADJ.)                          2.5        4.3       5.5        6.0
(INC.)/DEC. IN INVESTMENTS         (262)          78      (42)       (57)
                                                                            CASH EPS                            4.7        6.6        7.9       8.5
OTHER INCOME                            67        33        10         12
                                                                            DPS                                 0.6        1.1        1.2       1.2
CASH FLOW FROM INVESTING           (225)          18     (157)      (167)
                                                                            BOOK VALUE                         18.2       21.0      25.1       29.7
ISSUE OF EQUITY                           -       24         -          -
                                                                            RETURNS (%)
INC./(DEC.) IN LOANS                    97     (218)      (25)          -
                                                                            ROCE (PRE-TAX)                      4.4       15.2      20.8       20.6
DIVIDEND PAID (INCL. TAX)               33       60         67         67
                                                                            ANGEL ROIC (PRE-TAX)                4.5       16.0      21.5       22.3
OTHERS                             (102)       (260)         -          -
                                                                            ROE                                14.3       22.1      23.7       21.8
CASH FLOW FROM FINANCING                28     (394)      (92)       (67)   TURNOVER RATIOS (X)
INC./(DEC.) IN CASH                    142     (174)       135        131   ASSET TURNOVER (GROSS BLOCK)        2.3        3.2       3.6        3.9
OPENING CASH BALANCE                    42       101         6        141   INVENTORY / SALES (DAYS)            26         24         26        26
NET CASH CREDIT ADJUSTMENT              83      (79)         -          -   RECEIVABLES (DAYS)                   17        15         14         14
CLOSING CASH BALANCE                   101         6       141        272   PAYABLES (DAYS)                     51         49         52        51
Note: Financials on Standalone basis

January 2012                                                                       Please refer to important disclosures at the end of this report    35
     Automobile                                                                               Bosch
                                                                                              CMP/TP/Upside: `7,160 / `7,514 / 5%



      RATING                                            ACCUMULATE         Company Background
      52 WEEK HIGH / LOW                                 7,480 / 5,783     Bosch (BOS), promoted by Robert Bosch GmbH is the largest auto ancillary
                  `
      MARKET CAP (` CR)                                           22,482   company in India and a dominant player in the fuel injection segment with
                                                                           ~75% market share. The company has a diverse product portfolio of diesel
      LIQUIDITY                                             MEDIUM
                                                                           and gasoline fuel injection systems, automotive aftermarket products, auto
                                                                           electricals, special purpose machines, packaging machines, electric power
                                                                           tools and security systems. The automotive segment contributes 90% to
      SHAREHOLDING PATTERN (%)
                                                                           BOS's total revenue. The company also has one of the largest distribution
      PROMOTERS (MNC)                                               71.2   networks of spare parts in the country, with after-market component sales
      FII                                                            5.5   accounting for ~20% of revenue. BOS has five manufacturing facilities located
                                                                           at Bangalore, Nashik, Naganathpura, Jaipur and Goa.

      STOCK RETURNS
      (%)                   3M          1Y        3Y        5Y      10Y
                                                                           Structural Snapshot
      BOSCH                 2.4       15.9       33.7      15.8 41.3       Growth opportunity: We expect the Indian auto industry to grow at a
                                                                           12-13% CAGR over FY2011-13E, led by sustainable growth in the economy;
      BSE AUTO INDEX (2.7)            (5.9)      51.0       9.3 25.6       and rising consumer confidence and income levels, which we believe are
      SENSEX              (2.6) (12.3)           21.3       3.3     17.3   prime drivers of the demand in the auto industry, particularly in segments
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                     such as passenger vehicles, commercial vehicles and tractors. Further, increasing
                                                                           dieselization levels in the domestic passenger vehicle segment are likely to
                                                                           augur well for BOS in the long run.
      FINANCIAL PERFORMANCE OVERVIEW
                                                                           Competitive position: BOS is a market leader in the fuel injection equipment
      (%)                    3M          1Y       3Y        5Y      10Y    segment with ~75% market share and has a track record of industry-shaping
      SALES GROWTH*         16.4       37.4      15.5      17.2     16.7   innovations, leading to higher pricing power.
      PAT GROWTH*           22.0       59.1      15.1     20.5 25.4        Nature of business: Cyclical as automotive sales are dependent on interest
      OPM#                  19.3       18.2      17.6      18.8     18.5   rate; Access to technology creates entry barriers; Sensitive to exchange
                                                                           rates (EUR/INR), since the company has net imports of ~20% of net sales.
      ROE#                        -    20.9      19.7     21.7 22.7
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                           Current Investment Arguments
      ANGEL ESTIMATES                                                      Dependent on favorable CV/tractor sales for growth: BOS's prospects
      PARTICULARS                             CY2011E        CY2012E       are largely derived from demand arising in the CV and tractor segments,
                                                                           which are estimated to register a 12-14% CAGR each over FY2011-13E.
      PAT GROWTH (%)                             24.6               10.3
                                                                           Further, greater visibility on newer growth opportunities is emerging for the
      ROE (%)                                    21.3               19.5   company, following its investments in new and innovative technologies such
      P/E                                        21.0               19.1   as common rail systems and gasoline systems. As such, we estimate BOS
                                                                           to record a strong ~17% CAGR in its top line over CY2010-12E.
      P/BV                                        4.5                3.7
                                                                           Technology leadership lends bargaining power: BOS commands a ~75%
                                                                           market share in the domestic fuel injection equipment segment, which is
      BLOOMBERG CONSENSUS RECOMMENDATION                                   extremely technology intensive. Also, the company has a proven track record
                                                                           of industry-shaping innovations. Being a technology leader in the industry,
      BUY / HOLD / SELL                                      9/2/0
                                                                           the company enjoys strong pricing power and, hence, higher margins, which
                                                                           are expected to remain stable going ahead.
                                                                           Valuations: At `7,160, BOS is trading at 19.1x CY2012E earnings. We
                                                                           believe BOS will continue to enjoy premium valuations due to its technological
                                                                           leadership and strong and diversified product portfolio. We maintain our
                                                                           Accumulate rating on the stock with a target price of ` 7,514, valuing it at
                                                                           20x CY2012E earnings (in-line with average historical multiple).



36   January 2012                                                                               Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                     BALANCE SHEET
          `
Y/E DEC. (` CR)                  CY2009       CY2010   CY2011E    CY2012E              `
                                                                             Y/E DEC. (` CR)                 CY2009     CY2010    CY2011E   CY2012E
TOTAL OPERATING INCOME             5,009       6,882     8,187      9,402    SOURCES OF FUNDS
% CHG                                   5.6     37.4      19.0        14.8   EQUITY SHARE CAPITAL                31         31        31         31
TOTAL EXPENDITURE                  4,183       5,629     6,660      7,707    RESERVES & SURPLUS                3,354     4,067      4,990     6,018
EBITDA                                 826     1,253     1,527      1,695    SHAREHOLDERS FUNDS                3,385     4,098      5,021     6,050
% CHG                              (3.6)        51.7      21.8        11.0   TOTAL LOANS                        284        276        276       276
(% OF TOTAL OP. INCOME)                16.5     18.2      18.6       18.0
                                                                             DEFERRED TAX LIABILITY            (201)     (218)      (218)     (218)
DEPRECIATION & AMORTIZATION            304       254       267        300
                                                                             TOTAL LIABILITIES                 3,468     4,156      5,079      6,108
INTEREST & OTHER CHARGES                 1         4         2          2
                                                                             APPLICATION OF FUNDS
OTHER INCOME                           285       207       248        268
                                                                             GROSS BLOCK                       2,865      3,017     3,697     4,188
EXTRAORDINARY ITEMS                     64         -          -          -
                                                                             LESS: ACC. DEPRECIATION           2,358     2,588      2,854      3,154
PBT (ADJUSTED)                         742     1,202     1,507      1,662
                                                                             NET BLOCK                          507        430        843      1,033
TAX                                    203       344       437        482
                                                                             CAPITAL WORK-IN-PROGRESS            100       224        185       210
(% OF PBT)                             27.3     28.6      29.0       29.0
                                                                             GOODWILL                             6          6          6         6
PAT (REPORTED)                         604      859      1,070      1,180
                                                                             INVESTMENTS                       1,418      1,607     1,778      2,138
PAT (ADJUSTED)                         540      858      1,070      1,180
% CHG                              (2.4)        59.1      24.6        10.3   CURRENT ASSETS                    2,758      3,752     4,003     4,689

(% OF NET SALES)                       11.2     12.8       13.4       12.9   CURRENT LIABILITIES               1,320      1,863     1,736      1,968

           `
BASIC EPS (`)                      192.2       273.5     340.8      375.7    NET CURRENT ASSETS                1,438      1,889     2,267     2,721

              `
ADJUSTED EPS (`)                   171.8       273.4     340.8      375.7    MIS. EXP. NOT WRITTEN OFF             -          -         -          -
% CHG                              (0.5)        59.1      24.6        10.3   TOTAL ASSETS                      3,468     4,156      5,079      6,108




 CASH FLOW STATEMENT                                                         KEY RATIOS
          `
Y/E DEC. (` CR)                  CY2009       CY2010   CY2011E    CY2012E    Y/E DEC.                        CY2009     CY2010    CY2011E   CY2012E
PROFIT BEFORE TAX                      742     1,202     1,507      1,662    VALUATION RATIO (X)

DEPRECIATION                           304       254       267        300    P/E                                41.7       26.2      21.0       19.1

CHANGE IN WORKING CAPITAL              130     (178)     (395)      (180)    P/CEPS                             26.7       20.2      16.8       15.2
                                                                             P/BV                                6.6        5.5       4.5        3.7
OTHERS                                 209       159         -           -
                                                                             EV/SALES                            4.0        2.8       2.3        1.9
OTHER INCOME                       (285)       (207)     (248)      (268)
                                                                             EV/EBITDA                          31.7       18.8      12.9       11.2
DIRECT TAXES PAID                  (203)       (344)     (437)      (482)
                                                                                             `
                                                                             PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS              897      886        694      1,031
                                                                             EPS (BASIC)                       171.8      273.4     340.8      375.7
(INC.)/DEC. IN FIXED ASSETS            (75)    (277)     (641)      (515)    EPS (ADJUSTED)                    171.8      273.4     340.8      375.7
(INC.)/DEC. IN INVESTMENTS         (551)       (190)     (170)      (360)    CASH EPS                          268.5     354.3      425.7      471.2
OTHER INCOME                           285       207       248        268    DPS                                30.0       40.0      40.0       40.0
CASH FLOW FROM INVESTING           (341)       (260)     (563)      (607)    BOOK VALUE                        1,078      1,305     1,599      1,927

ISSUE OF EQUITY                         (1)        -         -          -    RETURNS (%)

INC./(DEC.) IN LOANS                    20       (8)          -          -   ROCE (PRE-TAX)                     15.7      26.2       27.3       24.9
                                                                             ANGEL ROIC (PRE-TAX)               14.0      28.2       27.6       25.6
DIVIDEND PAID (INCL. TAX)               94       110       146        147
                                                                             ROE                                15.9      20.9       21.3       19.5
OTHERS                             (672)       (471)         -           -
                                                                             TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING           (559)       (368)     (146)      (147)
                                                                             ASSET TURNOVER (GROSS BLOCK)        1.8        2.3       2.4        2.4
INC./(DEC.) IN CASH                     (3)     258       (16)        277
                                                                             INVENTORY / SALES (DAYS)            42         37        38         39
OPENING CASH BALANCE               1,071       1,068     1,326       1,310   RECEIVABLES (DAYS)                  49         36        35         35
CLOSING CASH BALANCE               1,068       1,326      1,310     1,588    PAYABLES (DAYS)                     61         60         63        64
Note: Financials on Standalone basis

January 2012                                                                        Please refer to important disclosures at the end of this report    37
     Automobile                                                                               Exide Industries
                                                                                              CMP/TP/Upside: `120 / `137 / 14%



      RATING                                             ACCUMULATE        Company Background
      52 WEEK HIGH / LOW                                     175 / 99      Exide Industries (Exide) is a leading automobile and industrial battery manufacturer
                  `
      MARKET CAP (` CR)                                           10,221   in India. The company commands a ~70% and ~65% market share in the
                                                                           OEM and organized replacement battery segment and a 40-45% share in
      LIQUIDITY                                             MEDIUM
                                                                           the industrial battery segment. Exide has technological tie-ups with
                                                                           majors such as Shin Kobe and Furukawa Battery. The automotive and industrial
                                                                           battery segments accounted for ~65% and ~35% of the company's total
      SHAREHOLDING PATTERN (%)
                                                                           revenue in FY2011, respectively. Exide also has a 50% stake in ING Vysya
      PROMOTERS                                                     46.0   Insurance Ltd., a JV with ING Group, Netherlands.
      FII                                                           18.8

                                                                           Structural Snapshot
      STOCK RETURNS
                                                                           Growth opportunity: We expect growth traction in the automotive battery
      (%)                   3M           1Y         3Y      5Y      10Y    segment to continue, driven by OE M sales and a steady increase of
      EXIDE IND.          (1.1)       (11.9)      42.2     24.5 45.1       10-12% in the auto replacement segment, given that average battery life is
                                                                           3-4 years. Further, revival in demand for telecom and UPS batteries is likely
      BSE AUTO INDEX (0.5)            (5.2)       52.7      9.4 25.7       to sustain industrial battery demand going ahead. Additionally, strong relationship
      SENSEX              (1.2) (12.1)            22.5      3.4     17.4   with OEMs (creating brand awareness amongst consumers) presents a significant
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                     growth opportunity in the replacement market, which still has presence of
                                                                           large unorganized players. We believe Exide is well placed to capitalize on
                                                                           this growth opportunity as it has unparalleled distribution network, excellent
      FINANCIAL PERFORMANCE OVERVIEW                                       customer relationships and strong brand loyalty.
      (%)                    3M          1Y         3Y      5Y      10Y    Competitive position: Exide continues to dominate the organized automotive
      SALES GROWTH*         19.0        20.0      17.0     27.0     19.4   and industrial battery segments, led by its strong brands (Exide and SF
                                                                           Sonic) and a wide distribution network. However, recently Exide has lost
      PAT GROWTH*         (16.2)        17.8      37.4     44.4 30.3
                                                                           6-7% market share in the organized replacement 4W segment, led by aggressive
      OPM#                  13.2        19.4      19.7     18.4     17.5   strategy adopted by Amara Raja Batteries. Consequently, Exide reduced
      ROE#                        -     25.5      27.7     28.3 23.6       its auto battery prices by 8-10% in September 2011, leading to significant
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS             margin erosion.
                                                                           Nature of business: While OEM demand is dependent on new vehicle sales,
                                                                           replacement demand is relatively stable; branding, quality/technology and
      ANGEL ESTIMATES
                                                                           strong OEM presence create entry barriers.
      PARTICULARS                              FY2012E       FY2013E
      PAT GROWTH (%)                             (28.9)             47.4
      ROE (%)                                      15.6             20.3   Current Investment Arguments
      P/E                                         22.7              15.4   Demand scenario for auto and industrial batteries to remain positive:
                                                                           We expect the auto and industrial battery segments to post revenue CAGRs
      P/BV                                          3.4              2.9
                                                                           of 15% and 12%, respectively, over FY2011-13E, driven by strong battery
                                                                           demand. As such, we expect Exide to register revenue CAGRs of 14% and
                                                                           10% in the auto and industrial battery segments, respectively.
      BLOOMBERG CONSENSUS RECOMMENDATION
                                                                           Captive sourcing to reduce the impact of lead price volatility: While Exide's
      BUY / HOLD / SELL                                     18 / 11 / 7
                                                                           profitability in 1HFY2012 was impacted by poor inventory management and
                                                                           mounting competitive pressures, we believe increased lead sourcing from
                                                                           captive smelters to ~70% in FY2013 (~55% in FY2011) will help reduce
                                                                           the impact of lead price volatility and enhance margins. We believe captive
                                                                           sourcing of lead reduces the company's raw-material costs by 10-15%.
                                                                           Valuations: At `120, the stock is trading at 13.8x FY2013E earnings, adjusted
                                                                           for its stake in the insurance business. We maintain our Accumulate view
                                                                           on the stock with an SOTP target price of ` 137. We assign a value/share of
                                                                           `125 to its core operations and `12 to its stake in ING Vysya Life Insurance.
38   January 2012                                                                                Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                      BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E               `
                                                                              Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
NET SALES                          3,794       4,554      5,002      5,796    SOURCES OF FUNDS
% CHG                                  11.8     20.0         9.8      15.9    EQUITY SHARE CAPITAL                85         85         85         85
TOTAL EXPENDITURE                  2,902       3,672      4,331      4,858    RESERVES & SURPLUS                2,135     2,657      2,958      3,423
EBITDA                                 892      881         671        938    SHAREHOLDERS FUNDS                2,220      2,742     3,043      3,508
% CHG                                  62.8     (1.2)     (23.9)      39.9    TOTAL LOANS                         90          2          2          2
(% OF NET SALES)                       23.5     19.4        13.4      16.2
                                                                              DEFERRED TAX LIABILITY              59         68         68         68
DEPRECIATION & AMORTIZATION             81        83         98        107
                                                                              TOTAL LIABILITIES                 2,369      2,812      3,113     3,578
INTEREST & OTHER CHARGES                 14        9         10         10
                                                                              APPLICATION OF FUNDS
OTHER INCOME                             12      151         71        114
                                                                              GROSS BLOCK                       1,336      1,561     1,842      2,027
EXTRAORDINARY ITEMS                     (0)       33           -         -
                                                                              LESS: ACC. DEPRECIATION            660        725        823        930
PBT (ADJUSTED)                         811      907         634        935
                                                                              NET BLOCK                          677        836      1,019      1,096
TAX                                    273       274        184        271
                                                                              CAPITAL WORK-IN-PROGRESS            38         66         55         61
(% OF PBT)                             33.7     30.2       29.0       29.0
PAT (REPORTED)                         537      666         450        664    GOODWILL                              -          -         -          -

PAT (ADJUSTED)                         537       633        450        664    INVESTMENTS                       1,335      1,378     1,619      1,968

% CHG                                  89.7      17.8     (28.9)       47.4   CURRENT ASSETS                      912      1,329     1,347       1,611

(% OF NET SALES)                       14.2     13.9         9.0       11.4   CURRENT LIABILITIES                593        796        927      1,158
           `
BASIC EPS (`)                           6.3       7.8        5.3        7.8   NET CURRENT ASSETS                 319        532        420        453
              `
ADJUSTED EPS (`)                        6.3       7.4        5.3        7.8   MIS. EXP. NOT WRITTEN OFF             -          -         -          -
% CHG                                  78.5      17.8     (28.9)       47.4   TOTAL ASSETS                      2,369      2,812      3,113     3,578




 CASH FLOW STATEMENT                                                          KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                      810      940         634        935    VALUATION RATIO (X)

DEPRECIATION                            81        83         98        107    P/E                                19.0       15.3      22.7       15.4

CHANGE IN WORKING CAPITAL              (59)    (214)        144       (45)    P/CEPS                             16.5       14.3      18.7        13.3
                                                                              P/BV                                4.7        3.8       3.4        2.9
OTHERS                                 (23)       13           -         -
                                                                              EV/SALES                            2.4        1.9        1.7        1.4
OTHER INCOME                           (12)    (151)       (71)       (114)
                                                                              EV/EBITDA                          10.1       10.0       12.8       8.8
DIRECT TAXES PAID                  (273)       (274)      (184)      (271)
                                                                                              `
                                                                              PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS              524      398         621        612
                                                                              EPS (BASIC)                         6.3        7.8       5.3         7.8
(INC.)/DEC. IN FIXED ASSETS        (100)       (253)      (270)      (191)    EPS (ADJUSTED)                      6.3        7.4       5.3         7.8
(INC.)/DEC. IN INVESTMENTS         (667)        (43)      (241)      (349)    CASH EPS                            7.3        8.4       6.4        9.1
OTHER INCOME                             12      151         71        114    DPS                                 1.0        1.5        1.5       2.0
CASH FLOW FROM INVESTING           (755)       (144)      (440)      (426)    BOOK VALUE                         25.8       31.9      35.5       41.0

ISSUE OF EQUITY                        530         -           -         -    RETURNS (%)

INC./(DEC.) IN LOANS               (227)        (88)           -         -    ROCE (PRE-TAX)                     40.8      30.8       19.3       24.8
                                                                              ANGEL ROIC (PRE-TAX)               81.1       57.3      40.3       53.6
DIVIDEND PAID (INCL. TAX)               56        95        149        199
                                                                              ROE                                31.0      25.5       15.6       20.3
OTHERS                             (159)       (249)           -         -
                                                                              TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING               200     (241)      (149)      (199)
                                                                              ASSET TURNOVER (GROSS BLOCK)        2.9        3.1       2.9        3.0
INC./(DEC.) IN CASH                    (31)       12         32       (13)
                                                                              INVENTORY / SALES (DAYS)            50         59         63         60
OPENING CASH BALANCE                    34         3         15         47    RECEIVABLES (DAYS)                  23         25         25         25
CLOSING CASH BALANCE                     3        15         47         34    PAYABLES (DAYS)                     42         46         49         49
Note: Financials on Standalone basis

January 2012                                                                         Please refer to important disclosures at the end of this report     39
     Automobile                                                                            Amara Raja Batteries
                                                                                           CMP/TP/Upside: `206 / `250 / 22%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                 263 / 158      Amara Raja Batteries (AMRJ), a JV between Galla family and Johnson Controls,
                  `
      MARKET CAP (` CR)                                        1,759    U.S., is India's second largest manufacturer in the organized VRLA batteries
                                                                        market finding applications in the automotive (~55% of total revenue) and
      LIQUIDITY                                                LOW
                                                                        industrial (~45% of total revenue) segments. AMRJ has a market share of
                                                                        25% in 4W OEM, 30% in 4W replacement and 25% in 2W replacement
                                                                        battery markets. The company also commands dominant market shares of
      SHAREHOLDING PATTERN (%)
                                                                        42% and 32% in the telecom and UPS battery segments, respectively. AMRJ
      PROMOTERS                                                  52.1   derives ~45% and ~35% of its industrial segment's revenue from the telecom
      FII                                                         4.3   and UPS battery segments, respectively.



      STOCK RETURNS                                                     Structural Snapshot
      (%)                   3M          1Y        3Y     5Y      10Y    Growth opportunity: We expect growth traction in the automotive battery
      AMRJ                (0.6)       20.3       69.2   26.6 35.8       segment to continue, driven by OE M sales and a steady increase of
                                                                        10-12% in the auto replacement segment, given that average battery life is
      BSE AUTO INDEX (2.7)            (5.9)      51.0    9.3 25.6       3-4 years. Further, demand revival for telecom and UPS batteries is also
      SENSEX              (2.6) (12.3)           21.3    3.3     17.3   likely to sustain industrial battery demand going ahead. Additionally, strong
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  relationship with OEMs (creating brand awareness amongst consumers)
                                                                        presents a significant growth opportunity in the replacement market, which
                                                                        still has presence of large unorganized players. On the back of these opportunities,
      FINANCIAL PERFORMANCE OVERVIEW                                    capacity expansion and increasing reach, we expect AMRJ to benefit going
      (%)                    3M          1Y       3Y     5Y      10Y    ahead.
      SALES GROWTH*         42.8       20.3      17.6   37.1 29.3       Competitive position: While Exide is the market leader in the organized
                                                                        automotive battery segment, AMRJ has consistently increased its market
      PAT GROWTH*           64.1      (7.1)      16.1   43.9 21.8
                                                                        share by 1) aggressively positioning its products (Amaron batteries), 2) offering
      OPM#                  15.7       14.5      15.7   15.5 13.4       higher warranty and 3) strengthening its distribution network. AMRJ is a
      ROE#                        -    24.8      26.7   26.8     16.7   dominant player in the industrial battery segment due to its strong ties with
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          customers.
                                                                        Nature of business: While OEM demand is dependent on new vehicle sales,
                                                                        replacement demand is relatively stable; branding, quality/technology and
      ANGEL ESTIMATES
                                                                        strong OEM presence create entry barriers.
      PARTICULARS                             FY2012E     FY2013E
      PAT GROWTH (%)                             21.0            13.8
      ROE (%)                                    24.7            22.9   Current Investment Arguments
      P/E                                         9.8             8.6   Growth in the auto battery segment to drive top-line performance: We
                                                                        expect AMRJ's automotive battery segment to post a robust ~22% revenue
      P/BV                                        2.2             1.8
                                                                        CAGR over FY2011-13E, led by better positioning of its products, availability
                                                                        of additional capacity and increasing distribution reach.

      BLOOMBERG CONSENSUS RECOMMENDATION                                Telecom and UPS battery segments to sustain industrial battery demand:
                                                                        AMRJ pioneered the use of maintenance-free batteries, which have applications
      BUY / HOLD / SELL                                  15 / 2 / 0
                                                                        in the railway signaling, telecom and power supply solutions segments.
                                                                        We expect the telecom and power backup (UPS/inverter) segments to drive
                                                                        demand for industrial batteries, leading to a ~16% revenue CAGR in AMRJ's
                                                                        industrial battery segment over FY2011-13E.
                                                                        Valuations: At `206, AMRJ is trading attractively at 8.6x FY2013E earnings.
                                                                        We mainatin our Buy rating on the stock. We assign a multiple of 10.5x
                                                                        (~35% discount to Exide's multiple of 16x) FY2013E earnings to arrive at a
                                                                        target price of `250.


40   January 2012                                                                             Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                     BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E   FY2013E               `
                                                                             Y/E MARCH (` CR)                FY2010     FY2011    FY2012E   FY2013E
NET SALES                          1,464       1,761      2,179     2,514    SOURCES OF FUNDS
% CHG                                  11.5     20.3       23.7      15.4    EQUITY SHARE CAPITAL                 17        17         17        17
TOTAL EXPENDITURE                  1,176       1,506      1,868     2,167    RESERVES & SURPLUS                 527        629        783       961
EBITDA                                 288      256         311      348     SHAREHOLDERS FUNDS                 544        646       800        978
% CHG                                  70.4    (11.4)      21.8       11.6   TOTAL LOANS                         91         95        115        80
(% OF NET SALES)                       19.7     14.5       14.3      13.8
                                                                             DEFERRED TAX LIABILITY              22         20        20         20
DEPRECIATION & AMORTIZATION             43        42        49         53
                                                                             TOTAL LIABILITIES                  656        761       935       1,079
INTEREST & OTHER CHARGES                 8         2          3         2
                                                                             APPLICATION OF FUNDS
OTHER INCOME                             17       10          8        11
                                                                             GROSS BLOCK                        491        539       629        686
EXTRAORDINARY ITEMS                      8         -          -         -
                                                                             LESS: ACC. DEPRECIATION            185        224        273       326
PBT (ADJUSTED)                         255      221        267       304
                                                                             NET BLOCK                          306        315       356        360
TAX                                     88        73        88        100
                                                                             CAPITAL WORK-IN-PROGRESS            23         38        38         41
(% OF PBT)                             34.4     33.0       33.0      33.0
PAT (REPORTED)                         167       148        179      203     GOODWILL                              -          -         -          -

PAT (ADJUSTED)                         159       148        179      203     INVESTMENTS                         16         16        28         43

% CHG                                  97.7     (7.1)      21.0      13.8    CURRENT ASSETS                     631        742       926       1,098

(% OF NET SALES)                       10.9      8.4        8.2       8.1    CURRENT LIABILITIES                319        349        412       463

           `
BASIC EPS (`)                          19.6      17.3      20.9      23.8    NET CURRENT ASSETS                  312       393        513       634

              `
ADJUSTED EPS (`)                       18.6      17.3      20.9      23.8    MIS. EXP. NOT WRITTEN OFF             -          -         -          -
% CHG                                  97.7     (7.1)      21.0      13.8    TOTAL ASSETS                       656        761       935       1,079




 CASH FLOW STATEMENT                                                         KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E   FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E   FY2013E
PROFIT BEFORE TAX                      255      221        267       304     VALUATION RATIO (X)

DEPRECIATION                            43        42        49         53    P/E                                10.5       11.9       9.8        8.6

CHANGE IN WORKING CAPITAL              (66)     (97)       (66)      (77)    P/CEPS                              8.7        9.3       7.7        6.9
                                                                             P/BV                                3.2        2.7       2.2        1.8
OTHERS                                  87         2          -         -
                                                                             EV/SALES                            1.2        1.0       0.8        0.7
OTHER INCOME                           (17)     (10)        (8)      (11)
                                                                             EV/EBITDA                           6.1        7.0       5.6        4.8
DIRECT TAXES PAID                      (88)     (73)       (88)     (100)
                                                                                             `
                                                                             PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS              214        86        154      168
                                                                             EPS (BASIC)                        19.6       17.3      20.9       23.8
(INC.)/DEC. IN FIXED ASSETS            (47)     (63)       (90)      (60)    EPS (ADJUSTED)                     18.6       17.3      20.9       23.8
(INC.)/DEC. IN INVESTMENTS              31         -       (12)      (15)    CASH EPS                           23.7       22.2      26.7      30.0
OTHER INCOME                             17       10          8        11    DPS                                 2.9        4.6       2.5        2.5
CASH FLOW FROM INVESTING                 1      (53)       (94)      (64)    BOOK VALUE                         63.7       75.6      93.7      114.6

ISSUE OF EQUITY                           -        -          -         -    RETURNS (%)

INC./(DEC.) IN LOANS               (195)           4        20       (35)    ROCE (PRE-TAX)                     35.9      30.2       30.9      29.3
                                                                             ANGEL ROIC (PRE-TAX)               42.5      30.3       32.3       32.9
DIVIDEND PAID (INCL. TAX)                8        29        25         25
                                                                             ROE                                33.5       24.8      24.7       22.9
OTHERS                                 (36)     (88)          -         -
                                                                             TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING           (223)        (55)        (5)      (60)
                                                                             ASSET TURNOVER (GROSS BLOCK)        3.2        3.4       3.7        3.8
INC./(DEC.) IN CASH                     (8)     (22)        55         44    INVENTORY / SALES (DAYS)            47         52         53        55
OPENING CASH BALANCE                    70        62        40         95    RECEIVABLES (DAYS)                  56         57        56         56
CLOSING CASH BALANCE                    62        40        95        139    PAYABLES (DAYS)                     35         37        36         38
Note: Financials on Standalone basis

January 2012                                                                        Please refer to important disclosures at the end of this report    41
     Automobile                                                                            Apollo Tyres
                                                                                           CMP/TP/Upside: `65 / `74 / 15%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                    83 / 45     Apollo Tyres (APTY) is India's second largest tyre manufacturer with an overall
                  `
      MARKET CAP (` CR)                                         3,269   tyre market share of ~18%. The company has a leadership position in the
                                                                        heavy and LCV tyre segments, with 23% and 26% market share, respectively.
      LIQUIDITY                                           MEDIUM
                                                                        APTY acquired Dunlop's South African operations in 2006 and Vredestein
                                                                        Branden BV (Netherlands) in May 2009. These acquisitions now account
                                                                        for 38% of APTY's consolidated revenue. The company has eight
      SHAREHOLDING PATTERN (%)
                                                                        manufacturing plants located across India (1,125TPD), South Africa (175TPD)
      PROMOTERS                                                  46.4   and Europe (170TPD), with a total installed capacity of 1,470TPD. APTY's
      FII                                                        22.6   main brands include Apollo (India); Dunlop (South Africa); and Maloya, Regal
                                                                        and Vredestein (Europe).

      STOCK RETURNS
      (%)                   3M          1Y        3Y      5Y     10Y
                                                                        Structural Snapshot
      APOLLO TYRES         19.0       15.6       50.7    12.8 24.2      Growth opportunity: We believe the Indian tyre industry is going through a
                                                                        structural shift as radialization levels in the truck and bus radial (TBR) segment
      BSE AUTO INDEX (2.7)            (5.9)      51.0     9.3 25.6      are expected to reach 40% over the next two-three years from 16% in FY2011.
      SENSEX              (2.6) (12.3)           21.3     3.3    17.3   Further, expected steady growth of 8-10% in replacement demand (~65%
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  of total demand) should lend a greater degree of stability to overall tyre
                                                                        demand in our view. We expect APTY to be the key beneficiary of the structural
                                                                        shift that the Indian tyre industry is going through, given its dominant position
      FINANCIAL PERFORMANCE OVERVIEW                                    in the TBR as well as replacement segment coupled with leading brands
      (%)                    3M          1Y       3Y      5Y     10Y    and a strong distribution reach.
      SALES GROWTH*         47.3        9.2      23.6    27.7 22.7      Competitive position: APTY is a market leader in the CV segment, with a
                                                                        ~27% market share. However, increasing radialization in the TBR segment
      PAT GROWTH*           46.0 (32.5)          16.7    40.0 31.9
                                                                        is expected to lead to higher earnings growth and margin improvement for
      OPM#                   8.0       11.1      11.4    11.2    10.2   the tyre industry, including players like APTY.
      RoE#                        -    17.1      22.1    21.4    19.0   Nature of business: Cyclical as demand for CV tyres is linked to the
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          macroeconomic environment; low entry barriers, sensitive to exchange rates
                                                                        since the company has net imports of ~25% of net sales at standalone
                                                                        level, global rubber prices impact profitability.
      ANGEL ESTIMATES
      PARTICULARS                             FY2012E      FY2013E
      PAT GROWTH (%)                            (17.6)           28.8   Current Investment Arguments
      ROE (%)                                    12.4            15.0   Steady performance in domestic and overseas business to aid growth:
      P/E                                         9.0             7.0   Structural growth factors in combination with timely ramp-up at the Chennai
                                                                        facility (incremental capacity of 450TPD by 1QFY2013) is likely to result in
      P/BV                                        1.2             1.1
                                                                        a 25% revenue CAGR in domestic operations. Further, overseas subsidiaries
                                                                        are expected to maintain a healthy growth momentum and register a 13%
                                                                        revenue CAGR.
      BLOOMBERG CONSENSUS RECOMMENDATION
                                                                        Lower raw-material prices to boost margins: Domestic and international
      BUY / HOLD / SELL                                   24 / 2 / 3
                                                                        natural rubber prices have declined by 21% and 33%, respectively, from
                                                                        their peak levels. With rubber prices expected to rule steady and price hikes
                                                                        carried out in 1HFY2012, we expect APTY's operating margins to improve
                                                                        by 70bp in FY2013 to 9.4%.
                                                                        Valuations: At `65, APTY is trading at 7x FY2013E earnings. We maintain
                                                                        our Buy rating on the stock with a target price of ` 74, valuing it at 8.0x
                                                                        FY2013E earnings.



42   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                    BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010      FY2011    FY2012E    FY2013E              `
                                                                            Y/E MARCH (` CR)                FY2010     FY2011    FY2012E   FY2013E
NET SALES                          8,121      8,868      11,819    13,296   SOURCES OF FUNDS
% CHG                               62.6         9.2      33.3       12.5   EQUITY SHARE CAPITAL                50         50        50         50
TOTAL EXPENDITURE                  6,936      7,880     10,773     12,049   RESERVES & SURPLUS                1,917     2,362      2,681     3,060
EBITDA                             1,185        988      1,046      1,248   SHAREHOLDERS FUNDS                1,968      2,413     2,732      3,111
% CHG                              180.7      (16.6)        5.9      19.3   TOTAL LOANS                       1,707     2,480      3,030     2,930
(% OF NET SALES)                     14.6       11.1        8.9       9.4
                                                                            DEFERRED TAX LIABILITY             251        316       316        316
DEPRECIATION & AMORTIZATION          254        272        305       346
                                                                            TOTAL LIABILITIES                 3,926      5,210     6,079     6,358
INTEREST & OTHER CHARGES             134        198        273       264
                                                                            APPLICATION OF FUNDS
OTHER INCOME                         117         29         29        31
                                                                            GROSS BLOCK                       5,563     6,903      7,625      7,962
EXTRAORDINARY ITEMS                   59         11           -         -
                                                                            LESS: ACC. DEPRECIATION           3,120     3,501      3,806      4,152
PBT (ADJUSTED)                       855        536        498       668
                                                                            NET BLOCK                         2,443     3,403      3,819      3,810
TAX                                  261        106        134       200
                                                                            CAPITAL WORK-IN-PROGRESS           536        503        534       557
(% OF PBT)                          30.5       19.8        27.0      30.0
PAT (REPORTED)                       594        430        363       468    GOODWILL                            118        117       117        117

PAT (ADJUSTED)                       653        441        363       468    INVESTMENTS                          6         11         17        21

% CHG                              369.5      (32.5)     (17.6)      28.8   CURRENT ASSETS                    2,439     3,290      4,185     4,663

(% OF NET SALES)                      8.0        5.0        3.1       3.5   CURRENT LIABILITIES               1,614      2,113     2,593     2,809

           `
BASIC EPS (`)                        13.0        8.7        7.2       9.3   NET CURRENT ASSETS                 824       1,177     1,592      1,853
              `
ADJUSTED EPS (`)                     13.0        8.7        7.2       9.3   MIS. EXP. NOT WRITTEN OFF             -          -         -          -
% CHG                              369.5      (32.5)     (17.6)      28.8   TOTAL ASSETS                      3,926      5,210     6,079     6,358




 CASH FLOW STATEMENT                                                        KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010      FY2011    FY2012E    FY2013E   Y/E MARCH                       FY2010     FY2011    FY2012E   FY2013E
PROFIT BEFORE TAX                    855        536        498       668    VALUATION RATIO (X)

DEPRECIATION                         254        272        305       346    P/E                                 5.0        7.4       9.0        7.0

CHANGE IN WORKING CAPITAL          (208)      (395)        (11)     (232)   P/CEPS                              3.9        4.7       4.9        4.0
                                                                            P/BV                                1.7        1.4       1.2        1.1
OTHERS                               789        139           -         -
                                                                            EV/SALES                            0.6        0.6       0.5        0.4
OTHER INCOME                        (117)      (29)       (29)       (31)
                                                                            EV/EBITDA                           3.9        5.6       5.4        4.5
DIRECT TAXES PAID                  (261)      (106)      (134)      (200)
                                                                                            `
                                                                            PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS           1,312       416        628       551
                                                                            EPS (BASIC)                        13.0        8.7       7.2        9.3
(INC.)/DEC. IN FIXED ASSETS      (3,533)     (1,307)     (753)      (360)   EPS (ADJUSTED)                     13.0        8.7       7.2        9.3
(INC.)/DEC. IN INVESTMENTS            (1)       (5)         (6)       (4)   CASH EPS                           16.8       13.9      13.3       16.2
OTHER INCOME                         117         29         29        31    DPS                                 0.7        0.5       0.8        1.5
CASH FLOW FROM INVESTING          (3,417)    (1,284)     (729)      (334)   BOOK VALUE                         39.0       47.9      54.2       61.7

ISSUE OF EQUITY                          -         -          -         -   RETURNS (%)

INC./(DEC.) IN LOANS                 816        773        550      (100)   ROCE (PRE-TAX)                     29.3       15.7      13.1       14.5
                                                                            ANGEL ROIC (PRE-TAX)               26.0       14.3      13.5       15.7
DIVIDEND PAID (INCL. TAX)             44         29         44        88
                                                                            ROE                                29.8       17.1      12.4       15.0
OTHERS                             1,231       (93)           -         -
                                                                            TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING           2,091        709        506      (188)
                                                                            ASSET TURNOVER (GROSS BLOCK)        2.1        1.4       1.6        1.7
INC./(DEC.) IN CASH                  (13)     (158)        405        29    INVENTORY / SALES (DAYS)            36         57        58         58
OPENING CASH BALANCE                 362        349        191       595    RECEIVABLES (DAYS)                  23         36         37        37
CLOSING CASH BALANCE                 349        191        595        624   PAYABLES (DAYS)                     41         61        59         60
Note: Financials on Consolidated basis

January 2012                                                                       Please refer to important disclosures at the end of this report    43
                                                                                                           TOP
                                                                                                           PICK

     Automobile                                                                            CEAT
                                                                                           CMP/TP/Upside: `84 / `125 / 48%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                  125 / 67      Ceat, part of the RPG Group, is amongst the leading tyre manufacturers in
                  `
      MARKET CAP (` CR)                                          289    the country with an overall market share of ~12%. The company’s manufacturing
                                                                        facilities are located in Bhandup, Nashik and Halol. The company has an
      LIQUIDITY                                                LOW
                                                                        overall production capacity of 615TPD (including outsourced). The company
                                                                        exports to countries across Asia, Africa, Europe and America. Exports constitute
                                                                        ~20% of Ceat's total volumes. The company has recently acquired the global
      SHAREHOLDING PATTERN (%)
                                                                        rights of the CEAT brand from Italian tyre maker Pirelli - this will enable the
      PROMOTERS (RPG GROUP)                                      50.2   company to expand its global presence. Ceat also operates in Sri Lanka
      FII                                                         2.0   through a JV and has a 60% share in Sri Lanka's tyre market.



      STOCK RETURNS                                                     Structural Snapshot
      (%)                   3M         1Y        3Y      5Y      10Y    Growth opportunity: We believe the Indian tyre industry is going through a
      CEAT                 13.4 (30.8)          32.1 (14.2)      11.6   structural shift as radialization levels in the truck and bus radial (TBR) segment
                                                                        are expected to reach 40% over the next two-three years from 16% in FY2011.
      BSE AUTO INDEX (2.7)           (5.9)      51.0     9.3 25.6       Further, expected steady growth of 8-10% in replacement demand (~65%
      SENSEX              (2.6) (12.3)          21.3     3.3     17.3   of total demand) should lend a greater degree of stability to overall tyre
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  demand in our view. Availability of radial tyres from the new facility in Halol
                                                                        and increasing focus on replacement demand is expected to help Ceat register
                                                                        a strong 21.4% revenue CAGR over FY2011-13E.
      FINANCIAL PERFORMANCE OVERVIEW
                                                                        Competitive position: The Indian tyre industry is extremely competitive and
      (%)                    3M          1Y      3Y      5Y      10Y    is dominated by MRF and Apollo Tyres. However, increasing radialization in
      SALES GROWTH*         32.7      23.6      14.2    14.7 13.4       the TBR segment is expected to lead to higher earnings growth and margin
                                                                        improvement for the tyre industry, including players like Ceat.
      PAT GROWTH*         (63.3) (83.3) (32.2) 108.4                -
      OPM#                   5.5       3.1       4.9     5.9      5.1   Nature of business: Cyclical as demand for CV tyres is linked to the
                                                                        macroeconomic environment; low entry barriers; Sensitive to exchange rates
      ROE#                       -     4.3      10.0    12.1      6.6   since the company has net imports of ~12% of net sales: Global rubber
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          prices impact profitability.


      ANGEL ESTIMATES
                                                                        Current Investment Arguments
      PARTICULARS                            FY2012E      FY2013E
                                                                        Improving product mix and stable raw-material prices to aid margin
      PAT GROWTH (%)                                -               -
                                                                        expansion: Ceat is ramping up its radial capacity at the Halol plant to 150TPD,
      ROE (%)                                   (3.1)            11.2   which is likely to be fully operational by 1QFY2013. With the completion of
      P/E                                           -             4.1   the proposed expansion, the product mix of truck:non-truck is likely to improve
                                                                        to 60:40 (currently 67:33), resulting in better product mix, thereby fetching
      P/BV                                       0.5              0.4
                                                                        better margins. Additionally, pricing action (~10% in 1HFY2012) and stable
                                                                        raw-material prices going ahead (declined 21% from the peak in domestic
                                                                        markets) are expected to result in a ~150bp margin expansion in FY2013.
      BLOOMBERG CONSENSUS RECOMMENDATION
                                                                        Valuations: At `84, CEAT is trading at attractive valuations of 4.1x FY2013E
      BUY / HOLD / SELL                                   4/1/0
                                                                        earnings. We believe recent action of hiking stake by promoters in the company
                                                                        from 48.47% in March 2010 to 50.2% as of September 2011 in combination
                                                                        with recent announcement of issue of warrants to the promoters is likely to
                                                                        boost investor sentiments. In addition, we believe monetization of surplus
                                                                        land at Bhandup (23.6acre should fetch over `440cr, on a conservative
                                                                        basis) will further act as a positive trigger for the stock (not completely
                                                                        factored in our valuation). We maintain our Buy view on the stock with a
                                                                        target price of ` 125, valuing it at 6.0x FY2013E earnings.


44   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                     BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E              `
                                                                             Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
NET SALES                          2,807       3,469      4,392      5,119   SOURCES OF FUNDS
% CHG                                  18.6     23.6       26.6       16.6   EQUITY SHARE CAPITAL                34         34         34         34
TOTAL EXPENDITURE                  2,511       3,361      4,251      4,870
                                                                             RESERVES & SURPLUS                 594        615        575       626
EBITDA                                 296       107        141       249
                                                                             SHAREHOLDERS FUNDS                 629        649       609        661
% CHG                             1,178.1      (63.7)      31.1       76.4
                                                                             TOTAL LOANS                        654       1,019     1,319      1,369
(% OF NET SALES)                       10.5       3.1       3.2        4.9
                                                                             DEFERRED TAX LIABILITY              20         24         24         24
DEPRECIATION & AMORTIZATION             27        34         71         74
INTEREST & OTHER CHARGES                72       100        149        151   TOTAL LIABILITIES                 1,303      1,692     1,952      2,054

OTHER INCOME                            42        60         53        66    APPLICATION OF FUNDS

EXTRAORDINARY ITEMS                     (0)      (5)          -          -   GROSS BLOCK                       1,256      1,882     2,196      2,381
PBT (ADJUSTED)                         239        39       (27)        90    LESS: ACC. DEPRECIATION            487        520        592       666
TAX                                     74        11        (7)         19   NET BLOCK                          769       1,361     1,604      1,715
(% OF PBT)                             31.0     28.5       28.0       21.0
                                                                             CAPITAL WORK-IN-PROGRESS           234        123        110         71
PAT (REPORTED)                         165        22       (19)         71
                                                                             INVESTMENTS                         59         87         78         92
PAT (ADJUSTED)                         165        28       (19)         71
                                                                             CURRENT ASSETS                    1,032      1,216     1,399      1,629
% CHG                                     -    (83.3)         -          -
                                                                             CURRENT LIABILITIES                790       1,094     1,239      1,454
(% OF NET SALES)                        5.9       0.8      (0.4)       1.4
           `
BASIC EPS (`)                          48.2       6.5      (5.6)      20.8   NET CURRENT ASSETS                 241        121        160        174

              `
ADJUSTED EPS (`)                       48.3       8.0      (5.6)      20.8   MIS. EXP. NOT WRITTEN OFF             -          -         -          -

% CHG                                     -    (83.3)         -          -   TOTAL ASSETS                      1,303      1,692     1,952      2,054




 CASH FLOW STATEMENT                                                         KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E   Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                      239        39       (27)        90    VALUATION RATIO (X)

DEPRECIATION                            27        34         71         74   P/E                                 1.8       13.0         -        4.1

CHANGE IN WORKING CAPITAL          (260)         369       (40)        (8)   P/CEPS                              1.5        4.7       5.5        2.0
                                                                             P/BV                                0.5        0.4       0.5        0.4
OTHERS                                 343     (232)          -          -
                                                                             EV/SALES                            0.3        0.3       0.3        0.3
OTHER INCOME                           (42)     (60)       (53)       (66)
                                                                             EV/EBITDA                           2.5       10.9      10.5        6.1
DIRECT TAXES PAID                      (74)      (11)         7       (19)
                                                                                             `
                                                                             PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS              233       139       (41)         71
                                                                             EPS (BASIC)                        48.2        6.5      (5.6)      20.8
(INC.)/DEC. IN FIXED ASSETS        (237)       (515)      (301)      (147)   EPS (ADJUSTED)                     48.3        8.0      (5.6)      20.8
(INC.)/DEC. IN INVESTMENTS             (16)     (28)          8       (14)   CASH EPS                           55.0       18.0      15.2       42.4
OTHER INCOME                            42        60         53        66    DPS                                 4.0        2.0       5.0        5.0
CASH FLOW FROM INVESTING           (210)       (483)      (240)       (95)   BOOK VALUE                        183.6     189.6      178.0      192.9

ISSUE OF EQUITY                           -         -         -          -   RETURNS (%)

INC./(DEC.) IN LOANS                     9       365        300        50    ROCE (PRE-TAX)                     21.9        4.9       3.8        8.7
                                                                             ANGEL ROIC (PRE-TAX)               24.4        4.7       3.8        9.2
DIVIDEND PAID (INCL. TAX)                0        16         20        20
                                                                             ROE                                29.6        4.3      (3.1)       11.2
OTHERS                                 (93)    (129)          -          -
                                                                             TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING               (84)      252       280         30
                                                                             ASSET TURNOVER (GROSS BLOCK)        2.3        2.2       2.2        2.2
INC./(DEC.) IN CASH                    (61)     (92)        (0)          6
                                                                             INVENTORY / SALES (DAYS)            41         51         52         52
OPENING CASH BALANCE                   202       140         48         47   RECEIVABLES (DAYS)                  45         44         46         46
CLOSING CASH BALANCE                   140        48         47         53   PAYABLES (DAYS)                     81         96         95         94
Note: Financials on Standalone basis

January 2012                                                                        Please refer to important disclosures at the end of this report     45
     Automobile                                                                          JK Tyre and Industries
                                                                                         CMP/TP/Upside: `70 / `89 / 27%



      RATING                                                   BUY    Company Background
      52 WEEK HIGH / LOW                                  122 / 54    JK Tyre and Industries (JKI) is the third largest tyre manufacturer in the country
                  `
      MARKET CAP (` CR)                                        288    with an overall market share of 15.7%. The company operates from four
                                                                      plants in India, with a current installed capacity of 9.9mn tyres annually and
      LIQUIDITY                                                LOW
                                                                      is in the process of increasing it to 12.7mn tyres annually by FY2013. While
                                                                      80% of JKI's tonnage volume is contributed by the CV segment, the PC
                                                                      segment accounts for ~10% of the volumes. JKI acquired Tornel in Mexico
      SHAREHOLDING PATTERN (%)
                                                                      in FY2009.
      PROMOTERS                                                47.0
      FII                                                       6.1
                                                                      Structural Snapshot
                                                                      Growth opportunity: We believe the Indian tyre industry is going through a
      STOCK RETURNS
                                                                      structural shift, as radialization levels in the truck and bus radial (TBR) segment
      (%)                  3M         1Y          3Y     5Y    10Y    are expected to reach 40% over next two-three years from 16% in FY2011.
      JK TYRE              1.7 (41.9)           21.4 (14.3) 13.7      Further, expected steady growth of 8-10% in replacement demand (~65%
                                                                      of total demand) should lend a greater degree of stability to overall tyre
      BSE AUTO INDEX (2.7)          (5.9)       51.0     9.3 25.6     demand in our view. Being a first mover in the TBR space, we expect JKI to
      SENSEX             (2.6) (12.3)           21.3     3.3   17.3   benefit from the incremental demand for radial tyres.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                      Competitive position: The Indian tyre industry is extremely competitive and
                                                                      is dominated by MRF and Apollo Tyres. However, increasing radialization in
      FINANCIAL PERFORMANCE OVERVIEW                                  the TBR segment is expected to lead to higher earnings growth and margin
                                                                      improvement for the tyre industry, including players like JKI.
      (%)                 3M**           1Y       3Y     5Y    10Y
                                                                      Nature of business: Cyclical as demand for CV tyres is linked to the
      SALES GROWTH*         13.2     30.1          -    18.1   18.5
                                                                      macroeconomic environment; Low entry barriers; Sensitive to exchange rates
      PAT GROWTH*               - (70.6)           -    40.6 14.7     since the company’s net imports constitute ~10% of its net sales at a standalone
      OPM#                   2.1      4.8        6.2     7.0    7.3   level; Global rubber prices impact profitability.

      RoE#                      -        7.7     6.3     7.6    4.4
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS,
      **STANDALONE BASIS
                                                                      Current Investment Arguments
                                                                      Favorable product mix: We expect JKI to benefit from the structural shift
      ANGEL ESTIMATES                                                 that the Indian tyre industry is going through, given that currently there is a
      PARTICULARS                           FY2012E       FY2013E     shortage of radial tyres. Thus, we believe JKI will be able to fully utilize its
                                                                      existing TBR capacity (highly profitable) of 1mn units. Further, commissioning
      PAT GROWTH (%)                           (29.4)          96.4
                                                                      of additional capacities at existing plants and gradual ramp-up at the Chennai
      ROE (%)                                     5.3           9.8   plant are likely to lead to operating leverage benefits. This coupled with a
      P/E                                       114.2           3.2   stable raw-material pricing scenario (declined 21% from the peak in domestic
                                                                      markets) is expected to improve operating margins by 90bp in FY2013 to
      P/BV                                        0.3           0.3
                                                                      5.1%.
                                                                      Tornel turnaround to improve consolidated performance: Tornel, which
      BLOOMBERG CONSENSUS RECOMMENDATION                              turned profitable in FY2010 – reporting net profit of `56cr (net loss of `40cr
                                                                      in FY2009), registered a sharp drop in profitability in FY2011 to `2cr due
      BUY / HOLD / SELL                                   2/0/1
                                                                      to cost pressures. We expect profitability to improve in FY2012, led by stable
                                                                      raw-material prices, thereby improving overall consolidated performance.
                                                                      Valuations: At `70, JKI is trading at attractive valuations of 3.2x FY2013E
                                                                      earnings. We maintain our Buy rating on the stock with a target price of
                                                                      ` 89, valuing it at 4.0x FY2013E earnings.




46   January 2012                                                                          Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                     BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E              `
                                                                             Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
NET SALES                          4,571       5,945       7,011     8,167   SOURCES OF FUNDS
% CHG                              (17.2)       30.1        17.9      16.5   EQUITY SHARE CAPITAL                41         41         41        41
TOTAL EXPENDITURE                  4,069       5,661      6,716      7,751   RESERVES & SURPLUS                 809        817        796        873
EBITDA                              502          284        294        417   SHAREHOLDERS FUNDS                 850        858        837       915
% CHG                                     -    (43.4)        3.6      41.5   TOTAL LOANS                       1,159      1,614      1,914     2,214
(% OF NET SALES)                    11.0          4.8        4.2       5.1
                                                                             DEFERRED TAX LIABILITY              139       145        145        145
DEPRECIATION & AMORTIZATION          100         109        128        141
                                                                             TOTAL LIABILITIES                 2,148      2,617     2,896      3,274
INTEREST & OTHER CHARGES             119         116        163       188
                                                                             APPLICATION OF FUNDS
OTHER INCOME                          30          53         47         47
                                                                             GROSS BLOCK                       3,133      3,377     4,006      4,391
EXTRAORDINARY ITEMS                  (0)          (0)        44          -
                                                                             LESS: ACC. DEPRECIATION           1,369      1,522     1,650      1,791
PBT (ADJUSTED)                       313         112          7        135
                                                                             NET BLOCK                         1,764      1,855     2,356      2,600
TAX                                   93          49          5         44
                                                                             CAPITAL WORK-IN-PROGRESS           188        296        280       307
(% OF PBT)                          29.8        44.1       76.9       33.0
PAT (REPORTED)                      220           63          2        90    GOODWILL                              -          -         -          -

PAT (ADJUSTED)                      224           66         47        91    INVESTMENTS                         80         87         58        65

% CHG                                     -    (70.6)     (29.4)      96.4   CURRENT ASSETS                    1,520     2,066      2,016      2,402

(% OF NET SALES)                     4.9          1.1        0.7       1.1   CURRENT LIABILITIES               1,405      1,688      1,814     2,102

           `
BASIC EPS (`)                       54.5        16.1         0.6      22.2   NET CURRENT ASSETS                  115       379        201       300

              `
ADJUSTED EPS (`)                    54.5        16.1        11.3      22.2   MIS. EXP. NOT WRITTEN OFF             -          -         -          -
% CHG                                     -    (70.6)     (29.4)      96.4   TOTAL ASSETS                      2,148      2,617     2,896      3,274




 CASH FLOW STATEMENT                                                         KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E   Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                    313         112         51        135   VALUATION RATIO (X)

DEPRECIATION                         100         109        128        141   P/E                                 1.3        4.4      114.2       3.2

CHANGE IN WORKING CAPITAL            114       (230)        124       (70)   P/CEPS                              0.9        1.6        2.2       1.2
                                                                             P/BV                                0.3        0.3        0.3       0.3
OTHERS                             (209)         119           -         -
                                                                             EV/SALES                            0.3        0.3        0.3       0.3
OTHER INCOME                        (30)        (53)       (47)       (47)
                                                                             EV/EBITDA                           2.5        6.0        6.9       5.5
DIRECT TAXES PAID                   (93)        (49)         (5)      (44)
                                                                                             `
                                                                             PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS           195            8        251        114
                                                                             EPS (BASIC)                        54.5       16.1       0.6       22.2
(INC.)/ DEC. IN FIXED ASSETS       (190)       (353)      (613)      (412)   EPS (ADJUSTED)                     54.5       16.1       11.3      22.2
(INC.)/ DEC. IN INVESTMENTS          (5)         (7)         28        (7)   CASH EPS                           77.8       42.7      31.8       56.5
OTHER INCOME                          30          53         47         47   DPS                                 3.5        3.0        3.0       3.0
CASH FLOW FROM INVESTING           (164)       (306)      (538)      (372)   BOOK VALUE                        207.0     209.0      216.6      234.9

ISSUE OF EQUITY                      (5)            -          -         -   RETURNS (%)

INC./(DEC.) IN LOANS               (224)         455        300       300    ROCE (PRE-TAX)                     18.6        7.3       6.0        8.8
                                                                             ANGEL ROIC (PRE-TAX)               19.6        7.0        5.9       8.7
DIVIDEND PAID (INCL. TAX)                17       17         14         14
                                                                             ROE                                29.0        7.7        5.3       9.8
OTHERS                              221        (150)           -         -
                                                                             TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING                 9       322        286       286
                                                                             ASSET TURNOVER (GROSS BLOCK)        1.5        1.8        1.9       1.9
INC./(DEC.) IN CASH                   40          24         (2)        27   INVENTORY / SALES (DAYS)            42         42         41        41
OPENING CASH BALANCE                  51          91        115        113   RECEIVABLES (DAYS)                  47         45         43        45
CLOSING CASH BALANCE                  91         115        113        140   PAYABLES (DAYS)                     90         85         85         83
Note: Financials on Consolidated basis

January 2012                                                                        Please refer to important disclosures at the end of this report    47
     Automobile                                                                             Motherson Sumi
                                                                                            CMP/TP/Upside: `150 / `169 / 12%



      RATING                                           ACCUMULATE       Company Background
      52 WEEK HIGH / LOW                                  256 / 129     Motherson Sumi Systems (MSS), a JV between Samvardhana Motherson
                  `
      MARKET CAP (` CR)                                         5,812   Group (SMG, 36.3% stake) and Sumitomo Wiring Systems, Japan (25%
                                                                        stake), is the world’s largest supplier of rear view mirrors and India’s biggest
      LIQUIDITY                                           MEDIUM
                                                                        supplier of wiring harness. MSS is considered to be a JV specialist (24 JVs)
                                                                        and has a successful history of acquisitions, which have helped it expand
                                                                        its product portfolio, gain access to technology and evolve into a leading
      SHAREHOLDING PATTERN (%)
                                                                        global OEM supplier. MSS’s most notable acquisitions include Visiocorp
      PROMOTERS                                                  65.2   (now referred as Samvardhana Motherson Reflectec, SMR) in FY2009, a
      FII                                                        10.9   global leader in automotive rear view mirrors; and Peguform in FY2012, a
                                                                        leading supplier of door and instrument panels and cockpit assemblies. The
                                                                        company is present across 23 countries and has over 90 manufacturing
      STOCK RETURNS                                                     facilities worldwide.

      (%)                   3M         1Y        3Y       5Y     10Y
      MOTHERSON          (18.3) (13.1)          37.7     15.4 42.8      Structural Snapshot
      BSE AUTO INDEX (2.7)           (5.9)      51.0      9.3 25.6      Growth opportunity: While the near-term demand scenario of the
      SENSEX              (2.6) (12.3)          21.3      3.3    17.3   domestic PV industry remains subdued due to increasing fuel prices and interest
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  rates, we expect the domestic PV industry to post a 10-11% CAGR over
                                                                        FY2011-14E, led by structural growth drivers and the likely easing of interest rates.
                                                                        Further, buoyancy in global PV markets amid an uncertain environment indicates that
      FINANCIAL PERFORMANCE OVERVIEW                                    global PV growth is likely to be healthy going ahead. MSS, being a preferred
      (%)                    3M          1Y      3Y       5Y     10Y    supplier to OEMs globally with a presence across the value chain, is expected
                                                                        to be the key beneficiary of the rising demand for passenger cars globally.
      SALES GROWTH*         19.5      20.9      59.8     52.5 43.2
                                                                        Competitive position: MSS is a market leader with a domestic market share
      PAT GROWTH*         (71.8)      55.0      34.2     29.0 36.0
                                                                        of 65% and 53% in the wiring harness and rear view mirror segments, respectively.
      OPM#                   8.7      10.6      10.0     12.0 14.5      MSS also commands a 22% global market share in the rear view mirror
      ROE#                       -    27.7      29.0     32.8 34.9      segment for passenger cars. MSS enjoys strong pricing power, given its
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          leading position and diversified customer base.
                                                                        Nature of business: Cyclical and sensitive to interest rates; Technology
                                                                        and strong OEM presence create entry barriers.
      ANGEL ESTIMATES
      PARTICULARS                            FY2012E       FY2013E
      PAT GROWTH (%)                            (8.6)            32.3   Current Investment Arguments
      ROE (%)                                   20.2             22.7   Focus on increasing content per car to sustain leadership position: MSS's
      P/E                                       16.6             12.5   wide product portfolio, global manufacturing presence, good relationships
                                                                        with OEMs and ability to provide end-to-end solutions have enabled it to
      P/BV                                       3.1              2.6
                                                                        increase the content per car that it supplies to its customers. Further, Peguform's
                                                                        acquisition will enhance MSS's product offerings significantly and strengthen
                                                                        its position as a key tier-I supplier globally.
      BLOOMBERG CONSENSUS RECOMMENDATION
                                                                        SMR turnaround to boost performance: SMR has shown a substantial
      BUY / HOLD / SELL                                   14 / 2 / 2
                                                                        improvement in its performance since its acquisition by MSS and has bagged
                                                                        orders worth EUR800mn to be supplied over the life of the new models.
                                                                        We believe scale-up of SMR operations along with a gradual improvement
                                                                        in operating margins through cost rationalization and in-house sourcing will
                                                                        boost the overall performance of MSS.
                                                                        Valuations: At `150, MSS is trading at 12.5x its FY2013E earnings. We
                                                                        maintain Accumulate on the stock with a target price of ` 169, valuing at
                                                                        14x FY2013E earnings.


48   January 2012                                                                             Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                    BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010      FY2011   FY2012E    FY2013E               `
                                                                            Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
NET SALES                          6,924      8,371     9,800      11,119   SOURCES OF FUNDS
% CHG                              162.3       20.9       17.1      13.5    EQUITY SHARE CAPITAL                37         39         39         39
TOTAL EXPENDITURE                  6,375      7,483     8,965     10,094    RESERVES & SURPLUS                1,127      1,570     1,825      2,182
EBITDA                              549        888        835      1,024    SHAREHOLDERS FUNDS                1,165      1,609     1,864      2,221
% CHG                               93.6       61.9      (6.0)      22.7    TOTAL LOANS                        818       1,263      1,513      1,513
(% OF NET SALES)                     7.9       10.6       8.5        9.2
                                                                            DEFERRED TAX LIABILITY               4          1          1          1
DEPRECIATION & AMORTIZATION         260        246        274        307
                                                                            TOTAL LIABILITIES                 2,190      3,101     3,606      3,963
INTEREST & OTHER CHARGES             63         58         91         91
                                                                            APPLICATION OF FUNDS
OTHER INCOME                         118         47        56         62
                                                                            GROSS BLOCK                       3,182     3,821      4,571      5,118
EXTRAORDINARY ITEMS                  (5)          7         -          -
                                                                            LESS: ACC. DEPRECIATION           1,727     2,055      2,330      2,637
PBT (ADJUSTED)                      348         624       526        688
                                                                            NET BLOCK                         1,455      1,766     2,241      2,481
TAX                                 109        188        158        206
                                                                            CAPITAL WORK-IN-PROGRESS           181        460        366        409
(% OF PBT)                          31.4       30.1      30.0       30.0
PAT (REPORTED)                      234         443      368         482    GOODWILL                              -          -         -          -

PAT (ADJUSTED)                      248        384        351        464    INVESTMENTS                         47         45         54         59

% CHG                               41.4       55.0      (8.6)      32.3    CURRENT ASSETS                    2,097      2,793     3,140      3,457

(% OF NET SALES)                     3.7        4.7       3.7        4.3    CURRENT LIABILITIES               1,592      1,963     2,195      2,444

           `
BASIC EPS (`)                        6.6        9.9       9.1       12.0    NET CURRENT ASSETS                 505        830        945       1,013

              `
ADJUSTED EPS (`)                     6.4        9.9       9.1       12.0    MIS. EXP. NOT WRITTEN OFF            2           -         -           -
% CHG                               41.4       55.0      (8.6)      32.3    TOTAL ASSETS                      2,190      3,101     3,606      3,963




 CASH FLOW STATEMENT                                                        KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010      FY2011   FY2012E    FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                   348         624       526        688    VALUATION RATIO (X)

DEPRECIATION                        260        246        274        307    P/E                                22.7       15.1      16.6        12.5

CHANGE IN WORKING CAPITAL          (157)      (265)        54      (231)    P/CEPS                             11.1        9.2       9.3         7.5
                                                                            P/BV                                4.8        3.6       3.1        2.6
OTHERS                              184         49          -          -
                                                                            EV/SALES                            1.0        0.8       0.7        0.6
OTHER INCOME                       (118)       (47)      (56)       (62)
                                                                            EV/EBITDA                          12.2        7.5       8.0        6.7
DIRECT TAXES PAID                  (109)      (188)     (158)      (206)
                                                                                            `
                                                                            PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS           408        419        640        496
                                                                            EPS (BASIC)                         6.6        9.9       9.1        12.0
(INC.)/DEC. IN FIXED ASSETS        (239)      (918)     (655)      (591)    EPS (ADJUSTED)                      6.4        9.9       9.1        12.0
(INC.)/DEC. IN INVESTMENTS               8       2        (9)        (5)    CASH EPS                           13.6       16.3      16.1       19.9
OTHER INCOME                         118         47        56         62    DPS                                 1.8        2.8       2.5         2.8
CASH FLOW FROM INVESTING           (114)      (870)     (608)      (534)    BOOK VALUE                         31.0       41.3       47.8       57.1

ISSUE OF EQUITY                          2        1         -          -    RETURNS (%)

INC./(DEC.) IN LOANS                (77)       446       250           -    ROCE (PRE-TAX)                     14.1       24.3      16.7       18.9
                                                                            ANGEL ROIC (PRE-TAX)               15.6       23.5      18.3       20.0
DIVIDEND PAID (INCL. TAX)            57         80        113        125
                                                                            ROE                                25.4       27.7      20.2       22.7
OTHERS                             (209)       (62)         -          -
                                                                            TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING           (228)       465        137      (125)
                                                                            ASSET TURNOVER (GROSS BLOCK)        2.3        2.4       2.3         2.3
INC./(DEC.) IN CASH                  67          15       169      (164)
                                                                            INVENTORY / SALES (DAYS)            35         38         40         40
OPENING CASH BALANCE                277         343      356         525    RECEIVABLES (DAYS)                  38         38         39         41
CLOSING CASH BALANCE                343        356        525        362    PAYABLES (DAYS)                     69         66         68         68
Note: Financials on Consolidated basis

January 2012                                                                       Please refer to important disclosures at the end of this report     49
     Automobile                                                                           Bharat Forge
                                                                                          CMP/TP/Upside: `277 / `299 / 8%



      RATING                                          ACCUMULATE       Company Background
      52 WEEK HIGH / LOW                                 371 / 231     Bharat Forge (BHFC), a global forging conglomerate, is the largest exporter
                  `
      MARKET CAP (` CR)                                        6,457   of automotive components from India and a leading chassis component
                                                                       manufacturer in the world. The company manufactures a wide range of safety
      LIQUIDITY                                          MEDIUM
                                                                       and critical components for passenger cars, SUVs, LCVs, MHCVs and tractors
                                                                       through its facilities spread across 11 locations globally - India (4), Germany
                                                                       (3), China (2), U.S. (1) and Sweden (1). BHFC also produces forged and
      SHAREHOLDING PATTERN (%)
                                                                       machined components for non-automotive industries, such as power generation,
      PROMOTERS                                                 42.1   marine, oil and gas, railways and construction. The automotive industry currently
      FII                                                        8.2   contributes ~75% to the company's consolidated revenue, although through
                                                                       diversification BHFC expects the share of the automotive industry's revenue
                                                                       to fall to 55% by FY2013.
      STOCK RETURNS
      (%)                  3M         1Y        3Y       5Y     10Y
                                                                       Structural Snapshot
      BHARAT FORGE       (3.9) (19.7)          49.7     (5.5) 28.0
                                                                       Growth opportunity: We expect the domestic CV industry to witness a
      BSE AUTO INDEX (2.7)          (5.9)      51.0      9.3 25.6      14.5% CAGR over FY2011-13E, which augurs well for BHFC as it is a
      SENSEX             (2.6) (12.3)          21.3      3.3    17.3   leading player in the domestic CV forging industry and nearly 55% of domestic
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                 revenue is derived from the segment. Further, the expected pick-up in CV
                                                                       demand in the U.S. and European markets will boost the performance of
                                                                       overseas subsidiaries going ahead.
      FINANCIAL PERFORMANCE OVERVIEW
                                                                       Competitive position: BHFC is a market leader in the domestic automotive
      (%)                 3M**           1Y     3Y       5Y     10Y    forging market and enjoys ~90% market share in the domestic CV forging
      SALES GROWTH*         26.6     52.2       2.8     11.0 26.7      space.
      PAT GROWTH*           56.1          -   (1.2)      3.2 24.5      Nature of business: Cyclical and sensitive to interest rates; Low entry barriers.
      OPM#                  23.7     13.8       9.2     11.3    16.5
      ROE#                      -    17.0       5.3     10.6 24.5
                                                                       Current Investment Arguments
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS,
      **STANDALONE BASIS                                               Thrust on non-auto business to diversify product portfolio:
                                                                       BHFC intends to increase its non-automotive revenue to 40% (25% of
      ANGEL ESTIMATES                                                  consolidated revenue in FY2011) by FY2012E. To achieve this goal, BHFC
      PARTICULARS                           FY2012E       FY2013E      has set up an 80MT hammer (40,000 TPA capacity) and a ring rolling (25,000
                                                                       TPA capacity) facility in Baramati in addition to the existing 60,000 TPA
      PAT GROWTH (%)                           46.0             10.6
                                                                       non-auto facility in Mundhwa. We expect BHFC to benefit from new investments
      ROE (%)                                  19.9             18.7   by various players in the power, oil and gas and capital goods sectors, leading
      P/E                                      15.3             13.8   to strong demand for non-automotive forgings.

      P/BV                                      2.8              2.4   Improvement in overseas subsidiaries and JVs to boost consolidated
                                                                       performance: BHFC's international operations posted losses (pre-tax) in
                                                                       FY2010 due to a decline in demand and high operational costs. However,
      BLOOMBERG CONSENSUS RECOMMENDATION                               strong turnaround in Chinese JV (FAW-BF) and other subsidiaries due to
                                                                       restructuring and operational efficiencies led to improved performance and
      BUY / HOLD / SELL                                   16 / 2 / 6
                                                                       returned to profitability in FY2011. We expect international subsidiaries to
                                                                       sustain their growth momentum due to buoyant truck demand in the U.S.
                                                                       and Europe and increasing contribution from industrial forgings and improving
                                                                       utilization levels (currently 50-55%).
                                                                       Valuations: At `277, the stock is trading at 13.8x FY2013E earnings.
                                                                       We maintain our Accumulate rating on the stock with a target price of
                                                                       ` 299, valuing it at 15x FY2013E earnings.



50   January 2012                                                                           Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                    BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E   FY2013E              `
                                                                            Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
NET SALES                          3,286       4,999      6,022     6,793   SOURCES OF FUNDS
% CHG                             (30.3)        52.2       20.5      12.8   EQUITY SHARE CAPITAL                 45        47         47         47
TOTAL EXPENDITURE                  3,081       4,310      5,071     5,740   RESERVES & SURPLUS                1,418      1,906     2,261      2,662
EBITDA                              204         689        951      1,053   SHAREHOLDERS FUNDS                1,463      1,953     2,308      2,708
% CHG                             (43.2)       237.2       38.1      10.7   TOTAL LOANS                       2,253      1,895     1,595      1,595
(% OF NET SALES)                     6.2        13.8       15.8      15.5
                                                                            DEFERRED TAX LIABILITY               84       132        132        132
DEPRECIATION & AMORTIZATION         245         255        289        313
                                                                            TOTAL LIABILITIES                 3,878      4,134     4,189      4,590
INTEREST & OTHER CHARGES             130         153        127       136
                                                                            APPLICATION OF FUNDS
OTHER INCOME                         106         155        116       116
                                                                            GROSS BLOCK                       4,135     4,501      4,818      5,050
EXTRAORDINARY ITEMS                 (17)         (1)          -         -
                                                                            LESS: ACC. DEPRECIATION           1,727     2,038      2,327      2,640
PBT (ADJUSTED)                      (48)         438       651       720
                                                                            NET BLOCK                         2,408     2,463      2,490      2,410
TAX                                      12      140       215       238
                                                                            CAPITAL WORK-IN-PROGRESS            199       307       241        253
(% OF PBT)                        (24.5)        31.9       33.0      33.0
PAT (REPORTED)                      (59)        298        436       483    GOODWILL                              -          -         -          -

PAT (ADJUSTED)                      (63)        290         423      468    INVESTMENTS                         274       367       398         444

% CHG                                     -        -       46.0      10.6   CURRENT ASSETS                    2,417      2,764     3,234      3,895

(% OF NET SALES)                    (1.9)        5.8        7.0       6.9   CURRENT LIABILITIES               1,419      1,807     2,216      2,453

           `
BASIC EPS (`)                      (2.1)        12.5       18.2      20.1   NET CURRENT ASSETS                 998        957      1,019      1,442
              `
ADJUSTED EPS (`)                   (2.8)        12.5       18.2      20.1   MIS. EXP. NOT WRITTEN OFF             -        41         41        41
% CHG                                     -        -       46.0      10.6   TOTAL ASSETS                      3,878      4,134     4,189      4,590




 CASH FLOW STATEMENT                                                        KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E   FY2013E   Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                   (48)         438       651       720    VALUATION RATIO (X)

DEPRECIATION                        245         255        289        313   P/E                               (97.6)      22.2      15.3       13.8

CHANGE IN WORKING CAPITAL            274      (1,148)       98       (67)   P/CEPS                             31.1       11.8       9.1        8.3
                                                                            P/BV                                4.2        3.3       2.8        2.4
OTHERS                              189        1,091          -         -
                                                                            EV/SALES                            2.3        1.5        1.2       1.0
OTHER INCOME                       (106)       (155)      (116)     (116)
                                                                            EV/EBITDA                          38.4       11.1        7.6       6.4
DIRECT TAXES PAID                   (12)       (140)      (215)     (238)
                                                                                            `
                                                                            PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS           542          341       708        613
                                                                            EPS (BASIC)                        (2.8)      12.5      18.2       20.1
(INC.)/DEC. IN FIXED ASSETS           16       (475)      (251)     (244)   EPS (ADJUSTED)                     (2.8)      12.5      18.2       20.1
(INC.)/DEC. IN INVESTMENTS         (273)        (93)       (31)      (46)   CASH EPS                            8.9       23.5      30.6       33.5
OTHER INCOME                         106         155        116       116   DPS                                  1.0       3.5       3.0        3.0
CASH FLOW FROM INVESTING           (151)       (412)      (166)     (174)   BOOK VALUE                         65.7       83.9      99.1      116.3

ISSUE OF EQUITY                      100       (267)          -         -   RETURNS (%)

INC./(DEC.) IN LOANS                  62       (358)      (300)         -   ROCE (PRE-TAX)                     (1.0)      10.8      15.9       16.9
                                                                            ANGEL ROIC (PRE-TAX)               (1.2)      11.4       17.8      19.7
DIVIDEND PAID (INCL. TAX)             26          27         82        82
                                                                            ROE                                (4.1)      17.0      19.9       18.7
OTHERS                             (470)         382          -         -
                                                                            TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING           (282)       (215)      (382)      (82)
                                                                            ASSET TURNOVER (GROSS BLOCK)        0.8        1.2        1.3       1.4
INC./(DEC.) IN CASH                 109        (287)       160       357    INVENTORY / SALES (DAYS)             80        54         54        55
OPENING CASH BALANCE                488         598         311       471   RECEIVABLES (DAYS)                   58        46         47         47
CLOSING CASH BALANCE                598          311        471      828    PAYABLES (DAYS)                     124        98         97         97
Note: Financials on Consolidated basis

January 2012                                                                       Please refer to important disclosures at the end of this report    51
     Automobile                                                                            FAG Bearings
                                                                                           CMP/TP/Upside: `1,141 / `1,359 / 19%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                1,435 / 752     FAG Bearings (FAG), a group company of Germany-based Schaeffler Group,
                  `
      MARKET CAP (` CR)                                        1,896    is one of the leading suppliers of ball bearings with ~14% domestic market
                                                                        share. FAG manufactures ball bearings, cylindrical bearings, spherical bearings
      LIQUIDITY                                                LOW
                                                                        and tapered roller bearings through its plant located in Vadodra, Gujarat.
                                                                        The company is a market leader in the spherical bearing space, with a ~55%
                                                                        market share. FAG also imports specialized and heavy-size bearings from
      SHAREHOLDING PATTERN (%)
                                                                        its global associates to meet the requirements of the domestic industrial
      PROMOTERS (MNC)                                            51.3   segment. As a result, trading portfolio constitutes 34% to its net sales. FAG
      FII                                                        13.8   caters to leading domestic OEM players as well as the replacement market.
                                                                        In the industrial segment, the company supplies to the automotive, construction
                                                                        machinery, steelworks, power transmission engineering, material handling
      STOCK RETURNS                                                     engineering, wind power plants and railways segments.

      (%)                   3M          1Y        3Y     5Y      10Y
      FAG BEARINGS        (8.8)       38.3       68.7   11.0 36.2       Structural Snapshot
      BSE AUTO INDEX (2.7)            (5.9)      51.0    9.3 25.6       Growth opportunity: We expect the primary drivers of the bearings industry
      SENSEX              (2.6) (12.3)           21.3    3.3     17.3   i.e., auto and industrial segment to post a steady performance going ahead.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  While the auto sector is expected to grow at a healthy rate, driven by structural
                                                                        growth drivers, expectations of ~8% growth in the Indian economy over the
                                                                        medium term will lead to healthy demand from the industrial sector, driven
      FINANCIAL PERFORMANCE OVERVIEW                                    by demand from capital goods and infrastructure companies. As such, demand
      (%)                    3M          1Y       3Y     5Y      10Y    for bearings is expected to grow at a steady rate, aiding FAG to register a
                                                                        CAGR of 18.8% in net sales over CY2010-12E.
      SALES GROWTH*         22.5       27.7      17.1   20.7     17.7
                                                                        Competitive position: Although 8-10 players operate in the domestic bearings
      PAT GROWTH*           44.4       85.5      15.2   20.5 25.2
                                                                        industry, competitive intensity is slightly muted as each player dominates
      OPM#                  19.8       17.8      17.6   19.3     18.3   different segments of the bearing industry. FAG has a strong presence with
      ROE#                        -    23.5      22.4   25.9 24.2       a ~55% market share in the spherical bearings space.
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          Nature of business: Cyclical as demand for bearings is correlated with IIP
                                                                        data and PV sales; access to high-end technology creates entry barriers.
                                                                        Cheaper imports from China and counterfeit products pose a threat in the
      ANGEL ESTIMATES
                                                                        after-market segment. Sensitive to exchange rates (EUR/INR), since the
      PARTICULARS                             CY2011E     CY2012E       company’s net imports constitute ~21% of its net sales.
      PAT GROWTH (%)                             41.6             9.4
      ROE (%)                                    26.3            22.9
                                                                        Current Investment Arguments
      P/E                                        11.0            10.1
                                                                        Strong fundamentals: FAG's net asset turnover remains high (~7x in CY2010)
      P/BV                                        2.6             2.1
                                                                        due to largely depreciated assets. Additionally, sound business model,
                                                                        debt-free status and low capital expenditure enable FAG to generate strong
                                                                        cash flows and record consistent RoCE of ~30%.
      BLOOMBERG CONSENSUS RECOMMENDATION
                                                                        Attractive valuations: We have a positive view on FAG, considering its strong
      BUY / HOLD / SELL                                    4/0/0
                                                                        parentage, debt-free status and cash balance worth `180/share on books.
                                                                        At `1,141, the stock is trading at attractive valuations of 10.1x CY2012E
                                                                        earnings. We maintain our Buy view on the stock with a
                                                                        target price of ` 1,359.




52   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                     BALANCE SHEET
         `
Y/E DEC (` CR)                   CY2009       CY2010    CY2011E   CY2012E             `
                                                                             Y/E DEC (` CR)                  CY2009     CY2010    CY2011E    CY2012E
NET SALES                              820     1,047      1,272     1,478    SOURCES OF FUNDS
% CHG                                   7.6     27.7       21.5      16.2    EQUITY SHARE CAPITAL                 17         17        17         17
TOTAL EXPENDITURE                      709      861       1,019     1,200    RESERVES & SURPLUS                 445        557        717        894
EBITDA                                  111      186        253       278    SHAREHOLDERS FUNDS                 462        573        734        910
% CHG                              (31.4)       67.0       36.1       9.7    TOTAL LOANS                           -          -         -           -
(% OF NET SALES)                       13.6      17.8      19.9      18.8
                                                                             DEFERRED TAX LIABILITY               5          3          3          3
DEPRECIATION & AMORTIZATION             20        20         22        23
                                                                             TOTAL LIABILITIES                  466        576        737        913
INTEREST & OTHER CHARGES                 1         1          2         2
                                                                             APPLICATION OF FUNDS
OTHER INCOME                             9        17         27        28
                                                                             GROSS BLOCK                         413       419       451         475
EXTRAORDINARY ITEMS                     (8)      (2)          -         -
                                                                             LESS: ACC. DEPRECIATION            272        278        300        322
PBT (ADJUSTED)                         107       183        257       281
                                                                             NET BLOCK                           142       141        152        153
TAX                                     34        60        85         93
                                                                             CAPITAL WORK-IN-PROGRESS             7          9          9         10
(% OF PBT)                             31.8     32.9       33.0      33.0
PAT (REPORTED)                          73       123        172       188    GOODWILL                              -          -         -           -

PAT (ADJUSTED)                          66       122        172       188    INVESTMENTS                         0.3        0.3       0.5         0.6

% CHG                              (31.6)       85.5       41.6       9.4    CURRENT ASSETS                     461        628        797       1,013

(% OF NET SALES)                        8.0      11.6      13.5      12.7    CURRENT LIABILITIES                 143       201        221        263

           `
BASIC EPS (`)                          39.4     73.1      103.5      113.3   NET CURRENT ASSETS                  317       426        576        750
              `
ADJUSTED EPS (`)                       39.4     73.1      103.5      113.3   MIS. EXP. NOT WRITTEN OFF             -          -         -           -
% CHG                              (31.6)       85.5       41.6       9.4    TOTAL ASSETS                       466        576        737        913




 CASH FLOW STATEMENT                                                         KEY RATIOS
         `
Y/E DEC (` CR)                   CY2009       CY2010    CY2011E   CY2012E    Y/E DEC                         CY2009     CY2010    CY2011E    CY2012E
PROFIT BEFORE TAX                      107       183        257       281    VALUATION RATIO (X)

DEPRECIATION                            20        20         22        23    P/E                                28.9       15.6       11.0       10.1

CHANGE IN WORKING CAPITAL               43      (24)       (34)      (28)    P/CEPS                             20.4       13.2       9.8        9.0
                                                                             P/BV                                4.1        3.3       2.6        2.1
OTHERS                                  36        30          -         -
                                                                             EV/SALES                            2.0        1.4        1.1        0.9
OTHER INCOME                            (9)     (17)       (27)      (28)
                                                                             EV/EBITDA                          15.5        8.6       5.9         4.8
DIRECT TAXES PAID                      (34)     (60)       (85)      (93)
                                                                                             `
                                                                             PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS              163       132        133       155
                                                                             EPS (BASIC)                        39.4       73.1     103.5       113.3
(INC.)/DEC. IN FIXED ASSETS             (5)      (8)       (33)      (24)    EPS (ADJUSTED)                     39.4       73.1     103.5       113.3
(INC.)/DEC. IN INVESTMENTS               0         0        (0)       (0)    CASH EPS                           56.0       86.1     116.5       127.0
OTHER INCOME                             9        17         27        28    DPS                                 4.5        5.0       6.0         6.0
CASH FLOW FROM INVESTING                 4         9        (6)         3    BOOK VALUE                        276.4      343.7     440.2      546.4

ISSUE OF EQUITY                           -        -          -         -    RETURNS (%)

INC./(DEC.) IN LOANS                      -        -          -         -    ROCE (PRE-TAX)                     20.8       31.8      35.3       30.9
                                                                             ANGEL ROIC (PRE-TAX)               31.4       58.0      69.9       70.6
DIVIDEND PAID (INCL. TAX)                9        10         12        12
                                                                             ROE                                15.1       23.5      26.3       22.9
OTHERS                                 (67)     (36)          -         -
                                                                             TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING               (58)     (26)       (12)      (12)
                                                                             ASSET TURNOVER (GROSS BLOCK)        2.0        2.5       2.9         3.2
INC./(DEC.) IN CASH                    109       115        115       147
                                                                             INVENTORY / SALES (DAYS)            58         40         40         41
OPENING CASH BALANCE                    64       173       288        403    RECEIVABLES (DAYS)                  50         42         43         44
CLOSING CASH BALANCE                   173      288         403       550    PAYABLES (DAYS)                     53         53         54         54
Note: Financials on Standalone basis

January 2012                                                                        Please refer to important disclosures at the end of this report     53
     Automobile                                                                             Automotive Axles
                                                                                            CMP/TP/Upside: `428 / - / -



      RATING                                             NEUTRAL        Company Background
      52 WEEK HIGH / LOW                                 471 / 320      Automotive Axles (ATXL), a JV between Kalyani Group and Meritor Heavy
                  `
      MARKET CAP (` CR)                                          647    Vehicle Systems, USA (35.5% stake each), is one of India's largest independent
                                                                        manufacturers of rear drive axle assemblies. ATXL's product portfolio includes
      LIQUIDITY                                                LOW
                                                                        a wide range of rear drive axles and air brakes, which are used in commercial
                                                                        vehicles. In SY2011, ATXL also forayed into the automotive brakes business
                                                                        by acquiring a brake manufacturing facility from Kalyani Global Engineering
      SHAREHOLDING PATTERN (%)
                                                                        for `14.6cr; it currently forms ~17% of ATXL's total revenue. The company
      PROMOTERS                                                  71.0   exports to the U.S., France, Italy, China, Australia and Brazil. Exports account
      FII                                                         0.2   for 6% of the company's total revenue. ATXL's domestic clients include
                                                                        Ashok Leyland (~55% of revenue), Tata Motors (~25% of revenue), Eicher
                                                                        Motors, Asia Motor Works and Indian army, amongst others.
      STOCK RETURNS
      (%)                   3M          1Y        3Y     5Y      10Y
                                                                        Structural Snapshot
      ATXL                  9.5        9.8       65.4   (6.9) 20.6
                                                                        Growth opportunity: We expect MHCV volumes to witness a healthy CAGR
      BSE AUTO INDEX (2.7)            (5.9)      51.0    9.3 25.6       of 10% over FY2011-13E, with the likely easing of interest rates coupled
      SENSEX              (2.6) (12.3)           21.3    3.3     17.3   with a stable freight rate environment, increasing infrastructure spending by
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  the government and easy availability of finance. As ATXL derives ~95% of
                                                                        its revenue from the MHCV segment, it is likely to be one of the major beneficiaries.
                                                                        We expect the company to report a 12-13% volume CAGR, leading to a
      FINANCIAL PERFORMANCE OVERVIEW                                    15-16% revenue CAGR over the same period.
      (%)                    3M          1Y       3Y     5Y      10Y    Competitive position: The independent rear axle assembly market is dominated
      SALES GROWTH*         63.0       51.2      10.6    17.1 21.7      by three players - ATXL, Axles India (JV between Wheels India and Dana
                                                                        Corp., USA) and HV Axles (subsidiary of Tata Motors). ATXL is the market
      PAT GROWTH*          102.1       30.6       1.1    5.9     18.4
                                                                        leader in this segment.
      OPM#                  12.7       11.3      12.1   13.3     15.1
                                                                        Nature of business: Cyclical in nature, as demand for CV is linked to economic
      ROE#                        -    25.7      18.2   28.2 36.0       growth.
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS


      ANGEL ESTIMATES                                                   Current Investment Arguments
      PARTICULARS                             SY2012E     SY2013E       Improvement in utilization levels to help maintain operating margins:
                                                                        The increase in volume off-take will aid in higher utilization levels, which will
      PAT GROWTH (%)                             28.2            13.7
                                                                        help ATXL offset the impact of increased raw-material prices to a certain
      ROE (%)                                    27.6            26.2   extent. We expect operating margins to remain at 11-12% over SY2012E
      P/E                                         8.8             7.7   and SY2013E, leading to a 17.3% CAGR in its bottom line.

      P/BV                                        2.2             1.9   Valuations: At `428, ATXL is fairly valued at 7.7x SY2013E earnings.
                                                                        We recommend a Neutral rating on the stock.

      BLOOMBERG CONSENSUS RECOMMENDATION
      BUY / HOLD / SELL                                    3/2/0




54   January 2012                                                                             Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                     BALANCE SHEET
           `
Y/E SEPT. (` CR)                 SY2010       SY2011    SY2012E   SY2013E               `
                                                                             Y/E SEPT. (` CR)                SY2010     SY2011    SY2012E   SY2013E
NET SALES                              668      1,010     1,203      1,374   SOURCES OF FUNDS
% CHG                              150.8         51.2      19.2       14.2   EQUITY SHARE CAPITAL                15         15         15        15
TOTAL EXPENDITURE                      581       896      1,059      1,213   RESERVES & SURPLUS                 189        229        276       333
EBITDA                                  87       114        144       161    SHAREHOLDERS FUNDS                 204        244       291        348
% CHG                              171.1        31.8       26.6       11.3   TOTAL LOANS                         71         62         72        64
(% OF NET SALES)                       13.0      11.3      12.0       11.7
                                                                             DEFERRED TAX LIABILITY               14        12         12        12
DEPRECIATION & AMORTIZATION             21        23        26         28
                                                                             TOTAL LIABILITIES                  288        318        375       424
INTEREST & OTHER CHARGES                 4         7          9         8
                                                                             APPLICATION OF FUNDS
OTHER INCOME                             4         3          1         1
                                                                             GROSS BLOCK                        281        317        354       384
EXTRAORDINARY ITEMS                       -        -          -         -
                                                                             LESS: ACC. DEPRECIATION             149       171        197       226
PBT (ADJUSTED)                          66        87        111       126
                                                                             NET BLOCK                           133       146        156       158
TAX                                     22        30         37        42
                                                                             CAPITAL WORK-IN-PROGRESS             8         10         11        12
(% OF PBT)                             33.1     33.9       33.3      33.3
PAT (REPORTED)                          44        58         74        84    GOODWILL                              -          -         -          -

PAT (ADJUSTED)                          44        58         74        84    INVESTMENTS                           -          -         -          -

% CHG                              356.2        30.6       28.2       13.7   CURRENT ASSETS                     234        335       361        467

(% OF NET SALES)                        6.6       5.7       6.1       6.1    CURRENT LIABILITIES                 87        174        153       213

           `
BASIC EPS (`)                          29.1     38.1       48.8      55.5    NET CURRENT ASSETS                  147       161       208        255

              `
ADJUSTED EPS (`)                       29.2     38.1       48.8      55.5    MIS. EXP. NOT WRITTEN OFF             -          -         -          -
% CHG                              356.2        30.6       28.2       13.7   TOTAL ASSETS                       288        318        375       424




 CASH FLOW STATEMENT                                                         KEY RATIOS
           `
Y/E SEPT. (` CR)                 SY2010       SY2011    SY2012E   SY2013E    Y/E SEPT.                       SY2010     SY2011    SY2012E   SY2013E
PROFIT BEFORE TAX                       66        87        111       126    VALUATION RATIO (X)

DEPRECIATION                            21        23        26         28    P/E                                14.7       11.2       8.8        7.7

CHANGE IN WORKING CAPITAL              (70)      (11)      (40)         7    P/CEPS                             10.0        8.0       6.5        5.8
                                                                             P/BV                                3.2        2.7       2.2        1.9
OTHERS                                    -        5          -         -
                                                                             EV/SALES                            1.1        0.7       0.6        0.5
OTHER INCOME                            (4)       (3)       (1)       (1)
                                                                             EV/EBITDA                           8.2        6.1       4.9        4.0
DIRECT TAXES PAID                      (22)     (30)       (37)      (42)
                                                                                             `
                                                                             PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS               (8)       72        59        119
                                                                             EPS (BASIC)                        29.1      38.1       48.8      55.5
(INC.)/DEC. IN FIXED ASSETS             (7)     (38)       (37)      (31)    EPS (ADJUSTED)                     29.2      38.1       48.8      55.5
(INC.)/DEC. IN INVESTMENTS                -        -          -         -    CASH EPS                           43.0       53.6      66.2       74.3
OTHERS                                   4         3          1         1    DPS                                 8.5       10.0      15.0       15.0
CASH FLOW FROM INVESTING                (3)     (35)       (36)      (30)    BOOK VALUE                        134.9      161.4     192.7     230.6

ISSUE OF EQUITY                           -        -          -         -    RETURNS (%)

INC./(DEC.) IN LOANS                    25       (9)         10       (8)    ROCE (PRE-TAX)                     25.1      29.9       34.1       33.1
                                                                             ANGEL ROIC (PRE-TAX)               23.5      29.6       33.1       37.6
DIVIDEND PAID (INCL. TAX)               15        18         27        27
                                                                             ROE                                23.3      25.7       27.6      26.2
OTHERS                                 (29)     (43)          -         -
                                                                             TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING                 11     (35)       (17)      (35)
                                                                             ASSET TURNOVER (GROSS BLOCK)        2.4        3.4       3.6        3.7
INC./(DEC.) IN CASH                      0         2          7        54
                                                                             INVENTORY / SALES (DAYS)            41         36        39         40
OPENING CASH BALANCE                     9         9         11        18    RECEIVABLES (DAYS)                  52         57        58         58
CLOSING CASH BALANCE                     9        11         18        72    PAYABLES (DAYS)                     33         38        40         39
Note: Financials on Standalone basis

January 2012                                                                        Please refer to important disclosures at the end of this report    55
     Automobile                                                                            Subros
                                                                                           CMP/TP/Upside: `24 / - / -



      RATING                                             NEUTRAL        Company Background
      52 WEEK HIGH / LOW                                   44 / 21      Subros (SUBR) was established in 1985 as a JV between Suri Group (40%
                  `
      MARKET CAP (` CR)                                          145    stake), Denso Corporation (technology partner, 13% stake) and Suzuki Motor
                                                                        Corporation (13% stake). The company is India's leading manufacturer of
      LIQUIDITY                                                LOW
                                                                        AC systems, with a market share of ~40%. SUBR operates from four
                                                                        manufacturing facilities in India (Noida, Manesar, Pune and Sanand) and
                                                                        has an annual capacity of 1.2mn AC kits. MSIL, TTMT and M&M are the
      SHAREHOLDING PATTERN (%)
                                                                        major customers of the company, accounting for ~70%, ~16% and ~8% of
      PROMOTERS                                                  40.0   its total revenue, respectively.
      FII                                                         0.7

                                                                        Structural Snapshot
      STOCK RETURNS
                                                                        Growth opportunity: While the near-term demand scenario of the domestic
      (%)                   3M         1Y         3Y     5Y      10Y    PV industry remains subdued due to higher fuel prices and interest rates,
      SUBROS             (10.2) (38.7)          12.6 (14.0) 26.5        we expect the PV industry to register an 8-10% CAGR over FY2011-13E,
                                                                        led by structural growth drivers and the likely easing of interest rates. With
      BSE AUTO INDEX (2.7)           (5.9)      51.0     9.3 25.6       an eye on future growth opportunity, SUBR is expanding its capacity and
      SENSEX              (2.6) (12.3)          21.3     3.3     17.3   expects to leverage upon its dominant position in the industry.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                        Competitive position: SUBR has been able to maintain its formidable position
                                                                        in the automotive AC systems segment (~40% share), led by upgrading
      FINANCIAL PERFORMANCE OVERVIEW                                    technology and strong customer focus.

      (%)                    3M          1Y       3Y     5Y      10Y    Nature of business: Cyclical, as demand for PV is dependent upon the
                                                                        level of interest rates; Sensitive to exchange rates (JPY/INR), since the company’s
      SALES GROWTH* (24.0)            20.3      18.0    14.0     10.9
                                                                        net imports constitute ~45% of its net sales; Technology and OEM presence
      PAT GROWTH*         (35.9)       1.6       1.1     4.0 26.4       create entry barriers.
      OPM#                    7.9      8.1       9.1    10.3      9.4
      ROE#                       -    13.1      11.8    14.6 14.5
                                                                        Current Investment Arguments
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        Volume growth dependent upon growth in the PV industry: The PV industry
                                                                        is witnessing a slowdown in volume growth, as consumer sentiment remains
      ANGEL ESTIMATES                                                   weak due to macroeconomic concerns such as rising interest rates, high
      PARTICULARS                            FY2012E      FY2013E       inflation and fuel price hikes. Given the company's dependence on the PV
                                                                        segment, we expect volume growth to remain under pressure and report flat
      PAT GROWTH (%)                           (31.0)            24.0
                                                                        growth in FY2012 and FY2013.
      ROE (%)                                     8.3            10.0
                                                                        Sustain leadership position with capacity expansion: SUBR plans to expand
      P/E                                         7.4             6.0   its capacity to 1.5mn units per year in the first phase (FY2012E) and further
      P/BV                                        0.6             0.6   to ~2mn units per year in the next two-three years. The company is also
                                                                        setting up a new 50,000/year capacity in Chennai, targeting CV makers.
                                                                        We expect the capacity expansion initiative to assure supply to the increasing
      BLOOMBERG CONSENSUS RECOMMENDATION                                needs of its OE customers, thereby helping SUBR to maintain its market
                                                                        share.
      BUY / HOLD / SELL                                   3/1/0
                                                                        Valuations: At `24, SUBR is trading at 6x FY2013E earnings. We maintain
                                                                        our Neutral rating on the stock.




56   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                     BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E              `
                                                                             Y/E MARCH (` CR)                FY2010     FY2011    FY2012E   FY2013E
NET SALES                              905     1,089      1,016      1,166   SOURCES OF FUNDS
% CHG                                  30.4     20.3       (6.7)      14.7   EQUITY SHARE CAPITAL                 12        12         12        12
TOTAL EXPENDITURE                      813     1,001        928      1,067   RESERVES & SURPLUS                 195        218       230        236
EBITDA                                  93        88         88        99    SHAREHOLDERS FUNDS                 207        230        242       248
% CHG                                  46.9     (5.3)       0.5       12.1   TOTAL LOANS                        154        218       292        292
(% OF NET SALES)                       10.3      8.1        8.7        8.5
                                                                             DEFERRED TAX LIABILITY               11        15         15        15
DEPRECIATION & AMORTIZATION             38        41         43        49
                                                                             TOTAL LIABILITIES                  372        463       548        554
INTEREST & OTHER CHARGES                16        18         25        25
                                                                             APPLICATION OF FUNDS
OTHER INCOME                             1         2          3          4
                                                                             GROSS BLOCK                        483        548       667        721
EXTRAORDINARY ITEMS                       -      (1)          -          -
                                                                             LESS: ACC. DEPRECIATION            256        281        324       373
PBT (ADJUSTED)                          40        33         23        29
                                                                             NET BLOCK                          227        267        343       348
TAX                                      11        3          3          4
                                                                             CAPITAL WORK-IN-PROGRESS            69        115         53        58
(% OF PBT)                             28.9     10.5       15.0       15.0
PAT (REPORTED)                          28        30         20         24   GOODWILL                              -         -          -          -

PAT (ADJUSTED)                          28        29         20         24   INVESTMENTS                          0          2          3         3

% CHG                              109.5          1.6     (31.0)      24.0   CURRENT ASSETS                     193        269        271       330

(% OF NET SALES)                        3.1      2.6         1.9       2.1   CURRENT LIABILITIES                 117       190        121       184

           `
BASIC EPS (`)                           4.7      4.9        3.3        4.1   NET CURRENT ASSETS                  76         79        149       146

              `
ADJUSTED EPS (`)                        4.7      4.8        3.3        4.1   MIS. EXP. NOT WRITTEN OFF             -         -          -          -
% CHG                              109.5          1.6     (31.0)      24.0   TOTAL ASSETS                       372        463       548        554




 CASH FLOW STATEMENT                                                         KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E   Y/E MARCH                       FY2010     FY2011    FY2012E   FY2013E
PROFIT BEFORE TAX                       40        33         23        29    VALUATION RATIO (X)

DEPRECIATION                            38        41         43        49    P/E                                 5.2        4.9       7.4        6.0

CHANGE IN WORKING CAPITAL                3      (28)       (50)         22   P/CEPS                              2.2        2.1       2.3        2.0
                                                                             P/BV                                0.7        0.6       0.6        0.6
OTHERS                                  10         5          -          -
                                                                             EV/SALES                            0.3        0.3       0.4        0.3
OTHER INCOME                            (1)      (2)        (3)        (4)
                                                                             EV/EBITDA                           3.1        3.9       4.5        3.8
DIRECT TAXES PAID                      (11)      (3)        (3)        (4)
                                                                                             `
                                                                             PER SHARE DATA (`)
CASH FLOW FROM OPERATIONS               79        45         11         92
                                                                             EPS (BASIC)                         4.7        4.9       3.3        4.1
(INC.)/ DEC. IN FIXED ASSETS            77       111       (58)       (59)   EPS (ADJUSTED)                      4.7        4.8       3.3        4.1
(INC.)/ DEC. IN INVESTMENTS              0         2        (1)        (0)   CASH EPS                           11.1       11.7      10.5       12.2
OTHER INCOME                             1         2          3          4   DPS                                 0.7        0.8       1.0        2.5
CASH FLOW FROM INVESTING               (75)    (108)       (55)       (55)   BOOK VALUE                         34.5      38.4       40.3       41.3

ISSUE OF EQUITY                           -        -          -          -   RETURNS (%)

INC./(DEC.) IN LOANS                    19        64         74          -   ROCE (PRE-TAX)                     15.5       11.4       8.9        9.1
                                                                             ANGEL ROIC (PRE-TAX)               15.1       10.7       8.9       10.1
DIVIDEND PAID (INCL. TAX)                4         6          7         18
                                                                             ROE                                14.4       13.1       8.3       10.0
OTHERS                                  (0)        2          -          -
                                                                             TURNOVER RATIOS (X)
CASH FLOW FROM FINANCING                16        56         67       (18)
                                                                             ASSET TURNOVER (GROSS BLOCK)        2.0        2.1       1.7        1.7
INC./(DEC.) IN CASH                      2         5         22         19
                                                                             INVENTORY / SALES (DAYS)            37         45         43        44
OPENING CASH BALANCE                     11       13         18        40    RECEIVABLES (DAYS)                  21         17         18        19
CLOSING CASH BALANCE                     13       18         40        59    PAYABLES (DAYS)                     43         49         53        52
Note: Financials on Standalone basis

January 2012                                                                        Please refer to important disclosures at the end of this report    57
                    This page is left intentionally blank




58   January 2012                              Please refer to important disclosures at the end of this report
Banking                                                                                                                  POSITIVE


Coverage                                            Monetary softening a key positive
Companies                   `      `
                       CMP (`) TP (`)      Reco     The persistently high inflation was until recently a key headwind for the sector,
Private Sector Banks                                leading to declining savings, high interest rates and growth concerns. The
                                                    recent decline in inflation rates is consequently a key positive that has already
ICICI Bank                 796    1,061      Buy
                                                    allowed the RBI to soften its monetary stance, with more likely to follow. Provided
HDFC Bank                  485     520    Accum.    inflation continues to decline on expected lines, easing interest rates are likely
AXIS Bank                  952    1,361      Buy    to revive growth and with a lag, asset quality concerns are also likely to gradually
                                                    recede.
YES Bank                   287     361       Buy
                                                    Capital shortage leading to better margin focus: The banking industry has
Federal Bank               364        -   Neutral
                                                    delivered healthy net interest margins (NIMs) off late, which are expected to
South Indian Bank           23        -   Neutral   sustain in the coming quarters because: a) nominal GDP growth of 12-14%
                                                    should sustain 15%+ credit growth over FY2012-13 i.e., above the banking
                                                    sector's internal capital generation through retained earnings; and b) PSU
Public Sector Banks                                 banks are facing capital shortage, leading to focus on NIMs rather than aggressive
State Bank of India       1,884   2,359      Buy    balance sheet expansion. Stricter Basel 3 draft guidelines by the RBI are
                                                    expected to add to capital shortage woes. In fact, with major banks like SBI,
Punj. Natl. Bank            911   1,059      Buy
                                                    ICICI Bank and HDFC Bank (~30% combined market share) focusing on
Bank of Baroda             743     906       Buy    profitable growth rather than just market share gains, other smaller banks
Bank of India              306        -   Neutral   have also got a leeway to price their loans.

Canara Bank                421     510       Buy    Earnings downside due to higher NPAs restricted due to countercyclical
                                                    buffer: Economic slowdown and high interest rates have already negatively
IDBI Bank                   93     107       Buy
                                                    impacted the asset quality of banks, in particular PSU banks and until economic
Union Bank                 188     222       Buy    revival is well underway, for some more quarters asset quality may remain
Central Bank                76        -   Neutral   volatile. However, at the sector level, at worst we expect flat earnings growth
                                                    in FY2013, leaving book values largely intact. This is on account of not just a
Syndicate Bank              84     106       Buy    healthy NIM outlook, but also due to provision buffers created in the past two
Allahabad Bank             142     158    Accum.    years. Firstly, we expect peak credit costs (provisioning for NPAs) in this cycle
Corporation Bank           387     450       Buy    to be 5-10bp lower than the earlier 1.0% peak experienced by PSU banks in
                                                    FY2004, considering improvements in recovery mechanisms since then. Further,
Indian Bank                204     223    Accum.    in this cycle (FY2007-1HFY2012), credit costs have already increased from
Andhra Bank                 97        -   Neutral   0.3% to 0.65%. Moreover, current credit costs of 0.65% include a 10-15bp
                                                    buffer due to (a) RBI's prudent counter-cyclical provisioning norm; and (b)
United Bank                 60      70       Buy
                                                    temporary technical NPAs in PSU banks due to the recent adoption of computerized
Vijaya Bank                 53        -   Neutral   NPA recognition. Hence, we do not expect more than a 10-15bp net increase
Bank of Maha.               45      53       Buy    in credit costs from here on at worst and even that may not materialize if the
                                                    economy revives faster than expected.
J&K Bank                   742     820    Accum.
                                                    Margin of safety in valuations: We believe the sector's valuations, close to
                                                    their lowest levels since FY2003, over discount asset-quality concerns, thus
NBFCs                                               providing a margin of safety for investors. We continue to prefer large private
HDFC                       691        -   Neutral   banks with better asset-quality outlook and a strong structural investment
                                                    case - within which we prefer Axis Bank and ICICI Bank from a valuation
LIC Housing                237     262    Accum.    perspective. We also like risk-return trade-off at current valuations for Yes
                                                    Bank, but we are now Neutral on old private banks such as Federal Bank due
                                                    to relatively expensive valuations. Even after the recent bounce-back, PSU
                                                    banks are currently trading at 0.8x, a level below which they have not traded
                                                    for more than 8% of the time since FY2003 (well below the average of 1.1x).
                                                    We believe this offers cyclical valuation upsides as the macro-environment
                                                    turns more positive. Within the PSU segment as well, we prefer banks with
                                                    structural strengths and a more conservative asset-quality profile (for instance,
                                                    relatively low yield on advances and moderate credit growth in the past two
                                                    years) - this includes banks such as State Bank of India and Bank of Baroda.


January 2012                                                               Please refer to important disclosures at the end of this report   59
                                                                                                                                                                                                                                                                                    Banking

     Monetary softening a key positive                                                                                                                                sheet size, refinancing of some of the foreign debt through Indian
                                                                                                                                                                      banks is also likely to support credit demand in the short term.
     The persistently high inflation was until recently a key headwind
                                                                                                                                                                      Moreover, while deposit accretion has already been healthy during
     for the sector, leading to declining savings, high interest rates
                                                                                                                                                                      the quarter, it is expected to increase further, considering the additional
     and growth concerns. The recent decline in inflation rates is
                                                                                                                                                                      inflow of funds through NRE deposits (sharp rate hikes on NRE
     consequently a key positive that has already allowed the RBI
                                                                                                                                                                      deposits recently by almost all banks), giving banks extra room to
     to soften its monetary stance, with more likely to follow. With
                                                                                                                                                                      lend even after meeting higher government demand and regulatory
     inflation cooling off (especially food inflation, which we believe
                                                                                                                                                                      requirements, while keeping lending rates from rising.
     will soon start getting mirrored in manufacturing inflation as
     well, appropriately the RBI has stepped in to infuse liquidity
                                                                                                                                                                      Exhibit 3: Credit deposit trends
     through a substantial `70,000cr of Open Market Operations
                                                                                                                                                                       (%)
     and in the latest policy, `30,000cr through a 50bps CRR cut.                                                                                                     35.0
     Provided inflation continues to decline on expected lines, easing                                                                                                28.0
     interest rates are likely to revive growth and with a lag, asset
                                                                                                                                                                      21.0
     quality concerns are also likely to gradually recede.
                                                                                                                                                                      14.0

     Exhibit 1: Primary articles inflation has plummeted                                                                                                               7.0

                                                                                                                                                                         -




                                                                                                                                                                             Jul-06


                                                                                                                                                                                        Dec-06




                                                                                                                                                                                                                            Aug-08




                                                                                                                                                                                                                                                                Apr-10


                                                                                                                                                                                                                                                                         Sep-10




                                                                                                                                                                                                                                                                                           Jul-11


                                                                                                                                                                                                                                                                                                    Dec-11
                                                                                                                                                                                                 May-07




                                                                                                                                                                                                                   Mar-08




                                                                                                                                                                                                                                     Jan-09


                                                                                                                                                                                                                                              Jun-09


                                                                                                                                                                                                                                                       Nov-09




                                                                                                                                                                                                                                                                                  Feb-11
                                                                                                                                                                                                          Oct-07
                                                                                                                                                                                                                      Credit growth                    Deposit growth
                                                                                                                                                                                                                                                       Deposit growth

                                                                                                                                                                      Source: RBI, Angel Research


                                                                                                                                                                      b) Capital shortage in PSU banks and conservative stance
                                                                                                                                                                      of large private banks leading to focus on margins rather
                                                                                                                                                                      than aggressive balance sheet expansion
                                                                                                                                                                      During 2QFY2012, earnings growth for the banking sector was
     Source: MOSPI, Angel Research                                                                                                                                    aided by sequential margin expansion for almost all banks, which
                                                                                                                                                                      offsetted asset-quality pressures. The banking industry has been
     Exhibit 2: Expect at least 100bp cut in repo rate in CY2012                                                                                                      swift in passing on the rate hikes by the RBI though hikes in
     9.0                                                                                                                                                              lending rates over the past six months.
     8.0
                                                                                                                                                                      Further, with SBI (which is facing capital adequacy issues) as
     7.0

     6.0
                                                                                                                                                                      well as ICICI Bank and HDFC Bank (having combined market
     5.0
                                                                                                                                                                      share of ~30%) focusing on profitable growth rather than just
     4.0                                                                                                                                                              market share gains, other smaller banks have also got a leeway
     3.0                                                                                                                                                              to price their loans.
     2.0
                                                                                                                                                                      SBI's capital adequacy dropped significantly post the pension
                                                        Jan-11




                                                                                                       Nov-11
                                                                 Mar-11
                                                                          May-11

                                                                                   Jul-11
                                                                                            Sep-11



                                                                                                                Jan-12




                                                                                                                                                             Nov-12
                                                                                                                         Mar-12
                                                                                                                                  May-12

                                                                                                                                           Jul-12
                                                                                                                                                    Sep-12
           Mar-10
                    May-10


                                      Sep-10
                             Jul-10


                                               Nov-10




                                                                                                                                                                      adjustments from its reserves during 4QFY2011 (tier-I of 7.5%
                                                  Repo rate (%)                                      Reverse Repo rate (%)                                            in 2QFY2012 compared to 9.6% in 3QFY2011). Further, with
     Source: RBI, Angel Research                                                                                                                                      the government being strapped for cash due to its own fiscal
                                                                                                                                                                      woes coupled with distressed market conditions, capital infusion
                                                                                                                                                                      has been delayed by the government and its eventual size has
     Capital shortage leading to focus on margins                                                                                                                     also reduced from more than `15,000cr to about `6,000cr-
     The banking industry has delivered healthy net interest margins                                                                                                  7,000cr. This has all the more made SBI more focused on preserving
                                                                                                                                                                      capital and generating more capital internally through higher
     (NIMs) off late, which are expected to sustain in the coming
                                                                                                                                                                      NIMs. Moreover, its loan book has witnessed continued asset-
     quarters because of two factors, viz.:
                                                                                                                                                                      quality stress over the past six months, further reducing the
     a) Credit growth above 15% i.e., above the rate of internal                                                                                                      headroom for the bank's management (which changed post
     generation of capital through retained earnings                                                                                                                  3QFY2011 results) to adopt aggressive market share strategies.
     While we expect significant credit under-penetration (0.7x of                                                                                                    ICICI Bank has continued with its strategy for improvement in
     GDP vs. 2-3x for developed countries) to sustain credit demand                                                                                                   profitability rather than growth, exiting unattractive retail-loan
     in the longer term, there are a number of factors, which in our                                                                                                  segments and generally de-growing its balance sheet. With all
     view should aid in credit growth over the shorter term too.                                                                                                      these three large banks looking to maintain or improve their
                                                                                                                                                                      margins rather than chasing market share gains, borrowers had
     Nominal GDP, which is still expected to grow by 12-14% over                                                                                                      to settle for higher rates, leading to higher margin expansion
     the next couple of years, in our view, should lead to sustainable                                                                                                for most other banks as well, creating a cushion to absorb NPA
     credit demand of at least ~15% levels over FY2012-13. High                                                                                                       provisioning expenses. Reflecting this, even though easing liquidity
     prevailing inflation is expected to keep working capital requirements                                                                                            has kept deposit rates in check in the past six months, banks
     for businesses elevated, leading to a marginal push in credit demand.                                                                                            have been able to increase their lending rates by 50bp-100bp,
     Also, with almost all European banks looking to cut their balance                                                                                                leading to a ~15bp qoq increase in reported NIMs in 2QFY2012.


60   January 2012                                                                                                                                                                     Please refer to important disclosures at the end of this report
                                                                                                                                                                               Banking

Exhibit 4: Margin expansion* qoq (2QFY2012) for banks under our coverage                                            Macro slowdown to impact asset quality; Earnings
 (bp)
 60.0
 50.0
                                                                                                                    downside restricted due to countercyclical buffer
 40.0
 30.0                                                                                                               Macroeconomic headwinds in the form of high interest rates
 20.0                                                                                                               and slowing growth have led to higher cost of borrowings as
 10.0
                                                                                                                    well as lower earnings for most businesses. While the base
   -
(10.0)                                                                                                              rates for most banks have increased by 250-300bp over the
(20.0)
                                                                                                                    past 12-18 months, GDP growth has slowed down to 7% (average
(30.0)
                                    INDBK




                                                                                                   IDBI
                                                                                                 FEDBK
                                                                       UNBK



                                                                                 BOM
                                                                               ANDBK                                of 8.1% over FY2010-11), indicating a slowing growth scenario.
                UCOBK




                                                                                       ICICIBK
                                                       SIB
                                                                SBI




                                                                                                            J&KBK
                                                                                                             OBC
                                  DENABK




                                                               PNB

                                                                      YESBK




                                                                                                          HDFCBK
                                   ALLBK
                          CRPBK




                                                    CANBK
                                              BOB
                                            SYNBK




                                                                              CENTBK
                            BOI




                                                                                           IOB
                                                             UTDBK
         AXSB
                 VIJAYA




(40.0)


                                                                                                                    Economic slowdown and high interest rates have already negatively
Source: Company, Angel Research; Note: Domestic NIMs for SBI, BOB and BOI
                                                                                                                    impacted the asset quality of banks, in particular PSU banks
Going forward, stricter Basel III draft guidelines by the RBI are                                                   and until economic revival is well underway, for some more
expected to further add to capital shortage woes, leading to                                                        quarters asset quality may remain volatile. However, at the sector
further focus of banks on NIMs rather than balance sheet growth.                                                    level, at worst, we expect flat earnings leaving book values largely
Under the proposed norms, banks will need to increase the equity                                                    intact. This is on account of not just a healthy NIM outlook, but
capital component of their capital structure over FY2013-17E -                                                      also due to provision buffers created in the past two years.
currently the minimum equity capital requirement stands at 3.6%,
                                                                                                                    Firstly, we expect peak credit costs (provisioning for NPAs) in
which will need to be increased to a much higher level of 8% by
                                                                                                                    this cycle to be 5-10bp lower than the earlier 1.0% peak
FY2017E. Several PSU banks are likely to face capital shortage
                                                                                                                    experienced by PSU banks in FY2004, considering improvements
on account of these draft norms (which have a high probability
                                                                                                                    in recovery mechanisms since then. Further, in the last cycle
of getting implemented in our view). On a relative basis, banks
                                                                                                                    (FY1999-07), SBI's slippages (incremental NPAs) were 3x higher
with a larger equity capital base (most prominently including large
                                                                                                                    in the worst year compared to the best. In this cycle (FY2007-
private banks) will be in an advantageous position to grow faster
                                                                                                                    1HFY2012), credit costs were as low as 0.3%, but have already
than the sector average with healthy profitability.
                                                                                                                    increased to 0.65%. Moreover, current credit costs of 0.65%
                                                                                                                    also include 10-15bp buffer due to (a) RBI's prudent counter-
Exhibit 5: Core tier-I* ratio (%) for the banking industry (1HFY2012)                                               cyclical provisioning norm; and (b) temporary technical NPAs
Bank                         Tier I (%)             Core        Bank             Tier I (%)                Core     in PSU banks due to the recent adoption of computerized NPA
                                            Tier I (%)                                             Tier I (%)       recognition. This buffer should partially offset higher NPAs in
Kotak Mah. Bank                     15.9             15.9       Canara Bank                9.1               8.4    FY2013E.
Federal Bank                        14.0             14.0       Yes Bank                   9.4               8.3
                                                                                                                    Hence, we do not expect more than a 10-15bp net increase in
Karur Vysya Bank                    12.8             12.8       Axis Bank                  8.5               8.3    credit costs from here on, leading to flat sectoral earnings at
City Union Bank                     12.4             12.4       Bank of Baroda             8.8               8.0    worst. On a relative basis, within the sector, large private banks
ICICI Bank                          13.1             12.4       Union Bank                 8.5               7.7
                                                                                                                    and few PSU banks with better asset quality are expected to
                                                                                                                    outperform.
IndusInd Bank                       11.4             11.4       Syndicate Bank             8.6               7.7

J&K Bank                            11.3             11.3       Corporation Bank 8.4                         7.6    We view relatively lower yield on advances and moderate credit
                                                                                                                    growth in the last two years as some of the indicators of a
HDFC Bank                           11.4             11.3       Punjab Natl.Bank           8.4               7.6
                                                                                                                    more conservative asset-quality profile. On that basis, we find
Dev.Credit Bank                     11.2             11.2       United Bank                8.9               7.3
                                                                                                                    few of the private banks including Axis Bank as well as some
Karnataka Bank                      10.8             10.8       Bank of India              8.3               7.3    PSU banks such as State Bank of India and Bank of Baroda
South Ind.Bank                      10.8             10.8       St Bk of India              7.5              6.9    amongst large caps as well as Syndicate Bank and Bank of
                                                                                                                    Maharashtra amongst mid caps to have a relatively more
Indian Bank                           9.9              9.4      Vijaya Bank                9.2               6.7
                                                                                                                    conservative profile than what the markets seem to be factoring
Oriental Bank                         9.9              9.2      IOB                        7.0               6.4    in. On the other hand, for some of the mid-size PSU banks
Dhanlaxmi Bank                        8.7              8.7      Central Bank                7.9              6.1    such as Andhra Bank and Central Bank of India, we remain
Dena Bank                             9.3              8.6      IDBI Bank                  7.8               5.9
                                                                                                                    cautious about asset-quality concerns.

Allahabad Bank                        8.9              8.6      UCO Bank                   8.6               5.9

Andhra Bank                           8.8              8.5      BOM                        7.1               5.3
Source: Company, Angel Research; Note: * Core Tier-I capital equals Net Worth




January 2012                                                                                                               Please refer to important disclosures at the end of this report   61
                                                                                                                                                                                                         Banking

     Exhibit 6: Movement in yields - 1HFY2012                                         However, in case of saving account growth, the sharp increase
     Bank          Yield on Prov. cost as a %   Risk-adjusted     Slippages PCR (%)   in saving account market share for these banks was halted in
                 Assets (%) of overall assets     yields as % annualised (%)
                                                    of assets                         FY2008 with the onset of the global recession, due to which
     HDFCBK            8.6               0.5            8.0           1.3     81.3    customers once again started reverting back to public sector
     AXSB              8.2               0.5            7.8           1.4     77.7    banks to park their savings. The major benefactor of this shift
     ICICIBK           7.5               0.4            7.1           1.5     78.2    in customer mindset was SBI, which had witnessed a significant
     SIB               9.5               0.3            9.2           0.5     74.7    decline in CASA market share until FY2007. SBI, by leveraging
     FEDBK             9.6               0.8            8.8           3.3     84.3    its tremendous trust factor in the country and driven by relatively
     PNB               8.8               0.8            8.0           1.6     75.1    faster branch expansion (9.1% CAGR vs. 2-5% for most PSBs),
     CANBK             8.5               0.5            8.1           2.3     68.6    was able to increase its market share of saving deposits substantially
     INDBK             9.1               0.6            8.6           2.0     79.4    by 360bp to 25.9% during FY2007-11 (one of the few PSBs
     J&KBK             8.5               0.3            8.3           0.8     92.0    to do so).
     UNBK              8.6               0.9            7.9           4.8     60.5
     VIJAYA            8.9               0.8            8.3           3.7     66.1    Exhibit 7: Savings account deposits market share
                                                                                      (%)
     ANDHBK            9.8               0.8            9.2           1.4     61.7    80.0
     CRPBK             8.5               0.5            8.2           2.4     64.7    70.0
                                                                                      60.0
     BOM               8.9               1.3            7.6           0.8     86.0    50.0
     UCOBK             8.7               1.0            7.9           2.1     52.0    40.0
                                                                                      30.0
     CENTBK            8.8               0.8            8.2           3.8     56.8    20.0
     ALLBK             9.4               0.9            8.6           2.2     79.6    10.0
                                                                                        -
     OBC               8.9               1.0            8.0           6.3     63.8




                                                                                                                                      FY2004




                                                                                                                                                           FY2006




                                                                                                                                                                             FY2008

                                                                                                                                                                                      FY2009
                                                                                             FY2000

                                                                                                       FY2001

                                                                                                                FY2002

                                                                                                                             FY2003




                                                                                                                                               FY2005




                                                                                                                                                                                                FY2010

                                                                                                                                                                                                          FY2011

                                                                                                                                                                                                                   1HFY12
                                                                                                                                                                    FY2007
     IDBI              9.1               0.6            8.5           2.4     70.1
     IOB               8.9               1.2            7.6           3.6     71.8                                        SBI group                     Public ex -SBI group                   Private

     SYNBK             8.9               1.0            8.0           3.6     78.5    Source: Company, Angel Research
     UBI               8.4               1.1            7.5           4.6     65.0
     DENABK            8.9               0.4            8.5           1.4     77.1    Exhibit 8: Current account deposits market share
     Source: Company, Angel Research                                                  (%)
                                                                                      60.0

                                                                                      50.0
     CASA market share and fee income underpin                                        40.0

     structural outlook                                                               30.0

                                                                                      20.0
     The sector's valuations have corrected significantly over the                    10.0
     last year on account of cyclical concerns. While we remain                         -
                                                                                                                                      FY2004




                                                                                                                                                           FY2006




                                                                                                                                                                             FY2008

                                                                                                                                                                                      FY2009
                                                                                              FY2000

                                                                                                       FY2001


                                                                                                                FY2002

                                                                                                                             FY2003




                                                                                                                                               FY2005




                                                                                                                                                                                                FY2010

                                                                                                                                                                                                          FY2011


                                                                                                                                                                                                                   1HFY12
                                                                                                                                                                    FY2007




     cautious on asset quality in the near-term, we believe at current
     valuations there is enough margin of safety to pick banks that
                                                                                                                         SBI group                      Public ex -SBI group                    Private
     have a relatively more conservative asset-quality outlook and
                                                                                      Source: Company, Angel Research
     have structural strengths to take advantage of the medium to
     long-term growth opportunity in the banking sector. In evaluating                Post FY2008, large private banks have still managed to
     the structural outlook, in our view, CASA market share and fee                   incrementally gain CASA market share albeit at a lower rate.
     income remain the key factors.                                                   On the other hand, public sector banks excluding SBI have
     Private banks to continue garnering CASA market share                            continued to lose market share, though at a slower pace compared
                                                                                      to pre-recession levels. However, in our view, from here on, we
     Large private sector banks have increased their CASA market                      expect large private banks to once again start gaining momentum
     share multifold over the last decade (FY2000-FY2010) at the                      in expanding their CASA base, driven by relatively stronger capital
     expense of public sector banks, including SBI. Riding on rapid                   adequacy and easier capital access, robust branch expansion
     branch and ATM expansion with urban-centric outlook, enhanced                    over FY2007-FY2011 and further network expansion expected
     efficiency through technological upgradations and increased                      over the next couple of years. While all public sector banks are
     employee productivity and superior customer service oriented                     expected to see further downslide in saving account market
     towards expanding the retail customer base, large private banks                  shares as private banks continue to make inroads into their
     were able to increase their CASA market share from as low as                     hinterlands, SBI with its pan-India presence, robust branch network
     2.6% in FY2000 to 16.0% as of 1HFY2012.                                          of more than 13,500 branches and stronger core competitiveness
     In case of current accounts, large and small private banks have                  is expected to see further traction in its saving account deposits.
     consistently (right through the U.S. sub-prime crisis also) increased
     their market share (29.4% as of 1HFY2012 vs. 8.5% in FY2000).


62   January 2012                                                                            Please refer to important disclosures at the end of this report
                                                                                                                                                                                                                                                                                                                     Banking

Fee income share higher for private banks                                                                                              Earnings outlook cautious but not pessimistic: Although the
                                                                                                                                       current macro headwinds faced by the banking sector due to
Large private banks (ICICI Bank, HDFC Bank and Axis Bank)
                                                                                                                                       Euro crisis and Indian domestic growth concerns are meaningful,
and SBI have accounted for a lion's share of newer fee income
                                                                                                                                       current valuations near Lehman crisis lows suggest a high margin
streams that have originated due to the economic upsurge
                                                                                                                                       of safety, especially in case of select structurally strong banks.
witnessed over the last decade. Relatively high fee income intensity
of private banks, driven by their dominant position, competitiveness                                                                   Earnings for PSU banks are expected to modest in FY2013E
and sustained traction in streams such as wealth management,                                                                           on account of higher estimated provisioning expenses. However,
transaction banking, cards, forex and capital markets has led                                                                          countercyclical buffers, which banks have created in the past
to higher fee income contribution in the overall profitability for                                                                     couple of years, create additional buffer to absorb incremental
these banks. Also, riding on credit (1,110bp gains over FY2000-                                                                        NPA provisioning expenses. Hence, with banks now shifting
11) and CASA market share gains (1,450bp gain over FY2000-                                                                             focus on sustaining margins and impending peak credit costs
11), private banks have been able to increase their fee income                                                                         only expected to be at worst 10-15bp away from the current
from 1.3% of total average assets in FY2000 to 1.6% as of                                                                              costs, earnings growth for the sector as a whole is likely to be
FY2011. Large private banks such as Axis Bank (2.0%), HDFC                                                                             at worst flat in FY2013E. Inflation picking up again or credit
Bank (1.8%) and ICICI Bank (1.7%) have a much higher                                                                                   growth slipping below 12% would pose downside risks to our
contribution of fee income to average assets compared to public                                                                        estimates, however in our base case we expect credit growth
sector banks (0.9%, 0.7% ex. SBI) as of FY2011. Only SBI,                                                                              to sustain at 15% over FY2012-13E.
owing to its strong corporate and government business
relationships, has been able to maintain its dominance among                                                                           Prefer large private banks: From a stock-selection point of
public banks with fee income/assets at 1.3% as of FY2011.                                                                              view, we continue to prefer large private banks with a relatively
                                                                                                                                       better asset-quality outlook and a strong structural investment
Exhibit 9: Fee income to assets (%) - FY2011                                                                                           case - within which we prefer Axis Bank and ICICI Bank from
 (%)                                                                                                                                   a valuation perspective. We also like risk-return trade-off at current
2.00
                                                                                                                                       valuations for Yes Bank, but are now Neutral on old private
1.60                                                                                                                                   banks like Federal Bank due to its relatively expensive valuations.
1.20
                                                                                                                                       Within the PSU segment as well, we prefer banks with structural
0.80
                                                                                                                                       strengths and a more conservative asset-quality profile (for instance,
0.40                                                                                                                                   relatively low yield on advances and moderate credit growth in
   -                                                                                                                                   the past two years) - this includes banks such as State Bank
                                                                IDBI




                                                                                       BOI
                                              ALLBK




                                                                                              IOB




                                                                                                            J&KBK
                                                                                                    SYNBK
       AXSB




                                 SBI




                                                                                BOB




                                                                                                                               UTDBK
                         YESBK




                                                                                      UNBK
                                       PNB




                                                              CANBK




                                                                                             BOM
               ICICIBK




                                                                                                     OBC
                                                      CRPBK
                                             INDBK




                                                                                                                    UCOBK
                                                                       DENABK




                                                                                                                              CENTBK
                                                                       ANDHBK
              HDFCBK




                                                                                                                     VIJAYA




                                                                                                                                       of India and Bank of Baroda.

Source: Company, Angel Research                                                                                                        Exhibit 10: Public sector banks P/ABV trends
                                                                                                                                       2.00


Margin of safety in valuations                                                                                                         1.70

                                                                                                                                       1.40
Valuations at significantly low levels: We believe the sector's
                                                                                                                                       1.10
valuations, which are close to their lowest levels since FY2003,
                                                                                                                                       0.80
over discount asset-quality concerns, hence providing a margin
of safety for investors. Even after the recent bounce-back, PSU                                                                        0.50
                                                                                                                                                                    Jan-06




                                                                                                                                                                                                                                                                                                                     Jan-11
                                                                                                                                                                                Jun-06

                                                                                                                                                                                                  Nov-06




                                                                                                                                                                                                                                  Feb-08

                                                                                                                                                                                                                                            Jul-08

                                                                                                                                                                                                                                                         Dec-08

                                                                                                                                                                                                                                                                           May-09

                                                                                                                                                                                                                                                                                       Oct-09
                                                                                                                                                Mar-05

                                                                                                                                                           Aug-05




                                                                                                                                                                                                                                                                                                Mar-10

                                                                                                                                                                                                                                                                                                         Aug-10



                                                                                                                                                                                                                                                                                                                                   Jun-11

                                                                                                                                                                                                                                                                                                                                                 Nov-11
                                                                                                                                                                                                               Apr-07

                                                                                                                                                                                                                         Sep-07




banks are currently trading at 0.8x, a level below which they
have not traded for more than 8% of the time since FY2003                                                                                                           P/ABV                                       Median                           15th percentile                                              85th percentile
(well below the average of 1.1x).
                                                                                                                                       Source: Company, Angel Research

Pre-2003, valuations were structurally lower (median of 0.5x
over FY2000-03) primarily because of asset-quality concerns                                                                            Exhibit 11: Large private banks P/ABV trends
(gross NPA ratios upwards of 10%), poorer recovery standards,                                                                          3.40
                                                                                                                                       3.00
and lower provisioning coverage ratios for the banking sector
                                                                                                                                       2.60
(limited provisioning to overall assets despite elevated NPA                                                                           2.20
ratios). Since the re-rating (post FY2003), valuations have slipped                                                                    1.80
lower than the current 0.8x only in 35 weeks (i.e. less than 8%                                                                        1.40

of the time) and that too during the Lehman crisis period, when                                                                        1.00
                                                                                                                                       0.60
the entire global financial system was reeling under a severe
                                                                                                                                                                       Mar-06


                                                                                                                                                                                         Sep-06




                                                                                                                                                                                                                                   Mar-08

                                                                                                                                                                                                                                                Sep-08


                                                                                                                                                                                                                                                                  Mar-09


                                                                                                                                                                                                                                                                                    Sep-09
                                                                                                                                              Mar-05


                                                                                                                                                           Sep-05




                                                                                                                                                                                                                                                                                                Mar-10


                                                                                                                                                                                                                                                                                                            Sep-10


                                                                                                                                                                                                                                                                                                                          Mar-11

                                                                                                                                                                                                                                                                                                                                            Sep-11
                                                                                                                                                                                                           Mar-07

                                                                                                                                                                                                                        Sep-07




economic slump.
                                                                                                                                                                       P/ABV                                        Median                       15th percentile                                         85th percentile

                                                                                                                                       Source: Company, Angel Research



January 2012                                                                                                                                             Please refer to important disclosures at the end of this report                                                                                                                                  63
                                                                                                                                                                        Banking

     Exhibit 12: Aggregate P&L for Private and Public sector banks                          Exhibit 13: Aggregate DuPont for Private and Public sector banks
     Parameter                 Private*                            Public                    Parameter                    Private*                            PSU
       `
      (` cr)        FY2011 FY2012          FY2013       FY2011    FY2012    FY2013                             FY2011 FY2012          FY2013     FY2011     FY2012       FY2013
     NII             29,908    35,169          42,714 124,864 144,923 166,446                NII                  3.1           3.0      3.0          2.8         2.8        2.8
                                                                                              (-) Prov. Exp.      0.6           0.4      0.4          0.7         0.9        0.8
     Other Income    16,952     19,477     23,492       44,378    46,602    51,513
                                                                                             Adj NII              2.5           2.6      2.6          2.1         1.9        1.9
     Op. Income      46,860     54,646         66,205 169,242     191,525   217,958
                                                                                             Treasury             0.0           0.0      0.0          0.1         0.1        0.0
     Op. expenses    20,528    24,410      29,834       76,610    82,896     95,769          Int. Sens. Inc.      2.5           2.6      2.7          2.2         2.0        2.0
                                                                                             Other Inc.           1.7           1.6      1.6          0.9         0.8        0.8
     Pre prov. profit 26,332    30,236         36,371    92,633   108,629   122,189
                                                                                             Op. Inc.             4.2           4.2      4.3          3.1         2.8        2.8
     Provisions       6,180      5,018          5,781   32,459     44,974   50,152
                                                                                             Opex                 2.1           2.1      2.1          1.7         1.6        1.6
     PBT             20,152    25,218      30,590       60,173    63,655     72,037          PBT                  2.1           2.1      2.1          1.3         1.2        1.2
                                                                                             Taxes                0.6           0.7      0.7          0.4         0.4        0.4
     Tax expenses     6,078      7,620          9,533    18,782   18,683    23,114
                                                                                              ROA                  1.4          1.5      1.5          0.9         0.8        0.8
     Net Profit      14,073     17,598         21,058   41,391     44,972    48,923
                                                                                             Leverage            10.5          11.3     12.0         21.0     20.5          20.6
      Growth (%)       32.0    25.0      19.7      15.0       8.7       8.8                  ROE              15.0    16.7       17.6     18.9       17.2     16.4
     Source: Company, Angel Research; Note*: For banks under our coverage                   Source: Company, Angel Research; Note*: For banks under our coverage



     Exhibit 14: Recommendation Summary
     Company        Reco.            CMP           Tgt. price     Upside      FY2013E            FY2013E        FY2013E           FY2011-13E          FY2013E           FY2013E
                                       `
                                      (`)                  `
                                                          (` )       (%)     P/ABV (x)      Tgt P/ABV (x)        P/E (x)        EPS CAGR (%)           RoA (%)           RoE (%)
     Private Sector Banks
     ICICIBk*       Buy               796               1,061       33.3              1.5               2.0          12.5                 19.2              1.3             14.4
     HDFCBk         Accumulate        485                520          7.1             3.3               3.5          16.8                 30.8              1.8             21.0
     AxisBk         Buy               952               1,361       43.0              1.5               2.2              8.3              18.2              1.5             20.2
     YesBk          Buy               287                361        26.0              1.8               2.3              9.9               17.7             1.3             20.1
     FedBk          Neutral           364                    -          -             1.0                  -             8.3              13.0              1.1             12.5
     SIB            Neutral               23                 -          -             1.1                  -             6.8              13.5              0.9             17.5


     Public Sector Banks
     SBI*           Buy             1,884               2,359       25.2              1.5               1.9              9.1              26.0              0.8             17.9
     PNB            Buy               911               1,059       16.2              1.0               1.2              5.7                   7.3          1.0             19.7
     BOB            Buy               743                906        21.9              1.0               1.3              5.8               9.3              1.1             19.1
     BOI            Neutral           306                    -          -             1.0                  -             6.7               0.1              0.6             13.3
     CanBk          Buy               421                510        21.3              0.9               1.1              5.4              (7.0)             0.8             15.8
     IDBI#          Buy                   93             107        15.2              0.6               0.7              4.6               9.9              0.7             13.4
     UnionBk        Buy               188                222        18.1              0.8               0.9              4.8              (0.3)             0.7             15.4
     CentBk         Neutral               76                 -          -             0.6                  -             4.8             (24.3)             0.4             11.4
     SynBk          Buy                   84             106        26.4              0.6               0.7              3.6              13.7              0.7             16.5
     AllBk          Accumulate        142                158        11.5              0.7               0.7              4.0               9.6              0.9             17.6
     CorpBk         Buy               387                450        16.1              0.6               0.7              4.2              (1.8)             0.8             15.5
     IndBk          Accumulate        204                223         9.7              0.8               0.9              4.9               3.8              1.2             18.4
     AndhBk         Neutral               97                 -          -             0.7                  -             4.7              (4.8)             0.8             14.6
     UtdBk          Buy                   60               70       16.6              0.6               0.7              4.2               4.3              0.6             12.1
     VijBk          Neutral               53                 -          -             0.7                  -             5.5               4.1              0.5             11.6
     BOM            Buy                   45              53        18.4              0.7               0.8              4.6              26.3              0.7             16.9
     J&KBk          Accumulate        742                820        10.6              0.8               0.9              4.4              14.9              1.4             18.6
     NBFCs
     HDFC           Neutral           691                    -          -             4.4                  -         22.4                 13.2              2.6             34.0
      LICHF        Accumulate      237           262         10.2           1.8             2.0            9.1               12.7                           1.7             21.7
     Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF




64   January 2012                                                                                      Please refer to important disclosures at the end of this report
               This page is left intentionally blank




January 2012                               Please refer to important disclosures at the end of this report   65
                                                                                                                            TOP
                                                                                                                            PICK

     Banking                                                                              ICICI Bank
                                                                                          CMP/TP/Upside: `796 / `1,061 / 33%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                               1138 / 641       ICICI Bank is India's largest private sector bank, with a 5.5% market share
                  `
      MARKET CAP (` CR)                                       91,785    in credit. The bank has a pan-India extensive network of 2,500+ branches
                                                                        and ~7,000 ATMs as well as large overseas presence (overseas loans comprise
      LIQUIDITY                                                HIGH
                                                                        25% of total loans). The bank also has market-leading subsidiaries in life
                                                                        insurance, general insurance and asset management.

      SHAREHOLDING PATTERN (%)
      PROMOTERS                                                     -   Structural Snapshot
      FII                                                        61.3
                                                                        Growth opportunity: Credit penetration in India remains fairly low (70% of
                                                                        GDP) vs. not just developed economies (U.S. - 220% and Japan - 320%),
                                                                        but also emerging economies (China - 140%), indicating 17-18% average
      STOCK RETURNS                                                     credit growth potential for several decades (2-2.5x our real GDP growth).
      (%)                   3M        1Y        3Y      5Y       10Y    ICICI Bank, with its strong capital adequacy and expanding branch network,
      ICICI BANK         (12.0) (22.2)        24.5    (4.2) 24.0        has the potential to grow a few percentage points faster than this.

      BANKEX              (6.4) (12.5)        28.3      7.1 25.5        Competitive position: The bank is comparable to other private banks in its
                                                                        retail customer proposition. Focused strategies post the Lehman-crisis have
      SENSEX              (2.6) (12.3)        21.3      3.3      17.3   also brought profitability on assets largely at par with peers.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                        Nature of business: Cyclical and rate-sensitive sector; Significant entry
                                                                        barriers for new players.
      FINANCIAL PERFORMANCE OVERVIEW
      (%)                    3M          1Y     3Y      5Y       10Y
                                                                        Current Investment Arguments
      OP. INC. GROWTH* 12.3           0.5     (2.8)    11.2 38.0
                                                                        Focused strategy has improved return on assets; RoE to follow: Over
      PAT GROWTH*           21.6     28.0       7.4   15.2 41.4
                                                                        the past three years, the bank's management has firmly focused on reducing
      NIM#                   2.5      2.6      2.5      2.5       2.1   the risk profile of its loans, de-growing its balance sheet to reduce riskier
      ROE#                       -   11.7     10.2    10.9 13.5         loans (such as unsecured personal loans) as well as wholesale deposits.
                                                                        CASA deposits have improved to 45% (as of FY2011) from 22% in FY2007,
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        operating costs have declined from 2.2% to 1.8% of assets, and NPA provision
                                                                        costs have declined almost by two-thirds from peak levels. As a result, return
      ANGEL ESTIMATES                                                   on assets have risen close to optimum levels, but return on equity still lags
                                                                        peers, as the bank's huge equity capital raising prior to the downturn is
      PARTICULARS                          FY2012E       FY2013E
                                                                        leveraged much below its potential - something that is expected to improve
      PAT GROWTH (%)                           20.3              18.0   gradually over the next few years.
      ROE (%)                                  13.2              14.4   Well positioned to garner strong market share gains in CASA deposits:
      P/ABV                                     1.6               1.5   While improving its profitability and risk profile, the bank also simultaneously
                                                                        increased its branch network from ~950 in 3QFY2008 to 2,500+ by 2QFY2012.
                                                                        Coupled with strong capital adequacy at 19.0%, this has laid the platform
      BLOOMBERG CONSENSUS RECOMMENDATION                                for strong credit growth and CASA market share gains.

      BUY / HOLD / SELL                                 52 / 8 / 2      Valuations attractive: We expect ICICI Bank to deliver a strong earnings
                                                                        CAGR of 19.2% over FY2011-13 and an RoE of 14.4% by FY2013. The
                                                                        stock is trading at 1.5x FY2013E ABV (also 1.5x after adjusting value of
                                                                        subsidiaries), a substantial discount of 55% to H.DFC Bank. We have valued
                                                                        subsidiaries at `136 and the core bank at `925 (1.95x FY2013E ABV).
                                                                        We maintain our Buy view on the stock with a target price of ` 1,061.




66   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                   BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E                `
                                                                           Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME               8,114    9,017     10,324     12,539     SHARE CAPITAL                      1,465      1,502     1,502        1,502

 - YOY GROWTH (%)                (10.8)      11.1       14.5      21.5     - EQUITY                           1,115      1,152     1,152        1,152

OTHER INCOME                     7,478     6,648      7,340      9,106     - PREFERENCE                        350        350        350         350

 - YOY GROWTH (%)                 (3.9)    (11.1)       10.4      24.1     RESERVE & SURPLUS                 50,503     53,939    57,393       61,511

OPERATING INCOME                15,592    15,665      17,664    21,645     DEPOSITS                         202,017    225,602   270,723      327,574
                                                                            - GROWTH (%)                       (7.5)      11.7      20.0         21.0
 - YOY GROWTH (%)                 (7.6)      0.5        12.8      22.5
                                                                           BORROWINGS                        60,947     72,813    90,516      113,196
OPERATING EXPENSES               5,860     6,617      7,708      9,215
                                                                           TIER 2 CAPITAL                    32,967    36,391      37,119      37,862
 - YOY GROWTH (%)                (16.8)     12.9       16.5       19.6
                                                                           OTHER LIAB. & PROV.               15,501     15,987    19,531       23,067
PRE - PROVISION PROFIT           9,732     9,048      9,955     12,429
                                                                           TOTAL LIABILITIES                363,400    406,234   476,783      564,712
 - YOY GROWTH (%)                 (1.0)     (7.0)       10.0      24.9
                                                                           CASH IN HAND AND WITH RBI         27,514     20,907    20,304       21,292
PROVISION AND CONTINGENCIES      4,390     2,290      1,507      2,185
                                                                           BAL.WITH BANKS & MONEY AT CALL 11,359        13,183    15,549       18,497
 - YOY GROWTH (%)                (13.0)    (47.8)     (34.2)      45.0
                                                                           INVESTMENTS                      120,893    134,686   160,910      186,795
PROFIT BEFORE TAX                5,342     6,758      8,449     10,245
                                                                           ADVANCES                         181,206    216,366   255,312      308,927
 - YOY GROWTH (%)                  11.7     26.5       25.0       21.3      - GROWTH (%)                      (17.0)      19.4      18.0         21.0
PROVISION FOR TAXATION            1,317    1,606      2,250      2,932     FIXED ASSETS                       3,213      4,744     5,428        6,263
 - AS A % OF PBT                  24.7      23.8       26.6       28.6     OTHER ASSETS                      19,215     16,347    19,281       22,937
PAT                              4,025     5,151      6,198       7,313    TOTAL ASSETS                     363,400    406,234   476,783      564,712
 - YOY GROWTH (%)                  17.6     28.0       20.3       18.0      - GROWTH (%)                       (4.4)      12.1       17.9        19.0




 KEY RATIOS                                                                KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E     Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                   VALUATION RATIOS
NIMS                                2.4      2.6         2.5       2.6     P/E                                 22.1       17.8       14.8        12.5
COST TO INCOME RATIO               37.6     42.2       43.6       42.6
                                                                           P/ABV                                 1.8       1.7        1.6         1.5
ROA                                 1.0       1.3        1.4        1.3
                                                                           DIVIDEND YIELD (%)                   1.5        1.8        2.3         2.6
ROE*                                9.7      11.7       13.2       14.4
                                                                           DUPONT ANALYSIS*
B/S RATIOS (%)
                                                                           NII                                  2.3        2.4        2.4         2.5
CASA RATIO                         41.7     45.1       46.3       46.7
CREDIT/DEPOSIT RATIO              89.7      95.9       94.3       94.3     (-) PROV. EXP.                        1.2       0.6        0.4         0.4

CAR                               19.4      19.5       18.1       16.1     ADJ NII                               1.0       1.8        2.1         2.0

 - TIER I                          14.0     13.2        11.1      10.1     TREASURY                             0.2      (0.1)      (0.0)         0.0
ASSET QUALITY (%)                                                          INT. SENS. INC.                       1.2       1.7        2.0         2.1
GROSS NPAS                          5.1      4.5         4.5       4.6     OTHER INC.                            1.8       1.7        1.6         1.7
NET NPAS                            2.1       1.1        1.1        1.2
                                                                           OP. INC.                             3.0        3.5        3.7         3.7
SLIPPAGES                           1.5       1.5        1.6        1.9
                                                                           OPEX                                  1.6       1.8        1.8         1.8
LOAN LOSS PROV. /AVG. ASSETS        1.2      0.5         0.3       0.4
                                                                           PBT                                   1.4       1.7        1.9         1.9
PROVISION COVERAGE                59.5      76.0        77.0      75.0
                                                                           TAXES                                0.4        0.4        0.5         0.6
                `
PER SHARE DATA (`)
EPS                               36.1      44.7       53.8       63.5     ROA                                   1.0       1.3        1.4         1.3

ABVPS (75% COVERAGE FOR NPAS)    449.8     478.3      508.3      544.0     LEVERAGE                             9.5        9.2        9.8        10.7

DPS                                12.0     14.0       18.0       21.0     ROE                                  9.7       11.7       13.2        14.4
                                                                          Note: * Core ROEs excluding income and investment in subsidiaries

January 2012                                                                       Please refer to important disclosures at the end of this report      67
     Banking                                                                              HDFC Bank
                                                                                          CMP/TP/Upside: `485 / `520 / 7%



      RATING                                           ACCUMULATE       Company Background
      52 WEEK HIGH / LOW                                  520 / 396     HDFC Bank is the second-largest private sector bank in India with a
                  `
      MARKET CAP (` CR)                                     113,554     pan-India network of 2,150 branches and 6,500+ ATMs. The bank is promoted
                                                                        and 23% owned by HDFC, India's largest housing finance company.
      LIQUIDITY                                                 HIGH
                                                                        HDFC Bank has been at the forefront of modern retail banking in India. The
                                                                        bank has pioneered the transaction banking model in India, which has enabled
                                                                        it to garner substantial CASA deposits as well as fee income, while the
      SHAREHOLDING PATTERN (%)
                                                                        focus on retail lending (which forms ~50% of total loans as against 20%
      PROMOTERS (HDFC)                                           23.2   industry average) has further helped the bank in maintaining above-industry
      FII                                                        47.0   margins.



      STOCK RETURNS                                                     Structural Snapshot
      (%)                   3M         1Y        3Y       5Y     10Y    Growth opportunity: Over the medium term, private banks such as HDFC
      HDFC BANK           (1.2)       16.7      37.2     17.9 26.2      Bank have the potential to sustain an average growth rate of 22-23% every
                                                                        year (~5% faster than the sector's average) by expanding their branch networks
      BANKEX              (6.4) (12.5)          28.3      7.1 25.5      by 15-20% p.a. vs. 5-8% by their PSU counterparts.
      SENSEX              (2.6) (12.3)          21.3      3.3    17.3   Competitive position: Amongst the most competitive banks in the sector,
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  HDFC Bank has an A-list management and superior customer proposition
                                                                        in terms of service, technology and product bouquet - enabling consistent
                                                                        market share gains, especially in retail banking.
      FINANCIAL PERFORMANCE OVERVIEW
                                                                        Nature of business: Cyclical and rate-sensitive sector; Significant entry
      (%)                    3M          1Y      3Y       5Y     10Y
                                                                        barriers for new players.
      OP. INC. GROWTH* 16.2           20.3      26.0     31.7 35.9
      PAT GROWTH*           31.4      33.2      35.2     35.2 34.0
      NIM#                   4.2       4.4       4.5      4.7     4.2
                                                                        Current Investment Arguments
      ROE#                        -   16.7      16.6     17.4    18.3   Strong capital adequacy and expanding network to drive credit and CASA
                                                                        market share gains: HDFC Bank's strong growth over FY2005-11 was
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        supported by doubling of its CASA market share to ~6%. We expect this
                                                                        traction in CASA market share to continue on the back of a 15-20% yoy
      ANGEL ESTIMATES                                                   increase in branches. Strong capital adequacy of 16.3% will provide further
                                                                        support for ~5% higher-than-industry average growth.
      PARTICULARS                            FY2012E       FY2013E
                                                                        Sustained traction in fee income: Apart from traditional CEB and forex
      PAT GROWTH (%)                            31.5             30.0
                                                                        income, the bank earns substantial fee income from transaction banking,
      ROE (%)                                   18.9             21.0   cards and third-party distribution, among others. Overall, the bank's core
      P/ABV                                      3.8              3.3   fee income stood at ~1.7% of ATA in FY2011, one of the highest in the
                                                                        sector - offering another competitive advantage to the bank.
                                                                        Premium valuations: HDFC Bank has always traded at a substantial 32%
      BLOOMBERG CONSENSUS RECOMMENDATION                                premium (5 year average) to Sensex, almost being viewed as a defensive
      BUY / HOLD / SELL                                  38 / 24 / 3    stock due to a remarkably consistent ~30% earnings growth every year for
                                                                        more than a decade. In the near term, due its conservative risk management,
                                                                        the bank looks set to continue its 30% earnings growth trajectory. That
                                                                        said, we believe the stock's premium valuations (3.3x FY2013 ABV) are
                                                                        likely to limit major outperformance as the markets enters a new upcycle vs.
                                                                        cheaper private sector peers that have a similar medium-term growth outlook.
                                                                        Hence, we recommend an Accumulate rating on the stock with a target
                                                                        price of ` 520.




68   January 2012                                                                           Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME              8,386    10,543      12,178    15,174    SHARE CAPITAL                       458        465       465         465
 - YOY GROWTH (%)                 13.0      25.7       15.5       24.6    RESERVE & SURPLUS                 21,065     24,914    28,889     34,064
OTHER INCOME                     3,983     4,335      5,200      6,434    DEPOSITS                         167,404   208,586    254,475    323,184
 - YOY GROWTH (%)                 14.8       8.8       20.0       23.7     - GROWTH (%)                       17.2       24.6      22.0        27.0
OPERATING INCOME                12,370    14,878      17,378    21,608
                                                                          BORROWINGS                         7,012      7,447    10,151     12,765
 - YOY GROWTH (%)                 13.6      20.3       16.8       24.3
                                                                          TIER 2 CAPITAL                     5,904      6,947     7,920      9,108
OPERATING EXPENSES               5,940     7,153      8,369     10,290
                                                                          OTHER LIAB. & PROV.               20,616    28,993     36,469     45,902
 - YOY GROWTH (%)                  4.5      20.4        17.0      23.0
                                                                          TOTAL LIABILITIES                222,459    277,353   338,370    425,487
PRE - PROVISION PROFIT           6,430     7,725      9,009      11,319
                                                                          CASH IN HAND AND WITH RBI         15,483     25,101    19,086     24,239
 - YOY GROWTH (%)                 23.5      20.2       16.6       25.6
                                                                          BAL.WITH BANKS & MONEY AT CALL 14,459        4,568      8,459     10,637
PROVISION AND CONTINGENCIES      2,141     1,907      1,469       1,378
                                                                          INVESTMENTS                       58,608     70,929    86,989     110,723
 - YOY GROWTH (%)                 12.2     (10.9)     (23.0)      (6.2)
                                                                          ADVANCES                         125,831    159,983   198,379    247,973
PROFIT BEFORE TAX                4,289     5,819      7,540      9,940
                                                                           - GROWTH (%)                       27.3       27.1      24.0       25.0
 - YOY GROWTH (%)                 30.0      35.7       29.6        31.8
PROVISION FOR TAXATION           1,340     1,892      2,375      3,225    FIXED ASSETS                       2,123      2,171     2,569      3,133

 - AS A % OF PBT                  31.3      32.5        31.5      32.4    OTHER ASSETS                       5,955    14,601     22,889     28,782

PAT                              2,949     3,926      5,165      6,715    TOTAL ASSETS                     222,459    277,353   338,370    425,487

 - YOY GROWTH (%)                 31.3      33.2        31.5      30.0     - GROWTH (%)                       21.4       24.7      22.0       25.7




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                               4.3       4.4         4.2        4.3   P/E                                 37.6       28.7      21.8       16.8
COST TO INCOME RATIO              48.0      48.1       48.2        47.6
                                                                          P/ABV                                5.2        4.4       3.8         3.3
ROA                                 1.5       1.6        1.7        1.8
                                                                          DIVIDEND YIELD (%)                   0.5        0.7       0.9         1.2
ROE                               16.1      16.7       18.9        21.0
                                                                          DUPONT ANALYSIS
B/S RATIOS (%)
                                                                          NII                                  4.1        4.2       4.0         4.0
CASA RATIO                        52.0      52.7       53.1        51.4
CREDIT/DEPOSIT RATIO              75.2      76.7       78.0       76.7    (-) PROV. EXP.                       1.1        0.8       0.5         0.4

CAR                                17.4     16.2        14.5       13.6   ADJ NII                              3.1        3.5       3.5         3.6

 - TIER I                         13.3      12.2        11.0       10.4   TREASURY                             0.2      (0.0)      (0.0)        0.0
ASSET QUALITY (%)                                                         INT. SENS. INC.                      3.3        3.4       3.4         3.6
GROSS NPAS                          1.4       1.0        1.1        1.2   OTHER INC.                           1.8        1.8        1.7        1.7
NET NPAS                           0.3       0.2         0.2        0.3
                                                                          OP. INC.                             5.0        5.2       5.2         5.3
SLIPPAGES                          2.6        1.1        1.1        1.1
                                                                          OPEX                                 2.9        2.9       2.7         2.7
LOAN LOSS PROV. /AVG. ASSETS        1.0      0.3         0.3        0.3
                                                                          PBT                                  2.1        2.3       2.4         2.6
PROVISION COVERAGE                78.4      82.5       80.8       76.9
                                                                          TAXES                                0.7        0.8       0.8         0.8
                `
PER SHARE DATA (`)
EPS                               12.9      16.9       22.2       28.9    ROA                                  1.5        1.6        1.7        1.8

ABVPS (75% COVERAGE FOR NPAS)     94.0     109.1      126.2      148.4    LEVERAGE                            11.1       10.7       11.2       12.0
DPS                                2.4       3.3         4.4        5.7   ROE                                 16.1       16.7      18.9        21.0


January 2012                                                                      Please refer to important disclosures at the end of this report     69
                                                                                                                        TOP
                                                                                                                        PICK

     Banking                                                                              Axis Bank
                                                                                          CMP/TP/Upside: `952 / `1,361 / 43%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                1461/785        Axis Bank is India's third-largest private sector bank after ICICI Bank and
                  `
      MARKET CAP (` CR)                                       39,271    HDFC Bank. The bank was promoted by government institutions, led by UTI
                                                                        (SUUTI holds 24% stake currently, which will eventually be divested). The
      LIQUIDITY                                                HIGH
                                                                        bank has an extensive network of 1,446 branches and 7,500 ATMs spread
                                                                        across 953 centers (~60% in metro and urban regions). The bank's strong
                                                                        growth has been backed by robust retail branch expansion, strong corporate
      SHAREHOLDING PATTERN (%)
                                                                        relationships and a wide range of fee income products.
      PROMOTERS (GOVT. INSTITUTIONS)                             37.6
      FII                                                        40.2
                                                                        Structural Snapshot
                                                                        Growth opportunity: After years of reporting high growth, private banks
      STOCK RETURNS                                                     such as Axis Bank put together still have only about 15% market share.
      (%)                   3M        1Y       3Y       5Y       10Y    Hence, there is still substantial headroom for them to gain market share
      AXIS BANK          (15.9) (25.7)        29.5    12.2 41.9         (potentially averaging 22-23% growth over the medium term), especially in
                                                                        low-cost retail deposits. Rapid branch expansion (15-20% p.a.) is the key
      BANKEX              (6.4) (12.5)        28.3      7.1 25.5        to such high growth.
      SENSEX              (2.6) (12.3)        21.3      3.3      17.3   Competitive position: Being a modern private bank with superior customer
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  proposition in terms of service, technology and product bouquet, Axis Bank
                                                                        is positioned to gain market share in not just credit, but more importantly in
                                                                        CASA deposits and fee-based services.
      FINANCIAL PERFORMANCE OVERVIEW
                                                                        Nature of business: Cyclical and rate-sensitive sector; Significant entry
      (%)                    3M          1Y    3Y       5Y       10Y
                                                                        barriers for new players.
      OP. INC. GROWTH* 23.9          25.1     36.7    44.0 45.5
      PAT GROWTH*           23.7     34.8     46.8     47.5 44.4
      NIM#                   3.4      3.2      3.1      3.0       2.6
                                                                        Current Investment Arguments
      ROE#                       -   19.3     19.2    19.3 21.5         Branch expansion to support faster market share gains: Axis Bank has
                                                                        expanded its branch network at a robust 33% CAGR and increased the
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        number of ATMs by eight-fold during FY2004-11, resulting in a multi-fold
                                                                        increase in the market share of low-cost CASA deposits to 4%. In fact, in
      ANGEL ESTIMATES                                                   FY2011 alone, the bank opened 407 branches (41% yoy growth) and further
      PARTICULARS                          FY2012E       FY2013E        expansion plans remain strong (250+ additions p.a.), which are expected to
                                                                        sustain further market share gains and superior earnings growth.
      PAT GROWTH (%)                          23.2               17.2
                                                                        Fee income continues to drive higher profitability: The bank's fee income
      ROE (%)                                 20.3               20.2   also has been sector leading at 2.0% of assets (almost twice the level in
      P/ABV                                    1.8                1.5   PSU banks over FY2009-11). In 9MFY2012 as well, the bank witnessed
                                                                        healthy growth in most fee segments, including corporate (44%), treasury
                                                                        (32%) and retail (35%); and moderate growth is expected to continue going
      BLOOMBERG CONSENSUS RECOMMENDATION                                forward.
      BUY / HOLD / SELL                                 57 / 9 / 1      Valuations attractive: The stock is trading at attractive valuations of 1.5x
                                                                        FY2013E ABV - at a substantial ~54% discount to HDFC Bank, despite
                                                                        similar earnings quality, profitability and growth expectations in the medium
                                                                        term. In our view, markets have over-discounted asset-quality concerns for
                                                                        the bank and current valuations provide a substantial margin of safety.
                                                                        In fact, despite the bank's healthy medium-term growth potential, competitive
                                                                        positioning and profitability, its current P/E valuation at 8.3x FY2013E
                                                                        earnings is at a substantial 35% P/E discount even to the Sensex.
                                                                        We recommend Buy, valuing the stock at 2.2x FY2013E ABV to arrive at
                                                                        a target price of ` 1,361.


70   January 2012                                                                           Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                BALANCE SHEET
           `
Y/E MARCH (` CR)               FY2010    FY2011    FY2012E   FY2013E               `
                                                                        Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E   FY2013E
NET INTEREST INCOME             5,004     6,563      8,132     9,979    SHARE CAPITAL                       405        411        411       424
 - YOY GROWTH (%)                35.8      31.1       23.9      22.7    RESERVE & SURPLUS                 15,639    18,588     21,786     25,833
OTHER INCOME                    3,946     4,632      5,416     6,205    DEPOSITS                         141,300   189,238    234,655   286,279
 - YOY GROWTH (%)                39.2       17.4      16.9      14.6     - GROWTH (%)                       20.4       33.9      24.0       22.0
OPERATING INCOME                8,950    11,195     13,548    16,184
                                                                        BORROWINGS                        10,014     19,275    23,673    28,789
 - YOY GROWTH (%)                37.3      25.1       21.0      19.5
                                                                        TIER 2 CAPITAL                     7,156      6,993     8,392     10,238
OPERATING EXPENSES              3,710     4,779      5,928     7,410
                                                                        OTHER LIAB. & PROV.                6,134     8,209      9,181     10,963
 - YOY GROWTH (%)                29.8      28.8       24.0      25.0
                                                                        TOTAL LIABILITIES                180,648    242,713   298,097    362,527
PRE - PROVISION PROFIT          5,241     6,416      7,620     8,774
                                                                        CASH IN HAND AND WITH RBI          9,482     13,886    15,253    18,608
 - YOY GROWTH (%)                43.1      22.4       18.8      15.1
                                                                        BAL.WITH BANKS & MONEY AT CALL 5,722          7,522     5,217      6,344
PROVISION AND CONTINGENCIES     1,389     1,280      1,438     1,528
                                                                        INVESTMENTS                       55,975     71,992    97,795    118,323
 - YOY GROWTH (%)                58.5      (7.9)      12.3       6.3
                                                                        ADVANCES                         104,341    142,408   170,889   208,485
PROFIT BEFORE TAX               3,851     5,136      6,182     7,246
                                                                         - GROWTH (%)                       27.9       36.5      20.0       22.0
 - YOY GROWTH (%)                38.3      33.3       20.4       17.2
PROVISION FOR TAXATION          1,337     1,747      2,006     2,351    FIXED ASSETS                       1,222      2,273     2,981      3,517

 - AS A % OF PBT                 34.7      34.0       32.4      32.4    OTHER ASSETS                       3,906      4,632     5,962      7,251

PAT                             2,515     3,388      4,176     4,895    TOTAL ASSETS                     180,648    242,713   298,097    362,527

 - YOY GROWTH (%)                38.5      34.8       23.2       17.2    - GROWTH (%)                       22.3       34.4      22.8       21.6




 KEY RATIOS                                                             KEY RATIOS
Y/E MARCH                      FY2010    FY2011    FY2012E   FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E   FY2013E
PROFITABILITY RATIOS (%)                                                VALUATION RATIOS
NIMS                              3.1       3.2        3.1       3.1    P/E                                 15.3       11.5       9.4        8.3
COST TO INCOME RATIO             41.4      42.7       43.8      45.8
                                                                        P/ABV                                2.4        2.1       1.8        1.5
ROA                                1.5       1.6       1.5        1.5
                                                                        DIVIDEND YIELD (%)                   1.3        1.5       2.2        2.4
ROE                              19.2      19.3       20.3      20.2
                                                                        DUPONT ANALYSIS
B/S RATIOS (%)
                                                                        NII                                  3.0        3.1       3.0        3.0
CASA RATIO                       46.7      41.1       40.6      40.9
CREDIT/DEPOSIT RATIO             73.8      75.3       72.8      72.8    (-) PROV. EXP.                       0.8        0.6       0.5        0.5

CAR                              15.8      12.7       12.3      12.1    ADJ NII                              2.2        2.5       2.5        2.6

 - TIER I                         11.2      9.4        9.0       8.8    TREASURY                             0.4        0.2       0.1        0.1
ASSET QUALITY (%)                                                       INT. SENS. INC.                      2.7        2.7       2.6        2.6
GROSS NPAS                         1.3       1.1       1.4        1.2   OTHER INC.                           2.0        2.0       1.9        1.8
NET NPAS                          0.4       0.3        0.3       0.3
                                                                        OP. INC.                             4.6        4.7       4.5        4.4
SLIPPAGES                         2.2        1.4       1.7        1.8
                                                                        OPEX                                 2.3        2.3       2.2        2.2
LOAN LOSS PROV. /AVG. ASSETS      0.8       0.5        0.4       0.4
                                                                        PBT                                  2.3        2.4       2.3        2.2
PROVISION COVERAGE               68.2      74.3       76.6      76.2
                                                                        TAXES                                0.8        0.8       0.7        0.7
                `
PER SHARE DATA (`)
EPS                              62.1      82.5      101.7     115.4    ROA                                  1.5        1.6       1.5        1.5

ABVPS (75% COVER FOR NPAS)      393.8     462.5      540.7     618.8    LEVERAGE                            12.5       12.1      13.1       13.6
DPS                              12.0      14.0       20.5      23.0    ROE                                 19.2       19.3      20.3       20.2


January 2012                                                                    Please refer to important disclosures at the end of this report    71
     Banking                                                                               Yes Bank
                                                                                           CMP/TP/Upside: `287 / `361 / 26%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                342 / 231       Yes Bank is the youngest private sector bank in the country, promoted by
                  `
      MARKET CAP (` CR)                                       10,086    professional bankers. The bank started its operations in CY2004 and has
                                                                        been growing at a scorching pace, focusing on niche assets to maintain
      LIQUIDITY                                                HIGH
                                                                        profitable margins and asset quality. The bank's thrust so far has been primarily
                                                                        on wholesale banking operations for mid-size corporates. Now aiming for a
                                                                        higher share of retail deposits, the bank has recently doubled its network to
      SHAREHOLDING PATTERN (%)
                                                                        305 branches (targeting the urban affluent segment) and is planning to expand
      PROMOTERS                                                  26.2   its network to 750 branches by FY2015.
      FII                                                        44.5

                                                                        Structural Snapshot
      STOCK RETURNS                                                     Growth opportunity: Being a modern, new-generation private bank, on a
      (%)                   3M         1Y       3Y      5Y       10Y    small base, Yes bank has grown its wholesale-oriented balance sheet at a
      YES BANK            (1.2)       6.2      57.0   12.4          -   scorching pace of 89.5% CAGR over FY2005-11. Subject to the conducive
                                                                        domestic macro environment, a 30% CAGR in balance sheet is achievable
      BANKEX              (6.4) (12.5)         28.3     7.1 25.5        over the next five years, but the key execution challenge for the bank is to
      SENSEX              (2.6) (12.3)         21.3     3.3      17.3   grow its savings deposit base at an even faster pace.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  Competitive position: The bank has demonstrated a healthy track record in
                                                                        the niche corporate and wholesale segments; however, as it grows larger,
                                                                        developing a retail customer base will be important for sustaining profitability
      FINANCIAL PERFORMANCE OVERVIEW                                    - this remains the key execution challenge.
      (%)                    3M          1Y     3Y      5Y       10Y
                                                                        Nature of business: Cyclical and rate-sensitive sector; Significant entry
      OP. INC. GROWTH* 35.0           37.2     39.3   58.3          -   barriers for new players.
      PAT GROWTH*           33.3      52.2     53.8    67.4         -
      NIM#                   2.7       2.7      2.7     2.6         -
                                                                        Current Investment Arguments
      ROE#                        -   21.1     20.7   19.0          -
                                                                        A-list management and ability to raise capital: Yes Bank has an A-list top
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        management team, which brings to table rich experience from the best banks
                                                                        in India. The bank's performance also benefits from management's ability to
      ANGEL ESTIMATES                                                   raise equity capital (at increasing, book-accretive premiums).
      PARTICULARS                           FY2012E      FY2013E        Strong asset quality: The bank has maintained strong asset quality in spite
      PAT GROWTH (%)                           27.9               8.4   of growing at a fast clip over the past few years (gross and net NPA ratios
                                                                        at just 0.3% and 0.04%, respectively), which has been aided by the smaller
      ROE (%)                                  22.2              20.1   size of its balance sheet so far. The bank has also been astute in managing
      P/ABV                                     2.2               1.8   its growth rate and asset-liability durations in-line with the changing external
                                                                        environment.
                                                                        Valuations provide margin of safety from retail growth challenges: Yes
      BLOOMBERG CONSENSUS RECOMMENDATION                                Bank's growth premium has reduced over time due to execution challenges
      BUY / HOLD / SELL                                 53 / 3 / 3      in creating a retail deposit base (now trading at 1.8x due to cyclical slowdown
                                                                        vs. five-year median of 2.5x). However, taking the challenges of building a
                                                                        retail deposit base head-on, the bank has doubled its branch network over
                                                                        the past 18 months to 305 branches and aggressively increased savings
                                                                        rate to 7% as a smart customer acquisition strategy. While it has fallen
                                                                        short of its retail expansion goals in the past and challenges remain significant,
                                                                        valuations at 1.8x FY2013E ABV in our view provide a better risk-return
                                                                        trade-off than inthe past. Hence, we recommend a Buy rating on the stock
                                                                        with a target price of ` 361.



72   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010   FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E   FY2013E
 NET INTEREST INCOME               788      1,247     1,579      1,861    SHARE CAPITAL                       340        347        347       347
 - YOY GROWTH (%)                  54.1     58.2       26.6        17.9   RESERVE & SURPLUS                  2,750      3,447     4,256      5,102
 OTHER INCOME                       576      623       789         939    DEPOSITS                          26,799    45,939     54,208    65,592
 - YOY GROWTH (%)                  32.3       8.3      26.5       19.0     - GROWTH (%)                       65.7       71.4      18.0       21.0
 OPERATING INCOME                 1,363     1,870     2,368      2,800
                                                                          BORROWINGS                         2,564     3,333      5,842      6,117
 - YOY GROWTH (%)                  44.1      37.2      26.6       18.3
                                                                          TIER 2 CAPITAL                     2,185     3,358      3,962      4,715
 OPERATING EXPENSES                500       680        874       1,136
                                                                          OTHER LIAB. & PROV.                1,745     2,583      3,085     3,696
 - YOY GROWTH (%)                  19.5     35.9       28.5       30.0
                                                                          TOTAL LIABILITIES                 36,383    59,007     71,700    85,569
 PRE - PROVISION PROFIT            863     1,190      1,494      1,664
                                                                          CASH IN HAND AND WITH RBI          1,995      3,076     3,524     4,263
 - YOY GROWTH (%)                  63.6      37.9      25.5        11.4
                                                                          BAL.WITH BANKS & MONEY AT CALL      678        420      1,434      1,711
 PROVISION AND CONTINGENCIES        137       98        117        172
                                                                          INVESTMENTS                       10,210    18,829     23,381     27,990
 - YOY GROWTH (%)                 121.6    (28.2)      19.4       46.6
                                                                          ADVANCES                          22,193    34,364     40,549    48,253
 PROFIT BEFORE TAX                 726     1,092      1,377      1,492
                                                                           - GROWTH (%)                       78.9       54.8      18.0       19.0
 - YOY GROWTH (%)                  55.9     50.3       26.0        8.4
 PROVISION FOR TAXATION            249       365        447        484    FIXED ASSETS                         115       132       156        181

 - AS A % OF PBT                   34.2     33.4       32.4       32.4    OTHER ASSETS                       1,191     2,186      2,656      3,170

 PAT                                478      727       930       1,008    TOTAL ASSETS                      36,383    59,007     71,700    85,569

 - YOY GROWTH (%)                  57.2     52.2       27.9        8.4     - GROWTH (%)                       58.9       62.2      21.5       19.3




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                        FY2010   FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E   FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                                2.8       2.7       2.5        2.5    P/E                                 20.4       13.7      10.7        9.9
COST TO INCOME RATIO               36.7     36.3       36.9       40.6
                                                                          P/ABV                                3.2        2.6       2.2        1.8
ROA                                 1.6       1.5        1.4        1.3
                                                                          DIVIDEND YIELD (%)                   0.5        0.9       1.0        1.4
ROE                                20.3      21.1      22.2       20.1
                                                                          DUPONT ANALYSIS
B/S RATIOS (%)
                                                                          NII                                  2.7        2.6       2.4        2.4
CASA RATIO                         10.5      10.3       11.7       13.2
CREDIT/DEPOSIT RATIO               82.8      74.8      74.8       73.6    (-) PROV. EXP.                       0.5        0.2       0.2        0.2

CAR                                20.6     16.5       16.3       16.3    ADJ NII                              2.2        2.4       2.2        2.1

 - TIER I                          12.9       9.7       9.7        9.6    TREASURY                             0.3      (0.1)       0.0        0.0
ASSET QUALITY (%)                                                         INT. SENS. INC.                      2.5        2.3       2.3        2.2
GROSS NPAS                          0.3       0.2       0.2        0.2    OTHER INC.                           1.6        1.4       1.2        1.2
NET NPAS                            0.1       0.0       0.0        0.0
                                                                          OP. INC.                             4.1        3.7       3.4        3.3
SLIPPAGES                           0.9       0.2       0.3        0.5
                                                                          OPEX                                 1.7        1.4       1.3        1.4
LOAN LOSS PROV. /AVG. ASSETS        0.3       0.1       0.1        0.2
                                                                          PBT                                  2.5        2.3       2.1        1.9
PROVISION COVERAGE                 78.4     88.6       88.6       88.5
                                                                          TAXES                                0.8        0.8       0.7        0.6
                `
PER SHARE DATA (`)
EPS                                14.1     20.9       26.8       29.0    ROA                                  1.6        1.5       1.4        1.3

ABVPS ( 75% COVERAGE FOR NPAS)     91.0    109.3      132.6      157.0    LEVERAGE                            12.6       13.9      15.6       15.6
DPS                                 1.5       2.5       3.0        4.0    ROE                                 20.3       21.1      22.2       20.1


January 2012                                                                      Please refer to important disclosures at the end of this report    73
     Banking                                                                              Federal Bank
                                                                                          CMP/TP/Upside: `364 / - / -



      RATING                                             NEUTRAL        Company Background
      52 WEEK HIGH / LOW                                 477 / 323      Federal Bank is the largest old generation private sector bank, having a
                  `
      MARKET CAP (` CR)                                        6,215    large presence in Kerala with 486 of its 823 branches. Close to half of its
                                                                        branch network is located in semi-urban areas. NRI customers in the Middle
      LIQUIDITY                                          MEDIUM
                                                                        East form a substantial part of the bank's business; NRI deposits constitute
                                                                        ~21% of its total deposits. Over the past one year, the bank's new CEO
                                                                        (coming from Standard Chartered Bank) has been focusing on improving
      SHAREHOLDING PATTERN (%)
                                                                        its asset quality.
      PROMOTERS                                                     -
      FII                                                        43.4
                                                                        Structural Snapshot
                                                                        Growth opportunity: Federal Bank's growth is expected to be in-line with
      STOCK RETURNS                                                     the sector, though with a bias towards market share loss in the long term.
      (%)                   3M          1Y        3Y     5Y      10Y
                                                                        Competitive position: The bank enjoys a strong albeit niche customer legacy,
      FEDERAL BANK        (6.9)       (3.4)      32.2   12.9 41.1       but with limited scope for broad-based growth into other regions or product
      BANKEX              (6.4) (12.5)           28.3    7.1 25.5       segments, in our view.

      SENSEX              (2.6) (12.3)           21.3    3.3     17.3   Nature of business: Cyclical and rate-sensitive sector; Significant entry
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  barriers for new players.



      FINANCIAL PERFORMANCE OVERVIEW                                    Current Investment Arguments
      (%)                    3M          1Y       3Y     5Y      10Y    Asset quality to improve: During FY2011, the bank had witnessed elevated
      OP. INC. GROWTH*       1.5       16.6      21.5   22.1 20.1       NPAs from its retail and SME loan book. However, management is taking
                                                                        various steps to stabilize its asset-quality woes and expects higher recoveries
      PAT GROWTH*           36.2       26.4      16.8   21.1 25.4
                                                                        and lower slippages going forward, subject to the external environment.
      NIM#                   3.5        3.8       3.7    3.5      3.4
                                                                        RBI's move to deregulate NRE FD rates negative for the bank: One of
      ROE#                        -    12.0      11.5   13.9     16.3   the key differentiators for the bank was the lower cost of NRE deposits
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          comprising ~12% of its total deposits (type of NRI deposits where interest
                                                                        income is tax-free and where RBI-regulated rates were as low as 3-4% until
                                                                        recently). However, following RBI's recent deregulation, banks have increased
      ANGEL ESTIMATES                                                   NRE FD rates by almost 500bp, leaving negligible cost advantage from
      PARTICULARS                             FY2012E     FY2013E       these deposits over domestic FD rates. Consequently, over a one-year period,
                                                                        as these deposits re-price upwards to new interest rates, the bank's NIM
      PAT GROWTH (%)                             25.5             1.7
                                                                        could be impacted by up to 45bp, posing a negative for the bank's earnings
      ROE (%)                                    13.7            12.5   outlook.
      P/ABV                                       1.1             1.0   Valuations limit upside: Old private bank stocks such as Federal Bank
                                                                        have outperformed since the RBI's intention of awarding more bank licenses,
                                                                        potentially due to increased M&A expectations (leading to inadequate margin
      BLOOMBERG CONSENSUS RECOMMENDATION                                of safety at current valuations in our view). Valuations at 1.0x FY2013 ABV
      BUY / HOLD / SELL                                  29 / 3 / 0     are higher than the 0.6-0.7x range at which mid-size PSU banks with similar
                                                                        KPIs are trading. While in the medium term we expect a gradual increase in
                                                                        the bank's leverage to lead to higher RoEs, relatively high valuations coupled
                                                                        with the diminished advantage of low-cost NRE deposits are likely to limit
                                                                        upside from current levels. Hence, we recommend a Neutral rating on
                                                                        the stock.




74   January 2012                                                                           Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                 BALANCE SHEET
           `
Y/E MARCH (` CR)               FY2010    FY2011    FY2012E    FY2013E               `
                                                                         Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME             1,411     1,747      1,938      2,045    SHARE CAPITAL                        171       171        171        171
 - YOY GROWTH (%)                  7.3     23.8        11.0       5.5    RESERVE & SURPLUS                  4,519     4,938      5,525       6,116
OTHER INCOME                      531       517        504        565    DEPOSITS                          36,058     43,015    50,327     59,889
 - YOY GROWTH (%)                 2.9      (2.7)      (2.5)      12.1    - GROWTH (%)                        12.0       19.3       17.0      19.0
OPERATING INCOME                1,942     2,263      2,442      2,610
                                                                         BORROWINGS                         1,227     1,582      3,121      3,682
 - YOY GROWTH (%)                 6.0      16.6         7.9       6.9
                                                                         BOND CAPITAL                        320        306        677        677
OPERATING EXPENSES                677       836        959       1,103
                                                                         OTHER LIAB. & PROV.                1,380     1,445      1,670      2,018
 - YOY GROWTH (%)                18.5      23.5        14.7      15.0
                                                                         TOTAL LIABILITIES                 43,676    51,456     61,491     72,554
PRE-PROVISION PROFIT            1,265     1,427      1,483      1,507
                                                                         CASH IN HAND AND WITH RBI          2,319     2,935      3,271      3,893
 - YOY GROWTH (%)                 0.4      12.8         3.9        1.6
                                                                         BAL.WITH BANKS & MONEY AT CALL      405        813      1,230      1,451
PROVISION AND CONTINGENCIES      405        525        392        397
                                                                         INVESTMENTS                       13,055    14,538     18,480     21,780
 - YOY GROWTH (%)               (13.2)     29.6      (25.3)        1.3
                                                                         ADVANCES                          26,950    31,953     37,066     43,738
PROFIT BEFORE TAX                860        902      1,091       1,110
                                                                         - GROWTH (%)                        20.4       18.6      16.0       18.0
 - YOY GROWTH (%)                 8.4       4.9        21.0        1.7
PROVISION FOR TAXATION           395        315        354        360    FIXED ASSETS                        290        290       336         384

 - AS A % OF PBT                 46.0      34.9       32.4       32.4    OTHER ASSETS                        658        927      1,108      1,308

PAT                              465        587        737        750    TOTAL ASSETS                      43,676     51,456    61,491     72,554

 - YOY GROWTH (%)                (7.2)     26.4       25.5         1.7   - GROWTH (%)                        12.4       17.8      19.5       18.0




 KEY RATIOS                                                              KEY RATIOS
Y/E MARCH                      FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                 VALUATION RATIOS
NIMS                              3.5       3.8         3.5       3.1    P/E                                 13.4       10.6       8.4        8.3
COST TO INCOME RATIO             34.9      36.9       39.3       42.3
                                                                         P/ABV                                1.4        1.3        1.1        1.0
ROA                                1.1       1.2        1.3        1.1
                                                                         DIVIDEND YIELD (%)                   1.3        2.2       2.0        2.1
ROE                              10.3      12.0        13.7      12.5
                                                                         DUPONT ANALYSIS
B/S RATIOS (%)
                                                                         NII                                  3.4        3.7       3.4        3.1
CASA RATIO                       26.2      26.9       26.4       25.6
LOAN DEPOSIT RATIO               74.7      74.3       73.6       73.0    (-) PROV. EXP.                       1.0        1.1       0.7        0.6

CAR                              18.4      16.8       16.6       15.4    ADJ NII                              2.4        2.6       2.7        2.5

 - TIER I                        16.9      15.6        14.6      13.7    TREASURY                             0.3        0.1       0.1        0.0
ASSET QUALITY (%)                                                        INT. SENS. INC.                      2.7        2.7       2.8        2.5
GROSS NPAS                        3.0       3.5         3.1       2.7    OTHER INC.                           1.0        1.0       0.8        0.8
NET NPAS                          0.5       0.6         0.5       0.5
                                                                         OP. INC.                             3.7        3.7       3.6        3.3
SLIPPAGES                         3.3       3.2         2.4       2.1
                                                                         OPEX                                 1.6        1.8        1.7        1.6
LOAN LOSS PROV. /AVG. ASSETS       1.0       1.0        0.6       0.5
                                                                         PBT                                  2.1        1.9        1.9        1.7
PROVISION COVERAGE               84.3      83.4       82.6       80.1
                                                                         TAXES                                1.0        0.7       0.6        0.5
                `
PER SHARE DATA (`)
EPS                              27.2      34.3       43.1       43.8    ROA                                  1.1        1.2        1.3        1.1

ABVPS (75% COVER. FOR NPAS)     273.9     298.3      332.7      367.2    LEVERAGE                             9.2        9.7      10.5        11.2
DPS                               5.0       8.5         7.5       8.0    ROE                                 10.3       12.0      13.7        12.5


January 2012                                                                     Please refer to important disclosures at the end of this report     75
     Banking                                                                               South Indian Bank
                                                                                           CMP/TP/Upside: `23 / - / -



      RATING                                            NEUTRAL         Company Background
      52 WEEK HIGH / LOW                                   27 / 18      South Indian Bank (SIB) is a small old generation private sector bank with
                  `
      MARKET CAP (` CR)                                       2,565     ~84% of its branches in southern India (66% in Kerala alone). Like Federal
                                                                        Bank, SIB also has a large NRI customer base (14% of total deposits).
      LIQUIDITY                                         MEDIUM
                                                                        Of late, the bank has aggressively started focusing on the gold loan portfolio
                                                                        - a highly profitable and secured loan segment. Gold loans accounted for
                                                                        ~26% of the bank's loan book as of 2QFY2012 and management is targeting
      SHAREHOLDING PATTERN (%)
                                                                        to further increase the same.
      PROMOTERS                                                     -
      FII                                                        42.3
                                                                        Structural Snapshot
                                                                        Growth opportunity: SIB's growth is expected to be in-line with the sector’s
      STOCK RETURNS                                                     growth, though with a slight bias towards market share loss in the long
      (%)                   3M        1Y        3Y      5Y       10Y    term; Momentum in the gold loan portfolio is expected to sustain the bank's
      SOUTH IND BANK (3.6)            0.7      58.2   23.7 28.9         high growth in the near term.

      BANKEX              (6.4) (12.5)         28.3     7.1 25.5        Competitive position: Gold loans have been a key differentiator of late;
                                                                        Else primarily a niche customer legacy, with limited scope for broad-based
      SENSEX              (2.6) (12.3)         21.3     3.3      17.3   growth into other regions or product segments.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                        Nature of business: Cyclical and rate-sensitive sector; significant entry barriers
                                                                        for new players.
      FINANCIAL PERFORMANCE OVERVIEW
      (%)                    3M          1Y     3Y      5Y       10Y
                                                                        Current Investment Arguments
      OP. INC. GROWTH* 31.0          27.2      22.5   20.9       16.1
                                                                        Strong business growth: SIB has been growing at a healthy pace primarily
      PAT GROWTH*           35.7     25.1      24.5   39.7 21.1
                                                                        due to a rapidly growing gold loan portfolio (84% CAGR over FY2009-11).
      NIM#                   3.0      2.8       2.7     2.8       2.8   Gold loans (at ~`6,500cr) now constitute ~26% of the overall loan book.
      ROE#                       -   18.5      17.2   16.7       17.4   The bank's plans to raise substantial `1,000cr of equity capital (~59% of
                                                                        FY2011 net worth) to maintain its strong growth are temporarily on hold
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        due to market conditions.
                                                                        NIMs likely to have peaked out: SIB's NIMs have been healthy despite its
      ANGEL ESTIMATES                                                   relatively low CASA deposits due to increasing share of high-yielding gold
      PARTICULARS                           FY2012E      FY2013E        loans. However, increasing competition in the gold loan space and entry of
                                                                        several players are likely to reduce the so-far above-average profitability of
      PAT GROWTH (%)                           33.8           (3.6)
                                                                        this segment going forward. Also, the RBI's recent move of deregulating
      ROE (%)                                  21.1              17.5   interest rates on NRE deposits has diminished the competitive cost advantage
      P/ABV                                     1.3               1.1   of these deposits, in our view. Assuming all the NRE term and savings deposits
                                                                        (comprising 8.5% of deposits) re-price over the next one year, the bank's
                                                                        NIMs could get impacted by up to 35bp.
      BLOOMBERG CONSENSUS RECOMMENDATION                                Valuations limit upside: Old private bank stocks such as SIB have outperformed
      BUY / HOLD / SELL                                 16 / 5 / 0      since the RBI's intention of awarding more bank licenses, potentially due to
                                                                        increased M&A expectations (leading to inadequate margin of safety at current
                                                                        valuations, in our view). Current valuations at 1.1x FY2013E ABV have factored
                                                                        in the positives, in our view, and are considerably above the valuations of
                                                                        small and mid-size PSU banks, which have similar fundamentals, even after
                                                                        factoring in robust growth witnessed due to the sharp rise in gold loans.
                                                                        Hence, we maintain our Neutral stance on the stock.




76   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                   BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010    FY2011    FY2012E    FY2013E               `
                                                                           Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E   FY2013E
NET INTEREST INCOME                 568       791      1,018       1,115   SHARE CAPITAL                        113        113       113        113
 - YOY GROWTH (%)                    8.7     39.2       28.7        9.6    RESERVE & SURPLUS                  1,372      1,734     2,047      2,345
OTHER INCOME                        208       197       228         243    DEPOSITS                          23,012     29,721    35,071    40,682
 - YOY GROWTH (%)                  26.9      (5.6)      16.1        6.5    - GROWTH (%)                        27.2       29.2      18.0       16.0
OPERATING INCOME                    777      988       1,246      1,358
                                                                           BORROWINGS                            1         25        30         35
 - YOY GROWTH (%)                   13.0     27.2       26.2        9.0
                                                                           TIER 2 CAPITAL                      330        265        313       363
OPERATING EXPENSES                  366       463        572        680
                                                                           OTHER LIAB. & PROV.                 706        962      1,197      1,387
 - YOY GROWTH (%)                   11.5     26.3       23.6       19.0
                                                                           TOTAL LIABILITIES                 25,534    32,820     38,771     44,924
PRE - PROVISION PROFIT              411       525        675        678
                                                                           CASH IN HAND AND WITH RBI          1,391      1,828     2,280      2,644
 - YOY GROWTH (%)                   14.5     27.9       28.4        0.5
                                                                           BAL.WITH BANKS & MONEY AT CALL      597        638        775       898
PROVISION AND CONTINGENCIES          43        80         95        120
                                                                           INVESTMENTS                        7,156      8,924     8,583     9,909
 - YOY GROWTH (%)                 (24.5)     84.4       19.6       25.6
                                                                           ADVANCES                          15,823    20,489     26,021     30,184
PROFIT BEFORE TAX                   367       446        579        558
                                                                           - GROWTH (%)                        33.6       29.5      27.0       16.0
 - YOY GROWTH (%)                   21.9     21.3       30.0       (3.6)
PROVISION FOR TAXATION              134       153       188         181    FIXED ASSETS                        153        357        422       488

 - AS A % OF PBT                   36.4      34.3       32.4       32.4    OTHER ASSETS                        415        585       691        800

PAT                                 234       293       391         377    TOTAL ASSETS                      25,534    32,820     38,771     44,924

 - YOY GROWTH (%)                  20.0      25.1       33.8       (3.6)   - GROWTH (%)                        25.3       28.5      18.1       15.9




 KEY RATIOS                                                                KEY RATIOS
Y/E MARCH                        FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E   FY2013E
PROFITABILITY RATIOS (%)                                                   VALUATION RATIOS
NIMS                                 2.5      2.8        2.9        2.7    P/E                                 11.0        8.8       6.6        6.8
COST TO INCOME RATIO                47.1     46.8       45.9       50.1
                                                                           P/ABV                                1.8        1.5       1.3        1.1
ROA                                  1.0       1.0        1.1       0.9
                                                                           DIVIDEND YIELD (%) (%)               1.8        2.2       2.6        2.6
ROE                                 17.0     18.5       21.1        17.5
B/S RATIOS (%)                                                             DUPONT ANALYSIS

CASA RATIO                         23.1      21.5       21.0       20.9    NII                                  2.5        2.7       2.8        2.7
CREDIT/DEPOSIT RATIO               68.8      68.9       74.2       74.2    (-) PROV. EXP.                       0.2        0.3       0.3        0.3
NETWORTH/ ASSETS                   16.7      18.4       19.3       19.4
                                                                           ADJ NII                              2.3        2.4       2.6        2.4
CAR                                15.4      14.0       12.7       12.5
                                                                           TREASURY                             0.3        0.1       0.1        0.0
 - TIER I                           12.4      11.3      10.4       10.3
                                                                           INT. SENS. INC.                      2.6        2.6       2.7        2.4
ASSET QUALITY (%)
GROSS NPAS                           1.3       1.1       0.9        0.8    OTHER INC.                           0.6        0.5       0.6        0.5

NET NPAS                             0.4      0.3        0.2        0.2    OP. INC.                             3.2        3.1       3.2        3.0
SLIPPAGES                            1.5      0.7         1.4        1.8   OPEX                                 1.6        1.6       1.6        1.6
NPA PROVISIONING EXP. / ASSETS       0.2      0.1        0.2        0.2
                                                                           PBT                                  1.6        1.5       1.6        1.3
NPA PROVISION COVERAGE             70.8      73.9       75.8       75.1
                                                                           TAXES                                0.6        0.5       0.5        0.4
                `
PER SHARE DATA (`)
                                                                           ROA                                  1.0        1.0       1.1        0.9
EPS                                  2.1      2.6        3.5        3.3
ABVPS (75% COVERAGE FOR NPAS)       12.9     15.0        17.8      20.4    LEVERAGE                            16.7       18.4      19.3       19.4

DPS                                  0.4      0.5        0.6        0.6    ROE                                 17.0       18.5      21.1       17.5


January 2012                                                                       Please refer to important disclosures at the end of this report    77
     Banking                                                                               State Bank of India
                                                                                           CMP/TP/Upside: `1,884 / `2,359 / 25%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                             2,960 / 1,576      State Bank of India (SBI) is the largest bank in India, with an asset size of
                  `
      MARKET CAP (` CR)                                   119,615       ~`12,40,000cr. The bank has the widest network of ~13,500 branches,
                                                                        with dominant presence across all regions of the country, including two-
      LIQUIDITY                                               HIGH
                                                                        thirds of its branches in rural and semi-urban areas (in comparison, the second
                                                                        largest PSU bank has ~5,300 branches and the largest private sector bank
                                                                        has ~2,500 branches). The bank also has 164 overseas branches, which
      SHAREHOLDING PATTERN (%)
                                                                        account for ~14% of its total loans. It has subsidiaries in life insurance,
      PROMOTERS (GOVT.)                                          59.4   asset management, credit cards and capital markets, among others; and
      FII                                                        10.7   five regional subsidiary banks (having ~4,800 branches and combined asset
                                                                        size of ~`3,75,000cr).


      STOCK RETURNS
                                                                        Structural Snapshot
      (%)                   3M        1Y       3Y       5Y       10Y
      ST. BK OF INDIA (1.8) (24.9)            18.0     10.3 24.7        Growth opportunity: Enjoying maximum public confidence, SBI is one of
                                                                        the few PSU banks to have gained not only credit market share but also
      BANKEX              (6.4) (12.5)        28.3      7.1 25.5        savings market share over FY2007-11. Post capital infusion by the Government
      SENSEX              (2.6) (12.3)        21.3      3.3      17.3   of India, we expect SBI's growth to be a notch higher than the expected
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  medium-term sectoral growth of 17-18%.
                                                                        Competitive position: SBI's dominant savings market share (~26%) enables
                                                                        it to have one of the lowest cost of funds. Moreover, government business
      FINANCIAL PERFORMANCE OVERVIEW                                    contributes significant free floats and fee income (at 1.3% of average assets,
      (%)                    3M          1Y    3Y       5Y       10Y    highest amongst PSU banks). Poor asset quality, especially from priority
      OP. INC. GROWTH* 14.3          25.1     22.3     15.9 14.6        sector lending, has been the bank's Achilles heel.

      PAT GROWTH*           12.4     (9.8)     7.1    13.4       17.8   Nature of business: Cyclical and rate-sensitive sector; Significant entry
                                                                        barriers for new players.
      NIM#                   3.2      3.0      2.7      2.8       3.0
      ROE#                       -   13.3     15.8     16.2      17.8
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          Current Investment Arguments
                                                                        Improving savings market share: Until FY2007, SBI lost CASA market
      ANGEL ESTIMATES                                                   share to private sector banks pursuing aggressive branch expansion. However,
                                                                        since then the bank's market share of savings deposits has expanded substantially
      PARTICULARS                          FY2012E       FY2013E
                                                                        by 400bp to 26.4% (FY2007-1HFY2012), driven by relatively fast branch
      PAT GROWTH (%)                          29.6               22.5   expansion (8.3% CAGR vs. 2-5% for most PSU banks), leveraging its tremendous
      ROE (%)                                 16.6               17.9   trust factor in the country. Even in FY2011, the bank added 1,000+ branches
                                                                        to further bolster its already strong network to 13,542 branches.
      P/ABV                                    1.8                1.5
                                                                        Provisioning costs to decline: Provisioning costs for the bank in 1HFY2012
                                                                        at 0.9% of assets were already higher than 2008 levels of ~0.5%, partly
      BLOOMBERG CONSENSUS RECOMMENDATION                                due to one-time regulatory provisions. Consequently, although SBI's core
                                                                        RoEs have improved over the past few years, actual RoEs are below core
      BUY / HOLD / SELL                               33 / 14 / 11
                                                                        levels, leaving scope for improvement even after factoring in higher NPAs in
                                                                        the coming quarters. Hence, unlike other PSU banks, SBI is likely to report
                                                                        a healthy earnings CAGR of 26% over FY2011-13E.
                                                                        Reasonable valuations: In light of its dominant position and reach, strong
                                                                        savings market share gains, high fee income and superior earnings quality,
                                                                        current valuations at 1.2x FY2013E ABV adjusting for value of subsidiaries
                                                                        (1.5x without adjusting for subsidiaries) are quite reasonable, in our view.
                                                                        Hence, we maintain our Buy recommendation on the stock with a target
                                                                        price of ` 2,359


78   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)               FY2010    FY2011    FY2012E    FY2013E                `
                                                                          Y/E MARCH (` CR)                 FY2010      FY2011     FY2012E     FY2013E
 NET INTEREST INCOME           23,671    32,526     42,153     48,737     SHARE CAPITAL                        635         635         635         635
 - YOY GROWTH (%)                13.4      37.4       29.6       15.6     RESERVE & SURPLUS                 65,314      64,351      72,421      82,289
 OTHER INCOME                  14,968    15,825     15,473     17,965     DEPOSITS                         804,116     933,933    1,074,023   1,256,607
 - YOY GROWTH (%)                 17.9      5.7       (2.2)      16.1      - GROWTH (%)                         8.4       16.1        15.0         17.0
 OPERATING INCOME              38,640    48,351     57,626     66,702
                                                                          BORROWINGS                        71,031      79,945      87,865     102,802
 - YOY GROWTH (%)                15.1      25.1       19.2       15.8
                                                                          TIER 2 CAPITAL                    31,980      39,624      45,171      51,495
 OPERATING EXPENSES            20,319    23,015     26,776     31,327
                                                                          OTHER LIAB. & PROV.               80,337     105,248      117,473    140,535
 - YOY GROWTH (%)                29.8      13.3       16.3        17.0
                                                                          TOTAL LIABILITIES               1,053,414   1,223,736   1,397,587   1,634,363
 PRE - PROVISION PROFIT        18,321    25,336     30,850     35,375
                                                                          CASH IN HAND AND WITH RBI         61,291      94,396      69,811       81,679
 - YOY GROWTH (%)                 2.3      38.3        21.8       14.7
                                                                          BAL.WITH BANKS & MONEY AT CALL 24,898         28,479      34,770      40,681
 PROVISION AND CONTINGENCIES    4,396    10,385     14,576     16,151
                                                                          INVESTMENTS                      295,785     295,601     378,524     468,124
 - YOY GROWTH (%)                 17.7    136.2       40.4        10.8
                                                                          ADVANCES                         631,914     756,719    862,660      983,433
 PROFIT BEFORE TAX             13,925    14,951     16,274     19,224
                                                                           - GROWTH (%)                       16.5        19.8        14.0         14.0
 - YOY GROWTH (%)                (1.8)       7.4        8.9      18.1
 PROVISION FOR TAXATION         4,759     6,686      5,562      6,100     FIXED ASSETS                       4,413       4,764       5,280       5,992

 - AS A % OF PBT                 34.2      44.7       34.2        31.7    OTHER ASSETS                       35,113     43,778      46,542      54,454

 PAT                            9,166     8,265      10,713     13,124    TOTAL ASSETS                    1,053,414   1,223,736   1,397,587   1,634,363

 - YOY GROWTH (%)                 0.5      (9.8)      29.6       22.5      - GROWTH (%)                         9.2       16.2        14.3         17.0




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                      FY2010    FY2011    FY2012E    FY2013E     Y/E MARCH                        FY2010      FY2011     FY2012E     FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                              2.5       3.0         3.4        3.4    P/E                                  13.0        14.5        11.2         9.1
COST TO INCOME RATIO             52.6      47.6       46.5        47.0
                                                                          P/ABV                                 1.9         1.9         1.8         1.5
ROA                               0.9       0.7         0.8        0.8
                                                                          DIVIDEND YIELD (%)                    1.6         1.6         1.7         2.1
ROE*                             15.7      13.3       16.6        17.9
                                                                          DUPONT ANALYSIS*
B/S RATIOS (%)
                                                                          NII                                   2.4         2.9         3.2         3.2
CASA RATIO                       47.3      49.4       50.4       50.6
CREDIT/DEPOSIT RATIO             78.6      81.0       80.3       78.3     (-) PROV. EXP.                        0.4         0.9         1.1         1.1

CAR                              13.4      12.0        12.0       11.7    ADJ NII                               1.9         2.0         2.1         2.2

 - TIER I                         9.5        7.8        7.6        7.4    TREASURY                              0.2         0.1         0.0         0.0
ASSET QUALITY (%)                                                         INT. SENS. INC.                       2.1         2.0         2.1         2.2
GROSS NPAS                        3.0       3.3         4.8        6.1    OTHER INC.                            1.3         1.3         1.1         1.1
NET NPAS                           1.7       1.6        2.1        2.3
                                                                          OP. INC.                              3.4         3.3         3.3         3.3
SLIPPAGES                         2.2       2.8         3.7        3.7
                                                                          OPEX                                  2.0         2.0         2.1         2.1
LOAN LOSS PROV. /AVG. ASSETS      0.5       0.7         0.9        1.0
                                                                          PBT                                   1.4         1.3         1.2         1.2
PROVISION COVERAGE               59.2      65.0       65.0       69.0
                                                                          TAXES                                 0.5         0.6         0.4         0.4
                `
PER SHARE DATA (`)
EPS                             144.4     130.1      168.7      206.7     ROA                                   0.9         0.7         0.8         0.8

ABVPS (75% COVER. FOR NPAS)     972.5     967.6     1,067.2    1,237.9    LEVERAGE                             17.7        19.1       20.9         21.2
DPS                              30.0      30.0        31.5      39.5     ROE                                  15.7        13.3       16.6         17.9
                                                                         Note: * Core ROEs excluding income and investment in subsidiaries

January 2012                                                                      Please refer to important disclosures at the end of this report         79
     Banking                                                                               Punjab National Bank
                                                                                           CMP/TP/Upside: `911 / `1,059 / 16%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                              1,234 / 752       Punjab National Bank (PNB) is the country's second-largest bank, with a
                  `
      MARKET CAP (` CR)                                       28,865    balance sheet size of over `4lakh cr and a pan-India network of 5,300+
                                                                        branches. The bank's network is primarily spread over northern India, in Punjab,
      LIQUIDITY                                         MEDIUM
                                                                        Haryana and Uttar Pradesh. More than 63% of its branches are based in
                                                                        rural and semi-urban hinterland, which results in a large legacy of low-cost
                                                                        CASA deposits (at 36.3% of deposits, one of the highest in the sector).
      SHAREHOLDING PATTERN (%)
      PROMOTERS (GOVT.)                                          58.0
      FII                                                        18.8   Structural Snapshot
                                                                        Growth opportunity: PNB has been growing its loan book well ahead of
                                                                        the industry's over the past three years (26.5% vs 18.5% industry growth).
      STOCK RETURNS                                                     However, in our view, it will be difficult for PSU banks such as PNB to
      (%)                   3M        1Y       3Y       5Y       10Y    translate this kind of balance sheet growth into similar level of earnings
      PNJB NTL BANK (7.0) (20.1)              26.0    12.0          -   growth in the medium term, with the key constraints being asset-quality
                                                                        issues as well as loss in CASA market share. Accordingly, we expect the
      BANKEX              (6.4) (12.5)        28.3      7.1 25.5        bank to report earnings growth a notch below the sector's average, though
      SENSEX              (2.6) (12.3)        21.3      3.3      17.3   better than mid-size PSU banks.
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  Competitive position: The bank enjoys a strong CASA legacy but has been
                                                                        losing CASA market share consistently to private banks (down from 7.9% in
                                                                        FY2002 to 6.7% in 1HFY2012). Overall, we expect PSU banks as a group
      FINANCIAL PERFORMANCE OVERVIEW                                    to lose market share to private banks in the medium to long term.
      (%)                    3M          1Y    3Y       5Y       10Y
                                                                        Nature of business: Cyclical and rate-sensitive sector; Significant entry
      OP. INC. GROWTH* 17.5          27.6     27.0    20.0       18.4   barriers for new players.
      PAT GROWTH*           12.1     13.5     29.3    25.2 25.3
      NIM#                   3.6      3.6      3.4      3.4       3.6
                                                                        Current Investment Arguments
      ROE#                       -   24.4     25.6    22.5 22.6
                                                                        Strong CASA legacy, but losing market share: PNB enjoys a structural
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        advantage of having a better CASA ratio of 36.3%, which is driven by strong
                                                                        rural and semi-urban presence, especially in North India. That said, the bank
      ANGEL ESTIMATES                                                   is losing its market share like most other public sector banks on account of
                                                                        slow branch expansion and competition from private banks - savings market
      PARTICULARS                          FY2012E       FY2013E
                                                                        share declined by 50bp to 7.4% during FY2008-1HFY2012.
      PAT GROWTH (%)                           11.9               2.9
                                                                        Persistent asset-quality pressures: Asset-quality pressures for the bank
      ROE (%)                                 22.6               19.7   continue to persist. Management expects strong recoveries and upgradations
      P/ABV                                    1.2                1.0   in 2HFY2012, but taking into account the bank's relatively high exposure to
                                                                        risky sectors (reflected in higher yields) and the overall deteriorating
                                                                        macro-economic environment, we remain cautious on asset-quality pressures.
      BLOOMBERG CONSENSUS RECOMMENDATION                                Reasonable valuations: The bank's valuations have corrected to 1.0x FY2013E
      BUY / HOLD / SELL                                47 / 10 / 7      ABV vs. its five-year range of 1.1-1.6x and median of 1.4x due to the
                                                                        asset-quality concerns faced by the sector. Taking into account the bank's
                                                                        structurally low cost of deposits vs. peers and valuations at the lower end of
                                                                        its historical trading range, we currently have a positive stance on the bank.Hence,
                                                                        we maintain our Buy recommendation on the stock with a target price
                                                                        of ` 1,059.




80   January 2012                                                                             Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                BALANCE SHEET
           `
Y/E MARCH (` CR)               FY2010   FY2011    FY2012E    FY2013E               `
                                                                        Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME             8,478   11,807     13,976     16,474    SHARE CAPITAL                       315        317        317        317
 - YOY GROWTH (%)                20.6     39.3       18.4        17.9   RESERVE & SURPLUS                 17,408     21,192    25,104     29,107
OTHER INCOME                    3,610    3,613      4,001      4,231    DEPOSITS                         249,330    312,899   378,607    442,971
 - YOY GROWTH (%)                23.6      0.1        10.8       5.8    - GROWTH (%)                        18.9       25.5      21.0        17.0
OPERATING INCOME               12,088   15,420      17,977    20,705
                                                                        BORROWINGS                         8,572    20,399     23,639     27,641
 - YOY GROWTH (%)                21.5     27.6       16.6       15.2
                                                                        TIER 2 CAPITAL                    10,690     11,190    12,869     14,928
OPERATING EXPENSES              4,762    6,364      7,261      8,350
                                                                        OTHER LIAB. & PROV.               10,318     12,328    14,760      17,413
 - YOY GROWTH (%)                13.2     33.6        14.1      15.0
                                                                        TOTAL LIABILITIES                296,633    378,325   455,296    532,377
PRE - PROVISION PROFIT          7,326    9,056     10,715     12,355
                                                                        CASH IN HAND AND WITH RBI         18,328     23,777    24,609     28,793
 - YOY GROWTH (%)                27.5     23.6       18.3       15.3
                                                                        BAL.WITH BANKS & MONEY AT CALL     5,146      5,914     11,382    13,309
PROV. AND CONT.                 1,422    2,492      3,371      4,795
                                                                        INVESTMENTS                       77,724     95,162    127,317   151,569
 - YOY GROWTH (%)                44.9     75.3       35.3       42.3
                                                                        ADVANCES                         186,601    242,107   278,423    322,970
PROFIT BEFORE TAX               5,905    6,564      7,345      7,560
                                                                        - GROWTH (%)                        20.6       29.7       15.0      16.0
 - YOY GROWTH (%)                24.0      11.2       11.9       2.9
PROV FOR TAXATION               1,999    2,130      2,383      2,453    FIXED ASSETS                       2,513      3,106     3,625       4,112

 - AS A % OF PBT                 33.9     32.5       32.4       32.4    OTHER ASSETS                       6,320      8,259     9,940      11,623

PAT                             3,905    4,434      4,962      5,107    TOTAL ASSETS                     296,633    378,325   455,296    532,377

 - YOY GROWTH (%)                26.4     13.5        11.9       2.9    - GROWTH (%)                        20.1       27.5      20.3       16.9




 KEY RATIOS                                                             KEY RATIOS
Y/E MARCH                      FY2010   FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                VALUATION RATIOS
NIMS                              3.2      3.6         3.5       3.4    P/E                                  7.4        6.5        5.8        5.7
COST TO INCOME RATIO             39.4     41.3       40.4       40.3
                                                                        P/ABV                                1.8        1.5        1.2        1.0
ROA                               1.4       1.3        1.2        1.0
                                                                        DIVIDEND YIELD (%)                   2.4        2.4        3.1        3.3
ROE                              26.6     24.4       22.6       19.7
                                                                        DUPONT ANALYSIS
B/S RATIOS (%)
                                                                        NII                                  3.1        3.5        3.4        3.3
CASA RATIO                       40.8     38.5       36.6       36.0
CREDIT/DEPOSIT RATIO             74.8     77.4       73.5       72.9    (-) PROV. EXP.                       0.5        0.7        0.8        1.0

CAR                              14.2     12.4        12.4      12.4    ADJ NII                              2.6        2.8        2.5        2.4

 - TIER I                         9.1      8.4         8.4       8.3    TREASURY                             0.3        0.1        0.1        0.0
ASSET QUALITY (%)                                                       INT. SENS. INC.                      2.9        2.8        2.6        2.4
GROSS NPAS                        1.7       1.8        2.7       4.1    OTHER INC.                           1.0        1.0        0.9        0.8
NET NPAS                          0.5      0.8         1.0        1.3
                                                                        OP. INC.                             3.9        3.8        3.5        3.2
SLIPPAGES                         1.8      2.3         2.2       2.8
                                                                        OPEX                                 1.8        1.9        1.7        1.7
LOAN LOSS PROV. /AVG. ASSETS      0.4      0.6         0.6       0.9
                                                                        PBT                                  2.2        1.9        1.8        1.5
PROVISION COVERAGE               81.2     73.2       75.0       75.0
                                                                        TAXES                                0.7        0.6        0.6        0.5
                `
PER SHARE DATA (`)
EPS                             123.9    139.9      156.6      161.2    ROA                                  1.4        1.3        1.2        1.0

ABVPS ( 75% COVERAGE FOR NPAS) 514.8     628.1      756.0      882.3    LEVERAGE                            18.5       18.6      19.0       19.0
DPS                              22.0     22.0       28.5       30.0    ROE                                 26.6       24.4      22.6       19.7


January 2012                                                                    Please refer to important disclosures at the end of this report     81
     Banking                                                                              Bank of Baroda
                                                                                          CMP/TP/Upside: `743 / `906 / 22%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                               1,007 / 631      Bank of Baroda (BoB) is the third-largest public sector bank in India, with
                  `
      MARKET CAP (` CR)                                       29,109    a balance sheet size of almost `3.9lakh cr. The bank has a network of ~3,500
                                                                        domestic branches and over 1,800 ATMs, mainly in western India (~45% of
      LIQUIDITY                                         MEDIUM
                                                                        total branch network). The bank has a strong presence overseas, with over
                                                                        25% of its advances coming from overseas branches.

      SHAREHOLDING PATTERN (%)
      PROMOTERS (GOVT.)                                          57.0   Structural Snapshot
      FII                                                        13.6
                                                                        Growth opportunity: BoB has grown faster than the industry, leading to
                                                                        87bp credit market share gains over FY2008-11, while maintaining a better
                                                                        asset-quality profile and CASA market share performance than peers. In the
      STOCK RETURNS                                                     medium to long term, we expect BoB's growth to largely range from in-line
      (%)                   3M         1Y        3Y     5Y       10Y    to a notch above its peer average.
      BANK OF BARODA (0.8)           (9.9)      45.6   25.9 33.9        Competitive position: BoB has delivered healthy performance over the past
      BANKEX              (6.4) (12.5)          28.3    7.1 25.5        few years, backed by investments in its channels to improve its customer
                                                                        proposition. That said, in the medium to long term, we expect PSU banks
      SENSEX              (2.6) (12.3)          21.3    3.3      17.3   such as BoB to lose their market share to private banks, though at a lower
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  rate than witnessed during FY2002-08 and at a relatively low rate than mid-
                                                                        size PSU banks.

      FINANCIAL PERFORMANCE OVERVIEW                                    Nature of business: Cyclical and rate-sensitive sector; Significant entry
                                                                        barriers for new players.
      (%)                    3M          1Y      3Y     5Y       10Y
      OP. INC. GROWTH* 21.4           32.8      24.9   21.3      15.9
      PAT GROWTH*           14.4      38.7      43.5   38.7 31.5        Current Investment Arguments
      NIM#                   2.8       2.8       2.6    2.7       3.0   Improvement in core return ratios: The bank's credit growth (~29% CAGR)
      ROE#                       -    23.5      21.3   18.2      17.0   comfortably outpaced the sector's growth (~20% CAG R) during
                                                                        FY2007-11, which increased the bank's leverage and operating efficiency
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        closer to optimum levels (operating expenses declined from 2% of assets in
                                                                        FY2007 to 1.3% in 1HFY2012), driving improvement in core RoE from 12.4%
      ANGEL ESTIMATES                                                   to 21.5%. Moreover, this growth has, in our view, not been driven by above-
                                                                        average risk taking, considering the bank's moderate yields (evidenced in
      PARTICULARS                            FY2012E     FY2013E
                                                                        low net NPA ratio at 0.5% in 2QFY2012).
      PAT GROWTH (%)                             9.7              8.9
                                                                        Focus on channel improvements: The bank has drawn aggressive expansion
      ROE (%)                                   20.4             19.1   plans for opening ~550 branches (~15% of existing branch network) in
      P/ABV                                      1.2              1.0   FY2012. Also, being one of the larger west-based PSU banks, it has been
                                                                        one of the better performers relative to peers on the channel improvement
                                                                        front (such as internet banking, phone banking and cash management), reflected
      BLOOMBERG CONSENSUS RECOMMENDATION                                in healthy CASA at a 20.6% CAGR over FY2007-11.
      BUY / HOLD / SELL                                 52 / 9 / 3      Attractive valuations: BoB has been rerated in recent years due to healthy
                                                                        improvement in its core profitability. The bank's current valuations at 1.0x
                                                                        FY2013E ABV are similar to valuations at which its peers are trading, while,
                                                                        in our view, the bank has a better asset-quality and earnings outlook as
                                                                        compared to peers. As a result, it is one of our preferred picks amongst
                                                                        large PSU banks. Hence, we maintain our Buy recommendation on the
                                                                        stock with a target price of ` 906.




82   January 2012                                                                           Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                 BALANCE SHEET
           `
Y/E MARCH (` CR)               FY2010    FY2011    FY2012E    FY2013E               `
                                                                         Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME             5,939     8,802     10,388     12,164    SHARE CAPITAL                       366        393       393         393
 - YOY GROWTH (%)                15.9      48.2       18.0        17.1   RESERVE & SURPLUS                 14,741    20,600     24,180     28,082
OTHER INCOME                    2,806     2,809      3,003      3,448    DEPOSITS                         241,262   305,439    363,473    425,263
 - YOY GROWTH (%)                  1.8      0.1        6.9       14.9     - GROWTH (%)                       25.4       26.6      19.0        17.0
OPERATING INCOME                8,746     11,611    13,390     15,612
                                                                         BORROWINGS                         6,160     12,906    15,394     18,012
 - YOY GROWTH (%)                 11.0     32.8       15.3       16.6
                                                                         TIER 2 CAPITAL                     7,190      9,402    10,906     12,651
OPERATING EXPENSES              3,811     4,630      4,808      5,677
                                                                         OTHER LIAB. & PROV.                8,598      9,657    13,149     15,770
 - YOY GROWTH (%)                 6.6      21.5        3.8       18.1
                                                                         TOTAL LIABILITIES                278,317   358,397    427,496    500,170
PRE - PROVISION PROFIT          4,935     6,982      8,583      9,935
                                                                         CASH IN HAND AND WITH RBI         13,540    19,868     23,626     27,642
 - YOY GROWTH (%)                14.6      41.5       22.9       15.8
                                                                         BAL.WITH BANKS & MONEY AT CALL 21,927       30,066     35,863     41,959
PROVISION AND CONTINGENCIES       697     1,331      1,936      2,436
                                                                         INVESTMENTS                       61,182     71,261    92,655     111,153
 - YOY GROWTH (%)               (27.5)     90.9       45.4       25.8
                                                                         ADVANCES                         175,035    228,676   265,265    307,707
PROFIT BEFORE TAX               4,238     5,650      6,647      7,499
                                                                          - GROWTH (%)                       22.2       30.6      16.0       16.0
 - YOY GROWTH (%)                26.8      33.3        17.6      12.8
PROVISION FOR TAXATION          1,180     1,409      1,994      2,433    FIXED ASSETS                       2,285      2,300     2,661      3,020

 - AS A % OF PBT                 27.8      24.9       30.0       32.4    OTHER ASSETS                       4,347      6,226     7,427      8,689

PAT                             3,058     4,242      4,653      5,066    TOTAL ASSETS                     278,317   358,397    427,496    500,170

 - YOY GROWTH (%)                37.3      38.7        9.7        8.9     - GROWTH (%)                       22.8       28.8      19.3        17.0




 KEY RATIOS                                                              KEY RATIOS
Y/E MARCH                      FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                 VALUATION RATIOS
NIMS                              2.4       2.8        2.7        2.7    P/E                                  8.9        6.9       6.3         5.8
COST TO INCOME RATIO             43.6      39.9       35.9       36.4
                                                                         P/ABV                                1.8        1.4        1.2        1.0
ROA                                1.2       1.3        1.2        1.1
                                                                         DIVIDEND YIELD (%)                   2.0        2.2       3.2         3.4
ROE                              21.9      23.5       20.4       19.1
                                                                         DUPONT ANALYSIS
B/S RATIOS (%)
                                                                         NII                                  2.4        2.8       2.6         2.6
CASA RATIO                       29.6      28.7       28.2       27.9
CREDIT/DEPOSIT RATIO             72.5      74.9       73.0       72.4    (-) PROV. EXP.                       0.3        0.4       0.5         0.5

CAR                              14.4       14.5      14.1       14.0    ADJ NII                              2.1        2.3       2.2         2.1

 - TIER I                         9.2      10.0        9.7        9.6    TREASURY                             0.3        0.1       0.0         0.0
ASSET QUALITY (%)                                                        INT. SENS. INC.                      2.4        2.5       2.2         2.1
GROSS NPAS                         1.4       1.4        1.7       2.6    OTHER INC.                           0.8        0.7       0.7         0.7
NET NPAS                          0.3       0.3        0.5        0.9
                                                                         OP. INC.                             3.2        3.2       2.9         2.8
SLIPPAGES                          1.2       1.1        1.2        1.7
                                                                         OPEX                                 1.5        1.5        1.2        1.2
LOAN LOSS PROV. /AVG. ASSETS      0.4       0.3        0.3        0.5
                                                                         PBT                                  1.7        1.8        1.7        1.6
PROVISION COVERAGE               86.0      85.0       80.0       75.0
                                                                         TAXES                                0.5        0.4       0.5         0.5
                `
PER SHARE DATA (`)
EPS                              83.7     108.0      118.4      129.0    ROA                                  1.2        1.3        1.2        1.1

ABVPS ( 75% COVERAGE FOR NPAS) 413.3      534.4      625.6      724.9    LEVERAGE                            18.0       17.6       17.2       17.5
DPS                              15.0      16.5       23.5       25.5    ROE                                 21.9       23.5      20.4       19.1


January 2012                                                                     Please refer to important disclosures at the end of this report     83
     Banking                                                                               Bank of India
                                                                                           CMP/TP/Upside: `306 / - / -



      RATING                                            NEUTRAL         Company Background
      52 WEEK HIGH / LOW                               499 / 261        Bank of India (BoI) is amongst the five largest banks in India, with a balance
                  `
      MARKET CAP (` CR)                                       16,736    sheet size of over `3.5 lakh cr. The bank has a pan-India network of 3,700+
                                                                        branches, of which ~63% are located in rural and semi-urban areas. The
      LIQUIDITY                                         MEDIUM
                                                                        bank also has considerable presence overseas, which accounts for ~24%
                                                                        of its total loans (amongst the highest in the Indian banking industry).

      SHAREHOLDING PATTERN (%)
      PROMOTERS (GOVT.)                                          65.9   Structural Snapshot
      FII                                                        15.2
                                                                        Growth opportunity: The bank's relatively high pace of credit growth has
                                                                        led to market share gains of ~50bp over FY2007-11. However, to match
                                                                        this with similar level of earnings growth in the medium term, asset-quality
      STOCK RETURNS                                                     issues as well as loss in CASA market share are expected to be the key
      (%)                   3M        1Y       3Y       5Y       10Y    constraints.
      BANK OF INDIA (10.4) (28.6)              6.3      8.5 34.9        Competitive position: Overall, we expect PSU banks such as BoI to lose
      BANKEX              (6.4) (12.5)        28.3      7.1 25.5        their market share to private banks in the medium to long term. BoI has also
                                                                        been embattled with asset-quality issues in recent years.
      SENSEX              (2.6) (12.3)        21.3      3.3      17.3
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  Nature of business: Cyclical and rate-sensitive sector; Significant entry
                                                                        barriers for new players.

      FINANCIAL PERFORMANCE OVERVIEW
      (%)                    3M          1Y    3Y       5Y       10Y
                                                                        Current Investment Arguments
      OP. INC. GROWTH* 16.3          24.8     18.1    22.3       15.3   Embattled with asset-quality issues: Asset-quality pressures, which had
                                                                        moderated in FY2011 post the severe stress witnessed in FY2010, have
      PAT GROWTH*         (20.4)     42.9      7.4    28.8 25.7
                                                                        once again risen in 1HFY2012, with slippages rate rising to 4.2%. While
      NIM#                   2.3      2.6      2.6      2.7       2.7   the spike was partly due to the migration to system-based NPA recognition
      ROE#                       -    17.3    20.2    21.9 20.9         platform, the rate of slippages could remain on the higher side in the coming
                                                                        quarters as well due to the weakening macro environment. As a result, earnings,
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        which are expected to decline by ~6% yoy in FY2012 due to lower NIMs,
                                                                        are likely to remain subdued even in FY2013. Consequently, the bank's RoEs,
      ANGEL ESTIMATES                                                   which were unsustainably high at 28% in FY2008 and FY2009 and subsequently
                                                                        declined to 14% in FY2010 itself, are likely to remain at sub-14% till FY2013,
      PARTICULARS                          FY2012E       FY2013E
                                                                        as the bank continues to pay the price for high risk-taking in FY2008-09.
      PAT GROWTH (%)                          (5.6)               6.1
                                                                        Modest fee income and funding mix: The bank's international operations
      ROE (%)                                 13.9               13.3   contribute a substantial ~24% to its advances and enable a wider spectrum
      P/ABV                                    1.1                1.0   of fee-based services to its corporate and retail customers. The bank has a
                                                                        relatively moderate funding mix, with domestic CASA ratio at 30.2% as of
                                                                        2QFY2012.
      BLOOMBERG CONSENSUS RECOMMENDATION                                Outlook and valuation: At the CMP, the stock is trading at cyclically low
      BUY / HOLD / SELL                               13 / 17 / 28      valuations of 1.0x FY2013E ABV compared to its historical range of
                                                                        1.1-1.6x, with a median of 1.3x. However, valuations are relatively high compared
                                                                        to peers, considering the poor RoE outlook for the bank due to macro headwinds.
                                                                        Accordingly, we recommend a Neutral rating on the stock.




84   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME              5,756      7,811     7,761      8,930    SHARE CAPITAL                       526        547        547        547
 - YOY GROWTH (%)                   4.7     35.7       (0.6)      15.1    RESERVE & SURPLUS                 13,704     16,743    18,584     20,536
OTHER INCOME                     2,617     2,642      3,125      3,335    DEPOSITS                         229,762   298,886    343,719    398,714
 - YOY GROWTH (%)                (14.3)       1.0      18.3        6.7     - GROWTH (%)                       21.1       30.1      15.0        16.0
OPERATING INCOME                 8,373    10,452     10,886     12,265
                                                                          BORROWINGS                        14,079     12,862    14,704      17,037
 - YOY GROWTH (%)                 (2.1)     24.8        4.1       12.7
                                                                          TIER 2 CAPITAL                     8,320      9,160     10,717    12,432
OPERATING EXPENSES               3,668     5,068      4,786      5,456
                                                                          OTHER LIAB. & PROV.                8,590     12,975    13,218     15,919
 - YOY GROWTH (%)                 18.5      38.2       (5.6)      14.0
                                                                          TOTAL LIABILITIES                274,982    351,173   401,490    465,185
PRE - PROVISION PROFIT           4,705     5,384      6,100      6,809
                                                                          CASH IN HAND AND WITH RBI         15,603     21,782    22,342     25,916
 - YOY GROWTH (%)                (13.8)     14.4       13.3        11.6
                                                                          BAL.WITH BANKS & MONEY AT CALL 15,628        15,528     17,752    20,569
PROVISION AND CONTINGENCIES      2,211     1,889      3,088      3,120
                                                                          INVESTMENTS                       67,080     85,872    98,141     113,439
 - YOY GROWTH (%)                  71.1    (14.6)      63.5         1.0
                                                                          ADVANCES                         168,491    213,096   249,323    289,214
PROFIT BEFORE TAX                2,494     3,495      3,012      3,689
                                                                           - GROWTH (%)                       17.9       26.5       17.0       16.0
 - YOY GROWTH (%)                (40.1)     40.2      (13.8)      22.5
PROVISION FOR TAXATION             753     1,007        663      1,197    FIXED ASSETS                       2,352      2,481     2,751      3,092

 - AS A % OF PBT                  30.2      28.8       22.0       32.4    OTHER ASSETS                       5,829     12,413     11,181    12,954

PAT                               1,741    2,489      2,349      2,492    TOTAL ASSETS                     274,982    351,173   401,490    465,185

 - YOY GROWTH (%)                (42.1)     42.9       (5.6)       6.1     - GROWTH (%)                       21.9       27.7      14.3        15.9




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                                2.4      2.6        2.1        2.1    P/E                                  9.3        6.7        7.1        6.7
COST TO INCOME RATIO              43.8      48.5       44.0       44.5
                                                                          P/ABV                                1.3        1.1        1.1        1.0
ROA                                 0.7      0.8        0.6        0.6
                                                                          DIVIDEND YIELD (%)                   2.3        2.3        2.6        2.8
ROE                                14.2      17.3      13.9       13.3
                                                                          DUPONT ANALYSIS
B/S RATIOS (%)
                                                                          NII                                  2.3        2.5        2.1        2.1
CASA RATIO                         27.8     25.4       25.3       25.1
CREDIT/DEPOSIT RATIO              73.3       71.3      72.5       72.5    (-) PROV. EXP.                       0.9        0.6        0.8        0.7

CAR                                12.9     12.2       12.1        11.8   ADJ NII                              1.4        1.9        1.2        1.3

 - TIER I                           8.5      8.3        8.0         7.6   TREASURY                             0.2        0.1        0.1        0.0
ASSET QUALITY (%)                                                         INT. SENS. INC.                      1.7        2.0        1.3        1.4
GROSS NPAS                          2.9      2.2        4.4        5.6    OTHER INC.                           0.8        0.7        0.7        0.7
NET NPAS                            1.3      0.9        2.3        2.8
                                                                          OP. INC.                             2.5        2.7        2.1        2.1
SLIPPAGES                           2.9       1.7       4.5        3.8
                                                                          OPEX                                 1.5        1.6        1.3        1.3
LOAN LOSS PROV. /AVG. ASSETS        0.7      0.3        0.7        0.7
                                                                          PBT                                  1.0        1.1        0.8        0.9
PROVISION COVERAGE                65.5      72.2       62.0       60.0
                                                                          TAXES                                0.3        0.3        0.2        0.3
                `
PER SHARE DATA (`)
EPS                               33.1      45.5       42.9       45.5    ROA                                  0.7        0.8        0.6        0.6

ABVPS (75% COVERAGE FOR NPAS)    229.4     287.1      289.9      305.7    LEVERAGE                            20.4       21.8      22.3        23.1
DPS                                 7.0       7.0       8.0        8.5    ROE                                 14.2       17.3       13.9       13.3


January 2012                                                                      Please refer to important disclosures at the end of this report     85
     Banking                                                                               Canara Bank
                                                                                           CMP/TP/Upside: `421 / `510 / 21%



      RATING                                                      BUY    Company Background
      52 WEEK HIGH / LOW                                  668 / 350      Canara Bank is the largest south-based PSU bank (overall fifth largest bank
                  `
      MARKET CAP (` CR)                                         18,635   in India), with a balance sheet size of over `3.5lakh cr. The bank has a
                                                                         reasonably large pan-India presence, with about 45% of its 3,400+ branches
      LIQUIDITY                                            MEDIUM
                                                                         outside South India (the bank also has 2,600+ ATMs).


      SHAREHOLDING PATTERN (%)
                                                                         Structural Snapshot
      PROMOTERS (GOVT.)                                           67.7
                                                                         Growth opportunity: The bank's relatively high pace of credit growth has
      FII                                                         13.6
                                                                         led to market share gains of 44bp over FY2008-11. However, in our view, it
                                                                         will be difficult for PSU banks such as Canara Bank to translate such growth
                                                                         in balance sheet into similar level of earnings growth in the medium term,
      STOCK RETURNS                                                      with the key constraints being asset-quality issues as well as loss in CASA
      (%)                   3M           1Y         3Y     5Y     10Y    market share. Accordingly, we expect the bank to post earnings growth a
      CANARA BANK         (7.3)       (27.6)      27.1    9.9        -   notch below the sector's average, though better than mid-size PSU banks.

      BANKEX              (6.4) (12.5)            28.3     7.1 25.5      Competitive position: Overall, we expect PSU banks such as Canara Bank
                                                                         to lose market share to private banks in the medium to long term. Moreover,
      SENSEX              (2.6) (12.3)            21.3    3.3     17.3   amongst larger banks, Canara Bank has a relatively low CASA ratio of 25.8%,
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                   leading to lower margins.
                                                                         Nature of business: Cyclical and rate sensitive sector; Significant entry
      FINANCIAL PERFORMANCE OVERVIEW                                     barriers for new players.

      (%)                    3M          1Y         3Y     5Y     10Y
      OP. INC. GROWTH* 11.5             23.3      21.7    16.2 14.2      Current Investment Arguments
      PAT GROWTH*         (15.4)        33.2      37.0    24.5 30.3
                                                                         Weak deposit franchise likely to keep NIMs under pressure: Canara Bank
      NIM#                   2.3         2.7       2.5    2.5      2.8   has a relatively weak deposit mix, with a CASA ratio of 25.8% and
      ROE#                        -     26.4      25.3    22.7 23.6      a relatively high proportion of bulk deposits and CDs at ~30% of deposits.
                                                                         Accordingly, we expect the bank's NIM to dip by ~50bp for FY2012 compared
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                         to FY2011.
                                                                         Asset quality to remain an overhang: The bank's advances grew at an
      ANGEL ESTIMATES                                                    above-average 26% CAGR over FY2008-11, driven by strong traction in
      PARTICULARS                              FY2012E      FY2013E      infrastructure-related loans, which now contribute ~17% to its total loans.
      PAT GROWTH (%)                             (14.8)            1.5   The bank has already experienced substantial slippages in the past three
                                                                         quarters, partly due to migration to system-based NPA recognition, but the
      ROE (%)                                      17.8           15.8   rate of slippages could remain on the higher side due to the weakening
      P/ABV                                         0.9            0.9   macro environment. As a result, earnings, which are expected to decline in
                                                                         FY2012 due to lower NIMs, are likely to remain flat even going into FY2013.
                                                                         Valuations largely factor in the negatives: The stock has considerably
      BLOOMBERG CONSENSUS RECOMMENDATION                                 underperformed its peers (Bank Nifty by 15% over the past one year), primarily
      BUY / HOLD / SELL                                    23 / 7 / 6    due to concerns regarding NIMs and asset quality. Cyclically low valuations
                                                                         of 0.9x FY2013E ABV vs. five-year average of 1.2x and range of 0.8-1.4x, in
                                                                         our view, largely factor in the negatives and a downward bais on interest
                                                                         rates is a positive for the bank. Hence, we recommend Buy on the stock
                                                                         with a target price of ` 510.




86   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME              5,681     7,823      7,865      9,021    SHARE CAPITAL                        410       443        443        443
 - YOY GROWTH (%)                 20.4      37.7        0.5       14.7    RESERVE & SURPLUS                 14,262     19,597    22,280     25,016
OTHER INCOME                     2,858     2,703      3,001      3,389    DEPOSITS                         234,651    293,973   341,008    395,570
 - YOY GROWTH (%)                  17.7     (5.4)       11.0      12.9     - GROWTH (%)                       25.6       25.3      16.0       16.0
OPERATING INCOME                 8,538    10,526     10,866     12,409
                                                                          BORROWINGS                         1,041      5,198     6,023      6,975
 - YOY GROWTH (%)                 19.5      23.3        3.2       14.2
                                                                          TIER 2 CAPITAL                     7,399      9,063    10,695     12,299
OPERATING EXPENSES               3,478     4,419      4,698      5,403
                                                                          OTHER LIAB. & PROV.                6,977      7,805     8,957     10,636
 - YOY GROWTH (%)                 13.5      27.1        6.3       15.0
                                                                          TOTAL LIABILITIES                264,741    336,079   389,406    450,939
PRE - PROVISION PROFIT           5,061     6,107      6,168      7,007
                                                                          CASH IN HAND AND WITH RBI         15,719     22,015    22,166     25,712
 - YOY GROWTH (%)                 24.1      20.7         1.0      13.6
                                                                          BAL.WITH BANKS & MONEY AT CALL     3,934      8,693    10,073      11,664
PROVISION AND CONTINGENCIES      1,239     1,081      1,827      2,031
                                                                          INVESTMENTS                       69,677     83,700    95,892     113,121
 - YOY GROWTH (%)                (17.8)    (12.8)      69.0        11.2
                                                                          ADVANCES                         169,335    212,467   250,711    288,318
PROFIT BEFORE TAX                3,821     5,026      4,341      4,975
                                                                           - GROWTH (%)                       22.5       25.5      18.0       15.0
 - YOY GROWTH (%)                 48.6      31.5      (13.6)      14.6
PROVISION FOR TAXATION            800      1,000        912      1,493    FIXED ASSETS                       2,859      2,844     3,197      3,591

 - AS A % OF PBT                  20.9      19.9       21.0       30.0    OTHER ASSETS                       3,217      6,359     7,368      8,532

PAT                              3,021     4,026      3,430      3,483    TOTAL ASSETS                     264,741    336,079   389,406    450,939

 - YOY GROWTH (%)                 45.8      33.2      (14.8)        1.5    - GROWTH (%)                       20.6       26.9      15.9       15.8




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                               2.4       2.7        2.2        2.2    P/E                                  5.7        4.6       5.4         5.4
COST TO INCOME RATIO              40.7      42.0       43.2       43.5
                                                                          P/ABV                                1.4        1.0       0.9         0.9
ROA                                 1.2       1.3       0.9        0.8
                                                                          DIVIDEND YIELD (%)                   2.4        2.6       3.4         3.4
ROE                               26.8      26.4        17.8      15.8
                                                                          DUPONT ANALYSIS
B/S RATIOS (%)
                                                                          NII                                  2.3        2.6       2.2         2.1
CASA RATIO                        29.1      28.3       27.8       27.3
CREDIT/DEPOSIT RATIO              72.2      72.3       73.5       72.9    (-) PROV. EXP.                       0.5        0.4       0.5         0.5

CAR                               13.4      15.4       15.5       15.3    ADJ NII                              1.8        2.2        1.7        1.7

 - TIER I                          8.5      10.9       10.7       10.4    TREASURY                             0.4        0.1       0.0         0.0
ASSET QUALITY (%)                                                         INT. SENS. INC.                      2.2        2.3        1.7        1.7
GROSS NPAS                          1.5       1.4       2.2        3.3    OTHER INC.                           0.8        0.8       0.8         0.8
NET NPAS                            1.1      0.8         1.5       2.0
                                                                          OP. INC.                             3.0        3.1       2.5         2.5
SLIPPAGES                          2.4       2.1        2.6        2.7
                                                                          OPEX                                 1.4        1.5        1.3        1.3
LOAN LOSS PROV. /AVG. ASSETS       0.6       0.3        0.4        0.4
                                                                          PBT                                  1.6        1.7        1.2        1.2
PROVISION COVERAGE                77.7      73.0       67.0       63.0
                                                                          TAXES                                0.3        0.3       0.3         0.4
                `
PER SHARE DATA (`)
EPS                               73.7      90.9       77.4       78.6    ROA                                  1.2        1.3       0.9         0.8

ABVPS (75% COVERAGE FOR NPAS)    305.8     401.1      444.4      486.0    LEVERAGE                            21.5       19.7      18.8       19.1
DPS                               10.0       11.0      14.5       14.5    ROE                                 26.8       26.4       17.8      15.8


January 2012                                                                      Please refer to important disclosures at the end of this report     87
     Banking                                                                               IDBI BANK
                                                                                           CMP/TP/Upside: `93 / `107 / 15%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                      156/78    IDBI Bank is the sixth largest PSU bank in India, with a branch network of
                  `
      MARKET CAP (` CR)                                        9,167    ~900 branches and a balance sheet size of over `2.5lakh cr. IDBI was
                                                                        incorporated in 1964 as a development financial institution; but in October
      LIQUIDITY                                         MEDIUM
                                                                        2004, it was transformed into a banking company with the reverse merger
                                                                        of IDBI and its subsidiary IDBI Bank. The bank now offers an array of wholesale
                                                                        and retail banking products, apart from providing long-term finance for industrial
      SHAREHOLDING PATTERN (%)
                                                                        development.
      PROMOTERS (GOVT.)                                          65.1
      FII                                                         3.4
                                                                        Structural Snapshot
                                                                        Growth opportunity: IDBI Bank is in a position to grow its CASA deposits
      STOCK RETURNS                                                     and balance sheet a notch faster than its peers over the medium to long
      (%)                   3M        1Y       3Y       5Y       10Y    term, in our view, on account of its relatively new and fast expanding branch
      IDBI BANK          (13.0) (35.7)        15.5    (1.0) 20.4        network than other PSU banks.

      BANKEX              (6.4) (12.5)        28.3      7.1 25.5        Competitive position: Overall, we expect PSU banks, including IDBI Bank,
                                                                        to lose their market share to private banks in the medium to long term. However,
      SENSEX              (2.6) (12.3)        21.3      3.3      17.3   compared to its peers, the bank is rapidly transforming its deposit base
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  from wholesale to retail, which is expected to improve core profitability in
                                                                        the medium term. Legacy asset-quality issues, however, continue to hound
                                                                        the bank.
      FINANCIAL PERFORMANCE OVERVIEW
                                                                        Nature of business: Cyclical and rate-sensitive sector; Significant entry
      (%)                    3M          1Y    3Y       5Y       10Y
                                                                        barriers for new players.
      OP. INC. GROWTH* (3.5)         44.5     38.6    31.0       17.9
      PAT GROWTH*           20.2     60.0     31.3    24.1        9.1
      NIM#                   1.9      1.8      1.3      1.0       0.7
                                                                        Current Investment Arguments
      ROE#                       -   15.8     13.7    12.4        9.5   Strong branch expansion and relatively healthy fee income: IDBI Bank
                                                                        enjoys the advantage of a modern, 100% CBS branch network, which is
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        growing organically at a much faster rate than other PSU banks (17-18%
                                                                        CAGR post the FY2007 UWB acquisition). Relative to other PSU banks,
      ANGEL ESTIMATES                                                   on account of the bank's strong corporate relationships and government
                                                                        mandates, the bank's fee income at 0.8% of overall assets is also healthy.
      PARTICULARS                          FY2012E       FY2013E
      PAT GROWTH (%)                          12.8                7.1   SASF - A burden on the bank's books: At the time of its merger,
                                                                        IDBI Bank had to set up a stressed asset stabilization fund (SASF) of ~`9,000cr,
      ROE (%)                                 13.9               13.4   through which the bank has witnessed only ~`3,500cr worth of cash recoveries
      P/ABV                                    0.7                0.6   (as of FY2011). The possibility of an entire recovery seems implausible and
                                                                        the large remaining unrecoverable amount of ~`5,541cr would eventually
                                                                        have to be reduced from its net worth (denting net worth by ~36%).
      BLOOMBERG CONSENSUS RECOMMENDATION                                Outlook and valuation: The bank has been among the fastest-growing banks
      BUY / HOLD / SELL                                  11 / 7 / 3     in terms of CASA deposits over the past few years (CAGR of 36% over
                                                                        FY2007-11) even when compared to private banks and now has a market
                                                                        share of 2.1% (as of FY2011). At the CMP, the bank is trading at moderate
                                                                        valuations of 0.8x FY2013E P/ABV, adjusting for the SASF amount (0.6x
                                                                        without adjusting). In our view, the bank is one of the PSU banks to watch
                                                                        out for, especially once near-term asset quality headwinds subside. Hence,
                                                                        we recommend a Buy rating on the stock with a target price of ` 107




88   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME              2,256     4,329      4,643      5,438    SHARE CAPITAL                       725        985        985       985
 - YOY GROWTH (%)                 82.0      91.9         7.3       17.1   RESERVE & SURPLUS                  9,440     13,583    14,987     16,524
OTHER INCOME                     2,181     2,084      2,144      2,451    DEPOSITS                         167,667   180,486    205,754    234,559
 - YOY GROWTH (%)                 39.6      (4.4)        2.9      14.3     - GROWTH (%)                       49.2        7.6       14.0      14.0
OPERATING INCOME                 4,437     6,413      6,787      7,889
                                                                          BORROWINGS                        35,010    36,607     39,868     44,328
 - YOY GROWTH (%)                 58.4      44.5         5.8      16.2
                                                                          TIER 2 CAPITAL                    12,699     14,962    16,608     18,601
OPERATING EXPENSES               1,831     2,255      2,627      3,277
                                                                          OTHER LIAB. & PROV.                8,031      6,754      7,638     8,613
 - YOY GROWTH (%)                 36.9      23.1       16.5       24.8
                                                                          TOTAL LIABILITIES                233,573    253,377   285,840    323,610
PRE - PROVISION PROFIT           2,605     4,158      4,160      4,613
                                                                          CASH IN HAND AND WITH RBI         13,903    19,559      13,374    15,246
 - YOY GROWTH (%)                 78.0      59.6         0.1      10.9
                                                                          BAL.WITH BANKS & MONEY AT CALL      679       1,207      7,078     8,014
PROVISION AND CONTINGENCIES      1,561     1,877      1,501      1,661
                                                                          INVESTMENTS                       73,345    68,269     82,940     96,023
 - YOY GROWTH (%)                226.3      20.3      (20.0)      10.6
                                                                          ADVANCES                         138,202    157,098    174,379   195,304
PROFIT BEFORE TAX                1,045     2,281      2,659      2,951
                                                                           - GROWTH (%)                       33.6       13.7       11.0      12.0
 - YOY GROWTH (%)                  6.0     118.3       16.6        11.0
PROVISION FOR TAXATION              14       631        798       958     FIXED ASSETS                       2,997      3,037     3,324      3,650

 - AS A % OF PBT                    1.3     27.6       30.0       32.4    OTHER ASSETS                       4,446      4,206     4,745      5,372

PAT                              1,031     1,650      1,861      1,994    TOTAL ASSETS                     233,573    253,377   285,840    323,610

 - YOY GROWTH (%)                 20.1      60.0        12.8        7.1    - GROWTH (%)                       35.5        8.5       12.8      13.2




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                                1.2       1.8        1.8        1.8   P/E                                  6.5        5.6        4.9       4.6
COST TO INCOME RATIO              41.3      35.2       38.7       41.5
                                                                          P/ABV                                0.8        0.7        0.7       0.6
ROA                                0.5       0.7         0.7       0.7
                                                                          DIVIDEND YIELD (%)                   3.2        3.8        4.3       4.3
ROE                                13.2     15.8        13.9      13.4
                                                                          DUPONT ANALYSIS
B/S RATIOS (%)
                                                                          NII                                  1.1        1.8        1.7       1.8
CASA RATIO                         14.6     20.9       23.4       26.3
CREDIT/DEPOSIT RATIO              82.4      87.0       84.8       83.3    (-) PROV. EXP.                       0.8        0.8        0.6       0.5

CAR                                11.3     13.6        13.5      13.3    ADJ NII                              0.3        1.0        1.2       1.2

 - TIER I                          6.2       8.0         7.7        7.5   TREASURY                             0.3        0.1        0.0       0.0
ASSET QUALITY (%)                                                         INT. SENS. INC.                      0.7        1.1        1.2       1.3
GROSS NPAS                          1.5       1.8        2.7       3.5    OTHER INC.                           0.7        0.8        0.8       0.8
NET NPAS                            1.0       1.1        1.5        1.6
                                                                          OP. INC.                             1.4        1.9        2.0       2.0
SLIPPAGES                           1.4       1.4        1.6        1.7
                                                                          OPEX                                 0.9        0.9        1.0       1.1
LOAN LOSS PROV. /AVG. ASSETS       0.4       0.5         0.4       0.5
                                                                          PBT                                  0.5        0.9        1.0       1.0
PROVISION COVERAGE                70.0      74.7       70.0       70.0
                                                                          TAXES                                0.0        0.3        0.3       0.3
                `
PER SHARE DATA (`)
EPS                                14.2     16.8       18.9       20.3    ROA                                  0.5        0.7        0.7       0.7

ABVPS (75% COVERAGE FOR NPAS)     110.3    128.5      138.6      153.2    LEVERAGE                            25.9       23.3      20.2       20.5
DPS                                3.0       3.5         4.0       4.0    ROE                                 13.2       15.8       13.9      13.4


January 2012                                                                      Please refer to important disclosures at the end of this report    89
     Banking                                                                               Union Bank of India
                                                                                           CMP/TP/Upside: `188 / `222 / 18%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                               360 / 156        Union Bank of India is the seventh largest public sector bank, with a balance
                  `
      MARKET CAP (` CR)                                       9,865     sheet size of almost `2.5lakh cr. The bank has a reasonably large pan-India
                                                                        presence with 3,000+ branches and over 2,700 ATMs. The bank was one of
      LIQUIDITY                                         MEDIUM
                                                                        the early adopters of core banking technology amongst PSU banks.


      SHAREHOLDING PATTERN (%)
                                                                        Structural Snapshot
      PROMOTERS (GOVT.)                                          57.1
                                                                        Growth opportunity: The bank's relatively high pace of credit growth has
      FII                                                        11.0
                                                                        led to market share gains of ~40bp over FY2008-11. However, declining
                                                                        CASA market share (~60bp over FY2008-11) and weakening asset quality
                                                                        are expected to be an impediment to such balance sheet growth, translating
      STOCK RETURNS                                                     into equally high earnings growth in the medium term.
      (%)                   3M        1Y       3Y       5Y       10Y
                                                                        Competitive position: Overall, we expect PSU banks such as Union Bank
      UNION BANK         (24.5) (40.6)         6.9      9.7         -   of India to lose their market share to private banks in the medium to long
      BANKEX              (6.4) (12.5)        28.3      7.1 25.5        term. Moreover, amongst larger banks, Union Bank of India has been witnessing
                                                                        relatively high asset-quality concerns of late.
      SENSEX              (2.6) (12.3)        21.3      3.3      17.3
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  Nature of business: Cyclical and rate-sensitive sector; Significant entry
                                                                        barriers for new players.

      FINANCIAL PERFORMANCE OVERVIEW
      (%)                    3M          1Y    3Y       5Y       10Y
                                                                        Current Investment Arguments
      OP. INC. GROWTH*       5.7     33.9     24.1    22.4       18.3   CASA ratio expected to sustain at ~32% levels: We are relatively positive
                                                                        on the bank's CASA growth outlook, owing to its large branch expansion in
      PAT GROWTH*           16.2      0.3     14.5    25.3 29.6
                                                                        recent years compared to its peers. The bank has opened ~400 branches
      NIM#                   2.9      3.0      2.7      2.8       3.0   in the past two years, which in our view should aid the bank in maintaining
      ROE#                       -   20.9     24.8    24.0 24.6         its CASA ratio at ~32% levels. The bank is aiming to open another 225
                                                                        branches during FY2012.
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        High provisioning impacting profitability: Union Bank of India had managed
                                                                        to improve its asset quality over FY2011 (slippage ratio of 1.4% as of 4QFY2011).
      ANGEL ESTIMATES
                                                                        However, from 1QFY2012, the bank, on account of stress from SME and
      PARTICULARS                          FY2012E       FY2013E        agri portfolio and shift to system-based NPA recognition platform, had seen
      PAT GROWTH (%)                          (7.0)               7.2   its slippages balloon from 1.4% in 4QFY2011 to 4.8% as of 2QFY2012
                                                                        and provision coverage ratio decline to 60.5%. Although the asset quality
      ROE (%)                                 16.3               15.4   improved in 3QFY2012 with slippage ratio declining to 1.5%, higher provisioning
      P/ABV                                    0.8                0.8   expenses (75.7% of PPP) negatively impacted the profitability. However,
                                                                        with slippages expected to decline in the coming few quarters, profitabilty
                                                                        is expected to improve back to normalised levels, in our view.
      BLOOMBERG CONSENSUS RECOMMENDATION                                Reasonable valuation: In our view, Union Bank of India is structurally among
      BUY / HOLD / SELL                               28 / 12 / 12      the more profitable and competitive PSU banks. Going ahead, pick-up in
                                                                        recoveries from the technically slipped accounts is likely to cushion further
                                                                        stress. Moreover, asset-quality stress seems to have been largely factored
                                                                        into the price, in our view. The stock is trading at cheap valuations of 0.8x
                                                                        FY2013E P/ABV, lower than other large PSU banks, and well below its
                                                                        five-year median of 1.2x and range of 0.9-1.5x. Hence, we recommend a
                                                                        Buy rating with a target price of ` 222.




90   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                BALANCE SHEET
           `
Y/E MARCH (` CR)               FY2010   FY2011    FY2012E    FY2013E               `
                                                                        Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
 NET INTEREST INCOME            4,192    6,216      6,825      7,872    SHARE CAPITAL                       505        635        635        635
 - YOY GROWTH (%)                 9.9     48.3        9.8       15.3    RESERVE & SURPLUS                  9,919     12,129     13,627    15,235
 OTHER INCOME                   1,975    2,039      2,101      2,201    DEPOSITS                         170,040   202,461    230,806    270,043
 - YOY GROWTH (%)                33.2      3.2        3.0        4.8     - GROWTH (%)                       22.6      19.1        14.0       17.0
 OPERATING INCOME               6,167    8,255      8,925     10,073
                                                                        BORROWINGS                         3,125      7,126     8,109      9,461
 - YOY GROWTH (%)                16.4     33.9        8.1       12.9
                                                                        TIER 2 CAPITAL                     6,090     6,190      6,995      8,044
 OPERATING EXPENSES             2,508    3,950      3,902      4,487
                                                                        OTHER LIAB. & PROV.                5,483      7,443     8,380      9,878
 - YOY GROWTH (%)                13.3     57.5       (1.2)      15.0
                                                                        TOTAL LIABILITIES                195,162   235,984    268,553    313,295
 PRE - PROVISION PROFIT         3,659    4,305      5,023      5,585
                                                                        CASH IN HAND AND WITH RBI         12,468     17,610    15,002      17,553
 - YOY GROWTH (%)                18.7      17.6      16.7        11.2
                                                                        BAL.WITH BANKS & MONEY AT CALL 3,308         2,488      5,371      6,266
 PROVISION AND CONTINGENCIES     826     1,350      2,158      2,513
                                                                        INVESTMENTS                       54,404    58,399     70,245     84,820
 - YOY GROWTH (%)                13.9     63.3       59.9       16.4
                                                                        ADVANCES                         119,315   150,986     170,614   196,206
 PROFIT BEFORE TAX              2,833    2,955      2,865      3,072
                                                                         - GROWTH (%)                       23.6      26.5        13.0      15.0
 - YOY GROWTH (%)                20.2      4.3       (3.1)        7.2
 PROVISION FOR TAXATION          758       873        930       997     FIXED ASSETS                       2,305     2,293      2,531      2,864

 - AS A % OF PBT                 26.8     29.6       32.4       32.4    OTHER ASSETS                       3,361     4,208      4,789      5,587

 PAT                            2,075    2,082      1,936      2,075    TOTAL ASSETS                     195,162   235,984    268,553    313,295

 - YOY GROWTH (%)                20.2      0.3       (7.0)        7.2    - GROWTH (%)                       21.2      20.9        13.8      16.7




 KEY RATIOS                                                             KEY RATIOS
Y/E MARCH                      FY2010   FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                VALUATION RATIOS
NIMS                              2.4      3.0        2.8        2.8    P/E                                  4.6        4.8        5.1        4.8
COST TO INCOME RATIO             40.7     47.8       43.7       44.5    P/ABV                                1.1        0.9        0.8        0.8
ROA                               1.2       1.0       0.8        0.7    DIVIDEND YIELD (%)                   2.9        4.3        3.7        4.0
ROE                              26.2     20.9       16.3       15.4    DUPONT ANALYSIS
B/S RATIOS (%)                                                          NII                                  2.4        2.9        2.7        2.7
CASA RATIO                       31.7     31.8       32.4       32.2    (-) PROV. EXP.                       0.5        0.6        0.9        0.9
CREDIT/DEPOSIT RATIO             70.2     74.6       73.9       72.7    ADJ NII                              1.9        2.3        1.8        1.8
CAR                              12.5     13.0       12.9        11.5   TREASURY                             0.3        0.2        0.1        0.1
 - TIER I                         7.9      8.7        8.5         7.5   INT. SENS. INC.                      2.2        2.5        2.0        1.9
ASSET QUALITY (%)                                                       OTHER INC.                           0.8        0.7        0.7        0.7
GROSS NPAS                        2.2      2.4        3.7        5.1    OP. INC.                             3.0        3.2        2.7        2.6
NET NPAS                          0.8       1.2        1.8       2.2    OPEX                                 1.4        1.8        1.5        1.5
SLIPPAGES                         1.8      2.4        3.0        3.1    PBT                                  1.6        1.4        1.1        1.1
LOAN LOSS PROV. /AVG. ASSETS      0.4      0.6        0.8        0.8    TAXES                                0.4        0.4        0.4        0.3
PROVISION COVERAGE               74.0     67.6       65.0       65.0    ROA BEFORE PREF DIVIDEND             1.2        1.0        0.8        0.7
                `
PER SHARE DATA (`)                                                      PREF. DIVIDEND                         -        0.0        0.0        0.0
EPS                              41.1     39.6       36.7       39.4    ROA                                  1.2        1.0        0.8        0.7
ABVPS (75% COVER. FOR NPAS)     173.6    203.3      223.0      246.9    LEVERAGE                            22.5       21.7       21.3       21.7
DPS                               5.5      8.0         7.0        7.5   ROE                                 26.2      20.9        16.3      15.4


January 2012                                                                    Please refer to important disclosures at the end of this report     91
     Banking                                                                              Central Bank of India
                                                                                          CMP/TP/Upside: `76 / - / -



      RATING                                              NEUTRAL       Company Background
      52 WEEK HIGH / LOW                                   170 / 64     Central Bank of India is one of the larger mid-size PSU banks, with a balance
                  `
      MARKET CAP (` CR)                                         4,914   sheet size of ~`2.2lakh cr. The bank has one of the largest branch networks
                                                                        of ~4,000 branches, which are well spread across several major states of
      LIQUIDITY                                           MEDIUM
                                                                        India. The bank also has the second highest proportion of rural and
                                                                        semi-urban branches (63% of total branches). In the past, the bank's focus
                                                                        on low-yielding bulk corporate loans was contributing to lower profitability,
      SHAREHOLDING PATTERN (%)
                                                                        but slowly the bank is trying to increase its retail lending (still low at about
      PROMOTERS (GOVT.)                                          80.2   11% of loans).
      FII                                                         2.7

                                                                        Structural Snapshot
      STOCK RETURNS                                                     Growth opportunity: Mid-size PSU banks such as Central Bank of India
      (%)                   3M          1Y         3Y     5Y     10Y    are expected to gradually lose their market share, as private sector banks
      CENTRAL BANK (26.5)            (47.0)      31.0       -       -   make inroads into their hinterlands.

      BANKEX              (6.4) (12.5)           28.3     7.1 25.5      Competitive position: In the context of the overall sector, mid-size PSU
                                                                        banks, in our view, have a relatively weak competitive position compared to
      SENSEX              (2.6) (12.3)           21.3     3.3    17.3   private as well as large PSU banks. Central Bank of India also suffers from
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  relatively low branch and employee productivity, leading to further loss in
                                                                        competitiveness within its peer set.

      FINANCIAL PERFORMANCE OVERVIEW                                    Nature of business: Cyclical and rate-sensitive sector; Significant entry
                                                                        barriers for new players.
      (%)                    3M          1Y        3Y     5Y     10Y
      OP. INC. GROWTH*       8.1       54.0      28.2    17.6 13.1
      PAT GROWTH*         (35.6)       12.4      33.6    34.2    37.5   Current Investment Arguments
      NIM#                   2.7        2.8       2.1     2.3     3.0   Low branch productivity and structurally higher opex structure: The bank
      ROE#                       -     23.2      21.2    19.7    18.1   suffers from low branch and employee productivity in terms of business per
                                                                        branch as well as business per employee. Business per branch for FY2011
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        was ~34% lower than large and medium PSU peer banks. Due to this, the
                                                                        bank suffers from higher operating expenses, as reflected in opex-to-average
      ANGEL ESTIMATES                                                   assets ratio of ~1.6% during FY2009-11.
      PARTICULARS                             FY2012E      FY2013E      Near-term asset-quality concerns: A late starter in CBS implementation,
      PAT GROWTH (%)                            (22.1)           17.8   the bank commenced the switchover to NPA-based recognition system only
                                                                        post 1QFY2012. The bank still has to switch over accounts below `10lakhs
      ROE (%)                                    12.6            11.4   (comprising 20% of loan book) in 2HFY2012, which could lead to increased
      P/ABV                                        0.7            0.6   NPAs. Also, the bank's exposure to the infrastructure sector is relatively
                                                                        high at ~21% of the funded exposure, with the power sector accounting for
                                                                        over two-thirds of the same.
      BLOOMBERG CONSENSUS RECOMMENDATION                                Valuations: At the CMP, the stock is trading at cheap valuations of 0.6x
      BUY / HOLD / SELL                                    4/5/0        FY2013E ABV compared to its trading range of 0.6-1.5x with a median of
                                                                        1.1x since its listing in 2007. However, we believe this is outweighed by the
                                                                        substantial near-term concerns on asset quality. While the stock has corrected
                                                                        substantially over the past year, it is still trading higher than some of the
                                                                        other mid-size PSU banks with better asset-quality outlook and return ratios.
                                                                        Hence, we maintain our Neutral rating on the stock.




92   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME              2,545     5,325      5,624      6,271    SHARE CAPITAL                      1,771      2,021     2,264      2,264
 - YOY GROWTH (%)                 14.2     109.2         5.6       11.5   - EQUITY                             404       404        647        647
OTHER INCOME                     1,735     1,265      1,297      1,357
                                                                          - PREFERENCE                       1,367      1,617      1,617      1,617
 - YOY GROWTH (%)                 62.2     (27.1)       2.5        4.6
                                                                          RESERVE & SURPLUS                  5,921      6,827     9,843     10,721
OPERATING INCOME                 4,281     6,590      6,921      7,628
                                                                          DEPOSITS                         162,107    179,356   199,085    224,966
 - YOY GROWTH (%)                 29.8      54.0         5.0      10.2
                                                                           - GROWTH (%)                       23.5       10.6       11.0      13.0
OPERATING EXPENSES               2,222     3,999      3,646      3,938
 - YOY GROWTH (%)                 19.4      80.0       (8.8)       8.0    BORROWINGS                         2,751      7,283     8,107      9,140

PRE - PROVISION PROFIT           2,059     2,591      3,275      3,690    TIER 2 CAPITAL                     4,575      5,605     6,278      7,031

 - YOY GROWTH (%)                 43.3      25.9       26.4       12.7    OTHER LIAB. & PROV.                5,545      8,666     7,937      9,130
PROVISION AND CONTINGENCIES       509        932      1,820      1,931    TOTAL LIABILITIES                182,672    209,757   233,513    263,253
 - YOY GROWTH (%)                 (0.5)     83.2       95.2        6.1    CASH IN HAND AND WITH RBI          17,012    14,082    12,941     14,623
PROFIT BEFORE TAX                1,550     1,659      1,455      1,760    BAL.WITH BANKS & MONEY AT CALL 2,205          1,201     3,503      3,949
 - YOY GROWTH (%)                 67.5        7.1     (12.3)      20.9
                                                                          INVESTMENTS                       50,563     54,504    60,454     69,276
PROVISION FOR TAXATION            491        407        422        571
                                                                          ADVANCES                         105,383    129,725   145,292    162,728
 - AS A % OF PBT                  31.7      24.5       29.0       32.4
                                                                           - GROWTH (%)                       23.3       23.1      12.0       12.0
PAT                              1,058     1,252      1,033      1,189
                                                                          FIXED ASSETS                       2,343      2,425     2,619      2,864
 - YOY GROWTH (%)                 85.3      18.3      (17.5)      15.1
PREFERENCE DIVIDEND                 61       131        160       160     OTHER ASSETS                       5,165      7,819     8,705      9,813

PAT AVL. TO EQ SHAREHOLDERS       998      1,121        874      1,029    TOTAL ASSETS                     182,672    209,757   233,513    263,253
 - YOY GROWTH (%)                102.1      12.4      (22.1)       17.8    - GROWTH (%)                       23.7       14.8       11.3      12.7




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                               1.6       2.8         2.7       2.7    P/E                                  3.1        2.7        5.6        4.8
COST TO INCOME RATIO              51.9      60.7       52.7       51.6    P/ABV                                0.7        0.6       0.7         0.6
ROA                                0.6       0.6         0.4       0.4    DIVIDEND YIELD (%)                   2.9        4.5       2.0        2.6
ROE                               25.4      23.2       12.6        11.4   DUPONT ANALYSIS
B/S RATIOS (%)                                                            NII                                   1.5       2.7       2.5        2.5
CASA RATIO                        34.4      35.2       35.8       35.8    (-) PROV. EXP.                       0.3        0.5       0.8         0.8
CREDIT/DEPOSIT RATIO              65.0      72.3       73.0       72.3    ADJ NII                               1.2       2.2        1.7        1.7
CAR                               12.2       11.6       13.0      12.7    TREASURY                             0.5        0.2        0.1        0.1
 - TIER I                          6.8       6.3         8.2        7.9   INT. SENS. INC.                       1.7       2.4        1.8        1.8
ASSET QUALITY (%)                                                         OTHER INC.                           0.6        0.5        0.5        0.5
GROSS NPAS                         2.3        1.8        3.8       5.3    OP. INC.                             2.3        2.9        2.3        2.3
NET NPAS                           0.7       0.7         1.8       2.4    OPEX                                  1.3       2.0        1.6        1.6
SLIPPAGES                           1.2       1.3        3.1       3.1    PBT                                  0.9        0.8        0.7        0.7
LOAN LOSS PROV. /AVG. ASSETS       0.2       0.3         0.7       0.7    TAXES                                0.3        0.2        0.2        0.2
PROVISION COVERAGE                70.4      67.6        57.0      57.0    ROA                                  0.6        0.6        0.5        0.5
                `
PER SHARE DATA (`)                                                        PREF. DIVIDEND                       0.0        0.1        0.1        0.1
EPS                               24.7      27.7        13.5      15.9    ROA POST PREF. DIVIDEND              0.6        0.6       0.4        0.4
ABVPS (75% COVERAGE FOR NPAS)    105.2     126.4      115.9      120.9    LEVERAGE                            42.1       40.6      32.0        27.6
DPS                                2.2       3.4         1.5       2.0    ROE                                 25.4       23.2       12.6       11.4


January 2012                                                                      Please refer to important disclosures at the end of this report     93
     Banking                                                                               Syndicate Bank
                                                                                           CMP/TP/Upside: `84 / `106 / 26%



      RATING                                                     BUY    Company Background
      52 WEEK HIGH / LOW                                 132 / 68       Syndicate Bank is a south-based mid-size PSU bank, with an asset base in
                  `
      MARKET CAP (` CR)                                       4,821     excess of `1.6lakh cr. The bank has 2,500+ branches, with a more spread-
                                                                        out network than other regional banks, having 53% branches in the south
      LIQUIDITY                                         MEDIUM
                                                                        and the remaining spread across several states of the country (23% of branches
                                                                        in the northern region). The bank also has a reasonable presence overseas,
                                                                        which accounts for ~10% of its total loans.
      SHAREHOLDING PATTERN (%)
      PROMOTERS (GOVT.)                                          69.5
      FII                                                         3.8   Structural Snapshot
                                                                        Growth opportunity: Mid-size PSU banks such as Syndicate Bank are expected
                                                                        to gradually lose their market share, as private sector banks make inroads
      STOCK RETURNS                                                     into their stronghold regions.
      (%)                   3M        1Y       3Y       5Y       10Y
                                                                        Competitive position: In the context of the overall sector, mid-size PSU
      SYNDICATE BANK (18.9) (16.9)             9.9      2.5 24.7        banks such as Syndicate Bank, in our view, have a relatively weak competitive
      BANKEX              (6.4) (12.5)        28.3      7.1 25.5        position compared to private as well as large PSU banks.

      SENSEX              (2.6) (12.3)        21.3      3.3      17.3   Nature of business: Cyclical and rate-sensitive sector; Significant entry
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  barriers for new players.



      FINANCIAL PERFORMANCE OVERVIEW                                    Current Investment Arguments
      (%)                    3M          1Y    3Y       5Y       10Y    Better asset quality and moderate NIM to drive profitability: The bank
      OP. INC. GROWTH* 14.8          35.6     20.7    16.5 14.3         witnessed a surge in slippages in 2QFY2012 to 3.6% due to the switchover
                                                                        to system-based NPA recognition platform; slippages are also likely to remain
      PAT GROWTH*           32.0     28.8      7.3    14.3       16.1
                                                                        above average levels due to the deteriorating domestic macro environment.
      NIM#                   3.3      3.0      2.4      2.5       3.1   However, the bank's conservative lending, visible in its low yield on advances
      ROE#                       -    17.6    18.6    20.9 22.7         and moderate advances growth (16% CAGR over FY2010-12E), is expected
                                                                        to lead to better asset quality than peers. Moreover, the bank's calculated
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                        NIM improved by 90bp in FY2011 over FY2010 to healthy 3.0%. In-line
                                                                        with our view that margins are likely to remain stable for the sector as a
      ANGEL ESTIMATES                                                   whole, we expect Syndicate Bank's NIM to also remain healthy in the coming
                                                                        quarters.
      PARTICULARS                          FY2012E       FY2013E
      PAT GROWTH (%)                          26.8                2.0   Attractive valuations: We expect Syndicate Bank to deliver RoEs of 18.5%
                                                                        and 16.5% in FY2012 and FY2013, respectively, on the back of its better
      ROE (%)                                 18.5               16.5   asset-quality outlook than peers and moderate NIM. The bank has a modest
      P/ABV                                    0.6                0.6   CASA franchise with a CASA ratio of 30.8% (as of 3QFY2012), while fee
                                                                        income is also modest at 0.6% of average assets (as of FY2011). However,
                                                                        that said, the bank's relatively cheap valuations and low asset-quality concerns
      BLOOMBERG CONSENSUS RECOMMENDATION                                turn the tide in the stock's favor. The stock is currently trading at a substantial
                                                                        discount (0.6x FY2013E ABV) vs. its five-year range of 0.7-1.3x and median
      BUY / HOLD / SELL                                   7/0/1
                                                                        of 0.9x. Also, the valuations appear cheap compared to its peers, which are
                                                                        trading at higher multiples, although they have similar or poorer fundamentals.
                                                                        We value the stock at 0.7x FY2013E ABV and continue to maintain our
                                                                        Buy recommendation with a target price of ` 106.




94   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E   FY2013E
NET INTEREST INCOME              2,740     4,383       5,113     5,790    SHARE CAPITAL                        522       573        573       573
 - YOY GROWTH (%)                   7.5     60.0       16.7       13.2    RESERVE & SURPLUS                  5,105      6,478     7,506      8,528
OTHER INCOME                     1,167       915      1,065      1,166    DEPOSITS                          117,026   135,596   157,291    184,031
 - YOY GROWTH (%)                 27.6     (21.6)      16.4        9.4     - GROWTH (%)                         1.0      15.9      16.0       17.0
OPERATING INCOME                 3,907     5,298      6,179      6,955
                                                                          BORROWINGS                         8,555      6,010     6,972      8,138
 - YOY GROWTH (%)                 12.8      35.6       16.6       12.6
                                                                          TIER 2 CAPITAL                     3,618      3,518     4,045      4,571
OPERATING EXPENSES               2,034     2,548      2,658      3,022
                                                                          OTHER LIAB. & PROV.                4,225      4,364     5,197      6,124
 - YOY GROWTH (%)                 13.5      25.3        4.3       13.7
                                                                          TOTAL LIABILITIES                139,051    156,539   181,585    211,965
PRE - PROVISION PROFIT           1,874     2,750      3,521      3,933
                                                                          CASH IN HAND AND WITH RBI          7,189     10,443    10,224     11,962
 - YOY GROWTH (%)                 12.1      46.8       28.1        11.7
                                                                          BAL.WITH BANKS & MONEY AT CALL     5,545      1,523     3,632      4,239
PROVISION AND CONTINGENCIES        700     1,464      1,861      1,928
                                                                          INVESTMENTS                       33,011    35,068     41,795    53,368
 - YOY GROWTH (%)                 10.2     109.3        27.1       3.6
                                                                          ADVANCES                          90,406    106,782   122,799    138,763
PROFIT BEFORE TAX                 1,174    1,285      1,660      2,005
                                                                           - GROWTH (%)                        10.9      18.1      15.0       13.0
 - YOY GROWTH (%)                 13.3       9.5       29.2       20.8
PROVISION FOR TAXATION            361        237        332       651     FIXED ASSETS                         701       693        779       883

 - AS A % OF PBT                  30.7      18.5       20.0       32.4    OTHER ASSETS                       2,198      2,031     2,356      2,750

PAT                                813     1,048      1,328      1,355    TOTAL ASSETS                     139,051    156,539   181,585    211,965

 - YOY GROWTH (%)                (10.9)     28.8       26.8        2.0     - GROWTH (%)                         6.8      12.6      16.0       16.7




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E   FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                               2.1       3.0        3.1        3.0    P/E                                   5.4       4.6       3.6        3.6
COST TO INCOME RATIO              52.0      48.1       43.0       43.4
                                                                          P/ABV                                 0.9       0.7       0.6        0.6
ROA                                0.6       0.7        0.8        0.7
                                                                          DIVIDEND YIELD (%)                    3.6       4.4       5.4        5.9
ROE                               16.6       17.6      18.5       16.5
                                                                          DUPONT ANALYSIS
B/S RATIOS (%)
                                                                          NII                                   2.0       3.0       3.0        2.9
CASA RATIO                        31.2      30.9       30.3       29.4
CREDIT/DEPOSIT RATIO              77.3      78.8       78.1       75.4    (-) PROV. EXP.                        0.5       1.0       1.1        1.0

CAR                               12.7      13.0       13.0       12.6    ADJ NII                               1.5       2.0       1.9        2.0

 - TIER I                          8.2       9.3        9.1        8.8    TREASURY                              0.3       0.0       0.1        0.0
ASSET QUALITY (%)                                                         INT. SENS. INC.                       1.8       2.0       2.0        2.0
GROSS NPAS                         2.2       2.4        3.6        5.2    OTHER INC.                            0.6       0.6       0.6        0.6
NET NPAS                            1.1       1.0        1.7       2.5
                                                                          OP. INC.                              2.4       2.6       2.6        2.6
SLIPPAGES                           1.8       1.7       3.0        3.2
                                                                          OPEX                                  1.5       1.7       1.6        1.5
LOAN LOSS PROV. /AVG. ASSETS       0.4       0.6        0.9        0.9
                                                                          PBT                                   0.9       0.9       1.0        1.0
PROVISION COVERAGE                73.3      77.2       78.0       75.0
                                                                          TAXES                                 0.3       0.2       0.2        0.3
                `
PER SHARE DATA (`)
EPS                               15.6      18.3       23.2       23.6    ROA                                   0.6       0.7       0.8        0.7

ABVPS (75% COVERAGE FOR NPAS)     98.8     116.1      134.1      151.9    LEVERAGE                             27.4      24.9      23.6       24.0
DPS                                3.0       3.7        4.5        5.0    ROE                                 16.6       17.6      18.5       16.5


January 2012                                                                      Please refer to important disclosures at the end of this report    95
     Banking                                                                               Allahabad Bank
                                                                                           CMP/TP/Upside: `142 / `158 / 12%



      RATING                                         ACCUMULATE         Company Background
      52 WEEK HIGH / LOW                                240 / 114       Allahabad Bank is a mid-size public sector bank, with a branch network of
                  `
      MARKET CAP (` CR)                                       6,748     over 2,400 branches and balance sheet of ~`1.6lakh cr. The bank's branches
                                                                        are mostly concentrated in the northern (~40%) and eastern (~40%) states
      LIQUIDITY                                         MEDIUM
                                                                        of India.


      SHAREHOLDING PATTERN (%)
                                                                        Structural Snapshot
      PROMOTERS (GOVT.)                                          58.0
                                                                        Growth opportunity: Mid-size PSU banks such as Allahabad Bank are expected
      FII                                                        11.9
                                                                        to gradually lose their credit market share, as private sector banks make
                                                                        inroads into their hinterlands.

      STOCK RETURNS                                                     Competitive position: In the context of the overall sector, mid-size PSU
                                                                        banks, in our view, have a relatively weak competitive position compared to
      (%)                   3M        1Y       3Y       5Y       10Y
                                                                        private as well as large PSU banks.
      ALLAHABAD BANK (6.8) (31.1)             37.7      9.3         -
                                                                        Nature of business: Cyclical and rate-sensitive sector; Significant entry
      BANKEX              (6.4) (12.5)        28.3      7.1 25.5        barriers for new players.
      SENSEX              (2.6) (12.3)        21.3      3.3      17.3
      NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                        Current Investment Arguments
                                                                        Healthy retail deposit base: Allahabad Bank has a substantial 41% of its
      FINANCIAL PERFORMANCE OVERVIEW
                                                                        branches in the CASA deposit-rich rural areas, which ensure relatively high
      (%)                    3M          1Y    3Y       5Y       10Y    sustainability of the low-cost deposits reservoir, also reflected in the strong
      OP. INC. GROWTH* 23.9          29.4     26.9     21.2      19.3   24.0% CAGR in the bank's saving account deposits over FY2009-11. Although
                                                                        the bank's CASA market share reduced by 25bp over FY2006-1HFY2012
      PAT GROWTH*           21.2     18.0     13.4     15.0 43.0
                                                                        to 2.4%, the decline in market share has been one of the lowest in its peer
      NIM#                   3.4      3.0      2.6      2.7       3.1   group. Also, the bank has a relatively low share of wholesale deposits and
      ROE#                       -   21.0     19.9     21.4 24.4        CDs at 12.1%.
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          Higher yielding loans could lead to higher NPAs: Allahabad Bank had
                                                                        one of the highest reported yield on advances for 2QFY2012 (12.6%) amongst
                                                                        all PSU banks. The bank's yield on advances has risen by 185bp yoy, the
      ANGEL ESTIMATES                                                   highest increase within the PSU segment, indicating increased risk taking
      PARTICULARS                          FY2012E       FY2013E        in the form of higher yielding loans over the past one year. While the bank's
      PAT GROWTH (%)                          28.6            (6.6)     provisioning costs are on the higher side (0.9% for 1HFY2012 compared
                                                                        to average 0.8% for PSUs), its risk-adjusted yields are still well above sector
      ROE (%)                                 21.9               17.6   average, indicating the possibility of negative surprises on the
      P/ABV                                    0.7                0.7   asset-quality front. As a result, with no additional room for expansion in yields
                                                                        and asset quality expected to further see deterioration due to the higher
                                                                        risk taking, higher-than-peer average return ratios for the bank could come
      BLOOMBERG CONSENSUS RECOMMENDATION                                under pressure.

      BUY / HOLD / SELL                                 22 / 1 / 1      Outlook and valuation: The bank's return ratios are on the higher side;
                                                                        however, higher estimated provisioning expenses are expected to impact
                                                                        profitability going forward. That said, positives for Allahabad Bank includemoderate
                                                                        CASA ratio of 30.6% and better-than-peer average fee income at 0.8x of
                                                                        assets. The bank is trading at valuations of 0.7x FY2013E ABV compared
                                                                        to its median of 1.0x and 5 year range of 0.6-1.2x. Hence, we recommend
                                                                        an Accumulate rating on the stock with a target price of ` 158.




96   January 2012                                                                             Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME              2,650     4,022      5,252      5,831    SHARE CAPITAL                       447        476        476        476
 - YOY GROWTH (%)                 22.8      51.8       30.6        11.0   RESERVE & SURPLUS                  6,306      8,031     9,446     10,767
OTHER INCOME                     1,516     1,370      1,336      1,401    DEPOSITS                         106,056    131,887   146,395    166,890
 - YOY GROWTH (%)                 32.7      (9.6)      (2.5)       4.9     - GROWTH (%)                       24.8       24.4       11.0       14.0
OPERATING INCOME                 4,166     5,393      6,588      7,232
                                                                          BORROWINGS                         1,424      3,006     3,348      3,814
 - YOY GROWTH (%)                 26.2      29.4       22.2        9.8
                                                                          TIER 2 CAPITAL                     4,012      3,912     4,460      5,084
OPERATING EXPENSES               1,618     2,338      2,642      3,004
                                                                          OTHER LIAB. & PROV.                3,455      3,974     4,339      4,907
 - YOY GROWTH (%)                 15.6      44.5       13.0        13.7
                                                                          TOTAL LIABILITIES                121,699    151,286   168,463    191,938
PRE - PROVISION PROFIT           2,549     3,055      3,946      4,228
                                                                          CASH IN HAND AND WITH RBI          7,184      7,901     9,516     10,848
 - YOY GROWTH (%)                 34.1      19.9       29.2         7.2
                                                                          BAL.WITH BANKS & MONEY AT CALL 1,984          3,126     3,369      3,839
PROVISION AND CONTINGENCIES        777      1,124     1,473      1,700
                                                                          INVESTMENTS                       38,429     43,247    45,113     51,365
 - YOY GROWTH (%)                 (5.9)     44.7       31.0       15.4
                                                                          ADVANCES                          71,605    93,625    106,732     121,675
PROFIT BEFORE TAX                1,772     1,931      2,473      2,529
                                                                           - GROWTH (%)                       21.8       30.8      14.0        14.0
 - YOY GROWTH (%)                 64.7       9.0       28.1        2.3
PROVISION FOR TAXATION            565        508        643        820    FIXED ASSETS                       1,118      1,148     1,240       1,371

 - AS A % OF PBT                  31.9      26.3       26.0       32.4    OTHER ASSETS                       1,379      2,239     2,493      2,840

PAT                              1,206     1,423      1,830      1,708    TOTAL ASSETS                     121,699    151,286   168,463    191,938

 - YOY GROWTH (%)                 57.0      18.0       28.6       (6.6)    - GROWTH (%)                       24.6       24.3       11.4       13.9




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                               2.5       3.0        3.4        3.3    P/E                                  5.2        4.7       3.7         4.0
COST TO INCOME RATIO              38.8      43.4       40.1       41.5
                                                                          P/ABV                                1.1        0.9       0.7         0.7
ROA                                 1.1       1.0        1.1       0.9
                                                                          DIVIDEND YIELD (%)                   3.9        4.2       5.3         4.9
ROE                               22.2      21.0       21.9        17.6
                                                                          DUPONT ANALYSIS
B/S RATIOS (%)
                                                                          NII                                  2.4        2.9       3.3         3.2
CASA RATIO                        34.5      33.5       35.0       35.5
CREDIT/DEPOSIT RATIO              67.5      71.0       72.9       72.9    (-) PROV. EXP.                       0.7        0.8       0.9         0.9

CAR                               13.6      13.0       13.6        13.7   ADJ NII                              1.7        2.1       2.4         2.3

 - TIER I                          8.1       8.6        9.1        9.1    TREASURY                             0.5        0.1       0.0         0.0
ASSET QUALITY (%)                                                         INT. SENS. INC.                      2.2        2.2       2.4         2.3
GROSS NPAS                          1.7       1.7       2.8        4.4    OTHER INC.                           0.9        0.9       0.8         0.7
NET NPAS                           0.7       0.8        0.9         1.4
                                                                          OP. INC.                             3.1        3.1       3.2         3.1
SLIPPAGES                          2.1       2.4        2.4        3.1
                                                                          OPEX                                 1.5        1.7        1.7        1.7
LOAN LOSS PROV. /AVG. ASSETS       0.8       0.6        0.7        0.9
                                                                          PBT                                  1.6        1.4        1.5        1.4
PROVISION COVERAGE                79.0      75.7       80.0       75.0
                                                                          TAXES                                0.5        0.4       0.4         0.5
                `
PER SHARE DATA (`)
EPS                               27.0      29.9       38.4       35.9    ROA                                  1.1        1.0        1.1        0.9

ABVPS (75% COVERAGE FOR NPAS)    131.7     160.5      190.2       217.9   LEVERAGE                            20.2       20.2      19.1        18.5
DPS                                5.5       6.0         7.5        7.0   ROE                                 22.2       21.0      21.9        17.6


January 2012                                                                      Please refer to important disclosures at the end of this report     97
     Banking                                                                                Corporation Bank
                                                                                            CMP/TP/Upside: `387 / `450 / 16%



      RATING                                                     BUY     Company Background
      52 WEEK HIGH / LOW                                 658/336         Corporation Bank is a mid-size PSU bank, with a balance sheet size of
                  `
      MARKET CAP (` CR)                                       5,739      ~`1.4lakh cr. The bank's branches are mainly concentrated in the southern
                                                                         states (~50%) with majority being in Karnataka (~26%). The bank, unlike
      LIQUIDITY                                         MEDIUM
                                                                         most other PSU banks, has more than half of its branches located in urban
                                                                         and metropolitan areas (~56%).

      SHAREHOLDING PATTERN (%)
      PROMOTERS (GOVT.)                                          58.5    Structural Snapshot
      FII                                                         4.5
                                                                         Growth opportunity: Mid-size PSU banks such as Corporation Bank are
                                                                         expected to gradually lose their credit market share, as private sector banks
                                                                         make inroads into their hinterlands.
      STOCK RETURNS
                                                                         Competitive position: In the context of the overall sector, mid-size PSU
      (%)                   3M        1Y       3Y       5Y        10Y
                                                                         banks, in our view, have a relatively weak competitive position compared to
      CORP. BANK          (6.6) (30.4)        27.3      4.0 12.4         private as well as large PSU banks. Further, unlike most PSUs, Corporation
      BANKEX              (6.4) (12.5)        28.3      7.1 25.5         Bank has more than half of its branches located in urban and metropolitan
                                                                         areas, and although this has often prompted the bank to be ahead of other
      SENSEX              (2.6) (12.3)        21.3      3.3       17.3   PSU banks in implementing newer technologies and services, it also exposes
      NOTE: ABOVE 1 YEAR ON CAGR BASIS                                   the bank to much higher competition from private banks.
                                                                         Nature of business: Cyclical and rate-sensitive sector; Significant entry
      FINANCIAL PERFORMANCE OVERVIEW                                     barriers for new players.

      (%)                    3M          1Y    3Y       5Y        10Y
      OP. INC. GROWTH* 21.3          25.5     25.8    18.8        17.2   Current Investment Arguments
      PAT GROWTH*           14.0     20.8     24.4    26.0       18.4
                                                                         Modern, cost-efficient network to support moderate CASA growth: During
      NIM#                   2.1      2.4      2.2      2.4       2.9    FY2007-11, growth in the bank's average CASA deposits was robust relative
      ROE#                       -   21.9     21.1    19.4       18.1    to peers at 20.4%. We believe the bank's efficient and expanding network,
                                                                         supported by a consistent track record in early adoption of emerging technologies,
      NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                         creates a positive traction in its deposit franchise, though this is tempered
                                                                         mainly by substantial competition from larger banks.
      ANGEL ESTIMATES
                                                                         Low operating cost and superior asset quality: Large corporates comprise
      PARTICULARS                          FY2012E       FY2013E         ~38% of the bank's credit book, leading to relatively low yield on advances,
      PAT GROWTH (%)                           3.7               (7.0)   but simultaneously offering superior asset quality to the bank.
                                                                         Corporation Bank is also among the most cost-efficient PSU banks, both in
      ROE (%)                                 19.0               15.5    terms of its operating expenses as a percentage of average assets as well
      P/ABV                                    0.7                0.6    as branch and employee productivity.
                                                                         Valuations reasonable: The bank's low CASA ratio (~22%) has contributed
                                                                         to higher margin pressures, given the prevailing high interest rates. Accordingly,
      BLOOMBERG CONSENSUS RECOMMENDATION                                 peaking of interest rates bodes well for it. Currently, the stock is trading at
      BUY / HOLD / SELL                                 18 / 5 / 2       0.6x FY2013E ABV (five-year range of 0.8x-1.4x and median of 1.0x), which
                                                                         we believe provides a margin of safety from current macro headwinds.
                                                                         Also, the structural positive for the bank is its proactive investment in modern
                                                                         distribution and payment systems, which has led to consistently faster CASA
                                                                         growth compared to peers. We value the bank at 0.8x FY2013E ABV
                                                                         and recommend a Buy rating on the stock with a target price of ` 450.




98   January 2012                                                                             Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                 BALANCE SHEET
           `
Y/E MARCH (` CR)               FY2010    FY2011    FY2012E    FY2013E               `
                                                                         Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
 NET INTEREST INCOME            1,903     2,940      2,997      3,478    SHARE CAPITAL                        143       148        148        148
 - YOY GROWTH (%)                12.6      54.5         1.9      16.1    RESERVE & SURPLUS                  5,631     6,990       8,111     9,148
 OTHER INCOME                   1,493     1,324      1,488       1,510   DEPOSITS                          92,734    116,748   134,260    154,399
 - YOY GROWTH (%)                34.9     (11.3)      12.4         1.5    - GROWTH (%)                       25.3       25.9      15.0       15.0
 OPERATING INCOME               3,397     4,264      4,485      4,988
                                                                         BORROWINGS                         4,290     10,628     3,539      4,063
 - YOY GROWTH (%)                21.4      25.5        5.2        11.2
                                                                         TIER 2 CAPITAL                     4,788      5,338     6,085      6,876
 OPERATING EXPENSES             1,260     1,642       1,812     2,084
                                                                         OTHER LIAB. & PROV.                4,081     3,658      5,157      5,945
 - YOY GROWTH (%)                20.4      30.3       10.4       15.0
                                                                         TOTAL LIABILITIES                 111,667   143,509   157,301    180,578
 PRE - PROVISION PROFIT         2,137     2,622      2,673      2,904
                                                                         CASH IN HAND AND WITH RBI          8,835      8,142     8,727     10,036
 - YOY GROWTH (%)                22.0      22.7         1.9       8.7
                                                                         BAL.WITH BANKS & MONEY AT CALL     1,957     2,250      3,146      3,612
 PROVISION AND CONTINGENCIES      474      689         840        885
                                                                         INVESTMENTS                       34,523     43,453    43,346     51,535
 - YOY GROWTH (%)                29.8      45.2       22.0        5.4
                                                                         ADVANCES                          63,203    86,850     99,009     111,881
 PROFIT BEFORE TAX              1,662     1,934      1,833      2,019
                                                                          - GROWTH (%)                       30.3       37.4      14.0       13.0
 - YOY GROWTH (%)                19.9      16.3       (5.2)      10.2
 PROVISION FOR TAXATION           492      520         367        655    FIXED ASSETS                         293       331        352        392

 - AS A % OF PBT                 29.6      26.9       20.0       32.4    OTHER ASSETS                       2,857      2,482     2,720      3,123

 PAT                             1,170    1,413      1,466      1,364    TOTAL ASSETS                      111,667   143,509   157,301    180,578

 - YOY GROWTH (%)                31.1      20.8        3.7       (7.0)    - GROWTH (%)                       28.5       28.5       9.6        14.8




 KEY RATIOS                                                              KEY RATIOS
Y/E MARCH                      FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                 VALUATION RATIOS
NIMS                              2.0       2.4        2.0        2.1    P/E                                   4.7       4.1       3.9         4.2
COST TO INCOME RATIO             37.1      38.5       40.4       41.8
                                                                         P/ABV                                 1.0       0.8       0.7         0.6
ROA                                1.2       1.1        1.0       0.8
                                                                         DIVIDEND YIELD (%)                    4.3       5.2       5.2         4.9
ROE                              21.9      21.9       19.0       15.5
                                                                         DUPONT ANALYSIS
B/S RATIOS (%)
                                                                         NII                                   1.9       2.3       2.0         2.1
CASA RATIO                       28.6      26.0       25.5       25.1
CREDIT/DEPOSIT RATIO             68.2      74.4       73.7       72.5    (-) PROV. EXP.                        0.5       0.5       0.6         0.5

CAR                              15.4      14.1       14.8        14.6   ADJ NII                               1.4       1.8        1.4        1.5

 - TIER I                         9.3       8.7        9.1        8.8    TREASURY                              0.6       0.2       0.1         0.1
ASSET QUALITY (%)                                                        INT. SENS. INC.                       2.1       1.9        1.6        1.6
GROSS NPAS                         1.0      0.9         1.9       2.8    OTHER INC.                            0.9       0.9       0.8         0.8
NET NPAS                          0.3       0.5         1.0        1.3
                                                                         OP. INC.                              2.9       2.8       2.4         2.4
SLIPPAGES                          1.0       1.3        1.8        1.8
                                                                         OPEX                                  1.3       1.3        1.2        1.2
LOAN LOSS PROV. /AVG. ASSETS      0.3       0.4        0.4        0.5
                                                                         PBT                                   1.7       1.5        1.2        1.2
PROVISION COVERAGE               80.8      74.7       65.0       65.0
                                                                         TAXES                                 0.5       0.4       0.2         0.4
                `
PER SHARE DATA (`)
EPS                              81.6      95.4       99.0       92.1    ROA                                   1.2       1.1        1.0        0.8

ABVPS ( 75% COVERAGE FOR NPAS) 402.6      481.5      537.6      599.6    LEVERAGE                            18.6       19.8      19.5       19.2
DPS                              16.5      20.0       20.0       19.0    ROE                                  21.9      21.9      19.0       15.5


January 2012                                                                     Please refer to important disclosures at the end of this report     99
      Banking                                                                                Indian Bank
                                                                                             CMP/TP/Upside: `204 / `223 / 10%



       RATING                                            ACCUMULATE       Company Background
       52 WEEK HIGH / LOW                                   255 / 167     Indian Bank is a Chennai-based mid-size public sector bank, with 1,927
                   `
       MARKET CAP (` CR)                                          8,750   branches and a balance sheet size of ~`1.3lakh cr. Around two-thirds of the
                                                                          bank's branches are spread across the southern states with majority being
       LIQUIDITY                                            MEDIUM
                                                                          in the parent state of Tamil Nadu (43%).


       SHAREHOLDING PATTERN (%)
                                                                          Structural Snapshot
       PROMOTERS (GOVT.)                                           80.0
                                                                          Growth opportunity: Mid-size PSU banks such as Indian Bank are expected
       FII                                                          9.0
                                                                          to gradually lose their market share as private sector banks make inroads
                                                                          into their hinterlands.

       STOCK RETURNS                                                      Competitive position: In the context of the overall sector, mid-size PSU
                                                                          banks such as Indian Bank, in our view, have a relatively weak competitive
       (%)                   3M          1Y        3Y       5Y     10Y
                                                                          position compared to private as well as large PSU banks.
       INDIAN BANK         (2.7)       (2.6)      17.0        -       -
                                                                          Nature of business: Cyclical and rate-sensitive sector; significant entry barriers
       BANKEX              (6.4) (12.5)           28.3      7.1 25.5      for new players.
       SENSEX              (2.6) (12.3)           21.3      3.3    17.3
       NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                          Current Investment Arguments
                                                                          Healthy profitability: Indian Bank's performance has broadly been positive
       FINANCIAL PERFORMANCE OVERVIEW
                                                                          and balanced since its listing in 2007, leading to a gradual improvement in
       (%)                    3M          1Y       3Y       5Y     10Y    the quality of earnings, visible amongst other things in the substantial 80bp
       OP. INC. GROWTH* 16.6            16.5      19.5     20.6 20.5      decline in the bank's operating costs as a percentage of assets. Additionally,
                                                                          the bank's CMD has a five-year tenure, which provides a reasonable strategic
       PAT GROWTH*           12.7       10.5      19.9     27.0     NA
                                                                          stability to the bank.
       NIM#                   3.5        3.7       3.6      3.5     3.4
                                                                          Relatively high yields: A large portion of SME and mid-corporate loans has
       ROE#                        -    23.5      24.6     25.5 26.8      contributed to the bank's relatively high yield on advances, while asset quality
       NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS           has held up reasonably so far, resulting in the bank enjoying one of the
                                                                          highest risk-adjusted yields in its peer group (90bp higher than sector average
                                                                          in FY2011). This has supported NIMs, which, in FY2011, were higher than
       ANGEL ESTIMATES                                                    even larger banks having 40% CASA deposits vs. Indian Bank's 30%. Past
       PARTICULARS                             FY2012E       FY2013E      experience shows that bank's that delivered high NIMs on the back of high
       PAT GROWTH (%)                              2.9              4.7   yields later paid the price for the higher risk taken, in the form higher NPAs
                                                                          in subsequent years. Accordingly, going ahead, as in case of other banks
       ROE (%)                                    20.4             18.4   with unsustainably high yields, we are cautious on the bank's asset quality
       P/ABV                                       0.9              0.8   and NIM outlook.
                                                                          Valuations higher than peers: At the CMP, the stock is trading at 0.8x
                                                                          FY2013E ABV, which is at the lower end of its five-year range of 0.8-1.3x,
       BLOOMBERG CONSENSUS RECOMMENDATION                                 providing valuation upsides as the macro environment improves. However,
       BUY / HOLD / SELL                                    18 / 0 / 0    valuations are relatively high compared to peers, which are trading at 0.5-
                                                                          0.7x FY2013E ABV and even some of the larger banks trading at about 0.8x
                                                                          FY2013E ABV. As these relatively high valuations are primarily attributable
                                                                          to the bank's high NIMs, which may not sustain in the medium term, we
                                                                          believe the risk-return trade-off in case of Indian Bank is less favorable.
                                                                          Hence, we recommend an Accumulate rating on the stock with a target
                                                                          price of ` 223, implying a 9.7% upside from current levels.




100   January 2012                                                                             Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                    BALANCE SHEET
           `
Y/E MARCH (` CR)                  FY2010    FY2011    FY2012E    FY2013E               `
                                                                            Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
 NET INTEREST INCOME               3,161     4,036      4,506      5,011    SHARE CAPITAL                       830        830        830        830
 - YOY GROWTH (%)                   21.2      27.7        11.6       11.2   - EQUITY                            430        430        430        430
 OTHER INCOME                      1,316     1,182      1,224      1,254
                                                                            - PREFERENCE                        400        400        400        400
 - YOY GROWTH (%)                   27.1     (10.2)       3.6        2.4
                                                                            RESERVE & SURPLUS                  7,442     8,691     10,034      11,433
 OPERATING INCOME                  4,478     5,218      5,730      6,265
                                                                            DEPOSITS                          88,228    105,804    121,675   138,709
 - YOY GROWTH (%)                   22.9      16.5        9.8        9.3
                                                                             - GROWTH (%)                       21.6       19.9       15.0       14.0
 OPERATING EXPENSES                1,730     1,926      2,169      2,465
 - YOY GROWTH (%)                   22.3       11.3      12.6       13.6    BORROWINGS                          657        800      2,840      3,234

 PRE - PROVISION PROFIT            2,747     3,292      3,561      3,800    TIER 2 CAPITAL                      300       1,300      1,521      1,734

 - YOY GROWTH (%)                   23.3      19.8        8.2        6.7    OTHER LIAB. & PROV.                3,932      4,293      5,118     5,772
 PROVISION AND CONTINGENCIES         396       657        964      1,083    TOTAL LIABILITIES                101,389    121,718   142,018     161,712
 - YOY GROWTH (%)                  (10.6)     66.1       46.6       12.4    CASH IN HAND AND WITH RBI          7,061      6,878     7,909      9,016
 PROFIT BEFORE TAX                 2,352     2,634      2,597      2,717    BAL.WITH BANKS & MONEY AT CALL     1,052      1,684     2,840      3,234
 - YOY GROWTH (%)                   31.7      12.0       (1.4)       4.6
                                                                            INVESTMENTS                       28,268     34,784    39,640     45,071
 PROVISION FOR TAXATION              797       920        843       881
                                                                            ADVANCES                          62,146    75,250     88,042    100,368
 - AS A % OF PBT                    33.9      34.9       32.4       32.4
                                                                             - GROWTH (%)                       20.8       21.1       17.0       14.0
 PAT                               1,555      1,714     1,755      1,835
                                                                            FIXED ASSETS                       1,580      1,606      1,818     2,008
 - YOY GROWTH (%)                   24.9      10.2        2.4        4.6
 PREFERENCE DIVIDEND (INCL DDT)       46        46         37         37    OTHER ASSETS                       1,282      1,516      1,769     2,015

 PAT AVL. FOR EQ. SHAREHOLDERS     1,509     1,668       1,717     1,798    TOTAL ASSETS                     101,389    121,718   142,018     161,712
 - YOY GROWTH (%)                   25.5      10.5        2.9        4.7     - GROWTH (%)                       20.5       20.1      16.7        13.9




 KEY RATIOS                                                                 KEY RATIOS
Y/E MARCH                         FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                    VALUATION RATIOS
NIMS                                 3.5       3.7        3.5        3.4    P/E                                  5.8        5.2        5.1        4.9
COST TO INCOME RATIO                38.6      36.9        37.9      39.3
                                                                            P/ABV                                1.3        1.1        0.9        0.8
ROA                                   1.7       1.5        1.3        1.2
                                                                            DIVIDEND YIELD (%)                   3.2        3.7        3.7        3.9
ROE                                 25.6      23.5       20.4       18.4
                                                                            DUPONT ANALYSIS
B/S RATIOS (%)
                                                                            NII                                  3.4        3.6        3.4        3.3
CASA RATIO                          32.2      30.9       30.5       30.4
CREDIT/DEPOSIT RATIO                70.4      71.1       72.4       72.4    (-) PROV. EXP.                       0.4        0.6        0.7        0.7

CAR                                 12.7      13.6       13.5       13.5    ADJ NII                              3.0        3.0        2.7        2.6

 - TIER I                            11.1      11.0       11.0       11.1   TREASURY                             0.4        0.1        0.1        0.0
ASSET QUALITY (%)                                                           INT. SENS. INC.                      3.4        3.2        2.8        2.6
GROSS NPAS                           0.8        1.0        1.9       3.2    OTHER INC.                           1.0        0.9        0.8        0.8
NET NPAS                             0.2       0.5        0.9         1.2
                                                                            OP. INC.                             4.4        4.1        3.6        3.4
SLIPPAGES                             1.1       1.5        1.9       2.2
                                                                            OPEX                                 1.9        1.7        1.6        1.6
LOAN LOSS PROV. /AVG. ASSETS         0.4       0.6        0.5        0.6
                                                                            PBT                                  2.5        2.4        2.0        1.8
PROVISION COVERAGE                  93.6      84.3       78.0       75.0
                                                                            TAXES                                0.9        0.8        0.6        0.6
                `
PER SHARE DATA (`)
EPS                                 35.1      38.8       40.0       41.8    ROA                                  1.7        1.5        1.3        1.2

ABVPS ( 75% COVERAGE FOR NPAS) 154.7         184.4      215.7      248.2    LEVERAGE                            15.3       15.3       15.3       15.2
DPS                                  6.5        7.5        7.5       8.0    ROE                                 25.6       23.5      20.4        18.4


January 2012                                                                        Please refer to important disclosures at the end of this report     101
      Banking                                                                              Andhra Bank
                                                                                           CMP/TP/Upside: `97 / - / -



       RATING                                            NEUTRAL         Company Background
       52 WEEK HIGH / LOW                                      159/79    Andhra Bank is a mid-size PSU bank, with a balance sheet size of
                   `
       MARKET CAP (` CR)                                        5,420    ~`1.2lakh cr. The bank has a network of over 1,652 branches, mainly concentrated
                                                                         in the southern region (66% in the parent state of Andhra Pradesh).
       LIQUIDITY                                         MEDIUM


       SHAREHOLDING PATTERN (%)                                          Structural Snapshot
       PROMOTERS (GOVT.)                                          58.0   Growth opportunity: Mid-size PSU banks such as Andhra Bank are expected
                                                                         to gradually lose their credit market share, as private sector banks make
       FII                                                        13.1
                                                                         inroads into their hinterlands.
                                                                         Competitive position: In the context of the overall sector, mid-size PSU
       STOCK RETURNS                                                     banks, in our view, have a relatively weak competitive position compared to
                                                                         private as well as large PSU banks. Further, in case of Andhra Bank, asset-
       (%)                   3M        1Y        3Y      5Y       10Y
                                                                         quality pressures going ahead could lead to underperformance within the
       ANDHRA BANK (20.8) (25.7)                19.1     1.6 28.2        mid-PSU segment.
       BANKEX              (6.4) (12.5)         28.3     7.1 25.5        Nature of business: Cyclical and rate-sensitive sector; Significant entry
       SENSEX              (2.6) (12.3)         21.3     3.3      17.3   barriers for new players.
       NOTE: ABOVE 1 YEAR ON CAGR BASIS

                                                                         Current Investment Arguments
       FINANCIAL PERFORMANCE OVERVIEW
                                                                         Moderate fee income, low CASA: During FY2007-11, fee income for the
       (%)                    3M          1Y     3Y      5Y       10Y    bank posted a CAGR of only 12.8% compared to advances reporting a
       OP. INC. GROWTH* 15.9          30.3      27.9    20.3      19.3   CAGR of 26.5%. However, at 0.8% of overall assets for FY2011, fee income
                                                                         for the bank is moderate compared to other mid-size PSU banks. On the
       PAT GROWTH*            4.3     21.2      30.1    21.1 26.5
                                                                         CASA front, the bank's market share has fallen by 35bp over FY2005-1HFY2012
       NIM#                   3.5      3.3       2.9     3.0       3.2   and the bank's CASA ratio, at 26.1%, is on the lower end compared to
       ROE#                       -   23.2      22.7    20.8 25.7        peers.
       NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          Risk-adjusted yields expected to fall: The bank has one of the highest
                                                                         yields in the industry (12.5% as of 2QFY2012), also reflected in the relatively
                                                                         strong NIM of 3.3% (as of FY2011). This can be partly attributed to the
       ANGEL ESTIMATES                                                   bank's high concentration in the hinterland of its home state. That said, it is
       PARTICULARS                           FY2012E      FY2013E        difficult for banks to remain insulated from competition on the lending side
       PAT GROWTH (%)                           (0.9)           (8.6)    and, as a result, we expect a decline in the bank's risk-adjusted yields and
                                                                         overall profitability over the medium term. Also, in the current environment,
       ROE (%)                                  18.1              14.6   the bank's provisioning expenses are likely to increase at a faster rate, given
       P/ABV                                     0.8               0.7   the high yield on advances and relatively high exposure to riskier sectors.
                                                                         Valuations provide inadequate margin of safety: At the CMP, the stock is
                                                                         trading at 0.7x FY2013E ABV, which is at the lower end of its five-year
       BLOOMBERG CONSENSUS RECOMMENDATION                                range of 0.7-1.3x, providing valuation upsides once the macro-environment
       BUY / HOLD / SELL                                 10 / 2 / 2      improves. However, relatively high risk exposures, particularly the power sector
                                                                         (more than 20% of the loan book), create risk of higher deterioration in the
                                                                         bank’s asset quality in the coming quarters, in our view. Considering, the
                                                                         bank's peers are also trading at similar valuations of 0.7x, with similar or
                                                                         better asset-quality outlook, we remain Neutral on the stock.




102   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME              2,195     3,221      3,817      4,203    SHARE CAPITAL                       485        560       560        560
 - YOY GROWTH (%)                 34.9      46.8       18.5       10.1    RESERVE & SURPLUS                  3,925      5,933     6,864      7,719
OTHER INCOME                       965      897         838        926    DEPOSITS                          77,688     92,156   108,744    123,969
 - YOY GROWTH (%)                 26.0      (7.0)      (6.6)      10.5     - GROWTH (%)                       30.8       18.6      18.0       14.0
OPERATING INCOME                 3,159     4,118      4,655      5,129
                                                                          BORROWINGS                         2,832      4,620     5,442      6,193
 - YOY GROWTH (%)                 32.1      30.3       13.0       10.2
                                                                          TIER 2 CAPITAL                     3,020      3,020     3,382      3,822
OPERATING EXPENSES               1,350     1,705      1,833      2,097
                                                                          OTHER LIAB. & PROV.                2,392      2,612     3,284      3,714
 - YOY GROWTH (%)                 22.2      26.3         7.5       14.4
                                                                          TOTAL LIABILITIES                 90,342   108,901    128,275    145,976
PRE - PROVISION PROFIT            1,810    2,413      2,822      3,033
                                                                          CASH IN HAND AND WITH RBI          6,699      7,184     7,068      8,058
 - YOY GROWTH (%)                 40.5      33.3       16.9         7.5
                                                                          BAL.WITH BANKS & MONEY AT CALL 4,469          3,275     3,207      3,649
PROVISION AND CONTINGENCIES        374      646       1,077      1,334
                                                                          INVESTMENTS                       20,881     24,204    34,703     40,128
 - YOY GROWTH (%)                 (4.1)     72.8       66.7       23.8
                                                                          ADVANCES                          56,114     71,435    80,008     90,409
PROFIT BEFORE TAX                1,436     1,767      1,745      1,699
                                                                           - GROWTH (%)                       27.1       27.3      12.0       13.0
 - YOY GROWTH (%)                 59.9      23.1       (1.3)      (2.6)
PROVISION FOR TAXATION             390      500        489         551    FIXED ASSETS                        356        317       363        400

 - AS A % OF PBT                   27.2     28.3       28.0       32.4    OTHER ASSETS                       1,825      2,485     2,927      3,331

PAT                              1,046     1,267      1,256       1,148   TOTAL ASSETS                      90,342    108,901   128,275    145,976

 - YOY GROWTH (%)                 60.1      21.2       (0.9)      (8.6)    - GROWTH (%)                       31.9       20.5       17.8      13.8




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                               2.8       3.3        3.3        3.1    P/E                                  4.5        4.3       4.3        4.7
COST TO INCOME RATIO              42.7      41.4       39.4       40.9
                                                                          P/ABV                                1.1        0.8       0.8        0.7
ROA                                 1.3      1.3         1.1       0.8
                                                                          DIVIDEND YIELD (%)                   5.2        5.7       5.2        4.6
ROE                               26.0      23.2       18.1        14.6
                                                                          DUPONT ANALYSIS
B/S RATIOS (%)
                                                                          NII                                  2.8        3.2       3.2        3.1
CASA RATIO                        29.4      29.1       28.4       28.8
CREDIT/DEPOSIT RATIO              72.2      77.5       73.6       72.9    (-) PROV. EXP.                       0.5        0.6       0.9         1.0

CAR                                13.9     14.4       13.8        13.6   ADJ NII                              2.3        2.6       2.3        2.1

 - TIER I                          8.2       9.7        9.4        9.2    TREASURY                             0.4        0.1       0.0        0.0
ASSET QUALITY (%)                                                         INT. SENS. INC.                      2.7        2.7       2.4        2.1
GROSS NPAS                         0.9       1.4        3.6        5.5    OTHER INC.                           0.8        0.8       0.7        0.6
NET NPAS                           0.2       0.4         1.8       2.5
                                                                          OP. INC.                             3.5        3.5       3.0        2.8
SLIPPAGES                          0.9       1.4        3.5        3.5
                                                                          OPEX                                 1.7        1.7        1.5        1.5
LOAN LOSS PROV. /AVG. ASSETS       0.4       0.5        0.8        0.9
                                                                          PBT                                  1.8        1.8        1.5        1.2
PROVISION COVERAGE                91.6      83.9       63.0       62.0
                                                                          TAXES                                0.5        0.5       0.4        0.4
                `
PER SHARE DATA (`)
EPS                               21.6      22.6       22.4       20.5    ROA                                  1.3        1.3        1.1       0.8

ABVPS (75% COVERAGE FOR NPAS)     90.9     116.0      124.5      134.3    LEVERAGE                            19.7       18.3       17.0       17.5
DPS                                5.0       5.5        5.0        4.5    ROE                                 26.0       23.2      18.1       14.6


January 2012                                                                      Please refer to important disclosures at the end of this report     103
      Banking                                                                              United Bank of India
                                                                                           CMP/TP/Upside: `60 / `70 / 17%



       RATING                                                     BUY    Company Background
       52 WEEK HIGH / LOW                                 115 / 46       United Bank of India is a mid-size public sector bank, with operations mostly
                   `
       MARKET CAP (` CR)                                       2,065     concentrated in the eastern and northeastern states of India (81%). These
                                                                         states have contributed to the bank's high CASA deposits, though low credit
       LIQUIDITY                                               LOW
                                                                         demand especially in the northeast has prompted the bank to so far rely
                                                                         more on large corporate loans, including in consortium.

       SHAREHOLDING PATTERN (%)
       PROMOTERS (GOVT.)                                          85.5   Structural Snapshot
       FII                                                         0.9
                                                                         Growth opportunity: Mid-size PSU banks such as United Bank of India are
                                                                         expected to gradually lose their credit market share as private sector banks
                                                                         make inroads into their hinterlands.
       STOCK RETURNS
                                                                         Competitive position: In the context of the overall sector, mid-size PSU
       (%)                   3M        1Y       3Y       5Y       10Y
                                                                         banks, in our view, have a relatively weak competitive position compared to
       UNITED BANK         (17.0) (35.9)          -        -         -   private as well as large PSU banks.
       BANKEX              (6.4) (12.5)        28.3      7.1 25.5        Nature of business: Cyclical and rate-sensitive sector; Significant entry
       SENSEX              (2.6) (12.3)        21.3      3.3      17.3   barriers for new players.
       NOTE: ABOVE 1 YEAR ON CAGR BASIS

                                                                         Current Investment Arguments
       FINANCIAL PERFORMANCE OVERVIEW
                                                                         High CASA ratio with healthy growth in savings account deposits: United
       (%)                    3M          1Y    3Y       5Y       10Y    Bank of India has grown its CASA deposits at a healthy CAGR of 19.4%
       OP. INC. GROWTH* 15.9          43.9     27.0    14.0       15.3   over FY2007-11 compared to 12.2% for its peers. A high CASA ratio (39.9%
                                                                         as of 2QFY2012) has allowed the bank to maintain healthy margins (3.2%
       PAT GROWTH*           13.7     49.7     46.6     17.4      37.3
                                                                         for 2QFY2012). The bank has further levers in the form of low CD ratio
       NIM#                   2.9      2.7      2.3      2.4       2.9   (69.4% as of 2QFY2012) and change in loan mix (retail and SME constitute
       ROE#                       -   14.1     10.3    10.5       17.4   a low 30.0% of total advances as of 2QFY2012) for improving its margins.
       NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          Asset quality has been a concern recently: The bank's slippage run-rate
                                                                         averaged ~`250cr for FY2011; however, in 2QFY2012, this figure has jumped
                                                                         more than 2x to `621cr. While partly attributable to the shift to system-
       ANGEL ESTIMATES                                                   based NPA recognition platform, chunky NPAs from some large corporate
       PARTICULARS                          FY2012E       FY2013E        accounts, particularly iron and steel, have also added to the pain (lent in
       PAT GROWTH (%)                          (0.7)               9.5   consortium). The bank's risk-adjusted yields are already on the lower side
                                                                         and, in our view, should see improvement in the medium term; however, in
       ROE (%)                                 12.1               12.1   the near term, asset quality could remain volatile.
       P/ABV                                    0.6                0.6   Valuations inexpensive: We believe the bank has several levers for structurally
                                                                         improving its ROA, but challenges of improving yields while maintaining the
                                                                         asset quality continue to remain an investment concern on the stock. That
       BLOOMBERG CONSENSUS RECOMMENDATION                                said, the bank is trading at inexpensive valuations of 0.6x FY2013E ABV
       BUY / HOLD / SELL                                   8/2/0         (one of the lowest in the industry). The bank's peers are trading in the range
                                                                         of 0.6x-0.8x FY2013 ABV, in spite of having similar and in some cases much
                                                                         lower CASA ratios. We value the stock at 0.7x FY2013E ABV; and hence,
                                                                         recommend a Buy rating on the stock with a target price of ` 70.




104   January 2012                                                                           Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                 BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011   FY2012E    FY2013E               `
                                                                         Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E   FY2013E
NET INTEREST INCOME              1,391     2,169     2,486      2,775    SHARE CAPITAL                       866       1,144     1,144      1,144
 - YOY GROWTH (%)                 19.8      55.9      14.6        11.6    - EQUITY                           316        344        344       344
OTHER INCOME                      559        637       640        631
                                                                          - PREFERENCE                       550        800       800        800
 - YOY GROWTH (%)                 13.8      14.0       0.4       (1.4)
                                                                         RESERVE & SURPLUS                  3,037      3,877     4,231     4,608
OPERATING INCOME                 1,950     2,806     3,126      3,406
                                                                         DEPOSITS                          68,180     77,845    85,629    96,761
 - YOY GROWTH (%)                 18.0      43.9       11.4       9.0
                                                                          - GROWTH (%)                       25.0       14.2      10.0       13.0
OPERATING EXPENSES               1,074     1,299     1,381      1,588
 - YOY GROWTH (%)                  2.8      21.0       6.3       15.0    BORROWINGS                          915      2,887      2,968      3,344

PRE - PROVISION PROFIT             876     1,507     1,745      1,818    TIER 2 CAPITAL                     1,525      1,525     1,769      1,999

 - YOY GROWTH (%)                 44.2      72.1      15.8        4.2    OTHER LIAB. & PROV.                2,481      2,763     3,188      3,613
PROVISION AND CONTINGENCIES       465       838        942        958    TOTAL LIABILITIES                 77,005    90,041     98,930    111,469
 - YOY GROWTH (%)                  8.0      80.1      12.4         1.7   CASH IN HAND AND WITH RBI          4,707      5,943     5,566     6,289
PROFIT BEFORE TAX                  411      669        803        860    BAL.WITH BANKS & MONEY AT CALL     1,671      1,385     1,979      2,229
 - YOY GROWTH (%)                132.6      63.0      20.0         7.1
                                                                         INVESTMENTS                       26,068    26,259     26,107     29,225
PROVISION FOR TAXATION              88       145      260         279
                                                                         ADVANCES                          42,330    53,502     62,063     70,131
 - AS A % OF PBT                  21.5      21.7      32.4       32.4
                                                                          - GROWTH (%)                       19.6       26.4      16.0       13.0
PAT                                322       524       542        581
                                                                         FIXED ASSETS                        651        819        873       954
 - YOY GROWTH (%)                181.0      62.5       3.5         7.1
PREFERENCE DIVIDEND                 17        67        88         84    OTHER ASSETS                       1,578      2,133     2,343     2,640

PAT AVL. TO EQ. SHAREHOLDERS      305       457        454        497    TOTAL ASSETS                      77,005    90,041     98,930    111,469
 - YOY GROWTH (%)                166.1      49.7      (0.7)       9.5     - GROWTH (%)                       24.1       16.9       9.9       12.7




 KEY RATIOS                                                              KEY RATIOS
Y/E MARCH                       FY2010    FY2011   FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E   FY2013E
PROFITABILITY RATIOS (%)                                                 VALUATION RATIOS
NIMS                               2.1       2.7       2.7        2.7    P/E                                  6.2        4.5       4.5        4.2
COST TO INCOME RATIO              55.1      46.3      44.2       46.6    P/ABV                                0.7        0.6       0.6        0.6
ROA                                0.5       0.6       0.6        0.6    DIVIDEND YIELD (%)                   3.3        3.7       4.2        5.0
ROE                                11.6     14.1      12.1       12.1    DUPONT ANALYSIS
B/S RATIOS (%)                                                           NII                                  2.0        2.6       2.6        2.6
CASA RATIO                        38.1      40.8      42.1       42.2    (-) PROV. EXP.                       0.7        1.0       1.0        0.9
CREDIT/DEPOSIT RATIO              62.1      68.7      72.5       72.5    ADJ NII                              1.3        1.6       1.6        1.7
CAR                               12.8      13.1      13.1       12.6    TREASURY                             0.3        0.2       0.1        0.1
 - TIER I                          8.2       8.9       8.8        8.4    INT. SENS. INC.                      1.6        1.8       1.8        1.8
ASSET QUALITY (%)                                                        OTHER INC.                           0.5        0.5       0.5        0.5
GROSS NPAS                         3.2       2.5       4.0        5.5    OP. INC.                             2.1        2.3       2.3        2.3
NET NPAS                            1.8      1.4       2.3        2.8    OPEX                                 1.5        1.6       1.5        1.5
SLIPPAGES                          2.7       2.3       3.4        3.4    PBT                                  0.6        0.8       0.8        0.8
LOAN LOSS PROV. /AVG. ASSETS       0.4       0.5       0.7        0.8    TAXES                                0.1        0.2       0.3        0.3
PROVISION COVERAGE                68.0      72.1      65.0       64.0    ROA                                  0.5        0.6       0.6        0.6
                `
PER SHARE DATA (`)                                                       PREFERENCE DIVIDEND                  0.0        0.1       0.1        0.1
EPS                                9.6      13.3      13.2       14.4    ROA AFTER PREF DIV                   0.4        0.5       0.5        0.5
ABVPS (75% COVERAGE FOR NPAS)     86.3     101.2     101.9       107.5   LEVERAGE                            26.4       25.8      25.3       25.6
DPS                                2.0       2.2       2.5        3.0    ROE                                 11.6       14.1      12.1       12.1


January 2012                                                                     Please refer to important disclosures at the end of this report    105
      Banking                                                                               Vijaya Bank
                                                                                            CMP/TP/Upside: `53 / - / -



       RATING                                            NEUTRAL         Company Background
       52 WEEK HIGH / LOW                                   96 / 44      Vijaya Bank is a mid-size PSU bank with a balance sheet size of ~`90,000cr.
                   `
       MARKET CAP (` CR)                                       2,484     The bank's branches are mainly concentrated in the southern states (~60%),
                                                                         with majority being in the parent state of Karnataka (~40%). The bank, unlike
       LIQUIDITY                                         MEDIUM
                                                                         most other PSU banks, has more than half of its branches located in the
                                                                         urban and metropolitan areas (~56%).

       SHAREHOLDING PATTERN (%)
       PROMOTERS (GOVT.)                                          57.7   Structural Snapshot
       FII                                                        4.7
                                                                         Growth opportunity: Mid-size PSU banks such as Andhra Bank are expected
                                                                         to gradually lose their credit market share as private sector banks make
                                                                         inroads into their hinterlands.
       STOCK RETURNS
                                                                         Competitive position: In the context of the overall sector, mid-size PSU
       (%)                   3M        1Y       3Y       5Y       10Y
                                                                         banks, in our view, have a relatively weak competitive position compared to
       VIJAYA BANK         (3.8) (41.7)        17.4      1.5 22.2        private as well as large PSU banks. Moreover, in our view, Vijaya Bank is
       BANKEX              (6.4) (12.5)        28.3      7.1 25.5        structurally weaker compared to its peers in terms of relatively low CASA
                                                                         deposits, higher operating costs and lower fee income as a percentage of
       SENSEX              (2.6) (12.3)        21.3      3.3      17.3   assets.
       NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                         Nature of business: Cyclical and rate-sensitive sector; Significant entry
                                                                         barriers for new players.
       FINANCIAL PERFORMANCE OVERVIEW
       (%)                    3M          1Y    3Y       5Y       10Y
                                                                         Current Investment Arguments
       OP. INC. GROWTH*       2.3     16.5     22.1    13.1 14.9
                                                                         Unfavorable deposit mix: The bank's CASA market share has declined
       PAT GROWTH*           41.0      3.3     13.2    32.8 22.2
                                                                         continuously over FY2005-1HFY2012 (42bp) and stands at a small 1.0%
       NIM#                   2.5      2.6      2.3      2.3      3.0    as of 1HFY2012. In fact, with the persistence of higher FD interest rates,
       ROE#                       -   13.8     14.8    16.4 21.0         the bank has seen further erosion in its CASA ratio over the past few quarters.
                                                                         Along with a low CASA ratio (25% as of 2QFY2012), the bank also has a
       NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                         high proportion of bulk deposits (~33% as of FY2011). Owing to an
                                                                         unfavorable deposit mix, we expect the bank's NIM to remain under pressure
       ANGEL ESTIMATES                                                   in the medium term.
       PARTICULARS                          FY2012E       FY2013E        Lower return ratios: The bank's RoA and RoE, at 0.5% and 13.8% in FY2011,
       PAT GROWTH (%)                          10.0            (2.9)     are on the lower side. Apart from low CASA, this is also on account of lower
                                                                         fee income (0.55% of average assets as of FY2011) and high operating
       ROE (%)                                 13.3               11.6   expenses (1.65% of average assets). The bank is also facing asset-quality
       P/ABV                                    0.7               0.7    pressures, as evident in its higher slippages (5.0% in 1QFY2012 and 3.7%
                                                                         for 2QFY2012) and lower provision coverage ratio of 66.1% as of 2QFY2012.
                                                                         Valuations seem justified: Considering the persistent asset-quality issues
       BLOOMBERG CONSENSUS RECOMMENDATION                                and lower estimated RoAs, the current valuations of 0.7x FY2013E ABV
       BUY / HOLD / SELL                                   3/2/1         look expensive compared to peers that have better return ratios and earnings
                                                                         profile. The bank, in our view, is commanding high valuations due to expectations
                                                                         of large recoveries from its existing NPAs. However, we believe these valuations
                                                                         provide inadequate comfort in light of the bank's weaker fundamentals. Hence,
                                                                         we have a Neutral rating on the stock.




106   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E   FY2013E
NET INTEREST INCOME              1,449     1,947      1,999      2,280    SHARE CAPITAL                       934       1,673     1,673      1,673
 - YOY GROWTH (%)                 28.8      34.3         2.7      14.0    RESERVE & SURPLUS                  2,542      3,144     3,499      3,837
OTHER INCOME                       679       533        551       609     DEPOSITS                          61,932     73,248    82,771     92,703
 - YOY GROWTH (%)                 (2.8)    (21.5)       3.3       10.6     - GROWTH (%)                       13.6       18.3      13.0       12.0
OPERATING INCOME                 2,129     2,480      2,550      2,889
                                                                          BORROWINGS                          289        525      1,404      1,567
 - YOY GROWTH (%)                 16.7      16.5        2.8       13.3
                                                                          TIER 2 CAPITAL                     1,650      1,500     1,830     2,068
OPERATING EXPENSES               1,072     1,433      1,197      1,357
                                                                          OTHER LIAB. & PROV.                2,877      1,600     2,439      2,646
 - YOY GROWTH (%)                 15.9      33.8      (16.5)      13.4
                                                                          TOTAL LIABILITIES                 70,222     81,691    93,615    104,495
PRE - PROVISION PROFIT           1,057     1,047      1,353      1,531
                                                                          CASH IN HAND AND WITH RBI          4,100      4,882     5,380      6,026
 - YOY GROWTH (%)                  17.6     (1.0)      29.2       13.2
                                                                          BAL.WITH BANKS & MONEY AT CALL     1,450       542      1,872     2,090
PROVISION AND CONTINGENCIES       356        439        604        703
                                                                          INVESTMENTS                       21,107     25,139    24,181     26,170
 - YOY GROWTH (%)                 (0.4)     23.3        37.8      16.3
                                                                          ADVANCES                          41,522    48,719     59,437     67,163
PROFIT BEFORE TAX                  701      608         748        828
                                                                           - GROWTH (%)                       17.1       17.3      22.0       13.0
 - YOY GROWTH (%)                 29.5     (13.3)      23.1       10.7
PROVISION FOR TAXATION             194        84        172       269     FIXED ASSETS                        493        486       540        585

 - AS A % OF PBT                  27.6      13.8       23.0       32.4    OTHER ASSETS                       1,551      1,924     2,205     2,461

PAT                                507       524        576       560     TOTAL ASSETS                      70,222     81,691    93,615    104,495

 - YOY GROWTH (%)                 93.3       3.3        10.0      (2.9)    - GROWTH (%)                       12.5       16.4      14.6       11.6




 CASH FLOW                                                                KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E   FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                               2.3       2.6         2.3       2.4    P/E                                  4.9        6.0       5.3        5.5
COST TO INCOME RATIO              50.3      57.8       46.9       47.0
                                                                          P/ABV                                0.9        0.8       0.7        0.7
ROA                                0.7       0.5         0.5       0.5
                                                                          DIVIDEND YIELD (%)                   4.8        4.8       3.8        3.8
ROE                               18.8      13.8        13.3       11.6
                                                                          DUPONT ANALYSIS
B/S RATIOS (%)
                                                                          NII                                  2.2        2.6       2.3        2.3
CASA RATIO                        24.6      25.3       25.3       25.7
CREDIT/DEPOSIT RATIO              67.0      66.5        71.8      72.5    (-) PROV. EXP.                       0.5        0.6       0.7        0.7

CAR                               12.5      13.9       15.8       15.2    ADJ NII                              1.6        2.0       1.6        1.6

 - TIER I                           7.7      9.9         9.3       8.9    TREASURY                             0.4        0.2       0.1        0.1
ASSET QUALITY (%)                                                         INT. SENS. INC.                      2.1        2.1       1.7        1.7
GROSS NPAS                         2.4       2.6         3.1       4.8    OTHER INC.                           0.6        0.5       0.6        0.5
NET NPAS                            1.4       1.5        5.6       6.7
                                                                          OP. INC.                             2.7        2.7       2.2        2.2
SLIPPAGES                          3.4       3.2         4.7       4.0
                                                                          OPEX                                 1.6        1.9       1.4        1.4
LOAN LOSS PROV. /AVG. ASSETS       0.7       0.5        0.5        0.6
                                                                          PBT                                  1.1        0.8       0.9        0.8
PROVISION COVERAGE                64.2      63.4       66.0       60.0
                                                                          TAXES                                0.3        0.1       0.2        0.3
                `
PER SHARE DATA (`)
EPS                               10.8       8.8         9.8       9.5    ROA                                  0.7        0.5       0.5        0.5

ABVPS (75% COVERAGE FOR NPAS)     57.4      65.3       72.8       72.4    LEVERAGE                            26.6       25.4      25.0       25.7
DPS                                2.5       2.5         2.0       2.0    ROE                                 18.8       13.8      13.3       11.6


January 2012                                                                      Please refer to important disclosures at the end of this report    107
      Banking                                                                              Bank of Maharashtra
                                                                                           CMP/TP/Upside: `45 / `53 / 18%



       RATING                                                     BUY    Company Background
       52 WEEK HIGH / LOW                                  65 / 38       Bank of Maharashtra (BoM) is a mid-size Pune-based public sector bank,
                   `
       MARKET CAP (` CR)                                       2,173     with operations mostly concentrated in the parent state of Maharashtra (~65%
                                                                         branches as of FY2011). The bank has the highest number of branches in
       LIQUIDITY                                         MEDIUM
                                                                         Maharashtra (1,021 as of FY2011) after State Bank of India, which has
                                                                         allowed the bank to grow in-line with the state's progress over the past
                                                                         decade.
       SHAREHOLDING PATTERN (%)
       PROMOTERS (GOVT.)                                          79.2
       FII                                                         0.9   Structural Snapshot
                                                                         Growth opportunity: Mid-size PSU banks such as BoM are expected to
                                                                         gradually lose their credit market share as private sector banks make inroads
       STOCK RETURNS                                                     into their hinterlands.
       (%)                   3M        1Y        3Y      5Y       10Y
                                                                         Competitive position: In the context of the overall sector, mid-size PSU
       BANK OF MAHA. (3.5) (25.6)              22.8    (1.1)         -   banks, in our view, have a relatively weak competitive position compared to
       BANKEX              (6.4) (12.5)        28.3      7.1 25.5        private as well as large PSU banks. However, amongst mid-size PSU banks,
                                                                         BoM benefits from having ~65% of its branches in Maharashtra, which has
       SENSEX              (2.6) (12.3)        21.3      3.3      17.3   healthy credit demand (evidenced from the state's high credit to GDP of
       NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  157% compared to pan-India ratio of 72.7%).
                                                                         Nature of business: Cyclical and rate-sensitive sector; Significant entry
       FINANCIAL PERFORMANCE OVERVIEW                                    barriers for new players.

       (%)                    3M          1Y     3Y      5Y       10Y
       OP. INC. GROWTH* 23.2          32.4     18.3    16.8 12.3         Current Investment Arguments
       PAT GROWTH*           50.2 (32.5)       (3.3)   42.3 20.7
                                                                         Better asset quality than peers: The bank does not have materially high
       NIM#                   3.4      2.8      2.4      2.6       2.8   exposure to any industry, except the power sector (13.0% of overall gross
       ROE#                       -   11.3     16.8     17.2      17.6   advances), of which 71% is towards SEB lending, where no material NPV
                                                                         loss is expected. Also, the bank had implemented system-based NPA recognition
       NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                         system in FY2011 itself and since then has been seeing recoveries and
                                                                         upgrades from technical slippages. Conservative credit growth, moderate
       ANGEL ESTIMATES                                                   yield loan book and recoveries post CBS implementation have allowed the
                                                                         bank to progressively improve its asset quality over the past few quarters.
       PARTICULARS                          FY2012E       FY2013E
                                                                         The bank's capital adequacy is below 8%, but it expects adequate equity
       PAT GROWTH (%)                           40.3              58.4   capital infusion from the government to take it above 8%.
       ROE (%)                                  13.7              16.9   Healthy CASA ratio: BoM has enjoyed a healthy CASA ratio in the vicinity
       P/ABV                                     0.7               0.7   of 40% over the past several years on the back of strong rural and
                                                                         semi-urban presence (accounting for ~55% of the entire branch network).
                                                                         The bank also has a large share of local government accounts in Maharashtra
       BLOOMBERG CONSENSUS RECOMMENDATION                                (~30% of saving accounts) and gets healthy fee income business from the
                                                                         state government.
       BUY / HOLD / SELL                                   2/1/0
                                                                         Valuation inexpensive for BoM: At the CMP, the stock is trading at attractive
                                                                         valuations, in our view, of 0.7x FY2013E ABV vs. its five-year range of
                                                                         0.6-1.2x and median of 0.9x. On the back of high NIM, moderate fee income
                                                                         and better asset quality than peers, we expect the bank to deliver a healthy
                                                                         26.3% earnings CAGR over FY2011-13E. We value the stock at 0.8x and,
                                                                         hence, recommend a Buy rating with a target price of ` 53, implying an
                                                                         upside of 18.4%.




108   January 2012                                                                           Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)                FY2010    FY2011    FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME              1,296     1,968      2,545      2,949    SHARE CAPITAL                       431       1,070     1,070      1,260
 - YOY GROWTH (%)                  3.2       51.9      29.3       15.9
                                                                          RESERVE & SURPLUS                  2,428     2,901      3,233      4,402
OTHER INCOME                      591        531        617       630
                                                                          DEPOSITS                          63,304    66,845     74,198     84,585
 - YOY GROWTH (%)                 18.2     (10.2)      16.2        2.1
OPERATING INCOME                 1,887     2,499      3,162      3,580     - GROWTH (%)                       21.1        5.6       11.0      14.0
 - YOY GROWTH (%)                   7.5     32.4       26.5       13.2    BORROWINGS                          129        577       640         735
OPERATING EXPENSES               1,073     1,644      1,447      1,635
                                                                          TIER 2 CAPITAL                     2,668     2,500      2,875      3,335
 - YOY GROWTH (%)                  11.4     53.2      (12.0)      13.0
                                                                          OTHER LIAB. & PROV.                2,096     2,550      2,835      3,082
PRE - PROVISION PROFIT             815       855      1,715      1,945
 - YOY GROWTH (%)                  2.6       5.0      100.5       13.4    TOTAL LIABILITIES                 71,056     76,442    84,851     97,398

PROVISION AND CONTINGENCIES        246       467       986         878    CASH IN HAND AND WITH RBI          5,315     3,846      4,823      5,498
 - YOY GROWTH (%)                (13.0)     90.1       111.0     (11.0)   BAL.WITH BANKS & MONEY AT CALL 1,379           203        424       487
PROFIT BEFORE TAX                 569        388        729      1,067
                                                                          INVESTMENTS                       21,324    22,491     22,360     25,075
 - YOY GROWTH (%)                  11.3    (31.8)      88.0       46.4
PROVISION FOR TAXATION             129        57        248        346    ADVANCES                          40,315    46,881     53,913     62,539

 - AS A % OF PBT                  22.7       14.8      34.0       32.4     - GROWTH (%)                       17.6       16.3      15.0       16.0
PAT                                440       330        481       721     FIXED ASSETS                        660        667        718       799
 - YOY GROWTH (%)                  17.2    (24.8)      45.6       49.8
                                                                          OTHER ASSETS                       2,063      2,354     2,613      3,000
PREFERENCE DIVIDEND                  -        34         65         62
                                                                          TOTAL ASSETS                      71,056     76,442    84,851     97,398
PAT AVL. TO EQ. SHAREHOLDERS       440       297        416       659
 - YOY GROWTH (%)                  17.2    (32.5)      40.3       58.4     - GROWTH (%)                       20.4        7.6       11.0      14.8




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                       FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                  VALUATION RATIOS
NIMS                               2.1        2.8       3.3        3.4    P/E                                  4.4        7.3       5.2        4.6
COST TO INCOME RATIO              56.8      65.8       45.8       45.7    P/ABV                                0.9        0.8       0.7        0.7
ROA                                0.7       0.4        0.5        0.7    DIVIDEND YIELD (%)                   4.4        4.4       3.3        4.4
ROE                               19.7       11.3      13.7       16.9    DUPONT ANALYSIS
B/S RATIOS (%)                                                            NII                                  2.0        2.7       3.2        3.2
CASA RATIO                        36.9      40.4       40.4       39.4    (-) PROV. EXP.                       0.4        0.6        1.2       1.0
CREDIT/DEPOSIT RATIO              63.7      70.1       72.7       73.9    ADJ NII                              1.6        2.0        1.9       2.3
CAR                               12.8       13.4      13.6       15.3    TREASURY                             0.3        0.1       0.0        0.0
 - TIER I                          5.7        8.0        7.9       9.4    INT. SENS. INC.                      1.9        2.1       2.0        2.3
ASSET QUALITY (%)                                                         OTHER INC.                           0.6        0.6       0.7        0.7
GROSS NPAS                         3.0        2.5       2.8        4.3    OP. INC.                             2.5        2.8       2.7        3.0
NET NPAS                            1.6       1.3       0.6         1.0   OPEX                                 1.6        2.2        1.8       1.8
SLIPPAGES                          2.5        1.7        1.8       2.7    PBT                                  0.9        0.5       0.9        1.2
LOAN LOSS PROV. /AVG. ASSETS       0.4       0.5         1.1       0.9    TAXES                                0.2        0.1       0.3        0.4
PROVISION COVERAGE                54.7      65.6       87.0       82.0    ROA                                  0.7        0.4       0.6        0.8
                `
PER SHARE DATA (`)                                                        PREFERENCE DIVIDEND                    -        0.0       0.1        0.1
EPS                               10.2        6.2       8.6        9.8    ROA AFTER PREF DIV.                  0.7        0.4       0.5        0.7
ABVPS (75% COVERAGE FOR NPAS)     48.6       57.3      67.9       68.9    LEVERAGE                            29.1       27.6      26.0       23.1
DPS                                2.0        2.0        1.5       2.0    ROE                                 19.7       11.3      13.7       16.9


January 2012                                                                      Please refer to important disclosures at the end of this report    109
      Banking                                                                               J&K Bank
                                                                                            CMP/TP/Upside: `742 / `820 / 11%



       RATING                                          ACCUMULATE        Company Background
       52 WEEK HIGH / LOW                                 915 / 645      Jammu and Kashmir (J&K) Bank is a mid-size public sector bank, with a
                   `
       MARKET CAP (` CR)                                        3,597    branch network of over 550 branches and operations mostly concentrated
                                                                         in the parent state of J&K (~80% branches as of FY2011). The bank has
       LIQUIDITY                                          MEDIUM
                                                                         the highest number of branches (~450) in J&K (SBI with 156 branches
                                                                         comes a distant second), allowing the bank to maintain a favorable deposit
                                                                         mix along with healthy margins.
       SHAREHOLDING PATTERN (%)
       PROMOTERS (GOVT.)                                          53.2
       FII                                                        24.5   Structural Snapshot
                                                                         Growth opportunity: The bank's growth potential is linked to that of J&K
                                                                         state, whose GDP is at present growing at 6.6%, below India's overall GDP
       STOCK RETURNS                                                     growth rate of 7-8% and where credit demand is below the country's average
       (%)                   3M         1Y       3Y       5Y      10Y    (credit-to-GDP at 52% vs. 88% at all-India level).
       J&K BANK           (10.3)       3.7      33.7      3.6 31.8       Competitive position: In the context of the overall sector, mid-size PSU
       BANKEX              (6.4) (12.5)         28.3      7.1 25.5       banks, in our view, have a relatively weak competitive position compared to
                                                                         private as well as large PSU banks. However, J&K Bank is mostly insulated
       SENSEX              (2.6) (12.3)         21.3      3.3     17.3   from competition in its core market areas, rendering slight advantage to the
       NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  bank compared to other mid-size PSU banks.
                                                                         Nature of business: Cyclical and rate-sensitive sector; Significant entry
       FINANCIAL PERFORMANCE OVERVIEW                                    barriers for new players.

       (%)                    3M          1Y     3Y       5Y      10Y
       OP. INC. GROWTH* 13.1           24.3     21.1     19.8     15.9   Current Investment Arguments
       PAT GROWTH*           22.3      20.1     19.6     28.3 13.9
                                                                         Robust asset quality: Over the years, the bank has maintained robust asset
       NIM#                   3.5       3.4      3.1      3.0      3.0   quality, with the best-in-industry provision coverage ratio (92.0% as of 2QFY2012).
       ROE#                        -   19.0     18.2     17.6 20.0       Slippages declined considerably (0.8% for 2QFY2012 compared to 1.3%
                                                                         for 4QFY2011) and were lower compared to most other PSU banks in
       NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                         2QFY2012.
                                                                         Strong branch network and legacy - Dominant market share: The bank,
       ANGEL ESTIMATES                                                   with ~450 branches, has the highest number of branches in J&K (SBI with
       PARTICULARS                           FY2012E       FY2013E       156 comes a distant second). Due to its strong branch network and legacy
       PAT GROWTH (%)                           23.7               6.6   of banking relationships, the bank has a dominant 70% market share in deposits
                                                                         in J&K. CASA deposits constituted strong 47.8% of incremental deposits
       ROE (%)                                  20.2              18.6   growth from FY2004-11. This strong base of low-cost deposits is expected
       P/ABV                                     0.9               0.8   to sustain relatively high NIM of 3.2-3.4% vs. other mid-size banks.
                                                                         Outlook and valuation: The stock is trading at 0.8x FY2013E ABV vis-à-vis
                                                                         its historic range of 0.8-1.4x and five-year median of 1.0x. Immediate levers
       BLOOMBERG CONSENSUS RECOMMENDATION                                in the form of increased CD ratio from the current low of 59.5% to higher
       BUY / HOLD / SELL                                  10 / 2 / 0     yielding advances are likely to provide near-term higher momentum to NII
                                                                         growth for the bank relative to other mid-size banks. However, the bank's
                                                                         increasing non-J&K exposure on the asset side poses medium-term concerns.
                                                                         Also, the stock has been one of the best-performing stocks in the PSU
                                                                         space in the past one year and current relatively high valuations are likely to
                                                                         limit outperformance. Hence, we recommend an Accumulate rating on
                                                                         the stock with a target price of ` 820.




110   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                 BALANCE SHEET
           `
Y/E MARCH (` CR)               FY2010    FY2011    FY2012E    FY2013E               `
                                                                         Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E    FY2013E
NET INTEREST INCOME              1,119    1,544      1,804      2,004    SHARE CAPITAL                        48         48         48         48
 - YOY GROWTH (%)                 11.9     37.9       16.9        11.1   RESERVE & SURPLUS                  2,962      3,430     4,011      4,631
OTHER INCOME                      416       365        325        372    DEPOSITS                          37,237     44,676    50,037     54,540
 - YOY GROWTH (%)                59.2     (12.4)     (11.0)      14.4    - GROWTH (%)                        12.8       20.0      12.0        9.0
OPERATING INCOME                1,536     1,908      2,129      2,376
                                                                         BORROWINGS                          500        505        424       463
 - YOY GROWTH (%)                21.7      24.3        11.6       11.6
                                                                         BOND CAPITAL                        600        600        672        732
OPERATING EXPENSES                577       759        812       918
                                                                         OTHER LIAB. & PROV.                1,199      1,249     1,377      1,419
 - YOY GROWTH (%)                22.6      31.4         7.0      13.0
                                                                         TOTAL LIABILITIES                 42,547    50,508     56,569     61,835
PRE-PROVISION PROFIT             958      1,149      1,317      1,458
                                                                         CASH IN HAND AND WITH RBI          2,745      2,975     3,252      3,545
 - YOY GROWTH (%)                21.2      20.0       14.6       10.7
                                                                         BAL.WITH BANKS & MONEY AT CALL     1,870       574      1,131      1,237
PROVISION AND CONTINGENCIES       167       215        190       257
                                                                         INVESTMENTS                       13,956     19,696    20,354     20,222
 - YOY GROWTH (%)                 4.6      29.1      (11.5)      34.8
                                                                         ADVANCES                          23,057    26,194     30,647     35,550
PROFIT BEFORE TAX                 792       934       1,127     1,202
                                                                         - GROWTH (%)                        10.2       13.6       17.0      16.0
 - YOY GROWTH (%)                25.3      18.0       20.6        6.6
PROVISION FOR TAXATION            279       319       366        390     FIXED ASSETS                        204        394       428        454

 - AS A % OF PBT                 35.3      34.2       32.4       32.4    OTHER ASSETS                        715        676        757       828

PAT                               512       615        761        812    TOTAL ASSETS                      42,547    50,508     56,569     61,835

 - YOY GROWTH (%)                25.0      20.1       23.7        6.6    - GROWTH (%)                        12.9       18.7      12.0        9.3




 KEY RATIOS                                                              KEY RATIOS
Y/E MARCH                      FY2010    FY2011    FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E    FY2013E
PROFITABILITY RATIOS (%)                                                 VALUATION RATIOS
NIMS                              2.9       3.4        3.4        3.5    P/E                                  7.0        5.8       4.7        4.4
COST TO INCOME RATIO             37.6      39.8       38.1       38.6
                                                                         P/ABV                                1.2        1.0       0.9        0.8
ROA                                1.3       1.3        1.4        1.4
                                                                         DIVIDEND YIELD (%)                   3.0        3.5       4.3        4.6
ROE                              18.2      19.0       20.2       18.6
                                                                         DUPONT ANALYSIS
B/S RATIOS (%)
                                                                         NII                                  2.8        3.3       3.4        3.4
CASA RATIO                       40.7      40.5       40.1       40.7
CREDIT/DEPOSIT RATIO             61.9      58.6       61.2       65.2    (-) PROV. EXP.                       0.4        0.5       0.4        0.4

CAR                              15.9      13.7       14.2       14.9    ADJ NII                              2.4        2.9       3.0        3.0

 - TIER I                        12.8       11.3       11.8      12.5    TREASURY                             0.4        0.2       0.0        0.0
ASSET QUALITY (%)                                                        INT. SENS. INC.                      2.8        3.1       3.1        3.0
GROSS NPAS                        2.0        1.9       2.3        2.9    OTHER INC.                           0.6        0.6       0.6        0.6
NET NPAS                          0.3       0.2        0.3        0.5
                                                                         OP. INC.                             3.4        3.6       3.6        3.6
SLIPPAGES                         0.9        1.2        1.3        1.6
                                                                         OPEX                                 1.4        1.6        1.5       1.5
LOAN LOSS PROV. /AVG. ASSETS      0.4       0.3        0.3        0.4
                                                                         PBT                                  2.0        2.0       2.1        2.0
PROVISION COVERAGE               90.1      92.7       91.0       85.0
                                                                         TAXES                                0.7        0.7       0.7        0.7
                `
PER SHARE DATA (`)
EPS                             105.7     126.9      157.0      167.4    ROA                                  1.3        1.3        1.4       1.4

ABVPS (75% COVER. FOR NPAS)     620.8      717.4     837.2      965.1    LEVERAGE                            14.2       14.3      14.2       13.5
DPS                              22.0      26.0       32.0       34.0    ROE                                 18.2       19.0      20.2       18.6


January 2012                                                                     Please refer to important disclosures at the end of this report    111
      NBFC                                                                                 HDFC
                                                                                           CMP/TP/Upside: `691 / - / -



       RATING                                            NEUTRAL         Company Background
       52 WEEK HIGH / LOW                                737 / 583       HDFC is India's leading housing finance company, with a balance sheet
                   `
       MARKET CAP (` CR)                                    101,811      size of over `1.5lakh cr. The company's primary business is to provide loans
                                                                         for the purchase or construction of residential houses. HDFC's distribution
       LIQUIDITY                                               HIGH
                                                                         network spans 298 outlets, covering more than 90 locations across India.
                                                                         From its origins as a specialized mortgage company, HDFC has grown into
                                                                         a financial conglomerate with market leading group companies in banking,
       SHAREHOLDING PATTERN (%)
                                                                         asset management and insurance.
       PROMOTERS                                                     -
       FII                                                        59.0
                                                                         Structural Snapshot
                                                                         Growth opportunity: While overall credit penetration in India is in any case
       STOCK RETURNS                                                     low, the underpenetration is much starker in retail loans (it stands at ~6%
       (%)                   3M         1Y       3Y      5Y       10Y    of GDP in India, as against 70-100% in most developed countries). Growing
       HDFC                  2.5       5.8      30.7   16.6       27.4   urbanization, increasing number of nuclear families, rising disposable income
                                                                         and greater availability of cheap home loans are expected to drive healthy
       BANKEX              (6.4) (12.5)         28.3     7.1 25.5        20%+ growth in the home loan segment over the medium to long term.
       SENSEX              (2.6) (12.3)         21.3     3.3      17.3   Competitive position: The housing finance industry is a keenly competitive
       NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  segment, with banks having a significant presence. However, large housing
                                                                         finance companies, like H DFC, with a dedicated focus on the
                                                                         segment - leading to robust loan sourcing and appraisal as well as high
       FINANCIAL PERFORMANCE OVERVIEW                                    credit rating enabling competitive cost of funds - should be able to withstand
       (%)                    3M          1Y     3Y      5Y       10Y    competition from banks, even going forward. The company also has one of
       OP. INC. GROWTH*       9.9      23.7     13.0   24.3 22.6         the most well regarded top managements in the industry as well as a
                                                                         well-established conservative risk management philosophy.
       PAT GROWTH*           10.1      25.1     13.2   23.0 22.3
                                                                         Nature of business: Cyclical and rate-sensitive sector
       NIM#                   3.0       3.6      3.5     3.5       2.6
       ROE#                        -   40.8     31.9   34.3 33.0
       NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS          Current Investment Arguments
                                                                         Consistency in performance: HDFC has witnessed healthy growth in its
       ANGEL ESTIMATES                                                   loan portfolio, registering a CAGR of 21.1% over FY2006-11. During the
                                                                         period, HDFC's earnings have also witnessed an equally healthy 18.8%
       PARTICULARS                           FY2012E      FY2013E
                                                                         CAGR. This has been backed by the company's strong asset quality, low
       PAT GROWTH (%)                           15.0              16.3   operating costs and ability to keep cost of funds on the lower side. We
       ROE (%)                                  39.0              34.0   expect HDFC's loan book to continue growing at 20% over FY2011-13,
                                                                         resulting in earnings growth of 16.0% and an average RoE of 36.9% over
       P/ABV                                     5.4               4.3
                                                                         the same period.
                                                                         Valuations expensive: At the CMP, HDFC's core business (after adjusting
       BLOOMBERG CONSENSUS RECOMMENDATION                                `226/share towards the value of subsidiaries) is trading at 4.4x FY2013E
                                                                         ABV (including subsidiaries the stock is trading at 4.3x FY2013E ABV). We
       BUY / HOLD / SELL                                22 / 20 / 3
                                                                         expect HDFC to post a healthy PAT CAGR of 15.7% over FY2011-13E.
                                                                         However, considering that the stock is currently trading at 4.3x one-year
                                                                         forward P/ABV (only slightly lower than its median of 4.6x over the past five
                                                                         years) and at a ~55% premium to the Sensex in P/E terms (compared to an
                                                                         average of ~37% over the past five years), we consider the stock to be fully
                                                                         valued and, hence, recommend Neutral on the stock.




112   January 2012                                                                           Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                BALANCE SHEET
           `
Y/E MARCH (` CR)              FY2010   FY2011    FY2012E    FY2013E                `
                                                                        Y/E MARCH (` CR)                 FY2010     FY2011     FY2012E    FY2013E
NET INTEREST INCOME            3,388    4,247      4,820      5,660
                                                                        SHARE CAPITAL                       287         293        293        304
 - YOY GROWTH (%)               10.9     25.4       13.5        17.4
                                                                        RESERVE & SURPLUS                 14,911     17,023     18,629      23,872
OTHER INCOME                     910    1,071      1,293      1,531

 - YOY GROWTH (%)               71.3      17.7      20.7       18.5     LOAN FUNDS                        96,565    115,410    139,642     164,468
OPERATING INCOME               4,298    5,318       6,112     7,192
                                                                         - GROWTH (%)                       15.2       19.5        21.0       17.8
 - YOY GROWTH (%)               19.9     23.7       14.9        17.7

OPERATING EXPENSES               324     381         438        526     OTHER LIAB. & PROV.                4,878      6,775      8,567      10,326

 - YOY GROWTH (%)                2.4      17.7      15.0       20.0     TOTAL LIABILITIES                116,641    139,502     167,131    198,970
PRE - PROVISION PROFIT         3,974    4,937      5,674      6,666
                                                                        INVESTMENTS                       10,727     11,832     12,658      13,611
 - YOY GROWTH (%)               21.6     24.2       14.9        17.5
PROVISION AND CONTINGENCIES      58        70         78        156     ADVANCES                          97,967     117,127   141,723     170,068

 - YOY GROWTH (%)               16.0     20.7        11.1     100.6
                                                                         - GROWTH (%)                       15.0       19.6        21.0       20.0
PROFIT BEFORE TAX              3,916    4,867      5,596      6,510
                                                                        FIXED ASSETS                        222         234        276        323
 - YOY GROWTH (%)               21.7     24.3       15.0       16.3
PROVISION FOR TAXATION         1,090    1,332      1,533      1,785     OTHER ASSETS                       7,725     10,309      12,474     14,969
 - AS A % OF PBT                27.8     27.4        27.4      27.4
                                                                        TOTAL ASSETS                     116,641    139,502     167,131    198,970
PAT                            2,826    3,535      4,064      4,725

 - YOY GROWTH (%)               23.8     25.1       15.0       16.3      - GROWTH (%)                       14.7       19.6       19.8        19.1




 KEY RATIOS                                                             KEY RATIOS
Y/E MARCH                     FY2010   FY2011    FY2012E    FY2013E     Y/E MARCH                        FY2010     FY2011     FY2012E    FY2013E

PROFITABILITY RATIOS (%)                                                VALUATION RATIOS

NIMS                             3.4      3.6        3.4        3.3     P/E                                 35.1       28.7        24.9       22.2

                                                                        P/ABV                                6.5        5.9         5.4        4.3
COST TO INCOME RATIO             7.5       7.2        7.2        7.3
                                                                        DUPONT ANALYSIS*
ROA                              2.6      2.9        2.7        2.6
                                                                        NII                                  3.3        3.5         3.3        3.2
ROE*                            31.6     40.8       39.0       34.0
                                                                        (-) PROV. EXP.                       0.1        0.1         0.1        0.1
B/S RATIOS (%)
                                                                        ADJ NII                              3.2        3.5         3.3        3.1
CREDIT/DEPOSIT RATIO           424.4    475.6      475.6      492.0     TREASURY                             0.2        0.3         0.2        0.2

ASSET QUALITY (%)                                                       INT. SENS. INC.                      3.4        3.8         3.5        3.3

GROSS NPAS                      0.80     0.77       0.75       0.77     OTHER INC.                           0.6        0.5         0.6        0.6

                                                                        OP. INC.                             4.0        4.3         4.1        4.0
NET NPAS                        0.13        -          -          -
                                                                        OPEX                                 0.3        0.3         0.3        0.3
PROVISION COVERAGE              83.7    100.0      100.0      100.0
                                                                        PBT                                  3.7        4.0         3.8        3.7
                `
PER SHARE DATA (`)
                                                                        TAXES                                1.1        1.1         1.1        1.0
EPS                             19.7     24.1        27.7      31.1
                                                                        ROA                                  2.6        2.9         2.7        2.6
ABVPS (75% COVER FOR NPAS)     105.9    118.1      129.0      158.9     LEVERAGE                            12.0       14.2        14.3       12.9
DPS                              7.2      9.0       10.4        11.6    ROE                                 31.6       40.8       39.0        34.0
                                                                       Note: * Core ROEs excluding income and investment in subsidiaries

January 2012                                                                    Please refer to important disclosures at the end of this report      113
      NBFC                                                                                  LIC Housing Finance
                                                                                            CMP/TP/Upside: `237 / `262 / 10%



       RATING                                           ACCUMULATE        Company Background
       52 WEEK HIGH / LOW                                  254 / 164      LIC Housing Finance (LICHF) is the second biggest specialized mortgage
                   `
       MARKET CAP (` CR)                                         11,271   lender in India, with a balance sheet size of ~`63,000cr. The credit portfolio
                                                                          for LICHF is ~`56,000cr, of which more than 90% is derived from the retail
       LIQUIDITY                                                 HIGH
                                                                          segment. The company has a network of over 200 offices spread across
                                                                          the country and is promoted by the state-owned life insurance behemoth,
                                                                          Life Insurance Corporation of India (LIC), which owns a 37% stake
       SHAREHOLDING PATTERN (%)
                                                                          in the company.
       PROMOTERS (GOVT. INSTITUTION)                               36.5
       FII                                                        40.3
                                                                          Structural Snapshot
                                                                          Growth opportunity: While overall credit penetration in India is, in any case,
       STOCK RETURNS                                                      low, the underpenetration is much starker in retail loans (it stands at ~6%
       (%)                   3M         1Y        3Y       5Y      10Y    of GDP in India, as against 70-100% in most developed countries). As a
       LIC HOUSING           2.2       39.3      70.2     48.5     37.8   result, we expect healthy 20%+ growth in the home loan segment over the
                                                                          medium to long term.
       BANKEX              (6.4) (12.5)          28.3      7.1 25.5
                                                                          Competitive position: The housing finance industry is a keenly competitive
       SENSEX              (2.6) (12.3)          21.3      3.3     17.3   segment, with banks having a significant presence. However, large housing
       NOTE: ABOVE 1 YEAR ON CAGR BASIS                                   finance companies, like LICHF, with a dedicated focus on the segment -
                                                                          leading to robust loan sourcing and appraisal as well as high credit rating
                                                                          enabling competitive cost of funds - should be able to withstand competition
       FINANCIAL PERFORMANCE OVERVIEW                                     from banks, even going forward.
       (%)                    3M          1Y      3Y       5Y      10Y
                                                                          Nature of business: Cyclical and rate-sensitive sector.
       OP. INC. GROWTH*       5.9      64.9      35.9     32.7 24.7
       PAT GROWTH*         (58.0)      47.2      36.0     36.1 23.1
       NIM#                   2.8       3.1       3.0      3.3      NA
                                                                          Current Investment Arguments
       ROE#                        -   25.8      25.2     23.6 21.0       Strong pick-up in loan offtake over the past couple of years: LICHF has
                                                                          been able to grow its loan book at a 35.9% CAGR over FY2009-11, driven
       NOTE: ABOVE 1 YEAR - * ON CAGR BASIS, # ON AVERAGE BASIS
                                                                          by a strong parent brand, success of its home loan products (~25% of its
                                                                          loan book comprised teaser loans as of FY2011) and strategic focus on
       ANGEL ESTIMATES                                                    tier-2 and tier-3 cities to sell its home loans.
       PARTICULARS                            FY2012E       FY2013E       Concerns on the regulatory front: LICHF's loan disbursements through
       PAT GROWTH (%)                            (0.0)             32.7   its product 'Advantage-5' are still under scrutiny from the NHB and could
                                                                          be classified as teaser loan, leading to higher provisioning for the company.
       ROE (%)                                   20.3              21.7   Also, capital adequacy requirements are relatively less strict for HFCs (12%
       P/ABV                                      2.2               1.8   CAR required with no specific requirement for tier-1 capital) as compared
                                                                          to NBFCs (15% CAR required, 10% minimum tier-1 in case of IFCs). As of
                                                                          FY2011, the CAR of LICHF stood at 14.6% (tier-1 ratio of 8.7% including
       BLOOMBERG CONSENSUS RECOMMENDATION                                 1HFY2012 profits), and considering LICHF is leveraged 12-13 times,
                                                                          the company might experience equity dilution in future if CAR requirements
       BUY / HOLD / SELL                                   20 / 11 / 6
                                                                          are raised. At present we have built in `500cr of capital infusion in the
                                                                          company.
                                                                          Valuations reasonable: The stock used to trade in a lower range earlier
                                                                          (0.8x-2.0x and median of 1.25x), but it has been rerated over the past three
                                                                          years to a 1.9x average. At the CMP, the stock is trading at a P/ABV multiple
                                                                          of 1.8x FY2013E ABV. Considering that interest rates have peaked and the
                                                                          company has healthy growth prospects, we recommend an Accumulate
                                                                          rating on the stock with a target price of ` 262.



114   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS STATEMENT                                                  BALANCE SHEET
           `
Y/E MARCH (` CR)              FY2010    FY2011      FY2012E    FY2013E               `
                                                                          Y/E MARCH (` CR)                 FY2010     FY2011    FY2012E   FY2013E
NET INTEREST INCOME              937       1,441      1,667      1,991
                                                                          SHARE CAPITAL                         95        95        99         99
 - YOY GROWTH (%)                17.6       53.8       15.7       19.4
                                                                          RESERVE & SURPLUS                  3,293      4,074     5,350      6,387
OTHER INCOME                     137        331         193        228

 - YOY GROWTH (%)                51.1      141.4      (41.6)      18.1    LOAN FUNDS                        34,758    45,163     58,887     72,431
OPERATING INCOME               1,073       1,771      1,860      2,219
                                                                           - GROWTH (%)                       36.7       29.9      30.4       23.0
 - YOY GROWTH (%)               21.1        65.0        5.0       19.3

OPERATING EXPENSES               192        216         256        307    OTHER LIAB. & PROV.                2,096     4,298      3,774     4,858

 - YOY GROWTH (%)               24.2        12.9       18.4       19.8    TOTAL LIABILITIES                 40,242    53,630     68,110     83,775
PRE - PROVISION PROFIT           882       1,555      1,604       1,912
                                                                          INVESTMENTS                        1,389      1,403     1,783      2,196
 - YOY GROWTH (%)               20.4        76.3        3.2       19.2
PROVISION AND CONTINGENCIES     (28)        261        288         166    ADVANCES                          38,081     51,090    64,884     79,807

 - YOY GROWTH (%)             (641.2)   (1,017.3)      10.4      (42.3)
                                                                           - GROWTH (%)                       37.6       34.2      27.0       23.0
PROFIT BEFORE TAX                910       1,294      1,316      1,746
                                                                          FIXED ASSETS                          36        47        59         70
 - YOY GROWTH (%)               25.2        42.1         1.7      32.7
PROVISION FOR TAXATION           249        320         342        453    OTHER ASSETS                         736      1,090     1,384      1,702
 - AS A % OF PBT                 27.4       24.7       26.0       26.0
                                                                          TOTAL ASSETS                      40,242     53,630    68,110     83,775
PAT                              662         974        974      1,293

 - YOY GROWTH (%)               24.6        47.2       (0.0)      32.7     - GROWTH (%)                       37.0       33.3      27.0       23.0




 KEY RATIOS                                                               KEY RATIOS
Y/E MARCH                     FY2010    FY2011      FY2012E    FY2013E    Y/E MARCH                        FY2010     FY2011    FY2012E   FY2013E
                                                                          VALUATION RATIOS
PROFITABILITY RATIOS (%)
                                                                          P/E                                  17.0      11.6      12.1        9.1
NIMS                              2.7        3.1        2.8         2.7
                                                                          P/ABV                                3.3        2.7       2.2        1.8

COST TO INCOME RATIO             17.8       12.2       13.8        13.8   DIVIDEND YIELD (%)                   1.3        1.5       1.4        1.9

                                                                          DUPONT ANALYSIS
ROA                               1.9        2.1         1.6        1.7
                                                                          NII                                  2.7        3.1       2.7        2.6
ROE                             23.6        25.8       20.3        21.7   (-) PROV. EXP.                      (0.1)       0.6       0.5        0.2

ASSET QUALITY (%)                                                         ADJ NII                              2.8        2.5       2.3        2.4

                                                                          TREASURY                             0.0        0.4       0.0        0.0
GROSS NPAS                      0.69        0.47       0.53       0.58
                                                                          INT. SENS. INC.                      2.8        2.9       2.3        2.4
NET NPAS                         0.12       0.03       0.05       0.06    OTHER INC.                           0.4        0.3       0.3        0.3

                                                                          OP. INC.                             3.2        3.2       2.6        2.7
PROVISION COVERAGE              82.6        93.7       90.0       90.0
                                                                          OPEX                                 0.6        0.5       0.4        0.4
                `
PER SHARE DATA (`)
                                                                          PBT                                  2.6        2.8       2.2        2.3

EPS                              13.9       20.5       19.6       26.1    TAXES                                0.7        0.7       0.6        0.6

                                                                          ROA                                   1.9       2.1       1.6        1.7
ABVPS (75% COVER FOR NPAS)       71.3       87.8      109.9      130.8
                                                                          LEVERAGE                            12.4       12.4      12.7       12.7
DPS                               3.0        3.5        3.3         4.4   ROE                                 23.5       25.8      20.3       21.7


January 2012                                                                      Please refer to important disclosures at the end of this report    115
                     This page is left intentionally blank




116   January 2012                               Please refer to important disclosures at the end of this report
Capital Goods                                                                                                             NEUTRAL


COVERAGE                                           Glass half full
Companies               `
                   CMP (`)           `
                             Target (`)   Reco     India is going through a slowdown in investment cycle because of various
BTG                                                cyclical and structural issues - such as high interest rates, slowdown in consumer
                                                   demand, policy inaction and high inflationary pressures. We believe the environment
BHEL                   266            - Neutral
                                                   is gloomy and would remain the same for a few more quarters. Therefore, we
BGR                    228            - Neutral    are looking beyond the current slowdown and selecting companies that are
                                                   expected to excel and benefit from the next uptick in the investment cycle.
                                                   We prefer companies that have a strong business model in place, experienced
T&D/Industrials                                    management at the helm of affairs, strong product portfolio and offer attractive
ABB                    727         427      Sell   risk reward ratio.
Crompton Greaves       134         158     Buy     Slowdown is here to be experienced…: The great Indian capex cycle, which
Thermax                496            - Neutral    witnessed a sharp increase in the past few years due to favorable policies,
                                                   abundance liquidity and ever-burgeoning demand, has come to a standstill.
KEC Intl'               53            - Neutral    A number of factors have led to this slowdown; these are structural (policy
Jyoti Structures        50          61     Buy     inaction and unavailability of resources like land and fuel) and cyclical (overcapacity,
                                                   high interest rates, inflationary pressures and high commodity prices) in nature.
                                                   Further, outbreak of scams and unfavorable government policies, such as
                                                   environment clearance and uncertainty over tax regime, has also dented investor
                                                   (domestic and international) confidence. Therefore, as expected, the number
                                                   of projects that have been stalled and cancelled has increased. Similarly,
                                                   there has been an uptick in the number of shelved projects in recent times.
                                                   Therefore, we believe there is some more pain left in the system (near term)
                                                   as our economy grapples with these issues and given the world economy is
                                                   also in weak shape.
                                                   … But things to pick up going ahead: Notwithstanding, it should be noted
                                                   that there is a pertinent need of infrastructure in the country, which is acknowledged
                                                   by one and all - though it is difficult to gauge the timelines, given the number
                                                   of variables impacting it positively and negatively at any given point in time.
                                                   Therefore, we believe the next upturn in the Indian capex cycle could be led
                                                   by infrastructure. Our analysis of potential ordering in various segments suggests
                                                   a healthy pipeline. Within the infrastructure segment, sectors such as power,
                                                   metro rail, railways and defense, are likely to contribute more. We expect
                                                   industrial capex to subsequently increase, given its dependence on infrastructure
                                                   growth. Sector wise, order pipeline from the cement sector looks weak, as
                                                   the sector grapples with an oversupply situation created during the boom
                                                   time. However, order pipeline from the steel segment looks strong. On the
                                                   non ferrous side, we expect a capex of >`60,000cr from three majors - Sterlite,
                                                   Hindalco and Nalco - in the next five years.
                                                   Hence, we look beyond…: Based on an analysis of the above fundamentals,
                                                   CRG (`134/`158/18%) and Jyoti (`50/`61/22%) are the top buys in our
                                                   coverage universe. We continue to maintain our negative view on BHEL despite
                                                   low valuations, as we believe the company is facing structural issues.We maintain
                                                   our Sell call on ABB (`727/`427/-41%) on account of expensive valuations
                                                   and Neutral on BGR, Thermax and KEC.




January 2012                                                               Please refer to important disclosures at the end of this report    117
                                                                                                                                                                                                                                                                                                                              Capital Goods

      Slowdown is here to be experienced…                                                                                                                                                                                                            in the Indian capex cycle could be led by infrastructure. Our
                                                                                                                                                                                                                                                     analysis of potential ordering in various segments suggests a healthy
      The great Indian capex cycle, which witnessed a sharp increase                                                                                                                                                                                 pipeline. Within the infrastructure segment, sectors such as power,
      in the past few years due to favorable policies, abundance liquidity                                                                                                                                                                           metro rail, railways and defense, are likely to contribute more.
      and ever-burgeoning demand, has come to a standstill. A number
      of factors have led to this slowdown; these are structural (policy                                                                                                                                                                             Exhibit 3: Power projects expected to be commission in the next five years
      inaction and unavailability of resources like land and fuel) and                                                                                                                                                                               Central sector                                    Project      Fuel       State    Capacity (MW)
      cyclical (overcapacity, high interest rates, inflationary pressures
                                                                                                                                                                                                                                                     NPCIL                                     Kundamkulam        Nuclear Tamil Nadu            2,000
      and high commodity prices) in nature. These factors have resulted
      in a slowdown in many capex projects. Further, outbreak of                                                                                                                                                                                     NTPC                                        Sipat STPP         Coal Chattisgarh            1,980

      scams and unfavorable government policies, such as environment                                                                                                                                                                                 NTPC                                 Jajjhar Power plant       Coal     Haryana            1,500
      clearance and uncertainty over tax regime, has also dented                                                                                                                                                                                     NTPC                                  Simhadri Stage 2         Coal          AP            1,000
      investor (domestic and international) confidence. Therefore, as
                                                                                                                                                                                                                                                     SJVNL                  Rampur Hydro Electric Project          Hydro          HP             414
      expected, the number of projects that have been stalled and
      cancelled has increased - for government and private alike. The                                                                                                                                                                                NHPC                                                Uri II    Hydro          J&K            240

      total project cost (TPC) of these projects increased to>`4 lakh                                                                                                                                                                                State Sector
      cr in September 2011 (~41.0% yoy jump). Private sector (~47%                                                                                                                                                                                   AP Power Develop & Co.                     Karim Nagar         Gas           AP            2,100
      yoy) projects have suffered more compared to government projects
                                                                                                                                                                                                                                                     Pragati Power                                 Pragati III      Gas        Delhi            1,500
      (~24.0% yoy). Similarly, there has been an uptick in the number
                                                                                                                                                                                                                                                     Mahagenco                     Bhusawal TPS Expansion           Coal      Maha.             1,000
      of shelved projects in recent times. Also, industrial production
      activity has been decelerating in the past year, which suggests                                                                                                                                                                                GSPC Pipavav Power              Pipavav Power project          Gas      Gujarat             700
      that ordering for the capital goods sector could remain weak                                                                                                                                                                                   UPRUVNL               Paricha TPS extn - Stg 2 Unt 5           Coal          UP             500
      for the next few quarters. Therefore, we believe there is some
                                                                                                                                                                                                                                                     Private Sector
      more pain left in the system (near term) as our economy grapples
                                                                                                                                                                                                                                                     Tata Power                               Mundra UMPP           Coal     Gujarat            4,000
      with these issues and given the world economy is also in doldrums.
                                                                                                                                                                                                                                                     Adani Power                   Mundra SEZ power plant           Coal     Gujarat            3,960

      Exhibit 1: Projects stalled are on a rise...                                                                                                                                                                                                   Reliance Power                            Sasan UMPP           Coal          MP            3,960
               300,000
                                                                                                                                                                                                                                                     Essar Power                          Salaya Phase I & II       Coal     Gujarat            2,520
               250,000
                                                                                                                                                                                                                                                     Sterlite Energy                            Jharsugudha         Coal      Orissa            2,400
               200,000
                                                                                                                                                                                                                                                     India Bulls power                           Nashik TPP         Coal      Maha.             1,200
               150,000
      (` cr)




                                                                                                                                                                                                                                                     JP Associates                        Karcham Wangtoo          Hydro          HP            1,000
               100,000
                                                                                                                                                                                                                                                     GVK                    Goindwal Sahib Power project            Coal      Punjab             540
                50,000
                                                                                                                                                                                                                                                     Source: Crisil, Angel Research
                         0
                                                  Dec-96




                                                                                      Dec-99




                                                                                                                                                                       Sep-06




                                                                                                                                                                                                     Dec-08
                                                                                                                                                                                                               Sep-09
                                                                                               Sep-00




                                                                                                                          Dec-02
                                                                                                                                   Sep-03




                                                                                                                                                              Dec-05
                                                           Sep-97
                                        Mar-96




                                                                    Jun-98
                                                                             Mar-99




                                                                                                                                            Jun-04




                                                                                                                                                                                           Mar-08
                              Jun-95




                                                                                                        Jun-01
                                                                                                                 Mar-02




                                                                                                                                                     Mar-05




                                                                                                                                                                                                                         Jun-10
                                                                                                                                                                                                                                   Mar-11
                                                                                                                                                                                                                                            Dec-11
                                                                                                                                                                                 Jun-07




               (50,000)
                                                                                                                                                                                                                                                     Exhibit 4: Major T&D projects in the next five years
                                                                                                  4Q Avg - Govt                                           4Q Avg - Pvt
                                                                                                                                                                                                                                                     Particulars                                   Description                          Cost (US$ mn)
      Source: Industry data, Angel Research                                                                                                                                                                                                          Transmission system for Karanpura             3,000 MW HVDC North karanpura                1,403
                                                                                                                                                                                                                                                     (2000 MW)
      Exhibit 2: ... so are projects cancelled                                                                                                                                                                                                       East-South Link HVDC Bipole Phase II          Hyderabad-Raichur-Davagere and
               40,000                                                                                                                                                                                                                                (2,000 MW)                                    Hyderabad-Gooty-Bangalore                    830.0
               35,000                                                                                                                                                                                                                                Transmission for Parbati and Koldam           -                                            660.0
               30,000                                                                                                                                                                                                                                Transmission System for Charra                -                                            532.0
               25,000                                                                                                                                                                                                                                (2,000MW)
               20,000                                                                                                                                                                                                                                Transmission system for Sipat Phase -II       Seoni-Chhegaon (II line) and
      (` cr)




               15,000                                                                                                                                                                                                                                (1,000 MW)                                    Chhegaon-Nagda 765 kV SC                     449.0
               10,000                                                                                                                                                                                                                                Transmission system for                       Damwe (1,000MW), Dehnang (520 MW)
                5,000                                                                                                                                                                                                                                North Easter Hydel projects                   and Subansiri (500MW)                        447.0
                    0                                                                                                                                                                                                                                Transmission system for Jayamkondam           -                                            293.0
                                                 Dec-96




                                                                                      Dec-99




                                                                                                                                                                        Sep-06




                                                                                                                                                                                                      Dec-08
                                                                                                                                                                                                                Sep-09
                                                                                               Sep-00




                                                                                                                          Dec-02
                                                                                                                                   Sep-03




                                                                                                                                                              Dec-05
                                                           Sep-97
                                       Mar-96




                                                                    Jun-98
                                                                             Mar-99




                                                                                                                                            Jun-04




                                                                                                                                                                                            Mar-08
                             Jun-95




                                                                                                        Jun-01
                                                                                                                 Mar-02




                                                                                                                                                     Mar-05




                                                                                                                                                                                                                          Jun-10
                                                                                                                                                                                                                                     Mar-11
                                                                                                                                                                                                                                     Dec-11
                                                                                                                                                                                  Jun-07




               (5,000)                                                                                                                                                                                                                               (2,000 MW)
                                                                                                                                                                                                                                                     Transmission system for Bhusawal Phase II -                                                199.0
                                                                                                4Q Avg - Govt                                         4Q Avg - Pvt
                                                                                                                                                                                                                                                     (2,000 MW)
      Source: Industry data, Angel Research                                                                                                                                                                                                          Transmission system for Sugen CCPP            -                                              NA
                                                                                                                                                                                                                                                     (1100 MW)

      … But things to pick up going ahead                                                                                                                                                                                                            Transmission system for Teesta III
                                                                                                                                                                                                                                                     (1,200MW)
                                                                                                                                                                                                                                                                                                   -                                              NA


      Notwithstanding, it should be noted that there is a pertinent                                                                                                                                                                                  Transmission system for Gas-Based
      need of infrastructure in the country, which is acknowledged                                                                                                                                                                                   Power Plant near Hazira (1,500MW)             -                                              NA

      by one and all - though it is difficult to gauge the timelines,                                                                                                                                                                                Transmission system for Gas-Based
                                                                                                                                                                                                                                                     Power Plant near Pallatana (740 MW)           -                                              NA
      given the number of variables impacting it positively and negatively
                                                                                                                                                                                                                                                     Source: Crisil, Angel Research
      at any given point in time. Therefore, we believe the next upturn


118   January 2012                                                                                                                                                                                                                                             Please refer to important disclosures at the end of this report
                                                                                                                                                                 Capital Goods

Exhibit 5: Major MRTS projects - Though they are behind schedule in most cases                                                                              `
                                                                                                   Exhibit 8: Expected industrial and infrastructure spend (` cr)
                                                           Cost      Length            Planned
                                                                                                                            7415
                                                           `
                                                          (` cr)       (km)    completion date         Industrial
                                                                                                                              9008 1.2x
Chennai Metro Rail Project                              146,000          50             Dec-15

Hyderabad Elevated MRTS project                         121,000            -            Dec-13                                            14642
                                                                                                   Infrastructure
                                                                                                                                                               28349 1.9x
Charkop-Bandra-Mankhurd-Metro Railway project           120,000          38             Dec-15

Delhi metro Rail project phase II                        89,000          68                    -                                                     22057
                                                                                                            Total
                                                                                                                                                                            37357 1.7x
Bangalore Metro Rail Project                             82,000          33             Dec-12

Kochi Metro Rail Project                                 30,000          25             Dec-11                      0       10000            20000            30000         40000
                                                                                                                                    FY2006-10     FY2011-15
Jacob Circle- Wadala-Chembur Monorail project route I           -        25                    -
                                                                                                   Source: Industry data, Angel Research
Versova-Andheri-Ghatkopar Metro Rail Project             24,000          11              Mar-12
Source: Crisil, Angel Research
                                                                                                   Some activity on reforms - Attempt to resolve some
We expect industrial capex to increase, given its dependence
on infrastructure growth. Sector wise, order pipeline from the
                                                                                                   structural issues
cement sector looks weak, as the sector grapples with an                                           There have been some minor activities on the reform front in
oversupply situation created during the boom time. However,                                        the past six months, such as the new land reforms bill being
order pipeline from the steel segment looks strong. Major players                                  introduced, some no-go areas being allowed for mining, new
such as Tata Steel, JSW Steel, SAIL, POSCO, Arcelor Mittal                                         infrastructure lending norms for setting up of debt funds, increasing
and Vedanta have announced capacity addition plans totaling                                        consensus on the likely imposition of import duties and higher
60mn tonnes, which are expected to be commissioned over                                            power tariffs by various SEBs.
the next five years. On the non ferrous side, we expect a capex
of >`60,000cr from three majors - Sterlite, Hindalco and Nalco
- in the next five years.                                                                          Hence, we look beyond…
Exhibit 6: Cement capex showing a downward trend                                                   We see a remote possibility of any near-term solution for the
50.0          45.7                  Expected Addition MnT                                          problem in hand. However, we prefer to look beyond the current
45.0                                                                                               slowdown and select companies that are expected to excel
40.0                                                                                               and benefit from the next uptick in the investment cycle. These
35.0                                                                                               include companies that have a strong business model in place,
30.0                       25.9
                                                                        24.4                       experienced management at the helm of affairs, strong product
25.0                                    20.3            20.6
                                                                                      18.5         portfolio and offer attractive risk reward ratio.
20.0
15.0                                                                                               Against this backdrop we prefer CRG (`134/`158/18%) and
10.0
                                                                                                   Jyoti Structures(`50/`61/22%) as our top buys in our coverage
 5.0
                                                                                                   universe. We continue to maintain our negative view on BHEL
 0.0
             FY10          FY11        FY12E            FY13E          FY14E         FY15E         despite low valuations, as we believe the company is facing
Source: Industry data, Angel Research. It should be noted that some upward                         structural issues.We maintain our Sell call on ABB (`727/`427/
revision can be expected on the back of unannounced capex                                          -41%) on account of expensive valuations and Neutral on BGR,
                                                                                                   Thermax and KEC.
Exhibit 7: Major capacity expansion plans (next five years)
Company                                            Capacity                            Location
                                                (mn tonnes)

SAIL                                                     10.0                    Multiple states

JSPL                                                      7.6                  Orissa/Jharkhand

JSW Steel                                                 6.2                         Karnataka

Tata Steel                                                6.0                            Orissa

Posco                                                     6.0                  Orissa/Karnataka

Arcelor Mittal                                            6.0                  Jharkhand/Orissa

Vedanta                                                   5.0                            Orissa

Essar Steel                                               4.0                            Orissa

Bhushan Steel                                             3.5                            Orissa

RINL                                                      2.7       Brownfield expansion (Vizag)

Monnet Ispat                                              2.4                      Chattishgarh

Total                                                    59.4
Source: Crisil, Angel Research




January 2012                                                                                                  Please refer to important disclosures at the end of this report            119
                                                                                                                                                   Capital Goods

      Exhibit 9: Our Coverage Universe Valuation Comparison
                                                   P/E (x)                          P/BV (x)               EPS CAGR (%)                            RoE(%)

                             Price     FY11/       FY12E/ FY13E/         FY11/ FY12E/ FY13E/             FY09-11 FY11-13E              FY11/ FY12E/ FY13E/

                                          CY10      CY11E       CY12E     CY10      CY11E      CY12E                                    CY10        CY11E     CY12E

      BTG

      BHEL                    266          10.7           9.3    10.2         3.2      2.6         2.2       39.4             2.5        33.6         30.8     23.0

      BGR                     228           5.1           6.3     6.8         1.7      1.5         1.3        67.1          (13.4)       39.0         25.0     20.1



      T&D/Industrials

      ABB*                    727         243.6          81.8    40.9         6.4      6.0         5.3      (66.0)          144.2            2.6        7.6    13.9

      CRG                     134           9.2          16.5    11.0         2.6      2.4         2.0       (2.7)           (8.2)       33.8         15.1     19.9

      Thermax                 496          15.5          14.4    15.2         4.5      3.6         3.1       32.7             1.8        31.9         28.0     21.9

      Kec Intl'                 53          6.7           7.9     6.0         1.5      1.3         1.1       28.7             5.7        34.7         24.9     26.6

      Jyoti Stryctures          50          4.1           3.5     4.1         0.7      0.6         0.5         8.0            0.1        18.7         18.5     13.7
      Source: Company, Angel Research; Note: *December year ending



      Exhibit 10: Capital Goods sector performance and rating comparison
                                                  Angel Rating                Recommendation                               Stock price performance over

                                                                        Buy         Hold          Sell               1m               3m             6m        12m

      ABB                                         Sell                    0            5            34           31.8                 2.0          (17.8)      (1.4)

      AIA Engineering                             Not Rated               4            2             5               7.8             (5.0)         (22.9)     (23.6)

      BEML Ltd                                    Not Rated               3            1             0           16.1                 8.1           (8.4)     (43.3)

      Bharat Electronics                          Not Rated              11            0             0               6.2             (2.4)         (13.0)     (11.7)

      BHEL                                        Neutral                20           14            13           14.7            (18.1)            (32.9)     (39.1)

      BGR                                         Neutral                 7            7            19           19.0            (29.7)            (52.2)     (63.8)

      Carborundum Universal                       Not Rated               5            0             3            409                (9.5)          (7.9)      14.6

      Crompton                                    Buy                    16           13            16           16.4                (7.2)         (35.7)     (53.8)

      Cummins India                               Not Rated              12            6             8           18.3                (2.0)         (20.5)     (26.2)

      Larsen & Toubro                             Buy                    37            8             4           23.4            (48.1)            (59.9)     (56.0)

      Siemens India                               Not Rated               2            5            13           15.7            (10.4)            (18.1)       1.6

      Thermax                                     Neutral                11           16            12           24.1                15.0          (15.5)     (32.0)

      Voltas                                      Not Rated              12            7            12           12.3            (11.7)            (44.6)     (57.8)
      Source: Bloomberg, Angel Research




120   January 2012                                                                             Please refer to important disclosures at the end of this report
               This page is left intentionally blank




January 2012                               Please refer to important disclosures at the end of this report   121
      Capital Goods                                                                         BHEL
                                                                                            CMP/TP/Upside: `266 / - / -



       RATING                                             NEUTRAL        Company Background
       52 WEEK HIGH / LOW                                 464 / 225      BHEL is the largest manufacturer of power equipment (boiler and turbine
                   `
       MARKET CAP (` CR)                                        66,807   generators) in India with ~65% market share. The company operates in two
                                                                         segments - power (80% of FY2011 revenues) and industry (20% of FY2011
       LIQUIDITY                                                 HIGH
                                                                         revenue). The company has 15 manufacturing facilities spread across the
                                                                         country with a combined manufacturing capacity of 15GW p.a. and is planning
                                                                         to reach 20GW p.a. by FY2012E. Sets produced by BHEL account for
       SHAREHOLDING PATTERN (%)
                                                                         ~62% of India's installed power capacity, which generate ~74% of India's
       PROMOTERS (GOVT.)                                          67.7   power. Notably, BHEL is the first domestic company to foray into the supercritical
       FII                                                        12.2   technology.



       STOCK RETURNS                                                     Structural Snapshot
       (%)                   3M          1Y        3Y      5Y     10Y    Growth opportunity: BHEL has strong revenue visibility for the next couple
       BHEL               (18.1) (39.1)          (2.1)    3.2 33.4       of years owing to its robust order backlog of `1.6 lakh cr (3.8x FY2011
                                                                         revenue). However, there is uncertainty over the company's long-term growth
       BSE CAP GOODS (10.6)           (27.9)      13.8    0.7 31.3
                                                                         prospects, considering the tough competition posed by international and
       SENSEX              (2.6) (12.3)           21.3    3.3     17.3   domestic players in recent times. In our view, even if BHEL manages to bag
       NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  orders, against our expectations, they will come at a cost of its margins.
                                                                         Nature of business: Technology-intensive, High RoE project business; Prospects
       FINANCIAL PERFORMANCE OVERVIEW                                    rely on the power sector.

       (%)                    3M          1Y       3Y      5Y     10Y    Competitive position: Losing its dominant position in the power equipment
                                                                         space to domestic players (who have collaborated with foreign players) and
       SALES GROWTH*         24.2       26.4      29.2   25.5     19.3
                                                                         international competitors.
       PAT GROWTH*           23.6       39.9      28.4   29.2 34.5
       OPM#                  18.6       20.2      17.6   18.4     16.2
       ROE#                       -     33.6      30.0   29.8 21.2
                                                                         Current Investment Arguments
       NOTE: * ABOVE 1 YEAR ON CAGR BASIS, # ON AVERAGE BASIS            Deteriorating dynamics in the BTG space: Recent trends in biddings and
                                                                         projects wins indicate that BHEL's leadership position is under threat, thus
                                                                         hinting for a loss in its market share going ahead. Further, given the structural
       ANGEL ESTIMATES
                                                                         issues faced by the power sector, times look tough for BTG players in the
       PARTICULARS                             FY2012E      FY2013E      near to medium term.
       PAT GROWTH (%)                             15.9           (9.3)   Concerns visible beyond 2013: While the current operating metrics appear
       ROE (%)                                    30.8            23.0   sound (strong OB/Sales of 3.8x and 20% + EBITDA margin), we expect
                                                                         BHEL to face pressure going ahead. In our view, the company's growth and
       P/E                                         9.3            10.2   margins are likely to trim mainly due to 1) deceleration of order inflow growth
       P/BV                                        2.6             2.2   - from a 26.2% CAGR over FY2006-11 to negative growth over FY2011-
                                                                         14E; and 2) a 200-250bp margin dip from FY2013 due to higher imported
                                                                         content of supercritical equipment. Hence, we believe the company’s earnings
       BLOOMBERG CONSENSUS RECOMMENDATION                                could face severe strain in the times to come.
       BUY / HOLD / SELL                                 20 / 14 / 13    More underperformance likely: BHEL has underperformed the Sensex by
                                                                         26.9% (vindicating our negative stance on the stock) over the last twelve
                                                                         months and is trading at historically low one-year forward valuations of 10.2x
                                                                         FY2013, owing to 1) delay in big-ticket orders; 2) weak investment capex
                                                                         and 3) changing competitive dynamics in the BTG space. We believe these
                                                                         concerns are far from over and, hence, expect the stock to further underperform
                                                                         and maintain our Neutral view on the stock.




122   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS                                                               BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010      FY2011    FY2012E    FY2013E               `
                                                                             Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
OPERATING INCOME                  33,653     42,538     51,482     51,689    SOURCES OF FUNDS
% CHG                               24.6       26.4        21.0        0.4   EQUITY SHARE CAPITAL                490       490        490        490
TOTAL EXPENDITURE                 27,828     33,963     41,275     42,209
                                                                             RESERVES & SURPLUS               15,406    19,666     24,907     29,495
EBITDA                             5,825      8,575     10,207      9,480
                                                                             SHAREHOLDERS FUNDS               15,896    20,155     25,397     29,984
(% OF NET SALES)                     17.3      20.2       19.8       18.3
                                                                             TOTAL LOANS                         148       270      1,480      1,480
DEPRECIATION & AMORTISATION          339        478        731        856
                                                                             DEFERRED TAX LIABILITY           (1,529)   (2,165)    (2,165)    (2,165)
INTEREST & OTHER CHARGES              37         56         69        100
OTHER INCOME                       1,165       1,027       850        900    TOTAL LIABILITIES                14,516    18,260     24,712     29,299

(% OF PBT)                           17.6       11.3        8.3        9.5   APPLICATION OF FUNDS

RECURRING PBT                      6,621      9,066     10,257      9,424    GROSS BLOCK                       6,858      8,344     9,941      11,449
EXTRAORDINARY EXPENSE/(INC.)             -         -          -          -   LESS: ACC. DEPRECIATION           4,249      4,734     5,466      6,321
PBT (REPORTED)                     6,621      9,066     10,257      9,424    NET BLOCK                         2,609      3,610     4,476       5,127
TAX                                2,294      3,012      3,241      3,063    CAPITAL WORK-IN-PROGRESS          1,552     2,203      2,206      1,998
(% OF PBT)                          34.6        33.2       31.6      32.5
                                                                             INVESTMENTS                           6         11        11         11
PAT (REPORTED)                     4,327      6,053      7,015      6,361
                                                                             CURRENT ASSETS                   43,002     51,621    62,707     64,473
LESS: MINORITY INTEREST (MI)             -         -          -          -
                                                                             CURRENT LIABILITIES              32,656    39,188     44,692     42,314
PRIOR PERIOD ITEMS                       -         -          -          -
                                                                             NET CURRENT ASSETS               10,346     12,432    18,015     22,158
PAT AFTER MI (REPORTED)            4,327      6,053      7,015      6,361
ADJ. PAT                           4,327      6,053      7,015      6,361    MIS. EXP. NOT WRITTEN OFF             2         4          4          4

% CHG                               38.9       39.9       15.9       (9.3)   TOTAL ASSETS                     14,516    18,260     24,712     29,299




 CASH FLOW STATEMENT                                                         KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010      FY2011    FY2012E    FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                  6,621      9,066     10,257      9,424    VALUATION RATIOS

DEPRECIATION                         339        478        731        856    P/E                                15.0       10.7        9.3       10.2
                                                                             P/CEPS                              13.9       9.9        8.4        9.0
(INC)/DEC IN WORKING CAPITAL     (2,403)     (2,236)   (5,986)      1,099
                                                                             P/BV                                 4.1       3.2        2.6        2.2
LESS: OTHER INCOME                 1,165       1,027       850        900
                                                                             EV/SALES                             1.7       1.3        1.2        0.9
DIRECT TAXES PAID                  2,021      3,649      3,241      3,063
                                                                             EV/EBITDA                            9.5       6.5        5.6        5.5
CASH FLOW FROM OPERATIONS          1,345      2,617        911      7,416
                                                                                              `
                                                                             PER SHARE DATA (‘`)
(INC.)/DEC.IN FIXED ASSETS        (1,752)    (2,137)    (1,600)    (1,300)   EPS (BASIC)                         17.7      24.7      28.7       26.0
(INC.)/DEC. IN INVESTMENTS               -       (5)         -           -   EPS (FULLY DILUTED)                 17.7      24.7      28.7       26.0
OTHER INCOME                       1,165       1,027       850        900    CASH EPS                           19.1       26.7       31.7      29.5

CASH FLOW FROM INVESTING           (587)     (1,115)     (750)      (400)    DPS                                  4.7       6.2        6.2        6.2

ISSUE OF EQUITY                          -         -          -          -   BOOK VALUE                         64.9       82.3      103.7      122.5
                                                                             RETURNS (%)
INC./(DEC.) IN LOANS                (18)        122       1,210          -
                                                                             ROCE (PRE-TAX)                      37.7      44.4      40.1       29.6
DIVIDEND PAID (INCL. TAX)          1,332       1,774      1,774      1,774
                                                                             ANGEL ROIC (PRE-TAX)              176.3      123.3      79.4        57.0
OTHERS                               119         0.1          -          -
                                                                             ROE                                30.0       33.6      30.8        23.0
CASH FLOW FROM FINANCING         (1,350)     (1,652)     (564)     (1,774)
                                                                             TURNOVER RATIOS (X)
INC./(DEC.) IN CASH                (474)      (150)      (403)      5,242    INVENTORY / SALES (DAYS)             93        87         91        100
OPENING CASH BALANCES             10,330      9,856      9,706      9,303    RECEIVABLES (DAYS)                  200       207        220        235
CLOSING CASH BALANCES              9,856      9,706      9,303     14,546    PAYABLES (DAYS)                     332       345        359        354
Note: Financials on Consolidated basis

January 2012                                                                        Please refer to important disclosures at the end of this report     123
      Capital Goods                                                                           BGR Energy
                                                                                              CMP/TP/Upside: `228 / - / -



       RATING                                                 NEUTRAL       Company Background
       52 WEEK HIGH / LOW                                     660 / 173     BGR Energy Systems (BGR) is one of the leading players in the the Balance
                   `
       MARKET CAP (` CR)                                            1,666   of Plant (BoP) and EPC space of the power sector. The company has taken
                                                                            several big leaps over the years - from being a mere manufacturer of a few
       LIQUIDITY                                              MEDIUM
                                                                            BoP components to executing turnkey BoP projects and now gradually executing
                                                                            full-fledged EPC contracts. In 2010, BGR ambitiously ventured into setting
                                                                            up a manufacturing facility of 4,000MW for supercritical boilers and turbine
       SHAREHOLDING PATTERN (%)
                                                                            generators in a JV with Hitachi (76:24).
       PROMOTERS                                                     81.1
       FII                                                            0.8
                                                                            Structural Snapshot
                                                                            Growth opportunity: BoP orders for most of the projects in the 12th plan
       STOCK RETURNS
                                                                            are yet to be placed (in contrast to BTG orders). As per industry estimates,
       (%)                      3M          1Y        3Y      5Y     10Y    ~1,110 BoP packages (`1,40,000cr) are expected to get tendered during
       BGR                  (29.7) (63.8)            13.4       -       -   the 12th plan, thus providing adequate opportunities to the company.

       BSE CAP GOODS (10.6)              (27.9)      13.8     0.7 31.3      Competitive position: BGR is a preferred player in the BoP segment, as
                                                                            the company is one of the few players that have a strong expertise in BoP
       SENSEX                 (2.6) (12.3)           21.3     3.3    17.3
                                                                            and EPC. The company is a new entrant in the BTG space and has won
       NOTE: Returns in excess of 1 year on a CAGR basis
                                                                            only one order on the back of extremely competitive pricing (negative for
                                                                            the company in context of operating margins).
       FINANCIAL PERFORMANCE OVERVIEW                                       Nature of business: Mainly a project business thriving on power BoP and
       (%)                        3M        1Y        3Y      5Y     10Y    EPC projects, which face moderate competition.

       SALES GROWTH* (32.1)                54.5      46.2    43.3       -
       PAT GROWTH*            (34.0)       60.1      54.0    51.2       -   Current Investment Arguments
       OPM#                     14.3       11.3      11.1    11.0       -
                                                                            Growth to remain under pressure: Over the past 6-8 quarters, BGR has
       ROE#                          -     39.0      31.0    34.9       -   been witnessing a dry spell on the order inflow front, barring the recent
       NOTE: * ABOVE 1 YEAR ON CAGR BASIS, # ON AVERAGE BASIS               aggressively won NTPC bulk order and one large order in the EPC space.
                                                                            Therefore, the order inflow trend has been largely disappointing. Further,
                                                                            with persistent headwinds in the power sector, we do not expect any trend
       ANGEL ESTIMATES                                                      reversal in the near to medium term. Moreover, the recently bagged orders
       PARTICULARS                                FY2012E      FY2013E      are of high gestation period and would contribute majorly post FY2013.
                                                                            Hence, we do not expect a substantial pick up in revenue till FY2013 (11.7%
       PAT GROWTH (%)                               (19.5)          (6.8)
                                                                            decline in FY2012E and 7.6% growth in FY2013E), leading to earnings decline
       ROE (%)                                       25.0            20.1   of 19.5% and 6.8% for FY2012E and FY2013E, respectively.
       P/E                                            6.3             6.8   Investment commitments + Elongated working capital = Soaring debt:
       P/BV                                           1.5             1.3   BGR's working capital has seen severe deterioration over the past few quarters
                                                                            (from 74 days in FY2010 to 225 days in 1HFY2012), mainly due to high
                                                                            receivables (owing to the retention money from SEBs such as RRVUNL
       BLOOMBERG CONSENSUS RECOMMENDATION                                   and TNEB, which are facing high financial strain). Amid issues impairing the
                                                                            power sector, credit availability may harden for SEBs, as banks have already
       BUY / HOLD / SELL                                      7 / 7 / 19
                                                                            chosen to remain risk-averse. Hence, in our view, tight liquidity is likely to
                                                                            transmit negatively on BGR's books. Along with this, BTG venture is expected
                                                                            to stretch its balance sheet - we expect the leverage to rise from 1.3x in
                                                                            1HFY2012 to 1.9x in FY2013.
                                                                            Valuation: At the CMP, the stock is trading at PE multiple of 6.8x FY2013E
                                                                            EPS, which we believe is reasonable amidst the structural issues (slowdown
                                                                            of order inflow in BTG space and high leverage) faced by the company.
                                                                            Hence, we maintain our Neutral view on the stock.


124   January 2012                                                                              Please refer to important disclosures at the end of this report
 PROFIT & LOSS                                                                BALANCE SHEET
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E               `
                                                                              Y/E MARCH (` CR)                FY2010     FY2011    FY2012E    FY2013E
OPERATING INCOME                   3,073       4,750      4,196      4,513    SOURCES OF FUNDS
% CHG                               59.2        54.5      (11.7)        7.6   EQUITY SHARE CAPITAL                72         72         72         72
TOTAL EXPENDITURE                  2,729       4,214      3,670      3,993
                                                                              RESERVES & SURPLUS                 634        880      1,056       1,214
EBITDA                              344         536         525        520
                                                                              SHAREHOLDERS FUNDS                 706        952       1,128     1,286
(% OF NET SALES)                    11.2         11.3       12.5       11.5
                                                                              TOTAL LOANS                        807       1,337     3,037      3,137
DEPRECIATION & AMORTISATION              10       17         16         25
                                                                              DEFERRED TAX LIABILITY             155        308        308        308
INTEREST & OTHER CHARGES             54           60        125        139
OTHER INCOME                         25           22         10         12    TOTAL LIABILITIES                 1,672     2,649      4,525      4,783

(% OF PBT)                           8.2         4.6         2.5        3.3   APPLICATION OF FUNDS

RECURRING PBT                       305         481         394        367    GROSS BLOCK                        182        251        776      2,613
EXTRAORDINARY EXPENSE/(INC.)              -        -           -          -   LESS: ACC. DEPRECIATION             37         53         69         95
PBT (REPORTED)                      305         481         394        367    NET BLOCK                           145       198        706      2,518
TAX                                  104        158         134        125    CAPITAL WORK-IN-PROGRESS             10        86         86         85
(% OF PBT)                          34.0        32.8        32.5      32.5
                                                                              INVESTMENTS                          1          1          1          1
PAT (REPORTED)                      201          323        260        242
                                                                              CURRENT ASSETS                    3,644      5,115     6,329      5,148
LESS: MINORITY INTEREST (MI)              -        -           -         -
                                                                              CURRENT LIABILITIES               1,896     2,397      2,244      2,607
PRIOR PERIOD ITEMS                        -        -           -          -
                                                                              NET CURRENT ASSETS                1,515     2,364      3,731      2,178
PAT AFTER MI (REPORTED)             201          323        260        242
ADJ. PAT                            201          323        260        242    MIS. EXP. NOT WRITTEN OFF             -          -         -           -

% CHG                               74.4        60.1      (19.5)      (6.8)   TOTAL ASSETS                      1,672     2,649      4,525      4,783




 CASH FLOW STATEMENT                                                          KEY RATIOS
           `
Y/E MARCH (` CR)                 FY2010       FY2011    FY2012E    FY2013E    Y/E MARCH                       FY2010     FY2011    FY2012E    FY2013E
PROFIT BEFORE TAX                   305         481         394        367    VALUATION RATIOS

DEPRECIATION                             10       17         16         25    P/E                                 8.2        5.1        6.3        6.8
                                                                              P/CEPS                              7.8        4.8       6.0         6.1
(INC)/DEC IN WORKING CAPITAL         18        (706)     (2,190)     1,968
                                                                              P/BV                                2.3        1.7        1.5        1.3
LESS: OTHER INCOME                  (25)        (22)        (10)       (12)
                                                                              EV/SALES                            0.5        0.4        1.1        0.9
DIRECT TAXES PAID                  (104)       (158)       (134)     (125)
                                                                              EV/EBITDA                           4.5        3.7       8.6         8.1
CASH FLOW FROM OPERATIONS           205        (388)     (1,923)     2,224
                                                                                               `
                                                                              PER SHARE DATA (‘`)
(INC.)/DEC.IN FIXED ASSETS          (65)       (147)      (525)     (1,837)   EPS (BASIC)                        28.0       44.8      36.0       33.6
(INC.)/DEC. IN INVESTMENTS                -        -           -          -   EPS (FULLY DILUTED)                28.0       44.8      36.0       33.6
OTHER INCOME                         25           22         10         12    CASH EPS                           29.4       47.2      38.3        37.1

CASH FLOW FROM INVESTING            (40)       (125)      (515)     (1,825)   DPS                                 7.0       10.0      10.0        10.0

ISSUE OF EQUITY                      0.0         0.2       0.00       0.00    BOOK VALUE                         98.1      131.9     156.3      178.2
                                                                              RETURNS (%)
INC./(DEC.) IN LOANS                 98         530        1,700       100
                                                                              ROCE (PRE-TAX)                     22.1       24.0       14.2      10.6
DIVIDEND PAID (INCL. TAX)            59           84         84         84
                                                                              ANGEL ROIC (PRE-TAX)               44.9      45.6        17.8       11.9
OTHERS                               83          210           -         -
                                                                              ROE                                31.7      39.0       25.0       20.1
CASH FLOW FROM FINANCING             39         446        1,616        16
                                                                              TURNOVER RATIOS (X)
INC./(DEC.) IN CASH                 287          143      (823)        415     INVENTORY / SALES (DAYS)            2          2          6          7
OPENING CASH BALANCES               615         902        1045        222    RECEIVABLES (DAYS)                 194        197        353        338
CLOSING CASH BALANCES               902         1045        222        637    PAYABLES (DAYS)                    209        186        231        222
Note: Financials on Consolidated basis

January 2012                                                                         Please refer to important disclosures at the end of this report     125
      Capital Goods                                                                        ABB India
                                                                                           CMP/TP/Downside: `727 / `427 / 41%



       RATING                                                    SELL    Company Background
       52 WEEK HIGH / LOW                                  908 / 542     ABB India (ABB) is the Indian subsidiary of Switzerland-based ABB Group,
                   `
       MARKET CAP (` CR)                                        15,481   which is one of the world's leading power and automation engineering companies.
                                                                         The group provides solutions for energy-efficient generation, power transmission
       LIQUIDITY                                           MEDIUM
                                                                         and distribution (T&D) and process automation. The power-related segment
                                                                         is the company's major revenue contributor, accounting for ~53% of its
                                                                         total CY2010 revenue, while 40% is contributed by the automation segment.
       SHAREHOLDING PATTERN (%)
       PROMOTERS (ABB GROUP)                                      75.0
       FII                                                         3.0   Structural Snapshot
                                                                         Growth opportunity: Improving ordering in the T&D segment and the HVDC
                                                                         project will help support order inflow for the coming quarters. Also from a
       STOCK RETURNS
                                                                         long-term perspective, ABB has substantial growth avenues from the power
       (%)                   3M           1Y        3Y     5Y     10Y    segment - PGCIL has envisaged T&D capex of `1lakh cr for the 12th plan,
       ABB                   2.0       (1.4)       16.8   0.2 33.2       28% of which is expected to be deployed in sub-station segment. In contrast,
                                                                         the weak investment cycle prevailing across the industrial sector is likely to
       BSE CAP GOODS (10.6)            (27.9)      13.8   0.7 31.3       restrict order inflow for the automation segment.
       SENSEX              (2.6) (12.3)            21.3   3.3     17.3
                                                                         Competitive position: ABB benefits from the strong pedigree of its parent
       NOTE: ABOVE 1 YEAR ON CAGR BASIS
                                                                         group, enabling it to bring the world's latest technology into the country,
                                                                         such as flexible AC transmission systems (FACTS) and SCADA. However,
       FINANCIAL PERFORMANCE OVERVIEW                                    in the past few years, power products segment, namely transformers, is
                                                                         facing stiff competition from Chinese/Korean players, leading to a loss in
       (%)                    3M          1Y        3Y     5Y     10Y    the company's market share.
       SALES GROWTH*         29.2         0.8       2.0   16.2 23.0
                                                                         Nature of business: Mix of products and projects; Moderate-to-high entry
       PAT GROWTH*           92.6 (82.2) (49.5) (22.0)             1.6   barriers in case of high-end technological products.
       OPM#                   3.8         1.3       7.0   8.9      9.4
       RoE#                        -      2.6      15.9   23.1 21.6
                                                                         Current Investment Arguments
       NOTE: * ABOVE 1 YEAR ON CAGR BASIS, # ON AVERAGE BASIS
                                                                         Changed dynamics lead to a loss in market share: After the exclusion of
                                                                         the circuit breaker in the scope of the substation contract in early FY2012,
       ANGEL ESTIMATES                                                   new entrants such as L&T, EMC, Crompton Greaves and Techno Electric
       PARTICULARS                              CY2011E     CY2012E      have rushed to capture this segment as - 1) separate scope of work has
                                                                         made it easier for general contractors to bid; and 2) general products and
       PAT GROWTH (%)                             197.7          100.3
                                                                         civil works constitute a major portion of the sub-station contract. Especially
       ROE (%)                                      7.6           13.9   in the 765kV segment, these new entrants have posed a tough competition
       P/E                                         81.8           40.9   to traditional T&D majors such as ABB, Areva and Siemens (which together
                                                                         commanded 100% market share in FY2011) and have already captured
       P/BV                                         6.0            5.3
                                                                         ~71% market share YTD FY2012. As a result, order intake from this segment
                                                                         is likely to decline going ahead.

       BLOOMBERG CONSENSUS RECOMMENDATION                                Unjustifiably rich valuations: In an environment where most capital goods
                                                                         stocks (including some of ABB's closest peers) are trading at a significant
       BUY / HOLD / SELL                                   0 / 5 / 34
                                                                         discount to their historical average, ABB trades at premium valuations, despite
                                                                         continued earnings disappointments and deteriorating return ratios (~14%
                                                                         in CY2012E from 29% in CY2008). At the CMP, the stock trades at 40.9x
                                                                         its CY2012E P/E, which is highly expensive compared to its peers such as
                                                                         Crompton Greaves (11.0x its FY2013E P/E) and Areva T&D (21.8x its CY2012E
                                                                         P/E). We believe the market is factoring in a possible delisting that is keeping
                                                                         the stock at elevated levels. But, we maintain Sell on the stock on valuation
                                                                         basis with a target price of ` 427. (PE multiple of 24.0x CY2012E EPS)


126   January 2012                                                                            Please refer to important disclosures at the end of this report
 PROFIT & LOSS                                                         BALANCE SHEET
              `
Y/E DECEMBER (` CR)            CY2009    CY2010    CY2011E   CY2012E                 `
                                                                       Y/E DECEMBER (` CR)             CY2009     CY2010    CY2011E    CY2012E
OPERATING INCOME                6,237     6,287      7,661     8,895   SOURCES OF FUNDS
% CHG                            (8.8)       0.8      21.9      16.1   EQUITY SHARE CAPITAL                42         42         42         42
TOTAL EXPENDITURE               5,710     6,203      7,277     8,216
                                                                       RESERVES & SURPLUS                2,381     2,381      2,520      2,847
EBITDA                            527        84        384       679
                                                                       SHAREHOLDERS FUNDS                2,424      2,424     2,562      2,890
(% OF NET SALES)                   8.5       1.3       5.0       7.6
                                                                       TOTAL LOANS                           -          -       100        100
DEPRECIATION& AMORT.               49        52         94       108
                                                                       DEFERRED TAX LIABILITY                -          -         -          -
INTEREST & OTHER CHARGES           24        17        30         37
OTHER INCOME                       73        86        25         37   TOTAL LIABILITIES                 2,424      2,424     2,662      2,990

(% OF PBT)                        13.8     85.3        8.8       6.5   APPLICATION OF FUNDS

RECURRING PBT                     527       100       285        571   GROSS BLOCK                        879        998      1,598      1,823
EXTRAORDINARY EXPENSE/(INC.)         -         -         -         -   LESS: ACC. DEPRECIATION            206        232        326        434
PBT (REPORTED)                    527       100       285        571   NET BLOCK                          673        766      1,272      1,389
TAX                               173        37         97       194   CAPITAL WORK-IN-PROGRESS            116        58         50         50
(% OF PBT)                       32.8      36.9       34.0      34.0
                                                                       INVESTMENTS                          17         17        17         17
PAT (REPORTED)                    355        63        188       377
                                                                       CURRENT ASSETS                    4,749     4,926      5,921      6,024
LESS: MINORITY INTEREST (MI)         -        -          -         -
                                                                       CURRENT LIABILITIES               3,132     3,348      4,601      4,495
PRIOR PERIOD ITEMS                   -         -         -         -
                                                                       NET CURRENT ASSETS                1,617      1,579     1,319      1,529
PAT AFTER MI (REPORTED)           355        63        188       377
ADJ. PAT                          355        63        188       377   MIS. EXP. NOT WRITTEN OFF             -          -         -          -

% CHG                           (35.2)    (82.2)     197.7     100.3   TOTAL ASSETS                      2,424      2,424     2,662      2,990




 CASH FLOW STATEMENT                                                   KEY RATIOS
Y/E DECEMBER (` CR)            CY2009    CY2010    CY2011E   CY2012E   Y/E DECEMBER                    CY2009     CY2010    CY2011E    CY2012E
PROFIT BEFORE TAX                 527       100       285        571   VALUATION RATIOS

DEPRECIATION                       49        52         94       108   P/E (ON FDEPS)                     43.4      243.6      81.8       40.9
                                                                       P/CEPS                             38.2      134.1      54.5       31.8
(INC)/DEC IN WORKING CAPITAL     (63)       102      (158)     (130)
                                                                       P/BV                                6.4        6.4       6.0        5.3
LESS: OTHER INCOME               (73)      (86)       (25)      (37)
                                                                       EV/SALES                            2.4        2.4       2.0         1.7
DIRECT TAXES PAID                (173)     (37)       (97)     (194)
                                                                       EV/EBITDA                          28.2      176.7      39.9       22.4
CASH FLOW FROM OPERATIONS         268       131        100       318
                                                                                        `
                                                                       PER SHARE DATA (‘`)
(INC.)/DEC.IN FIXED ASSETS      (163)     (104)      (592)     (225)   EPS (BASIC)                        16.7        3.0       8.9        17.8
(INC.)/DEC. IN INVESTMENTS         44          -         -         -   EPS (FULLY DILUTED)                16.7        3.0       8.9        17.8
OTHER INCOME                       73        86        25         37   CASH EPS                           19.0        5.4      13.3       22.9

CASH FLOW FROM INVESTING         (46)      (19)      (567)     (188)   DPS                                 2.0        2.0       2.0        2.0

ISSUE OF EQUITY                      -         -         -         -   BOOK VALUE                        113.7      114.4     120.9      136.4
                                                                       RETURNS (%)
INC./(DEC.) IN LOANS                 -         -       100         -
                                                                       ROCE (PRE-TAX)                     21.2        1.3       11.4      20.2
DIVIDEND PAID (INCL. TAX)        (50)      (50)       (50)      (50)
                                                                       ANGEL ROIC (PRE-TAX)               28.7        1.8      13.9       22.4
OTHERS                              4          -         -         -
                                                                       ROE                                15.7        2.6        7.6      13.9
CASH FLOW FROM FINANCING         (50)      (50)        50       (50)
                                                                       TURNOVER RATIOS (X)
INC./(DEC.) IN CASH               176        63      (417)       80    INVENTORY / SALES (DAYS)            40         41         42         42
OPENING CASH BALANCES             348       524        587       170   RECEIVABLES (DAYS)                  171       168        165        163
CLOSING CASH BALANCES             524       587        170      250    PAYABLES (DAYS)                    197        181        188        188


January 2012                                                                  Please refer to important disclosures at the end of this report     127
      Capital Goods                                                                        Crompton /Greaves
                                                                                           CMP/TP/Upside: `134 `158 / 18%



       RATING                                                     BUY    Company Background
       52 WEEK HIGH / LOW                                  297 / 108     Crompton Greaves (CG), part of the US$4bn Avantha Group, is one of the
                   `
       MARKET CAP (` CR)                                         8,888   leading players in the power T&D equipment business in India. The company
                                                                         operates across three segments - power systems (65% of FY2011 revenue),
       LIQUIDITY                                           MEDIUM
                                                                         consumer products (20% of FY2011 revenue) and industrial systems (15%
                                                                         of FY2011 revenue). CG is a globally diversified company and derives ~50%
                                                                         of its revenue from international operations, led by a series of acquisitions
       SHAREHOLDING PATTERN (%)
                                                                         undertaken over FY2006-11. Europe and North America are the two biggest
       PROMOTERS (AVANTHA GROUP)                                  41.7   markets outside Asia and jointly account for ~29% of the company's revenue.
       FII                                                        16.0

                                                                         Structural Snapshot
       STOCK RETURNS
                                                                         Growth opportunity: The power systems segment has been a key growth
       (%)                   3M          1Y         3Y     5Y     10Y    driver for the company, on the back of the phenomenal growth opportunities
       CROMPTON            (7.2) (53.8)           21.8     2.4 55.0      in the Indian T&D sector, coupled with strategic overseas acquisitions by
                                                                         CG. But the company's growth has trickled to single-digit levels since FY2010,
       BSE CAP GOODS (10.6)           (27.9)      13.8     0.7 31.3      led by a deteriorating business environment in Europe and North America.
       SENSEX              (2.6) (12.3)           21.3     3.3    17.3   The company's other segments - industry and consumer - are currently on
       NOTE: ABOVE 1 YEAR ON CAGR BASIS                                  the back foot, owing to deceleration in investment capex and inflationary
                                                                         pressures. Hence, we believe currently CG is facing business headwinds,
                                                                         which are likely to keep its growth under check. Nonetheless, the upcoming
       FINANCIAL PERFORMANCE OVERVIEW                                    opportunities in the domestic T&D space should help the company sail through
       (%)                    3M          1Y        3Y     5Y     10Y    the current slowdown - PGCIL has envisaged T&D capex of `1 lakh cr for
                                                                         the 12th plan, 28% of which is expected to be deployed in the sub-station
       SALES GROWTH*         12.8        9.5      13.6    19.4 22.6
                                                                         segment, thus providing a number of opportunities to CG.
       PAT GROWTH*         (45.4)       12.4      29.8    31.2    74.0
                                                                         Competitive position: CG is losing its market share in the domestic T&D
       OPM#                   8.4       13.4      12.9    11.7     9.9   and industrial space to new players. However, the company has a strong
       ROE#                       -     33.8      41.0    41.5 30.3      foothold in the consumer segment.
       NOTE: * ABOVE 1 YEAR ON CAGR BASIS, # ON AVERAGE BASIS            Nature of business: Diversified; More skewed towards the T&D space (domestic
                                                                         and international); Low entry barriers for new players.
       ANGEL ESTIMATES
       PARTICULARS                             FY2012E       FY2013E     Current Investment Arguments
       PAT GROWTH (%)                            (44.0)           50.2
                                                                         Business under stress: We believe CG's power and industrial segment
       ROE (%)                                     15.1           19.9   are facing several headwinds on the international and domestic business
       P/E                                         16.5           11.0   fronts, as reflected i