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L_T MF PMS Mar15

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					Contents
 Aurobindo Pharma .................................................................................................................................... 2
 MindTree................................................................................................................................................... 2
 Sintex Inds ................................................................................................................................................ 2
 Tata Power ............................................................................................................................................... 2
 Vijaya Bank .............................................................................................................................................. 2
 Bharat Heavy Electricals ........................................................................................................................ 2
 ITC Ltd. ..................................................................................................................................................... 2
 Siemens Ltd. ............................................................................................................................................. 2
 United Spirits ............................................................................................................................................ 2
 Yes Bank .................................................................................................................................................... 2
 Bharti......................................................................................................................................................... 2
 BPCL .......................................................................................................................................................... 2
 Hindalco .................................................................................................................................................... 2
 IDFC ........................................................................................................................................................... 2
 TVS Motors ............................................................................................................................................... 2
 CIPLA ......................................................................................................................................................... 2
 DHANLAKSHMI BANK .............................................................................................................................. 2
 : HDFC ....................................................................................................................................................... 2
 HPCL .......................................................................................................................................................... 2
 IDFC ........................................................................................................................................................... 2
 IDBI ............................................................................................................................................................ 2
 Wipro ........................................................................................................................................................ 2
    ICICI Bank .............................................................................................................................................. 2
    Infosys ................................................................................................................................................... 2
Aurobindo Pharma
Background
                                                                                                  Justification Report
Aurobindo Pharma was born of a vision. Founded in 1986 by Mr.
P.V.Ramaprasad Reddy, Mr. K.Nityananda Reddy and a small, highly                                            Date: 14/03/2012
committed group of professionals, the company became a public
venture in 1992. It commenced operations in 1988-89 with a single          Rating                                    BUY
unit manufacturing semi synthetic penicillins (SSPs) at Pondicherry.
                                                                           CMP                                        117
                                                                           Recommendation                             300
Investment Arguments
Transition from APIs to Formulations: Aurobindo is considered as
an API player even though more than 50% of the revenue has been            Scrip Scan
generated from formulations. Over the last seven years the
                                                                           Face Value                                Re. 1
contribution from API sales has decreased to 48% in FY2011 from
90% in FY2005. The transformation is still on and by FY2014; we            O/s. Equity Shares (Mn)                     291
expect contribution from API sales to further reduce to 34% of total       Market Cap. (Rs. Bn)                       30.1
sales.
Capacity Utilization – Key Profit Driver: Aurobindo has incurred           52 Week High/Low                         209/80
capex of INR10.0bn over the last five years to build a large capacity      AMFI Classification
to supply to Pfizer/AstraZeneca and also to reap the benefit of patent
                                                                           Daily Avg. Vol. (1 mth)               1,969,281
expiries in the US market. Currently Aurobindo is operating at 40%
capacity utilization with enough spare to capture the growth in            Bloomberg code                         ARBP IN
formulations segment for the next three years. Over next couple of
years, Aurobindo would only be incurring new capex for its API             Price Performance
facilities where utilization is 75%.
One of the Biggest ANDA Filers: Aurobindo is one of the biggest            Period                    Absolute      Relative
Indian ANDA filers for the US market. Aurobindo has made c.                3 month                      28.27         13.56
USD250bn worth of product filings till FY11 (Formulations filings; US-     6 month                     -10.27        -19.27
209, Europe and others-1270; Approved US- 134 (32 tentative),              12 month                    -38.59        -37.37
Europe and others-431). This big push and aggressive sales and
marketing efforts underway sets it apart from its peers.

Valuations
We expect a revenue and EPS CAGR of 18% and 25% respectively
excluding the licensing income for FY2011-FY2013E. At current market
price of INR117 the stock is trading at an attractive PE of 5.2x FY2013E
EPS of INR23.15. We recommend a Strong BUY with a target price of
INR300 by applying a PE of 13x on our FY2013E EPS of INR23.15. We
believe Aurobindo is one of the safest bet in Indian pharma as most of
their revenues will be generated from Pfizer and AstraZeneca contracts
which are almost certain.

Recommendation
We recommend Aurobindo Pharma (ARBP) with a Strong Buy with a
target price of INR 300 on account of (1) Peak incremental revenue of
US$350mn (management guidance is of US$450mn) by FY2014 from
tie-ups with Pfizer, AstraZeneca and other MNCs, (2) 20% CAGR
FY2011-14E in formulations base business (for US/Europe and
ROW), (3) 10% CAGR FY2011-14E in API revenues, (4) INR1.0bn
licensing income to continue for next three years, (5) Improving
product mix and operating leverage from higher capacity utilization
leading to margin improvements.
Financial Performance and forecast
 Particulars (Rs. Mn)              FY2009    FY2010    FY2011   FY2012E   FY2013E
 Revenue Rs. Mn                     30770    35,754    43815     49871     58637
 EBIDTA Rs. Mn                       3740      8232     9598      9226     11434
 PAT Rs. Mn                          1000      5587     5631      5085      6666
 EBITDA Margin (%)                      12        23       22        18        19
 Net Profit Margin (%)                   3        16       13        10        11
 EPS(Rs)                               3.7      19.4     19.6      17.7      23.2
 EPS Growth (%)                               424.3       1.0      -9.7      31.1
 BV/Share (Rs)                        46.0      65.6     84.0      94.0    107.5
 Market cap /Sales (x)                 1.1       1.0      0.8       0.7       0.6
 P/E (x)                              31.6       6.0      6.0       6.6       5.0
 P/BV(x)                               2.5       1.8      1.4       1.2       1.1
 RoE (%)                              25.5      31.3     25.2      19.1      18.3
 ROCE (%)                              7.3      14.6     13.6      10.2      11.5
Source: Company, L&T MF Research
Aurobindo Pharma
Highlights                                                                                                 Company Update
                                                                                                     Date: 14/03/2012
For 3QFY2012, Aurobindo Pharmaceuticals (APL) posted above
expectations, in the area of operating profits. The company’s top line was
                                                                             Scrip Scan
just in line with our estimates. The highlight of the quarter was, better
than expected OPM’s. The OPM came in at 13.3% V/s expectations of            CMP                                       117
12.1%. However, including the forex losses and redemptions the               Face Value                               Re 1
company reported losses. We maintain our Buy view on the stock.              O/s. Equity Shares (Mn)                   291
Above expectations results: Net sales grew modestly by 17.7% yoy to          Market Cap. (Rs. Bn)                     30.1
`1,262cr, mainly on the robust growth in the exports and domestic. ARV,      52 Week High/Low                       209/80
both formulations and API was the main growth driver of the company
which grew by 47.8% and 106.1% respectively. Other key geographies,          AMFI Classification
like US and Europe & ROW formulations grew by (-0.9)% and 17.4%              Daily Avg. Volume (1 mth)           1,969,281
growth respectively. Gross margin came in at 45.1% (46.7%), impacted         Bloomberg code                         ARBP IN
by higher raw-material costs, thus impacting the OPM’s which came in at
13.3% V/s expectations of 12.1%. However, including the forex losses
and redemptions the company reported losses.
                                                                             Price Performance (%)
   Outlook                                                                  Period                  Absolute       Relative
Commencement of operations at the Hyderabad SEZ and incremental              3 month                     28.27          13.56
contribution from the Pfizer deal would boost APL’s earnings with better     6 month                   -10.27           -19.27
growth visibility going forward. We estimate net sales to log a 12.7%
                                                                             12 month                  -38.59           -37.37
CAGR to `5,243cr over FY2011–13E on the back of supply agreements
and the US and ARV formulation contracts. Even after factoring in lower
profitability going forward, the stock trades at attractive valuations.
Hence, we maintain a Buy with a price target of 300.
   Valuations
Commencement of operations at the Hyderabad SEZ and incremental
contribution from the Pfizer deal would boost APL’s earnings with better
growth visibility going forward. We estimate the company’s net sales to
log a 12.7% CAGR to `5,243cr over FY2011-13E on the back of supply
agreements and the US and ARV formulation contracts. Even after
factoring in a lower profitability going forward, the stock trades at
attractive valuations.
Financial Performance Analysis
 Particulars (Rs. Mn)    3QFY12    3QFY11   % YoY    2QFY11   % QoQ    FY11    FY12E    FY13E
 Net Sales               12620     10720    17.7     10750    17.4     43815   49871    58637
 Operating Expenses      10940     8810     24.2     9600     14.0     34217   40645    47203
 EBITDA                  1680      1910     -12.0    1150     46.1     9598    9226     11434
 Interest                1720      70       2357.1   210      719.0    620     540.0    570
 Depreciation            550       430      27.9     460      19.6     1720    2060.0   2320
 EBT                     -590      1410     -141.8   480      -222.9   7258    6626     8544
 Other Income            280       1260     -77.8    60       366.7    250     430      520
 PBT                     -310      2670     -111.6   540      -157.4   7508    7056     9064
 Taxes                   -20       780      -102.6   -520     -96.2    1877    1971     2398
 PAT                     -290      1890     -115.3   1060     -127.4   5631    5085     6666
 Minority Interest
 Extra Ordinary Item               -50               1860
 Adjusted PAT            -290      1940              -800              5631    5085     6666
 Equity                  291       291               291               291     291      291
 Key Ratios
 EBITDA Margin (%)       13.3      17.8              10.7              21.9    18.5     19.5
 PAT Margin (%)          -2.3      17.6              9.9               12.9    10.2     11.4
 Tax Rate (%)            6.5       29.2              -96.3             25.0    27.9     26.5
 EPS                     -1.0      6.5               3.6               19.4    174.7    229.1
Source: Company, L&T MF Research
MindTree
Background
Mindtree is a diversified mid size Indian IT services offshoring
                                                                                                  Justification Report
company.Its breadth of offerings include IT Services, Infrastructure                                        Date: 14/03/2012
Management,Independent Testing, Knowledge Services and Product
Engineering services. We believe, the company would be able to             Rating                               BUY
achieve industry leading growth in topline due to its renewed focus to
grow annuity based business streams and revamped vertical focused          CMP                                         490
sales initiatives. Margin levers are also high as the company is at the    Recommendation                              540
end of transforming its business and fruits have already started
coming in terms of better revenue growth.
                                                                           Scrip Scan
Investment Arguments                                                       Face Value                                    10
Renewed Focus On Core Expertise Driving Growth: After shelving
                                                                           O/s. Equity Shares (Mn)                      400
the idea of foraying into the 3G Smart phone manufacturing space,
MindTree management refocused on the core IT services business,            Market Cap. (Rs. Bn)                          20
with vertical concentric selling strategy. This seems to be started        52 Week High/Low                        525/321
yielding results as over the first nine months of FY12, as topline
registered industry leading growth of 22% with 203bps improvement          AMFI Classification
in operating margins.                                                      Daily Avg. Vol. (1 mth)                    48000
Concentrated Vertical Effort To Increase Efficiency: MindTree’s
                                                                           Bloomberg code                         MTCL IN
selected vertical and sub-vertical focused business strategy to utilize
the industry specialties and client references would bring efficiency as
well as growth. The company is strengthening capability in the             Price Performance
manufacturing, financial services and travel transport vertical while      Period                    Absolute      Relative
doing away with some legacy projects in the areas of energy &
                                                                           3 month                      22.18           7.47
utilities and healthcare. In manufacturing, consumer and automotive
and in financial services mid size banks are the targeted areas.           6 month                       40.8           31.8
Mining The Existing Clients To Bring Growth                                12 month                     28.75          29.97
Over the last one year management reorganized S&M activity around
client mining. They hired talents from Tier I competitors to squeeze
more business from existing biggies and reorganize incentive
structure to encourage client mining.
Margin To Strengthen Going Forward
Operating margin is expected to achieve 14.14% in FY12E and
continue to improve in FY13E to reach 15.39% mainly backed by
better productivity, higher realization and reduced per employee pay-
out due to pyramid re-structuring.

Valuations
MindTree is best placed among the Tier II Indian IT services
offshoring companies to sustain and get higher growth due to their
diversified vertical and service offerings, renewed focus of the
management to get growth in annuity based business streams and
revamped vertical focused sales initiatives. Margin levers are also
very high as the company is at the end of transforming its business
and fruits have already started coming in terms of better revenue
growth. At the current market price Of 490, the stock is trading at 9x
of FY10E EPS of `49.91 and 7x of FY13E EPS `60.42.

Recommendation
Given the market leading growth expectation in FY13, we believe the
stock to trade at 9x of FY13E EPS and reach a target of `540.
Financial Performance and forecast
 Particulars (Rs. Mn)              FY2010    FY2011   FY2012E   FY2013E
 Revenue Rs. Mn                    12,960    15090     19310     22780
 EBIDTA Rs. Mn                       2460     1780      2930      3340
 PAT Rs. Mn                          2150     1020      2100      2040
 EBITDA Margin (%)                      19       12        15        15
 Net Profit Margin (%)                  17        7        11         9
 EPS(Rs)                              54.4     24.9      51.7      50.2
 EPS Growth (%)                               -54.2    107.6       -2.9
 BV/Share (Rs)                        16.8     19.4      24.4      29.3
 Market cap /Sales (x)                15.1     13.0      10.1       8.6
 P/E (x)                               9.0     19.7       9.5       9.8
 P/BV(x)                              29.2     25.2      20.0      16.7
 RoE (%)                              32.0     13.1      21.5      17.4
 ROCE (%)                             26.8     13.7      22.2      20.3
Source: Company, L&T MF Research
MindTree
Highlights                                                                                          Company Update
MindTree reported a modest set of numbers for 3QFY2012, with
PAT coming in ahead of our expectations due to lower forex                                    Date: 14/03/2012
losses. The company reported a 0.8% qoq decline in volume due
to a 5.4% qoq decline in revenue from the product engineering         Scrip Scan
business (PES) because of billing getting freezed due to the          CMP                                       490
holiday season. MindTree has been one of the good performers
on the revenue growth as well as margin front in the Indian IT mid-   Face Value                                 10
cap space, growing by a 5.1% CQGR over the past seven                 O/s. Equity Shares (Mn)                   400
quarters.                                                             Market Cap. (Rs. Bn)                       20
For 3QFY2012, MindTree reported USD revenue of US$103.7mn,
up 2.3% qoq. In INR terms, revenue came in at `520cr, up 13.8%        52 Week High/Low                      525/321
qoq. EBITDA and EBIT margin increased by 438bp and 486bp              AMFI Classification
qoq to 17.3% and 13.9%, respectively, largely aided by qoq INR
                                                                      Daily Avg. Volume (1 mth)              48000
depreciation against USD. PAT came in at `61cr, higher than
expected due to lower forex losses.                                   Bloomberg code                        MTCL IN

   Outlook
MindTree derives most of its IT services business (~66% of            Price Performance (%)
revenue) from growth verticals such as BFSI (~21% of total
revenue), manufacturing (~15% to revenue) and travel and              Period                  Absolute       Relative
transportation (T&T, ~12% to revenue). Management is confident        3 month                     22.18           7.47
about its IT services business to continue its momentum and hired     6 month                      40.8           31.8
3,500 gross employees in 9MFY2012 (most of them being                 12 month                    28.75          29.97
freshers) and plans to hire 300 freshers in 4QFY2012 on a gross
level. Also, MindTree has given offers to 3,000 campus graduates
for FY2013, who are expected to join from May 2012. This would
help MindTree to rationalize its employee pyramid and cushion
margins. The PES business is expected to remain soft going
ahead.

   Valuations
On an overall basis, we expect the company to record a 17.3%
and 22.9% CAGR in USD and INR revenue, respectively, over
FY2011-13E. On the EBITDA and PAT fronts, we expect the
company to record a 37.0% and 41.7% CAGR over FY2011-13E,
respectively. We value the stock at 9x FY2013 EPS i.e., with a
target price of 540, and recommend Accumulate on the stock.
Financial Performance Analysis
 Particulars (Rs. Mn)    3QFY12    3QFY11   % YoY   2QFY11   % QoQ   FY11    FY12E   FY13E
 Net Sales               5200      3850     35.1    4570     13.8    15090   19310   22780
 Operating Expenses      4300      3400     26.5    3980     8.0     13310   16380   19440
 EBITDA                  900       450      100.0   590      52.5    1780    2930    3340
 Interest
 Depreciation            170       210      -19.0   170      0.0     710     750.0   940
 EBT                     730       240      204.2   420      73.8    1070    2180    2400
 Other Income            10        100      -90.0   240      -95.8   240     360     160
 PBT                     740       340      117.6   660      12.1    1310    2540    2560
 Taxes                   130       30       333.3   110      18.2    290     440     510
 PAT                     610       310      96.8    550      10.9    1020    2100    2050
 Minority Interest
 Extra Ordinary Item
 Adjusted PAT            610       310              550              1020    2100    2050
 Equity                  400       400              400              400     400     400
 Key Ratios
 EBITDA Margin (%)       17.3      11.7             12.9             11.8    15.2    14.7
 PAT Margin (%)          11.7      8.1              12.0             6.8     10.9    9.0
 Tax Rate (%)            17.6      8.8              16.7             22.1    17.3    19.9
 EPS                     15.3      7.8              13.8             25.5    52.5    51.3
Source: Company, L&T MF Research
Sintex   Inds
Background
Sintex Industries is one of the leading manufacturers of plastic
                                                                                                    Justification Report
products and structured yarn-dyed textiles in India. It manufactures a                                        Date: 14/03/2012
wide range of plastic products at its eight facilities across the country,
which includes pre-fabricated structures, industrial custom moulding         Rating                                    BUY
products, FRP products and water storage tanks. The plastic
division’s manufacturing facilities are located at Kalol, Kolkata,           CMP                                         89
Daman, Bangalore, Nagpur, Baddi, Salem and Bhachaua. At its                  Recommendation                             110
manufacturing facility in Kalol, Sintex has developed the capability to
manufacture plastics using 12 different manufacturing processes
                                                                             Scrip Scan
which enables it to produce the entire range of products at a single
location.                                                                    Face Value                                   10
Investment Arguments
                                                                             O/s. Equity Shares (Mn)                     273
Government spending to up building products division’s
revenue by 26.6%: Sintex’s building products division, which                 Market Cap. (Rs. Bn)                       19.6
accounted for 48.6% of FY11 consolidated sales, derives 65-70% of            52 Week High/Low                         195/55
its revenue from state and central government orders under their
respective social schemes. Allocation towards these schemes has              AMFI Classification
showed a 17.2% CAGR over FY07-12 to Rs542bn. Its monolithic                  Daily Avg. Vol. (1 mth)               1,514,192
division has a strong order book of Rs30bn, 2.25x its FY11 sales of
                                                                             Bloomberg code                          SINT IN
Rs13,360mn, to be executed over a period of 22 months. We expect
this division to grow 26.6% over FY11-13 to Rs35bn and be a key
revenue driver, contributing 76.4% to incremental consolidated               Price Performance
revenue of Rs17.2bn. On the back of building products division, the          Period                    Absolute      Relative
consolidated net revenue should witness a 17.6% CAGR, which
                                                                             3 month                      19.75          5.04
would improve the RoCE by 203bps.
Balance sheet discipline and FCCB redemption to improve                      6 month                     -38.08        -47.08
RoCE: Ex-cash working capital increased to 41.7% in FY10 from                12 month                    -40.09        -38.87
20.2% in FY09, while cash deposit in escrow account stood at
Rs3.5bn in FY10. The company has liquidated all such non-core
investments in FY11, reducing ex-cash working capital to 27.9%. We
expect Sintex to maintain balance sheet discipline and increase sales
by 17.6% CAGR, which would generate positive operating free cash
flow of Rs4.3bn. Out of $225mn FCCB proceeds, $165mn remains
unutilised, thereby putting pressure on the return ratios. We expect
the redemption of FCCBs by March 2013, which would improve the
RoCE by 136bps over FY11-13.

Valuations
Sintex had witnessed a re-rating of its stock during FY04-08 on the back
of healthy improvement in RoCE to 12.7% in FY08 from 9.8% in FY03,
supported by healthy profitability CAGR of 57%. The stock witnessed a
surge in PE multiple from 5x to 20x and EV/EBIDTA multiple from 6x to
14x during the same period. At the current market price, the stock is
trading attractively at 8.9x and 7.6x FY12E EPS of Rs20.38 and FY13E
EPS of Rs23.84, below the 7-year median of 11.4x, and at EV/EBITDA of
6.7x/5.6x FY12/13, which is lower than its 7-year median of 7.2x.

Recommendation
With a buoyant order book, including a robust stream of government
orders and an excellent execution track record, Sintex Industries’
building products division should register a 26.6% CAGR and account
for 76.4% of incremental sales over FY11-13. Strong operating free
cash flow of Rs4.3bn and RoCE improvement by 249bps to 16.1%
over FY11-13 due to high net sales growth of 17.6% supported by
balance sheet discipline and $225mn FCCB redemption calls for a re-
rating of the stock. We assign a Buy rating to it with a SOTP-based
TP of Rs110 (6.6x FY13 EV/EBITDA), 24% up from CMP.
Financial Performance and forecast
 Particulars (Rs. Mn)              FY2009    FY2010    FY2011   FY2012E    FY2013E
 Revenue Rs. Mn                     30639    32,816    44837     52184      61998
 EBIDTA Rs. Mn                       4500      5005     8155       9262     10739
 PAT Rs. Mn                          3095      3215     4600       5523      6463
 EBITDA Margin (%)                      15        15       18         18        17
 Net Profit Margin (%)                  10        10       10         11        10
 EPS(Rs)                              11.4      11.9       17       20.4      23.8
 EPS Growth (%)                                  4.4     42.9       20.0      16.7
 BV/Share (Rs)                        62.9      71.8     88.6     108.2     131.3
 Market cap /Sales (x)                 0.8       0.7      0.5        0.5       0.4
 P/E (x)                               7.8       7.5      5.2        4.4       3.7
 P/BV(x)                               1.4       1.2      1.0        0.8       0.7
 RoE (%)                              19.1      17.6     21.2       20.7      19.9
 ROCE (%)                              8.9       8.3     13.6       13.9      16.1
Source: Company, L&T MF Research
Sintex Inds
Highlights                                                                                             Company Update
Moderating growth: The belief that Sintex’s monolithic business,
which contributed 30% to sales in FY11, is recession proof due to                                      Date:
dependence on government’s social spending appears to be a
myth. Clients are delaying order execution and also the release of       Scrip Scan
payment. To conserve cash for the US$291mn of FCCB                       CMP                                         89
repayment expected by March 2013, Sintex has moderated the
growth momentum of monolithic division, while its custom                 Face Value                                   1
moulding business is feeling the heat of slowdown in the US/EU           O/s. Equity Shares (Mn)                    273
as well as in the Indian automotive sector.                              Market Cap. (Rs. Bn)                      19.6
Operating margin under pressure across segments: Following
weak order execution and higher overheads, the margins of                52 Week High/Low                        195/55
monolithic division fell by ~200bps in 3QFY12. On commissioning          AMFI Classification
of new plants in 1HFY12, the capacity of custom moulding division
                                                                         Daily Avg. Volume (1 mth)             1,514,192
(CMD) rose, but the volume was muted which led to under-
utilisation of facilities. Sintex lacked the negotiating power to pass   Bloomberg code                           SINT IN
on increased raw material costs to customers and as a result the
margins of CMD fell by ~330bps.The EBIT margin of textile
division declined by 356bps to 10.5%. Following pressure on              Price Performance (%)
margins across segments, consolidated operating margin fell by
                                                                         Period                  Absolute         Relative
253bps YoY to 14.1%, 240bps/243bps lower than ours/Bloomberg
consensus estimates, respectively.                                       3 month                     19.75           5.04
                                                                         6 month                   -38.08          -47.08
   Outlook
                                                                         12 month                  -40.09          -38.87
Following weak order execution and deteriorating working capital,
Sintex Industries reported dismal 3QFY12 revenue/operating
profit, down 2.1%/17.1% YoY, respectively, and sharply below
our/consensus estimates. On account of routing MTM (mark-to-
market) loss of ~Rs600mn through the balance sheet, reported
net profit appears to be high. However, adjusted net profit of
Rs687mn (36.5% lower than our estimate) is down 39.1% YoY. In
order to conserve cash for FCCB redemption, Sintex has
moderated the growth of working capitalintensive businesses.

   Valuations
We have maintained our FY12 net sales/EBITDA/PAT estimates
and maintain our FY13 estimates on account of weak rupee
assumption of Rs54.5/$. Sintex is trading at the lower end of its
valuation band at 3.9x/3.8x FY13E P/E and EV/EBITDA, below
the seven year median of 8.9x/6.6x. As there is no near-term
trigger to lift valuation, we retain buy rating on Sintex with a TP of
Rs110, valuing it at 6x FY13 EV/EBITDA.
Financial Performance Analysis
 Particulars (Rs. Mn)    1QFY12    1QFY11   % YoY   4QFY11   % QoQ   FY11    FY12E    FY13E
 Net Sales               11608     11860    -2.1    11570    0.3     44837   52184    61998
 Operating Expenses      9977      9893     0.8     9527     4.7     36682   42922    51259
 EBITDA                  1631      1967     -17.1   2043     -20.2   8155    9262     10739
 Interest                354       280      26.4    416      -14.9   1089    1110.0   1020
 Depreciation            467       374      24.9    437      6.9     1491    1675.0   1846
 EBT                     810       1313     -38.3   1190     -31.9   5575    6477     7873
 Other Income            154       137      12.4    67       129.9   518     887      744
 PBT                     964       1450     -33.5   1257     -23.3   6093    7364     8617
 Taxes                   283       322      -12.1   275      2.9     1508    1841     2154
 PAT                     681       1128     -39.6   982      -30.7   4585    5523     6463
 Minority Interest       6                          2                3
 Extra Ordinary Item     -136                       596                      -136
 Adjusted PAT            811       1128             384              4582    5659     6463
 Equity                  271       271              271              271     271      271
 Key Ratios
 EBITDA Margin (%)       14.1      16.6             17.7             18.2    17.7     17.3
 PAT Margin (%)          5.9       9.5              8.5              10.2    10.6     10.4
 Tax Rate (%)            29.4      22.2             21.9             24.7    25.0     25.0
 EPS                     2.5       4.2              3.6              16.9    20.4     23.8
Source: Company, L&T MF Research
Tata Power
Background
Incorporated in 1919, Tata Power Company Ltd (TPCL) is an
                                                                                                   Justification Report
ntegrated power utility company and one of the major companies of                                            Date: 14/03/2012
the Tata Group. TPCL has a presence in all segments of the power
sector viz. generation, transmission, distribution and trading of           Rating                                    BUY
lectricity. As at March 31, 2011 Tata Power has 3,127 MW of installed
generation capacity and is executing the country's first 4,000MW            CMP                                        110
UMPP at Mundra. In addition, TPCL also has strategic investment in          Recommendation                             121
coal assets through a 30% stake in Indonesian thermal coal
companies - PT Kaltim Prima Coal and PT Arutmin. The investment is
                                                                            Scrip Scan
part of TPCL's strategy to ensure fuel security for its thermal power
projects.                                                                   Face Value                                 Re 1
Investment Arguments
                                                                            O/s. Equity Shares (Mn)                   2373
Capacity to treble by FY13E
TPCL has installed generation capacity of 3127 MW in FY11. The              Market Cap. (Rs. Bn)                        261
company is planning to ramp up its generation capacity 2.7x to 8527         52 Week High/Low                         135/81
MW by FY13E out of which 5,050 MW thermal capacity will come
from the Maithon plant (1050 MW) and the Mundra UMPP (4000 MW)              AMFI Classification
which are expected to be commercially operational by FY12 and               Daily Avg. Vol. (1 mth)                 428,000
FY13 respectively. TPCL plans to increase its total generation
                                                                            Bloomberg code                        TPWR IN
capacity to 25000MW (i.e. 8%-10% of total national capacity) by
FY17 with significant expansion in renewable energy portfolio.
Limited exposure to merchant rates                                          Price Performance
Out of the total generation capacity, about 90% of capacity operates        Period                    Absolute      Relative
on regulated/captive arrangement under long-term PPA,where
                                                                            3 month                      26.52         11.81
majority of costs are pass-through, provided the company is able to
maintain the normative parameters. TPCL has minimal exposure of             6 month                       14.1           5.1
~6% to merchant power market. This translates into stable cash-             12 month                    -11.96        -10.74
flows.
TPCL - only Indian Utility to have a net long position on coal
In FY07 TPCL acquired 30% stake in two unlisted coal mines of Bumi
Resources for sourcing the coal requirement of Mundra Power Plant.
With this acquisition, TPCL is the only Indian utility having a net long
position on coal (14 mmt in CY12E). Thus in the current scenario of
rising coal prices, the generation projects will be negatively impacted,
however TPCL as a consolidated entity shall benefit in the form of
better returns from coal stake in Bumi and vice versa.

Valuations
We have valued TPCL based on Sum Of The Parts Approach as the
company is well diversified and has vpresence across the entire power
value chain. Based on our assumptions as specified in the following
table.The assigned multiples to arrive at our target price are within the
historical long-term range of the respective multiples. At CMP, the stock
s trading at P/E of 9.7x FY13E EPS, P/BV of 0.68x FY13E book value
and 7.4x FY13E EV/EBIDTA on a consolidated basis.

Recommendation
We recommend BUY on Tata Power with a target price of INR 121 based
on SOTP Valuation Approach. At CMP, the stock is trading at P/E of 9.7x
FY13E EPS, P/BV of 0.68x FY13E book value and 7.4x FY13E
EV/EBIDTA on a consolidated basis.
Financial Performance and forecast
 Particulars (Rs. Mn)               FY2010    FY2011    FY2012E   FY2013E
 Revenue Rs. Mn                    189,858    194508    255526    295088
 EBIDTA Rs. Mn                       38532     45584     68330     75484
 PAT Rs. Mn                          21386     21819     22373     26734
 EBITDA Margin (%)                       20        23        27        26
 Net Profit Margin (%)                   11        11         9         9
 EPS(Rs)                                  9       9.2      8.53      10.2
 EPS Growth (%)                                   2.2      -7.3      19.6
 BV/Share (Rs)                         51.9      59.1      66.3      74.9
 Market cap /Sales (x)                  1.4       1.3       1.0       0.9
 P/E (x)                               12.2      12.0      12.9      10.8
 P/BV(x)                                2.1       1.9       1.7       1.5
 RoE (%)                               10.6       7.6       6.7       6.8
 ROCE (%)                              12.6      11.3      12.7      11.1
Source: Company, L&T MF Research
Tata Power
Highlights                                                                                         Company Update
TPCL registered 6% QoQ and 50% YoY increase in net sales to
INR 66 bn. The company recorded net profit of INR 2.9 bn vs loss                             Date: 14/03/2012
of INR 11.9 bn in Q2FY12 and profit of INR 4.4 bn in the
corresponding quarter last year. However, TPCL's net profit is not   Scrip Scan
comparable as the company has changed its accounting policy in       CMP                                       110
ccordance with AS11 (leading to forex gain of INR~ 3870 mn),
charged deferred stripping cost amounting to INR 6490 mn and         Face Value                               Re. 1
accounted provision for impairment to the tune of INR 1620 mn for    O/s. Equity Shares (Mn)                  2373
Mundra project.                                                      Market Cap. (Rs. Bn)                      261
Increase in Volume & Realisation
TPCL's generation volume increased by 5% QoQ and 7% YoY to           52 Week High/Low                       135/81
3970 MU driven by higher generation from Mumbai License Area.        AMFI Classification
Merchant realisation during the quarter improved to INR 3.37/kwh
                                                                     Daily Avg. Volume (1 mth)             428,000
from INR 2.35/kwh in Q3FY11. In Q3FY12, revenue and EBIT
from power business increased by 50% and 20% to INR 39 bn            Bloomberg code                       TPWR IN
and INR 4.8 bn respectively as compared to Q3FY11.
Timely execution of the projects
During the quarter, TPCL has successfully synchronized India's       Price Performance (%)
first 800 MW sized super critical Unit 1 of 4000 MW Mundra Ultra
                                                                     Period                  Absolute       Relative
Mega Power Project, commissioned Unit 1 of 1050 MW Maithon
Power Project and also synchronized 25 MW solar plant at             3 month                     26.52          11.81
Mithapur, one of the largest in the country.                         6 month                      14.1             5.1
Subsidiaries performing well                                         12 month                  -11.96           -10.74
TPCL's subsidiaries performances were mixed during the quarter.
NDPL (renamed as TPDDL) reported PAT de-growth of 14% at
INR 304 mn due to maintenance activity and unscheduled outage.
Power links reported flat PAT growth YoY at INR 280mn. Tata
Power Trading has reported PAT of INR 40 mn in Q3FY12 vs INR
7 mn in the corresponding quarter last year. IEL's PAT improved
significantly by 182% to INR 192 mn as Unit V of IEL was not
operation in Q3FY11.
Exploring options for Mundra
TPCL is exploring various options to turn Mundra project
profitable. Currently, in order to bring down the average cost of
coal, TPCL is blending lower GCV (4500 kcal vs designed 5500
kcal) of coal which is available at discount. The company has
charged provision for impairment to the tune of INR 9.8 bn in
9MFY12 to factor in the revised coal price projections. We have
also incorporated it in our FY12 revised estimates. However, we
do not expect the company to charge such provisions in FY13E.
TPCL has also decided to transfer 75% of the ownership in its
Indonesian mines to CGPL by FY12 end, subject to regulatory
and other necessary approvals.

   Outlook
We have reduced our EPS estimates for FY12E from INR 8.53 to
INR 6.8 and FY13E from INR 10.20 to INR 8.1 to factor in the
impairment charges for Mundra project and higher stripping cost.

   Valuations
However, we maintain Buy with a revised target price of INR 116
per share (INR 121 earlier) based on SOTP valuation approach.
At CMP, the stock is trading at P/E of 15.4x FY13E EPS and P/BV
of 0.75x FY13E book value on consolidated basis.
Financial Performance Analysis
 Particulars (Rs. Mn)    3QFY12    3QFY11   % YoY   2QFY11   % QoQ    FY11     FY12E     FY13E
 Net Sales               66459     44129    50.6    62483    6.4      194508   258255    297384
 Operating Expenses      56430     33584    68.0    48635    16.0     148924   201123    223336
 EBITDA                  10029     10545    -4.9    13848    -27.6    45584    57132     74048
 Interest                4213      2109             3313              5055     13155.0   15837
 Depreciation            3469      2489     39.4    3066     13.1     9811     12194.0   19177
 EBT                     2347      5947     -60.5   7469     -68.6    30718    31783     39034
 Other Income            4558      783      482.1   -6294    -172.4   4105     1500      1650
 PBT                     6905      6730     2.6     1175     487.7    34823    33283     40684
 Taxes                   2345      2088     12.3    4535     -48.3    9756     17174     21443
 PAT                     4560      4642     -1.8    -3360    -235.7   25067    16109     19241
 Minority Interest       261       387              514               1223     595       1828
 Extra Ordinary Item     1620                       8230              1721     9850
 Adjusted PAT            2679      4255             -12104            22123    5664      17413
 Equity                  2373      2373             2373              2373     2373      2373
 Key Ratios
 EBITDA Margin (%)       15.1      23.9             22.2              23.4     22.1      24.9
 PAT Margin (%)          6.9       10.5             -5.4              12.9     6.2       6.5
 Tax Rate (%)            34.0      31.0             386.0             28.0     51.6      52.7
 EPS                     1.9       2.0              -1.4              10.6     6.8       8.1
Source: Company, L&T MF Research
Vijaya Bank
Background
Vijaya Bank was founded on 23 Oct 1931 by late Shri AB Shetty and
                                                                                                   Justification Report
other enterprising farmers in Mangalore, Karnataka. The objective of                                         Date: 14/03/2012
the founders was to promote a banking habit, thrift and
entrepreneurship among the farming community of Dakshina                    Rating                                    BUY
Kannada district in Karnataka. Vijaya Bank has steadily increased
presence across India, with nine smaller banks merging with it during       CMP                                         65
1963-68. The Bank was nationalised in Apr 1980.                             Recommendation                             107

Investment Arguments
                                                                            Scrip Scan
Prudent business growth; higher NIM
We expect Vijaya Bank to grow its business in a prudent manner              Face Value                                   10
(19.8% CAGR over FY10-13e) with greater emphasis on higher-                 O/s. Equity Shares (Mn)                  16,730
yielding loans. NIM expansion to 2.8% in FY13e from 2.3% in FY10
will be led by altered liability mix – higher CASA share and lower          Market Cap. (Rs. Bn)                         31
wholesale deposits.                                                         52 Week High/Low                          94/44

Improving productivity                                                      AMFI Classification
Focus on enhancing employee skills and technology would help boost          Daily Avg. Vol. (1 mth)                 505,000
productivity. We expect cost-income ratio in the 48-50% range during
                                                                            Bloomberg code                        VJYBK IN
FY11-13e, despite branch expansion and additional provisions (which
were on account of higher gratuity and pension).
                                                                            Price Performance
Asset quality concerns allaying                                             Period                    Absolute      Relative
GNPAs have steadily declined over the past three quarters, from
                                                                            3 month                      22.36          7.65
2.94% in 1QFY10 to 2.32%in 1QFY11. We expect current capital
infusion of `7bn (CAR: 14.7%; tier-1 capital: 10.1%) to support future      6 month                      11.04          2.04
growth and adequately capitalise it for additional loan defaults. We        12 month                    -12.01        -10.79
have factored additional slippages in our estimates on account of
expected Agri NPAs.

Valuations
We value Vijaya Bank at `107 (1.5x FY12e ABV), based on the two-stage
dividend-discount model (CoE: 16.2%; beta: 1.3; Rf: 7.5%). To arrive at a
fair price/book value multiple, we have used the single-stage Gordon
growth model (RoE-g/CoE-g): (P/B) = (RoE-g/CoE-g), where g =
perpetual growth rate; CoE = cost of equity; RoE = normalised return on
equity.

Recommendation
We put BUY on Vijaya Bank and price target of `107/share. We expect
prudent business growth and improving liability mix to support the
expanding core income. The Bank is likely to register 23.4% earnings
CAGR over FY10-13e, driven by higher NIM and improved productivity.
Financial Performance and forecast
 Particulars (Rs. Mn)              FY2009    FY2010    FY2011   FY2012E   FY2013E
 Revenue Rs. Mn                     30639    32,816    44837     52184     61998
 EBIDTA Rs. Mn                       4500      5005     8155      9262     10739
 PAT Rs. Mn                          3095      3215     5156      5746      6739
 EBITDA Margin (%)                      15        15       18        18        17
 Net Profit Margin (%)                  10        10       11        11        11
 EPS(Rs)                               6.1      10.8      8.8       9.1       9.4
 EPS Growth (%)                                 77.0    -18.5       3.4       3.3
 BV/Share (Rs)                        50.8      57.4     65.3      73.3      79.4
 Market cap /Sales (x)                 3.5       3.3      2.4       2.1       1.8
 P/E (x)                              10.7       6.0      7.4       7.1       6.9
 P/BV(x)                               1.3       1.1      1.0       0.9       0.8
 RoE (%)                              11.9      18.8     13.8      12.3      11.7
 ROA (%)                               0.4       0.7      0.5       0.5       0.4
Source: Company, L&T MF Research
Vijaya Bank
Highlights                                                                                                  Company Update
Credit growth driven by risky sectors exposing it to further credit
risk: Vijaya’s credit growth (+28% YoY) is much higher than the                                       Date: 14/03/2012
system (+17% YoY). We remained concerned in the current
environment about certain sectors, as systemic risks are                      Scrip Scan
becoming visible in power, SEB, CRE, SME etc. In 3QFY12, Infra                CMP                                        65
exposure was reduced due to certain reclassification, but stress
sector exposure remains high at 33%                                           Face Value                                 10
                                                                              O/s. Equity Shares (Mn)                16,730
Whereas declining CASA impacting NIM: Vijaya’s CASA                           Market Cap. (Rs. Bn)                       31
continues to dwindle (-190bps QoQ, -488bps YoY), which along
with high percentage of bulk/CD in term deposit (duration 3                   52 Week High/Low                        94/44
months) makes it vulnerable to the interest rate cycle. We were               AMFI Classification
cautious on the NIM from the beginning of the year.
                                                                              Daily Avg. Volume (1 mth)            505,000
This was reflected in LLP charges which remain volatile: LLP during the       Bloomberg code                       VJYBK IN
quarter was 81bps, up from 45bps in 2QFY12. LLP charges continue to
remain volatile due to higher slippage ratio. We remain cautious on Vijaya
due to its current exposure in different stressed sector, and believe the
worst is yet not over. CI ratio increased sequentially due to lower income:   Price Performance (%)
CI ratio increased sequentially to 49.4% from 45.1%, as income growth         Period                  Absolute       Relative
slowed due to lower net interest margin and slowing recovery in written
off accounts.                                                                 3 month                     22.36           7.65
                                                                              6 month                     11.04           2.04
   Outlook                                                                   12 month                  -12.01           -10.79
We continue to remain cautious on Vijaya due to a) increased Credit risk
leading to credit cost - double the system credit growth (YoY basis) –
exposing itself to sectors like infra, SEBs etc. in the process and b)
interest rate risk – as Vijaya’s funding (c. 58% remains short end
CASA+CDs) whereas incremental credit has come in the long end.


   Valuations

Valuations remain exciting even after the recent run up: Vijaya is trading
at 0.65x FY2013E book, which remains exciting from last 5 year
perspective, We retain our TP of INR 107, and maintain our “BUY” rating.
Financial Performance Analysis
 Particulars (Rs. Mn)    1QFY12    1QFY11   % YoY   4QFY11     % QoQ   FY11     FY12E    FY13E
 Net Interest Income     4746      5363     -11.5   5133       -7.5    44837    52184    61998
 Operating Expenses      1759      1987     -11.5   1736       1.3     36682    42922    51259
 EBITDA                  2987      3376     -11.5   3397       -12.1   8155     9262     10739
 Provisions              1673      1148     45.7    959        74.5    1491     1675.0   1846
 PBT                     1314      2228     -41.0   2438       -46.1   6664     7587     8893
 Taxes                   102       600      -83.0   403        -74.7   1508     1841     2154
 PAT                     1212      1628     -25.6   2035       -40.4   5156     5746     6739
 Key Data
 Credit                  558380    435700   28.2    536786.0   4.0     487099   576987   596297
 Deposits                817570    637020   28.3    778021     5.1     732480   857005   888200
 Equity                  1673      1673             1673               1673     1673     1673
 Key Ratios
 EBITDA Margin (%)       62.9      62.9             66.2               18.2     17.7     17.3
 PAT Margin (%)          25.5      30.4             39.6               11.5     11.0     10.9
 Tax Rate (%)            7.8       26.9             16.5               22.6     24.3     24.2
 EPS                     4.5       6.0              7.5                19.0     21.2     24.9
 CASA                    21.1      25.9             23                 25.3     24       25
 GNPL                    3         2.5              2.5                2.6      2.7      2.7
Source: Company, L&T MF Research
Bharat Heavy Electricals
Background
      bhe                                                                                           Justification Report
Bharat Heavy Electricals Limited (BHEL) is an India-based                                                           Date: 14.3.12
engineering and manufacturing company. It is engaged in the energy
related/infrastructure sector. The Company caters to sectors,                Rating
including power generation and transmission, industry, transportation,
renewable energy and defense. It has a network of 15 manufacturing           CMP                                         293.8
divisions, two repair units, four power sector regions, eight service        Recommendation                               BUY
centers, 15 regional offices, two subsidiaries and a number of project
sites spread all over India and abroad
                                                                             Scrip Scan
Investment Arguments                                                         Face Value                                    2
                                                                             O/s. Equity Shares (Mn)                  2447.6
Highest order inflow visibility likely for next two years: BHEL provides
highest order inflow visibility due to its deemed L2 status in two NTPC      Market Cap. (Rs. Bn)                     718.37
bulk tenders, higher value EPC orders from its JV with SEBs and              52 Week High/Low                450.20 - 225.00
being the most price competitive player in the sub-critical BTG market
                                                                             AMFI Classification
Rupee depreciation to strengthen competitive position: Favourable            Daily Avg. Vol. (1 mth)                 4,279,424
currency movement with the rupee depreciating 13.6% against the
                                                                             Bloomberg code                            BHEL IN
yuan over the past six months has partly offset the competitive edge
of Chinese vendors
                                                                             Price Performance
                                                                             Period                    Absolute        Relative
Valuations
                                                                             3 month                        16.8              9.4
At the current market price of Rs281, BHEL is trading at PE ratio of 10.6x
                                                                             6 month                      (29.3)             (9.2)
FY12E and 9.9x FY13E EPS; near its six-year low PE of 8.8x
                                                                             12 month                     (38.3)             (9.3)
Recommendation
We value BHEL at 11.5x FY13E EPS of Rs28.40 assigning a TP of
Rs327 and a Buy rating




Financial Performance and forecast
 Particulars (Rs. Mn)               FY2009                  FY2010           FY2011           FY2012E              FY2013E
 Revenue Rs. Mn              262,123                328,611           415,661           472,890            528,016
 EBIDTA Rs. Mn               36,434                 53,054            78,367            87,102             95,084
 PAT Rs. Mn                  31,144                 42,961            60,148            64,800             69,569
 EBITDA Margin (%)           13.9                   16.1              18.9              18.4               18.0
 Net Profit Margin (%)       12%                    13%               14%               14%                13%
 EPS(Rs)                     12.8                   17.6              24.6              26.5               28.4
 EPS Growth (%)              9.8                    37.4              39.4              7.8                7.4
 BV/Share (Rs)               53                     65                82                99                 119
 Market cap /Sales (x)       2.7                    2.2               1.7               1.5                1.4
 P/E (x)                     21.9                   16.0              11.4              10.6               9.9
 P/BV(x)                     5.3                    4.3               3.4               2.8                2.4
 RoE (%)                     26.4                   29.8              33.3              29.1               26.1
 ROCE (%)                    28.1                   34.1              40.5              34.9               31.2
Source: Company, L&T MF Research
Bharat Heavy Electricals
Highlights                                                                                                          Company Update
Bharat Heavy Electricals (BHEL) has corrected 43.5% in the 9MFY12                                              Date: 14.3.12
period on concerns over loss of market share and decline in operating
margin because of over-supply situation in the BTG industry. We believe            Scrip Scan
the recent correction has priced in likely negatives for BHEL and at the
CMP of Rs281, the stock is trading at an attractive valuation of 9.9x              CMP                                         293.8
FY13E EPS of Rs28.4 (near the six-year low of 8.8x). With an existing              Face Value                                      2
order backlog of Rs1,610bn and secured order pipeline of Rs383bn over
FY11-13E, it offers healthy earnings visibility                                    O/s. Equity Shares (Mn)                    2447.6
                                                                                   Market Cap. (Rs. Bn)                       718.37
 Outlook
The order inflow of BHEL has been stagnant over the past three years at            52 Week High/Low                  450.20 - 225.00
Rs600bn/15,000MW per annum. We expect total order inflow of Rs900bn                AMFI Classification
over FY11-13E. We also expect the growth momentum in revenue to
slow down from 28.2% CAGR reported over FY08-11 to 12.7% CAGR                      Daily Avg. Volume (1 mth)              4,279,424
over FY11-13E. We believe the fall in operating margin will be limited to          Bloomberg code
50bps/40bps in FY12E and FY13E, respectively, as most of the revenue
                                                                                                                            BHEL IN
during these two years would flow from the existing order backlog of
Rs1,610bn
                                                                                   Price Performance (%)
 Valuations                                                                       Period                  Absolute              Relative
At the current market price of Rs281, BHEL is trading at PE ratio of 10.6x
FY12E and 9.9x FY13E EPS; near its six-year low PE of 8.8x.                        3 month                         16.8               9.4
                                                                                   6 month                       (29.3)             (9.2)
                                                                                   12 month                      (38.3)             (9.3)

Financial Performance Analysis
  Particulars (Rs. Mn)      3QFY12         3QFY11     % YoY        2QFY12        % QoQ         FY11        FY12E          FY13E
  Net Sales                 110782.9       92797.8    19.4         107575.7      3.0%          415,661     472,890        528,016
  Operating Expenses        86626.3        69516.2    24.6         85863.1       0.9%          337,294     385,788        432,933
  EBITDA                    22764.7        22246.4    2.3          21790.6       4.5%          78,367      87,102         95,084
  Interest                  145            144.7      0.2          96.4          50.4%         547         663            829
  Depreciation              1861.4         1446.9     28.6         1888.1        -1.4%         4,756       7,148          8,709
  Other Income              1960.2         1529.4     28.2         2198.6        -10.8%        17,011      17,862         18,755
  PBT                       22619.7        22101.7    2.3          21694.2       4.3%          90,075      97,152         104,301
  Taxes                     6432.2         6622.5     -2.9         5685.8        13.1%         29,945      32,351         34,732
  PAT                       14326.1        14032.3    2.1          14120.3       1.5%          60,130      64,800         69,569
  Minority Interest         0              0          0            0                           0           0              0
  Extra Ordinary Item       0              0          0            0                           0           0              0
  Adjusted PAT              14326.1        14032.3    2.1          14120.3       1.5%          60,130      64,800         69,569
  Equity                    4895           4895       4895         4895                        4895        4895           4895
  Key Ratios
  EBITDA Margin (%)         21.5           25.2       370 bps      21.2          30 bps        18.9        18.4           18.0
  PAT Margin (%)            13.5           15.8       230 bps             13.7   -20 bps       14.5        13.7           13.2
  Tax Rate (%)              33.2           33.3       0                   33.3                 33.2        33.3           33.3
  EPS                       5.85           5.73       2.1                 5.77          1.5%   24.6        26.5           28.4

        Source: Company, L&T MF Research
ITC Ltd.
Background
                                                                                                  Justification Report
ITC Limited is an India-based company engaged in four business                                                   Date: 14.3.12
segments: Fast Moving Consumer Goods (FMCG), Hotels,
Paperboards, Paper & Packaging and Agri Business. The FMCG                 Rating
segment includes Cigarettes, which consists of cigarettes, cigars and
smoking mixtures, and Others, which include branded packaged               CMP                                        212.3
foods (staples, biscuits, confectionery, snack foods, Noodles and          Recommendation                              BUY
ready-to-eat foods), garments, educational and other stationery
products, matches, agarbattis and personal care products
                                                                           Scrip Scan
Investment Arguments                                                       Face Value                                       1
                                                                           O/s. Equity Shares (Mn)                   7,738.1

ITC's stock has appreciated by 4.2% over the past two months, and is       Market Cap. (Rs. Bn)                      1657.6
the best pre-budget returns since 2006. This performance is being          52 Week High/Low                 216.10 - 165.50
partly driven by the strong stock market rally since end December
                                                                           AMFI Classification
2011. There are expectations of a double digit increase in excise duty
on cigarettes given the fiscal constraints of the Central government       Daily Avg. Vol. (1 mth)                 1,262,278
                                                                           Bloomberg code                             ITC IN
However, ITC has given negative returns (after budget) only on two
occasions in the past eight years; as the company has managed to
pass on the increased duties given the superior pricing power. We          Price Performance
believe that any correction in the stock price will provide a good entry   Period                    Absolute       Relative
point. Maintain Buy.                                                       3 month                        6.3             -8.1

Valuations                                                                 6 month                        7.3               -1
                                                                           12 month                      33.1             32.4
The stock trades at 22.5x FY13E EPS of INR9.2 and 19.2x FY14E EPS of
INR10.8

Recommendation
Buy

Financial Performance and forecast
 Particulars (Rs. Mn)               FY2009                FY2010           FY2011           FY2012E             FY2013E
 Revenue Rs. Mn              156,119               181,532          211,676           250,073            289,175
 EBIDTA Rs. Mn               50,724                63,305           74,739            89,652             105,113
 PAT Rs. Mn                  32,636                40,610           49,876            60,828             71,267
 EBITDA Margin (%)           32.5                  34.9             35.3              35.9               36.3
 Net Profit Margin (%)       20.9                  22.4             23.6              24.3               24.6
 EPS(Rs)                     4.32                  5.28             6.41              7.79               9.01
 EPS Growth (%)              4.6                   22.2             21.4              21.6               15.6
 BV/Share (Rs)               18.2                  18.4             20.6              24.3               28.7
 Market cap /Sales (x)       10.6                  9.1              7.8               6.6                5.7
 P/E (x)                     25.0                  29.1             32.1              26.3               22.5
 P/BV(x)                     12.1                  11.2             10.0              8.5                7.2
 RoE (%)                     25.3                  27.8             33.2              35.0               34.7
 ROCE (%)                    32.8                  38.5             42.9              45.1               45.6
Source: Company, L&T MF Research
ITC Ltd.
Highlights                                                                                                    Company Update
ITC's stock has appreciated by 4.2% over the past two months,                                           Date: 14.3.12
and is the best pre-budget returns since 2006. This performance
is being partly driven by the strong stock market rally since end             Scrip Scan
December 2011. There are expectations of a double digit increase              CMP                                       212.3
in excise duty on cigarettes given the fiscal constraints of the
Central government.                                                           Face Value                                    1
                                                                              O/s. Equity Shares (Mn)                 7,738.1
     Outlook
                                                                              Market Cap. (Rs. Bn)                     1657.6
We expect non-cigarette EBIT to grow at 20% over FY12-14 led by               52 Week High/Low
                                                                                                                     216.10 -
(1) gradual reduction in the FMCG losses,
                                                                                                                       165.50
                                                                              AMFI Classification
(2) 14% EBIT CAGR in paperboard led by capacity expansion, (3)
recovery in hotels, and (4) 15% EBIT CAGR in Agri business led by gains       Daily Avg. Volume (1 mth)            1,262,278
from new leaf tobacco facility in Mysore. We estimate 17% PAT CAGR
over FY12-14.                                                                 Bloomberg code                          ITC IN

The stock trades at 22.5x FY13E EPS of INR9.2 and 19.2x FY14E EPS
of INR10.8                                                                    Price Performance (%)
                                                                              Period                  Absolute            Relative
     Valuations
                                                                              3 month                        6.3             -8.1
The stock trades at 22.5x FY13E EPS of INR9.2 and 19.2x FY14E EPS             6 month                        7.3               -1
of INR10.8                                                                    12 month                      33.1             32.4
Financial Performance Analysis
    Particulars (Rs. Mn)      3QFY12         3QFY11    % YoY     2QFY12    % QoQ         FY11        FY12E         FY13E
    Net Sales                 61954.3        54242.5   14.2      85495.2   -28%          211,676     250,073       289,175
    Operating Expenses        38667.4        34549.6   11.9      38662.3   0%            139,944     163,942       187,895
    EBITDA                    26662.2        22104.5   20.6      23997.9   11%           74,739      89,652        105,113
    Interest                  156.7          110.8     41.4      141.8     11%           679         750           750
    Depreciation              1738.9         1681      3.4       1701.3    2%            6,560       7,276         8,041
    Other Income              2851.2         1925.8    48.1      1808      58%           5,182       7,434         7,717
    PBT                       26505.5        21993.7   20.5      23856.1   11%           72,682      89,061        104,039
    Taxes                     7756.8         6421.9    20.8      7011.7    11%           22,809      27,787        32,252
    PAT                       17009.8        13890.8   22.5      15143.1   12%           49,876      60,828        71,267
    Adjusted PAT              17009.8        13890.8   22.5      15143.1   12%           49,876      60,828        71,267
    Equity                    7,738          7,738               7738                    7,738       7,738         7,738
    Key Ratios
    EBITDA Margin (%)         43.0           40.8      220 bps   40.2      280 bps       35.3        35.9          36.3
    PAT Margin (%)            19.2           17.5      170 bps   17.7      150 bps       23.6        24.3          24.6
    Tax Rate (%)              31.4           31.7                                        31.4        31.7          31.5
    EPS                       2.19           1.81      21.0      1.95      12.3          35.3        36.6          42.7




          Source: Company, L&T MF Research
Siemens
Background
            Ltd.
Siemens Limited provides technology-enabled solutions operating in
                                                                                                  Justification Report
the core business segments of industry, energy and healthcare. It                                                 Date: 14.3.12
operates in eleven segments: Industry Automation, Drive
Technologies, Building Technologies, Industry Solutions, Mobility,         Rating
Fossil Power Generation, Oil & Gas, Power Transmission, Power
Distribution, Healthcare and Real Estate. Industry Automation              CMP                                             809
provides automation products and systems, industrial automation            Recommendation                                Sell
systems and low-voltage switchgears. Drive Technologies provides
drives and motors, special purpose motors, process and motion
                                                                           Scrip Scan
control systems. Building Technologies includes electrical installation
technologies. Mobility provides solutions for rail automation and          Face Value                                        2
railway electrification.                                                   O/s. Equity Shares (Mn)                      340.3

Investment Arguments                                                       Market Cap. (Rs. Bn)                         275.3
Moderation in return ratios: Siemens has an aggressive capex plan of       52 Week High/Low                 951.00 - 627.05
Rs16bn over FY11-14E to introduce new products in India as well as
increase localisation content. However, it will also witness elongation    AMFI Classification
in ex-cash working capital from Rs9.3bn in FY11 to                         Daily Avg. Vol. (1 mth)                   209,497
Rs14.9bn/Rs21.4bn in FY12/13, respectively due to decline in
                                                                           Bloomberg code                            SIEM IN
creditors and customer advances as well as increasing debtor and
inventory days
                                                                           Price Performance
Valuations                                                                 Period                    Absolute        Relative
At the current market price of Rs752, Siemens is trading at PE multiples   3 month                        14.4              9.4
of 26.4x FY12E and 24.6x FY13E EPS compared to the past six years’
                                                                           6 month                      (20.3)             (9.2)
average PE of 29.7x and least PE of 10x. Compared to past six years’
                                                                           12 month                       1.2              (9.3)
average earnings CAGR of 18.5%, Siemens is expected to register a
deceleration in earnings CAGR over FY11-13E to 9.2%.

Recommendation
We have a negative outlook on the stock and value it at Rs643 based
on 21x FY13E EPS of Rs30.6, resulting in a 20.5% downside from
the CMP

Financial Performance and forecast
 Particulars (Rs. Mn)               FY2009                  FY2010         FY2011           FY2012E              FY2013E
 Revenue Rs. Mn              93,491                97,430            121,192          130,881            145,062
 EBIDTA Rs. Mn               10,515                13,196            13,522           14,769             16,079
 PAT Rs. Mn                  7,005                 7,566             8,677            9,711              10,418
 EBITDA Margin (%)           11.2                  13.5              11.2             11.3               11.1
 Net Profit Margin (%)       5.9                   7.8               7.2              7.4                7.2
 EPS(Rs)                     20.9                  22.5              25.5             28.5               30.6
 EPS Growth (%)              17.5                  7.5               13.5             11.9               7.3
 BV/Share (Rs)               83                    97                113              135                159
 Market cap /Sales (x)       2.9                   2.8               2.3              2.1                1.9
 P/E (x)                     36.0                  33.5              29.5             26.4               24.6
 P/BV(x)                     9.1                   7.7               6.6              5.6                4.7
 RoE (%)                     27.6                  24.9              24.5             23.2               21.0
 ROCE (%)                    34.5                  37.9              33.8             31.4               28.3
      Source: Company, L&T MF Research
Siemens Ltd.
Highlights                                                                                                          Company Update
Worsening macro-economic scenario, slowing corporate capex                                                     Date: 14.3.12
and major loss in sub-station market share will put Siemens’
incremental order inflows over FY12/13 at risk. We expect a 10%                    Scrip Scan
YoY decline in order inflow in FY12 resulting in revenue CAGR                      CMP                                           809
tapering off over FY11-13 to 9.4%.
                                                                                   Face Value                                      2
     Outlook                                                                      O/s. Equity Shares (Mn)                     340.3
Moderation in return ratios: Siemens has an aggressive capex plan of               Market Cap. (Rs. Bn)                        275.3
Rs16bn over FY11-14E to introduce new products in India as well as                                                           951.00 -
increase localisation content. However, it will also witness elongation in         52 Week High/Low
                                                                                                                              627.05
ex-cash working capital from Rs9.3bn in FY11 to Rs14.9bn/Rs21.4bn in
FY12/13, respectively due to decline in creditors and customer advances            AMFI Classification
as well as increasing debtor and inventory days                                    Daily Avg. Volume (1 mth)                 209,497
     Valuations                                                                   Bloomberg code                            SIEM IN

At the current market price of Rs752, Siemens is trading at PE multiples
                                                                                   Price Performance (%)
of 26.4x FY12E and 24.6x FY13E EPS compared to the past six years’
average PE of 29.7x and least PE of 10x. Compared to past six years’               Period                     Absolute          Relative
average earnings CAGR of 18.5%, Siemens is expected to register a                  3 month                        14.4               9.4
deceleration in earnings CAGR over FY11-13E to 9.2%.                               6 month                      (20.3)              (9.2)
                                                                                   12 month                       1.2              (9.3)
Financial Performance Analysis
    Particulars (Rs. Mn)      1QFY12         1QFY11    % YoY      4QFY11     % QoQ            FY11        FY12E          FY13E
    Net Sales                 23610.4        25558.7   -7.6       35395.3    -33.3            121,192     130,881        145,062
    Operating Expenses        22737.3        22116.2   2.8        33190.4    -31.5            107,669     116,112        128,984
    EBITDA                    1231.4         3687.7    -66.6      2894.5     -57.5            13,522      14,769         16,079
    Interest                  -249.3         -257.9    -3.3       -223.3     11.6             -249.30     -223.30        -223.30
    Depreciation              431.3          345.1     25         409.6      5.3              1,540       1,643          2,046
    Other Income              0              0         0          0                           915         1,309          1,451
    PBT                       -249.3         -257.9    -3.3       3117.8     -108.0           12,897      14,434         15,484
    Taxes                     351.1          1303.7    -73.1      1080.5     -67.5            4,220       4,723          5,066
    PAT                       707.2          2380.9    -70.3      1780.8     -60.3            8,677       9,711          10,418
    Minority Interest         0              0                    0                           0           0              0
    Extra Ordinary Item       0              0                    0                           -           -              -
    Adjusted PAT              707.2          2380.9    -70.3      1780.8     -60.3            8,677       9,711          10,418
    Equity                    681            681       0          681                         681         681            681
    Key Ratios
                                                                                              11.2        11.3           11.1
    EBITDA Margin (%)         11.5           11.1                 10.4       110 bps
                              7.4            7.2                                              7.2         7.4            7.2
    PAT Margin (%)                                                7.5        -10 bps
                              32.7           32.7                                             32.7        32.7           32.7
    Tax Rate (%)                                                  32.7       0
                                                                                              25.5        28.5           30.6
          Source: Company, L&T MF Research
    EPS                       2.08           7.06      -70.5      5.23       -315 bps
United Spirits
Background
                                                                                                     Justification Report
United Spirits Limited is an India-based company. The Company is                                                     Date: 14.3.12
engaged in the business of manufacture, purchase and sale of
beverage alcohol (spirits and wines), including through tie-up units/         Rating
brand franchises. The Company operates in two geographic
segments: India and outside India. The India segment is engaged in            CMP                                         599.4
the business of manufacture, purchase and sale of beverage alcohol            Recommendation                               BUY
(spirits and wines), including through tie-up units/ brand franchisees
within India
                                                                              Scrip Scan
Investment Arguments                                                          Face Value                                    10
                                                                              O/s. Equity Shares (Mn)                      131
Recoveries in sales volumes post the disruptions in key states –
Tamil Nadu and West Bengal. This issue once again highlight the               Market Cap. (Rs. Bn)                        78.4
inherent difficulties faced by this highly controlled (by the Government                                             1,123.40 -
directly and indirectly) business.                                            52 Week High/Low
                                                                                                                        450.00
                                                                              AMFI Classification
Improvement in margin profile – according to the company, spirits
cost has started correcting (~6% down in January 2012). Further               Daily Avg. Vol. (1 mth)                  492,359
adspends will also likely reduce as expenses related to launch of new         Bloomberg code                           UNSP IN
brands was accounted for in 3QFY12

                                                                              Price Performance
Valuations                                                                    Period                    Absolute        Relative
                                                                              3 month                      (26.9)           (25.0)
The domestic business at 11X FY2013E EV/EBITDA and W&M business
                                                                              6 month                     (31.4)          (26.5)
at 9X FY2013E EV/EBITDA
                                                                              12 month                     (50.1)           (43.1)

Recommendation
Retain BUY rating with a target price of Rs900




Financial Performance and forecast
 Particulars (Rs. Mn)                FY2009                 FY2010            FY2011           FY2012E              FY2013E
 Revenue Rs. Mn              54,681                63,623            73,762              85,251             93,948
 EBIDTA Rs. Mn               9,853                 11,123            10,647              13,276             14,953
 PAT Rs. Mn                  1,875                 3,021             4,437               4,594              5,369
 EBITDA Margin (%)           18.0                  17.5              14.4                15.6               15.9
 Net Profit Margin (%)       3.4                   4.7               6.0                 5.4                5.7
 EPS(Rs)                     27.1                  23.5              35.3                36.6               42.7
 EPS Growth (%)              (15.50)               49.9              29.5                3.5                16.9
 BV/Share (Rs)               310.5                 322.1             341.5               359.8              381.6
 Market cap /Sales (x)       1.4                   1.2               1.1                 0.9                0.8
 P/E (x)                     42.6                  27.0              23.2                19.0               14.7
 P/BV(x)                     3.6                   2.1               1.9                 1.8                1.5
 RoE (%)                     7.3                   10.4              8.8                 9.4                10.8
 ROCE (%)                    9.2                   10.5              9.5                 10.0               10.8
      Source: Company, L&T MF Research
United Spirits
Highlights                                                                                                                  Company Update
                                                                                                                    Date: 14.3.12
UNSP’s 3QFY12 had few one-offs (1) market disruptions in Tamil Nadu
and excise hike in West Bengal led to deceleration in volume growth to
1%; adjusted growth of 6%, (2) inflation in raw material cost and one-off             Scrip Scan
advertising expense resulted in one of the lowest EBITDA margins at                   CMP                                              599.4
9.6%. Net debt of Rs77 bn is higher by Rs21 bn yoy primarily due to
higher working capital.                                                               Face Value                                          10
                                                                                      O/s. Equity Shares (Mn)                            131
     Outlook
                                                                                      Market Cap. (Rs. Bn)                              78.4
     We believeUSL’s business profile is akin to that of HUL in the past                                                          1,123.40 -
                                                                                      52 Week High/Low
      decade (de-rated from 40x to 20x) and in sharp contrast to Nestle’s                                                             450.00
      (re-rated from 20x to 35x). Incrementally, increasing leverage
      (currently at 1.7x) and given the state of affairs of the UB Group, we          AMFI Classification
      believe there is an urgent need for capitalization within USL. Against          Daily Avg. Volume (1 mth)                      492,359
      this backdrop, we believe monetization by way of sale of
      treasury stock and shares of UB (aggregate value of Rs9bn) could                Bloomberg code                                 UNSP IN
      be potentially undertaken in the near term.

     Valuations                                                                      Price Performance (%)
The domestic business at 11X FY2013E EV/EBITDA and W&M
                                                                                      Period                       Absolute              Relative
business at 9X FY2013E EV/EBITDA
                                                                                      3 month                            (26.9)             (25.0)
                                                                                      6 month                        (31.4)                (26.5)
                                                                                      12 month                           (50.1)             (43.1)
Financial Performance Analysis
    Particulars (Rs. Mn)      3QFY12         3QFY11     % YoY       2QFY12         % QoQ          FY11            FY12E           FY13E
                                                                          17,906            9%
    Net Sales                 19,539         19,601     0%                                        73,762          85,251          93,948
                                                                      (15,346)              15%
    Operating Expenses        (17,671)       (16,840)   5%                                        63,115          71,975          78,995
                                                                           2,560        -27%
    EBITDA                    1,869          2,761      -32%                                      10,647          13,276          14,953
                                                                       (1,241)              12%
    Interest                  (1,392)        (1,038)    34%                                       (5,575)         (6,270)         (6,836)
                                                                           (152)            2%
    Depreciation              (155)          (126)      23%                                       (1,023)         (1,143)         (1,272)
                                                                            100             70%
    Other Income              170            114        49%                                       3,041           1,315           1,415
                                                                           1,267        -61%
    PBT                       492            1,711      -71%                                      7,090           7,178           8,260
                                                                           (405)        -61%
    Taxes                     (158)          (650)      -76%                                      (2,652)         (2,584)         (2,891)
                                                                           1,480        -68%
    PAT                       471            1,300      -64%                                      4,437           4,594           5,369
                                                                           1,480        -68%
    Adjusted PAT              471            1,300      -64%                                      4,437           4,594           5,369
    Equity                    1258.7         1258.7                 1258.7                        41,339          45,583          50,481
    Key Ratios
                                                                                                          14.4            15.6            15.9
    EBITDA Margin (%)         10.0           14.0       -400 bps    15.0           -500 bps
                                                                                                            6.0             5.4            5.7
    PAT Margin (%)            2.4            6.6        -420 bps    8.3            -590 bps
          Source: Company, L&T MF Research                                                                -37.4           -36.0          -35.0
    Tax Rate (%)              32.1           37.98      -520 bps    31.5           50 bps
    EPS                       3.6            10.4       65.4%       11.3           67.2%          35.3            36.6            42.7
Yes Bank
Background
                                                                                                   Justification Report
YES Bank is a new generation private sector bank providing                                                       Date: 14.3.12
"knowledge banking" services (leveraging its expertise developed in
key sectors), which drive its asset growth. It aims to build a deposit      Rating
franchise by providing superior services, leveraging technology
platform and focusing on the northern region. The bank is leveraging        CMP                                         386
its management skill set and strong relationships to carve out a niche,     Recommendation                             BUY
b oth on the asset side and to drive fee income
                                                                            Scrip Scan
Investment Arguments
                                                                            Face Value                                  10
                                                                            O/s. Equity Shares (Mn)                  347.1
We rate Yes Bank as a Buy to capture the substantially higher
volumes, lower credit costs and improving C-I ratio. Rising distribution    Market Cap. (Rs. Bn)                    136.37
(600 branches planned by FY14 from 330 now) should also aid                 52 Week High/Low               375.00 / 230.55
growth / CASA
                                                                            AMFI Classification
                                                                            Daily Avg. Vol. (1 mth)              3,832,550
Valuations
                                                                            Bloomberg code                          YES IN

We have valued Yes Bank using the growth-adjusted P/BV method with          Price Performance
the following key assumptions: Normalized ROE: 21% (for capital),           Period                    Absolute      Relative
forecast for FY13/14 at ~24%; Cost of equity at 13.5% and sustainable       3 month
growth rate: 8.8% assuming Yes Bank’s ability to gain market share          6 month
                                                                            12 month
Recommendation

Financial Performance and forecast
 Particulars (Rs. Mn)              FY2011                FY2012E           FY2013E           FY2014E
 Interest income                          40,417           62,997            72,521            83,982

 Interest expense                         27,948            46,932           51,580               58,811

 Net interest income                      12,469            16,065           20,941               25,171

 Other income                              6,233             8,418           10,518               13,091

 - Treasury gains                           (464)            1,475            1,750                2,000

 Total income                             18,702            24,483           31,459               38,262

 Operating expenses                        6,798             9,014           11,122               13,406

 Pre-provision profit                     11,904            15,469           20,337               24,856

 Total provisions                            982               889            2,016                2,008

 PBT                                      10,922            14,581           18,321               22,849

 Tax                                       3,650             4,812            6,046                7,540

 PAT                                       7,271             9,769           12,275               15,309

Source: Company, L&T MF Research
Yes Bank
Highlights                                                                                                              Company Update
                                                                                                                 Date: 14.3.12
     Outlook
                                                                                      Scrip Scan
Top-line growth at +30/20%: We estimate top-line growth to sustain at                 CMP                                           386
+30/20% in FY13/14 driven by volume (loan) growth sustaining at +19-
                                                                                      Face Value                                     10
20% on rising market share. Loan growth is likely to be driven by mid-
corporate / SME vs. large corporate (Higher yielding), and the                        O/s. Equity Shares (Mn)                     347.1
introduction of retail lending (high-yield products). Margins to expand on
                                                                                      Market Cap. (Rs. Bn)                       136.37
favorable ALM position (~80% of liabilities vs. ~50% of asset re-priced in
<1 year; positive in a falling rate scenario). Margins are estimated to rise          52 Week High/Low                  375.00 / 230.55
to +2.9% in FY13/14 vs. estimated ~2.7% in FY12. CASA, which was an
                                                                                      AMFI Classification
issue earlier, is continuing to see good traction and will likely see an
addition of +100-150bp each quarter from hereon, driven partly by                     Daily Avg. Volume (1 mth)               3,832,550
expanding distribution / higher savings deposit rates coupled with new
strategy put in place by few key management hires                                     Bloomberg code                             YES IN

     Valuations
                                                                                      Price Performance (%)
We have valued Yes Bank using the growth-adjusted P/BV method with                    Period                    Absolute         Relative
the following key assumptions: Normalized ROE: 21% (for capital),
forecast for FY13/14 at ~24%; Cost of equity at 13.5% and sustainable                 3 month
growth rate: 8.8% assuming Yes Bank’s ability to gain market share                    6 month
                                                                                      12 month

Financial Performance Analysis
    Particulars (Rs. Mn)      3QFY12         3QFY11       % YoY        2QFY11       % QoQ         FY11          FY12E         FY13E
    Net Sales/Interest
    income                      16840.6        11261.5        49.5      14386.5          17.1        40,417       62,997        72,521
    Operating
    Expenses/Interest
    expense                     14966.5         9765.7        53.3      12667.8          18.1        27,948       46,932        51,580
    Other Income                 2114.3         1616.7        30.8       2140.5          -1.2         6,233        8,418        10,518
    Total income                18954.9        12878.2        47.2       16527           14.7        18,702       24,483        31,459

    Total provisions              223.5          249.5       -10.4        378.7         -41.0            982            889      2,016
    Tax                            1224          951.8        28.6       1130.3             8.3       3,650        4,812         6,046
    PAT                          2540.9         1911.2        32.9       2350.2             8.1       7,271        9,769        12,275
    Extra Ordinary Item                -              -            -            -             -             -             -           -
    Adjusted PAT                 2540.9         1911.2        32.9       2350.2             8.1       7,271        9,769        12,275
    Equity                        3,471          3,471            0       3,471                       3,471        3,471         3,471
    Key Ratios
    Net Interest Margin (%)          2.6           2.4                      2.2                           2.6           2.4        2.5
    Tax Rate (%)                   33.4           33.4                     33.4                          33.4       33.4          33.4
    EPS                            7.23           5.52            31       6.73              7           21.2       28.1          35.4




          Source: Company, L&T MF Research
Bharti
Background
Bharti Airtel is a leading global telecom company with operations in 19 countries                                Justification Report
across Asia and Africa with a mobile subscriber base of over 230 mn. It offers mobile                                               Date:
voice & data services, fixed line, high speed broadband, IPTV, DTH, turnkey telecom
solutions for enterprises and national and international long distance services to
                                                                                          Rating
carriers. Bharti Airtel is India’s largest telecom company in terms of both subscribers
and revenue. As of Jun’11, it had subscriber share of 19.8% and revenue market            CMP                                       338
share of over 30%. It has acquired 3G spectrum in 13 out of 22 circles for Rs. 123 bn
                                                                                          Recommendation                            Buy
and currently provides 3G services in 19 circles. The company also provides passive
infrastructure services to all telecom operators, through its subsidiary Bharti
Infratel. Infratel holds 42% share in Indus Towers (a JV between Bharti Infratel,         Scrip Scan
Vodafone and Idea Cellular). Bharti Infratel has 32,942 towers in 11 circles, whereas
Indus Towers has a portfolio of 108,922 towers.                                           Face Value                                   5
                                                                                          O/s. Equity Shares (Mn)                  3800
Investment Arguments
We believe that the recent fundamental changes in the sector, Bharti Airtel’s strong
                                                                                          Market Cap. (Rs. Bn)                     1280
position in the domestic market, increasing visibility in the African operations and      52 Week High/Low                       444/309
relatively better regulatory position would result in stock price outperformance over
                                                                                          AMFI Classification
the next one year.
Tariff Hike to Boost Revenue & Profitability: Recently announced tariff hike augurs       Daily Avg. Vol. (1 mth)                   4.42
well for the Company and is expected to result in higher revenue growth, going
                                                                                          Bloomberg code                       BHARTI IN
forward. With declining competitive intensity and increasing cost pressure, we
expect gradual increase in tariffs to continue.
Better‐placed to Monetize 3G Services: Bharti is in a better position to benefit from     Price Performance
the launch of 3G services based on its revenue market leadership (in 10/13 3G areas       Period                    Absolute     Relative
and 12/22 circles). The Company has subscriber share of 20% and revenue market
share of 30.8%, which reflects its subscriber quality and its ability to monetize 3G      3 month                       -3.8        -18.5
services.                                                                                 6 month                      -11.1        -20.1
Steady Improvement in African Operations: Over the last four quarter, the                 12 month                       4.3          5.5
Company has shown steady growth in subscriber net additions as well as revenue.
Also, its EBITDA margin has improved from 23.9% in Q2FY11 to 26.4% in Q2FY12.
Going forward, higher revenue growth coupled with better cost control and
network outsourcing measures, would result in further EBITDA margin expansion.
Better‐placed to Withstand Regulatory Impact: The payment for excess spectrum is
estimated to be Rs. 42 bn (Rs. 11 per share). On the back of strong operating cash
flow, we believe that Bharti Airtel is better placed to withstand such regulatory
impact.

Valuations
The stock is currently trading at 6.8x FY13E EV/EBITDA. We recommend “BUY” with
a DCF‐based target price of Rs. 500 (implied FY13E EV/EBITDA 8.2X). We believe that
the premium to global peers is justified on account of growth opportunities
available in the Indian market, monetization of data revenue and expected stability
in policies.

Recommendation
Buy
Financial Performance and forecast

 Particulars (Rs. Mn)            FY2009             FY2010             FY2011             FY2012E             FY2013E
 Revenue Rs. Mn                           369,615            418,472            594,672             714,069         833,144
 EBIDTA Rs. Mn                            151,678            167,633            203,057             243,040         297,934
 PAT Rs. Mn                                84,699             89,765             63,862              58,014             93,584
 EBITDA Margin (%)                           41%                40%                34%                 34%                36%
 Net Profit Margin (%)                       23%                21%                11%                  8%                11%
 EPS(Rs)                                     22.3               23.6               16.8                15.3               24.6
 EPS Growth (%)                                                  6%               -29%                 -9%                61%
 BV/Share (Rs)                               80.1              111.1              128.4               136.8              158.7
 Market cap /Sales (x)                       3.46               3.06               2.15                1.79               1.54
 P/E (x)                                    15.16              14.32              20.12               22.09              13.74
 P/BV(x)                                     4.22               3.04               2.63                2.47               2.13
 RoE (%)                                     32.5               24.7                14                 11.5               16.7
 ROCE (%)                                    28.3               22.1               12.4                 9.9               13.5
     Source: Company, L&T MF Research
Bharti
Highlights                                                                                                  Company Update
Healthy growth in revenue continues..                                                                      th
                                                                                                   Date: 14 March, 2012
The company reported 7% revenue growth on sequential quarter. The
growth was driven by 3% growth in subscribers to 232.9mn. Although
                                                                             Scrip Scan
India operations had sluggish subscriber addition of 2%, Africa posted
5% increase in subscribers over Q2FY12. ARPU increased by 2% to Rs           CMP                                          338
187 while minutes of usage declined by 1% to 419mins. Increase in            Face Value                                     5
tariff hike is visible in average realized rate per minute which increased   O/s. Equity Shares (Mn)                  3800
by 3% to Rs 0.443. MVAS contributed 14.3% to total mobile revenue.
Lower monthly churn lead to increase in subscriber growth for Africa         Market Cap. (Rs. Bn)                     1280
business however ARPU and minutes of usages declined by 2% to USD            52 Week High/Low                      444/309
7.1 and 125 minutes respectively.                                            AMFI Classification
Subdued operating margin remains a concern..
                                                                             Daily Avg. Volume (1 mth)               4.42
In spite of healthy revenue growth, EBITDA margin declined due to
higher operating expenses for Telemedia and Enterprise segment               Bloomberg code                      BHARTI IN
compressed overall operating margins for Q3FY12. Telemedia segment
reported decline in EBITDA margin by 620bps QoQ to 38.8% while
Enterprise segment had EBITDA margin of 16.9%, degrowth of 500bps            Price Performance (%)
sequentially. This lead to consolidated EBITDA to fall by 150bps to          Period                  Absolute       Relative
32.2%.                                                                       3 month                      -3.8        -18.5
                                                                             6 month                     -11.1        -20.1
 Outlook
                                                                             12 month                      4.3          5.5
Bharti’s revenue was in line with our estimates however the company
disappointed on operating margins front lead by subdued performance
by Telemedia and Enterprise segment. The company reported net sales
of Rs 18508cr, a growth of 7% QoQ. EBITDA stood at Rs 5858cr, a
marginally growth of 2% over Q2FY12. EBITDA margins were down by
150bps on account of increase in access charges and higher SG&A
expenses. Net profit for the quarter was Rs 1011cr which showed
degrowth of 2% QoQ. Net profit margin dipped 40bps to 5.4% as
depreciation & amortization increased. Bharti will benefit the
investments made in 3G as data services will pick up with increase in 3G
users. Africa business is gaining momentum and will boost therevenue
and profitability going ahead. However leveraged balancesheet still
remains a concern. We maintain positive outlook on the stock
considering its leadership position in Indian market and stabling Africa
operations. We believe risk reward is favorable at current valuation.

 Valuations
Bharti remains our top pick in telecom segment as the company has a
diversified business model and the company is well placed to capture
revenue opportunities across its verticals. ARPU growth in India and
stabilizing Africa operations would be the key triggers. Currently the
stock is trading at 8.4x and 6.9x EV/EBITDA to FY12E and FY13 earnings.
We recommend ‘Buy’ on thestock with a target price of Rs 430 by
assigning 8x EV/EBITDA to FY13E earnings.
Financial Performance Analysis
 Particulars (Rs. Mn)       3QFY12        3QFY11       % YoY         2QFY12       % QoQ        FY11          FY12E        FY13E
 Net Sales                      18508        17270             7%      15782          17%         59467         71360       78496
 Operating Expenses             12549        11455         10%         10775          16%         39432         48347       51780
 EBITDA                           5958        5815             2%       5007          19%         20035         23013       26716
 Interest                          788        1318         -40%          747              5%          2181       3457        2912
 Depreciation                     3585        2984         20%          2711          32%         10207         12895       13927
 EBT
 Other Income
 PBT                              1581        1513             4%       1550              2%          7776       6811       10028
 Taxes                             559         486         15%           337          66%             1779       2043        3008
 PAT                              1022        1027             0%       1213          -16%            5899       4670        6921
 Minority Interest                   11            0           0%        -90         -112%            -148       -155         -175
 Extra Ordinary Item                 0             0           0%             0           0%
 Adjusted PAT                     1011        1027             -2%      1303          -22%            6047       4825        7096
 Equity                           1899        1899                      1899
 Key Ratios
 EBITDA Margin (%)                32%         34%                        32%                          34%        32%          34%
 PAT Margin (%)                    5%          6%                        8%                           10%            7%           9%
 Tax Rate (%)                     35%         32%                        22%                          23%        30%          30%
 Particulars (Rs. Mn)       3QFY12        3QFY11       % YoY         2QFY12       % QoQ        FY11          FY12E        FY13E

          Source: Company, L&T MF Research
     BPCL
Background
Bharat Petroleum Corporation Ltd (BPCL) is an Oil and Gas major with focus on the                                     Justification Report
downstream segments. BPCL operates two refineries at Mumbai and Kochi. Mumbai                                                            Date:
refinery has a capacity of 12 Million Metric Tonne (MMT) while capacity at kochi is 9.5
MMT after the capacity expansion by 2 MMT in FY 2010. BPCL with Oman Oil Company
                                                                                               Rating
has set up a 6 MMT grass root refinery with Nelson Complexity Index of 9.1 at Bina which
has recently come online and is expected to becomefully operational in the next few            CMP                                       651
months. BPCL has a controlling stake in
                                                                                               Recommendation                            Buy
Numaligarh Refinery with a capacity of 3 MMT. BPCL is present in liquefied natural gas
(LNG) through a 12.5% stake in Petronet LNG. The company’s presence in City Gas
Distribution business is through 22.5%                                                         Scrip Scan
stake in Indraprastha Gas (IGL), Central UP Gas and Maharashtra Natural Gas, each. It also
has 25% interests in Sabarmati Gas. BPCL has 2,452 LPG distributors and 9,289 petrol           Face Value                                  10
pumps in the country. The company has ATF (Aviation Turbine Fuel) fuelling facilities at 30    O/s. Equity Shares (Mn)               361.54
airports in India. The company entered the upstream business in 2006 through its 100%
subsidiary Bharat Petro Resources Ltd (BPRL). BPRL has jointly acquired participating
                                                                                               Market Cap. (Rs. Bn)                  246.45
interests in 27 exploration blocks in India and abroad. About 85% of the total acreage is      52 Week High/Low               458.05 - 796.90
offshore and rest is onshore. All blocks are at different stages ofexploration while
                                                                                               AMFI Classification
significant discoveries have been made in Brazil, Mozambique and Indonesia.
                                                                                               Daily Avg. Vol. (1 mth)                    6.8
Investment Arguments
                                                                                               Bloomberg code                        BPCL IN
Exciting upstream developments:
Several discoveries in Wahoo block in Brazil (gross reserve more than 300 mn barrel oil
equivalent) and in Rovuma Basin, Mozambique (gas reserve in the excess of 5 Trillion           Price Performance
cubic feet) have made the company’s upstream portfolio very attractive. In the last 15         Period                    Absolute     Relative
months the company made 7 discoveries indicating a success rate of more than 50%. The
company plans to drill 16 wells by the end of FY 2012.                                         3 month                      29.9         15.2
Capex plan of Rs 500 bn over next 5 years:                                                     6 month                       1.3         -7.7
Rs 100 bn is planned for E&P projects with focus on development and monetising the             12 month                     17.2         18.5
blocks. Rs 200 bn is targeted towards refineries expansion while Rs 100 bn isplanned for
expanding local infrastructure including port terminal for LNG.
LNG initiatives in India and abroad:
Following the final appraisals from Mozambique fields, BPCL and its partners are expected
to build LNG infrastructure to transport gas to Asian countries. Moreover, we consider
BPCL’s plans to spend on domestic LNG infrastructure, a key positive. The company will be
well-placed to cater to an increasing demand for LNG in India as domestic gas production
remains limited given setback at Reliance KG basin.
Increased refining capacity to improve market reach and margins:
New Bina refinery (complexity 9.1) would not only increase the company’s product reach
in central and northern India but also register higher refining margins. With further
capacity expansion at the Kochi refinery and Bina refinery over the next four years, BPCL is
expected to register significant increase in refining profits going forward.
Marketing losses remain indeterminate:
With global crude oil prices remaining strong, the under-recoveries are expected to stay
high for FY 2012. Also there continues to remains lack of clarity regarding subsidy sharing
formula, which changes at Government’s will. Thus spike in crude oil prices and lower
upstream and government subsidy sharing remains a risk.


Valuations
We rate BPCL stock a Strong Buy based on a sum of the parts (SOTP) target price of Rs
805.

Recommendation
BUY
Financial Performance and forecast

 Particulars (Rs. Mn)              FY2010             FY2011             FY2012E             FY2013E
 Revenue Rs. Mn                             1238167            1536450             2112697         2237311
 EBIDTA Rs. Mn                                29761              42613               38468             50879
 PAT Rs. Mn                                   17200              17421                9922             17808
 EBITDA Margin (%)                              2%                 3%                  2%                2%
 Net Profit Margin (%)                          1%                 1%                  0%                1%
 EPS(Rs)                                       45.1               45.2                27.4              49.3
 EPS Growth (%)                                                    0%                -39%               80%
 BV/Share (Rs)                                413.5              452.2               461.9             493.4
 Market cap /Sales (x)                         0.20               0.16                0.12              0.11
 P/E (x)                                      14.43              14.40               23.76             13.20
 P/BV(x)                                       1.57               1.44                1.41              1.32
 RoE (%)                                       11.4               10.4                   6              10.3
 ROCE (%)                                       6.1                  6                 5.1               6.3

       Source: Company, L&T MF Research
     BPCL
Highlights                                                                                                         Company Update
BPCL reported results which were above our estimates at Revenue and PAT                                           th
Level, primarily due to additional cash compensation of Rs.150bn to OMC’s from                             Date: 14 March, 2012
the government during the quarter. With this OMCs will account for Rs300bn of
govt support during the quarter. Revenue for the quarter was at Rs.588bn,            Scrip Scan
growth of 60.4% YoY, mainly on account of additional budgetary support of
Rs.150bn for OMC’s from the government. EBIDTA during the quarter was at             CMP                                      681
Rs.37bn, as against Rs.7.5bn YoY. Inventory gain for the quarter stood at            Face Value                                10
Rs3bn. However interest cost increased significantly by 88% YoY to Rs.5.1bn.
During the quarter the company reported net profit of Rs.31.4bn, v/s Rs. 1.8bn       O/s. Equity Shares (Mn)               361.54
YoY. Direct market sales grew by 8.6% YoY to 8.04mmt, while crude throughput         Market Cap. (Rs. Bn)                  246.45
grew 21.3%YoY at 6.13mmt. The company received upstream discount of
Rs.35.7bn, in respect of crude Oil/LPG/SKO purchased from them has been              52 Week High/Low
                                                                                                                          458.05 -
accounted during the quarter. The company has received budgetary support of                                                796.90
Rs.69.9bn from the GOI for the under-recovery on cooking fuel and auto fuel          AMFI Classification
during the quarter.
                                                                                     Daily Avg. Volume (1 mth)                     6.8
Outlook                                                                              Bloomberg code                        BPCL IN
Clarity on subsidy sharing mechanism is not yet cleared for FY12E
The gross under recovery for the quarter stood at Rs.76bn. For 9H FY12,
company received upstream discount of Rs.86.2bn, 38% of the total share/under
recovery. Considering the budgetary support from the government of Rs.105bn          Price Performance (%)
for 9M FY12 there is still net under recovery of Rs.36bn for the company.            Period                  Absolute       Relative
Moreover, there is still uncertainty hovering on subsidy sharing mechanism for
FY12E under recovery, which remains a keyoverhang on the stock.                      3 month                     29.9             15.2
                                                                                     6 month                      1.3             -7.7
 Valuations                                                                         12 month                    17.2             18.5
Valuations for BPCL have moved in one year forward P/BV band of between
0.6x to 1.5x in the last five years with average P/BV of 1.4x. Currently the stock
trades at 1.2x one year forward P/BV. After touching low of Rs460 in the
January 2012, the stock has rallied on the back of strengthening Rupee and
expectations of a fuel price hike post the state elections. For FY12E, total under
recoveries are expected to be about Rs1,300bn. We expect OMCs to be
reimbursed fully for the under recoveries, as their financial performance has
been adversely affected from increase in interest cost on the back of burgeoning
short term borrowings. In the current oil price scenario under recoveries are
expected to remain above Rs1,000bn and we believe the only way forward for
the government is to go for fuel price hikes. Although the pace of fuel price hike
is uncertain going ahead, ultimately consumers would have to take the burden of
higher energy prices. At CMP stock provides limited upside, we maintain
Accumulate on the stock with revised target price of Rs.655 (at 1.3x P/bv) as
against its five year average P/BV of 1.4x.
Financial Performance Analysis
 Particulars (Rs. Mn)       3QFY12        3QFY11         % YoY        2QFY12       % QoQ        FY11          FY12E          FY13E
 Net Sales                     588,468         366,859       60%       423,019         39%       1536450       2112697       2237311
 Operating Expenses            551,371         359,370       53%       449,967         23%       1493837       2074229       2186432
 EBITDA                         37,097           7,489      395%       -26,948        -238%        42613         38468         50879
 Interest                         5174           2747        88%         4532          14%         12468         19001         16334
 Depreciation                    4,667           3,700       26%         4,600             1%      18914         21820         23913
 EBT                            32,430           3,789      756%       -31,548        -203%        11231          -2353        10632
 Other Income                    4,166           3,103       34%         3,787         10%         17252         17386         16351
 PBT                            31,422           4,145      658%       -32,293        -197%        28483         15033         26983
 Taxes                               26          2270        -99%              0                   11062          5111          9174
 PAT                             31396           1875       1574%       -32293        -197%        17421          9922         17809
 Minority Interest                   0              0             0            0            0            0              0             0
 Extra Ordinary Item                 0              0             0            0            0            0              0             0
 Adjusted PAT                    31396           1875       1574%       -32293        -197%
 Equity                           3615           3615            0%      3615              0%          3615       3615          3615
 Key Ratios
 EBITDA Margin (%)                 6%              2%       654%          -6%         -608%             3%             2%            2%
 PAT Margin (%)                    5%              1%       2606%         -8%         -504%             1%             0%            1%
 Tax Rate (%)                      0%             55%        -15%          0%              0%          39%         34%           34%
 EPS                              86.8             5.2                   -89.3                         45.2           27.4       49.3


            Source: Company, L&T MF Research
    Hindalco
Background
                                                                                                           Justification Report
Hindalco is a leading producer of aluminium in India with an existing capacity of                                        th
506 ktpa of primary aluminium. Its aluminium operations are largely integrated                                 Date: 14 March, 2012
with bauxite mining, alumina refining, primary aluminium, value added products
(rolled products, extrusions, foils and specialty alumina) and power generation.    Rating
The acquisition of Novelis has provided the company a presence in the global        CMP                                          144
high technology rolled product market. Hindalco, along with Novelis, is the
largest aluminium producer in rolled products category in Europe and South          Recommendation                               Buy
America, while it ranks second in North America and Asia. Through Novelis,
Hindalco is also the largest producer of rolled beverage cans and aluminium         Scrip Scan
automotive sheets in the world. Hindalco’s copper operation comprises of            Face Value                                      1
producing copper through smelting, converting to copper cathode and
continuous copper rods. The copper smelting facilities with a combined capacity     O/s. Equity Shares (Mn)                     1910
of 500 ktpa located at Dahej, is one of the largest single location smelting        Market Cap. (Rs. Bn)                       275.88
facilities in the world.                                                            52 Week High/Low               111.20 - 224.75

Investment Arguments                                                                AMFI Classification
Novelis to continue surprise positively with stable EBITDA                          Daily Avg. Vol. (1 mth)                     10.07
Post its turnaround, Novelis has been surprising positively with its strong         Bloomberg code                            HNDL IN
operational performance. During H1FY12, its adjusted EBITDA stood at US$607
mn, in line with the FY12E guidance of US$1.1-1-15 bn. Adj. EBITDA/ tonne
                                                                                    Price Performance
touched a high of US$418 during Q2FY12. We believe Novelis would continue to
deliver strong performance as it is largely immune to the LME volatility, being     Period                    Absolute        Relative
cost efficient and having pricing power.                                            3 month                        3.5           -11.2
Low cost operations, an asset; enhanced capacity, future trigger                    6 month                       -9.2           -18.2
Hindalco’s aluminium cost of production (~US$1,650/ tonne) remains in the first     12 month                     -37.0           -35.8
quartile of the global cost curve due to captive power and alumina backed by
own coal and bauxite mines respectively. Efficient technology, part sourcing of
concentrate from captive mines and significant by-product contributions make
its copper business cost competitive. Hindalco plans a threefold increase in its
aluminium and alumina capacities to 1.64 mtpa and 4.5 mtpa respectively in a
phased manner by FY16, through both greenfield and brownfield expansions.
The cumulative capex for these projects is pegged at ~Rs500 bn. Though, there
have been some delays in all the projects due to various externalities, we
believe FY13 would see some comfort as far as thecommissioning of Mahan
smelter and Utkal refineries is concerned.
Focus on value added products to help mitigate volatility
Value added products constitute about half of Hindalco’s aluminium operations
in India. In alumina, the focus remains on special grade (contributed 60% of the
total aluminasales during Q1FY12). In copper segment too, the company has
value added products meeting international standards. We believe this will
continue to help the company offset volatility in LME to a large extent. Long
term engagement at higher copper TcRc (Treatment and Refining charges)
during early FY12 serves as a safeguard against the recent global pressure on
TcRc contracts.

Valuations
Project execution concerns priced in; valuations comfortable
At CMP of Rs 126, the stock trades at 7.8x and 5.4x FY13 EPS and EV/EBITDA
respectively. We believe delay in domestic projects is already priced in.
However, Novelis is likely to continue delivering excellent performance.
Factoring these along with volatility in aluminium prices and copper TcRc, we
have valued Hindalco on SOTP basis and arrived at a fair value of Rs 154/ share.

Recommendation
Buy
Financial Performance and forecast
 Particulars (Rs. Mn)              FY2010             FY2011             FY2012E             FY2013E
 Revenue Rs. Mn                             607,221            720,779             779,536             808,267
 EBIDTA Rs. Mn                               97,458             80,017              83,325              93,322
 PAT Rs. Mn                                  43,540             28,794              31,479              34,662
 EBITDA Margin (%)                             16%
 Net Profit Margin (%)                          7%
 EPS(Rs)                                       22.2               12.8                15.4                16.8
 EPS Growth (%)                                                  -42%                 20%                  9%
 BV/Share (Rs)                                121.6              151.6               165.3               180.3
 Market cap /Sales (x)                         0.45               0.38                0.35                0.34
 P/E (x)                                       6.49              11.25                9.35                8.57
 P/BV(x)                                       6.49              11.25                9.35                8.57
 RoE (%)                                       18.2                8.5                 9.3                 9.3
 ROCE (%)                                      13.6                8.4                  7                  7.2
Source: Company, L&T MF Research
Company Name
Highlights                                                                                                       Company Update
Hindalco 3QFY12 standalone: volumes up 13% QoQ; slow progress on                                                th
                                                                                                        Date: 14 march, 2012
projects; equity dilution surprise Standalone PAT falls due to lower other
income: Hindalco's (HNDL) standalone adjusted PAT for 3QFY12 declined 10%         Scrip Scan
QoQ to INR4.5b due to lower other income. EBITDA increased 7% QoQ to
INR7.15b due to 35% increase in copper EBITDA, while aluminum EBITDA              CMP                                           144
declined 5% to INR4.5b.                                                           Face Value                                      1
Volumes up 13% QoQ: Both copper and aluminum volumes were up 13% each.            O/s. Equity Shares (Mn)                      1910
Copper EBIT margins increased 12% QoQ to USc22.1/lb. EBIT increased 46%           Market Cap. (Rs. Bn)                       275.88
QoQ to INR2.1b on higher TcRc charges and by-product credit despite high          52 Week High/Low                   111.20 - 224.75
energy costs. According to our calculations, the cost of production (CoP) has
                                                                                  AMFI Classification
declined 9% QoQ to USD1,786/ton for Aluminum largely due to depreciation of
INR vs USD.                                                                       Daily Avg. Volume (1 mth)                   10.07
Board approves warrants to promoters on preferential basis: 150m warrants         Bloomberg code                          HNDL IN
have been allotted to the promoters as per Sebi formula, which works out at
minimum of INR150, i.e. average of last 2 weeks being higher than average of
last 6 months. The equity dilution has taken us by surprise. The company has      Price Performance (%)
already incurred capex of INR41.7b in 9MFY12. Capex target of USD2b now           Period                  Absolute           Relative
looks ambitious.                                                                  3 month                       3.5            -11.2
Economic uncertainties hit Novelis' performance: Novelis reported adjusted        6 month                      -9.2            -18.2
EBITDA of USD213m, while volumes declined 9% YoY. Economic uncertainties          12 month                    -37.0            -35.8
affected demand and triggered destocking in Europe and Asia. We are cutting
volumes by 284,000 tons to 3.2m tons and EBITDA per ton by USD10 to USD345
for FY13.
 Valuations
Estimates lowered, maintain Buy: We have cut our consolidated EPS estimate
for FY13 by 7% to INR19.5 largely due to lower guidance for Novelis. Stock is
trading at 8.2x FY13E EPS and 1.4x FY13E BV (adjusted for goodwill) with RoE of
18.6%. Bulging CWIP is adversely affecting EV/EBITDA valuations. Adjusting for
CWIP of INR136b, stock is trading at 3.9x FY13E EV/EBITDA. We value the stock
at SOTP-based price of INR199. Maintain Buy.
Financial Performance Analysis
 Particulars (Rs. Mn)    3QFY12       3QFY11       % YoY         2QFY12       % QoQ        FY11          FY12E
 Net Sales                   66470        59746     0.112543       62719              6%     238592        257962
 Operating Expenses          59231        52345         13%        56027              6%     206928        227454
 EBITDA                       7149        7401             -3%      6692              7%      31664      30,508.00
 Interest                      793         516          54%          675          17%             2200    2,945.00
 Depreciation                 1747        1718             2%       1741              0%          6875    7,019.00
 Other Income                  901         606          49%         1761          -49%            3168    5,359.00
 PBT                          5509        5785             -5%      6037          -9%         25757      25,903.00
 Taxes                        1002        1181         -15%         1012          -1%             4578    4,869.00
 PAT                          4507        4603             -2%      5025          -10%        21369      21,034.00
 Minority Interest                0            0                          0                         0             0
 Extra Ordinary Item              0            0                          0                         0             0
 Adjusted PAT                 4507        4603             -2%      5025          -10%        21369         21034
 Equity                       1990        1990                      1990                          1990       1990
 Key Ratios
 EBITDA Margin (%)             11%         12%                       11%                          13%        12%
 PAT Margin (%)                 7%          8%                       8%                            9%            8%
 Tax Rate (%)                  18%         20%                       17%                          18%        19%
       Source: Company, L&T MF Research
      IDFC
Background
Infrastructure Development Finance Company Ltd (IDFC) was established in 1997 by the                                       Justification Report
                                                                                                                                                           th
Government of India, which owns the largest (17.9%) stake. The company finances                                                              Date: 14
infrastructure projects and manages infrastructure-focused private equity funds, an
investment bank, and a retail mutual fund with a loan book size of Rs 393bn as on Q2FY12. It
                                                                                                    Rating
has 11 direct subsidiaries and 12 indirect subsidiaries that support its goal of providing one-
stop infrastructure solutions.                                                                      CMP                                             151
Investment Arguments
                                                                                                    Recommendation                                  Buy
   Loan book: IDFC has a well-spread loan book mix Energy (43%), Transport (24%) and
Telecom (21.5%). Borrowings: IDFC has a well-diversified fund raising sources with bank
borrowings comprising 29.7%, Pension and Provident Funds 19%, Insurance cos 18% and                 Scrip Scan
FII/DII 15% contributing majority. Further IFC status (Tax Free bonds and ECB) enables IDFC
to diversify sources and raise funds at competitive rate. Income stream: Along with core            Face Value                                       10
income, with diversification in various business streams the company generates noninterest          O/s. Equity Shares (Mn)                   1463.3
income through – Asset Management, Investment banking, broking, infrastructure advisory
                                                                                                    Market Cap. (Rs. Bn)                       228.9
services etc. IDFC’s Noninterest income/Total income stood at 44% for Q2FY12.
Leading to…… Sustainable spreads/NIMs and Core earnings: The well-managed balance                   52 Week High/Low                         167/ 90
between segments and diversification in borrowings enabled IDFC to report stable spreads
                                                                                                    AMFI Classification
(across cycle) of 2.2-2.4%. Further, given healthy ALM, IDFC is in a position to maintain
spreads in the same range, thus delivering core earnings of 21% CAGR. Better asset quality:         Daily Avg. Vol. (3 mth) mn                      0.85
Given strong and stringent risk management coupled with domain expertise and sector
                                                                                                    Bloomberg code                            IDFC IN
knowledge, IDFC has been able to maintain superior asset quality across cycles. However, we
have factored in marginal deterioration in asset quality largely due to the worsening
economic environment (especially in the power sector).             Higher RoA’s:- IDFC has          Price Performance
consistently delivered higher RoAs of ~3%. However, with lower leverage of mere 4.3x, RoEs          Period                  Absolute         Relative
have been on the lower end (13.5%).
                                                                                                    3 month                      30.0               15.3
Valuations                                                                                          6 month                      24.8               15.8
At CMP, the stock trades at 9x FY13E EPS and 1.2x 13E BV. We give it a Buy Rating and SOTP Target   12 month                     -3.1               -1.9
Price of Rs 160

Recommendation
Buy




      Financial Performance and forecast
       Particulars (Rs. Mn)              FY2009                               FY2010                FY2011           FY2012E            FY2013E
       Revenue Rs. Mn                    36,263.8                             40,330.3              49,167.4          64,470.1           75,754.8
       EBIDTA Rs. Mn                     11,890.7                             15,566.0              20,134.5          24,479.1           28,228.2
       PAT Rs. Mn                         7,498.3                             10,622.9              12,816.5          15,475.4           17,656.2
       Net Interest Margin (%)                3.1                                 3.4                   4.4                4.4               4.3
       Cost / Income Ratio (%)               23.6                                26.2                  20.9               19.9              20.6
       EPS(Rs)                                5.8                                 8.2                   8.8               10.3              11.7
       EPS Growth (%)                         1.0                                41.7                  20.6               20.7              14.1
       BV/Share (Rs)                         47.7                                53.9                  77.0               82.1              91.0
       Market cap /Sales (x)                6.31                                 5.68                  4.66               3.55              3.02
       P/E (x)                                 26                                  18                    17                 15                13
       P/BV(x)                                3.1                                 2.8                   1.9                1.8               1.6
       RoANW (%)                            12.7                                 16.1                    14               13.1              13.5
      Source: Company, L&T MF Research
      IDFC
Highlights                                                                                                           Company Update
Outlook                                                                                                             Date:
IDFC reported mix set of results with Core Earnings (above estimates) and PAT
(below estimates) growth of 19% YoY each. Core earnings was driven by 25%             Scrip Scan
YoY and 12% QoQ rise in loan book and spreads of ~2.4%. Disbursements grew            CMP                                       151
~11.5% YoY and 66% QoQ, largely towards the Telecom sector and LAS under
the product category. Non Interest Income jumped 8% YoY, largely driven by            Face Value                                 10
Principal investments of Rs 910mn (Stake sale in the AMC business) while the          O/s. Equity Shares (Mn)                 1463.3
investment banking fees declined 55% and loan related fees was lower ~42%.            Market Cap. (Rs. Bn)                     228.9
Provisions of Rs 978mn almost doubled YoY and jumped 1.5x QoQ largely
towards the equity portfolio. Asset Quality deteriorated with GNPA (0.3%)             52 Week High/Low                       167/ 90
increasing 1.9x YoY and QoQ each with one Tourism account turning Bad during          AMFI Classification
the quarter. NNPA (0.2%) also increased 2.5x YoY and 2.7x QoQ.                        Daily Avg. Volume (1 mth)                 0.85
   Valuations                                                                        Bloomberg code                         IDFC IN
We expect IDFC’s core earnings to grow 22% CAGR FY11-13E, with avg. NIM of
4.2% on back of 19.5% CAGR loan book growth, subsequently we expect PAT
growth of 18% CAGR with ROA and RoAE of 2.8% and 13.5% respectively. With             Price Performance (%)
sharp appreciation of almost 50% in the stock over last one and half month, we
                                                                                      Period                  Absolute       Relative
change our recommendation from Buy to Accumulate with STOP base target
price of Rs 143. Upside trigger to the stock will be any positive government          3 month                      30.0          15.3
action in terms of fuel linkages, state governments solving issues relating to        6 month                      24.8          15.8
SEB’s losses, early resolution of telecom 2G license related issues etc.              12 month                     -3.1          -1.9

       Financial Performance Analysis
          Particulars (Rs. Mn)        3QFY12       3QFY11     % YoY      2QFY11       % QoQ         FY11          FY12E     FY13E
          Net Sales                    16,392       13,063       25%      17,149         -4%       49,167         65,978    78,136

          Operating Expenses           10,068        8,134       24%        9,574         5%       29,196         41,555    49,948

          EBITDA                        6,331        4,966       27%        7,587       -17%       20,135         24,610    28,390

          EBT                           5,353        4,480       19%        6,956       -23%       17,788         21,510    24,416

          Other Income                      7          38       -82%             11     -36%           163          188       203

          PBT                           5,360        4,518       19%        6,967       -23%       17,951         21,698    24,619

          Taxes                         1,537        1,272       21%        1,715       -10%        4,998          5,915     6,714

          PAT                           3,823        3,246       18%        5,252       -27%       12,953         15,783    17,905

          Minority Interest                 0           0                        0

          Extra Ordinary Item               0           0                        0

          Adjusted PAT                   3132        3,246       -4%        5,252       -40%

          Equity                        15111       14651         3%       14651          3%

          Key Ratios
          EBITDA Margin (%)              39%          38%                    44%                     41%            37%       36%

          PAT Margin (%)                 23%          25%                    31%                     26%            24%       23%

          Tax Rate (%)                   29%          28%                    25%                     28%            27%       27%




                Source: Company, L&T MF Research
TVS    Motors
Background
TVS Motor Company is the third largest two-wheeler manufacturer in India and one                                 Justification Report
among the top ten in the world, with annual turnover of more than USD 1 billion in                                                           Date:
2008-2009, and is the flagship company of the USD 4 billion TVS Group.
                                                                                          Rating
Investment Arguments
TVS Motor Ltd. is favourably positioned to benefit from – 1) growing preference for       CMP                                                 45
scooters in the domestic market, and 2) growth in the export market. We expect
                                                                                          Recommendation                                     Buy
scooters (+20-22%) and exports (+30/20% in FY12/13) to drive revenue growth for
TVSL in FY12-13. We expect margin expansion of 80-100bps by FY14 riding on better
product mix, higher operating leverage and lower RM cost.                                 Scrip Scan
Indian two-wheeler market – maintaining growth momentum
Indian 2W market has maintained strong growth momentum (+18% YTDFY12) in                  Face Value                                         1
spite of macroeconomic headwinds. We remain positive on the 2W segment and                O/s. Equity Shares (Mn)                          475
expect it to grow by 15-17% in FY12-14. We expect the growth in scooter segment
(+19-21%) to outpace the motorcycle segment (15-17%), driven by – 1) increase
                                                                                          Market Cap. (Rs. Bn)                            21.3
in the woman participation in workforce, and 2) launch of new models. With                52 Week High/Low                        42.90 - 70.30
substantial presence in the scooters – over 20% market share and four models –
                                                                                          AMFI Classification
we expect TVSL to gain from the growth in the segment.Expect robust volume
growth and margin expansion in FY12-13 for TVSL: We expect TVSL’s volume                  Daily Avg. Vol. (1 mth)                            132
growth of 12%/15% for FY12/13 driven by: 1) growth in the 3W & scooter segments,
                                                                                          Bloomberg code                              TVSL IN
and 2) growth in the exports (+30/20% in FY12/13). TVSL ventured in the fast
growing 3W segment in FY08 and we expect sales to grow at 13-15% for FY12-13
with a 60-80bps increase in the market share. We expect the company to improve            Price Performance
EBITDA margins by 100-120bps to over 8% by FY14 riding on – 1) better product             Period                    Absolute           Relative
mix, 2) higher operating leverage with better capacity utilization, and 3) softening of
commodity prices.                                                                         3 month                        -17.7            -32.4
                                                                                          6 month                        -32.8            -41.8
Valuations                                                                                12 month                       -18.9            -17.7
The stock currently trades at 7.2x FY13 earnings estimate, lower than its five year
average. We initiate coverage on the company with a BUY rating and a TP of Rs 58
based on its five year average multiple of 8.5x FY13E earnings. We expect earnings
to improve with growth in exports and improvement in product mix, leading to
~20% growth in FY12-14 EPS.

Recommendation
Buy

Financial Performance and forecast
 Particulars (Rs. Mn)                   FY10                 FY11                 FY12E              FY13E                FY14E
 Revenue Rs. Mn                                    44,301               62,891             74,617               85,040              96,086
 EBIDTA Rs. Mn                                      3,499                4,561              5,342                6,633               7,687
 PAT Rs. Mn                                           880                1942               2638                 3218                3721
 EBITDA Margin (%)                                     8%                   7%                 7%                   8%                  8%
 Net Profit Margin (%)                                 2%                   3%                 4%                   4%                  4%
 EPS(Rs)                                             7.41                 4.09               5.55                 6.77                7.83
 EPS Growth (%)                                                          -45%                36%                  22%                 16%
 Market cap /Sales (x)                                0.48                0.34               0.29                 0.25                0.22
 P/E (x)                                              6.07               11.00               8.11                 6.65                5.75
 RoE (%)                                              11%                 21%                25%                  26%                 25%
 ROCE (%)                                             10%                 16%                20%                  21%                 22%
Source: Company, L&T MF Research
TVS Motors

Highlights                                                                                                      Company Update
Flat earnings growth impacted by moderating sales and margin contraction:                                      th
TVSL reported flat earnings growth at Rs 565Mn (+1%) impacted by moderating                            Date: 14 March, 2012
sales and margin contraction. Volumes decline 9% sequentially for 3QFY12 led
by moderationin 2W sales due to high interest rates and fuel prices. EBITDA      Scrip Scan
margin declined 79bps sequentially for the company impacted by higher
                                                                                 CMP                                           45
employee cost (+42bps) and other expenses (+215bps). Other expenditure for
the quarter included additional Rs 69Mn on account of amortization and a forex   Face Value                                     1
loss of Rs 0.2Mn. RM cost declined 179bps sequentially led by decline in         O/s. Equity Shares (Mn)                      475
commodity prices and product mix.
Moderating sales volume, scooters and 3W to drive volumes in FY13-14: 2W         Market Cap. (Rs. Bn)                        21.3
sales for the quarter at 5.19Mn units grew marginally (+5%) as compared to       52 Week High/Low                   42.90 - 70.30
corresponding quarter last year led by growth in scooter segment (+11%) while
                                                                                 AMFI Classification
contraction (-8.5%) in motorcycles. 2W exports registered strong growth (+24%
YoY) at 63,700units. 3W sales contracted 12% YoY to 8,899 units. Going           Daily Avg. Volume (6 mth)                    132
forward, we expect 12-14% volume growth for TVSL in FY13-14 driven by
                                                                                 Bloomberg code                           TVSL IN
growth in scooters (20-24%) and 3W (10-15%). We expect an earnings growth
of 18-20% for FY13-14 period with close to 100bps margin expansion riding on –
1) better product mix leading to improved average realization, 2) higher
operating leverage with better capacity utilization, and 3) softening of raw     Price Performance (%)
material costs.                                                                  Period                  Absolute         Relative
                                                                                 3 month                     -17.7          -32.4
 Valuations
While the current quarter witnessed pressure due to sales and margins, TVSL      6 month                     -32.8          -41.8
earnings has grown 25% for 9MFY12. At the CMP the stock trades at 7.8x FY13E     12 month                    -18.9          -17.7
earnings, lower than its five year average. We marginally revise our volume
estimate for FY12/13 by +1.1%/-0.1% impacting earnings estimate by 1.6%/-
0.4%. We revise our TP to Rs 57 with a HOLD rating on the stock. We expect
earnings to improve with growth in exports and improvement in product mix,
leading to 18-20% growth in FY12-14 EPS.
Financial Performance Analysis
 Particulars (Rs. Mn)     3QFY12       3QFY11        % YoY   2QFY12   % QoQ   FY11         FY12E        FY13E

 Net Sales                    17,622        16,467   7%      19,918   -12%      62,891       75,413       84,850

 Operating Expenses           16,469        15,295   -8%     18,458   11%       58,330       70,014       78,232

 EBITDA                        1,153         1,171   -2%     1,460    -21%         4,561        5,399        6,618

 Interest                       103            96    -7%     112      7%             470         455          634

 Depreciation                   295           445    34%     363      19%          1,709        1,445        1,874
 EBT

 Other Income                      1           72    -99%    23       -97%           113           47           -

 PBT                            756           703    7%      1,009    -25%         2,477        3,546        4,111

 Taxes                          190           145    -31%    244      22%            535         865          904

 PAT                            565           558    1%      765      -26%         1,942        2,681        3,206
 Minority Interest
 Extra Ordinary Item

 Adjusted PAT                   565           558    1%      765      -26%

 Equity                        9,994         9,994           9,994
 Key Ratios
 EBITDA Margin (%)       7%            7%                    7%               7%           7%           8%
 PAT Margin (%)          3%            3%                    4%               3%           4%           4%
 Tax Rate (%)            25%           21%                   24%              22%          24%          22%

 EPS                              1             1            2                        4            6                7
       Source: Company, L&T MF Research
CIPLA
Background
                                                                                                         Justification Report
Investment Arguments                                                                                                     Date:
Poised to gain from currency weakness. Cipla’s net US$ export exposure
is ~22% of sales; our sensitivity analysis shows margin gains of 50-150bps
                                                                                  Rating
for 5-15% INR devaluation, (4-12% upsides to our estimates). Operationally,
the company’s shorter duration forex hedges (2-3 months) and minimal debt         CMP                                    309
place it favourably to ride the current INR weakness
                                                                                  Recommendation                        BUY
Potential generic Seretide launch in EU in FY13 next significant trigger.
Cipla expects generic Seretide approval for some key EU markets in FY13.          Scrip Scan
We currently model no such upside due to registration complexities (for
product and device), but a potential approval for MDI adds US$50-70m (4-5%        CMP                                    309
of revenue) to estimates on an annual basis.
                                                                                  Face Value                               2
Product mix improvements                                                          O/s. Equity Shares (Mn)              802.9
A second leg for margin support comes from the improved product mix.
Cipla’s recent export growth has been led by Africa/MEA, which contributed        Market Cap. (Rs. Bn)                   248
56% of total incremental export growth in FY04-11. The bulk of exports in         52 Week High/Low                       359
these markets comprise ART (anti-retroviral therapy) sales that are typically
government contracts with high volume and low margins, marked by intense          AMFI Classification
competition. Cipla has indicated that it has recently begun to focus on better    Daily Avg. Volume (1 mth)            32.79
profit realizations in its tender business, even at the expense of revenue

Valuations:                                                                       Price Performance
Cipla’s valuations over the past 4-5 years have de-rated, tracking the 12-13%
                                                                                  Period                  Absolute    Relative
CAGR earnings growth in FY08-11 (50% lower than FY03-08) and currently
is 25-30% lower than peak valuations. Current upward trajectory                   3 month                      (7)      (21.7)
(17% CAGR over FY11-14E) position the stock for a valuation re-rating given       6 month                      7.9       (1.2)
lower earnings volatility, healthy balance sheet, potential for improved ratios
and a reasonable risk-reward ratio.                                               12 month                     2.9         4.1
Financial Performance and forecast
 Particulars (Rs. Mn)              FY2009    FY2010   FY2011   FY2012E   FY2013E
 Revenue Rs. Mn                     49610    53580    61240     66830     76390
 EBIDTA Rs. Mn                       9480    10660    11430     13400     16230
 PAT Rs. Mn                          7710    10810     9670     11050     13520
 EBITDA Margin (%)                    19.1     19.9     18.7        20      21.2
 Net Profit Margin (%)                15.5     20.2     16.2      16.5      17.7
 EPS(Rs)                               9.9     13.5       12      14.1        17
 EPS Growth (%)
 BV/Share (Rs)                        55.9     73.6      83        94      107.4
 Market cap /Sales (x)
 P/E (x)                              26.3     20.1     20.2      18.1      15.1
 P/BV(x)                               5.6      4.2      3.8       3.3       2.9
 RoE (%)                              24.8     19.2     15.7      15.5      16.7
 ROCE (%)                             16.1     15.6     13.1      13.3      14.8
Source: Company, L&T MF Research
CIPLA

Highlights                                                                                                Company Update
Results in line with expectations:                                                                        th
The 3QFY2012, a reported just in line numbers. The net sales and                                   Date: 14 march 2012
profits for the quarter was `1711cr and `270cr, registering a
growth of 14% yoy and 16% yoy respectively. On the profitability             Scrip Scan
front, the gross margins and operating profits came in lower than the
                                                                             CMP                                      309
expectations. The gross margins and operating margins came in at
58.2% and 20.2% in compared to the expectations of 58.1% and                 Face Value                                 2
21.8% respectively. The margins were compressed on back of higher            O/s. Equity Shares (Mn)                802.9
salary expenses, which rose by 38.8% yoy. Consequently the net
profit came in at `270cr, a bit lower than the expected than `295cr.         Market Cap. (Rs. Bn)                     248
                                                                             52 Week High/Low                         359
Significant improvement in gross and operating profit
                                                                             AMFI Classification
For 3QFY2012, the company’s gross margin expanded by 465bp yoy
to 58.2%. This was mainly on account of better product mix, which            Daily Avg. Volume (1 mth)              32.79
had lower proportion of anti-retroviral in formulation exports and           Bloomberg code               CIPLA IN EQUITY
domestic formulation sales. This aided the OPM, to end at the end
the period at 20.2% an expansion of 245bps. However, the same was
lower than expected OPM’s of 21.8%, on back of 38.8% yoy rise in
employee expenses and 29.8% yoy rise in other expenditure                    Price Performance (%)
                                                                             Period                  Absolute      Relative
Valuations:
Cipla’s valuations over the past 4-5 years have de-rated, tracking the 12-   3 month                     (7)        (21.7)
13% CAGR earnings growth in FY08-11 (50% lower than FY03-08) and             6 month                     7.9         (1.2)
currently is 25-30% lower than peak valuations. Current upward trajectory    12 month                    2.9           4.1
(17% CAGR over FY11-14E) position the stock for a valuation re-rating
given lower earnings volatility, healthy balance sheet, potential for
improved ratios and a reasonable risk-reward ratio.
Financial Performance Analysis
 Particulars (Rs. Mn)      3QFY12         3QFY11     % YoY        2QFY11    % QoQ         FY11          FY12E         FY13E
 Net Sales                    17110          15010           14     17310       (1.1)        61240         66830        76390
 Operating Expenses           13660          12350                  13400                    49810         53430        60160
 EBITDA                         3450          2660       29.8        3910      (11.7)        11430         13400        16230
 Interest                        32             29       10.6          24       36.1              50            110           90
 Depreciation                   760            650       16.1         660       15.4             2540       2800         3030
 EBT                            2658          1981                   3226                        8840      10490        13110
 Other Income                   767            780       (1.7)        705           8.7          790            980      1150
 PBT                            3425          2761       24.3        3930      (12.8)        11580         13530        16520
 Taxes                          730            430       69.1         850      (14.4)            1910       2482         3003
 PAT                            2695          2330       16.1        3080      (12.4)            9670      11050        13520
 Minority Interest                                                                               220
 Extra Ordinary Item
 Adjusted PAT                   2695          2330       16.1        3080      (12.4)            9900      11050        13520
 Equity                       802.9          802.9
 Key Ratios
 EBITDA Margin (%)              20.2          17.7                   22.6
 PAT Margin (%)                15.75          15.5                   17.8
 Tax Rate (%)                   21.3         15.57                   21.6
 EPS                              3.4          2.9                    3.8                         12        14.1              17
       Source: Company, L&T MF Research
DHANLAKSHMI BANK
Investment Arguments
                                                                                       Justification Report
                                                                                                     th
Reduction in Operating Expenses to be a Key Trigger                                         Date: 14 March 2012
With the bank pursuing a high growth strategy in the past ,
it increased its employee strength from 1319 in FY08 to         Rating                                       Buy
4779 in Q2FY12 (post which it declined to 4552 in Q3FY12)
                                                                CMP                                           72
and added 63 new branches in FY10. Because of this rapid
increase in costs and lower productivity levels, the cost to    Recommendation                                82
income ratio inched up from 68.4% in FY08 to 83.6% in
FY11 and in the latest quarter in Q3FY12 the bank declared      Scrip Scan
an operating loss of Rs 364.6mn due to its operating costs
                                                                CMP                                           72
running ahead of its income. Going forward, the bank plans
to reduce its operating costs by Rs 600- 650mn in FY13E, in     Face Value                                    10
order to improve its cost to income ratio to 70%                O/s. Equity Shares (Mn)                    85.13
by the last quarter of FY13E and to come back to profits at
                                                                Market Cap. (Rs. Bn)                        6.13
the operating level. Out of this, a saving of Rs 500-550mn is
expected to come from employee expenses mainly by way of        52 Week High/Low                             135
salary cuts and the rest from savings in ATM related and        AMFI Classification
other administrative costs. As per our conservative
                                                                Daily Avg. Volume (1 mth)                  70.81
estimates, we have estimated the operating expenses to
decline by Rs 582.5mn in FY13E, which should result in an
operating profit of Rs 983.1mn in FY13E.                        Price Performance
                                                                Period                  Absolute          Relative
Asset Quality Remains Robust                                    3 month                      28.8            14.1
Asset quality of Dhanlaxmi Bank has remained robust with
                                                                6 month                     (13.2)          (22.2)
gross and net NPA levels declining from 6.71% and 2.82%
respectively in FY06, to a low of 0.55% and 0.17% in            12 month                    (32.3)          (31.1)
Q2FY12, before increasing moderately to 0.77% and 0.35%
respectively in Q3FY12. The bank does not have exposure to
the aviation sector and has negligible exposure to the power
sector, which provides us some comfort on the asset quality
of the bank. However, the low provision coverage ratio at
55.34% is a cause of concern and any increases in the
provisions in future to meet the RBI norm of 70%, may
adversely impact the bank. Besides this, the buyout portfolio
of 12180mn constit utes 12.8% of the loan book, can be
another cause of concern. Out of this buyout portfolio,
around Rs 5000mn are gold loans and the remaining are
CV/CE loans.



Valuations
At a CMP of Rs 72, Dhanlaxmi Bank is trading at 0.7x its
FY13E Adj. Book Value of Rs 91. Valuing the bank at 0.9x its
FY13E ABV, we derive a FY13E target price of Rs 82

Recommendation
Considering the focus of the new management on building a
low cost deposit base, increasing share of higher yielding
advances, reducing operating costs and robust asset quality,
we have a positive view on the bank’s new business model.
We assign a ‘Buy’ rating to the stock
Financial Performance and forecast
 Particulars (Rs. Mn)              FY2009   FY2010   FY2011   FY2012E   FY2013E
 Net Interest Income Rs. Mn        1216.2   1405.5   2651.3     2690     3240.8
 EBIDTA Rs. Mn
 PAT Rs. Mn                         574.5     233     260.6      -478     377.9
 EBITDA Margin (%)
 Net Profit Margin (%)
 EPS(Rs)                                9      3.6      3.1      -5.6       4.4
 EPS Growth (%)
 BV/Share (Rs)                       61.8     62.1      96       87.9       91
 Market cap /Sales (x)
 P/E (x)
 P/BV(x)
 RoE (%)                             19.3      5.4      4.1      -5.8       4.7
 ROCE (%)
Source: Company, L&T MF Research
DHANLAKSHMI BANK

Highlights                                                                                        Company Update
Net total income unable to even cover operating expense…
Operating expense for Q3FY12 was | 126.6 crore much higher                                        Date:
than net total income of | 90.1 crore. Both NII and non-interest
income growth was subdued. Adverse economic conditions and           Scrip Scan
lack of capital is hampering business growth. This coupled with      CMP                                        72
NIM pressure has led to muted NII. Non-interest income took a
                                                                     Face Value                                 10
setback on account of lower credit disbursements leading to
moderate processing fees.                                            O/s. Equity Shares (Mn)                 85.13
Asset quality deterioration comes as negative surprise…              Market Cap. (Rs. Bn)                     6.13
Reversal of a downward trend in the GNPA came as a negative
                                                                     52 Week High/Low                          135
surprise. GNPA surged 31.9% QoQ to | 73.4 crore in Q3FY12.
The corporate sector contributed | 14 crore to the incremental       AMFI Classification
GNPA addition of | 17.7 crore while retail accounted for the         Daily Avg. Volume (1 mth)               70.81
remaining portion. The corporate sector witnessed slippage of | 22
crore while upgradation for the quarter was | 7 crore. We estimate                                        DHLBK IN
                                                                     Bloomberg code
GNPA ratio at 0.8% and NNPA ratio at 0.3%, both for FY12E and                                              EQUITY
FY13E.

   Outlook                                                          Price Performance (%)
The bank has suffered considerably on account of recent labour       Period                  Absolute       Relative
union issues. It failed to raise capital last time and even now,
there is no clear guidance. Its CAR stands at 9.9% with Tier I at    3 month                     28.8          14.1
8%. Revival of the bank is likely to take time. Hence, we continue   6 month                   (13.2)        (22.2)
to maintain our view to exit on rally.                               12 month                  (32.3)        (31.1)
   Valuations
   At a CMP of Rs 72, Dhanlaxmi Bank is trading at 0.7x
    its FY13E Adj. Book Value of Rs 91. Valuing the bank
    at 0.9x its FY13E ABV, we derive a FY13E target price
    of Rs 82.
Financial Performance Analysis
 Particulars (Rs. Mn)      3QFY12         3QFY11     % YoY       2QFY11     % QoQ      FY11          FY12E      FY13E
 Net Interest Income            635            725       -13.7       679        -6.5          2651       2690      3240
 Other income                   265          333.5       -20.3       443       -40.1          1467       1551      1755
 Total operating income          900        1069.3       -15.7     1122.9      -19.8          4119       4241      4995
 Operating expenses            1265          892.8       41.7      1117.2       13.3          3444       4595      4012
 Operating Profit              (364)         176.5      -306.6        5.7                     674        -353       983
 Provisions                       4.1         79.1       -94.8      -53.1       -107          277        92.7       479
 PBT                           (368)          97.4      -478.5       58.8       -727          297        -446      503.9
 Tax                                0         24.8        100        15.3       -100          136        32.2       126
 PAT                         (368.7)          72.6      -607.9       43.5       -947      260.6          -478      377.9




 Equity
 Key Ratios
 EBITDA Margin (%)
 PAT Margin (%)
 Tax Rate (%)
 EPS                                                                                           3.1       -5.6        4.4
       Source: Company, L&T MF Research
: HDFC
Background
                                                                                                       Justification Report
Investment Arguments                                                                                                   Date:
Growth outlook to remain steady; NHB guidelines on
prepayment have had no impact                                                   Rating                                 Buy
HDFC management highlighted that business growth in the current
quarter so far continues to remain steady, which should translate into          CMP                                    677
~18-20% YoY asset growth for FY12e. Higher disbursements are                    Recommendation                         750
seen in non-metro locations i.e., tier-II and tier-III cities, as
affordability in metros such as Mumbai and Delhi has moderated. For
                                                                                Scrip Scan
FY12, the management expects loan book to clock a growth of 18-
20%. Further, management highlighted that the new NHB circular                  CMP                                    677
allowing prepayments in case of floating rate loans irrespective of the         Face Value                               2
source has had no impact. Prepayment rates are down in the current
quarter compared to 3Q.                                                         O/s. Equity Shares (Mn)               1467
Asset quality continues to remain stable                                        Market Cap. (Rs. Bn)                   999
Management highlighted that despite a lot of investor pessimism,
                                                                                52 Week High/Low                       737
current health of real estate companies is far better than during the
credit crisis given that these companies have relatively lower                  AMFI Classification
leverage. Further, they are not facing any asset quality issues related         Daily Avg. Volume (1 mth)            245.2
to their retail loan portfolio. In fact, they expect GNPA ratios to
improve YoY for a 29th consecutive quarter in a row during 4QFY12e.
                                                                                Price Performance
Better positioned to manage credit cycle on AQ comfort                          Period                  Absolute    Relative
While bank’s gross NPAs were up 7% qoq and net 12%, overall asset quality
                                                                                3 month                      2.3      (12.4)
remain very manageable, with gross at 1% and net at 0.2%, coverage
(specific) at +80%. Moreover, est. slippages continue to remain stable qoq at   6 month                      (.6)      (9.6)
Rs3.5-4.0bn or ~1% of loans; below our estimates. However, we still est.        12 month                    (1.8)       (.6)
gross slippages at 1.1% for FY13 (a 30% growth in absolute slippages in
FY13, as we build in credit cycle for the sector). We believe HDFC bank
remains the best positioned bank to manage credit cycle owing to its better
loan profile having higher share of retail and working capital loans. We est.
gross and net (FY13) at 1.3% and 0.3% resp


Valuations
At the CMP of INR681, HDFC is trading at 4x FY13e P/BV and 22x
FY13e P/E which continues to remain a tad expensive.
Financial Performance and forecast
 Particulars (Rs. Mn)              FY2009    FY2010   FY2011   FY2012E   FY2013E
 Net Interest income Rs. Mn         30538    81819    94311    116841    143745
 EBIDTA Rs. Mn
 PAT Rs. Mn                         22825    29487    39264     50237     64575
 EBITDA Margin (%)
 Net Profit Margin (%)
 EPS(Rs)                                16     16.1     27.4      26.9      28.5
 EPS Growth (%)
 BV/Share (Rs)                        92.4    94.02   109.11    129.89    156.72
 Market cap /Sales (x)
 P/E (x)                              42.4     36.6     28.7      22.6      17.6
 P/BV(x)                               7.4      5.2      4.4       3.7       3.1
 RoE (%)                              18.2     16.1     16.7      18.1      19.4
 ROCE (%)
Source: Company, L&T MF Research
Company Name: HDFC
Highlights                                                                                                   Company Update
3Q12 profits up 31%yoy; solid as ever:                                                                       th
HDBK’s profits were up 31%yoy on the back of another steady all-round                                Date: 14 March 2012
performance and in-line with our estimates. Growth and quality remained
strong across parameters – a) Loans: up 22%, well ahead of the 16%             Scrip Scan
industry average; b) Fees: stronger at 30%yoy, including a seasonal
uptick; and c) Asset Quality: stable - NPL ratios, restructured assets,        CMP                                      677
coverage level costs, all firm and better than most peers. Overall, it was     Face Value                                 2
another quarter of unflinching quality and we see no reason to expect a
change in operating trends near term.                                          O/s. Equity Shares (Mn)                 1467
                                                                               Market Cap. (Rs. Bn)                     999
P&L: Well-balanced, multiple growth levers — HDBK’s earnings were
strong and growth spread across diverse parameters – a) NIMs were              52 Week High/Low                         737
stable (at 4.1%) and should be well supported at current levels, given         AMFI Classification
shift to more higher yielding retail loans, higher fixed rate assets; b) Fee
growth at 30%yoy had some seasonality, could moderate but could                Daily Avg. Volume (1 mth)              245.2
remain higher than recent trends; c) Bond portfolio losses were a drag,        Bloomberg code                HDFC IN EQUITY
but should start reversing along with interest rates; d) Operating costs
were well managed, despite a 25% branch expansion yoy; and d) Credit
costs declined further (to 65bps in 3Q12), should normalize upwards,
though near-term signals still strong                                          Price Performance (%)
                                                                               Period                  Absolute      Relative
Balance Sheet: High on Quality — HDBK’s balance sheet quality
remains strong – both on assets and liabilities. Retail loans have grown       3 month                       2.3      (12.4)
faster than corporate – while unsecured loans have also grown fast,            6 month                      (.6)       (9.6)
overall they remain low at 10% of loans. Deposit mix also remained             12 month                    (1.8)        (.6)
healthy (48% CASA ratio); with CASA growth well above industry (+16%
yoy), despite competitive and rate pressures. Asset quality and outlook
is unchanged - low/stable NPLs (1%), high coverage (80%), low credit
costs and restructured assets (0.4%) – while it is expected to normalize
upwards, management sees no pressures near term. Its over 11% Tier 1
also leaves enough room for growth
 Outlook
We have raised our FY12/13 estimated earnings by ~2% on stronger fee
growth. We est. FY13 earnings growth to moderate to +25% (vs. +30% in
FY12) as we build in slower growth and credit cycle, in sync with our
sector view. HDFC bank still likely to be the best positioned bank on our
3-dimensional framework –asset quality, earnings visibility and balance
sheet buffer.

 Valuations
Hence, we believe the stock trading at ~3.9x our FY12E will continue to
trade at higher multiples (+3.7-3.8x FY13) given its strong positioning in
challenging environment. Moreover, HDFC bk owing to its earnings track
record coupled with the strong underlying asset quality may trade on PE
basis
Financial Performance Analysis
 Particulars (Rs. Mn)      3QFY12      3QFY11          % YoY      2QFY12        % QoQ         FY11           FY12E          FY13E
 Interest income              72026           52300        37.7        67177            7.2     116841         143745        175839
 Interest expense           (40867)          (24533)       66.6       (37732)           8.3
 Net Interest income          31160           27767        12.2        29445            5.8
 Fee based income            15018            11585        29.6        12130           23.8      44599          54411         66832
 Other non interest inc       (818)      (307)                           (13)
 Non Interest income          14200           11278        25.9        12117           17.2
 Operating Income            45360            39045        16.2        41562            9.1      11021          15649         18851
 Total operating inc         (21580)         (18318)       17.8       (20304)           6.3     172461         213805        261072
 Pre provision profit        23780            20727        14.7        21258           11.9      88151         113182        142009
 Pre provision profit ex
 trading gains                24598           21034        16.9        21271           15.6
 Charge for bad debts        (2893)           (2929)       -1.2        (3660)           -21     (15344)        (19595)       (23268)
 Other operating income    (399)              (1730)      -76.9   0
 Operating profit             20488           16068        27.5        17598           16.4      72807          93586        118741
 Tax                         (6191)     (5190) 19.3                    (5604)   10.5            (22570)        (29012)       (36810)
 Net Profit                14297    10878      31.4               11994         19.2          50237          64575          81931
 EBITDA Margin (%)
 PAT Margin (%)
 Tax Rate (%)
 EPS                             6.1   4.7                                5.1          19.2           26.9           28.5       26.9
Investment Arguments

Cut FY12 EPS by 45% and PO by 11% to Rs384; retain Buy
FY12 earnings outlook of R&M companies in general and that of Hindustan Petroleum (HPCL) in particular has
worsened. R&M companies including HPCL have been hit by weak refining margins (GRM) in 1H FY12 and
worsening subsidy situation. We have therefore cut HPCL’s FY12 earnings by 45% to Rs20/share mainly due to cut
in GRM. We have also cut HPCL’s PO (now at 1x FY12E P/BV) by 11% to Rs384/share. Revised PO implies 33%
potential upside. We retain Buy on HPCL.

FY12 EPS cut mainly due to cut in refining margin
HPCL’s 1H FY12 GRM was down 53% YoY at US$1.5/bbl hit by sharp rise in premium it has to pay for light crude
like Bonny light. Bonny light or similar domestic crude are around half of HPCL’s crude mix. Bonny light-Dubai spread
was up to US$8.8/bbl in 1H FY12 from US$3.1/bbl in 1H FY11. The premium of indigenous oil (benchmarked to
Bonny light), which BPCL uses, to Dubai was US$10.3/bbl in 1H FY12 vis-à-vis US$4.0/bbl in 1H FY11.




Valuations
Revised PO of Rs384/share implies 33% potential upside
We have cut HPCL’s FY12 EPS by 45%. We have also cut HPCL’s PO by 11% to Rs384/share. The cut in HPCL’s
PO is more modest than its FY12 EPS. This is because we are now valuing it on 1.0x FY12 P/B rather than on P/E
basis given the uncertainty on the FY12 earnings outlook. The only certainty in the uncertain subsidy environment in
India is that R&M companies like HPCL would be kept in the black. Thus book value of HPCL will only rise

Recommendation
HPCL
Highlights                                                                                            Company Update
                                                                                                      th
                                                                                               Date: 14 March 2012
Topline grew 41% YoY; beat estimate
HPCL’s revenue increased 41% YoY to Rs480 bn, higher than
                                                                         Scrip Scan
expectation, primarily on account of higher-than-expected subsidy
payout from government (Rs66 bn) and upstream (Rs34 bn).                 CMP                                     300
For 9MFY12, the government declared their subsidy share of Rs450 bn      Face Value                               10
for the industry and upstream share came at 37.9%. The company’s         O/s. Equity Shares (Mn)                 339
crude throughput remained flattish YoY at 4.1mmt, while product sales
volume increased 7%/9% YoY/QoQ to 7.5mmt. Adjusting for subsidy,         Market Cap. (Rs. Bn)                 102197
net sales was 9% above expectation due to better than expected           52 Week High/Low                        480
product sales volume.                                                    AMFI Classification
                                                                         Daily Avg. Volume (1 mth)              22.86
Better than expected GRM, higher subsidy payout led
EBITDA growth                                                            Bloomberg code                HPCL IN EQUITY
The company’s EBITDA increased to Rs37 bn compared to Rs7.8 bn in
Q3FY11 on account of better-than-expected GRM and higher subsidy
payout from the government and upstream. HPCL’s GRM declined to          Price Performance (%)
US$4.6/bbl in Q3FY12 from US$5.2/bbl in Q3FY11. Adjusting for            Period                  Absolute      Relative
subsidy, the company’s EBITDA came 7% above estimate                     3 month                      10         (4.7)
                                                                         6 month                   (17.5)       (26.5)
   Outlook
                                                                         12 month                   (6.7)        (5.5)



   Valuations
    Revised PO of Rs384/share implies 33% potential upside
    we have cut HPCL’s FY12 EPS by 45%. We have also cut HPCL’s
    PO by 11% to Rs384/share. The cut in HPCL’s PO is more modest
    than its FY12 EPS. This is because we are now valuing it on 1.0x
    FY12 P/B rather than on P/E basis given the uncertainty on the
    FY12 earnings outlook. The only certainty in the uncertain subsidy
    environment in India is that R&M companies like HPCL would be
    kept in the black. Thus book value of HPCL will only rise.
Financial Performance Analysis
 Particulars (Rs. Mn)      3QFY12         3QFY11     % YoY         2QFY12     % QoQ         FY11           FY12E         FY13E
 Net Sales                     480475       340560       41.1       371042        29.5       1384928        1991072      1949956
 Operating Expenses            443449       332758       33.3       395642        12.1       1349387        1957679      1920468
 EBITDA                         37026         7802      374.6       (24600)                    35541          33393        29488
 Interest                       6982          2417      188.9         7126            (2)          9105       25337        17501
 Depreciation                   4368          3647       19.8         4150            5.3      14980          15170        16141
 EBT                            25676         1738                   35876                     11456          (7114)       (4154)
 Other Income                   1575          1449           8.7      2231       (29.4)        14748          16255        17914
 PBT                            27252         3188      754.9        33645                     26204           9141        13760
 Taxes                                        1078                       1                         9183        3204         4822
 PAT                            27252         2110     1191.4       (33645)                    17036           5937         8938
 Minority Interest                   -                                                              (16)
 Extra Ordinary Item       -                                                                       (328)       (328)        (328)
 Adjusted PAT                   27252         2110                  (33645)                    17364           6265         9266
 Equity                           339          339                     339                          339            339       339
 Key Ratios
 EBITDA Margin (%)                 7.7         2.3                    (6.6)                        2.56         16.7         15.1
 PAT Margin (%)                    5.6        0.61                                                 1.25            .31       0.47
 Tax Rate (%)                                 33.8                                                   35             35           35
 EPS                              80.5         6.2     1191.4        (99.4)                        51.2         18.5         27.3
       Source: Company, L&T MF Research
      IDFC
Background
Infrastructure Development Finance Company Ltd (IDFC) was established in 1997 by the                                       Justification Report
                                                                                                                                                           th
Government of India, which owns the largest (17.9%) stake. The company finances                                                              Date: 14
infrastructure projects and manages infrastructure-focused private equity funds, an
investment bank, and a retail mutual fund with a loan book size of Rs 393bn as on Q2FY12. It
                                                                                                    Rating
has 11 direct subsidiaries and 12 indirect subsidiaries that support its goal of providing one-
stop infrastructure solutions.                                                                      CMP                                             151
Investment Arguments
                                                                                                    Recommendation                                  Buy
   Loan book: IDFC has a well-spread loan book mix Energy (43%), Transport (24%) and
Telecom (21.5%). Borrowings: IDFC has a well-diversified fund raising sources with bank
borrowings comprising 29.7%, Pension and Provident Funds 19%, Insurance cos 18% and                 Scrip Scan
FII/DII 15% contributing majority. Further IFC status (Tax Free bonds and ECB) enables IDFC
to diversify sources and raise funds at competitive rate. Income stream: Along with core            Face Value                                       10
income, with diversification in various business streams the company generates noninterest          O/s. Equity Shares (Mn)                   1463.3
income through – Asset Management, Investment banking, broking, infrastructure advisory
                                                                                                    Market Cap. (Rs. Bn)                       228.9
services etc. IDFC’s Noninterest income/Total income stood at 44% for Q2FY12.
Leading to…… Sustainable spreads/NIMs and Core earnings: The well-managed balance                   52 Week High/Low                         167/ 90
between segments and diversification in borrowings enabled IDFC to report stable spreads
                                                                                                    AMFI Classification
(across cycle) of 2.2-2.4%. Further, given healthy ALM, IDFC is in a position to maintain
spreads in the same range, thus delivering core earnings of 21% CAGR. Better asset quality:         Daily Avg. Vol. (3 mth) mn                      0.85
Given strong and stringent risk management coupled with domain expertise and sector
                                                                                                    Bloomberg code                            IDFC IN
knowledge, IDFC has been able to maintain superior asset quality across cycles. However, we
have factored in marginal deterioration in asset quality largely due to the worsening
economic environment (especially in the power sector).             Higher RoA’s:- IDFC has          Price Performance
consistently delivered higher RoAs of ~3%. However, with lower leverage of mere 4.3x, RoEs          Period                  Absolute         Relative
have been on the lower end (13.5%).
                                                                                                    3 month                      30.0               15.3
Valuations                                                                                          6 month                      24.8               15.8
At CMP, the stock trades at 9x FY13E EPS and 1.2x 13E BV. We give it a Buy Rating and SOTP Target   12 month                     -3.1               -1.9
Price of Rs 160

Recommendation
Buy




      Financial Performance and forecast
       Particulars (Rs. Mn)              FY2009                               FY2010                FY2011           FY2012E            FY2013E
       Revenue Rs. Mn                    36,263.8                             40,330.3              49,167.4          64,470.1           75,754.8
       EBIDTA Rs. Mn                     11,890.7                             15,566.0              20,134.5          24,479.1           28,228.2
       PAT Rs. Mn                         7,498.3                             10,622.9              12,816.5          15,475.4           17,656.2
       Net Interest Margin (%)                3.1                                 3.4                   4.4                4.4               4.3
       Cost / Income Ratio (%)               23.6                                26.2                  20.9               19.9              20.6
       EPS(Rs)                                5.8                                 8.2                   8.8               10.3              11.7
       EPS Growth (%)                         1.0                                41.7                  20.6               20.7              14.1
       BV/Share (Rs)                         47.7                                53.9                  77.0               82.1              91.0
       Market cap /Sales (x)                6.31                                 5.68                  4.66               3.55              3.02
       P/E (x)                                 26                                  18                    17                 15                13
       P/BV(x)                                3.1                                 2.8                   1.9                1.8               1.6
       RoANW (%)                            12.7                                 16.1                    14               13.1              13.5
      Source: Company, L&T MF Research
IDBI
Highlights                                                                                                        Company Update
Business growth of the bank was at 17.1% yoy with advances growing by 16.2%
and deposits growing by 17.9%. However, on YTD basis, business growth is                                          Date:
down by 1.3% with advance and deposits declining by -0.6% and -1.9%
respectively. Advances were driven by Retail (+20.7%) and Agri (+36.5%) with         Scrip Scan
focus ahead being on priority sector lending in order to meet the PSL targets.
                                                                                     CMP                                     115
CASA deposits of the bank improved by 54% y-o-y and the CASA ratio came in at
19.7% as against 19.2% in Q2FY12. Also the share of the bulk deposits to total       Face Value                               10
deposit reduced to 54.8% as against 65% in the previous quarter, indicating          O/s. Equity Shares (Mn)                 984
increasing thrust on Retail deposits.
Sequential contraction in margins                                                    Market Cap. (Rs. Bn)                 113576
The Net Interest Margin (NIM) of the bank declined by 11 bps q-o-q to 1.89% as       52 Week High/Low                     153/77
cost of funds increased by 24 bps. Income reversal of ` 640mln due to slippage
                                                                                     AMFI Classification
of one aviation account as well as sequential increase in loans to agriculture has
led just 2bps increase in yield on advance q-o-q. Going forward, the                 Daily Avg. Volume (1 mth)              2.73
management has guided that incremental growth would be largely towards
                                                                                     Bloomberg code                       IDBI IN
priority sector to meet the PSL targets. While for the next quarter too we could
see moderating margin trend, improvement in retail term deposits, further
traction in CASA as well as falling interest rates should see margins improving in
FY13.                                                                                Price Performance (%)
Except for one-off, slippages lower than average run rate                            Period                  Absolute     Relative
The slippages for the quarter stood at ` 12.34bln which included one aviation
                                                                                     3 month                     19.2         4.5
exposure worth ` 6.96bln, sans which the slippages for the quarter has been
lower than the average run rate of ` 6-7bln. The slippage ratio stood at 2.38% as    6 month                    (2.8)      (11.8)
against 1.6% q-o-q. GNPA and NNPA ratio on the relative basis came in at 2.94%       12 month                  (21.4)      (20.2)
and 1.96% as against 2.47% and 1.57%. Coverage ratio of the bank stood at
69.1% (incl. technical write offs). The restructured book swelled to 6.1% of the
loan book as against 5.7% q-o-q as net additions to this book were to the tune
of ` 7bln.

    Valuations

As a part of the consolidation strategy, the topline growth is expected to be
muted for the bank unless it gains comfort on the cost side. Add to this is the
concerns on additional restructuring on certain lumpy accounts which would
result in provisioning stress. Event though the bank is trading at shallow
multiples, we believe that it warrants discount to its PSB peers due to above
mentioned concerns. At its CMP, the stock trades at 0.8x and 0.7x of its FY12 &
FY13E ABV. We value the standalone business at ` 105 implying 0.77x of its
FY13E ABV and ascribe ` 28 per share to for its investments, thus arriving at an
SOTP based target price of ` 133.
Financial Performance Analysis
 Particulars (Rs. Mn)   3QFY12 3QFY11 % YoY     2QFY12 % QoQ   FY11     FY12E    FY13E
 Net Sales                58492  47123           47120          154,200 178,090 203,520
 Interest Expense         47897  35083           35080            63640   72420    83280
 NII                      10595  12040           12040           90,560 105,670 120,240
 Other Income              4318   4472            4470           36,130   39,960 41,990
 PBT                       4179   4826             483           65,640   71,340 74,230
 Taxes                       81    285              29           21,300   23,150 24,080
 PAT                       4098   4541             454           44,340   48,190 50,150
 Minority Interest            0                      0
 Extra Ordinary Item          0                      0
 Adjusted PAT              4098   4541             454          44,340   48,190   50,150
 Equity                    9850   9850            7249           9850     7249     7248
 Key Ratios
 Cost to Income (%)           45%         31%     39%
 PAT Margin (%)                7%         10%      1%              0%        0%      0%
 Tax Rate (%)                  2%          6%      6%             32%       32%     32%
       Source: Company, L&T MF Research
Wipro
Background
Wipro is India's third largest IT services exporter. Wipro IT services
                                                                                                       Justification Report
                                                                                                                   TH
(USD5.2b, FY11) accounted for 75% of company's revenue & 92% of                                            Date: 14     MARCH 2012
EBIT. It also has a consumer care and IT products business. Its IT
services business is known for its wide range of offerings (R&D                  Rating
services to BPO) and is a leader in R &D services and infra
management services                                                              CMP                                          428
                                                                                 Recommendation                              BUY
Investment Arguments

Improving revenue outlook                                                        Scrip Scan
Q4 guidance and anecdotal evidence encouraging                                   Face Value                                      2
Wipro’s Q3 rev growth at 4.5% (constant currency) matched growth shown by
                                                                                 O/s. Equity Shares (Mn)                     2458
Infy, TCS after several quarters and above the top end of company guidance
of 4%. Additionally, its 4Q revenue guidance of 1-3% qoq growth stands           Market Cap. (Rs. TN)                         1.05
higher than that of Infy (0% qoq).
                                                                                 52 Week High/Low                             490
High emphasis on improving profitability                                         AMFI Classification
Wipro believes it has scope to tighten operations which will help bridge
                                                                                 Daily Avg. Vol. (1 mth)                     25.16
the gap in profitability with TCS and Infosys over the medium term. Some
of the areas are correcting bulge in employee pyramid, improvement in                                                    WPRO IN
                                                                                 Bloomberg code
FPP execution etc. Not all of the improvement in operations may flow                                                      EQUITY
through the margins as some of it may be reinvested in business
development and strengthening of sales organization. Wipro also                  Price Performance
emphasized its focus on profitable growth and aspirations to close the           Period                    Absolute        Relative
gap in profitability with peers
                                                                                 3 month                        6.3           (8.4)
                                                                                 6 month                       24.1           15.1
                                                                                 12 month                      (2.3)          (1.1)
Valuations
Post Q3, we raise our PO to Rs490 (vs Rs470) at 17.5xFY13E, comparable
to our earnings multiple for Infy but with higher earnings growth forecast. We
tweak FY12-14 EPS by -1 to 1%. At 18xFY12E, we believe the stock is fairly
valued and see earnings growth led upside from current levels.

Recommendation
Wipro has bridged the gap on revenue growth with peers in a seasonally
weak quarter. The next challenge is to ensure growth in line with peers in
a seasonally strong quarter as well; the company appears to have laid
the right foundations. Retain Buy rating.
Financial Performance and forecast
 Particulars (Rs. Mn)              FY2009    FY2010    FY2011    FY2012E   FY2013E
 Revenue Rs. Mn                    256891    271957    310542    374842    440950
 EBIDTA Rs. Mn                      50246     59342     65880     75030     87794
 PAT Rs. Mn                         38760     45931     52976     56117     67912
 EBITDA Margin (%)                    19.6      21.8      21.2        20      19.9
 Net Profit Margin (%)                15.1      16.9        17        15      15.4
 EPS(Rs)                            15.94     18.88     21.54      22.89    27.71
 EPS Growth (%)
 BV/Share (Rs)
 Market cap /Sales (x)
 P/E (x)                                20    21.91     19.21      18.07     14.93
 EV/EBITDA(x)                       16.13     14.53     12.76      10.90      9.61
 RoE (%)                            17.95     18.85        20       21.2
 ROCE (%)
Source: Company, L&T MF Research
WIPRO

Highlights                                                                                                      Company Update
3Q: A quality beat                                                                                              TH
Wipro Ltd. rev & PAT beat our estimate by 7.5% and 6% respectively.                                  Date: 14        March 2012
Wipro IT services saw all-round rev growth of 4.5% qoq, constant
currency basis, 1% higher than our estimate and in line with peers Infy &     Scrip Scan
TCS after several quarters of slower growth. EBIT margin expansion of
                                                                              CMP                                              428
~80bps beat our estimate by 30bps. Adjusting EBIT margin for the
differential accounting vs peers (Wipro records revs at hedged rates          Face Value                                         2
rather than spot) margins expanded 270bps qoq, driven by INR
                                                                              O/s. Equity Shares (Mn)                         2458
depreciation & higher realization offset by investment in SG&A & bench.
Improved cash generation with DSOs declining and highest FCF/Sales in         Market Cap. (Rs. tn)                            1.05
past 7qtrs.
                                                                              52 Week High/Low                                 490
   Outlook                                                                   AMFI Classification
Growing business momentum, in our view                                        Daily Avg. Volume (1 mth)                     25.16
Wipro has stepped up investments in employee hiring over the past two
quarters and lowered utilization rates, indicating improved demand                                                        WPRO IN
                                                                              Bloomberg code
visibility for company. Its 4Q rev guidance of 1-3% qoq growth is higher                                                   EQUITY
than that of Infy (0%qoq). Moreover, it has lesser exposure to the
discretionary service line of enterprise application services / consulting.
We expect steady EBIT margins for Wipro over FY12-14 (vs. a decline
for peers) as the company optimizes operations                                Price Performance (%)
                                                                              Period                   Absolute             Relative
 Valuations
                                                                              3 month                       6.3               (8.4)
Post Q3, we raise our PO to Rs490 (vs Rs470) at 17.5xFY13E,
comparable to our earnings multiple for Infy but with higher earnings         6 month                     24.1                15.1
growth forecast. We tweak FY12-14 EPS by -1 to 1%. At 18xFY12E, we            12 month                    (2.3)               (1.1)
believe the stock is fairly valued and see earnings growth led upside from
current levels.
Financial Performance Analysis
 Particulars (Rs. Mn)      3QFY12         3QFY11     % YoY      2QFY12       % QoQ         FY11           FY12E         FY13E
 Net Sales                    98808          78202       26.3        90070           9.7     310542         374842       440950
 Operating Expenses           78965          61767       27.8        72672           8.7     244662         299813       353156
 EBITDA                        19843         16435       20.7        17398       14.1         65880          75030        87794
 Interest                      1017            427       138          1250      -18.6             4078        4078         2947
 Depreciation                  2604           2078                    2520           3.3      10308          10308        11260
 EBT                           16222         13930       16.5        13628                    51494          60644        73587
 Other Income                  2149           1751       22.7         2113       22.7             6651        8974        10812
 PBT                           18371         15881       17.2        15741       16.7         62387          69618        84400
 Taxes                         3810           2582       47.6         2841       47.6             9896       13674        16458
 PAT                           14561         13099       11.2        12900       11.2         52491          55943        67942
 Minority Interest             (114)           -71                      10                        (345)      (272)         (532)
 Extra Ordinary Item            117            160              99                                 648            445       502
 Adjusted PAT                  14564         13188       10.4        13009                    52976          56117        67912
 Equity
 Key Ratios
 EBITDA Margin (%)              20.1            21                    19.3                        21.2             20      19.9
 PAT Margin (%)                 14.7          16.9                    14.4                          17             15      15.4
 Tax Rate (%)                   20.7          16.5                      18                        15.9        19.6         19.5
 EPS                            5.92          5.36                    5.29                        21.5        22.8         2.76
       Source: Company, L&T MF Research
Ambuja Cement
Background
                                                                                                    Justification Report
Ambuja Cements has five integrated cement manufacturing plants
and eight cement grinding units across the country with a total capacity                                                    Date:
of 25MTPA.
Holcim acquired management control of ACL in 2006.                       Rating
Holcim today holds ~50% equity in ACL.                                   CMP                                                167
Investment Arguments                                                         Recommendation                                 Buy

Higher exposure towards North and West regions
                                                                             Scrip Scan
 ACL has almost 75% of its exposure towards North and West regions
which have been witnessing early signs of revival We appreciate that         Face Value                                       2
ACL does not have any exposure towards Southern region which                 O/s. Equity Shares (Mn)
currently is in a bad situation due to oversupply.                           Market Cap. (Rs. Bn)                           258
                                                                             52 Week High/Low                         182/120
Lower clinker purchase cost to benefit in the long run
In CY11, the company has purchased only 0.36MT of clinker as                 AMFI Classification
compared to 1.7MT in CY10 due to commissioning of two new                    Daily Avg. Vol. (1 mth)
clinkerization units at Bhatapara and Rauri in Q1CY10.                       Bloomberg code                            ACEM
As a result of these new clinker plants, the company’s clinker purchase
cost has gone down significantly in CY11 to Rs 1,237mn from Rs,707mn         Price Performance
in CY10. Going forward, we are expecting no major cost of clinker
                                                                             Period                    Absolute       Relative
purchased due to substituting own produced clinker for purchased
                                                                             3 month                        4.9             (9.8)
clinker to a large extent.
                                                                             6 month                        7.2             (1.8)
                                                                             12 month                      28.6             29.8
Latest Quarterly Result Review
For 4QCY2011, Ambuja Cements (ACEM) reported 17.2% growth in its
bottomline, which was higher than our estimates. Better-than-expected
performance was on account of higher volumes. The company’s realization
also improved by 17.5% yoy and 11.8% qoq. However, the company faced
substantial margin pressure due to higher freight expenses and other
costs, which negated the improvement in realization, resulting in a
marginal 63bp decline in OPM to
19.1%.

Improving efficiency of logistic operations
Currently, the company is having 7 ships with 20,500DWT capacity to
transport the cement from Ambujanagar to Panvel and Surat. These
ships are just sufficient to meet the present requirement. To cater the
growing market needs of South Gujarat and Mumbai, the company had
ordered three more ships with total capacity of 11800 DWT. Out of
these three ships, one ship was delivered in
CY10 for Performance transportation
Financialwestern coastaland forecast and the remaining two ships
 Particulars to be brought into the system in the 2HCY11. The said
are expected (Rs. Mn)                    FY2009           FY2010             FY2011           FY2012E             FY2013E
ships are expected to improve the efficiency of logistic operations of the
 Revenue Rs. Mn                                           73,902             85,145            93,240             102,710
company Rs. Mn                                            18,240
 EBIDTA and is expected to save cost , however, we have not                  19,060            22,610              24,880
 PAT Rs. Mn same in our valuation as it is very difficult12,370
considered the                                             to calculate      12,530            14,220              16,180
 EBITDA freight cost
savings inMargin (%) on account of the logistic improvement. 24.7              22.4              23.8                24.2
 Net Profit Margin (%)                                      16.7               14.8              15.3                15.9
 EPS(Rs)
Valuations                                                   8.1                 8.2               9.3               10.5
 EPS Growth (%)
 BV/Share (Rs)
Recommendation
 Market cap /Sales (x)
 P/E (x)                           19.8   19.5   17.4   15.1
 P/BV(x)                            3.2    3.1    2.8    2.6
 RoE (%)                           18.1   16.4   16.6   17.1
 ROCE (%)                          20.5   18.7   20.6   20.9
Source: Company, L&T MF Research
Escorts      Ltd
Background
Escorts is the third largest tractor company in India with c. 12% market share.
                                                                                                         Justification Report
It is also present in construction & material handling equipment, railway                                                  Date:
equipment and auto components businesses.
Escorts has dominated the market for high-end tractors (41-50HP). It has the      Rating
highest market share in this category, at 16-20%. It manufactures and             CMP                                      76.5
markets a range of construction and material handling equipment, such as
cranes, compactors and forklifts with c. 54% market share in pick & carry         Recommendation                           Buy
(PNC) cranes segment.
Escorts has a wide product range in tractors and its key brands are: Farmtrac -   Scrip Scan
Premium brand, 45-75 hp range; Powertrac – Value for money brand, 35-55
                                                                                  Face Value                                 10
hp range; Escorts Josh - Economy brand, 25-35 hp range. New Jai Kisan series
is also available under the Farmtrac brand.                                       O/s. Equity Shares (Mn)                  105
                                                                                  Market Cap. (Rs. Bn)                     8.13
Investment Arguments
                                                                                  52 Week High/Low                      149/64
Tractor business to regain momentum
Escorts has c.20% market share in the northern region which                       AMFI Classification
accounted for c. 57% of its volumes in FY11. Escorts is currently                 Daily Avg. Vol. (1 mth)
focussing to increase its share in high-growing southern region
                                                                                  Bloomberg code                           ESC
where it has only 5% market share. It is already in advanced stage
to launch new tractor models especially designed for harder soils
of AP & Karnataka. We expect tractor division topline (~72% revenue               Price Performance
contribution) to register a CAGR of 14% over the next 2 years.                    Period                    Absolute    Relative
                                                                                  3 month                      (15.7)      (9.1)
Construction equipment division building muscles
                                                                                  6 month                          0.     (10.2)
Escorts through its 100% subsidiary Escorts Construction Equipment Ltd.
(ECEL) is the market leader in the PNC segment and enjoys number 2 position       12 month                     (46.7)     (43.0)
in slew cranes & number 3 position in Compactors in India. In order to cater
to the growing market demand, Escorts is in the process of doubling its
capacity by FY13E with a capex of INR 405 mn. We expect ECEL topline (~20%
revenue contribution) to register a CAGR of 25% over the next 2 years.

Auto suspension division to break-even by FY13E
Escorts derives c.3% of its revenues from Auto suspension division (ASD). ASD
derives ~60% of its revenues from exports and ~20% from replacement &
OEMs respectively. At present it is catering to the likes of two-wheeler
manufacturers viz. TVS Motors, M&M & Suzuki in domestic market &
Yahama, Suzuki, Aprilia & Malaguti in exports market. Escorts is planning to
add new products and also start catering to 4-wheelers manufacturers. We
expect ASD to break-even by FY13E and register a CAGR of 44%in revenues
over the next 2 years.



Valuations


Recommendation
Financial Performance and forecast
 Particulars (Rs. Mn)              FY2009   FY2010   FY2011   FY2012E   FY2013E
 Revenue Rs. Mn                             33780    41250     48480     56500
 EBIDTA Rs. Mn                               2450     1938      2330      3550
 PAT Rs. Mn                                  1263     1365      1090      1940
 EBITDA Margin (%)                             7.2      4.7       4.8       6.3
 Net Profit Margin (%)                         3.7      3.3       2.2       3.4
 EPS(Rs)                                      13.7     14.8      11.5      21.2
 EPS Growth (%)
 BV/Share (Rs)                                183      195       206       221
 Market cap /Sales (x)
 P/E (x)                                      18.1      4.5       5.8       3.8
 P/BV(x)                                       1.3      0.4       0.4       0.3
 RoE (%)                                       8.2      7.9       5.9       9.8
 ROCE (%)                                      9.8      6.6       7.7      12.4
Source: Company, L&T MF Research
HDFC Bank
Background
                                                                                          Justification Report
The bank has assets in excess of INR 3.3 trillion and operates
through a domestic network of over 2,200 branches and 7,100                                                Date:
ATM’s. The bank provides a full breadth of retail
products and services including broking through it subsidiary      Rating
“HDFC Securities’. The bank has successfully merged                CMP                                     527
two private banks with itself, the first being Times Bank and      Recommendation                         BUY
more recently Centurion Bank of Punjab.

Investment Arguments                                               Scrip Scan
                                                                   Face Value                                 2
HDFC Bank delivered yet another set of consistent numbers in       O/s. Equity Shares (Mn)                2341
line with our estimates. NII grew 12.2% to Rs ~31.2bn driven
                                                                   Market Cap. (Rs. Bn)                   1230
by above industry loan book growth of 22.1% and with NIM at
4.1%. Core fee income grew in-line with business growth at         52 Week High/Low                     540/400
19.6% YoY. Loan loss provisions were flat YoY but increased        AMFI Classification
31.5% sequentially to Rs 2.9bn (0.6% credit cost). CASA ratio      Daily Avg. Vol. (1 mth)
declined YoY (280bps) to 47.3%. Thus, bottom-line grew
                                                                   Bloomberg code                       HDFCB
31.4% (& 19.2% QoQ) to Rs 14.3bn.
Asset quality marginally deteriorated both YoY & sequentially
with GNPA and NNPA currently at 1.03% & 0.20%                      Price Performance
respectively. However, PCR continues to remain higher 80.3%.       Period                    Absolute   Relative
Restructured assets were at 0.4% of gross advances,                3 month                       17.6        2.9
reflecting the bank’s strong underwriting standards.               6 month                        4.7      (4.3)
                                                                   12 month                      16.1      17.4
NPLs – the sweet spot continues.
 Credit costs remained low at ~60bp, surprising on the upside.
Indian private banks have been consistently delivering very low
credit costs, as retail asset quality continues to be strong on
the back of improved discipline and a strong credit bureau. We
have modeled credit costs to rise 23bps in FY13, but there are
no signs of an upturn yet.

Financial Performance and forecast (Standalone)
Valuations
 Particulars (Rs. Mn)               FY2011        FY2012E         FY2013E         FY2014E
 Net Interest Income Rs. Mn        105,450         117105         144867          178851
 Other Income                        43350          52022          65027           81284
Recommendation
 Total Income                       148700         169127         209894          260135
 Operating Profit (pre P)Rs. Mn      94964          96656         126077          161,267
 Provisioning                        36,777        20,390         22,491           24,973
 Profit after Tax                    39,264        51,464         69,899           91,971
 NIM (%)                                 4.4           4.1            4.2              4.2
 EPS(Rs)                                  16            21             29               38
 EPS Growth (%)
 BV/Share (Rs)                          106           122            145                 174
 Market cap /Sales (x)
 P/E (x)                                  32            24             19                 14
 P/BV(x)                                   5           4.3            3.6                3.0
 RoE (%)                               16.7           18.8           21.8                 24
 Net NPA (%)                             0.2           0.2            0.3                0.2
Source: Company, L&T MF Research
ICICI Bank
Background
ICICI Bank Limited is India's second-largest bank with total assets of Rs.                                Justification Report
4,062.34 billion (US$ 91 billion) at March 31, 2011 and profit after tax Rs.                                               Date:
51.51 billion (US$ 1,155 million) for the year ended March 31, 2011. The
Bank has a network of 2,564 branches and about 7,440 ATMs in India, and
                                                                                   Rating
has a presence in 19 countries, including India.
ICICI Bank offers a wide range of banking products and financial services to       CMP
corporate and retail customers through a variety of delivery channels and          Recommendation
through its specialised subsidiaries in the areas of investment banking, life
and non-life insurance, venture capital and asset management.
Investment Arguments                                                               Scrip Scan
Improved BS strength and profitability
                                                                                   Face Value
Post ICICI Bank’s 4C turnaround strategy, the bank is back to delivering
profitable growth, with RoA moving up from a low of 1% in FY09 to                  O/s. Equity Shares (Mn)
1.3% in FY11. With our expectation of healthy loan growth of 18.5% in
                                                                                   Market Cap. (Rs. Bn)
FY12E and 19% in FY13E, we expect the bank to deliver RoA of 1.5%
in FY12E and FY13E against 1.3% for FY11, and RoE to move into                     52 Week High/Low
double-digit territory as the bank leverages a leaner opex structure               AMFI Classification
and a more resilient balance sheet, with stable margins and credit
costs.                                                                             Daily Avg. Vol. (1 mth)
                                                                                   Bloomberg code
Loan book to be driven by domestic demand
ICICI Bank’s domestic loan growth has shown steady growth over the
last 6 quarters with the retail book also stabilising over the last 4         Price Performance
quarters after going through a phase of consolidation as the bank derisked by Period                         Absolute   Relative
shedding unsecured loans. We expect retail book growth to
pick up momentum in the coming quarters.                                      3 month
                                                                                   6 month
Stable asset quality, despite exposure to risky assets                             12 month
While gross NPLs have come off from recent highs, and provision
coverage stands at a healthy 79% (3QFY12), the bank has meaningful
exposure to stressed assets such as commercial real estate and
infrastructure particularly in the power segment, as well as
restructured assets of INR31 bn or 1.2% of the loan book.




Valuations
ICICI Bank is trading at the lower end of its historical P/ Adj B and P/E bands.
We believe that the bank is poised to recover lost ground and shift into a
higher growth trajectory – which should translate into higher valuations
multiples. We value ICICI Bank on a sum of the parts (SoTP) basis at
INR1,150. Currently, the stock is trading on a FY13E P/B ratio of 1.72x and P
/Adj BV ratio of 1.79x as against our target price implied P/B of 2.13x and
P/Adj BV ratio of 2.21x.

Recommendation
Financial Performance and forecast (Standalone)
 Particulars (Rs. Mn)               FY2011        FY2012E    FY2013E    FY2014E
 Net Interest Income Rs. Mn          90,170       112,950    133,060    160,280
 Other Income                        66,480        71,790     82,560     90,850
 Total Income                       156670        184,740    215,620    251,130
 Operating Profit (pre P)Rs. Mn    104,700        124,790    147,400    173,350
 Provisioning                        37,100        38,900     43,360     45,490
 Profit after Tax                    51,500        65,450     73,300     97,450
 NIM (%)                                 2.5           2.6        2.7        2.7
 EPS(Rs)                                  43            54         67         81
 EPS Growth (%)
 BV/Share (Rs)                          464           499        542        595
 Market cap /Sales (x)
 P/E (x)                               22.1          18.6       15.8       12.4
 P/BV(x)                                 2.0          1.9        1.7        1.6
 RoE (%)                                 9.8         11.5       12.8       14.4
 Net NPA (%)                             1.1          0.9        1.0        1.2
Source: Company, L&T MF Research
Infosys

Investment Arguments                                                                                        Justification Report
                                                                                                                                Date:

Visas not a disruptive issue. It is only inconvenient as of now.                     Rating
Leaving aside the pending specific suit against Infosys of visa misuse, we do
not believe that visas are a disruptive issue for Infosys. In fact, Infosys’         CMP                                       2878
historical dependence on H-1B visas (as against L1 visas) keeps it in
                                                                                     Recommendation                             Buy
relatively safer waters. The rejection rates in H-1B visas,
while higher than in the past, is nowhere as elevated as seen in L1 visas
(TCS is more dependent on L1 visas than H-1B visas, so this visa aspect is           Scrip Scan
potentially more problematic for TCS). However, the request for evidence
(RFEs) is much greater for all types of visas indicating that planning should        Face Value                                    5
incorporate the longer-timelines in obtaining visas.
                                                                                     O/s. Equity Shares (Mn)                     574

Infosys’ pricing premium is because of the brand but we differ.                    Market Cap. (Rs. Bn)                      1653
Shibu believes that Infosys’ pricing premium is attributable to the Infosys
                                                                                     52 Week High/Low                      3317/2169
brand. Clients willingly pay a premium for the holistic solution. We believe
that larger clients of Indian IT and of Infosys (especially the BFSI clients) are    AMFI Classification
experienced outsourcers running a tight procurement process. They will likely
question the need to grant pricing premium to any one vendor in                      Daily Avg. Vol. (1 mth)
engagements where substantial differentiation is not visible                         Bloomberg code                            INFO

Focus on “bread-and-butter” offerings is high.
We believe and have said repeatedly before that while Infosys’ high-value            Price Performance
positioning is creditable, we wonder if that alone can help Infosys achieve its      Period                    Absolute      Relative
growth potential given its size. “Bread-and-butter” offerings encompassing
infra management, BPO, testing, application maintenance are showing                  3 month                        5.0         (9.7)
relatively rapid growth for TCS driven by process efficiencies, scale and            6 month                       18.4           9.4
costarbitrage.                                                                       12 month                      (5.9)        (4.6)
Valuations


Recommendation




Financial Performance and forecast
 Particulars (Rs. Mn)               FY2010                        FY2011            FY2012E         FY2013E
 Revenue Rs. Mn                    227,550                       274,990            342700          399,900
 EBIDTA Rs. Mn                       78200                        89580             109,700         126,790
 PAT Rs. Mn                          62214                        68233              83920           97,360
 EBITDA Margin (%)                     34.4                         32.6               32.2            31.7
 Net Profit Margin (%)                 27.3                         24.8               24.5            24.3
 EPS(Rs)                                108                          118                146             170
 EPS Growth (%)
 BV/Share (Rs)                          420                           475              574                 660
 Market cap /Sales (x)
 P/E (x)                               26.2                          23.9              19.5                16.8
 P/BV(x)
 RoE (%)                               28.8                          26.6              27.9                26.9
 ROCE (%)                              28.3                          29.5              29.7                28.8
Source: Company, L&T MF Research

				
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