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					                                                                30 March 2009




                                         India Strategy


   FY09 - the second worst
    year for Indian equities
                since FY80

    4QFY09 - most sectors
     would report earnings
     decline or single-digit
                    growth

    Trend of performance
   divergence continues…

  …but we could be at the
     end of the earnings
        downgrade cycle

       Elections 2009 - an
             important but
   unpredictable milestone
        for Indian equities

       Inflation unlikely to
         rebound in FY10;
           valuations below
         historical averages



 RESULTS PREVIEW




  Quarter ending March 2009
                                     Fading darkness
Prices as of Friday, 27 March 2009        Research Team (Rajat@MotilalOswal.com)
                                                                                                    Results Preview




   Contents
   India Strategy            3-62      Dabur India                    140       MRPL                           209
                                       GSK Consumer                   141       ONGC                           210
1. Automobiles              63-74      Godrej Consumer Products       142       Reliance Industries            211
   Bajaj Auto                  70      Hindustan Unilever             143
   Hero Honda                  71      ITC                            144   11. Pharmaceuticals            212-231
   Mahindra & Mahindra         72      Marico                         145       Aventis Pharma                 219
   Maruti Suzuki India         73      Nestle India                   146       Biocon                         220
   Tata Motors                 74      Tata Tea                       147       Cadila Healthcare              221
                                       United Spirits                 148       Cipla                          222
2. Banking                 75-100                                                    s
                                                                                Divi’ Laboratories             223
   Andhra Bank                 84   6. Information Technology149-160                      s
                                                                                Dr Reddy’ Labs.                224
   Axis Bank                   85      HCL Technologies               154       GSK Pharma                     225
   Bank of Baroda              86      Infosys                        155       Glenmark Pharma                226
   Bank of India               87      MphasiS                        156       Jubilant Organosys             227
   Canara Bank                 88      Patni Computer                 157       Lupin                          228
   Corporation Bank            89      TCS                            158       Piramal Healthcare             229
   Federal Bank                90      Tech Mahindra                  159       Ranbaxy Labs.                  230
   HDFC                        91      Wipro                          160       Sun Pharmaceuticals            231
   HDFC Bank                   92
   ICICI Bank                  93   7. Infrastructure             161-169   12. Real Estate                232-243
   Indian Bank                 94      Hindustan Construction         165       DLF                            242
   Indian Overseas Bank        95      IVRCL                          166       Unitech                        243
   J&K Bank                    96      Jaiprakash Associates          167
   Oriental Bank               97      Nagarjuna Construction         168   13. Retailing                  244-250
   Punjab National Bank        98      Simplex Infrastructure         169       Pantaloon Retail               249
   State Bank                  99                                               Titan Industries               250
   Union Bank                 100   8. Media                      170-180
                                       Deccan Chronicle               175   14. Telecom                    251-263
3. Cement                 101-115      HT Media                       176       Bharti Airtel                  261
   ACC                        109      Jagran Prakashan               177       Idea Cellular                  262
   Ambuja Cement              110      Sun TV Network                 178       Reliance Communication         263
   Birla Corporation          111      TV Today                       179
   Grasim Industries          112      Zee Entertainment              180   15. Textiles                   264-270
   India Cements              113                                               Alok Industries                267
   Shree Cement               114   9. Metals                     181-191       Arvind Mills                   268
   UltraTech Cement           115      Hindalco                       184       Raymond                        269
                                       Hindustan Zinc                 185       Vardhman Textiles              270
4. Engineering            116-129      Jindal Steel                   186
   ABB                        121      JSW Steel                      187   16. Utilities                  271-280
   Bharat Electronics         122      Nalco                          188       CESC                           276
   BHEL                       123      Sterlite Industries            189       NTPC                           277
   Crompton Greaves           124      SAIL                           190       PTC India                      278
   Cummins India              125      Tata Steel                     191       Reliance Infrastructure        279
   Larsen & Toubro            126                                               Tata Power                     280
   Siemens                    127   10. Oil & Gas                 192-211
   Suzlon Energy              128      BPCL                           202   17. Others                     281-285
   Thermax                    129      Cairn India                    203       Blue Star                      281
                                       Chennai Petroleum              204       Bombay Rayon                   282
5. FMCG                   130-148      GAIL                           205       Everest Kanto Cylinders        283
   Asian Paints               137      HPCL                           206       Sintex Industries              284
   Britannia Industries       138      IOC                            207       United Phosphorus              285
   Colgate Palmolive          139      Indraprastha Gas               208

27 March 2009                                                                                                    2
                                                                                                              Results Preview
                                                                                                      QUARTER ENDING MARCH 2009




                                                                                                      India Strategy

BSE Sensex: 10,049         S&P CNX: 3,109                                                                      27 March 2009

                                   FY09: 2nd worst year for Indian equities since FY80
                                   The BSE Sensex has declined 36% in FY09, making it the 2nd worst year for Indian
                                   equities in the last three decades. The key negatives that drove down Indian markets
                                   were weakness in global financial markets, slowdown in the domestic economy, tight
                                   monetary policy in 1HFY09, and heavy selling by FIIs. All these factors contributed to
                                   a series of large downgrades in corporate sector earnings. Another highlight of FY09
                                   has been a 27% depreciation in the Indian rupee v/s the US dollar, which has also had
                                   a negative impact on earnings.


                                   4QFY09: most sectors would report earnings decline or single-digit
                                   growth
                                   We expect MOSL Universe (comprising 117 companies) excluding oil refining &
                                   marketing companies (RMCs) to report 1.5% YoY decline in sales, 11.8% YoY decline
                                   in EBITDA and 19.3% YoY decline in net profit in 4QFY09. RMCs would be reporting
                                   significant profits due to issuance of oil bonds; hence we have excluded them from the
                                   comparison. Most sectors would report either a decline or single-digit growth in earnings
                                   with just 3 out of 16 sectors reporting double-digit earnings growth. The decline in
                                   aggregates would be largely due to sharply lower earnings from Metals and Real Estate.
                                   Excluding these two sectors, aggregate earnings would grow 3% YoY.


                                   Are we at the end of earnings downgrade cycle?
                                   Downgrade in our Sensex EPS estimates commenced with our 4QFY08 quarterly results
                                   preview and has continued in the following quarters. Since our 3QFY09 results review
                                   released in February 2009, there is no change in our FY10 Sensex EPS estimate of
                                   Rs886. The major changes in assumptions have already been factored in post 3QFY09
                                   results. This is positive, given that some of the incremental data points have started
                                   looking up and these are also being reflected in our estimates. For FY09, we estimate
                                   Sensex EPS at Rs877 v/s Rs840 in our 3QFY09 results review, which implies an upgrade
                                   of 4.4% and translates into a growth of 5.2% over FY08.


                                   Elections 2009: an important but unpredictable milestone for Indian
                                   equities
                                   In 1QFY10, the most important event for the markets would be the General Elections
                                   scheduled for April-May 2009. The recent history of state election results in Rajasthan,
                                   MP, Chattisgarh, Delhi, J&K, etc and the stance of various regional parties do not
                                   provide any pointers to the likely winner. While the government will be formed through
                                   a coalition of multiple political parties (no single party is likely to win a majority on its


Navin Agarwal (Navin@MotilalOswal.com)/Rajat Rajgarhia (Rajat@MotilalOswal.com)

27 March 2009                                                                                                                  3
                                                                                              India Strategy




                own), the dominant party, its allies and their willingness to introduce economic reforms
                would be a significant catalyst for Indian equities. This becomes even more important in
                the current environment of economic slowdown. Market reaction was very adverse to
                the unexpected outcome of the elections in May 2004.


                Macro indicators: mix of positives and negatives
                After an above-average growth of 8-9% since FY03, GDP growth for FY09 is likely to
                decline to 6.7% on strong global headwinds and rub-off impact on the Indian economy.
                The estimated real GDP growth of 6.7% in FY09 is still better than most economies and
                is led by strong domestic consumption. Several sectors that had reported significant
                drop in business momentum in 3QFY09, have witnessed strong recovery in 4QFY09.


                Inflation unlikely to rebound in FY10; RBI to continue easing
                FY09 has witnessed high inflation of 12.9%, and subsequently, a 30-year low of 0.3% in
                the latest weekly data. In CY08, the average WoW change in WPI was 0.156%, much
                above the preceding 3-year average change of 0.107%. The two key drivers of this
                inflation were prices of base metals and oil, which have declined significantly in the last
                six months. We expect inflation to turn negative for the next six months. A deflationary
                environment would be conducive for both the RBI and the government to pursue more
                measures to stimulate growth.


                Valuations below historical averages
                As the Sensex declined from 21,000 to below 10,000, all the key valuation parameters
                fell below the historical averages. The BSE Sensex now trades at a forward P/E of
                11.3x v/s the 15-year median of 13.3x, while the P/B multiple has declined from 4.3x to
                1.9x. Following the deceleration in earnings momentum, Sensex RoE is now estimated
                at 17% v/s its peak RoE of 24%. At the current levels, earnings yield to bond yield is
                1.3x, close to its all-time peak of 1.4x.


                Sectors/stocks to bet on
                We recommend investing in Financials, Autos, Telecom, Oil & Gas, and Pharmaceuticals.
                Among the large caps, we like HDFC Bank and PNB in Financials, Hero Honda and
                M&M in Autos, Bharti and Reliance Communications in Telecom, BPCL and RIL
                                                        s
                in Oil & Gas, and Divis Labs, Dr Reddy’ Lab and Sun Pharma in Pharmaceuticals.
                We also like Jindal Steel and Power.




27 March 2009                                                                                             4
                                                                                                         India Strategy




                FY09: 2nd worst year for Indian equities since FY80


                The BSE Sensex has declined 36% in FY09, making it the 2nd worst year for Indian
                equities in the last three decades. FY93, the worst year, when the Sensex declined 47%,
                was followed by a 66% rise in the Sensex in FY94. In FY09, the key negatives that drove
                down markets were weakness in global financial markets, slowdown in domestic economy,
                tight monetary policy in 1HFY09, and heavy selling by FIIs. All these factors contributed
                to a series of large downgrades in corporate sector earnings. Another highlight of FY09
                has been a 27% depreciation in the Indian rupee v/s the US dollar, which has also had a
                negative impact on earnings.

                While the monetary policy has eased significantly in 2HFY09, credit demand has slowed
                down to 18%. As the recovery in earnings momentum will take time, attractive valuations
                remain the key driver for the stock markets at current levels. While domestic inflows will
                continue to drive institutional interest in equities, any change in the FII flows will create
                meaningful impact on Indian equities.

                BSE SENSEX ANNUAL RETURN SINCE FY80


                           Sensex Annual Return (%) - LHS       30 Yr CAGR (1980-2009) :        16.2%
                           Sensex - RHS                         10 Yr CAGR (1999-2009) :        10.3%
                 110                                                                                           16,000
                                                                5 Yr CAGR (2004-2009) :         12.3%
                        Growth for 1992 is 267%
                                                                Bull Run CAGR (2003-2008) :     38.7%
                  70                                                                                           12,000

                  30                                                                                           8,000

                 -10                                                                                           4,000

                 -50                                                                                           0
                           1980
                           1981
                           1982
                           1983
                           1984
                           1985
                           1986
                           1987
                           1988
                           1989
                           1990
                           1991
                           1992
                           1993
                           1994
                           1995
                           1996
                           1997
                           1998
                           1999
                           2000
                           2001
                           2002
                           2003
                           2004
                           2005
                           2006
                           2007
                           2008
                       2009 YTD




                CLASSIFICATION OF SENSEX ANNUAL RETURN (%) SINCE FY80

                 Positive Years: 19 (63%)
                 Negative Years: 11 (37%)

                                          2003      -12        2008      20
                                          2002       -4        2007      16
                                          2001      -28        2005      16
                                          1999       -4        1998      16                             2006    74
                                          1997       -0        1996       3                             2004    83
                                          1995      -14        1990       9     2000          34        1994    66
                                          1988      -22        1984      16     1991          50        1992   267
                 2009YTD      -36         1987      -11        1982      26     1985          44        1989    79
                   1993       -47         1983       -3        1980      29     1981          35        1986    62
                   Year        %          Year        %        Year       %     Year           %        Year     %
                 -30 to -60             -30 to 0              0 to 30          30 to 60                  >60
                                              Percentage Total Return Range
                Note: Returns for financial years                                             Source: Bloomberg/MOSL

27 March 2009                                                                                                          5
                                                                                                                                                                                                                      India Strategy




                                                                                 Leaders and laggards for FY09 and FY03-09
                                                                                 During FY09, Real Estate and Metals were the two worst performing sectors while FMCG
                                                                                 outperformed significantly. Over FY03-09, Engineering was the best performing sector,
                                                                                 while IT underperformed. Banks and Autos performed in line with Index during FY09 and
                                                                                 FY03-09.

                                                                                 As far as specific stocks are concerned, Hero Honda delivered returns of 57% v/s 36%
                                                                                 decline in Nifty in FY09. Reliance Communications, L&T and ICICI were the worst
                                                                                 performers. Over the last six years, Bharti, L&T and BHEL were the top performers
                                                                                 while Ranbaxy, Hindustan Unilever and Infosys were amongst the worst performers.

TOP OUTPERFORMERS AND UNDERPERFORMERS FOR FY09*                                                                                      TOP OUTPERFORMERS AND UNDERPERFORMERS FOR FY03-09*
                           To
                       und p marke
                          er p                                                                                                        75 67
                              erfo t
                                  rme                                            Top m                                                               57 55
 -80                                 rs                                               arket                                                                    50
     -64                                                                                    outpe
        -55                                                                                      rform                                50                            41 38 38
           -50                                                                                        ers                                                                           34
              -45-41                                                                                                                                                                     30 30 28 28 27
 -45                    -33 -30                                                                                                                                                                         25
                    -34    -32 -29 -25 -25                                                                                                                                                                       23 21 19
                                      -25                                                                                             25                                                                                  18
                                                                                                      -18 -10                                                                                                                         8
 -10                                                                                                             -7 -7
                                                                                                                                       0
                                                                                                                         5
 25
                                                                                                                                                                                                                                          -10
                                                                                                                             57      -25




                                                                                                                                               ICICI Bank
                                                                                                                                             HDFC Bank
                                                                                                                                           Reliance Inds.
                                                                                                                                            Sun Pharma.




                                                                                                                                           Hind. Unilever
                                                                                                                                             Hero Honda

                                                                                                                                                   HDFC




                                                                                                                                                    Cipla
                                                                                                                                                   BHEL




                                                                                                                                                   ONGC
                                                                                                                                                      ITC
                                                                                                                                             GAIL (India)



                                                                                                                                                     SBI
                                                                                                                                                   Bharti
                                                                                                                                                     L&T




                                                                                                                                             Tata Power




                                                                                                                                                Ranbaxy
                                                                                                                                                    SAIL




                                                                                                                                                 Infosys
                                                                                                                                                    Nifty
 60
              R-Comm

            ICICI Bank




                                                                                   HDFC Bank
        Reliance Inds.




                                                                                 Hind. Unilever
                                                                                  Hero Honda
                                                                                         NTPC
                HDFC




                                                                                         ONGC
                                                                                       BHEL




                                                                                            ITC
                                                                                           TCS
                  SBI
                Wipro




                                                                                         Bharti
                  L&T

                 SAIL




                                                                                       Infosys
                 Nifty




SECTORAL PERFORMANCE FOR FY09*                                                                                                       SECTORAL PERFORMANCE FOR FY03-09*


 -100                                                                                                                                48
        -78                                                                                                                                38

  -75                                                                                                                                36                  32
                       -59 -56
                               -54                                                                                                                                  26
                                                                                                                                                                            23       23      23    22
  -50                                                        -41 -37                                                                 24                                                                     19      18
                                                                     -36 -34 -32
                                                                                 -29 -28 -28                                                                                                                                 15
                                                                                                                                                                                                                                          10
  -25                                                                                                                        -11     12

    0                                                                                                                                 0
                        Cons.Durable



                                               Engineering
         Real Estate




                                                             Utilities




                                                                                                        Pharma



                                                                                                                       PSU




                                                                                                                                           Engineering
                                                                                                                              FMCG
                                                                         Banks




                                                                                                                 Oil
                                       Metal




                                                                                                                                                                                                                             Pharma
                                                                                          IT
                                                                                 Sensex




                                                                                                                                                                                                                   Durable
                                                                                                                                                                                             PSU




                                                                                                                                                                                                            FMCG
                                                                                                                                                                            Banks
                                                                                               Auto




                                                                                                                                                         Oil

                                                                                                                                                                    Metal




                                                                                                                                                                                                                                          IT
                                                                                                                                                                                                   Sensex
                                                                                                                                                                                     Auto




                                                                                                                                                                                                                    Cons.




% Returns YTD                                                                                                                                                                                       Source: Bloomberg/MOSL




27 March 2009                                                                                                                                                                                                                                  6
                                                                                                             India Strategy




                4QFY09: Metals, Real Estate to lead earnings decline


                We expect MOSL Universe (comprising 117 companies) excluding oil refining & marketing
                companies (RMCs) to report 1.5% YoY decline in sales, 11.8% YoY decline in EBITDA
                and 19.3% YoY decline in net profit in 4QFY09. RMCs would be reporting significant
                profits due to issuance of oil bonds; hence we have excluded them from the comparison.
                The decline in aggregates would be largely due to sharply lower earnings from Metals and
                Real Estate. Excluding these two sectors, aggregate earnings would grow 3% YoY.


                Most sectors would report earnings decline or single-digit growth
                For 4QFY09, most sectors would report either a decline or single-digit growth in earnings
                with just 3 out of 16 sectors reporting double-digit earnings growth. Banking would be the
                best performing sector, with earnings growth of 16% YoY. While Metals and Real Estate
                would see earnings declining 86-90% YoY, other sectors with steep earnings decline would
                be Autos and Pharma. QoQ trends are divergent from YoY trends for a few sectors.
                Banking and FMCG will report a QoQ decline in earnings while Autos and Cement will
                witness a growth.

                QUARTERLY PERFORMANCE - MOSL UNIVERSE (RS B)

                                                      SALES                       EBITDA                  NET PROFIT

                                             MAR.09     VAR.     VAR.    MAR.09     VAR.    VAR. MAR.09      VAR.      VAR.

                                                      % YOY     % QOQ             % YOY    % QOQ            % YOY   % QOQ

                Auto (5)                      209.4      -4.5     24.1     20.6    -24.8    65.7    11.4    -38.7    92.4
                Banks (17)                    224.1      20.2     -0.6    192.3     12.3    -7.2    96.0     15.9 -14.0
                Cement (7)                    103.7       6.4      6.7     26.8     -3.7    18.5    15.9     -4.1    11.1
                Engineering (9)               329.4      15.2     28.4     54.2     19.6    53.3    36.7      5.6    49.4
                FMCG (12)                     171.2      14.9      5.1     31.1     12.7    -2.2    20.9     11.7    -4.4
                IT (7)                        254.5      23.8      1.6     60.1     23.8    -4.7    44.0      8.2    -6.3
                Infrastructure (5)             70.2      19.7     24.7      9.7     13.7    45.8     3.8     -8.8     6.5
                Media (6)                      15.6       1.1     -4.6      4.1    -20.4   -10.4     2.4     -6.9 -12.7
                Metals (8)                    558.5     -20.1     -2.8     41.6    -74.9   -52.3     9.0    -90.6 -83.9
                Oil Gas & Petchem (10)     1,723.5      -18.8    -11.6    375.4    133.5   170.7   261.3    239.8 211.4
                Pharma (13)                   106.7       8.0     -3.9     19.4    -22.9   -11.8     6.9    -50.5 -37.4
                Real Estate (2)                12.6     -77.0    -32.1      6.4    -80.5   -37.4     3.6    -86.0 -56.0
                Retail (2)                     26.8      23.0      5.0      2.3     22.4     0.4     0.8     -0.7     8.4
                Telecom (3)                   189.3      25.2      3.9     71.7     14.9     2.5    38.6      4.3    -0.1
                Textiles (4)                   24.8       3.4      2.5      3.9      6.6    -5.3    -0.1       PL      PL
                Utilities (5)                 187.2      22.6      0.6     39.7     20.6     2.0    28.1      6.1     8.6
                Others (5)                     38.8      18.0     26.2      7.3     26.3    35.0     3.9      4.7    51.5
                MOSL (120)*                   4,246      -7.2     -2.1     967      13.4    26.8    583      16.6    27.1
                MOSL Excl. Banks (103)        4,022      -8.3     -2.2     774      13.6    39.4    487      16.7    40.4
                MOSL Excl. Metals (112)       3,688      -4.8     -2.0     925      34.7    37.0    574      42.0    42.6
                MOSL Excl. RMs (117)          3,166      -1.5      4.8     737     -11.8     3.7    406     -19.3    -4.0
                MOSL Excl. Met.&RMs(109) 2,608            3.6      6.6     695       3.8    11.5    397      -2.5     8.3
                Sensex (30)                   2,002      -3.4      4.4     485      -8.4     1.3    272     -15.2    -7.2
                Sensex Excl. Metals (27) 1,630            2.2      8.6     462       3.2    10.3    273      -2.7     7.2
                *Tata Steel Consolidated, PL: Profit to Loss                                                 Source: MOSL




27 March 2009                                                                                                                 7
                                                                                                                                                                                                                                      India Strategy




                The huge base of profits from Metals and Real Estate sector will impact 4QFY09 MOSL
                Universe earnings and is likely to continue for another two quarters, impacting aggregate
                earnings growth. These two sectors contributed 24% on earnings in 4QFY08 which is
                estimated to decline to 3% in 4QFY09. This, we believe, is the key swing factor between
                the expected earnings de-growth of 19% YoY for MOSL Universe ex RMCs to earnings
                growth of 3% YoY for MOSL Universe ex Metals, RMCs and Real Estate.

                CONTRIBUTION OF METALS & REAL ESTATE TO MOSL UNIVERSE PAT EX RMCS IS DECLINING


                 160                       Profit of Metals and Real Estate (Rs b) - LHS                                                                                                                                                                        32
                                           as a % of MOSL Universe (Ex-RMs)
                 120                                                                                                                                                                                                                                            24


                  80                                                                                                                                                                                                                                            16


                  40                                                                                                                                                                                                                                            8


                   0                                                                                                                                                                                                                                            0

                                                                                                                      June-07




                                                                                                                                                                                                  June-08
                       Jun-05




                                                                 Jun-06
                                 Sep-05

                                            Dec-05




                                                                             Sep-06

                                                                                          Dec-06




                                                                                                                                                              Dec-07




                                                                                                                                                                                                                                      Dec-08
                                                                                                                                          Sep- 07




                                                                                                                                                                                                                      Sep- 08
                                                      Mar-06




                                                                                                        Mar-07




                                                                                                                                                                                Mar-08




                                                                                                                                                                                                                                                    Mar-09
                                                                                                                                                                                                      Source: Company/MOSL


                Net profit for MOSL Universe (ex Metals and RMCs) has grown consistently over the
                last several quarters, with a peak in 1QFY09. While 3QFY09 saw a significant moderation
                in absolute profits due to an extremely unfavorable environment, we expect profits to pick
                up QoQ in 4QFY09.

                CONSISTENT GROWTH IN NET PROFIT SINCE JUNE 2005 (RS B)*

                                                                                                                                                                                                               Decline in profit of
                                                                                                                                                                                                               5.8% from 1QFY09

                 500                                                                                                                                                                                        421
                                                                                                                                                                   397               407                                        418                          397
                                                                                                                                              378                                                                                              366
                                                                                                                          342
                 375                                                                        308           316
                                                                              275
                                                      231        245
                 250             214       211
                       188

                 125

                   0
                                                                                                                                June-07




                                                                                                                                                                                                            June-08




                                                                                                                                                                                                                                                             Mar-09E
                        Jun-05




                                                                    Jun-06
                                  Sep-05

                                             Dec-05




                                                                                 Sep-06

                                                                                               Dec-06




                                                                                                                                                                       Dec-07




                                                                                                                                                                                                                                               Dec-08
                                                                                                                                                    Sep- 07




                                                                                                                                                                                                                                Sep- 08
                                                        Mar-06




                                                                                                             Mar-07




                                                                                                                                                                                         Mar-08




                *For MOSL Universe, excluding RMs, Metals                                                                                                                                             Source: Company/MOSL


                Earnings growth of 25% (BSE Sensex) has underpinned India's growth story for the last
                five years. In the past, growth has been broadbased, with most sectors contributing.
                However, we note significant divergence in earnings growth in the recent quarters. We
                analyze the following two trends: [I] Inter-sector performance divergence, and [II] Intra-
                sector performance divergence.

27 March 2009                                                                                                                                                                                                                                                          8
                                                                                              India Strategy




                Divergence in performance has peaked
                The overall slowdown across sectors has lead to a de-growth in net profit of most consistent
                sectors like Autos, Cement, IT, etc, while sectors like RMCs have benefited from the
                downturn. Similarly, the earnings contraction in global cyclicals has further widened the
                divergence amongst the sectors. We believe that the divergence in performance has peaked.


                Inter-sector performance divergence has been stark as earnings growth
                slowed down
                ? Top-5 sectors accounting for 74% of the earnings would report superior earnings
                   growth of 8.9% YoY for 4QFY09 v/s MOSL Universe earnings de-growth of 19%.
                ? Banking and Oil & Gas, the two biggest contributors to earnings, would account for
                   44% of earnings, while other sectors with strong earnings growth include FMCG
                   (11.7%), IT (8.2%) and Utilities (6.1%).
                ? The highest earnings de-growth would be reported by Metals (90.6%), Real Estate
                   (86%), Pharma (50.5%) and Autos (38.7%).

                TOP-5 SECTORS: EARNINGS GROWTH OF 9% V/S UNIVERSE EARNINGS DE-GROWTH OF 19%

                                                                 CONTRIBUTION TO (%)           CHG (%)

                                                           PAT                 PAT GR.            YOY

                Banks (17)                                  24                      14             16
                Oil Gas & Petchem (7)                       21                       4              5
                IT (7)                                      11                       3              8
                Telecom (3)                                 10                       2              4
                Engineering (9)                              9                       2              6
                Total (Top 5 Sectors)                       74                      25              9
                Total (Others)                              26                      75            -53
                MOSL Universe                              100                     100            -19
                                                                                              Source: MOSL


                SECTORS WITH HIGHEST EARNINGS GROWTH

                                                                 CONTRIBUTION TO (%)           CHG (%)

                                                           PAT                 PAT GR.            YOY

                Banks (17)                                  24                      14              16
                FMCG (12)                                    5                       2              12
                IT (7)                                      11                       3               8
                Top 3 Total MOSL Universe                   40                      19              13
                Total (Others)                              60                      81             -32
                MOSL Universe                              100                     100             -19


                SECTORS WITH EARNINGS DE-GROWTH

                                                                 CONTRIBUTION TO (%)           CHG (%)

                                                           PAT                 PAT GR.            YOY

                Metals (8)                                     2                   -89            -91
                Real Estate (2)                                1                   -22            -86
                Pharma (13)                                    2                    -7            -51
                Bottom 3 total MOSL Universe                   5                  -119            -86
                Total (Others)                                95                   219              5
                MOSL Universe                               100                    100            -19
                Note: For this section, the analysis excludes RMs                             Source: MOSL

27 March 2009                                                                                             9
                                                                                                                                      India Strategy




                                       ?     In MOSL Universe, 37 companies with earnings contribution of 45% are expected to
                                             report earnings growth of 15%+.
                                       ?     Another 25 companies with earnings contribution of 23% are likely to report earnings
                                             growth of <15%.
                                       ?     55 companies with earnings contribution of ~32% are likely to report earnings de-
                                             growth.

                                       4QFY09 EARNINGS PROFILE ON GROWTH


                                                                               >15    >0-15     Negative


                                                                                                                37 companies
                                                                                                                 will report
                                                                                                                 growth of
                                                       55 companies                                               over 15%
                                                        will report
                                                         negative
                                                          growth
                                                                                                              25 companies
                                                                                                            will report growth
                                                                                                                  of 0-15%




                                                                                                                                      Source: MOSL


DISTRIBUTION OF COMPANIES BASED ON EARNINGS GROWTH                      PROPORTION OF COMPANIES WITH EARNINGS GR OWTH OF 0-15%



                                                                        28                                           26
                       PAT                  NO OF COMPANIES                                                24                    22          21
RANGE             GR. (%)           >15%            >0-15%       <0%
                                                                        21                     19
Dec-07               15.4               67             12         21
Mar-08               24.3               57             19         24                 12
                                                                        14
June-08              25.6               53             24         23
Sep-08               19.7               48             26         26
Dec-08               -8.4               36             22         42       7
Mar-09              -19.3               32             21         47
                                                                           0
                                                                                Dec 07        Mar 08   June 08     Sep 08      Dec 08      Mar 09


PROPORTION OF COMPANIES WITH EARNINGS GROWTH>15%                         PROPORTION OF COMPANIES WITH EARNINGS GROWTH <0%


 72       67                                                                                                                                 47
                                                                        48                                                       42
 60               57
                               53                                       36
                                             48                                                24                    26
                                                                                     21                    23
 48                                                                     24
                                                        36
 36                                                             32      12

 24                                                                        0
        Dec 07   Mar 08      June 08       Sep 08     Dec 08   Mar 09           Dec 07        Mar 08   June 08     Sep 08      Dec 08      Mar 09


                                                                                                                                      Source: MOSL

27 March 2009                                                                                                                                     10
                                                                                            India Strategy




                Intra-sector performance divergence coincided with earnings slowdown
                We note that besides the inter-sector performance divergence that we have highlighted
                above, there would be significant intra-sector divergences in 4QFY09 performance. Consider
                the following:
                ? Hero Honda is likely to report earnings growth of 28% YoY v/s sector earnings de-
                    growth of 38.7% YoY and Bajaj Auto’s growth of 8.6% YoY.
                ? ICICI Bank is expected to show earnings de-growth of 39% YoY (the only bank to
                    show earnings de-growth) v/s sector earnings growth of 16% YoY and HDFC Bank’s
                    earnings growth of 37% YoY.
                ? BHEL and Crompton Greaves are expected to report earnings growth of ~21% YoY
                    v/s Engineering sector growth of 6% YoY.
                ? Marico and HUL are likely to report earnings growth of ~22% YoY v/s FMCG sector
                    growth of 12% YoY.
                ? TCS is expected to report flat earnings (0.6% growth), v/s IT sector de-growth of
                    6.3%, Infosys’ de-growth of 1.2%, and Wipro’s de-growth of 14.3%.
                ? Cipla is expected to report earnings growth of 48% YoY v/s Pharma sector de-growth
                    of 50.5% YoY. Divis Labs (34% YoY) and Sun Pharma (20% YoY) are the two others
                    that would report positive earnings growth.
                ? Bharti Airtel is expected to report earnings growth of 22% YoY v/s sector earnings
                    growth of 4% YoY and Reliance Communication’s earnings de-growth of 10% YoY.


                Key earnings divergence for Sensex stocks in 4QFY09
                ? ONGC (17% YoY growth) and SBI (12% YoY) would be the biggest contributors to
                  Sensex earnings growth for 4QFY09. All other Sensex stocks are expected to report
                  single-digit earnings growth.
                ? Bharti Airtel (8.3% YoY), Infosys (6.4% YoY), BHEL (4.9% YoY) and HDFC Bank
                  (3.6% YoY) would also contribute positively to Sensex earnings growth in 4QFY09.
                ? 14 of the 30 Sensex stocks would report positive earnings growth.
                ? Among the stocks making the highest negative contributions to Sensex earnings growth
                  for 4QFY09 would be Tata Steel (-61%), followed by DLF (-38%), Sterlite Industries
                  (-16%), Tata Motors (-13%) and ICICI Bank (-9%).
                ? Loss-making companies for the quarter would be Tata Steel and Ranbaxy.




27 March 2009                                                                                          11
                                                                                                                              India Strategy




INTRA-SECTOR 4QFY09 EARNINGS DIVERGENCE

SECTORS                      PAT           EARNINGS GROWTH IN               EARNINGS                   NEGATIVE                    EARNINGS

                        GROWTH (%)            EXCESS OF 15%             GROWTH IN 0-15%          EARNINGS GROWTH               MOMENTUM

Auto                         -52                Hero Honda                  Bajaj Auto          Mahindra & Mahindra,               1
                                                                                                                                           1
                                                                                                   Maruti Suzuki,                              3
                                                                                                    Tata Motors
Banks                        22           BoB, PNB, HDFC Bank,             Union Bank,                 HDFC,                                   2
                                            Indian Bank, SBI,              Bank of India             ICICI Bank                        4
                                                                                                                              11
                                                Axis Bank
Cement                       -20              Shree Cement              Birla Corporation,     India Cements, Ambuja               1   2
                                                                                                                                               4
                                                                               ACC           Cements, UltraTech, Grasim
Engineering                  15             Siemens, Crompton                Thermax,                    ABB,
                                                 Greaves,               Larsen & Toubro                Suzlon                  3       3       3
                                                   BHEL                                                Energy
FMCG                         13            Hind. Unilever, Nestle,           Colgate,               United Spirits,
                                                                                                                                               3
                                             Godrej Consumer                   ITC                   Asian Paints              7       2


Infrastructure                1                                             Nagarjuna                IVRCL Infra,                  0   1       4
                                                                           Construction       Jaiprakash, Simplex Infra.
IT                           22              MphasiS, Infosys                 TCS               Tech Mahindra, Wipro,              2       1
                                                                                                  HCL Technologies                             4
Media                        -4         Deccan Chronicle, Sun TV                                   Zee Ent., Jagran                    0       4
                                                                                                                               2
                                                                                                      Prakashan
Metals                       -67                                                             JSPL, Sterlite Inds, Hindalco,     0
                                                                                                  JSW Steel, SAIL,                     0
                                                                                                                                               8
                                                                                                       Tata Steel
Oil Gas & Petchem            -12                  ONGC,                    Indraprastha             Reliance Inds,                 2       1
                                                                                                                                               4
                                                   MRPL                         Gas                       GAIL
Pharma                        1              Cipla, Divis Labs,               Lupin,             Piramal Healthcare,            3      5
                                               Sun Pharma                  GSK Pharma        Glenmark, Dr Reddy’ s Labs,                       5
                                                                                                    Ranbaxy Labs
Real Estate                  -40                                                                     DLF, Unitech               0      0       2

Retail                       32                                          Titan Industries           Pantaloon
                                                                                                                           0 1       1
                                                                                                       Retail
Telecom                     12               Bharti Airtel                                       Reliance Comm,            1   0     2
                                                                                                   Idea Cellular
Textiles                   -30                                                               Arvind Mills, Raymond,       0    0
                                                                                                                                     4
                                                                                                    Vardhman
Utilities                    2         Tata Power, PTC India              CESC, NTPC                 Reliance              2   2
                                                                                                                                     1
                                                                                                  Infrastructure
Others                      28             Bombay Rayon,                  Sintex Inds,                United               2   2
                                                                                                                                     1
                                            Everest Kanto                   Blue Star             Phosphorous
Note: Earnings momentum represents number of companies in every sector in the MOSL Universe in each of the 3 buckets of earnings growth




27 March 2009                                                                                                                                  12
                                                                                                                  India Strategy




4QFY09 EARNINGS DECOMPOSITION OF SENSEX STOCKS (RS B)

                                        SALES                     EBITDA                        PAT                     PAT

COMPANY NAME                  MAR-09     VAR.    VAR.    MAR-09     VAR.     VAR.   MAR-09     VAR.      VAR.    CONTRIBUTION

                                        % YOY   % QOQ             % YOY     % QOQ             % YOY    % QOQ       %      GR. %

ACC                              20.0    13.3      2.6      5.1       9.3    15.6      3.4       1.9       0.9    1.2           0.1
Bharti Airtel                   100.2    28.1      4.0     40.8      25.5     3.5     22.6      21.7       4.4    8.3           8.3
BHEL                             92.0    27.8     52.8     18.0      27.2    63.8     13.8      20.9      64.4    5.1           4.9
DLF                               8.7   -79.8    -36.3      4.7     -83.1   -39.2      3.1     -85.6     -53.3    1.2         -38.2
Grasim Industries                26.7    -2.7      0.5      5.8     -12.5    16.0      3.6     -19.7       8.4    1.3          -1.8
HDFC                              8.9    -6.4      1.6      8.0     -10.2     2.1      6.0      -1.1      10.4    2.2          -0.1
HDFC Bank                        20.1    22.5      1.6     14.2      30.7    -2.4      6.5      36.9       3.8    2.4           3.6
Hind. Unilever                   44.1    13.8      0.6      5.8      18.7   -24.6      4.6      21.8     -24.5    1.7           1.7
Hindalco                         36.5   -27.2    -11.4      3.8     -52.4   -51.3      2.0     -62.1     -62.7    0.7          -6.8
ICICI Bank                       19.6    -5.7     -1.5     20.1     -12.1   -27.3      7.0     -39.4     -45.2    2.6          -9.3
Infosys                          57.4    26.5     -0.7     19.8      33.9    -2.6     15.6      24.9      -1.2    5.7           6.4
ITC                              46.4    15.2     20.3     13.9      17.0     0.5      8.6      12.6      -4.4    3.2           2.0
Jaiprakash Associates            15.5    21.7     17.6      4.2       7.2    71.5      1.8     -12.5     -12.8    0.7          -0.5
Larsen & Toubro                 103.1    21.7     19.9     14.7      30.2    56.0     10.2      12.2      59.6    3.8           2.3
Mahindra & Mahindra              31.5     0.0     25.7      3.0     -12.7   252.7      2.0      -7.0    518.4     0.7          -0.3
Maruti Suzuki                    61.9    22.6     32.2      6.1     -23.1    72.8      3.4     -34.2      59.5    1.2          -3.6
NTPC                            122.4    13.9      8.5     31.6      12.0    -1.5     22.7       4.1      11.2    8.3           1.8
ONGC                            147.5    -5.6     18.6     70.8      22.5    41.5     34.8      32.3      58.7   12.8          17.4
Ranbaxy Labs                     12.7   -25.5    -22.7     -1.3   -149.6     16.7     -1.6   -262.6       56.0   -0.6          -5.5
Reliance Comm                    60.0    13.0      2.6     23.7       2.2     0.6     14.1     -10.0      -4.8    5.2          -3.2
Reliance Inds.                  317.7   -14.8      0.6     56.9      -5.4     6.2     37.8      -3.4       7.9   13.9          -2.8
Reliance Infrastructure          25.7    49.6     -5.6      3.5      72.7    12.0      2.7     -24.9     -10.8    1.0          -1.9
State Bank                       58.0    20.9      0.8     55.0      25.8    22.7     24.8      31.5      -0.1    9.1          12.1
Sterlite Inds.                   38.8   -42.6    -14.5      6.1     -71.9     8.0      5.8     -57.5      10.4    2.1         -16.2
Sun Pharma                        8.9   -28.1     -3.0      3.0     -59.8   -28.0      2.6      20.0     -36.6    1.0           0.9
Tata Motors                      64.3   -27.5     36.4      3.6     -60.8   292.7      0.5     -93.2   -128.9     0.2         -12.9
Tata Power                       17.4     6.4     -0.1      3.1    118.5     41.2      1.5 -6,689.6       31.1    0.6           3.1
Tata Steel                      297.4   -17.5    -10.4     12.9     -75.2   -71.9     -9.2   -144.4    -133.4    -3.4         -61.4
TCS                              74.8    22.7      2.8     18.6      19.6    -4.6     13.6       8.1       0.4    5.0           2.1
Wipro                            64.1    14.5     -2.0      9.2      -4.5   -10.9      7.7     -12.1     -14.3    2.8          -2.2
Sensex (30)                   2,002.2    -3.4      4.4    484.8      -8.4     1.3    271.8     -15.2      -7.2
Sensex Excl Metals (27)       1,629.5     2.2      8.6    462.0       3.2    10.3    273.1      -2.7       7.2
Note: Tata Steel Consolidated                                                                                      Source: MOSL




27 March 2009                                                                                                                     13
                                                                                                                                                                                                                                                                                                     India Strategy




                                                              Corporate sector has consistently performed ahead of our estimates
                                                              Over the last several quarters, corporate sector performance has been ahead of/in line
                                                              with our estimates. Even in 3QFY09, with significant macro headwinds and series of
                                                              downgrades, the aggregate performance was in line with estimates. For 4QFY09, we
                                                              estimate a decline of 15% in Sensex PAT, v/s a 6% decline in 3QFY09. The key driver of
                                                              this decline is a loss estimate from Tata Steel.
TREND IN SENSEX PAT GROWTH (% YOY)                                                                                                                 TREND IN MOSL UNIVERSE (EXCL OMC) PAT GROWTH (%)


                                                                                                                                                       75                       MOSL Universe (%)                                             MOSL Universe Excl Metals (%)
 48                39 42                                          43
                             33                                        33 30                                                                                                                                                56
                                                    31 30
       25 28                      24                                              25                         27                                        50                                                                       46
 28                                                                                                     20            21                                                                                                          37 37 40
                                                                                                                                                                                                                                           40
                                                                                           17                                                                 27                                       34 37                                  37
                                       11                                                                                                                         27                                     30 29                               31    293029
                                                                                                                                                            26                                                                                            26
                                                6                                                                                                      25       22                                                                              22         23 20
   8                                                                                                                                                                                  17
                                                                                                                                                                                    12 812                                                                      11

                                                                                                                                                        0
 -12                                                                                                                           -6
                                                                                                                                                                                                                                                                                                                                                -3
                                                                                                                                 -15                                                                                                                                                                                       -8-8
                                                                                                                                                   -25                                                                                                                                                                                 -19
 -32




                                                                                                                                                                                                                                                                                                                                           4QFY09E
                                                                                                                                                              1QFY06
                                                                                                                                                                           2QFY06
                                                                                                                                                                                     3QFY06
                                                                                                                                                                                              4QFY06
                                                                                                                                                                                                         1QFY07
                                                                                                                                                                                                                   2QFY07
                                                                                                                                                                                                                              3QFY07
                                                                                                                                                                                                                                          4QFY07
                                                                                                                                                                                                                                                    1QFY08
                                                                                                                                                                                                                                                                 2QFY08
                                                                                                                                                                                                                                                                             3QFY08
                                                                                                                                                                                                                                                                                            4QFY08
                                                                                                                                                                                                                                                                                                     1QFY09
                                                                                                                                                                                                                                                                                                                2QFY09
                                                                                                                                                                                                                                                                                                                             3QFY09
         1QFY05
         2QFY05
         3QFY05
         4QFY05
         1QFY06
         2QFY06
         3QFY06
         4QFY06
         1QFY07
         2QFY07
         3QFY07
         4QFY07
         1QFY08
         2QFY08
         3QFY08
         4QFY08
         1QFY09
         2QFY09
         3QFY09
         4QFY09




ESTIMATES V/S ACTUAL IN SENSEX SALES GROWTH (%)                                                                                                    ESTIMATES V/S ACTUAL IN SENSEX EBITD A GROWTH (%)


 60.0                        Estimates                     Actual YOY                                                                                  45.0                                                                          Estimates                                Actual YOY
                                                                                                                                                                                                37
                                                                   44
                                                                                                                                                                                31 31
          33
                                                 38       36 38                                                                                        30.0                                               26   26                          28
                                                                                                                                                                                                                                                                25
 40.0                30 32
         28                                                                           29
                                                                                                31 29                                                            22 25                        25            22                                          23 23      21
                                                                                                                                                                                                                                                              21
                   25 26 2222                                                                                 28                                                                                                                       18             20             18
                                                17                16 19                                                                                15.0                                                            12                           14
 20.0                                                    11                                                           11
                                                                                                                           4                                                                                                                                                                                        1
   0.0                                                                                                                                                  0.0
                                                                                                                                     -3                                                                                                                                                                                   -5
                                                                                                                                                   -15.0                                                                                                                                                                                   -8
 -20.0
                                                                                                                                                                                                                                                                                                                                          4QFY09E
                                                                                                                                                                       1QFY07

                                                                                                                                                                                    2QFY07

                                                                                                                                                                                                3QFY07

                                                                                                                                                                                                              4QFY07

                                                                                                                                                                                                                            1QFY08

                                                                                                                                                                                                                                           2QFY08

                                                                                                                                                                                                                                                        3QFY08

                                                                                                                                                                                                                                                                          4QFY08

                                                                                                                                                                                                                                                                                            1QFY09

                                                                                                                                                                                                                                                                                                       2QFY09

                                                                                                                                                                                                                                                                                                                         3QFY09
                                                                                                                                   4QFY09E
          1QFY07

                    2QFY07

                             3QFY07

                                       4QFY07

                                                1QFY08

                                                         2QFY08

                                                                    3QFY08

                                                                             4QFY08

                                                                                               1QFY09

                                                                                                         2QFY09

                                                                                                                      3QFY09




                                                                                                                                                                                                                                                                                                      Source: MOSL
                                                              ESTIMATES V/S ACTUAL SENSEX PAT GROWTH (%)


                                                                  60.0                                                                                  Estimates                       Actual YOY
                                                                                                                                 43
                                                                  40.0                 31                     30                             33 33               30
                                                                                                                         28                                                            25                                                                27
                                                                              22                                                                                                                                            21                                                        21
                                                                                                        23                                                  18                                              17                       20
                                                                  20.0                                                                                                           16                    14                                           15                      17


                                                                   0.0

                                                                                                                                                                                                                                                                                                      -6 -6
                                                                  -20.0                                                                                                                                                                                                                                                               -15
                                                                                                                                                                                                                                                                                                                                      4QFY09E
                                                                                      1QFY07


                                                                                                             2QFY07


                                                                                                                                3QFY07


                                                                                                                                              4QFY07


                                                                                                                                                              1QFY08


                                                                                                                                                                                     2QFY08


                                                                                                                                                                                                          3QFY08


                                                                                                                                                                                                                                 4QFY08


                                                                                                                                                                                                                                                       1QFY09


                                                                                                                                                                                                                                                                                   2QFY09


                                                                                                                                                                                                                                                                                                          3QFY09




                                                                                                                                                                                                                                                                                                      Source: MOSL

27 March 2009                                                                                                                                                                                                                                                                                                                                   14
                                                                                                                                                                                                                 India Strategy




                                                                      Are we at the end of earnings downgrade cycle?


                                                                      Downgrade in our Sensex EPS estimates commenced with our 4QFY08 quarterly results
                                                                      preview and has continued in the following quarters. Since our 3QFY09 results review
                                                                      released in February 2009, there is no change in our FY10 Sensex EPS estimate of Rs886.
                                                                      The major changes in assumptions have already been factored in post 3QFY09 results.
                                                                      This is positive, given that some of the incremental data points have started looking up and
                                                                      these are also being reflected in our estimates.

                                                                      For FY09, we estimate Sensex EPS at Rs877 v/s Rs840 in our 3QFY09 results review,
                                                                      which implies an upgrade of 4.4% and translates into a growth of 5.2% over FY08. Our
                                                                      Sensex EPS estimate for FY10 is Rs886, implying 1.1% growth. Excluding new business
                                                                      contribution for Reliance, our FY10E Sensex EPS would decline 8.3% to Rs804.

FY09E SENSEX EPS AT RS877 (GR OWTH OF 5.2%)                                                                                           FY10E EPS AT RS886 (GR OWTH OF 1.1%)


                    FY09 EPS                                 % Growth Revision in FY09 EPS
                                                                                                                                                 FY10 EPS                       % Growth Revision in FY10 EPS
         10.0       16.2      16.9      17.8 20.5 20.1 20.6 21.4 8.9 7.3                                     0.8 5.2
                                                                                                                                                29.0     29.6     29.5      23.9        16.9     8.5         5.0       1.1
 1,100                                                                                                                          24
                                                 1,064
                                    1,007                                                                                             1,400 1,373 1,299 1,309                                                                   32
                                                               1,011                                                                                                       1,259
 1,030                                                             1,016                                                        18
                                                           1,002
                              989                                                                                                     1,250                                                                                     24
                                                                                                                                                                                       1,061
   960              955                                                                                                         12
                                                                                                                                      1,100                                                                                     16
                                                                                     908          894                                                                                            970
           891                                                                                                       877
   890                                                                                                                          6       950                                                                 882                 8
                                                                                                            840                                                                                                       886

   820                                                                                                                          0       800                                                                                     0
                               Jun-07




                                                                       Jun-08




                                                                                                                                                                  Jun-08
                                                                                                            Feb-09




                                                                                                                                                                                                             Feb-09
           Dec-06




                                        Sep-07

                                                  Dec-07




                                                                                Sep-08



                                                                                                   Dec-08




                                                                                                                                                Dec-07




                                                                                                                                                                            Sep-08




                                                                                                                                                                                                 Dec-08
                     Mar-07




                                                             Mar-08




                                                                                                                      Mar-09




                                                                                                                                                         Mar-08




                                                                                                                                                                                                                       Mar-09
                                                                                         Oct-08




                                                                                                                                                                                        Oct-08




     EPS growth YoY (%)                                                                                                                                                                                          Source: MOSL


TOP 5 & WORST 5 EPS ESTIMATE CHANGE (FY09 & FY10)

                                                                      PREVIEW EPS (RS)                                 VARIANCE                                                      PREVIEW EPS (RS)                 VARIANCE

                                                              3QFY09                      4QFY09                               (%)                                                   3QFY09       4QFY09                  (%)

Top 5 EPS Estimates Change FY09                                                                                                       Worst 5 EPS Estimates Change FY09
Tata Steel                   101.5                                                            135.9                            33.9   Ranbaxy Labs                   8.6                                   3.3         -61.3
Punjab National Bank          79.4                                                             96.3                            21.3   BPCL                          58.8                                  39.5         -32.8
Maruti Suzuki                 42.2                                                             46.3                            9.8    DLF                           38.7                                  28.0         -27.7
Sun Pharma                    52.2                                                             57.0                            9.2    HCL Technologies              24.2                                  18.8         -22.3
ACC                           57.7                                                             62.7                            8.8    Sterlite Inds.                63.0                                  50.5         -19.9
Top 5 EPS Estimates Change FY10                                                                                                       Worst 5 EPS Estimates Change FY10
ACC                           39.7                                                                55.5                         39.6   Unitech                        6.4                                   0.9        -86.1
Ambuja Cements                 5.8                                                                 7.1                         22.2   Ranbaxy Labs                  12.5                                   2.2        -82.7
NTPC                           8.8                                                                10.1                         14.1   DLF                           34.0                                  13.6        -59.9
Cipla                         13.3                                                                14.6                         9.7    Reliance Petro                13.8                                   7.0        -49.0
Punjab National Bank          88.0                                                                95.8                         8.8    Sterlite Inds.                39.0                                  23.5        -39.8
                                                                                                                                                                                                                 Source: MOSL


27 March 2009                                                                                                                                                                                                                   15
                                                                                                                 India Strategy




                                  Introducing FY11 estimates with a double-digit growth outlook
                                  We also introduce our Sensex EPS estimate for FY11 at Rs980, implying a growth of
                                  10.5%. The key contributors to the earnings growth would be Reliance Industries (23.6%),
                                  ICICI Bank (14.2%), SBI (9.5%), HDFC Bank (9.2%), Bharti Airtel (9.1%), Reliance
                                  Communication (7.3%), BHEL (6.5%), ITC (5.5%), and HDFC (5.1%). We expect 23 of
                                  the 30 Sensex stocks to contribute positively to growth in FY11, against 10 in FY10.

SENSEX STOCKS EARNINGS ESTIMATES AND CONTRIBUTION TO SENSEX EPS GROWTH

                                   EPS (RS)                  EPS GROWTH (%)                CONTRIBUTION (%)           CONT. GR. %

COMPANY NAME              FY09E      FY10E     FY11E    FY09E     FY10E       FY11E   FY09E     FY10E     FY11E          FY11E

Reliance Inds.            102.5      136.6     154.9      -2.4     33.3        13.4    12.3      17.7         18.3       23.6
ICICI Bank                 33.4       33.6      42.2     -10.7      0.7        25.4     5.9       5.9          6.7       14.2
State Bank                180.6      176.4     198.8      27.3     -2.3        12.7     8.1       7.9          8.0        9.5
HDFC Bank                  53.2       65.5      82.6      30.6     23.1        26.1     3.0       3.7          4.2        9.2
Bharti Airtel              44.7       51.9      61.1      26.5     16.1        17.7     4.7       5.4          5.8        9.1
Reliance Comm              30.1       24.2      31.0      12.6    -19.6        28.2     3.4       2.7          3.2        7.3
BHEL                       67.6       86.5     112.0      31.8     28.1        29.4     1.8       2.3          2.7        6.5
ITC                         8.8       10.2      11.5       6.5     15.2        13.7     3.7       4.2          4.3        5.5
HDFC                       74.8       85.2      99.3       9.5     13.9        16.5     2.9       3.3          3.5        5.1
Larsen & Toubro            55.5       57.9      62.5      41.4      4.3         8.1     4.6       4.8          4.7        3.7
Sterlite Inds.             50.5       23.5      33.3     -20.6    -53.5        41.9     2.3       1.0          1.2        2.9
Mahindra & Mahindra        55.8       60.6      70.0     -13.5      8.5        15.5     1.7       1.8          1.9        2.7
Maruti Suzuki              46.3       50.1      60.2     -21.8      8.2        20.2     1.1       1.1          1.2        2.2
NTPC                        9.7       10.1      11.3       8.3      3.5        11.7     1.9       2.0          2.0        2.2
Hind. Unilever              9.4       10.6      11.7      15.9     12.2        11.0     1.6       1.8          1.8        1.9
ONGC                       92.2       85.7      88.5      -0.7     -7.1         3.3     6.3       5.8          5.4        1.8
Sun Pharma                 57.0       65.5      76.0     -20.6     15.0        16.0     0.7       0.9          0.9        1.3
Tata Motors                 9.7       16.7      19.4     -73.0     71.0        16.4     0.5       0.8          0.8        1.2
Ranbaxy Labs                3.3        2.2       6.1     -74.9    -35.3       180.1     0.1       0.1          0.2        1.0
Wipro                      22.5       23.6      24.7       1.5      4.8         4.7     1.0       1.1          1.1        0.6
TCS                        53.3       53.4      54.7       3.9      0.2         2.3     2.1       2.1          1.9        0.5
Reliance Infrastructure    46.1       43.6      43.6      53.0     -5.4         0.0     1.1       1.0          0.9        0.2
Jaiprakash Associates       6.1        7.8       7.9      17.3     27.3         2.2     0.6       0.8          0.7        0.2
Infosys                   101.8      106.6     105.9      28.1      4.7        -0.6     7.9       8.2          7.4       -0.4
Tata Steel                135.9       83.2      82.2      44.3    -38.8        -1.2    12.4       7.5          6.7       -0.9
Hindalco                    9.9        5.2       4.4     -38.9    -47.5       -14.8     1.8       0.9          0.7       -1.3
Tata Power                 59.2       71.7      65.3      81.4     21.0        -8.9     1.5       1.8          1.5       -1.6
DLF                        28.0       13.6       8.9     -38.9    -51.3       -34.7     1.1       0.6          0.3       -1.8
ACC                        62.7       55.5      35.9      -7.9    -11.6       -35.2     1.0       0.9          0.5       -3.0
Grasim Industries         238.5      183.6     150.5     -18.9    -23.0       -18.0     2.6       2.0          1.5       -3.4
Sensex                     877        886       980        5.2      1.1        10.5    100       100          100         100
                                                                                                                     Source: MOSL


                                  Based on our current estimate of Rs980 for FY11, Sensex earnings would grow at a
                                  CAGR of 5.7% v/s a CAGR of 10.5% over FY07-09. Though earnings growth has
                                  decelerated, the magnitude is relatively low. Sensex EPS would grow at a CAGR of
                                  17.1% over FY02-11.




27 March 2009                                                                                                                    16
                                                                                                                                   India Strategy




                TREND IN SENSEX EPS OVER FY00-11E


                                                   Sensex EPS (Rs)                          Sensex EPS Growth (%)

                          0.6     -22.7    9.3       15.2        28.0     29.1     16.4      37.3     16.0    5.2        1.1       10.5
                 1,150                                                                                                                        40.0
                                                                                                                                    980
                                                                                                      833     877         886
                   900                                                                                                                        24.0
                                                                                              718
                   650                                                                                                                        8.0
                                                                                    523
                                                                           450
                                                                 348
                   400                                                                                                                        -8.0
                          280     216                 272
                                           236
                   150                                                                                                                        -24.0




                                                                                                               FY09E


                                                                                                                           FY10E


                                                                                                                                     FY11E
                           FY00


                                    FY01


                                            FY02


                                                          FY03


                                                                  FY04


                                                                            FY05


                                                                                     FY06


                                                                                               FY07


                                                                                                       FY08
                    EPS growth YoY (%)                                                                                             Source: MOSL




                Stock leaders & laggards of FY10-11 earnings growth
                The stocks with superior earnings CAGR over FY09-11E as compared with FY04-09E
                would include Hero Honda, HDFC Bank, BHEL, Nestle, Nagarjuna Construction, etc.
                Stocks with lower earnings CAGR over FY09-11E as compared wit FY04-09E would be
                ACC, Grasim, Hindalco, Infosys, Tata Steel, etc.

                STOCKS WITH SUPERIOR EARNINGS CAGR…                          ...AND LOWER EARNINGS CAGR V/S THE LAST FIVE YEARS

                                                      EPS CAGR (%)                                                      EPS CAGR (%)

                COMPANY                    FY09-11                 FY04-09            COMPANY                   FY09-11                   FY04-09

                Hero Honda                         18.5                  11.6         ACC                              -24.3             39.9
                HDFC Bank                          24.6                  24.4         Grasim                           -20.6             24.3
                BHEL                               28.8                  32.1         Hindalco                         -33.1              -1.7
                Nestle                             20.8                  14.4         Infosys                              2             34.1
                Nagarjuna Construction             24.2                  22.1         Tata Steel                       -22.2             34.6
                Reliance Inds                       23                   22.6         ONGC                              -2.1             16.1
                Cipla                              32.7                  17.2         L&T                                6.2             40.6
                United Phos                        24.3                  21.5         ABB                               -4.2             37.6
                                                                                                                                   Source: MOSL



                Sector leaders & laggards of FY10-11 earnings growth
                We expect MOSL Universe (ex-RMCs) PAT to grow at a CAGR of 6.6% over FY09-11.
                Of the 16 sectors in our universe, we expect Cement (-25.4%) and Real Estate (-25.5%)
                to post earnings de-growth in FY11. Sectors with high earnings growth would be Media
                (21.8%), Telecom (20.5%), Pharma (20.2%), Engineering (18.1%), Banking (17%), Autos
                (15%) and Engineering (15%).




27 March 2009                                                                                                                                       17
                                                                                                                          India Strategy




ANNUAL PERFORMANCE - MOSL UNIVERSE                                                                                           (RS BILLION)

                                SALES                                   EBITDA                               NET PROFIT

                FY09E   FY10E   FY11E   CHG.    CHG.    FY09E   FY10E    FY11E   CHG.   CHG.    FY09E   FY10E   FY11E     CHG.    CHG.

                                         (%)*    (%)#                            (%)*    (%)#                              (%)*    (%)#

Auto (5)           789    816    896     3.4    9.9      75      94     107     25.5     14.3    45     55       64        21.8    14.8
Banks (17)         843    965 1,115    14.5    15.5     710     795     925      11.9    16.4   363    358      419        -1.3    17.0
Cement (7)         454    462    485     1.8    5.0     118     117       97     -0.7   -17.1    67     59       44       -11.8   -25.4
Engg. (9)        1,088 1,192 1,401       9.5   17.5     144     173     209     20.4     21.1   107    116      137         8.4    18.1
FMCG (12)          663    730    821   10.2    12.3     125     144     163     15.2     12.7    83     96      111        16.0    15.1
IT (7)             957 1,052 1,082     10.0     2.8     238     245     246       3.2     0.3   172    179      181         4.1     1.0
Infrastr. (5)      226    283    341   25.4    20.2      31      40       45    30.9     13.3    13     17       19        25.6    11.5
Media (6)           64     67     75     5.3   11.4      19      22       26    17.0     17.7    12     14       16        17.1    21.8
Metals (8)       3,176 2,950 2,783      -7.1   -5.7     529     445     497 -15.9        11.7   301    215      243       -28.6    13.3
Oil Gas (10)     9,089 6,921 7,815 -23.8       12.9     891 1,024 1,138         14.9     11.2   463    547      618        18.2    13.0
Pharma (13)        436    505    514   15.9     1.7      89     104     118     16.5     13.6    47     72       86        53.4    20.2
Real Estate (2)    127     84     87 -34.2      4.1      74      44       42 -40.9       -5.2    58     25       19       -56.9   -25.5
Retail (2)         104    124    146   19.0    18.0      10       11      13    16.4     15.6     4       4        5       23.7    20.4
Telecom (3)        701    896 1,086    27.8    21.3     273     327     398     20.0     21.5   155    155      187         0.2    20.5
Textiles (4)       104    122    133   17.0     9.0      14      15       20      6.7    26.7     0       0        3         PL      LP
Utilities (5)      701    766    868     9.2   13.2     150     180     203     20.5     12.5   109    114      123         4.3     7.8
Others (5)         133    152    179   14.2    18.3      24      30       37    24.5     21.5    13     17       22        28.7    28.4
MOSL (120) 19,655 18,088 19,826         -8.0    9.6 3,512 3,811 4,283             8.5    12.4 2,013 2,044 2,298             1.6    12.4
Ex.Banks        18,812 17,123 18,711    -9.0    9.3 2,802 3,016 3,358             7.6    11.3 1,650 1,686 1,879             2.2    11.5
Ex.Metals       16,479 15,138 17,043    -8.1   12.6 2,983 3,366 3,786           12.8     12.5 1,712 1,829 2,055             6.9    12.3
Ex.RMs          14,143 14,544 15,953     2.8    9.7 3,332 3,608 4,099             8.3    13.6 1,944 1,951 2,208             0.4    13.2
Ex.Met.&RMs 10,968 11,593 13,170         5.7   13.6 2,803 3,164 3,602           12.9     13.9 1,643 1,736 1,965             5.7    13.2
Sensex (30)      9,557 9,895 10,445      3.5    5.6 2,266 2,444 2,698             7.9    10.4 1,362 1,361 1,498             0.0    10.1
Sensex Ex Met.7,200 7,731 8,515          7.4   10.1 1,952 2,202 2,448           12.8     11.2 1,197 1,267 1,402             5.9    10.6
* Growth FY10 over FY09; # Growth FY11 over FY10. For Banks : Sales = Net Interest Income, EBITDA = Operating Profits




27 March 2009                                                                                                                        18
                                                                                                                       India Strategy




                                  Elections 2009: an important but unpredictable milestone for
                                  Indian equities


                                  In 1QFY10, the most important event for the markets would be the General Elections
                                  scheduled for April-May 2009. Market reaction was very adverse to the unexpected
                                  outcome of the elections in May 2004. The recent history of state election results in
                                  Rajasthan, MP, Chattisgarh, Delhi, J&K, etc and the stance of various regional parties do
                                  not provide any pointers to the likely winner. While the government will be formed through
                                  a coalition of multiple political parties (no single party is likely to win a majority on its own),
                                  the dominant party, its allies and their willingness to introduce economic reforms would be
                                  a significant catalyst for Indian equities. This becomes even more important in the current
                                  environment of economic slowdown.

                                  2004 elections: standing of BJP and Congress
                                  The key trends that emerged out of 2004 elections were:
                                  ? 17 states contribute more than 10 seats each to Lok Sabha and these 17 states
                                     collectively contribute 92% of the total Lok Sabha seats. BJP was leading in 7 of
                                     these 17 states. The vote share of BJP in these states was 112 seats. The Congress
                                     led in just 4 of these 17 states, winning a total of 53 seats. These include states like
                                     Uttar Pradesh (80 seats, BSP won majority on its own in state elections), Maharashtra
                                     (48 seats, currently ruled by Congress), Rajasthan (25 seats, Congress won recent
                                     state elections), Orissa (21 seats, BJD breaks tie-up with BJP), and Madhya Pradesh
                                     (29 seats), which represent “corridors of uncertainty” in the coming central elections.
                                  ? BJP had won 138 seats in the last central elections; 77% of its seats came from 8
                                     states, which depicts the party’s strong foothold in these states. These include
                                     Maharashtra (13 out of 48 seats), Madhya Pradesh (25 out of 29 seats), Karnataka
                                     (18 out of 28 seats), Gujarat (14 out of 26 seats), Rajasthan (21 out of 24 seats), and
                                     Chattisgarh (10 out of 11 seats).
                                                  2004 ELECTIONS: DISTRIBUTION OF SEATS ACROSS VARIOUS PARTIES
2004 ELECTIONS: DOMINANCE OF BJP, CONGRESS IN

VARIOUS STATES                                                                   Left,                          UPA w/
                                                        NDA           Others*,
                 STATES   NO OF        % OF                                       61                          out Left 248
                                                        176              57
                          SEATS   TOTAL SEATS
                                                              AGP, 2                                              Indian National
BJP
                                                                                                                  Congress, 150
  Lead             8       106          20            Others NDA, 4
  2nd Party        7        21           4
  Others          20        11           2                    JD - (U), 7                                              RJD, 24
Total             35       138          26                                                                           BSP, 18
                                                            SAD, 8
Congress                                                                                                          DMK, 16
  Lead            10        66          12                                                                         NCP, 11
  2nd Party       12        63          12                  BJD, 11
                                                                                                                    PMK, 6
  Others          13        16           3                                                                        JMM, 4
                                                          Shiv Sena, 12
Total             35       145          27                                                                             LJP, 4
                                                                                         Other UPA
Source: Election Commission of India                                     BJP, 132                    RLD, 3      MDMK, 4
                                                                                             8



27 March 2009                                                                                                                       19
                                                                                                                  India Strategy




                                 ?   For Congress, the total number of seats was 145, 129 of which it earned as either the
                                     leading party or the 2nd party. The key thing to note is that Congress stood as 2nd party
                                     in 4 out of the 8 states, where BJP was the leading party. These include Madhya
                                     Pradesh (4 out of 29 seats), Karnataka (8 out of 28 seats), Gujarat (12 out of 26
                                     seats), and Rajasthan (4 out of 24 seats).


                                 2004 elections: standing of various other parties across states
                                 The key regional parties with dominance in a state or two include Samajwadi Party (35
                                 seats in UP), Left Front (41 seats, comprising of 26 in West Bengal, and 12 in Kerala),

ANALY SIS OF 2004 ELECTIONS RESULTS ACR OSS VARIOUS STATES AND PARTIES

                         TOTAL       LEADING         NO OF         2ND         NO OF    3RD               NO OF         BALANCE

                         SEATS       PARTY           SEATS         PARTY       SEATS    PARTY             SEATS     NO OF SEATS

Uttar Pradesh             80         SP                35          BSP           19     BJP                 10             16
Maharashtra               48         BJP               13          Congress      13     Shivsena            12             10
Andhra Pradesh            42         Congress          29          TDP            5     TRS                  5              3
West Bengal               42         CPM               26          Congress       6     *                    -             10
Bihar                     40         RJD               22          BJP            5     JD(U)                5              8
Tamil Nadu                39         DMK               16          Congress      10     PMK                  5              8
Madhya Pradesh            29         BJP               25          Congress       4     0                    -              -
Karnataka                 28         BJP               18          Congress       8     JD(S)                2              -
Gujarat                   26         BJP               14          Congress      12     -                    -              -
Rajasthan                 25         BJP               21          Congress       4     -                    -              -
Orissa                    21         BJD               11          BJP            7     Congress             2              1
Kerala                    20         CPM               12          CPI            3     Ind+Others           3              2
Assam                     14         Congress           9          BJP            2     AGP                  2              1
Jharkhand                 14         Congress           6          JMM            4     RJD                  2              2
Punjab                    13         SAD                8          BJP            3     Congress             2              -
Chhattisgarh               11        BJP               10          Congress       1     -                    -              -
Haryana                   10         Congress           9          BJP            1     -                    -              -
Delhi                      7         Congress           6          BJP            1                                         -
Jammu & Kashmir            6         JKN                2          Congress       2     Ind+Others           2              -
Uttaranchal                5         BJP                3          Congress       1     SP                   1              -
HP                         4         Congress           3          BJP            1                                         -
Arun. Pradesh              2         BJP                2                                                                   -
Goa                        2         Congress           1          BJP           1                                          -
Manipur                    2         DMK                1          Congress      1                                          -
Meghalaya                  2         AITC               1          Congress      1                                          -
Tripura                    2         CPM                2                                                                   -
A&N Islands                1         Congress           1                                                                   -
Chandigarh                 1         Congress           1                                                                   -
Daman & Diu                1         Congress           1                                                                   -
DNH                        1         Ind+Others         1                                                                   -
Lakshadweep                1         JD(U)              1                                                                   -
Mizoram                    1         MNF                1                                                                   -
Nagaland                   1         NPF                1                                                                   -
Pondicherry                1         PMK                1                                                                   -
Sikkim                     1         SDF                1                                                                   -
Total                     543                          314                      115                          53            61
                                                                                           Source: Election Commission of India



27 March 2009                                                                                                                20
                                                                                                       India Strategy




                Rashtriya Janata Dal (22 seats in Bihar), BSP (19 seats in Uttar Pradesh), DMK (16 seats
                in Tamil Nadu), Shiv Sena (12 in Maharashtra), Biju Janata Dal (11 in Orissa) and Nationalist
                Congress Party (9 seats in Maharashtra). Besides these, other regional parties account
                for 90 seats, representing 16.5% of total seats.

                The 2009 elections have seen break-up of alliances before the polls. This leaves the equation
                wide open for parties to come together to form a government. Moreover, swings in key
                states like UP, Left-dominated states and the South would be key drivers for the next
                government formation.


                Top 12 states will decide the next government formation
                STATES           TOTAL SEATS   REMARKS

                Uttar Pradesh        80        In the last assembly elections, Bhartiya Samajwadi Party (BSP) came
                                               into power with majority (seat share of 51%+), Samajwadi Party won
                                               only 97 seats (24%).
                Maharashtra          48        Current Congress-NCP government could face some anti-incumbency
                                               but should still hold on due to vote fragmentation.
                Andhra Pradesh       42        Existing Congress government is set to complete its first five year term
                                               in the state. Tie-up of TDP, Left and TRS and new party by Chiranjivee
                                               (PRP) could dent prospects of Congress.
                West Bengal          42        Left front may face some problems on the issues of Singur,
                                               withdrawal of Tata projects. Anti-incumbency factor may play out and
                                               benefit Congress, TMC.
                Bihar                40        Existing government by JD(U) has reportedly been doing good work;
                                               part of NDA government.
                Tamil Nadu           39        Existing ruling party of DMK has alliances with Congress, Left. Given
                                               alliance of Left with third front, strategy of DMK will be vital. AIADMK
                                               may make a comeback.
                Madhya Pradesh       29        BJP emerged as the clear leader with majority (seat share of 63%) in
                                               assembly elections in December 2008.
                Karnataka            28        BJP won ~50% seats in assembly elections in May 2008, Congress
                                               was running second with seat share of 36%.
                Gujarat              26        BJP leads, with majority share in votes (64%) in assembly elections.
                Rajasthan            25        Congress won the state election, with 48% of assembly seats; BJP's
                                               share stood at 40%.
                Orissa               21        BJD government proved majority without support of BJP recently.
                Kerala               20        Existing left government may get dented due to overall change in
                                               stance and alliance with the third front.
                Total               440        81% of total 545 Lok Sabha seats
                                                                                                           Source: MOSL




27 March 2009                                                                                                      21
                                                                                                   India Strategy




                Government not led by either Congress or BJP has never completed full
                term
                Historically, the Central Government has been dominated either by Congress or BJP, two
                of the largest national level parties, while regional parties have played the role of coalition
                partners. India has had just five instances where a third party has led the government (3
                governments were formed with external support from BJP or Congress). None of these
                coalitions completed the full term.

                Though coalitions have become a reality in India, it has had a relatively stable 10 years of
                government since 1998 - BJP led during 1998-04 and Congress led during 2004-09. The
                dominance of regional parties and third front power prevailed during the period 1989-97,
                when India witnessed six government changes, with only one completing its full term
                (Congress-led government during 1991-96).

                Coalitions led by large national parties like Congress or BJP have greater chances of
                survival, as the leading parties have more room to maneuver, given their relatively lower
                reliance on smaller parties vs the third front. To illustrate, the Congress-led United
                Progressive Alliance (UPA) managed to survive the trust vote in 2008 by persuading the
                Samajwadi Party and smaller parties to fill the gap left by the departure of the Left.

                INDIA: GOVERNMENT HISTORY

                                                     YEAR OF    TOTAL CONGRESS    BJP    REMARK

                                                     ELECTION   SEATS   SEATS    SEATS

                Jawahar Lal Nehru                      1952      489     364       3     Lasted Full Terms
                                                       1957      494     371       4     Lasted Full Terms
                                                       1962      494     361      14     Lasted Full Terms
                Gulzari Lal Nanda (May-Jun 64 & Jan 66)                                  Interim
                Lal Bahadur Shastri (Jun 64-Jan 66)     1967     520     283       35    Coalition Governments
                Indira Gandhi (Jan 66-Mar 77)           1971     518     352       22    Lasted Full Terms
                Morarji Desai (Mar 77-Jul 79)           1977     542     154      295    Unstable Governments
                Charan Singh (Jul 79-Jan 80)                                             Unstable & Government
                                                                                         change by demise
                Indira Gandhi (Jan 80-Oct 84)           1980      542     353          - Coalition Governments
                Rajiv Gandhi (Oct 84-Dec 89)            1984      542     415          2 Lasted Full Terms
                V P Singh (Dec 89-Nov 90)               1989      543     197         86 Unstable Governments
                Chandra Shekhar (Nov 90-Jun 91)                                          Unstable Governments
                P V Narasimha Rao (Jun 91-May 96)       1991      543     232        120 Lasted Full Terms
                Atal Bihari Vajpayee (May-Jun 96)       1996      543     140        161 Unstable Governments
                H D Deve Gowda (Jun 96-Apr 97)                                           Unstable Governments
                I K Gujral (Apr 97-Nov 97)              1998      543     141        179 Unstable Governments
                Atal Bihari Vajpayee (Mar 98 to May 04) 1999      543      114       182 Lasted Full Terms
                Manmohan Singh (May 04 to date)         2004      543     145        138 Lasted Full Terms
                Note: BJP was Bhartiya Lok Dal in 1977 and Bhartiya Jan Sangh till 1971
                                                                                  Source: Election Commission/MOSL


                In the low likelihood of the formation of a "third front government", markets would obviously
                react negatively (refer party manifestos in next section). In the past, markets have lacked
                clear direction after such governments have come into power.

27 March 2009                                                                                                 22
                                                                                                                                                                                                                                                                                    India Strategy




SENSEX MOVEMENT DURING THE UNSTABLE GOVERNMENT

V P SINGH GOVERNMENT (DEC 89-NOV 90)                                                                                                                              CHANDRA SHEKHAR GOVERNMENT (NOV 90-JUN 91)


 1,600                                                                                                                                                            2,200
                                             Formation of                                                                              Dissolution of                                                         Formation of                                                       Dissolution of
                                             Government                                                                                Government                                                             Government                                                         Government
 1,350                                                                                                                                                            1,800

 1,100                                                                                                                                                            1,400

  850                                                                                                                                                             1,000

  600                                                                                                                                                              600
                                                                     Jul-90




                                                                                                                                                                                                                                                                                    Jul-91
         Jan-90




                                                                    Jun-90




                                                                                                                                                Jan-91




                                                                                                                                                                                                                       Jan-91




                                                                                                                                                                                                                                                                        Jun-91
         Feb-90




                                                                                                                                                Feb-91




                                                                                                                                                                                                                                Feb-91
         Sep-89



         Dec-89




                                                                    Sep-90



                                                                    Dec-90




                                                                                                                                                                                   Sep-90




                                                                                                                                                                                                              Dec-90




                                                                                                                                                                                                                                                                                                          Sep-91
         Mar-90




                                                                                                                                                                                                                                         Mar-91
         Nov-89




                                                                    Nov-90




                                                                                                                                                                                                     Nov-90
         Oct-89




                                                                    Oct-90




                                                                                                                                                                                            Oct-90
                                                                    May-90



                                                                    Aug-90




                                                                                                                                                                          Aug-90




                                                                                                                                                                                                                                                             May-91




                                                                                                                                                                                                                                                                                               Aug-91
                                                                    Apr-90




                                                                                                                                                                                                                                                   Apr-91
H D DEVE GOWDA GOVERNMENT (JUN 96-APR 97)                                                                                                                         I K GUJRAL GOVERNMENT (APR 97-NOV 97)


 4,500                                                                                                                                                            5,000                                  Formation of
                                             Formation of                                                                                                                                                                                                                          Dissolution of
                                             Government                                                                                                                                                  Government                                                                Government
 4,000                                                                                                                                                            4,500


 3,500                                                                                                                                                            4,000
                                                                                                                                 Dissolution of
                                                                                                                                 Government
 3,000                                                                                                                                                            3,500

 2,500                                                                                                                                                            3,000
                                             Jul-96




                                                                                                                                                         Jul-97




                                                                                                                                                                                                                                Jul-97
                                    Jun-96




                                                                                                   Jan-97




                                                                                                                                                Jun-97




                                                                                                                                                                          Jan-97




                                                                                                                                                                                                                       Jun-97




                                                                                                                                                                                                                                                                                                 Jan-98
                                                                                                            Feb-97




                                                                                                                                                                                   Feb-97




                                                                                                                                                                                                                                                                                                            Feb-98
                                                               Sep-96



                                                                                          Dec-96




                                                                                                                                                                                                                                                    Sep-97




                                                                                                                                                                                                                                                                                      Dec-97
         Mar-96




                                                                                                                     Mar-97




                                                                                                                                                                                            Mar-97
                                                                                 Nov-96




                                                                                                                                                                                                                                                                          Nov-97
                                                                        Oct-96




                                                                                                                                                                                                                                                               Oct-97
                           May-96



                                                      Aug-96




                                                                                                                                       May-97




                                                                                                                                                                                                              May-97




                                                                                                                                                                                                                                          Aug-97
                  Apr-96




                                                                                                                              Apr-97




                                                                                                                                                                                                     Apr-97




                                                                                                                                                                                                                            Source: Election Commission of India

                                                                                   Party manifestos focus on “all needs”
                                                                                   The leading parties have released their manifestos (agenda and promises for their
                                                                                   government). We present a brief compilation:

                                                                                   Congress: (1) Key focus on all social reforms and empowerment, (2) Stance of economic
                                                                                   development, fiscal prudence and low inflation, (3) Clear deadline (April 2010) for
                                                                                   introduction of Goods and Service Tax, (4) Energy security features in very modest tone,
                                                                                   (5) Build on success of NREGA, (6) Impetus on foreign policy, (7) Importance to governance
                                                                                   (accountability) and judicial reforms (faster settlement of cases), (8) Connecting all villages
                                                                                   through broadband in three years, (9) Special focus on SMEs.

                                                                                   BJP (yet to release officially; as per media sources): (1) Focus on social empowerment
                                                                                   and women in particular, (2) Protection to domestic industries, (3) Re-iteration of “Hindutva”
                                                                                   issues and opposition to quotas based on religion, (4) Cross-border terrorism and infiltration,
                                                                                   and (6) IT access across the country.

                                                                                   CPI - (M): (1) No to SEZ (on land acquisition issues) and implementation of land reforms
                                                                                   and no acquisition of farm land for real estate, (2) No strategic partnership with US, (3)
                                                                                   Spend/equality to all strata of society and focus on education, employment, (4) Restrictive
                                                                                   stance on foreign trade and disagreement with WTO policies, (5) Opposition of Foreign
                                                                                   capital (FDI) in Retail and FII money in equity markets, (6) Develop IT industry.
27 March 2009                                                                                                                                                                                                                                                                                                        23
                                                                                                                                                                                                                                                                                                                      India Strategy




                                                                                       Macro indicators: mix of positives and negatives


                                                                                       GDP growth reversing to mean, agriculture growth will be swing factor
                                                                                       After an above-average growth of 8-9% since FY03, GDP growth for FY09 is likely to
                                                                                       decline to 6.7% on strong global headwinds and rub-off impact on the Indian economy.
                                                                                       The estimated real GDP growth of 6.7% in FY09 is still better than most economies and is
                                                                                       led by strong domestic consumption.

FY09E GDP GROWTH OF 6.7%, CLOSE TO 15-YEAR AVERAGE…                                                                                                                                                 …AMONGST THE HIGHEST IN REAL GDP GROWTH (%)


                                                                                                                                                                                                 COUNTRIES                                    CY06                          CY07                          CY08                   CY09E
                                                                                                                                             9.8
 10                                                                                                                                9.5                                                           China                                          11.6                        13.0                           9.0                         6.7
       Average Growth of 6.9%                                                                               8.5                                              9.0
                                                                                                                                                                                                 India                                           9.8                         9.3                           7.3                         5.1
                                    8.0                                                                                 7.5                                                                      Indonesia                                       5.5                         6.3                           6.1                         5.5
  8
                          7.3
                                                         6.7                                                                                                              6.7                    Brazil                                          3.8                         5.7                           5.8                         1.8
                6.4                                                6.4                                                                                                                           Malaysia                                        5.8                         6.3                           5.7                         4.8
  6 5.7                                                                                 5.8
                                                                                                                                                                                                 Philippines                                     5.4                         7.2                           4.4                         3.8
                                               4.3                                                                                                                                               Hong Kong                                       7.0                         6.4                           4.1                         3.5
                                                                             4.4                  3.8
  4                                                                                                                                                                                              Korea south                                     5.1                         5.0                           4.1                         3.5
                                                                                                                                                                                                 Taiwan                                          4.9                         5.7                           3.8                         2.5
                                                                                                                                                                                                 South Africa                                    5.4                         5.1                           3.8                         3.3
  2                                                                                                                                                                                              Singapore                                       8.2                         7.7                           3.6                         3.5
                                                                                                                                                                            2008-09E
      1993-94
                1994-95
                          1995-96
                                     1996-97
                                               1997-98
                                                         1998-99
                                                                   1999-00
                                                                             2000-01
                                                                                        2001-02
                                                                                                  2002-03
                                                                                                              2003-04
                                                                                                                        2004-05
                                                                                                                                   2005-06
                                                                                                                                                 2006-07
                                                                                                                                                                2007-08




                                                                                                                                                                                                 USA                                             2.8                         2.0                           1.1                        -1.6
                                                                                                                                                                                                 UK                                              2.8                         3.0                           0.7                        -2.8
                                                                                                                                                                                                 Japan                                           2.4                         2.4                          -0.3                        -2.6

Source: MOSL                                                                                                                                                                                                                    Source: CMIE / World Economic Outlook: Jan 09, IMF

                                                                                       IIP growth has led GDP growth trends
                                                                                       Manufacturing accounts for over 25% of India’s GDP and ~1.5% of India’s GDP growth
                                                                                       (barring few aberrations), and has been an important contributor to economic growth. The
                                                                                       growth in GDP is broadly correlated to the growth in IIP; IIP growth always moves ahead
                                                                                       of the direction of GDP growth. Even in the current cycle, IIP growth rate had declined
                                                                                       ahead of the decline in GDP growth.

                                                                                       IIP GROWTH LEADS GDP GROWTH


                                                                                        16.0                                                                                                     GDP Growth (%)                                                 IIP Growth (%)


                                                                                        12.0


                                                                                           8.0


                                                                                           4.0


                                                                                           0.0
                                                                                                                                                                                                                                                                                                                                           2008-09E
                                                                                                            1989-90

                                                                                                                         1990-91

                                                                                                                                       1991-92

                                                                                                                                                           1992-93

                                                                                                                                                                          1993-94

                                                                                                                                                                                       1994-95

                                                                                                                                                                                                  1995-96

                                                                                                                                                                                                            1996-97

                                                                                                                                                                                                                      1997-98

                                                                                                                                                                                                                                  1998-99

                                                                                                                                                                                                                                            1999-00

                                                                                                                                                                                                                                                      2000-01

                                                                                                                                                                                                                                                                  2001-02

                                                                                                                                                                                                                                                                            2002-03

                                                                                                                                                                                                                                                                                      2003-04

                                                                                                                                                                                                                                                                                                2004-05

                                                                                                                                                                                                                                                                                                            2005-06

                                                                                                                                                                                                                                                                                                                       2006-07

                                                                                                                                                                                                                                                                                                                                 2007-08




                                                                                                                                                                                                                                                                                                                      Source: MOSL

27 March 2009                                                                                                                                                                                                                                                                                                                                24
                                                                                                                                                                                                                                               India Strategy




                                Agriculture is a key swing factor for economic growth
                                Agricultural GDP has seen four consecutive years of growth for the first time in India’s
                                history. This has strengthened the rural economy significantly, providing a boost to overall
                                consumption in the recent times. In the past 15 years, a key swing variable for decline in
                                GDP growth has been agriculture. In years of sharp decline in GDP growth, agriculture
                                growth has been negative. After four years of positive agriculture growth till FY09, FY10
                                growth for agriculture will be a key factor in influencing overall GDP growth.

                                AGRICULTURE GROWTH IS A KEY SWING FACT OR IN THE YEARS OF MAJOR GDP SLO WDOWN

                                                                                                                                                                                                                                        GDP GROWTH (%)
                                 10                         Agriculture                                     Industrial                              Services                                                               YEARS    OVERALL     AGRICULTURE

                                                                                                                                                                                                                           1991       5.3            1.26
                                  6                                                                                                                                                                                        1992       1.5            -0.6
                                                                                                                                                                                                                           1997       8.0             2.8
                                                                                                                                                                                                                           1998       4.5            -0.7
                                  2
                                                                                                                                                                                                                           1999       6.7             1.6
                                                                                                                                                                                                                           2000       6.5             0.7
                                 -2                                                                                                                                                                                        2002       5.8             1.5
                                                1991-92
                                                          1992-93
                                                                    1993-94
                                                                              1994-95
                                                                                        1995-96
                                                                                                  1996-97
                                                                                                            1997-98
                                                                                                                      1998-99
                                                                                                                                1999-00
                                                                                                                                          2000-01
                                                                                                                                                     2001-02
                                                                                                                                                               2002-03
                                                                                                                                                                         2003-04
                                                                                                                                                                                   2004-05
                                                                                                                                                                                             2005-06
                                                                                                                                                                                                       2006-07
                                                                                                                                                                                                                 2007-08
                                      1990-91




                                                                                                                                                                                                                           2003       4.2            -1.6
                                                                                                                                                                                                                           2004       8.5             2.2
                                 -6
                                                                                                                                                                                                                           2005       7.6             0.0
                                                                                                                                                                                                                                               Source: MOSL

                                Return to current account surplus after 5 years of deficit
                                BALANCE OF PAYMENTS (USD B)

                                                                                                             FY05                           FY06                            FY07                           FY08             FY09E      FY10E     CHG. IN FY10

                                                                                                                                                                                                                                                OVER FY09 (%)

                                Exports                                                                      85.2                         105.2                          128.1                         166.2                172.7      156.3         -10
                                POL                                                                           6.7                          11.2                           17.8                          26.8                 25.1       26.7          6
                                Non-POL                                                                      78.5                          93.9                          110.3                         139.4                147.6      129.6         -12
           Return to current    Imports                                                                     118.9                         157.1                          191.3                         257.8                293.7      241.5         -18
                                POL                                                                          29.3                          45.1                           57.3                          83.2                 90.3       62.5         -31
       account surplus after
                                Non-POL                                                                      89.6                         112.0                          134.0                         174.5                203.4      179.0         -12
           5-years of deficit   Trade Balance                                                               -33.7                         -51.9                          -63.2                         -91.6               -121.0      -85.2         -30
                                Non-POL trade balance                                                       -22.6                         -33.8                          -39.5                         -56.5                -65.2      -35.8         -45
                                Net Invisible Earnings                                                       31.2                          42.0                           53.4                          74.6                 90.7       90.4          -
                                Current Account Balance                                                      -2.5                          -9.9                           -9.8                         -17.0                -30.3        5.2
                                  As a % of GDP                                                              -0.4                          -1.3                           -1.2                          -1.6                 -2.8        0.4

                                CAPITAL INFLOW (NET)

                                                                                                             FY05                           FY06                            FY07                           FY08             FY09E      FY10E     DIFF. IN FY10

                                                                                                                                                                                                                                                  OVER FY09

                                Foreign Investments                                                          14.0                          12.7                           11.2                          45.0                 11.9       12.9         1.1
                                FDI                                                                           4.7                           0.2                            4.2                          15.4                 21.2       13.2        -8.0
                                Portfolio Investments                                                         9.3                          12.5                            7.0                          29.6                 -9.4       -0.3         9.1
                                Banking Capital                                                               2.9                           4.2                            6.2                          11.8                  6.7        8.9         2.2
                                Other Bank Capital                                                            3.9                           1.4                            1.9                          11.6                  5.7        6.7         1.0
                                NRI Deposits                                                                 -1.0                           2.8                            4.3                           0.2                  1.0        2.2         1.2
                                Short Term Credit                                                             3.8                           3.7                            6.6                          17.2                  1.9        0.0        -1.9
                                ECB                                                                           5.2                           2.5                           16.2                          22.6                  6.7        6.5        -0.2
    As forex reserves remain    Others                                                                        2.2                           2.4                            5.6                          11.5                 -0.3       -1.3        -1.0
    healthy, RBI can support    Total Net Capital Inflows                                                    28.0                          25.5                           45.8                         108.0                 26.9       27.0         0.1
                                Inc/(Dec) in Reserves                                                        25.6                          15.6                           36.0                          91.0                 -3.3       32.2        35.5
           currency in FY10     Currency Reserves                                                           141.5                         144.3                          169.1                         299.1                284.0      303.2        19.3
                                                                                                                                                                                                                                               Source: MOSL

27 March 2009                                                                                                                                                                                                                                               25
                                                                                                                                                                                                                                                                                     India Strategy




                                                                                Quality of fiscal deficit to improve in FY10

                                                                                FISCAL DEFICIT: QUALITY OF FISCAL DEFICIT IN FY10 BETTER OVER FY09 (RS B)

                                                                                                                                                                       FY08                                                              FY09                                                          FY10

                                                                                GDP                                          47,234                    54,263                                                                                                                                      60,278
  While fiscal deficit in FY10                                                  Total Revenues                                5,858                     5,744                                                                                                                                       6,204
  will remain high, quality of                                                  Total Expenditure                             7,127                     9,010                                                                                                                                       9,532
                                                                                Fiscal Deficit                                1,269                     3,265                                                                                                                                       3,328
             deficit is better as it is
                                                                                Fiscal Deficit With Off-budget Items          2,024                     4,395                                                                                                                                       3,436
directed towards stimulating                                                    Fiscal Deficit (%)                               2.7                        6.0                                                                                                                                        5.5
                 domestic economy. In                                           Fiscal Deficit With Off-budget Items (%)         4.3                        8.1                                                                                                                                        5.7
          FY09, fiscal deficit had                                              Subsidies / imported deficit
                                                                                Fertlizer                                       375                        959                                                                                                                             500
                      large proportion of
                                                                                Oil Bonds                                       380                        784                                                                                                                              74
                            imported deficit                                    Total                                           755                      1743                                                                                                                              574
                                                                                Total as % of FD with off B/S                    37                          40                                                                                                                             17
                                                                                Total as % of GDP                                1.6                        3.2                                                                                                                             1.0
                                                                                Note: Fiscal deficit in FY10 includes interest on all special securities till date                                                                                                                    Source: MOSL

                                                                                Recent business trends have surprised positively
                                                                                Several sectors that reported significant drop in business momentum in 3QFY09, have
                                                                                witnessed a strong recovery in 4QFY09. Over the last three months, we have witnessed
                                                                                consistent upgrades to our volume estimates for Autos, Cement, Wireless, Steel, etc. This
                                                                                is reflected in higher QoQ earnings estimates for most of these sectors. While part of this
                                                                                uptick is a reflection of the pre-election spending and completion of projects, the various
                                                                                stimulus packages and RBI measures have also aided the positive surprises in volumes.

CEMENT DISPATCHES GROWTH (%)                                                                                                                                 AUTO VOLUMES ('000)

 12.0                                                                                                                                                        1,200                        Domestic                          Exports
                            11.9
                                                                 10.7
 10.5                                                                                                                                                        1,000
         10.9
                                                                                     9.2                          9.3                8.7
  9.0                                9.1                                                                                                                       800
                                                            7.6                                                             8.3            8.5 8.5
  7.5                                                                                                                                                          600
                                                                                                          7.2
                                               6.6                                             6.7
  6.0                                                                           6.3
                                                                                                                                                               400
                                                                                                                                 Feb'09
             1QFY07


                                3QFY07


                                                   1QFY08


                                                                       3QFY08


                                                                                           1QFY09


                                                                                                              3QFY09




                                                                                                                                                    4QFY09




                                                                                                                                                                                                                                          Jul-08
                                                                                                                                                                                 Jan-08




                                                                                                                                                                                                                                Jun-08




                                                                                                                                                                                                                                                                                                       Jan-09
                                                                                                                                                                                           Feb-08




                                                                                                                                                                                                                                                                                                                  Feb-09
                                                                                                                                                                     Dec-07




                                                                                                                                                                                                                                                             Sep-08




                                                                                                                                                                                                                                                                                              Dec-08
                                                                                                                                                                                                     Mar-08




                                                                                                                                                                                                                                                                                 Nov-08
                                                                                                                                                                                                                                                                        Oct-08
                                                                                                                                                                                                                       May-08




                                                                                                                                                                                                                                                    Aug-08
                                                                                                                                                                                                              Apr-08




WIRELESS SUBSCRIBER ADDITIONS (NOS MILLION)                                                                                                                  STEEL QUARTERLY VOLUMES ('000 TONS) *


 16                                                                                                                                  15.4                    6,500                                                         5,986                                                                       6,156
                                                                                                                                               13.8
 13                                                                                                                                                          5,500                        5,023 5,071
                                                                                                             10.8                                                                                                                           4,626 4,707
                                    10.1                                                           10.4                                                              4,248                                                                                                        4,183
                                                                                               10.1     10.3                                                 4,500
 10              8.8                                  8.9 9.2 9.2
                           8.5                8.2 8.6
      8.2
                                                                                                                                                             3,500
  7
                                                                                                                                                             2,500
  4
                                                                                                                                                                                                                                                                                                            4QFY09E
                                                                                                                                                                        1QFY08


                                                                                                                                                                                            2QFY08


                                                                                                                                                                                                              3QFY08


                                                                                                                                                                                                                                4QFY08


                                                                                                                                                                                                                                                   1QFY09


                                                                                                                                                                                                                                                                      2QFY09


                                                                                                                                                                                                                                                                                          3QFY09
                                                                            Jul-08
                  Jan-08




                                                                  Jun-08




                                                                                                                                      Jan-09
                           Feb-08




                                                                                                                                               Feb-09
        Dec-07




                                                                                                Sep-08




                                                                                                                            Dec-08
                                     Mar-08




                                                                                                                   Nov-08
                                                                                                         Oct-08
                                                        May-08




                                                                                      Aug-08
                                              Apr-08




* Volumes of Tata Steel, SAIL, JSW Steel                                                                                                                                                                                                                                              Source: MOSL

27 March 2009                                                                                                                                                                                                                                                                                                          26
                                                                                                                                                                                                                                   India Strategy




                                                                   Indian corporate sector is well placed to weather slowdown
                                                                   Over the last 15 years, the Indian corporate sector has witnessed significant improvement
                                                                   in operating and financial parameters. Key observations: (1) Net leverage has declined
                                                                   from 1.2x in FY94 to 1x in FY00 to 0.5x in FY08, (2) Interest cost as a percentage of sales
                                                                   has reduced drastically, (3) Stable EBITDA margin and financial leverage has led to
                                                                   improvement in net profit margin, and (4) Cumulative impact of all the above factors is
                                                                   reflected in significant improvement in RoEs.

INDIAN CORPORATE SECT OR: ON STRONG FOOTING

NET DEBT TO EQUITY (X)                                                                                                             COST OF DEBT (%)
                                                                                                                                                                             Cost of debt will stabilize
 1.3 1.2                                                                   Net debt to equity is                                   12.5            12.0
                                                                                                                                                                                / decline in FY10
                                                                                                                                                       11.7    11.2
                                                                           likely to remain low                                                11.3                    11.3
                                                                                                                                           10.9            11.0            10.8
 1.1             1.0              1.0 1.0 1.0                                                                                      11.0                            10.8
                                                          0.9
                         0.9
                                                                   0.8 0.8                                                                                                                                       9.6
 0.8                                                                                                                                 9.5
                                                                                   0.7
                                                                                           0.6                                                                                                                           8.1
                                                                                                                                     8.0                                                                                         7.9
 0.6                                                                                               0.5 0.4 0.4 0.5
                                                                                                                                                                                                                                         6.9 6.9 7.1
 0.3                                                                                                                                 6.5
                                                                                                                                             1994
                                                                                                                                                     1995
                                                                                                                                                            1996
                                                                                                                                                                    1997
                                                                                                                                                                           1998
                                                                                                                                                                                    1999
                                                                                                                                                                                           2000
                                                                                                                                                                                                   2001
                                                                                                                                                                                                          2002
                                                                                                                                                                                                                  2003
                                                                                                                                                                                                                          2004
                                                                                                                                                                                                                                  2005
                                                                                                                                                                                                                                          2006
                                                                                                                                                                                                                                                  2007
                                                                                                                                                                                                                                                         2008
        1994
                 1995
                          1996
                                  1997
                                          1998
                                                  1999
                                                           2000
                                                                    2001
                                                                            2002
                                                                                   2003
                                                                                           2004
                                                                                                   2005
                                                                                                           2006
                                                                                                                    2007
                                                                                                                            2008




INTEREST / SALES (%)                                                                                                               EBITDA MARGIN (%)
                                                                           Interest to sales unlikely                                                                          EBITDA margins are
 7.0                     6.3              6.3 6.6                           to be source of stress                                 16.0                                     expected to remain stable
                                  6.3
        6.0 6.2                                           5.8                                                                                                                                                                                        14.5
                                                                                                                                   14.5         14.3                                                                                             14.3
 5.5                                                               5.1                                                                                      14.0                                                                 13.8
                                                                           4.6
                                                                                                                                           12.7                    13.1                                                  12.9            13.1
 4.0                                                                               3.7                                             13.0                                    12.8
                                                                                                                                                                                                                 12.5
                                                                                           2.7                                                                                     11.9           11.5
 2.5
                                                                                                   2.4             2.1 2.3         11.5
                                                                                                                                                                                           11.5
                                                                                                                                                                                               11.1
                                                                                                           2.0

 1.0                                                                                                                               10.0
        1994
                 1995
                         1996
                                  1997
                                          1998
                                                  1999
                                                           2000
                                                                   2001
                                                                           2002
                                                                                   2003
                                                                                           2004
                                                                                                   2005
                                                                                                           2006
                                                                                                                    2007
                                                                                                                            2008




                                                                                                                                             1994
                                                                                                                                                     1995
                                                                                                                                                            1996
                                                                                                                                                                    1997
                                                                                                                                                                            1998
                                                                                                                                                                                    1999
                                                                                                                                                                                           2000
                                                                                                                                                                                                   2001
                                                                                                                                                                                                          2002
                                                                                                                                                                                                                  2003
                                                                                                                                                                                                                          2004
                                                                                                                                                                                                                                  2005
                                                                                                                                                                                                                                          2006
                                                                                                                                                                                                                                                  2007
                                                                                                                                                                                                                                                         2008




PAT MARGIN (%)                                                                                                                     ROE (%)
                                  PAT margins are unlikely to                                                                                                       RoE contraction to be much
 11.0                               see significant stress                                                                 10.1    22.0                            lower than earlier slowdown                                   20.6        20.5
                                                                                                                   9.5
                                                                                                   8.7                                                                                                                                   18.9        18.7
  9.0                                                                                                                                                                                                                    17.7
                                                                                                           8.4                     18.0
                 7.9                                                                       7.3                                                      15.3
                          7.4
                                                                                                                                           13.6         14.3                                                     13.5
  7.0                                                                                                                              14.0
         5.7                                                                       5.7
                                  5.3                                                                                                                                                             10.0
                                          5.1                                                                                                                      10.3
  5.0                                                              4.4                                                             10.0                                    9.5                            8.8
                                                  3.7 3.7                  3.9
                                                                                                                                                                                   7.2
                                                                                                                                                                                           7.7

  3.0                                                                                                                                6.0
          1994
                  1995
                           1996
                                   1997
                                           1998
                                                   1999
                                                            2000
                                                                    2001
                                                                            2002
                                                                                    2003
                                                                                            2004
                                                                                                    2005
                                                                                                            2006
                                                                                                                    2007
                                                                                                                            2008




                                                                                                                                             1994
                                                                                                                                                     1995
                                                                                                                                                            1996
                                                                                                                                                                    1997
                                                                                                                                                                           1998
                                                                                                                                                                                    1999
                                                                                                                                                                                           2000
                                                                                                                                                                                                   2001
                                                                                                                                                                                                          2002
                                                                                                                                                                                                                  2003
                                                                                                                                                                                                                          2004
                                                                                                                                                                                                                                  2005
                                                                                                                                                                                                                                          2006
                                                                                                                                                                                                                                                  2007
                                                                                                                                                                                                                                                         2008




                                                                                                                                                                                                                 Source: Company/MOSL


27 March 2009                                                                                                                                                                                                                                             27
                                                                                                                     India Strategy




                Banking sector too is in good health to battle credit quality related concerns
                On similar lines, the banking sector in India is very well positioned, with 1) highest ever
                capital adequacy ratio (CAR), 2) ~1% net non-performing assets (NNPA) and 3)
                manageable credit growth of 25-30%. State-owned banks that were prone to credit quality
                deterioration due to directed lending in the past have recovered well – their NNPAs have
                declined from 11% in FY94 to 1% in FY08. Given the liquidity surplus in the system and
                higher CAR, banks are in a better position to achieve 25-30% growth.

                BANKING SECTOR: POSITIONED TO COMBAT CREDIT Q UALITY DETERIORATION

                GROSS NPA (%)


                      19.5
                 20          18.0
                                      15.7
                                             14.4    14.7
                 15                                           12.7
                                                                       11.4
                                                                              10.4
                 10                                                                  8.8
                                                                                              7.2
                                                                                                      5.2
                  5                                                                                            3.3
                                                                                                                       2.5    2.3

                  0
                      1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

                CAPITAL ADEQU ACY RATIO (%)


                 16
                                                                                           13.9     14.1
                                              12.9     13.1     13.1                                                         13.1
                                                                                 12.3                        12.6    12.3
                 13
                                                                          11.5


                 10             8.7

                       6.7
                  7                    5.9


                  4
                      1996   1997     1998    1999    2000      2001     2002    2003      2004     2005     2006    2007    2008

                                                                                                           Source: Company/MOSL



                 Will restructuring of loans dent banks’financials significantly?
                 Economic slowdown coupled with a massive credit expansion of last four years (~25%
                 CAGR) would lead to build-up of NPAs, going forward. While we believe stress would
                 be felt across all sectors (on demand slowdown and inventory pile-up), asset quality is
                 likely to especially worsen in commodity-related industries (Non-ferrous Metals, Iron
                 & Steel, Sugar, etc), export oriented industries (Textiles, Gems & Jewelry, Leather
                 Products, etc), and interest-rate sensitive industries (Real Estate, NBFC, Autos, etc).
                 These industries together contribute ~20% of Indian banks’ aggregate loan book.

27 March 2009                                                                                                                   28
                                                                                                India Strategy




                9MFY09 EXPECTED STRESS ASSETS (RS B)

                                                       LOAN BOOK                       STRESS ASSUMED

                                                                                  %                  VALUE

                Sensitive Sector Exposure                   8,050               14.7                 1,186
                Iron, Steel and Metal Products              1,511                 10                   151
                Textiles/Leathers/Jems and Jewelry          1,376                 25                   344
                NBFCs                                         861                 10                    86
                Real Estate                                   765                 25                   191
                Chemicals                                     747                 10                    75
                Auto and Auto Ancillary*                      300                 20                    60
                Transport Operators                           381                 10                    38
                Credit Cards                                  294                 20                    59
                Personal Loans (Including Auto)             1,815                 10                   181
                Safer Retail Loans                          3,576                5.0                   179
                Housing Loans                               2,717                  5                   136
                Other Retail Loans                            859                  5                    43
                Other Industry Exposures                   10,180                6.5                   658
                Other Industries                            7,808                  6                   468
                Infrastructure                              2,372                  8                   190
                Agriculture                                 2,895                  6                   174
                Total                                      24,702                8.9                 2,196
                Already Recognized in Books as on 9MFY09                         2.5                   618
                Incremental Expected                                             6.4                 1,579
                Restructuring Expected @ 3%                                                            741
                                                                                                Source: MOSL


                In anticipation of the expected rise in NPAs, RBI issued guidelines for the restructuring of
                stress assets. It allowed one-time restructuring of real estate loans, 2nd time restructuring
                of all other loans (except for real estate, personal and capital market loans). All loans that
                were standard as on 1 September 2008 could be restructured without downgrading the
                asset class if the restructuring application was received before 31 March 2009. This has
                postponed the recognition of NPAs to 2HFY10. Our interaction with various banks suggests
                that the rescheduling amount is likely to be in the range of 2-4% of the total loans as on
                9MFY09, and a large chuck of restructuring is expected in Real Estate, Textiles, Gems &
                Jewelry, Autos and Ancillaries, and SMEs.

                All state-owned and old generation private bank stocks were trading at a significant discount
                to book value (ranging from 30-50%) at the start of March 2009. Over the last few
                months, investors have been concerned about the possible rise in NPAs for the banking
                system; hence, bank stocks were trading at significant discount to net worth.

                Adopting a static approach, we present below our analysis of what level of gross NPAs
                are factored in the current prices for these banks. We have assumed: (a) 70% of the gross
                NPAs would turn into actual loss, and (b) 65% tax shelter for the actual credit loss.




27 March 2009                                                                                                29
                                                                                                   India Strategy




                VALUATION PRICING HIGHER NPAS IN SEVERAL BANKS

                                      CMP    MCAP       NET    NNPAS   NNPAS    GNPAS   GROSS   PRICED   GROSS

                                      (RS)   (RS B)   WORTH       IN   IN CMP      IN   LOANS IN GNPA      NPA

                                                       FY09E    CMP       BT#    CMP*              %*    FY09E

                SBI (cons)**          1,125       651     711   59.5     91.5  130.7    7,633       1.7      2.7
                PNB                     441       139     132    0.0      0.0     0.0   1,539       0.0      2.7
                BoI                     234       123     115    0.0      0.0     0.0   1,423       0.0      1.7
                BoB                     248        91     113   22.0     33.9    48.4   1,344       3.6      1.4
                Canara Bank             167        68      98   29.1     44.8    64.0   1,304       4.9      1.5
                OBC                     119        30      66   35.7     54.9    78.4     670      11.7      1.8
                Union Bank              152        77      71    0.0      0.0     0.0     961       0.0      1.9
                Indian Bank              88        38      55   17.1     26.3    37.6     526       7.1      1.0
                IOB                      48        26      58   32.2     49.5    70.7     738       9.6      2.4
                Corporation Bank        175        25      49   23.7     36.5    52.2     475      11.0      1.2
                Andhra Bank              48        23      36   12.9     19.9    28.4     431       6.6      0.9
                Federal Bank            147        25      43   18.2     28.0    40.1     232      17.3      3.2
                J & K Bank              291        14      27   12.4     19.1    27.3     192      14.2      2.3
                # NNPAs adjusted for 35% tax rate; * Assuming 70% of gross NPAs turn bad eventually
                **Adjusted for Rs60b SBI Life's valuation                                            Source: MOSL


                The large superior quality banks like PNB, Union Bank and BoI now trade above their
                FY09E book value. Other small/mid-sized banks still offer a value opportunity. They continue
                to trade at 0.5-0.7x FY09E BV, which factors in gross NPAs of 7-17%. We believe these
                are extremely pessimistic valuations.




27 March 2009                                                                                                    30
                                                                                                                          India Strategy




                Inflation unlikely to rebound in FY10; RBI to continue easing


                FY09 has witnessed high inflation of 12.9%, and subsequently, a 30-year low of 0.3% in
                the latest weekly data. We expect inflation to turn negative for the next six months. Estimating
                inflation has become a tough task due to the volatility in global commodities and subsequent
                impact on the base index. In CY08, the average WoW change in WPI was 0.156%, much
                above the preceding 3-year average change of 0.107%. The two key drivers of this inflation
                were prices of base metals and oil, which have declined significantly in the last six months.

                We present a scenario analysis to assess the outlook for inflation. (A) Base case: an
                average WoW rise of 0.05% for the next 6-9 months, (B) Optimistic case: no change in
                WPI, and (C) Pessimistic case: WoW change of 0.1%. We are not presenting the case of
                fall in WPI, as we see very low probability of this.

                WHOLESALE PRICE INDEX (WPI) SENSITIVITY


                 16.0                                                           No WoW growth in WPI
                                                                                Assuming 0.10% WoW growth in WPI
                                                                                Assuming 0.05% WoW growth in WPI
                 10.0

                                                                                                                                       5.6
                  4.0
                                                                                                                                       2.8
                                                                                       0.3
                                                                                                                                       0.0
                 -2.0                                                         0.0
                                                                                                        -3.4
                                                                                                        -4.6
                 -8.0                                                                                    -6.1
                                                   Jun-08




                                                                                             Jun-09
                        Sep-07



                                 Dec-07




                                                            Sep-08



                                                                     Dec-08




                                                                                                        Sep-09


                                                                                                                 Dec-09
                                          Mar-08




                                                                              Mar-09




                                                                                                                              Mar-10
                                                                                                      Source: Bloomberg/RBI/MOSL


                All the three scenarios indicate deflation till October 2009. Our base case scenario would
                result in inflation of 2.8% by March 2010. An environment of deflation for the next six
                months will be conducive for both RBI and the next government to pursue more measures
                to stimulate growth.

                RBI has been actively easing its monetary policy stance over the last five months. It has
                reduced CRR by 400bp, cut repo rate by 400bp, and has introduced several liquidity injection
                facilities. While all these measures have ensured that liquidity has been comfortable and
                interest rates on benchmarks have declined, we expect a further cut of at least 100bp in
                lending and deposit rates over the next few months. As credit growth has slowed down to
                18% and deposit growth remains strong at 21%, both rates need to be brought down. We
                also expect RBI to ease CRR by 200bp in FY10 to provide liquidity for the large government
                borrowing plan.



27 March 2009                                                                                                                            31
                                                                                                                                                                                                                                                                                                     India Strategy




                                                                       INFLATION AND 1-YEAR TERM DEPOSIT RATE


                                                                         16
                                                                                                                                                                       1 Year Deposit Rates                                            Inflation (%)
                                                                         12


                                                                            8


                                                                            4


                                                                            0




                                                                                                                                                                                                                                                                                                          FY09E

                                                                                                                                                                                                                                                                                                                     FY10E
                                                                                                                                                                                         FY00

                                                                                                                                                                                                         FY01

                                                                                                                                                                                                                    FY02

                                                                                                                                                                                                                            FY03

                                                                                                                                                                                                                                       FY04

                                                                                                                                                                                                                                                   FY05

                                                                                                                                                                                                                                                                   FY06

                                                                                                                                                                                                                                                                                    FY07

                                                                                                                                                                                                                                                                                                FY08
                                                                                           FY 94

                                                                                                         FY 95

                                                                                                                            FY 96

                                                                                                                                        FY 97

                                                                                                                                                           FY 98

                                                                       TREND IN CORPORATE BOND V/S G-SEC YIELD                                                              FY 99

                                                                         12.5
                                                                                                                    10 Year AAA Corporate Yield (%)                                                                            10 Year G-Sec Yield (%)                                                            11.5

                                                                         10.5
                                                                                                                                                                                                                                                                                                       9.3           9.0
                                                                            8.5

                                                                                                                                                                                                                                                                                                                     7.0
                                                                            6.5                                                                       5.6


                                                                            4.5                                                                       5.1
                                                                                                          Sep-02




                                                                                                                                                 Sep-03




                                                                                                                                                                                    Sep-04




                                                                                                                                                                                                                   Sep-05




                                                                                                                                                                                                                                          Sep-06




                                                                                                                                                                                                                                                                           Sep-07




                                                                                                                                                                                                                                                                                                         Sep-08
                                                                                          Mar-02




                                                                                                                              Mar-03




                                                                                                                                                                   Mar-04




                                                                                                                                                                                                   Mar-05




                                                                                                                                                                                                                              Mar-06




                                                                                                                                                                                                                                                          Mar-07




                                                                                                                                                                                                                                                                                            Mar-08




                                                                                                                                                                                                                                                                                                                      Mar-09
                                                                                                                                                                                                                                                          Source: Bloomberg/RBI/MOSL



TREND IN CRR (%)                                                                                                                                                            TREND IN REPO RATES (%)



 10.0                                                                                                                                                                        10.0
                                                                                                        9.0                                                                                                                            9.0
                                                                          8.8                                                                                                                                               8.5
  8.5                                                         8.0 8.3 8.5                                                                                                       8.5                             8.0
                                            7.5 7.8                                                                                                                                             7.8                                                  8.0
                                                                                                                                                                                                                                                                      7.5
  7.0                     6.5 7.0                                                                                  6.5
                                                                                                                                                                                7.0                                                                                                        6.5
        6.0 6.3                                                                                                               6.0
                                                                                                                                        5.5
  5.5                                                                                                                                               5.0                                                                                                                                                 5.5
                                                                                                                                                                                5.5                                                                                                                                  5.0

  4.0
                                                                                                                                                                                4.0
                                                                                                                                                      Jan 09
                                                                                July 08
                                                                                              July 08




                                                                                                                                        Nov 08
        Mar 07




                                            Nov 07




                                                                                                                   Oct 08
                                                                                                                               Oct 08
                                                                                                        Aug 08
                                   Aug 07




                                                              May 08
                                                                       May 08
                 Apr 07
                          Apr 07




                                                     Apr 08




                                                                                                                                                                                                                Jun 08


                                                                                                                                                                                                                            Jun 08




                                                                                                                                                                                                                                                                                                        Jan 09
                                                                                                                                                                                                                                                                                           Dec 08
                                                                                                                                                                                                                                                                          Nov 08
                                                                                                                                                                                                Mar 07




                                                                                                                                                                                                                                                                                                                     Mar 09
                                                                                                                                                                                                                                                      Oct 08
                                                                                                                                                                                                                                        Aug 08




                 14th &                                       12th & 8th &                                                                                                                                         12th&
                  28th                                         25th 22nd                                                                                                                                           25th
                  April                                        May   July                                                                                                                                          June

                                                                                                                                                                                                                                                          Source: Bloomberg/RBI/MOSL




27 March 2009                                                                                                                                                                                                                                                                                                            32
                                                                                             India Strategy




                How liquid would banks be to fund FY10E deficit?
                Slowing economy, lower tax revenues and additional expenditure on stimulus packages
                has resulted in the FY09 fiscal deficit shooting to 6% v/s the budgeted number of 2.5%.
                The government has budgeted a fiscal deficit of 5.5% for FY10. Investors are concerned
                about the crowding of liquidity for this large borrowing and bond yields are up 120bp since
                the announcement of this borrowing. We believe that liquidity would be tight in FY10 at
                the current borrowing level (this could increase with the new government's budget in June
                2009). We present a scenario analysis of the Indian banking system's ability to fund this
                borrowing:

                INDIAN BANKING SYSTEM LIQUIDITY ANALYSIS

                                                                  FY08           FY09E            FY10E

                Total Inflows Expected in the System
                Deposits (1)                                  31,921            38,306           44,435
                  YoY Growth (%)                                22.2              20.0             16.0
                Total Inflow via Deposits                      5,802             6,384            6,129
                Other Liabilities (2)                          4,026             4,328            4,760
                  YoY Growth (%)                                  1.0               7.5            10.0
                Total Inflow via Other Liabilities               752               302              433
                Demand and Time Liab (NDTL) (1+2)             35,947            42,633           49,195
                  YoY Growth (%)                                                  18.6             15.4
                Total Inflow via NDTL (A)                      6,554             6,686            6,562
                CRR                                            2,571             2,132            1,476
                CRR (%)                                           7.2               5.0              3.0
                Total Inflow/Outflow on a/c of CRR Req           769             (440)            (656)
                Total Resource Inflows                         7,323             7,126            7,217
                Total Outflow on a/c of Loan Growth
                Loan Book                                     23,485            27,830           32,282
                  YoY Growth (%)                                22.3              18.5             16.0
                Total Outflow via loan growth                  4,173             4,345            4,453
                Non SLR Book                                   1,685             2,359            2,595
                  YoY Growth (%)                                                40.0%            10.0%
                Total Outflow via Loan Equivalents               957               674              236
                Total Outflow Through Loans & Equivalents (C ) 5,130             5,019            4,689
                Amounts Avaliable for SLR                      1,802             2,107            2,529
                SLR Investments                                9,717            11,824           14,353
                SLR to NDTL                                     27.0              27.7             29.2
                                                                                              Source: MOSL


                OWNERSHIP PATTERN OF GOVERNMENT OF INDIA DATED SECURITIES (%)

                CATEGORY                                                                       SEP-08

                Commercial Bank                                                                 42.0
                Insurance Companies                                                             25.5
                Primary Dealers                                                                  9.5
                Provident Fund                                                                   6.3
                Co-Operative Banks                                                               3.2
                Others                                                                          13.7
                                                                                                Source: RBI




27 March 2009                                                                                              33
                                                                                                                                                                                                                                                                                   India Strategy




                                                                                  Valuations below averages; significant changes in sector
                                                                                  premium/discount to index


                                                                                  As the Sensex declined from 21,000 to below 10,000, all the key valuation parameters fell
                                                                                  below the historical averages. The BSE Sensex now trades at a forward P/E of 11.3x v/
                                                                                  s the 15-year median of 13.3x, while the P/B multiple has declined from 4.3x to 1.9x.
                                                                                  Following the deceleration in earnings momentum, Sensex RoE is now estimated at 17%
                                                                                  v/s its peak RoE of 24%.

                                                                                  At the current levels, earnings yield to bond yield is 1.3x, close to its all-time peak of 1.4x
                                                                                  (at 8,500 Sensex, it had crossed the earlier peak). This is one of the important parameters
                                                                                  indicating that equities are attractively valued compared to bonds. On the previous occasion,
                                                                                  when the earnings yield was trading at the current premium, Indian equities had delivered
                                                                                  five consecutive years of positive returns.

                                                                                  We present the sectoral premium and discounts to Sensex P/E for the last five years.
                                                                                  Autos, FMCG, Metals and Oil & Gas are trading at significant premium to their averages.
                                                                                  Banks, Cement and Engineering are trading at their averages, while IT, Pharma, Telecom
                                                                                  and Media are trading below their averages.

SENSEX P/E (X)                                                                                                                                               SENSEX RETURNS VS EARNINGS YIELD TO BOND YIELD


 27                                                                                                                                                                                                      Sensex Return (%) (RHS)
                                                                24.6                                                                     23.4                                                            Earnings Yield / G-Sec Yield (LHS)
                                                                                                                                                             1.8                                                                                                                                              110
 22
                                                                                                                                                             1.4                                                                                                                                              70
                                                                                        15 Year
 17
                                                                                      Median 13.3x                                                           1.0                                                                                                                                              30
 12
                                                                                                                                                             0.6                                                                                                                                              -10
                                                                                                                                                   11.3
                                                                                                    8.7
  7                                                                                                                                                          0.2                                                                                                                                              -50
      Mar-94
                Mar-95
                          Mar-96
                                    Mar-97
                                              Mar-98
                                                       Mar-99
                                                                Mar-00
                                                                         Mar-01
                                                                                  Mar-02
                                                                                           Mar-03
                                                                                                     Mar-04
                                                                                                              Mar-05
                                                                                                                       Mar-06
                                                                                                                                Mar-07
                                                                                                                                          Mar-08
                                                                                                                                                    Mar-09




                                                                                                                                                                                                                                                                                                    FY09E
                                                                                                                                                                       FY93
                                                                                                                                                                                FY94
                                                                                                                                                                                FY95
                                                                                                                                                                                                FY96
                                                                                                                                                                                                FY97
                                                                                                                                                                                                                  FY98
                                                                                                                                                                                                                  FY99
                                                                                                                                                                                                                               FY00
                                                                                                                                                                                                                               FY01
                                                                                                                                                                                                                               FY02
                                                                                                                                                                                                                                                       FY03
                                                                                                                                                                                                                                                       FY04
                                                                                                                                                                                                                                                                     FY05
                                                                                                                                                                                                                                                                     FY06
                                                                                                                                                                                                                                                                                   FY07
                                                                                                                                                                                                                                                                                   FY08




SENSEX ROE (%)                                                                                                                                               SENSEX P/B (X)


 26                                                                                                                                                          4.5                                                                                                                                            4.3
                                                                                                              24.1
                                                                                                                                                                                                                             3.7
 22                                                                                                                                                          3.5

                                                                                   15 Year Average 18.4%
 18                                                                                                                                                          2.5
                                                                                                                                                                                                                                                                           15 Year
                                                                                                                                                   16.9                                                                                                                               1.9
                                                                                                                                                                                                                                                                         Average 2.3x
 14                                                                                                                                                          1.5
                                              13.9                                                                                                                                                                                       1.4
 10                                                                                                                                                          0.5
       Mar-94
                 Mar-95
                           Mar-96
                                     Mar-97
                                              Mar-98
                                                       Mar-99
                                                                Mar-00
                                                                         Mar-01
                                                                                  Mar-02
                                                                                           Mar-03
                                                                                                     Mar-04
                                                                                                              Mar-05
                                                                                                                       Mar-06
                                                                                                                                Mar-07
                                                                                                                                          Mar-08
                                                                                                                                                    Mar-09




                                                                                                                                                                   Mar-94
                                                                                                                                                                              Mar-95
                                                                                                                                                                                       Mar-96
                                                                                                                                                                                                Mar-97
                                                                                                                                                                                                         Mar-98
                                                                                                                                                                                                                   Mar-99
                                                                                                                                                                                                                            Mar-00
                                                                                                                                                                                                                                     Mar-01
                                                                                                                                                                                                                                              Mar-02
                                                                                                                                                                                                                                                       Mar-03
                                                                                                                                                                                                                                                                Mar-04
                                                                                                                                                                                                                                                                         Mar-05
                                                                                                                                                                                                                                                                                  Mar-06
                                                                                                                                                                                                                                                                                           Mar-07
                                                                                                                                                                                                                                                                                                     Mar-08
                                                                                                                                                                                                                                                                                                              Mar-09




                                                                                                                                                                                                                                                                                    Source: MOSL

27 March 2009                                                                                                                                                                                                                                                                                                  34
                                                                                                                                                                                                                                             India Strategy




SECTORAL P/E PREMIUM / DISCOUNT TO SENSEX

SECTORS TRADING ABOVE THEIR AVERAGE PREMIUM/DISCOUNT TO SENSEX P/E


                                             Auto PE Relative to Sensex PE                                                                                                     FMCG PE Relative to Sensex PE
 24                                                                                                                              100
                           Avg of 1%
 12                                                                                                                               75
                         for the period                                                                                                                                                                           Avg of 46%
                                                                                                                                  50                                                                             for the period
   0

 -12                                                                                                                              25

 -24                                                                                                                               0




                                                                                                                                                                                                                          Jul-07
                                                                                                                                                            Jan-05

                                                                                                                                                                      Jun-05




                                                                                                                                                                                                                Feb-07
                                                                                                                                                                                                      Sep-06




                                                                                                                                                                                                                                    Dec-07
                                                                                                                                        Mar-04




                                                                                                                                                                                                                                                                   Mar-09
                                                                                                                                                                                 Nov-05




                                                                                                                                                                                                                                                         Oct-08
                                                                                                                                                  Aug-04




                                                                                                                                                                                                                                               May-08
                                                                                                                                                                                           Apr-06
                                                                                    Jul-07
                           Jan-05

                                    Jun-05




                                                                           Feb-07
                                                                  Sep-06




                                                                                             Dec-07
       Mar-04




                                                                                                                        Mar-09
                                              Nov-05




                                                                                                               Oct-08
                Aug-04




                                                                                                      May-08
                                                         Apr-06




                                         Metal PE Relative to Sensex PE                                                                                               Oil & Gas PE Relative to Sensex PE
 -35                                                                                                                             -10

                                                       Avg of -57% for
 -45                                                                                                                             -20
                                                          the period
                                                                                                                                                                                                     Avg of -29%
 -55                                                                                                                             -30                                                                for the period

 -65                                                                                                                             -40

 -75                                                                                                                             -50




                                                                                                                                                                                                                          Jul-07
                                                                                                                                                           Jan-05

                                                                                                                                                                     Jun-05




                                                                                                                                                                                                               Feb-07
                                                                                                                                                                                                     Sep-06




                                                                                                                                                                                                                                   Dec-07
                                                                                                                                       Mar-04




                                                                                                                                                                                                                                                                   Mar-09
                                                                                                                                                                                Nov-05




                                                                                                                                                                                                                                                         Oct-08
                                                                                                                                                 Aug-04




                                                                                                                                                                                                                                               May-08
                                                                                                                                                                                          Apr-06
                                                                                    Jul-07
                           Jan-05

                                    Jun-05




                                                                           Feb-07
                                                                  Sep-06




                                                                                             Dec-07
       Mar-04




                                                                                                                        Mar-09
                                              Nov-05




                                                                                                               Oct-08
                Aug-04




                                                                                                      May-08
                                                         Apr-06




SECTORS TRADING AT THEIR AVERAGE PREMIUM/DISCOUNT TO SENSEX PE


                                         Pvt Banks PE Relative to Sensex PE                                                                                           PSU Banks PE Relative to Sensex PE
 60                                                                                                                              -30

 40                                                                                                                              -40
                                                          Avg of 13%                                                                                                                               Avg of -50% for the period
 20                                                      for the period                                                          -50

   0                                                                                                                             -60

 -20                                                                                                                             -70
                                                                                                                                                                                                                          Jul-07
                                                                                                                                                           Jan-05

                                                                                                                                                                     Jun-05




                                                                                                                                                                                                               Feb-07
                                                                                                                                                                                                     Sep-06




                                                                                                                                                                                                                                   Dec-07
                                                                                                                                       Mar-04




                                                                                                                                                                                                                                                                   Mar-09
                                                                                                                                                                                Nov-05




                                                                                                                                                                                                                                                         Oct-08
                                                                                                                                                 Aug-04




                                                                                                                                                                                                                                               May-08
                                                                                                                                                                                          Apr-06
                                                                                    Jul-07
                           Jan-05

                                    Jun-05




                                                                           Feb-07
                                                                  Sep-06




                                                                                             Dec-07
       Mar-04




                                                                                                                        Mar-09
                                              Nov-05




                                                                                                               Oct-08
                Aug-04




                                                                                                      May-08
                                                         Apr-06




                                        Cement PE Relative to Sensex PE                                                                                              Engineering PE Relative to Sensex PE
 20                                                                                                                              90

   0                                                                                                                             60
                                                                   Avg of -26% for the period
 -20                                                                                                                             30
                                                                                                                                                                                              Avg of 27% for the period
 -40                                                                                                                              0

 -60                                                                                                                             -30
                                                                                    Jul-07




                                                                                                                                                                                                                         Jul-07
                           Jan-05

                                    Jun-05




                                                                                                                                                           Jan-05

                                                                                                                                                                     Jun-05
                                                                           Feb-07




                                                                                                                                                                                                               Feb-07
                                                                  Sep-06




                                                                                             Dec-07




                                                                                                                                                                                                     Sep-06




                                                                                                                                                                                                                                   Dec-07
       Mar-04




                                                                                                                        Mar-09




                                                                                                                                       Mar-04




                                                                                                                                                                                                                                                                  Mar-09
                                              Nov-05




                                                                                                                                                                                Nov-05
                                                                                                               Oct-08




                                                                                                                                                                                                                                                        Oct-08
                Aug-04




                                                                                                      May-08




                                                                                                                                                 Aug-04




                                                                                                                                                                                                                                              May-08
                                                         Apr-06




                                                                                                                                                                                          Apr-06




27 March 2009                                                                                                                                                                                                                                                       35
                                                                                                                                                                                                                                               India Strategy




SECTORAL P/E PREMIUM / DISCOUNT TO SENSEX (CONTD...)

SECTORS TRADING BELOW THEIR AVERAGE PREMIUM/DISCOUNT TO SENSEX P/E


                                            IT PE Relative to Sensex PE                                                                                            Media PE Relative to Sensex PE
 105                                                                                                                          90

  70                                                                                                                          60

                                                                                                                                                        Avg of 48% for the period
  35                                                                                                                          30

                         Avg of 33% for the period
   0                                                                                                                            0


 -35                                                                                                                          -30
                                                                                 Jul-07
                          Jan-05

                                   Jun-05




                                                                                                                                                                                  Jan-07


                                                                                                                                                                                                    Jun-07
                                                                        Feb-07
                                                               Sep-06




                                                                                          Dec-07




                                                                                                                                    Sep-05




                                                                                                                                                                                                                      Dec-07
       Mar-04




                                                                                                                     Mar-09




                                                                                                                                               Mar-06




                                                                                                                                                                                                                                                            Mar-09
                                            Nov-05




                                                                                                            Oct-08




                                                                                                                                                                                                                                                  Oct-08
                Aug-04




                                                                                                   May-08




                                                                                                                                                               Aug-06




                                                                                                                                                                                                                                    May-08
                                                      Apr-06




 140                                                                                                                                                                    Telecom PE Relative to Sensex PE
                                            Pharma PE Relative to Sensex PE
                                                                                                                              32
 105
                                                                                                                              18
                                                                                                                                                                                                        Avg of 4% for the period
  70
                                                     Avg of 51% for the period                                                 4

  35                                                                                                                          -10

   0                                                                                                                          -24
                                                                                 Jul-07




                                                                                                                                             Jul-06




                                                                                                                                                                                           Jul-07




                                                                                                                                                                                                                                      Jul-08
                          Jan-05

                                   Jun-05




                                                                        Feb-07
                                                               Sep-06




                                                                                          Dec-07
       Mar-04




                                                                                                                     Mar-09




                                                                                                                                    Mar-06




                                                                                                                                                                         Mar-07




                                                                                                                                                                                                                           Mar-08




                                                                                                                                                                                                                                                           Mar-09
                                            Nov-05




                                                                                                                                                          Nov-06




                                                                                                                                                                                                             Nov-07




                                                                                                                                                                                                                                                  Nov-08
                                                                                                            Oct-08
                Aug-04




                                                                                                   May-08
                                                      Apr-06




                                                                                                                                                                                                                                               Source: MOSL




27 March 2009                                                                                                                                                                                                                                                 36
                                                                                                                                             -40
                                                                                                                                                   -20
                                                                                                                                                                                     0
                                                                                                                                                                                                                   20
                                                                                                                                                                                                                         40




                                  -75
                                                                                              -50
                                                                                                          -25
                                                                                                                                                                                                                                                                                             -70
                                                                                                                                                                                                                                                                                                                             -35
                                                                                                                                                                                                                                                                                                                                                                                       -60




                         -100
                                                                                                                                                                                                                                                        -105
                                                                                                                                                                                                                                                                                                                                                                               -120




                                                                                                                0
                                                                                                                                                                                                                                                                                                                                    0
                                                                                                                                                                                                                                                                                                                                        35
                                                                                                                                                                                                                                                                                                                                             70
                                                                                                                                                                                                                                                                                                                                                                                             0
                                                                                                                                                                                                                                                                                                                                                                                                                               60
                                                                                                                                                                                                                                                                                                                                                                                                                                     120
                Mar-96                                                                                                               Jul-03                                                                                                    Mar-93                                                                                                                Mar-93

                Mar-97                                                                                                                                                                                                                         Mar-94                                                                                                                Mar-94
                                                                                                                                    May-04                                                                                                     Mar-95                                                                                                                Mar-95




27 March 2009
                Mar-98
                                                                                                                                                                                                                                               Mar-96                                                                                                                Mar-96
                Mar-99
                                                                                                                                                                                                                                               Mar-97                                                                                                                Mar-97
                                                                                                                                    Mar-05
                Mar-00                                                                                                                                                                                                                         Mar-98                                                                                                                Mar-98
                Mar-01                                                                                                                                                                                                                         Mar-99                                                                                                                Mar-99
                                                                                                                                    Dec-05
                                                                                                                                                                                                                                               Mar-00                                                                                                                Mar-00
                Mar-02
                                                                                                                                                                                                                                               Mar-01                                                                                                                Mar-01
                Mar-03


                                                                                                                                                                                                                                                                                                                                                                                                   the period




                                                                                                                      ONGC
                                                                                                                                    Oct-06                                                                                                     Mar-02                                                                                                                Mar-02
                                                                                                                                                                                                                                                                                                                                                                                                                                          BHEL


                Mar-04                                                                                                                                                                                                                         Mar-03                                                                                                                Mar-03                      Avg. of -5% for




                                                                                                                                                                                                                               Maruti Suzuki
                                                                                                                                                                                                                                                                                                                                                  Hero Honda Motor
                Mar-05                                                                                                              Aug-07                                                                                                     Mar-04                                                                                                                Mar-04

                Mar-06                                                                                                                                                                                                                         Mar-05                                                                                                                Mar-05
                                                                                                                                                                                                                                               Mar-06                                                                                                                Mar-06
                Mar-07                                                                                                              May-08
                                                                                                                                                                                                                                               Mar-07                                                                                                                Mar-07




                                                                                                                                                                                          Avg. of -4% for the period
                Mar-08                                                                                                                                                                                                                         Mar-08                                                                                                                Mar-08




                                                                                                                                                                                                                                                                                               Avg. of -36% for the period




                                                                Avg. of -49% for the period
                Mar-09                                                                                                              Mar-09                                                                                                     Mar-09                                                                                                                Mar-09




                                                                                                                                             -35
                                                                                                                                                                                                                                                         -40




                                                                                                                                                   0
                                                                                                                                                                                     35
                                                                                                                                                                                                         70
                                                                                                                                                                                                                        105
                                                                                                                                                                                                                                                                                               0
                                                                                                                                                                                                                                                                                                                                   40
                                                                                                                                                                                                                                                                                                                                        80
                                                                                                                                                                                                                                                                                                                                             120




                                -75
                                                                -50
                                                                                                    -25
                                                                                                                                                                                                                                                                                                                                                                                      -60




                         -100
                                                                                                                                                                                                                                                                                                                                                                              -120




                                                                                                           0
                                                                                                                25
                                                                                                                                                                                                                                                                                                                                                                                             0
                                                                                                                                                                                                                                                                                                                                                                                                                               60
                                                                                                                                                                                                                                                                                                                                                                                                                                    120
                                                                                                                                                                                                                                                                                                                                                                                                                                                 COMPANIES TRADING ABOVE THEIR AVERAGE PREMIUM / DISCOUNT TO SENSEX P/E




                May-97                                                                                                              Nov-04                                                                                                     Mar-00                                                                                                                Mar-93
                Apr-98                                                                                                                                                                                                                                                                                                                                               Mar-94
                                                                                                                                                                                                                                               Mar-01
                Feb-99                                                                                                                                                                                                                                                                                                                                               Mar-95
                                                                                                                                    Aug-05
                                                                                                                                                                                                                                                                                                                                                                     Mar-96
                Dec-99                                                                                                                                                                                                                         Mar-02
                                                                                                                                                                                                                                                                                                                                                                     Mar-97
                Oct-00
                                                                                                                                    May-06                                                                                                     Mar-03                                                                                                                Mar-98
                Aug-01                                                                                                                                                                                                                                                                                                                                               Mar-99
                Jun-02                                                                                                                                                                                                                         Mar-04                                                                                                                Mar-00
                Apr-03                                                                                                              Jan-07                                                                                                                                                                                                                           Mar-01
                                                                                                                                                                                                                                                                                                                                               ITC




                                                                                                                                                                                                                                               Mar-05                                                                                                                Mar-02


                                                                                                                                                                                                                              NTPC
                Feb-04
                                                                                                                                                                                                                                                                                                                                                                                                                                      HDFC




                                                                                                                     GAIL (India)
                                                                                                                                                                                                                                                                                                                                                                     Mar-03
                                                                                                                                                                                                                                                                                                                                                                                                   Avg. of 7% for the period




                Dec-04                                                                                                              Oct-07                                                                                                     Mar-06




                                                                                                                                                         Avg. of 8% for the period
                                                                                                                                                                                                                                                                                                                                                                     Mar-04
                                                                                                                                                                                                                                                               Avg. of -17% for the period




                Nov-05
                                                                                                                                                                                                                                                                                                                                                                     Mar-05
                Sep-06                                                                                                                                                                                                                         Mar-07
                                                                                                                                    Jun-08                                                                                                                                                                                                                           Mar-06
                 Jul-07                                                                                                                                                                                                                                                                                                                                              Mar-07
                                                                                                                                                                                                                                               Mar-08
                May-08                                                                                                                                                                                                                                                                                                                                               Mar-08




                                  Avg. of -44% for the period
                Mar-09                                                                                                              Mar-09                                                                                                     Mar-09                                                                                                                Mar-09




  37
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          India Strategy
                                                                                                                                                -80
                                                                                                                                                       -60
                                                                                                                                                                                -40
                                                                                                                                                                                                                          -20
                                                                                                                                                                                                                                0
                                                                                                                                                                                                                                                                                                                                                                    -25
                                                                                                                                                                                                                                                                                                                                                                                                     0
                                                                                                                                                                                                                                                                                                                                                                                                               25
                                                                                                                                                                                                                                                                                                                                                                                                                                          50
                                                                                                                                                                                                                                                                                                                                                                                                                                                      75




                                                                                                                                                                                                                                                               -40
                                                                                                                                                                                                                                                                                               0
                                                                                                                                                                                                                                                                                                                              40
                                                                                                                                                                                                                                                                                                                                   80
                                                                                                                                                                                                                                                                                                                                        120




                         -100
                                 0
                                       100
                                                                           200
                                                                                                               300
                                                                                                                                       Mar-94                                                                                                         Sep-95                                                                                              Dec-02
                Mar-94
                Mar-95                                                                                                                 Mar-95                                                                                                         Oct-96
                                                                                                                                       Mar-96                                                                                                                                                                                                             Nov-03




27 March 2009
                Mar-96                                                                                                                                                                                                                                Oct-97
                Mar-97                                                                                                                 Mar-97
                                                                                                                                                                                                                                                      Nov-98
                Mar-98                                                                                                                 Mar-98                                                                                                                                                                                                             Oct-04
                                                                                                                                                                                                                                                      Nov-99
                Mar-99                                                                                                                 Mar-99
                                                                                                                                       Mar-00                                                                                                         Dec-00
                Mar-00                                                                                                                                                                                                                                                                                                                                    Aug-05
                Mar-01                                                                                                                 Mar-01                                                                                                         Dec-01

                Mar-02                                                                                                                 Mar-02                                                                                                         Jan-03
                                                                                                                                                                                                                                                                                                                                                           Jul-06
                                                                                                                                                                                                                                                                                                                                                                                                                                                             Bharti Airtel


                                                                                                                                       Mar-03




                                                                                                                                                                                                                                                                                                                                              HDFC Bank
                Mar-03




                                                                                                                                                                                                                                    St Bk of India
                                                                                                                                                                                                                                                      Jan-04




                                                                                                                      Hind. Unilever
                Mar-04                                                                                                                 Mar-04
                                                                                                                                                                                                                                                      Jan-05                                                                                              May-07




                                                                                                                                                                                            Avg. of -44% for the period
                Mar-05                                                                                                                 Mar-05
                                                                                                                                                                                                                                                      Feb-06
                Mar-06                                                                                                                 Mar-06




                                                                                                                                                                                                                                                                                                 Avg. of 38% for the period
                                                                                                                                       Mar-07                                                                                                         Feb-07                                                                                              Apr-08
                Mar-07
                                                                                                                                       Mar-08                                                                                                         Mar-08
                                                                                                                                                                                                                                                                                                                                                                                                                    Avg. of 25% for the period




                Mar-08




                                                                                 Avg. of 122% for the period
                Mar-09                                                                                                                 Mar-09                                                                                                         Mar-09                                                                                              Mar-09
                                                                                                                                                                                                                                                                                                                                                                                                                                                                             COMPANIES TRADING AT THEIR AVERAGE PREMIUM / DISCOUNT TO SENSEX P/E




                                                                                                                                                 -65
                                                                                                                                                        -40
                                                                                                                                                                                     -15
                                                                                                                                                                                                                                                                                                                                                                   -90
                                                                                                                                                                                                                                                                                                                                                                                                   -60
                                                                                                                                                                                                                                                                                                                                                                                                         -30




                                                                                                                                                                                                                          10
                                                                                                                                                                                                                                35
                                                                                                                                                                                                                                                                                                                                                                                                                0
                                                                                                                                                                                                                                                                                                                                                                                                                                                 30
                                                                                                                                                                                                                                                                                                                                                                                                                                                      60




                                                                                                                                                                                                                                                               -90
                                                                                                                                                                                                                                                                                               -45
                                                                                                                                                                                                                                                                                                                              0
                                                                                                                                                                                                                                                                                                                                   45
                                                                                                                                                                                                                                                                                                                                        90




                                 -75

                          -150
                                       0
                                                                           75
                                                                                                               150
                                                                                                                                       Mar-93                                                                                                         Mar-93                                                                                              Mar-93
                Mar-99
                                                                                                                                       May-94                                                                                                         Mar-94                                                                                              Mar-94
                Mar-00                                                                                                                                                                                                                                Mar-95                                                                                              Mar-95
                                                                                                                                        Jul-95
                                                                                                                                                                                                                                                      Mar-96                                                                                              Mar-96
                Mar-01                                                                                                                 Sep-96
                                                                                                                                                                                                                                                      Mar-97                                                                                              Mar-97
                                                                                                                                       Oct-97
                Mar-02                                                                                                                                                                                                                                Mar-98                                                                                              Mar-98
                                                                                                                                       Dec-98                                                                                                                                                                                                             Mar-99
                                                                                                                                                                                                                                                      Mar-99
                Mar-03                                                                                                                 Feb-00                                                                                                         Mar-00                                                                                              Mar-00




                                             Avg. of -12% for the period
                                                                                                                                                              Avg. of -31% for the period
                Mar-04                                                                                                                 Mar-01                                                                                                         Mar-01                                                                                              Mar-01
                                                                                                                                                                                                                                                      Mar-02                                                                                              Mar-02
                                                                                                                                                                                                                                                                                                                                             M&M




                                                                                                                                       May-02
                Mar-05
                                                                                                                                                                                                                                                                                                                                                                                                                                                           Grasim Inds




                                                                                                                     Sun Pharma.
                                                                                                                                                                                                                                                      Mar-03                                                                                              Mar-03
                                                                                                                                                                                                                                     Reliance Inds.
                                                                                                                                        Jul-03
                Mar-06                                                                                                                                                                                                                                Mar-04                                                                                              Mar-04
                                                                                                                                       Aug-04
                                                                                                                                                                                                                                                      Mar-05                                                                                              Mar-05
                Mar-07                                                                                                                 Oct-05
                                                                                                                                                                                                                                                      Mar-06                                                                                              Mar-06
                                                                                                                                                                                                                                                                 Avg. of -41% for the period




                                                                                                                                       Dec-06                                                                                                         Mar-07                                                                                              Mar-07
                Mar-08
                                                                                                                                       Feb-08                                                                                                         Mar-08                                                                                              Mar-08
                                                                                                                                                                                                                                                                                                                                                                     Avg. of -31% for the period




                Mar-09                                                                                                                 Mar-09                                                                                                         Mar-09                                                                                              Mar-09




  38
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   India Strategy
                                                                                                                                                                                                                                                                              India Strategy




COMPANIES TRADING BELO W THEIR AVERAGE PREMIUM / DISCOUNT TO SENSEX P/E



                                                                        Infosys Tech.                                                                                                                                   Reliance Comm
 350                                                                                                                                                                    40
 280                                                                                                                                                                    20
 210
                                                                                                                                                                         0
 140                                                                                                                                                                                     Avg. of -1% for the period
                                                                                           Avg. of 92% for the period                                                   -20
  70
                                                                                                                                                                        -40
   0
 -70                                                                                                                                                                    -60




                                                                                                                                                                                                                        Jul-07
                                                                                                                                                                                                      Feb-07




                                                                                                                                                                                                                                          Dec-07
                                                                                                                                                                              Mar-06




                                                                                                                                                                                                                                                                                              Mar-09
                                                                                                                                                                                                                                                                                Oct-08
                                                                                                                                                                                         Aug-06




                                                                                                                                                                                                                                                            May-08
       Mar-97

                   Mar-98

                                 Mar-99

                                          Mar-00

                                                       Mar-01

                                                                     Mar-02

                                                                                  Mar-03

                                                                                                    Mar-04

                                                                                                               Mar-05

                                                                                                                        Mar-06

                                                                                                                                    Mar-07

                                                                                                                                                  Mar-08

                                                                                                                                                               Mar-09




                                                                               Tata Steel                                                                                                                         Zee Entertainment
   20                                                                                                                                                                   200

    0
                                                                                                                                                                        150
  -20

  -40                                                                                                                                                                   100
                                                                                        Avg. of -52% for the period
  -60                                                                                                                                                                                                                       Avg. of 80% for
                                                                                                                                                                         50
                                                                                                                                                                                                                              the period
  -80
                                                                                                                                                                          0
 -100
                                                                                                                                                                               Mar-01


                                                                                                                                                                                        Mar-02


                                                                                                                                                                                                  Mar-03


                                                                                                                                                                                                               Mar-04


                                                                                                                                                                                                                                 Mar-05


                                                                                                                                                                                                                                                   Mar-06


                                                                                                                                                                                                                                                                     Mar-07


                                                                                                                                                                                                                                                                                     Mar-08


                                                                                                                                                                                                                                                                                                Mar-09
                                                            Jul-99
                            Jan-96




                                                                      Jun-00



                                                                                                      Jan-03




                                                                                                                                             Jun-07
                  Feb-95




                                                                                                               Dec-03


                                                                                                                           Sep-05
         Mar-94




                                                                                           Mar-02




                                                                                                                                                               Mar-09
                                     Nov-96
                                     Oct-97




                                                                                                               Oct-04
                                                   Aug-98




                                                                                                                                    Aug-06


                                                                                                                                                      May-08
                                                                               Apr-01




27 March 2009                                                                                                                                                                                                                                                                                   39
                                                                                                                                      India Strategy




TOP LARGE CAP PICKS

Financials               ? Monetary policy easing in 2HFY09 has paved the way for cut in lending rates. We model lower margins in FY10,
                           factoring in loan growth moderation, impact of PLR cut, and lag effect of deposit re-pricing.
                         ? RBI restructuring guidelines would lead to delay in recognition of stress assets as NPAs to 2HFY10. Banks indicate that
                           ~3% of existing loan book is likely to be restructured.
                         ? Natural attrition in state-owned banks would lead to lower cost-to-income (C/I) ratio. Private sector banks, which are
                           slowing down expansion plans, would also witness lower C/I ratio.
                         ? Despite modeling a 2.2x increase in gross NPAs (FY08-10), profits would be maintained.
                         ? RBI’s intention of holding 10-year G-Sec yield below 7% is positive for banks. Trading profits would partly offset the
                           sharp rise in NPAs. Excess SLR would aid credit growth and drive treasury gains.
                         ? We expect RoE of state-owned banks to sustain at 16-22% in FY10-11; private sector banks (ex ICICI Bank) would
                           report RoE of 18-20%.
HDFC Bank                ? Expect continued improvement in market share, supported by 1,400+ branches and ~2,900 ATMs.
                         ? Productivity improvement in new branches would ensure 20-25% retail deposit / asset growth in FY10-11.
                         ? Risk-adjusted margins would be sustained due to low cost of funds, as CASA remains 43-45%.
                         ? Higher NPAs would be offset by margin expansion and realization of CBoP merger benefits (cost efficiencies).
                         ? Expect earnings CAGR of 26% over FY08-11, RoA of ~1.4%, and RoE of 18-20% in FY10-11.
                         ? The stock trades at 2.6x FY10E ABV and 15.2x FY10E EPS.
Punjab National          ? Large branch network in cash-rich North India; strong tier-I CAR at 9%+; consistently high margins.
Bank                     ? Quality of earnings would be superior, as dependence on treasury gains is lower than peers.
                         ? C/I ratio would decline from 50% in FY08 to 41% in FY11, driving operating profit CAGR of 23%.
                         ? Asset quality is one of the best in the industry, with gross NPA at 2.3% and provision coverage of 83%.
                         ? RoA would remain superior at 1.2% and RoE at 21% over FY10-11, despite gross NPAs expected to nearly double from
                           2.7% in FY08 to 4.9% in FY11.
                         ? The stock trades at 1x FY10E ABV and 0.9x FY10E BV.

VALU ATION SUMMARY FOR FINANCIALS

                  CMP (RS)       RECO                EPS (RS)                   P/E (X)                   P/BV (X)                   ROE (%)

                       27.3.09               FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E    FY11E   FY09E    FY10E    FY11E

HDFC Bank                 997    Buy          53.2      65.5     82.6    18.7     15.2     12.1     2.9       2.4      2.1    15.8     17.3   18.6
Punjab National Bank      441    Buy          96.3      95.8    110.8     4.6      4.6      4.0     1.1       0.9      0.8    25.3     21.0   20.7
                                                                                                                                      Source: MOSL

Autos                    ? Easing monetary policy and excise rate cut (~4%) would lead to demand improvement in FY10.
                         ? Finance cost is down ~150bp. Availability of finance is also improving, with renewed focus of state-owned banks
                           coupled with tie-up of OEMs with financiers.
                         ? Lower commodity prices would lead to margin expansion 4QFY09 onwards. We model 230bp reduction in FY10E RM
                           cost for our auto universe, translating into 200bp improvement in EBITDA margins.
                         ? Ramping up of operations in tax-free zones like Uttaranchal would help counter cost pressures through lower tax
                           burden (excise and income tax).
Hero Honda               ? Earnings growth would be driven by lower RM costs and ramp-up in tax-free plant (at Haridwar).
                         ? Easy monetary policy would improve availability of finance and drive FY10 volumes.
                         ? Significant presence in rural markets and lower reliance on financing has enabled Hero Honda to outperform the auto
                           industry, with 11.4% volume growth in FY09 as against 5% YTD growth for the two-wheeler industry. We expect this
                           outperformance to continue in FY10.
                         ? Margins would expand 190bp to 15.7%, thereby driving 26% growth in EPS to Rs79.5 in FY10. We estimate net cash
                           at Rs242/share. The stock trades at 13.7x FY10E EPS.
M&M                      ? Growth in rural economy coupled with improved availability of finance will lead to 5% tractor volume growth in FY10.
                         ? RM cost savings would drive margin expansion, as the tractor industry is highly consolidated.
                         ? Improved availability of finance coupled with encouraging response to the newly launched Xylo would lead to 8%
                           volume growth in UVs in FY10.
                         ? EBITDA margins would expand 230bp to 10.1%, driven by raw material cost savings (~170bp) and operating leverage.
                         ? Consolidated FY10E EPS growth of 25% is among the best in Indian Autos, despite modeling decline in non-auto
                           earnings. The stock trades at 6.4x FY10E EPS; valuations are among the lowest in Indian autos.


27 March 2009                                                                                                                                     40
                                                                                                                                    India Strategy




TOP LARGE CAP PICKS


VALUATION SUMMARY FOR AUTOS

                CMP (RS)     RECO                 EPS (RS)                   P/E (X)                   EV/EBITDA                   ROE (%)

                  27.3.09                 FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

Hero Honda         1,086     Buy           63.2      79.5     88.7    17.2     13.7     12.2    10.6       8.3       7.2    37.6     37.6   30.4
Mahindra & Mahindra 385      Buy           55.8      60.6     70.0     6.9      6.4      5.5     9.4       7.2       6.3    14.6     16.6   17.2
                                                                                                                                    Source: MOSL

Telecom               ? Subscriber momentum remains strong, with 14-15m net additions in January-February 2009 v/s an average of ~10m
                        in 2HCY08. Wireless penetration is still relatively low at ~32%.
                      ? Growth is likely to remain strong. We expect average subscriber base to grow by 40% in FY10.
                      ? Significantly higher clarity on regulatory interventions, with announcements on termination cut and MNP. Uncertainty
                        prevails on 3G policy and auctions.
                      ? Increased momentum in new launches would result in tariff and margin pressures.
Bharti                ? Bharti’s scale advantage has allowed it to manage profitable growth and enhance its revenue market share while
                        defending margins.
                      ? Bharti is the only EVA positive wireless operator in India, with an ROIC of 30%.
                      ? Bharti has been FCF neutral over the past five years, while all its competitors remain FCF negative.
                      ? Several new launches / expansion by other operators like Aircel, Idea, RCom, and Vodafone, easing of capacity
                        constraints for BSNL and launches by new players like Telenor / Sistema / Etisalat would arrest market share gains and
                        impact margins.
                      ? Despite increased competition, we expect a CAGR of 21% in revenue, 19% in EBITDA and 17% in PAT over FY09-11.
                      ? At 12x FY10E EPS and an EV of 6.8x FY10E EBITDA, valuations are attractive.
Reliance              ? Subscriber momentum remains strong, driven by increased addressable market post GSM expansion.
Communications        ? Strong focus on margin defense by SG&A tightening. Significant part of network cost push is already factored into the
                        current cost structure (+900bp in past one year).
                      ? Subscriber momentum remains strong, driven by increased addressable market post GSM expansion.RCom is on the
                        right side of regulatory changes. Termination cut (effective from April 2009) and MNP implementation would be positive
                        for RCom.
                      ? Subscriber momentum remains strong, driven by increased addressable market post GSM expansion.Leverage at 2x
                        Net debt/EBITDA and 0.65x Net debt/Equity is comfortable (though higher than peers); leverage ratios would peak out
                        in FY09; 3G auction postponement would provide relief on near-term capex.
                      ? Significant underperformance (42% v/s Bharti) has been led by downgrades (lower than expected growth) and
                        concerns on high leverage. Operational turnaround post GSM launch coupled with low valuations make RCom an
                        attractive bet.

VALUATION SUMMARY FOR TELECOM

                CMP (RS)     RECO                 EPS (RS)                   P/E (X)                   EV/EBITDA                   ROE (%)

                  27.3.09                 FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

Bharti Airtel         622    Buy           44.7      51.9     61.1    13.9     12.0     10.2     8.1       6.8       5.5    31.4      27.0    24.7
Reliance Comm         184    Buy           30.1      24.2     31.0     6.1      7.6      5.9     6.7       5.8       4.3    20.9     14.9   16.5
                                                                                                                                    Source: MOSL


Oil & Gas             ? Over the last few years, RMCs have witnessed significant de-rating due to earnings erosion and high debt, led by high
                        oil prices. As we expect oil prices to remain low in the near term, cash flows would improve, gearing would decline and
                        focus would shift to core business fundamentals.
                      ? Based on FY10E oil price of US$50/bbl and exchange rate of Rs49.6/US$, earnings for RMCs would be significant.
                        HPCL trades at 7.6x FY10E EPS of Rs34, BPCL at 7.7x FY10E EPS of Rs47, and IOC at 7.3x FY10E EPS of Rs54.
                      ? Likely de-regulation of petrol and diesel pricing would be positive for the RMCs and would result in a re-rating in our
                        view. HPCL trades at 0.8x FY10E BV, BPCL at 0.8x FY10E BV, and IOC at 0.9x FY10E BV.
                      ? We maintain Buy on all the three RMCs we cover – HPCL, BPCL and IOC.




27 March 2009                                                                                                                                   41
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TOP LARGE CAP PICKS

BPCL                  ? Significant decline in the crude prices and the recent issue of oil bonds would ease the liquidity position of BPCL.
                      ? BPCL would be a defensive play in the current crude price environment. On an incremental basis, BPCL would be
                        making profits on the marketing business (v/s net under recovery in 9MFY09) apart from profits from its refining
                        business. BPCL has 50% stake in the Rs104b, 6mmtpa Bharat Oman Refineries project, which is likely to be completed
                        by December 2009.
                      ? Likely deregulation of petrol and diesel prices would result in a re-rating of the stock. HPCL trades at 7.7x FY10E EPS
                        and 0.8x FY10E BV. We maintain Buy.
RIL                   ? E&P – the new growth engine: In RIL’s successful strategy of backward integration E&P is the next frontier. As KG-
                        D6 comes online in FY10, E&P will be RIL’s key growth driver.
                      ? Oil production commenced, gas likely to commence in April-09: RIL began oil production in September 2008
                        and is producing 8-10kbpd. Gas production is expected to commence in April 2009 and will be ramped up in 4-6
                        quarters to 80mmscmd. For FY10, we model gas volumes of 48mmscmd and wellhead price of US$4.2/mmbtu.
                      ? Refining – outlook weak, RPET merged; higher complexity to help RIL: Outlook remains weak for refining, as
                        1.2-1.4mmbbl/d of new capacity (including RPET) is coming up in the next few quarters while demand is contracting,
                        led by economic downturn. RIL recently merged RPET with itself. RIL, which has high complexity, will continue to
                        outperform benchmark GRM. We build GRM of US$8/bbl for RIL and US$9/bbl for RPET in FY10.
                      ? Petrochemicals – naphtha corrects but operating rates also lower: Though naphtha price declined recently,
                        demand is adversely impacted by economic slowdown. Operating rates are lower, margins are the lowest / negative
                        in many products and are expected to remain under pressure for at least one year.
                      ? Valuation: The stock trades at 10x FY10E EPS. Our SOTP value for RIL is Rs1,400/share. Further, we believe there is
                        a possible E&P upside of Rs513/share.

VALU ATION SUMMARY FOR OIL & GAS

                   CMP (RS)   RECO                EPS (RS)                   P/E (X)                   EV/EBITDA                   ROE (%)

                    27.3.09               FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

BPCL                   365    Buy          39.5      47.2     48.9     9.2      7.7      7.5     7.6       6.6       6.8    10.6      11.4    10.7
Reliance Inds.        1,548   Buy         102.5     136.6    154.9    15.1     11.3     10.0    11.1       7.5       6.2    16.3     17.7   17.5
                                                                                                                                    Source: MOSL


Pharma                ? Pharma demand unlikely to be impacted by global economic slowdown. Strong cash flows from domestic formulations
                        business continue to support global initiatives.
                      ? Full benefit of depreciating currency to be visible from 2HFY10 as forex hedges for most companies are likely to run
                        out or reduce significantly.
                      ? Generics - Geographically diversified operations, a pragmatic mix of IPR driven low-competition and normal products,
                        vertical integration coupled with favorable impact of a depreciating currency will result in EBITDA margin expansion for
                        most generic companies given their export-driven business model.
                      ? CRAMS - Favorable outsourcing stance by MNCs and inherent chemistry skills of Indian companies coupled with low-
                        cost operations and favorable currency should augur well for Indian CRAMS players despite the short-term impact of
                        inventory reductions by customers.
Dr. Reddy’s Labs      ? Traction in the branded formulations and US businesses will be the key growth drivers for DRL over the next two
                        years. Adverse impact of AOK tender on German operations already discounted.
                      ? Management becoming more focused by exiting marginal markets.
                      ? IPR-driven opportunities for US markets becoming more visible with management committing one such upside every
                        year for the next five years.
                      ? Will be a key beneficiary of a depreciating currency resulting in a 5.3% upgrade in FY10E EPS.
                      ? Expect 21% EPS CAGR over FY08-11. The stock trades at 11.1x FY10 EPS.
Sun Pharma            ? Traction in the branded formulations and US businesses will be the key growth drivers for Sun Pharma over the next
                        two years.
                      ? Ability to sustain superior margins even on a high base is a clear positive.
                      ? Monetization of products of acquired companies and patent challenge upsides can further enhance growth (not
                        included in our estimates).
                      ? Expect 16% EPS CAGR over FY08-11. The stock trades at 16.5x FY10 EPS.


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                                                                                                                                    India Strategy




TOP LARGE CAP PICKS

Divi’s Labs           ? Will be a key beneficiary of the increased pharmaceutical outsourcing from India given its strong relationships with
                        global innovator pharmaceutical companies. Adverse impact of customer inventory correction will reverse in 2HFY10.
                      ? Carotenoids initiative has good long-term potential given the presence of only two established players in the US$1b
                        market.
                      ? Will be a key beneficiary of a depreciating currency resulting in a 7.5% upgrade in FY10E EPS.
                      ? Enjoys highest EBITDA margin in the industry given its chemistry skills, low cost operations, and the long-standing
                        relationships with innovator companies (resulting in the strongest CCS pipeline from India).
                      ? Expect 23% EPS CAGR over FY08-11. The stock trades at 11.4x FY10 EPS.

VALUATION SUMMARY FOR PHARMACEUTICALS

                   CMP (RS)   RECO                EPS (RS)                   P/E (X)                   EV/EBITDA                   ROE (%)

                    27.3.09               FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

Divis Labs             959    Buy          66.3      84.4    100.3    14.5     11.4      9.6    11.4       9.3       7.5    41.4      38.3    34.1
Dr Reddy’ s Labs       474    Buy          12.4      42.7     49.6    38.3     11.1      9.6     9.4       8.1       7.7     4.3      13.4    14.0
Sun Pharma            1,080   Buy          57.0      65.5     76.0    19.0     16.5     14.2    14.3      12.8      10.4    21.5     20.8   20.4
                                                                                                                                    Source: MOSL

Jindal Steel &        ? JSPL has rich iron ore coal mining assets. Iron ore reserves are 200m tons and total coal reserves are 2.5b tons, which
Power                   has been allotted for production of sponge iron, power and liquid fuels. Coal production has doubled to 10-12mtpa and
                        iron ore production ranges 5-6mtpa.
                      ? 1.2mtpa of sponge iron is produced from captive coal and iron ore. Cost of generation of power is extremely low at
                        USc2/kwh for its captive power plant of 340MW and merchant power plant of 1,000MW.
                      ? Earnings will be driven by steel production CAGR of 34% to 2.5m ton during FY09-FY11 and strong cash flows from
                        merchant power sales. Rates are ranging USc10-20/kwh due to 12-15% of power deficit in the country.
                      ? The company has initiated two 6mtpa steel projects in Orissa and Jharkhand and 2,400MW expansion at Raigarh,
                        which will be implemented in phases and fuel earnings growth over the next five years. The stock trades at 6.3x
                        FY10E EPS. Maintain Buy.


VALUATION SUMMARY FOR JINDAL STEEL & POWER

                   CMP (RS)   RECO                EPS (RS)                   P/E (X)                   EV/EBITDA                   ROE (%)

                    27.3.09               FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

Jindal Steel & Power 1,235    Buy         203.7     196.1    264.9     6.1      6.3      4.7     4.8       5.1       3.7    47.3     31.5   30.0
                                                                                                                                    Source: MOSL




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                                                                                                                                 India Strategy




TOP MID-CAP PICKS

United Phosphorus ? Strong global presence (3rd largest generic player and 11th largest overall) and presence across agri-input value-
                    chain; well placed to benefit from the ongoing boom.
                  ? Can aggressively pursue its future growth without putting pressure on balance sheet. Recently raised US$475m
                    (through equity issue) has strengthened its cash chest for acquisitions and organic initiatives. Has annual cash profits
                    of US$150m.
                  ? UPL's 49% stake in Advanta gives access to fast growing seeds business. It not only has growing product portfolio
                    of hybrid and GM seeds in India, Australia, Argentina, and other international markets but also offers significant upside
                    from launch of healthy sunflower oil (Nutrisun) in CY09.
                  ? Earnings to grow 31% in FY10. Valuation at 7.2x FY10E EPS of Rs13.7 is attractive. Buy.
HCL Technologies ? Has signed orders worth US$1b in 2QFY09 (December 2008 quarter), even as most other players are struggling with
                    delayed decision making cycles and lack of demand visibility.
                  ? Axon acquisition has helped HCLT bolster its SAP practice to take on the large vendors, having increased the share of
                    ERP from 11% of revenue to ~25%. HCL Axon already boasts of an order pipeline worth US$1.2b.
                  ? HCL has expanded its headcount by only 6.3% in March-December 2008 by adding 3,155 employees during the period.
                    We expect better utilization management affecting margins favorably in FY10.
                  ? We expect HCLT to post US$ revenue growth of 13.7% in FY10 (5.5% ex-Axon), the strongest in the large cap IT
                    space, on the back of record order wins and synergies with Axon. The stock trades at 5.5x FY10 earnings. Maintain
                    Buy.
Zee Entertainment ? While uncertainty on advertising continues, likely consolidation in the broadcasting space and rationalization in programming
                    cost would be beneficial for a large incumbent broadcaster like ZEEL. Further, rising penetration of DTH would ensure
                    a steady growth in subscription revenue for the company. We estimate a 39% CAGR FY08-11E in DTH revenue.
                  ? Management has indicated that it intends to recover the loans and advances (aggregating Rs7b) made to its group
                    companies by FY10, which would improve cash flows and address the corporate governance issues.
                  ? We estimate a revenue growth of 2% YoY in FY10 on the back of a 5% decline in advertising revenue and 7% increase
                    in subscription revenue. The stock trades at 11x FY10E EPS of Rs9.4 and 8.4x FY11E EPS of Rs12.3. Buy.
Sintex Industries ? Sintex offers unique play on: (1) modern construction technologies (pre-fabs and monolithic), and (2) replacement of
                    metal by plastics and composites in many sectors such as auto, electricals, medical equipment, aerospace, defence,
                    etc.
                  ? Healthy growth in pre-fabs and monolithic will offset temporary slowdown in plastic business (including subsidiaries).
                    Textiles business remains a niche cash cow.
                  ? Expect 19% earnings CAGR over FY09-11E.
                  ? Valuation extremely attractive - P/E of 4.4x FY09E and less than 4x FY10E.
JSW Steel         ? JSW Steel's capacity increased from 4.8 to 7.8mtpa in February 2009, which will fuel volume growth of 67% to 5.8m
                    tons in FY10 at 75% capacity utilization - best volume growth in Indian metal space.
                  ? Pressure on steel prices has eased after coking coal benchmark annual contracts settled at US$129/ton, which will
                    not let cost of production of steel mills across world to fall below US$400/ton. Billet prices have started bouncing back
                    in a small way.
                  ? Indian steel prices have been stable in last 2-3 months due to declining imports, depreciation of currency, re-introduction
                    of 5% import duty and lesser production due to shut down of Ispat's blast furnace. The demand was less affected in
                    India.
                  ? Input cost pressure are easing for JSW Steel. Coking coal prices have fallen from US$325/ton to US$129/ton. Iron ore
                    average costs have fallen from peak of Rs2,940/ton to Rs1,200/ton. Corex furnace coal prices too have fallen from
                    peak of US$180-200/ton to US$60-70/ton. Captive power too is generated from the flue gases of Corex furnace.
                    Therefore, power and fuel costs too will fall. Ferro-alloy prices have already corrected.
                  ? Of the total loans of Rs142b, rupee loan is only Rs52b. Forex loan of Rs90b includes MTM loss of Rs13b. Due to sharp
                    fall of Libor, average interest costs too have fallen.
                  ? Rs20b needed towards servicing of debt (Rs10b of interest and Rsb of repayment) in FY10, which can be easily met
                    even under stress case scenario of operating cash flows. Capex has been aggressively cut to Rs20b.
                  ? We believe receding pressure on steel prices and correction of input costs will revive margins and huge volume
                    growth will drive the earnings. The stock is trading at 45% discount to FY09 book value. Upgrade to Buy.




27 March 2009                                                                                                                                44
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TOP MID-CAP PICKS

Piramal Healthcare ? Key beneficiary of the increased pharmaceutical outsourcing from India given its strong relationships with global
                      innovator pharmaceutical companies. Adverse impact of customer inventory correction will reverse in 2HFY10.
                    ? Expect 180bp improvement in EBITDA margin for FY10 led by 30% growth in CRAMS supplies from India, restructuring
                      of UK operations, and shifting of some of the contracts from UK to India. Domestic formulations business (47% of
                      revenue) with 25% EBITDA margin continues to support the ramp-up in CRAMS business.
                    ? Exposure to small and mid-sized biotech/pharma customers is negligible (1.5-2% of revenue). Hence there is no impact
                      of the ongoing liquidity crunch.
                    ? Low cost operations and the long-term contracts with innovator companies is a key positive for PHL’s CRAMS
                      business. Further improvement in chemistry skills will have long-term positive impact.
                    ? Expect 18% EPS CAGR over FY08-11. The stock trades at 7.1x FY10 EPS.
Lupin               ? Likely to witness improvement in the underlying fundamentals led by an expanding US generics pipeline, IPR-driven
                      opportunities, and double-digit growth in the domestic formulations business.
                    ? Ramp-up in European business and genericization of the Japanese market will be key long-term triggers.
                    ? Will be a key beneficiary of a depreciating currency resulting in 8.4% upgrade in FY10E EPS.
                    ? Expect 27.8% EPS CAGR over FY08-11. The stock trades at 9.2x FY10 EPS.
Indian Bank         ? GNPA of just 0.9% and provision coverage ratio of 80%+. Strong focus on asset quality and effective risk management
                      systems would result in lower NPA accretion than peers.
                    ? Capital adequacy is strong, with tier-I at 10%+, supporting strong balance sheet growth.
                    ? One of the best retail deposits base, with bulk deposits at just 10% of total deposits. This ensures that cost of funds
                      (6.2%) and margins (3.6%) remain superior to peer banks.
                    ? RoA of 1.3%+ and RoE at ~20% would sustain in FY10-11 despite factoring in GNPA rising from 1% in FY09 to 3.8% in
                      FY11. The stock trades at 0.6x FY10E ABV and 3.2x FY10E EPS.
LIC Housing Finance ? Strong parentage (LIC) helps to achieve better credit rating and lower cost of funds. It also helps to leverage on LIC's
                      customer base to grow its loan book.
                    ? Business restructuring has led to: (a) better customer profile, (b) strong brand recognition, (c) efficiency improvement,
                      and (d) sharp improvement in asset quality.
                    ? GNPAs are down from 4.4% in FY05 to 1.7% in 9MFY09. Lower exposure to builder financing (~7.2% of the book),
                      average loan size of ~Rs1.2m, LTV of ~55%, and income to installment ratio of ~40% is likely to keep NPAs under check
                    ? The stock trades at 0.6x FY10E ABV and 2.8x FY10E EPS, despite RoAA of 1.8% and RoAE of 22%+.
Andhra Bank         ? Gross NPA of just 0.9%; provision coverage of 80%.
                    ? Lending philosophy has been in favor of low risk business. Exposure to riskier asset segments like real estate, gems
                      & jewelry, auto/auto ancillaries is lower than peers.
                    ? Tier-I CAR strong at 8.7%; we expect it to sustain above 7% till FY11 despite subdued earnings growth estimates (6%
                      CAGR over FY08-11). Our estimates are likely to see upgrades due to lower NPAs.
                    ? C/I ratio would decline from 52% in FY08 to 46% in FY11, driving operating profit CAGR of 15%.
                    ? The stock trades at 0.6x FY10E ABV and 3.7x FY10E EPS. FY09 dividend yield is 8.6%.
IVRCL               ? Strong revenue visibility, driven by healthy order book of Rs143b (book-to-bill ratio of 3x FY09E revenue) coupled with
                      the declining trend in interest cost and working capital would drive stock performance during FY10/11. We expect
                      earnings CAGR of 17% during FY09-11, led by revenue CAGR of 22%.
                    ? During FY10, net working capital would improve, driven by better payment terms with material suppliers. Interest cost
                      would decline by 200-300bp, impacting earnings positively.
Simplex             ? Simplex has the lowest working capital (WC) cycle in our construction universe. With further improvement in WC cycle
Infrastructure        coupled with limited capex requirements, we expect meaningful free cash generation in FY10.
                    ? Order book to bill ratio stands at 2.2x FY09E revenue, providing strong revenue visibility for FY10/11.
                    ? Cost of debt is one of the lowest at 10% in 4QFY09E (v/s 10.6% in 3QFY09). We expect earnings CAGR of 26%
                      through FY08-10.




27 March 2009                                                                                                                              45
                                                                                                                                    India Strategy




TOP MID-CAP PICKS

India Cements          ? Benefit of lower imported coal prices would be reflected from 4QFY09 onwards (down 10% QoQ to US$71), resulting
                         in cost savings of Rs15/bag and diluting any moderation in cement prices.
                       ? Demand in its key market of South India is expected to remain strong (~10% in FY09; 10% in FY10), supporting cement
                         prices.
                       ? 58% increase in installed capacity to 14m ton would easily support FY10E volume growth of 11%. FY10E utilization
                         rate of 73% provides significant potential operating leverage.
                       ? Highest profitability in our cement universe at Rs1,090/ton (over US$20/ton) as against Rs868/ton for our cement
                         universe
                       ? We expect earnings growth of 9% in FY10 despite factoring Rs8/bag (~5%) decline in cement prices. Valuations are
                         attractive at 5.3x FY10E EPS, and an EV of 3x FY10E EBITDA and US$47/ton (mkt cap/ton of US$41).
Mahindra Life          ? MLL will record 34.7% revenue CAGR, over FY09-11, driven by increasing traction at its Chennai and Jaipur SEZs. In
                         FY10, MLL will book revenue of Rs1.5-2b on account of 300-350 acres of processing area in Jaipur and launch phase
                         2 of residential project at its Chennai SEZ.
                       ? The company has a healthy balance sheet with net cash and has no land outstanding. This coupled with its strong
                         management differentiates the company from its peers.
                       ? Our revised SOTP value for MLL is Rs518/sh v/s Rs590/sh earlier, which values: 1) Chennai SEZ at Rs96/sh, 2) Jaipur
                         SEZ at Rs174/sh, 3) residential vertical at Rs171/sh, and 4) cash/other rental assets at Rs76/sh.
                       ? MLL trades at a P/E of 4.8x FY10 EPS of Rs26.8 and a P/B of 0.5x FY10 book value of Rs241/sh. It is available at 75%
                         discount to its NAV. Maintain Buy.




VALU ATION SUMMARY FOR TOP MID-CAP PICKS

                    CMP (RS)   RECO               EPS (RS)                   P/E (X)                   EV/EBITDA                   ROE (%)

                     27.3.09              FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

United Phosphorous       98    Buy         10.5      13.7     16.1     9.4      7.1      6.1     4.6       3.2       2.5    21.7      23.6    23.0
HCL Technologies        105    Buy         18.8      19.0     19.2     5.6      5.5      5.4     3.2       2.7       2.5    22.6      20.4    18.8
Zee Entertainment       106    Neutral      9.1       9.4     12.3    11.6     11.4      8.6     9.8       8.9       6.9    12.5      11.6    13.7
Sintex Inds.             99    Buy         22.3      25.4     31.6     4.4      3.9      3.1     6.0      13.1       7.0    18.5      17.8    18.6
JSW Steel               231    Buy         54.0     102.6    112.1     4.3      2.3      2.1     5.6       3.4       3.0    12.8      20.3    19.1
Piramal Healthcare      175    Buy         14.1      24.7     28.6    12.4      7.1      6.1     7.7       5.8       5.0    25.3      36.3    32.9
Lupin                   637    Buy         51.0      69.6     78.9    12.5      9.2      8.1     9.5       7.3       6.5    31.1      33.3    30.1
Indian Bank*             88    Buy         27.3      27.8     32.3     3.2      3.2      2.7     0.7       0.6       0.5    23.2      20.0    20.0
LIC Housing*            230    Buy         59.6      67.7     77.8     3.2      2.8      2.4     0.7       0.6       0.5    24.9      23.2    22.1
Andhra Bank*             48    Buy         12.8      12.9     13.9     3.8      3.7      3.5     0.6       0.6       0.5    18.0      16.4    15.9
IVRCL Infra.            134    Buy         16.2      18.8     22.3     8.3      7.1      6.0     7.5       6.4       5.3    12.8      13.1    13.8
Simplex Infra.          150    Buy         28.6      37.0     45.2     5.2      4.1      3.3     4.2       3.5       3.1    16.0      17.4    17.8
India Cements           110    Buy         19.1      20.8     16.7     5.8      5.3      6.6     3.9       3.2       3.5    18.7      17.6    12.5
Mahindra Life          129 Buy            14.1   26.8         52.1     9.3      4.9      2.5     6.0       3.2       0.9     6.4     11.1   17.6
* For Banks the value appearing in EV/EBITDA are P/BV                                                                               Source: MOSL




27 March 2009                                                                                                                                   46
                                                                                             Model Portfolio




                MOSL MODEL PORTFOLIO

                SECTOR WEIGHT /                   BSE-100    MOST    WEIGHT RELATIVE   EFFECTIVE SECTOR

                PORTFOLIO PICKS                             WEIGHT     TO BSE-100      STANCE

                Banks                                19.6     21.0         1.4         Overweight
                  HDFC Bank                           3.6      6.0         2.4         Buy
                  PNB                                 0.6      5.0         4.4         Buy
                  SBI                                 3.2      4.0         0.8         Buy
                  ICICI Bank                          4.3      4.0        -0.3         Buy
                  Indian Bank                         0.0      2.0         2.0         Buy
                Petrochemicals                       13.4      9.0        -4.4         Underweight
                  Reliance Inds.                     12.2      9.0        -3.2         Buy
                Engg/Infrastructure/Real Estate       9.8      9.0        -0.8         Underweight
                  L&T                                 3.6      3.0        -0.6         Neutral
                  BHEL                                2.7      2.0        -0.7         Neutral
                  IVRCL                               0.2      2.0         1.8         Buy
                  Nagarjuna Construction              0.0      2.0         2.0         Buy
                Telecom                               6.6      8.0         1.4         Overweight
                  Bharti Airtel                       4.1      5.0         0.9         Buy
                  Reliance Com                        1.3      3.0         1.7         Buy
                Auto                                  4.1      8.0         3.9         Overweight
                  Hero Honda                          1.1      3.0         1.9         Buy
                  M&M                                 0.7      3.0         2.3         Buy
                  Maruti Suzuki                       1.1      2.0         0.9         Buy
                Information Technology                9.4      8.0        -1.4         Underweight
                  Infosys                             6.6      4.0        -2.6         Buy
                  TCS                                 1.4      2.0         0.6         Buy
                  HCL Technologies                    0.4      2.0         1.6         Buy
                Pharmaceuticals                       3.8      7.0         3.2         Overweight
                  Dr Reddy’s                          0.6      3.0         2.4         Buy
                  Lupin                               0.0      2.0         2.0         Buy
                  Piramal Healthcare                  0.0      2.0         2.0         Buy
                FMCG                                  9.1      7.0        -2.1         Underweight
                  ITC                                 4.9      3.0        -1.9         Buy
                  United Spirits                      0.3      2.0         1.7         Buy
                  Nestle                              0.6      2.0         1.4         Buy
                Metals / Utilities                   10.5      6.0        -4.5         Underweight
                 Jindal Steel & Power                 0.9      4.0         3.1         Buy
                 JSW Steel                            0.2      2.0         1.8         Buy
                Oil & Gas                             7.1      5.0        -2.1         Underweight
                  IOC                                 0.5      3.0         2.5         Buy
                 BPCL                                 0.5      2.0         1.5         Buy
                Media                                 0.3      4.0         3.7         Overweight
                 Zee Entertainment                    0.3      2.0         1.7         Buy
                  Sun TV                              0.0      2.0         2.0         Buy
                Others                                6.5      8.0         1.5         -
                  Sintex                              0.0      2.0         2.0         Buy
                  United Phosphorus                   0.3      2.0         1.7         Buy
                  LIC Housing                         0.0      2.0         2.0         Buy
                  India Cements                       0.2      2.0         1.8         Buy
                Cash                                  0.0      0.0        0.00
                Total                              100.0     100.0




27 March 2009                                                                                             47
                                                                                                                              MOSL Universe




ANNUAL PERFORMANCE - MOSL UNIVERSE                                                                                                 (RS BILLION)

                                SALES                                        EBITDA                                NET PROFIT

                FY09E   FY10E   FY11E    CHG.    CHG.      FY09E     FY10E    FY11E   CHG.    CHG.    FY09E   FY10E   FY11E     CHG.     CHG.

                                          (%)*    (%)#                                 (%)*    (%)#                              (%)*     (%)#

Auto (5)             789    816   896    3.4    9.9      75      94     107     25.5     14.3    45      55      64      21.8    14.8
Banks (17)           843    965 1,115   14.5   15.5     710     795     925      11.9    16.4   363    358      419      -1.3    17.0
Cement (7)           454    462   485    1.8    5.0     118     117       97     -0.7   -17.1    67      59      44     -11.8 -25.4
Engg. (9)          1,088 1,192 1,401     9.5   17.5     144     173     209     20.4     21.1   107     116     137       8.4    18.1
FMCG (12)            663    730   821   10.2   12.3     125     144     163     15.2     12.7    83      96     111      16.0    15.1
IT (7)               957 1,052 1,082    10.0    2.8     238     245     246       3.2     0.3   172    179      181       4.1      1.0
Infrastr. (5)        226    283   341   25.4   20.2      31      40       45    30.9     13.3    13      17      19      25.6    11.5
Media (6)             64     67    75    5.3   11.4      19      22       26    17.0     17.7    12      14      16      17.1    21.8
Metals (8)         3,176 2,950 2,783    -7.1   -5.7     529     445     497 -15.9        11.7   301    215      243     -28.6    13.3
Oil Gas (10)       9,089 6,921 7,815 -23.8     12.9     891 1,024 1,138         14.9     11.2   463    547      618      18.2    13.0
Pharma (13)          436    505   514   15.9    1.7      89     104     118     16.5     13.6    47      72      86      53.4    20.2
Real Estate (2)      127     84    87 -34.2     4.1      74      44       42 -40.9       -5.2    58      25      19     -56.9 -25.5
Retail (2)           104    124   146   19.0   18.0      10       11      13    16.4     15.6     4       4        5     23.7    20.4
Telecom (3)          701    896 1,086   27.8   21.3     273     327     398     20.0     21.5   155    155      187       0.2    20.5
Textiles (4)         104    122   133   17.0    9.0      14      15       20      6.7    26.7     0       0        3       PL      LP
Utilities (5)        701    766   868    9.2   13.2     150     180     203     20.5     12.5   109     114     123       4.3      7.8
Others (5)           133    152   179   14.2   18.3      24      30       37    24.5     21.5    13      17      22      28.7    28.4
MOSL (120) 19,655 18,088 19,826         -8.0    9.6 3,512 3,811 4,283             8.5    12.4 2,013 2,044 2,298           1.6    12.4
Ex.Banks        18,812 17,123 18,711    -9.0    9.3 2,802 3,016 3,358             7.6    11.3 1,650 1,686 1,879           2.2    11.5
Ex.Metals       16,479 15,138 17,043    -8.1   12.6 2,983 3,366 3,786           12.8     12.5 1,712 1,829 2,055           6.9    12.3
Ex.RMs          14,143 14,544 15,953     2.8    9.7 3,332 3,608 4,099             8.3    13.6 1,944 1,951 2,208           0.4    13.2
Ex.Met.&RMs 10,968 11,593 13,170         5.7   13.6 2,803 3,164 3,602           12.9     13.9 1,643 1,736 1,965           5.7    13.2
Sensex (30)        9,557 9,895 10,445    3.5    5.6 2,266 2,444 2,698             7.9    10.4 1,362 1,361 1,498           0.0    10.1
Sensex Ex.Met.7,200 7,731 8,515          7.4   10.1 1,952 2,202 2,448           12.8     11.2 1,197 1,267 1,402           5.9    10.6
* Growth FY10 over FY09; # Growth FY11 over FY10. For Banks : Sales = Net Interest Income, EBITDA = Operating Profits; LP = Loss to
profit; PL = Profit to Loss
VALUATIONS - MOSL UNIVERSE

SECTOR                            P/E                    EV/EBITDA                     P/BV                    ROE                DIV.   EARN.

                                   (X)                        (X)                       (X)                     (%)           YLD (%)    CAGR

(NO. OF COMPANIES)      FY09E   FY10E    FY11E   FY09E     FY10E     FY11E    FY09E   FY10E   FY11E   FY09E   FY10E   FY11E     FY09E (FY11-09)

Auto (5)                16.0     13.1     11.4     8.4       6.8       5.7      2.6     2.3     2.0    16.2    17.4    17.7      1.9     18.3
Banks (17)               7.9      8.0      6.8     1.3       1.2       1.1      1.3     1.2     1.1    16.8    14.8    15.5      2.7      7.5
Cement (7)               7.4      8.4     11.2     4.6       4.5       5.2      1.7     1.5     1.3    23.1    17.5    11.8      2.3    -18.9
Engineering (9)         14.6     13.5     11.4    10.9       9.1       7.6      3.6     3.1     2.6    25.0    22.7    22.9      1.5     13.1
FMCG (12)               21.9     18.8     16.4    14.3      12.2      10.6      6.6     5.8     5.0    30.4    30.5    30.6      2.5     15.6
IT (7)                  10.8     10.4     10.3     7.1       6.6       6.2      3.0     2.5     2.2    28.1    24.2    21.4      2.7      2.5
Infrastructure (5)      11.6      9.3      8.3     9.5       7.7       7.0      1.4     1.3     1.1    12.4    13.8    13.7      1.5     18.3
Media (6)               13.7     11.7      9.6     8.0       6.5       5.2      2.0     1.8     1.6    14.6    15.4    16.7      2.2     19.4
Metals (8)               5.1      7.2      6.4     3.9       4.7       4.2      1.1     1.0     0.9    21.1    13.3    13.4      2.5    -10.1
Oil Gas & Petchem (10) 12.2      10.3      9.1     7.1       6.1       5.2      1.8     1.5     1.3    14.7    14.8    14.6      1.8     15.6
Pharma (13)             19.4     12.6     10.5    10.7       9.1       7.7      2.9     2.5     2.1    14.8    19.8    20.3      1.7     35.8
Real Estate (2)          6.4     15.0     20.1     7.7      12.5      11.4      1.3     1.2     1.1    19.8     7.9     5.6      0.7    -43.4
Retail (2)              17.0     13.7     11.4     8.0       7.1       6.2      2.4     2.1     1.8    13.9    15.1    15.9      1.0     22.1
Telecom (3)             11.1     11.1      9.2     7.5       6.5       5.1      2.3     1.9     1.6    20.9    16.8    17.1      0.2      9.9
Textiles (4)           116.8    -29.0      4.1     7.5       7.8       5.6      0.2     0.2     0.2     0.2    -0.8     5.2      5.6 432.4
Utilities (5)           17.0     16.3     15.1    12.5      10.7      10.2      2.2     2.0     1.9    12.9    12.5    12.5      2.0      6.0
Others (5)               7.0      5.4      4.2     5.3       3.9       3.0      1.4     1.2     1.0    20.3    21.6    22.7      2.3     28.5
MOSL (120)              10.9     10.7      9.5    N.M       N.M       N.M       2.0     1.7     1.5    18.0    15.9    15.8      2.0      6.9
MOSL Ex. Banks (103) 11.5        11.3     10.1     7.4       6.9       6.0      2.1     1.8     1.6    18.3    16.2    15.9      1.9      6.7
MOSL Ex. Metals (112) 11.9       11.1      9.9    N.M       N.M       N.M       2.1     1.8     1.6    17.6    16.3    16.1      1.9      9.6
MOSL Ex. RMs (117)      10.9     10.8      9.6    N.M       N.M       N.M       2.0     1.8     1.5    18.7    16.2    16.2      2.0      6.6
MOSL Ex. M&RMs (109) 11.9        11.3     10.0    N.M       N.M       N.M       2.2     1.9     1.7    18.3    16.7    16.6      2.0      9.4
Sensex (30)             11.5     11.3     10.3    N.M       N.M       N.M       2.2     1.9     1.7    19.1    16.7    16.3      1.9      4.9
Sensex Exl. Metals (27) 13.2     12.0     10.8    N.M       N.M       N.M       2.4     2.1     1.8    18.5    17.4    17.1      1.8      8.2
N.M. - Not Meaningful                                                                                                           Source: MOSL

27 March 2009                                                                                                                               48
                                                                                                                         MOSL Universe




                                     4QFY09: Commodities cause wild swings in PAT

                                     4QFY09 aggregates for our universe of 120 companies suggest 7% YoY degrowth in
                                     sales, 13% YoY growth in EBITDA and 17% YoY growth in PAT. However, the aggregates
                                     conceal the impact of huge swings in commodity prices. Fall in crude prices would
                                     significantly improve the profitability of OMCs (oil marketing companies). At the same
                                     time, fall in metal prices would lead a major drop in profits for the metals sector. Excluding
                                     OMCs, aggregate PAT would degrow 19%, and excluding Metals, aggregate PAT would
                                     grow 42% YoY. Excluding both these extreme sectors, Indian corporate performance
                                     should be broadly flat YoY.
                                     QUARTER-WISE SALES GROWTH (% YOY)                 QUARTER-WISE NET PROFIT GROWTH (% YOY)


                                        40.3%                                               17.5%
                                                   37.4%                                                                          16.6%




                                                              7.8%
                                                                                                                     -5.0%

                                                                          -7.2%
                                                                                                       -19.2%
                                        June-08   Sep- 08     Dec-08      Mar-09            June-08    Sep- 08       Dec-08       Mar-09

                                                                                                                               Source: MOSL
QUARTERLY PERFORMANCE - MOSL UNIVERSE                                                                                            (RS BILLION)

SECTOR                                            SALES                            EBITDA                         NET PROFIT

(NO. OF COMPANIES)                     MAR.09       VAR.      VAR.     MAR.09        VAR.       VAR.    MAR.09          VAR.        VAR.

                                                   % YOY    % QOQ                  % YOY      % QOQ                   % YOY       % QOQ

Auto (5)                                  209.4      -4.5     24.1        20.6      -24.8       65.7       11.4        -38.7         92.4
Banks (17)                                224.1      20.2     -0.6       192.3       12.3       -7.2       96.0         15.9        -14.0
Cement (7)                                103.7       6.4      6.7        26.8       -3.7       18.5       15.9         -4.1         11.1
Engineering (9)                           329.4      15.2     28.4        54.2       19.6       53.3       36.7          5.6         49.4
FMCG (12)                                 171.2      14.9      5.1        31.1       12.7       -2.2       20.9         11.7         -4.4
IT (7)                                    254.5      23.8      1.6        60.1       23.8       -4.7       44.0          8.2         -6.3
Infrastructure (5)                         70.2      19.7     24.7         9.7       13.7       45.8        3.8         -8.8          6.5
Media (6)                                  15.6       1.1     -4.6         4.1      -20.4      -10.4        2.4         -6.9        -12.7
Metals (8)                                558.5     -20.1     -2.8        41.6      -74.9      -52.3        9.0        -90.6        -83.9
Oil Gas & Petchem (10)                 1,723.5      -18.8    -11.6       375.4      133.5      170.7      261.3        239.8        211.4
Pharma (13)                               106.7       8.0     -3.9        19.4      -22.9      -11.8        6.9        -50.5        -37.4
Real Estate (2)                            12.6     -77.0    -32.1         6.4      -80.5      -37.4        3.6        -86.0        -56.0
Retail (2)                                 26.8      23.0      5.0         2.3       22.4        0.4        0.8         -0.7          8.4
Telecom (3)                               189.3      25.2      3.9        71.7       14.9        2.5       38.6          4.3         -0.1
Textiles (4)                               24.8       3.4      2.5         3.9        6.6       -5.3       -0.1           PL           PL
Utilities (5)                             187.2      22.6      0.6        39.7       20.6        2.0       28.1          6.1          8.6
Others (5)                                 38.8      18.0     26.2         7.3       26.3       35.0        3.9          4.7         51.5
MOSL (120)*                               4,246      -7.2     -2.1        967        13.4       26.8       583          16.6         27.1
MOSL Excl. Banks (103)                    4,022      -8.3     -2.2        774        13.6       39.4       487          16.7         40.4
MOSL Excl. Metals (112)                   3,688      -4.8     -2.0        925        34.7       37.0       574          42.0         42.6
MOSL Excl. RMs (117)                      3,166      -1.5      4.8        737       -11.8        3.7       406         -19.3         -4.0
MOSL Excl. Metals & RMs (109)             2,608       3.6      6.6        695         3.8       11.5       397          -2.5          8.3
Sensex (30)                               2,002      -3.4      4.4        485        -8.4        1.3       272         -15.2         -7.2
Sensex Excl. Metals (27)                  1,630       2.2      8.6        462         3.2       10.3       273          -2.7          7.2
* Tata Steel Consolidated; PL = Profit to Loss                                                                                 Source: MOSL

27 March 2009                                                                                                                              49
                                                                                                                                                               MOSL Universe




                Sales growth of 4% YoY (excluding OMCs and Metals)
                ? In 4QFY09, we expect aggregate sales growth of 4% YoY (excluding OMCs and
                   Metals). This would be the lowest growth quarter of FY09, reflecting the slowdown in
                   the global and the Indian economy. The fastest growing sectors are Telecom (+25%
                   YoY), IT (+24%), Utilities (+23%) and Banking (+20%). The worst affected are real
                   estate (-77% YoY), metals (-20%) and Oil & Gas (-19%).
                ? Telecom sector is expected to witness revenue growth of 25% YoY on the back of
                   robust growth in the wireless subscriber base (+42m in 4QFY09E). Idea Cellular
                   leads the pack with revenue growth of 46% YoY, followed by Bharti (+28%) and
                   Reliance Communication (+13%).
                ? The IT sector continues to benefit from the depreciating rupee, and is expected to
                   record a topline growth of 2% QoQ (24% YoY). The companies expected to grow
                   faster than average are HCL Technologies (+18% QoQ), Mphasis (+3% QoQ) and
                   TCS (+3% QoQ).
                ? The high growth in Utilities (+23% YoY) is driven by Power Trading Corporation
                   (+180% YoY) and Reliance Infrastructure (+50% YoY). However, in the case of both
                   the companies, higher sales is due to a pass through of higher input costs – higher cost
                   of power purchases in the case of PTC, and higher fuel cost in the case of Reliance
                   Infrastructure.
                ? Real Estate sales are expected to be down 77% YoY due to a virtual freeze in the
                   sector. Both the leading players are likely to be equally affected – DLF (-80% YoY)
                   and Unitech (-67% YoY).
                ? The sharp degrowth in Metal sales (-20% YoY) is expected to be led by non-ferrous
                   metals – Hindustan Zinc (-51% YoY), Nalco (-45% YoY), Sterlite (-43% YoY) and
                   Hindalco (-27% YoY).

                SECTORAL SALES GROWTH - QUARTER ENDED MARCH 2009 (%)


                   40


                    5


                  -30                                                                                         MOSL Universe Sales Growth = -7.2%


                  -65


                 -100
                                                                                              Engineering




                                                                                                                                                                                    Real Estate
                                                Utilities




                                                                                                                   Pharma

                                                                                                                            Cement
                        Telecom




                                       Retail




                                                                                                                                                               Oil Gas &
                                                                                                                                                Media
                                                                                                            FMCG
                                                            Banks




                                                                                                                                                                           Metals
                                                                                                                                                               Petchem
                                                                                                                                     Textiles
                                                                    Infrastructure




                                                                                                                                                        Auto
                                  IT




                                                                                     Others




                                                                                                                                                                   Source: MOSL




27 March 2009                                                                                                                                                                              50
                                                                                                                                                                       MOSL Universe




                Flat EBITDA margin and EBITDA growth (excluding OMCs and Metals)
                ? We expect our universe of 109 companies (excluding OMCs and Metals) to register
                   4QFY09 EBITDA growth of 4% YoY on sales growth of 4%, implying flat EBITDA
                   margin.

                ?    Margin hits are expected to be the highest in Metals (-16%), Real estate (-9%) and
                     Pharma (-7.3%). This is fully offset by the massive 14% margin gain in Oil & Gas. In
                     fact, no other sector is expected to show any meaningful improvement in margin.

                ?    The top five EBITDA growth sectors are Oil & Gas (+134% YoY), IT (+24% YoY),
                     Retail (+22%), Utilities (+21%) and Engineering (+20%).

                ?    The bottom five EBITDA growth sectors are Real estate (-81% YoY), Metals (-
                     75%), Auto (-25%), Pharma (-23%) and Media (-20%).

                ?    EBITDA performance of the Sensex is expected to be in line with that of our universe.
                     Aggregate EBITDA is down 8% YoY and EBITDA margin is down 130bp. However,
                     excluding Metals, EBITDA is up 3% YoY and EBITDA margin is up 30bp.

                ?    The top five EBITDA performers in the Sensex are Tata Power (+119% YoY), Reliance
                     Infrastructure (+73%), Infosys (+34%), HDFC Bank (+31%) and L&T (+30%). The
                     bottom five are Ranbaxy (profit to loss), DLF (-83% YoY), Tata Steel (-75%), Sterlite
                     (-72%) and Tata Motors (-61%).

                SECTORAL EBITDA GROWTH - QUARTER ENDED MARCH 2009 (%)


                         133.5
                    50
                                                                                      MOSL Universe EBITDA Growth = 13.4%
                    15


                 -20


                 -55


                 -90
                                                                        Engineering




                                                                                                                                                                                       Real Estate
                                                            Utilities




                                                                                                                                            Cement




                                                                                                                                                             Pharma
                                                                                       Telecom
                                                   Retail
                         Oil Gas &




                                                                                                                                                     Media
                                                                                                                  FMCG

                                                                                                                         Banks




                                                                                                                                                                              Metals
                         Petchem




                                                                                                                                 Textiles
                                                                                                 Infrastructure




                                                                                                                                                                      Auto
                                              IT
                                     Others




                                                                                                                                                                             Source: MOSL




27 March 2009                                                                                                                                                                                        51
                                                                                                                                                          MOSL Universe




                PAT down 2.5% YoY (excluding OMCs and Metals)
                ? We expect aggregate 4QFY09 PAT to grow 17% YoY. Excluding OMCs, aggregate
                  PAT would degrow 19%, and excluding Metals, aggregate PAT would grow 42%
                  YoY. Excluding both these extreme sectors, aggregate PAT YoY is expected to be
                  down 2.5% YoY.

                ?    The worst hit are likely to be Metals (-91% YoY), Real estate (-86%), Pharma (-
                     51%) and Auto (-39%).

                ?    The major sectors expected to report PAT growth are Oil & Gas (+240% YoY),
                     Banks (+16%) and FMCG (+12%).

                ?    Aggregate PAT for Sensex is expected to be down 15% YoY, as the Sensex list has
                     no OMC whose higher profit could have offset the sharp fall in profits of metal
                     companies such as Tata Steel, Hindalco and Sterlite. Excluding Metal companies,
                     Sensex PAT is expected to be down only 4% YoY.

                ?    The top five Sensex PAT performers are likely to be Tata Power (loss to profit),
                     HDFC Bank (+37% YoY), ONGC (+32%), State Bank (+31.5%) and Infosys (+25%).
                     The bottom five are Tata Steel (profit to loss), Ranbaxy (profit to loss), Tata Motors
                     (-93%), DLF (-86%) and Hindalco (-62%).

                SECTORAL NET PROFIT GROWTH - QUARTER ENDED MARCH 2009 (%)


                         239.8
                    60

                    30                       MOSL Universe Net Profit Growth = 16.6%
                                                                                                                                                                 -86.0 -90.6
                    0

                 -30

                 -60
                                                                     Engineering




                                                                                                                                                                   Real Estate
                                                         Utilities




                                                                                                               Cement




                                                                                                                                                        Pharma
                                                                                            Telecom

                                                                                                      Retail
                         Oil Gas &




                                                                                                                        Media
                                             FMCG
                                     Banks




                                                                                                                                                                                 Metals
                         Petchem




                                                                                                                                Infrastructure

                                                                                                                                                 Auto
                                                    IT




                                                                                   Others




                                                                                                                                                                 Source: MOSL




27 March 2009                                                                                                                                                                             52
                                                                                                                                                                                                                                                                                                                 MOSL Universe




QUARTERLY PERFORMANCE - MOSL UNIVERSE

SECTOR                                                                                                                            EBITDA MARGIN (%)                                                                                                       NET PROFIT MARGIN (%)

(NO. OF COMPANIES)                                                                                    MAR.08                                     MAR.09                           CHG. (%)                                          MAR.08                                        MAR.09                                  CHG. (%)

Auto (5)                                                                                                 12.5                                         9.8                             -2.7                                               8.5                                               5.4                               -3.0
Banks (17)                                                                                               91.9                                        85.8                             -6.0                                              44.4                                              42.8                               -1.6
Cement (7)                                                                                               28.6                                        25.9                             -2.7                                              17.0                                              15.3                               -1.7
Engineering (9)                                                                                          15.9                                        16.5                              0.6                                              12.2                                              11.1                               -1.0
FMCG (12)                                                                                                18.5                                        18.2                             -0.4                                              12.6                                              12.2                               -0.3
IT (7)                                                                                                   23.6                                        23.6                              0.0                                              19.8                                              17.3                               -2.5
Infrastructure (5)                                                                                       14.6                                        13.9                             -0.7                                               7.0                                               5.4                               -1.7
Media (6)                                                                                                33.7                                        26.5                             -7.2                                              16.6                                              15.3                               -1.3
Metals (8)                                                                                               23.7                                         7.4                            -16.2                                              13.7                                               1.6                              -12.1
Oil Gas & Petchem (10)                                                                                    7.6                                        21.8                             14.2                                               3.6                                              15.2                               11.5
Pharma (13)                                                                                              25.4                                        18.2                             -7.3                                              14.2                                               6.5                               -7.7
Real Estate (2)                                                                                          59.7                                        50.5                             -9.2                                              46.4                                              28.3                              -18.1
Retail (2)                                                                                                8.6                                         8.6                              0.0                                               3.8                                               3.1                               -0.7
Telecom (3)                                                                                              41.3                                        37.9                             -3.4                                              24.4                                              20.4                               -4.1
Textiles (4)                                                                                             15.4                                        15.9                              0.5                                               4.9                                              -0.3                               -5.2
Utilities (5)                                                                                            21.6                                        21.2                             -0.4                                              17.3                                              15.0                               -2.3
Others (5)                                                                                               17.6                                        18.8                              1.2                                              11.3                                              10.0                               -1.3
MOSL (120)*                                                                                              18.6                                        22.8                              4.1                                              10.9                                              13.7                                2.8
MOSL Excl. Banks (103)                                                                                   15.5                                        19.3                              3.7                                               9.5                                              12.1                                2.6
MOSL Excl. Metals (112)                                                                                  17.7                                        25.1                              7.4                                              10.4                                              15.6                                5.1
MOSL Excl. RMs (117)                                                                                     26.0                                        23.3                             -2.7                                              15.6                                              12.8                               -2.8
MOSL Excl. Metals & RMs (109)                                                                            26.6                                        26.7                              0.0                                              16.2                                              15.2                               -1.0
Sensex (30)                                                                                              25.5                                        24.2                             -1.3                                              15.5                                              13.6                               -1.9
Sensex Excl. Metals (27)                                                                                 28.1                                        28.3                              0.3                                              17.6                                              16.8                               -0.8
*Tata Steel Consolidated                                                                                                                                                                                                                                                                                                 Source: MOSL
EBITDA MARGIN GROWTH - QUARTER ENDED MARCH 2009 (%)                                                                                                                               NET PROFIT MARGIN GROWTH - QUARTER ENDED MARCH 2009 (%)


  20                    MOSL Universe EBITDA Margin Growth = 410bp                                                                                                                 15                  MOSL Universe Net Profit Margin Growth = 280bp
  10                                                                                                                                                                                 3
   0
                                                                                                                                                                                    -9
 -10
 -20                                                                                                                                                                               -21
                            Engineering




                                                                                                                                                                                                                      Engineering
                                                                                                                                                           Real Estate




                                                                                                                                                                                                                                                                                                                                                      Real Estate
                                                                   Utilities




                                                                                                                                                                                                                                                                                      Utilities
                                                                                                              Cement




                                                                                                                                                  Pharma




                                                                                                                                                                                                                                                                             Cement




                                                                                                                                                                                                                                                                                                                                    Pharma
                                                                                                                       Telecom




                                                                                                                                                                                                                                                                                                               Telecom
                                                          Retail




                                                                                                                                                                                                             Retail
       Oil Gas &




                                                                                                                                                                                          Oil Gas &
                                                                                                                                         Media




                                                                                                                                                                                                                                              Media
                                                                                FMCG




                                                                                                                                                                                                      FMCG
                                                                                                                                 Banks




                                                                                                                                                                                                                                                      Banks
                                                                                                                                                                         Metals




                                                                                                                                                                                                                                                                                                                                             Metals
                                          Textiles




                                                                                                                                                                                                                                                                                                                         Textiles
                                                                                       Infrastructu




                                                                                                                                                                                                                                                              Infrastructu
                                                                                                       Auto




                                                                                                                                                                                                                                                                                                       Auto
                                                     IT




                                                                                                                                                                                                                                                                                                  IT
                   Others




                                                                                                                                                                                                                                     Others




SECTORAL CONTRIBUTION TO GROWTH IN SALES, EBITDA AND NET PROFIT (%)
SECTOR                                                             CONTRIBUTION                                                  SECTOR                                             CONTRIBUTION                                         SECTOR                                                        CONTRIBUTION
                                                                     TO SALES GR.                                                                                                   TO EBITDA GR.                                                                                                             TO NP GR.
IT (7)                                                                            14.9                                           Oil Gas & Petchem (10)                                   188.1                                          Oil Gas & Petchem (10)                                                  222.4
Engineering (9)                                                                   13.2                                           Banks (17)                                                 18.5                                         Banks (17)                                                                15.9
Telecom (3)                                                                       11.6                                           IT (7)                                                     10.1                                         IT (7)                                                                     4.0
Banks (17)                                                                        11.5                                           Telecom (3)                                                 8.2                                         FMCG (12)                                                                  2.6
Utilities (5)                                                                     10.5                                           Engineering (9)                                             7.8                                         Engineering (9)                                                            2.4
FMCG (12)                                                                          6.7                                           Utilities (5)                                               5.9                                         Utilities (5)                                                              2.0
Infrastructure (5)                                                                 3.5                                           FMCG (12)                                                   3.1                                         Telecom (3)                                                                1.9
Pharma (13)                                                                        2.4                                           Others (5)                                                  1.3                                         Others (5)                                                                 0.2
Cement (7)                                                                         1.9                                           Infrastructure (5)                                          1.0                                         Retail (2)                                                                 0.0
Others (5)                                                                         1.8                                           Retail (2)                                                  0.4                                         Media (6)                                                                 -0.2
Retail (2)                                                                         1.5                                           Textiles (4)                                                0.2                                         Infrastructure (5)                                                        -0.4
Textiles (4)                                                                       0.2                                           Cement (7)                                                 -0.9                                         Cement (7)                                                                -0.8
Media (6)                                                                          0.1                                           Media (6)                                                  -0.9                                         Textiles (4)                                                              -1.5
Auto (5)                                                                          -3.0                                           Pharma (13)                                                -5.1                                         Pharma (13)                                                               -8.5
Real Estate (2)                                                                  -12.8                                           Auto (5)                                                   -5.9                                         Auto (5)                                                                  -8.7
Metals (8)                                                                       -42.8                                           Real Estate (2)                                           -23.0                                         Real Estate (2)                                                          -26.3
Oil Gas & Petchem (10)                                                         -121.1                                            Metals (8)                                              -108.8                                          Metals (8)                                                             -104.9
                                                                                                                                                                                                                                                                                                                    Source: MOSL
27 March 2009                                                                                                                                                                                                                                                                                                                                           53
                                          0%
                                                                                                                                                                                                                                                                                  0%




                                                  80%
                                                                                                                                                                                                                                                                                          50%




                                                         160%
                                                                       240%
                                                                               320%
                                                                                                                                                                                                                                                                                                  100%
                                                                                                                                                                                                                                                                                                          150%
                                                                                                                                                                                                                                                                                                                 200%




                                                                                                                                                                0%
                                                                                                                                                                        50%
                                                                                                                                                                              100%
                                                                                                                                                                                     150%
                                                                                                                                                                                              200%
                                Siemens                                                                                                         HPCL                                                                                                               PTC India




27 March 2009
                                 BPCL                                                                                                             IOC                                                                                                        Everest Kanto

                                HPCL                                                                                                           Siemens                                                                                                               Biocon




                                                                                  7,489 6,904 5,879
                                                                                                                                                                                                                                                                                                                        TOP 10 BY SALES GROWTH (%)
                                Deccan




                                                                                                                                                                                                                             TOP 10 BY EBITDA GROWTH (%)
                                                                                                                                                 BPCL                                                                                                        Bombay Rayon




                                                                 181
                                                                                                                                                                                                     2,262 1,940 1,177 502
                               Chronicle




                                                                                                      TOP 10 BY NET PROFIT GROWTH (%)
                                 Shree
                                                                                                                                             Tata Power                                                                                                      Reliance Infra.




                                                                                                                                                                                     119
                                 Cement
                               J&K Bank
                                                                                                                                          Everest Kanto                                                                                                        Federal Bank

                                    BoB                                                                                                          Cipla                                                                                                          Idea Cellular

                                    PNB                                                                                                   Reliance Infra.                                                                                                     Simplex Infra.

                                   Cipla                                                                                                           OBC                                                                                                                  BoB
                                Bombay
                                                                                                                                           Simplex Infra.                                                                                                        Union Bank
                                 Rayon
                                                                                                                                                                                                                                                                                                                                                         Scoreboard (quarter ended March 2009)




                                                  -85%
                                                          -70%
                                                                        -55%
                                                                                 -40%




                                          -100%
                                                                                                                                                                                                                                                                           -84%
                                                                                                                                                                                                                                                                                       -63%
                                                                                                                                                                                                                                                                                                -42%
                                                                                                                                                                                                                                                                                                         -21%
                                                                                                                                                                                                                                                                                                                 0%




                                                                                                                                                                     -80%
                                                                                                                                                                              -60%
                                                                                                                                                                                       -40%
                                                                                                                                                                                                     -20%




                                                                                                                                                        -100%
                                 Biocon                                                                                                         SAIL                                                                                                                 DLF
                                  Tata
                                                                                                                                               Nalco                                                                                                              Unitech
                                 Motors

                                   SAIL                                                                                                          DLF                                                                                                           Hind. Zinc

                               JSW Steel                                                                                                   Hind. Zinc                                                                                                          Cairn India
                                                                                                                                                                                                                                                                                                                          WORST 10 BY SALES GROWTH (%)




                                                                                                                                                                                                                             WORST 10 BY EBITDA GROWTH (%)




                                 Unitech                                                                                                   Tata Steel                                                                                                               Nalco




                                                                                                      WORST 10 BY NET PROFIT GROWTH (%)
                                    DLF                                                                                                       Sterlite                                                                                                       Sterlite Inds.

                                   Nalco                                                                                                     Unitech                                                                                                         Chennai Pet.

                               Vardhman                                                                                                    Cairn India                                                                                                       Sun Pharma

                               Hind. Zinc                                                                                                 Tata Motors                                                                                                               MRPL
                                 Suzlon
                                                                                                                                          Sun Pharma                                                                                                         Tata Motors
                                 Energy




  54
                Source: MOSL
                                                                                                                                                                                                                                                                                                                                                                                                 MOSL Universe
                                                                                                                                MOSL Universe




Ready reckoner: valuations
                 CMP (RS)       RECO              EPS (RS)                   P/E (X)                   EV/EBITDA                   ROE (%)

                      27.3.09             FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

Automobiles
Bajaj Auto               616    Buy        54.5      63.5     69.8    11.3      9.7      8.8     6.5       5.2       4.5    39.5      36.5    32.6
Hero Honda             1,086    Buy        63.2      79.5     88.7    17.2     13.7     12.2    10.6       8.3       7.2    37.6      37.6    30.4
Mahindra & Mahindra      385    Buy        55.8      60.6     70.0     6.9      6.4      5.5     9.4       7.2       6.3    14.6      16.6    17.2
Maruti Suzuki            766    Buy        46.3      50.1     60.2    16.5     15.3     12.7     8.5       7.3       5.8    13.7      13.4    14.1
Tata Motors              189    Neutral     9.7      16.7     19.4    19.4     11.3      9.7     6.7       5.5       4.9     5.9       8.6     9.5
Sector Aggregate                                                      16.0     13.1     11.4     8.4       6.8       5.7    16.2      17.4    17.7
Cement
ACC                      579    Neutral    62.7      55.5     35.9     9.2     10.4     16.1     5.6       5.7       8.5    23.9      18.8    11.5
Ambuja Cements            72    Neutral     7.4       7.1      5.3     9.6     10.1     13.6     5.6       5.6       6.6    22.1      17.9    12.3
Birla Corporation        174    Buy        41.9      36.9     27.5     4.2      4.7      6.3     2.0       1.7       1.0    25.1      18.6    12.5
Grasim Industries      1,607    Buy       238.5     183.6    150.5     6.7      8.8     10.7     5.4       5.5       5.9    21.7      14.4    10.3
India Cements            110    Buy        19.1      20.8     16.7     5.8      5.3      6.6     3.9       3.2       3.5    18.7      17.6    12.5
Shree Cement             671    Buy       136.7      98.8     58.8     4.9      6.8     11.4     3.8       3.6       3.9    53.2      26.9    13.3
UltraTech Cement         529    Buy        74.2      76.5     56.5     7.1      6.9      9.4     5.0       4.4       4.8    29.6      23.8    14.8
Sector Aggregate                                                       7.4      8.4     11.2     4.6       4.5       5.2    23.1      17.5    11.8
Engineering
ABB                      420    Neutral    25.1      24.1     23.1    16.7     17.5     18.2    11.2      10.9      11.1    28.5      21.8    17.6
Bharat Electronics       841    Buy       100.0     109.0    118.0     8.4      7.7      7.1     3.5       2.6       1.7    23.5      21.5    19.8
BHEL                   1,551    Neutral    67.6      86.5    112.0    23.0     17.9     13.9    16.4      11.1       8.4    28.1      29.8    31.2
Crompton Greaves         118    Neutral    14.5      15.6     16.6     8.2      7.6      7.1     6.8       6.2       5.7    35.5      29.4    25.5
Cummins India            179    Buy        19.0      20.3     22.7     9.5      8.8      7.9     5.9       5.1       4.4    30.4      26.2    25.5
Larsen & Toubro          680    Neutral    55.5      57.9     62.5    12.3     11.8     10.9    12.1      10.3       9.3    24.3      21.0    19.5
Siemens                  250    Neutral    14.6      14.4     16.7    17.1     17.4     15.0     9.7       8.4       7.2    28.5      18.1    16.7
Suzlon Energy             46    UR          7.2       6.1      8.5     6.3      7.4      5.4     6.6       6.9       5.8    13.0      10.0    12.7
Thermax                  172    Neutral    23.2      21.2     21.0     7.4      8.1      8.2     4.8       5.1       5.1    33.5      26.8    24.6
Sector Aggregate                                                      14.6     13.5     11.4    10.9       9.1       7.6    25.0      22.7    22.9
FMCG
Asian Paints             774    Neutral    38.6      42.6     49.1    20.0     18.1     15.8    12.0      10.6       9.0    31.2     29.1  28.4
Britannia              1,342    Buy        91.6     110.7    126.1    14.7     12.1     10.6    10.6       8.3       6.9    24.2     24.5  23.3
Colgate                  460    Buy        20.3      23.5     27.3    22.6     19.5     16.8    23.6      19.9      16.7   154.3    148.4 143.9
Dabur                     93    Neutral     4.4       5.2      6.1    21.2     17.8     15.3    17.6      13.7      11.6    45.1     41.6  38.6
Godrej Consumer          120    Buy         6.2       8.0      9.6    19.3     15.0     12.6    15.0      11.0       9.1    27.7     32.7  35.5
GSK Consumer             636    Buy        44.8      53.5     62.2    14.2     11.9     10.2     9.5       7.5       6.2    25.5     25.8  25.5
Hind. Unilever           240    Neutral     9.4      10.6     11.7    25.5     22.7     20.5    19.5      16.9      15.1   128.6    101.7  98.3
ITC                      187    Buy         8.8      10.2     11.5    21.2     18.4     16.2    12.8      11.0       9.6    24.2     24.3  24.3
Marico                    59    Buy         2.9       3.5      4.2    20.1     16.7     14.2    13.2      10.8       9.2    40.4     35.2  31.0
Nestle                 1,526    Buy        58.6      70.3     85.4    26.0     21.7     17.9    16.9      13.9      11.4    87.0     81.6  81.5
Tata Tea                 566    Neutral    51.7      54.8     62.4    11.0     10.3      9.1     4.2       3.8       3.3     8.3      8.3   9.0
United Spirits           678    Buy        32.6      46.9     63.9    20.8     14.4     10.6    12.4      10.6       9.0    12.3     15.1  17.0
Sector Aggregate                                                      21.9     18.8     16.4    14.3      12.2      10.6    30.4     30.5  30.6




 PULL OUT


27 March 2009                                                                                                                                   55
                                                                                                                             MOSL Universe




Ready reckoner: valuations
                 CMP (RS)    RECO              EPS (RS)                   P/E (X)                   EV/EBITDA                   ROE (%)

                   27.3.09             FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

Information Technology
HCL Technologies       105   Buy        18.8      19.0     19.2     5.6      5.5      5.4     3.2       2.7       2.5    22.6      20.4    18.8
Infosys              1,347   Buy       101.8     106.6    105.9    13.2     12.6     12.7     9.4       9.0       8.2    37.4      31.5    26.0
MphasiS                200   Buy        14.2      34.8     31.4    14.1      5.7      6.4    10.6       3.8       3.2    22.8      48.1    30.3
Patni Computer         123   Neutral    28.6      23.4     22.4     4.3      5.3      5.5     0.4       0.0      -1.1    13.4      10.2     9.0
TCS                    575   Buy        53.3      53.4     54.7    10.8     10.8     10.5     7.1       6.9       6.5    36.8      29.3    24.7
Tech Mahindra          274   Neutral    70.5      57.1     51.7     3.9      4.8      5.3     2.1       1.9       1.5    55.0      30.7    21.9
Wipro                  253   Buy        22.5      23.6     24.7    11.2     10.7     10.2     7.1       6.6       6.6    23.2      20.6    19.8
Sector Aggregate                                                   10.8     10.4     10.3     7.1       6.6       6.2    28.1      24.2    21.4
Infrastructure
Hindustan Construction 40    Buy         3.1       4.2      5.5    12.9      9.6      7.4     7.4       6.4       6.1     7.6       9.6    11.4
IVRCL Infra.           134   Buy        16.2      18.8     22.3     8.3      7.1      6.0     7.5       6.4       5.3    12.8      13.1    13.8
Jaiprakash Associates 90     Buy         6.1       7.8      7.9    14.7     11.5     11.3    13.5      10.0       9.4    14.5      16.0    14.5
Nagarjuna Construction 60    Buy         7.5       9.3     11.6     8.0      6.5      5.2     7.0       6.3       5.5    10.5      11.9    13.4
Simplex Infra.         150   Buy        28.6      37.0     45.2     5.2      4.1      3.3     4.2       3.5       3.1    16.0      17.4    17.8
Sector Aggregate                                                   11.6      9.3      8.3     9.5       7.7       7.0    12.4      13.8    13.7
Media
Deccan Chronicle        45   Buy         5.6       7.1      8.7     8.0      6.3      5.2     3.2       2.6       2.0    12.6      15.4    18.1
HT Media                55   Buy         3.9       5.2      5.2    14.1     10.7     10.6     7.6       5.2       4.8     7.0       8.8     8.1
Jagran Prakashan        57   Buy         2.8       3.3      3.7    20.7     17.4     15.6    11.2       9.2       8.2    15.1      17.1    17.9
Sun TV                 170   Neutral    10.5      13.0     15.5    16.2     13.1     11.0     8.3       6.5       5.1    23.5      24.2    24.3
TV Today                67   Buy         5.8       7.4      9.9    11.5      9.0      6.7     4.9       3.3       1.8    10.2      11.7    13.9
Zee Entertainment      106   Neutral     9.1       9.4     12.3    11.6     11.4      8.6     9.8       8.9       6.9    12.5      11.6    13.7
Sector Aggregate                                                   13.7     11.7      9.6     8.0       6.5       5.2    14.6      15.4    16.7
Metals
Hindalco                55   Sell        9.9       5.2      4.4     5.6     10.6     12.5     4.5       4.4       4.0    16.0       7.6     6.0
Hindustan Zinc         451   Buy        60.6      41.6     47.5     7.4     10.9      9.5     3.7       6.4       4.6    18.1      11.2    11.5
Jindal Steel & Power 1,235   Buy       203.7     196.1    264.9     6.1      6.3      4.7     4.8       5.1       3.7    47.3      31.5    30.0
JSW Steel              231   Buy        54.0     102.6    112.1     4.3      2.3      2.1     5.6       3.4       3.0    12.8      20.3    19.1
Nalco                  239   Sell       19.6       8.6     10.0    12.2     27.7     23.8     7.5      18.6      17.1    13.0       5.6     6.3
SAIL                   103   Sell       13.7      11.7     14.1     7.5      8.8      7.3     3.9       5.3       4.9    20.7      15.5    16.4
Sterlite Inds.         374   Buy        50.5      23.5     33.3     7.4     15.9     11.2     6.0      13.1       7.0    14.1       6.2     8.3
Tata Steel             224   Buy       135.9      83.2     82.2     1.6      2.7      2.7     3.5       4.1       4.0    70.6      30.1    24.2
Sector Aggregate                                                    5.1      7.2      6.4     3.9       4.7       4.2    21.1      13.3    13.4
Oil & Gas
BPCL                365      Buy        39.5      47.2     48.9     9.2      7.7      7.5     7.6       6.6       6.8    10.6      11.4    10.7
Cairn India         194      Buy         4.6       3.5     20.7    42.1     54.6      9.3    39.5      18.0       5.9     2.8       2.0    11.1
Chennai Petroleum    92      Buy        -7.1      33.3     29.1   -12.9      2.8      3.2   -10.8       2.4       2.6   -13.2      15.5    12.7
GAIL                241      Buy        21.3      20.0     23.7    11.3     12.1     10.2     7.8       8.5       6.7    18.4      16.1    17.8
HPCL                261      Buy         1.7      34.1     29.0   154.9      7.6      9.0     5.3       4.3       5.5     0.5      10.5     8.2
Indraprastha Gas    106      Neutral    12.9      10.7     10.0     8.2      9.9     10.6     4.1       4.4       4.3    28.5      20.5    17.6
IOC                 397      Buy        45.5      54.4     52.6     8.7      7.3      7.5     6.6       5.3       4.9    11.7      12.5    10.8
MRPL                 42      Sell        6.5       3.7      3.7     6.5     11.6     11.5     6.3       8.7       9.6    20.7      13.9    13.0
ONGC                808      Neutral    92.2      85.7     88.5     8.8      9.4      9.1     4.1       4.2       3.9    23.5      19.1    17.5
Reliance Inds.    1,548      Buy       102.5     136.6    154.9    15.1     11.3     10.0    11.1       7.5       6.2    16.3      17.7    17.5
Sector Aggregate                                                   12.2     10.3      9.1     7.1       6.1       5.2    14.7      14.8    14.6




 PULL OUT


27 March 2009                                                                                                                                56
                                                                                                                                MOSL Universe




Ready reckoner: valuations
                   CMP (RS)     RECO              EPS (RS)                   P/E (X)                   EV/EBITDA                   ROE (%)

                     27.3.09              FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

Pharmaceuticals
Aventis Pharma        882       Buy        72.2      59.4     68.6    12.2     14.8     12.8     7.8      10.1       8.0    21.7      16.6    17.5
Biocon                133       Buy         3.5      14.5     16.0    38.1      9.1      8.3     8.3       5.7       4.7     4.6      16.6    16.1
Cadila Health         257       Buy        23.8      33.2     39.8    10.8      7.7      6.5     6.0       4.9       4.2    25.5      30.9    29.4
Cipla                 219       Neutral     9.6      14.6     17.0    22.7     15.0     12.9    13.9      11.3       9.8    17.3      21.7    21.2
Divis Labs            959       Buy        66.3      84.4    100.3    14.5     11.4      9.6    11.4       9.3       7.5    41.4      38.3    34.1
Dr Reddy’ s Labs      474       Buy        12.4      42.7     49.6    38.3     11.1      9.6     9.4       8.1       7.7     4.3      13.4    14.0
GSK Pharma          1,068       Buy        52.9      60.5     69.9    20.2     17.7     15.3    13.6      11.8       9.8    29.1      29.2    29.6
Glenmark Pharma       151       Neutral    11.2      13.0     17.6    13.5     11.6      8.5     7.0       6.6       5.6    15.7      15.4    17.2
Jubiliant Organosys    96       Buy        -4.6      30.4     40.8   -20.6      3.1      2.3     7.7       5.5       4.8    -5.6      32.6    32.2
Lupin                 637       Buy        51.0      69.6     78.9    12.5      9.2      8.1     9.5       7.3       6.5    31.1      33.3    30.1
Piramal Healthcare    175       Buy        14.1      24.7     28.6    12.4      7.1      6.1     7.7       5.8       5.0    25.3      36.3    32.9
Ranbaxy Labs          164       Neutral     3.3       2.2      6.1    49.2     76.1     27.2    13.5      19.1      12.0     2.9       1.9     5.2
Sun Pharma          1,080       Buy        57.0      65.5     76.0    19.0     16.5     14.2    14.3      12.8      10.4    21.5      20.8    20.4
Sector Aggregate                                                      19.4     12.6     10.5    10.7       9.1       7.7    14.8      19.8    20.3
Real Estate
DLF                   183       Buy        28.0      13.6      8.9     6.5     13.4     20.5     7.7      11.3      12.7    19.5       8.7     5.4
Unitech                36       Neutral     5.9       0.9      2.0     6.0     40.3     18.0     7.9      18.0       7.7    21.1       3.1     6.4
Sector Aggregate                                                       6.4     15.0     20.1     7.7      12.5      11.4    19.8       7.9     5.6
Retailing
Pantaloon Retail      160       Buy         8.2      11.1     12.8    19.5     14.4     12.5     6.9       6.2       5.7     7.3       9.1     9.6
Titan Industries      773       Neutral    48.0      55.7     69.4    16.1     13.9     11.1    10.2       8.6       7.1    35.1      31.3    30.3
Sector Aggregate                                                      17.0     13.7     11.4     8.0       7.1       6.2    13.9      15.1    15.9
Telecom
Bharti Airtel         622       Buy        44.7      51.9     61.1    13.9     12.0     10.2     8.1       6.8       5.5    31.4      27.0    24.7
Idea Cellular          52       Neutral     2.7       2.2      2.2    19.1     24.1     23.5     6.9       7.2       5.9     9.5       4.4     4.1
Reliance Comm         184       Buy        30.1      24.2     31.0     6.1      7.6      5.9     6.7       5.8       4.3    20.9      14.9    16.5
Sector Aggregate                                                      11.1     11.1      9.2     7.5       6.5       5.1    20.9      16.8    17.1
Textiles
Alok Ind               12       Buy         7.4        5.0     7.0     1.7      2.5      1.8     6.7       7.0       6.2    10.0       6.5     8.5
Arvind Mills           14       Neutral    -2.5       -1.8     0.6    -5.6     -7.7     23.0     7.8       7.1       5.9    -2.7      -2.0     0.7
Raymond                78       Neutral   -25.6      -25.5     2.5    -3.0     -3.0     31.5    15.7      20.5       3.2   -12.2     -14.2     1.2
Vardhman Textiles      48       Buy        12.0        8.0    24.9     4.0      5.9      1.9     7.3       7.9       5.3     5.6       3.6    10.7
Sector Aggregate                                                     116.8    -29.0      4.1     7.5       7.8       5.6     0.2      -0.8     5.2
Utilities
CESC                      217   Neutral    29.3      26.1     29.8     7.4      8.3      7.3     6.6       7.4       7.7    12.8      10.3    10.7
NTPC                      182   Neutral     9.7      10.1     11.3    18.7     18.1     16.2    12.7      10.7       9.9    14.6      13.9    14.4
PTC India                  68   Buy         4.6       4.1      4.2    14.6     16.4     16.0    47.0      25.9      26.4     6.7       6.0     6.0
Reliance Infrastructure   567   Buy        46.1      43.6     43.6    12.3     13.0     13.0     6.8       9.4       8.7    10.3       8.5     8.1
Tata Power                782   Neutral    59.2      71.7     65.3    13.2     10.9     12.0    17.7      12.3      16.0     7.1       8.4     8.9
Sector Aggregate                                                      17.0     16.3     15.1    12.5      10.7      10.2    12.9      12.5    12.5




 PULL OUT


27 March 2009                                                                                                                                   57
                                                                                                                               MOSL Universe




Ready reckoner: valuations
                 CMP (RS)      RECO              EPS (RS)                   P/E (X)                   EV/EBITDA                   ROE (%)

                     27.3.09             FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

Others
Blue Star               147    Buy        17.7      18.4     22.1     8.3      8.0      6.6     5.9       5.1       4.2    51.5      41.1    39.0
Bombay Rayon            144    Buy        19.6      31.9     48.0     7.4      4.5      3.0     7.5       4.9       3.4    18.9      20.8    25.4
Everest Kanto           115    Buy        16.0      21.7     31.8     7.2      5.3      3.6     4.6       3.2       2.1    27.4      26.9    30.7
Sintex Inds.             99    Buy        22.3      25.4     31.6     4.4      3.9      3.1     5.2       4.3       3.6    18.5      17.8    18.6
United Phosphorous       98    Buy        10.5      13.7     16.1     9.4      7.1      6.1     4.6       3.2       2.5    21.7      23.6    23.0
Sector Aggregate                                                      7.0      5.4      4.2     5.3       3.9       3.0    20.3      21.6    22.7
UR - Under Review




                 CMP (RS)      RECO              EPS (RS)                   P/E (X)                   P/BV (X)                    ROE (%)

                     27.3.09             FY09E     FY10E    FY11E   FY09E   FY10E     FY11E   FY09E     FY10E     FY11E   FY09E    FY10E    FY11E

Banks
Andhra Bank            48      Buy        12.8      12.9     13.9     3.8      3.7      3.5     0.6       0.6       0.5    18.0      16.4    15.9
Axis Bank             431      Buy        47.1      51.3     63.6     9.2      8.4      6.8     1.5       1.4       1.2    17.9      17.1    18.6
Bank of Baroda        248      Buy        52.5      50.5     56.9     4.7      4.9      4.4     0.8       0.7       0.6    18.2      15.4    15.4
Bank of India         234      Neutral    57.0      47.2     53.6     4.1      5.0      4.4     1.1       0.9       0.8    29.5      19.8    19.0
Canara Bank           167      Buy        46.4      37.5     41.9     3.6      4.5      4.0     0.7       0.6       0.6    21.1      14.9    14.9
Corporation Bank      175      Buy        58.6      54.0     56.7     3.0      3.2      3.1     0.5       0.5       0.4    18.4      15.0    14.1
Federal Bank          147      Buy        30.9      33.5     38.8     4.8      4.4      3.8     0.6       0.5       0.5    12.8      12.6    13.2
HDFC                1,589      Neutral    74.8      85.2     99.3    21.2     18.6     16.0     3.4       3.2       2.9    16.8      17.5    18.7
HDFC Bank             997      Buy        53.2      65.5     82.6    18.7     15.2     12.1     2.9       2.4       2.1    15.8      17.3    18.6
ICICI Bank            385      Buy        33.4      33.6     42.2    11.5     11.5      9.1     0.9       0.8       0.8     7.8       7.5     8.9
Indian Bank            88      Buy        27.3      27.8     32.3     3.2      3.2      2.7     0.7       0.6       0.5    23.2      20.0    20.0
Indian Overseas Bank 48        Buy        24.6      23.0     25.6     1.9      2.1      1.9     0.4       0.4       0.3    25.4      19.8    18.9
J&K Bank              291      Buy        92.6      99.9    117.7     3.1      2.9      2.5     0.5       0.5       0.4    18.1      17.0    17.5
Oriental Bank         119      Buy        38.0      37.7     40.9     3.1      3.2      2.9     0.5       0.4       0.4    15.5      13.6    13.3
Punjab National Bank 441       Buy        96.3      95.8    110.8     4.6      4.6      4.0     1.1       0.9       0.8    25.3      21.0    20.7
State Bank          1,125      Buy       140.2     134.2    155.6     8.0      8.4      7.2     1.3       1.1       1.0    16.9      14.4    15.0
Union Bank            152      Buy        36.5      35.5     41.5     4.2      4.3      3.7     1.1       0.9       0.8    29.0      23.1    22.6
Sector Aggregate                                                      7.9      8.0      6.8     1.3       1.2       1.1    16.8      14.8    15.5




 PULL OUT


27 March 2009                                                                                                                                  58
                                                                                                              MOSL Universe




Ready reckoner: quarterly performance
                      CMP (RS)   RECO                 SALES                     EBITDA                     NET PROFIT

                       27.3.09              MAR.09     VAR.    VAR.    MAR.09     VAR.     VAR.   MAR.09        VAR.     VAR.

                                              RS M    % YOY   % QOQ     RS M     % YOY    % QOQ    RS M       % YOY     % QOQ

Automobiles
Bajaj Auto                616    Buy        18,604    -10.3    -11.5    2,795       0.7    -8.6    1,780         8.6    -14.5
Hero Honda              1,086    Buy        33,167     18.9     15.4    5,152      25.1    25.7    3,833        28.3     27.6
Mahindra & Mahindra       385    Buy        31,497      0.0     25.7    2,988     -12.7   252.7    1,954        -7.0    518.4
Maruti Suzuki             766    Buy        61,875     22.6     32.2    6,080     -23.1    72.8    3,385       -34.2     59.5
Tata Motors               189    Neutral    64,305    -27.5     36.4    3,599     -60.8   292.7      461       -93.2       LP
Sector Aggregate                           209,448     -4.5     24.1   20,615     -24.8    65.7   11,414       -38.7     92.4
Cement
ACC                       579    Neutral    20,020     13.3     2.6     5,145       9.3    15.6    3,374        1.9        0.9
Ambuja Cements             72    Neutral    17,998      8.8    11.9     4,622     -10.4    22.1    3,001       -9.1       20.5
Birla Corporation         174    Buy         4,932      0.9     9.1     1,273      -3.0    24.9      897        3.6       10.2
Grasim Industries       1,607    Buy        26,680     -2.7     0.5     5,795     -12.5    16.0    3,573      -19.7        8.4
India Cements             110    Buy         8,923      5.7    18.5     2,631       0.1    46.1    1,385       -1.6       97.8
Shree Cement              671    Buy         7,188     10.6     8.0     2,528      -0.3    11.4    1,096      166.9      -14.2
UltraTech Cement          529    Buy        17,947     12.1    10.1     4,816      -1.4    11.8    2,567       -9.3        7.7
Sector Aggregate                           103,688      6.4     6.7    26,809      -3.7    18.5   15,894       -4.1       11.1
Engineering
ABB                       420    Neutral     16,781     9.3   -22.5     1,846       6.8   -31.1    1,166        -0.9    -39.6
Bharat Electronics        841    Buy         26,761    16.7   298.9     7,764      11.1   383.4    5,508        13.9    348.6
BHEL                    1,551    Neutral     92,027    27.8    52.8    18,030      27.2    63.8   13,850        20.9     64.4
Crompton Greaves          118    Neutral     13,555    16.9    25.5     1,890      20.7    36.4    1,145        21.3     35.1
Cummins India             179    Buy          6,442    -3.9   -14.1     1,083       8.0   -28.7      721        -4.6    -30.8
Larsen & Toubro           680    Neutral    103,078    21.7    19.9    14,711      30.2    56.0   10,214        12.2     59.6
Siemens                   250    Neutral     19,471    -9.6    18.7     1,944   1,177.4    14.2    1,265     7,489.0     17.9
Suzlon Energy              46    Under Review41,247    -1.6     4.9     5,666     -20.9    11.9    2,047       -63.9    -29.8
Thermax                   172    Neutral     10,042     8.9    26.3     1,284       1.1    32.7      808         0.4     11.8
Sector Aggregate                            329,403    15.2    28.4    54,218      19.6    53.3   36,724         5.6     49.4
FMCG
Asian Paints              774    Neutral    12,176      7.5     -7.8    1,310     -15.9    19.9      717       -25.8     20.2
Britannia               1,342    Buy         8,412     21.4      2.8      710      21.2     8.2      569        -8.7      8.2
Colgate                   460    Buy         4,471     14.3      6.7      611      20.8   -18.1      634        14.0    -18.4
Dabur                      93    Neutral     7,231     19.2     -7.1    1,158      18.4   -10.2      936        16.4    -13.7
Godrej Consumer           120    Buy         3,110     14.4     -9.1      568       0.3    17.6      473        15.8     18.0
GSK Consumer              636    Buy         4,730     15.2     41.9      900      12.9   123.8      652        15.2    100.1
Hind. Unilever            240    Neutral    44,067     13.8      0.6    5,759      18.7   -24.6    4,609        21.8    -24.5
ITC                       187    Buy        46,419     15.2     20.3   13,852      17.0     0.5    8,635        12.6     -4.4
Marico                     59    Buy         5,780     23.6     -7.2      589      29.3   -25.5      368        22.0    -27.7
Nestle                  1,526    Buy        12,954     18.7     18.8    2,979      19.6    40.3    2,015        18.5     46.0
Tata Tea                  566    Neutral    12,914      9.7     -0.7    1,472      -8.9   -14.6      808        18.6     -1.5
United Spirits            678    Buy         8,897     17.2    -13.6    1,181     -12.7    11.1      490       -24.8     60.1
Sector Aggregate                           171,164     14.9      5.1   31,090      12.7    -2.2   20,906        11.7     -4.4




 PULL OUT


27 March 2009                                                                                                               59
                                                                                                                      MOSL Universe




Ready reckoner: quarterly performance
                        CMP (RS)    RECO                     SALES                     EBITDA                      NET PROFIT

                          27.3.09                   MAR.09    VAR.    VAR.    MAR.09      VAR.    VAR.    MAR.09        VAR.     VAR.

                                                     RS M    % YOY   % QOQ     RS M     % YOY    % QOQ     RS M       % YOY     % QOQ

Information Technology
HCL Technologies         105        Buy          29,436       51.4    18.2     6,095     40.8       8.8    2,621      -17.8      -25.7
Infosys                1,347        Buy          57,446       26.5    -0.7    19,788     33.9      -2.6   15,595       24.9       -1.2
MphasiS                  200        Buy          10,108       53.7     3.4     2,562    148.0      -1.2    1,851      159.2      -11.9
Patni Computer           123        Neutral       7,755        9.8    -9.5     1,120      5.5     -30.8      590      -18.5      -24.3
TCS                      575        Buy          74,811       22.7     2.8    18,570     19.6      -4.6   13,576        8.1        0.4
Tech Mahindra            274        Neutral      10,879        6.5    -3.9     2,791     25.5     -12.2    2,044       -6.7       -8.3
Wipro                    253        Buy          64,065       14.5    -2.0     9,197     -4.5     -10.9    7,692      -12.1      -14.3
Sector Aggregate                                254,499       23.8     1.6    60,124     23.8      -4.7   43,970        8.2       -6.3
Infrastructure
Hindustan Construction    40        Buy             12,211    15.7    49.0     1,552      18.9    46.3       353        -1.7      17.5
IVRCL Infra.             134        Buy             14,475     9.5    21.7     1,419       2.3    30.8       688        -6.1      47.9
Jaiprakash Associates     90        Buy             15,550    21.7    17.6     4,241       7.2    71.5     1,835       -12.5     -12.8
Nagarjuna Construction    60        Buy             14,295    14.0    39.2     1,245      13.8    38.5       560         6.3      54.1
Simplex Infra.           150        Buy             13,636    42.8     7.3     1,271      55.9     9.9       330       -20.3       9.2
Sector Aggregate                                    70,167    19.7    24.7     9,727      13.7    45.8     3,766        -8.8       6.5
Media
Deccan Chronicle          45        Buy              1,950    -4.9     -9.2      506     -59.0     -7.0       75      181.4      -70.9
HT Media                  55        Buy              3,028    -3.4     -9.3      304     -49.4    -28.2      170      -59.2      -17.8
Jagran Prakashan          57        Buy              1,945     2.4     -6.0      251     -16.5    -16.6      135      -12.6      -12.8
Sun TV                   170        Neutral          2,959    20.1      9.3    1,934      22.3     -3.9    1,115       21.9       -0.6
TV Today                  67        Buy                606    -5.0     -7.1      105     -43.2    -24.2       68      -49.6      -21.4
Zee Entertainment        106        Neutral          5,130    -2.5     -6.0    1,042     -20.0    -13.2      832      -10.0       -9.3
Sector Aggregate                                    15,617     1.1     -4.6    4,141     -20.4    -10.4    2,394       -6.9      -12.7
Metals
Hindalco                  55        Sell         36,480      -27.2    -11.4    3,792     -52.4    -51.3    2,033       -62.1     -62.7
Hindustan Zinc           451        Buy          11,048      -51.2      3.3    3,208     -78.3      5.1    3,834       -70.0       4.0
Jindal Steel & Power   1,235        Buy          17,463       14.7     -2.0    5,486     -19.2    -19.9    2,767       -42.3     -27.0
JSW Steel                231        Buy          35,436        3.5     27.2    6,343     -27.4     62.0      308       -90.3        LP
Nalco                    239        Sell          7,718      -45.1    -25.5      727     -87.9    -72.6      718       -83.4     -67.3
Sterlite Inds.           374        Buy          38,806      -42.6    -14.5    6,105     -71.9      8.0    5,830       -57.5      10.4
SAIL                     103        Sell        114,102      -15.3     27.9    2,994     -93.7    -73.5    2,741       -91.2     -66.9
Tata Steel               224        Buy         297,400      -17.5    -10.4   12,943     -75.2    -71.9   -9,207          PL        PL
Sector Aggregate                                558,453      -20.1     -2.8   41,597     -74.9    -52.3    9,024       -90.6     -83.9
Oil & Gas
BPCL                     365        Buy         271,197      -16.7    -14.9 51,767       501.9   240.4 40,902        6,903.8    411.4
Cairn India              194        Buy           1,729      -45.3    -18.0     829      -63.7   -12.8     814         -19.3    -65.6
Chennai Petroleum         92        Buy          53,506      -36.3     -5.1   3,820      -43.9      LP   2,403         -35.8       LP
GAIL                     241        Buy          51,927        5.2    -10.7   6,851      -40.9   157.6   4,824         -27.5     90.4
HPCL                     261        Buy         267,296      -15.1     -9.0 51,220     2,261.8   984.4 45,861        5,879.2       LP
Indraprastha Gas         106        Neutral       2,266       20.9      3.3     886       13.2    30.7     485           0.7     26.6
IOC                      397        Buy         541,700      -24.7    -23.0 126,857    1,939.5   294.2 90,586             LP    180.2
MRPL                      42        Sell         68,743      -27.6     -8.8   5,425       26.0      LP   2,892          20.0       LP
ONGC                     808        Neutral     147,499       -5.6     18.6 70,759        22.5    41.5 34,752           32.3     58.7
Reliance Inds.         1,548        Buy         317,655      -14.8      0.6 56,939        -5.4     6.2 37,771           -3.4      7.9
Sector Aggregate                              1,723,518      -18.8    -11.6 375,354      133.5   170.7 261,291         239.8    211.4
Tata Steel and Sterlite numbers are consolidated.




 PULL OUT


27 March 2009                                                                                                                       60
                                                                                                                         MOSL Universe




Ready reckoner: quarterly performance
                          CMP (RS)   RECO                   SALES                         EBITDA                     NET PROFIT

                           27.3.09              MAR.09        VAR.       VAR.    MAR.09     VAR.    VAR.    MAR.09        VAR.      VAR.

                                                  RS M      % YOY    % QOQ        RS M    % YOY    % QOQ     RS M       % YOY     % QOQ

Pharmaceuticals
Aventis Pharma                882    Buy         2,204         1.6       -18.3      372     -8.2    -20.4      347          0.7     -23.8
Biocon                        133    Buy         4,756        78.1         9.0    1,045     25.9     10.9       12        -98.1     -95.6
Cadila Health                 257    Buy         7,149        26.8        -4.6    1,268     11.3    -11.0      536          3.1     -11.5
Cipla                         219    Neutral    13,594        22.1         1.3    3,422     78.0      1.1    2,350         48.0       5.2
Divis Labs                    959    Buy         3,390        21.9        28.0    1,398     31.7     29.1    1,154         33.8      45.1
Dr Reddy’ s Labs              474    Buy        15,543        19.6       -15.5    2,078     20.5    -50.5   -2,929      -383.7    -426.5
Glenmark Pharma               151    Neutral     6,046         5.6         4.0    1,556    -30.3    -17.7      737        -55.6      -9.5
GSK Pharma                  1,068    Buy         4,570         8.4        23.7    1,556      8.4     52.8    1,292          6.5      45.0
Jubiliant Organosys            96    Buy         9,172        33.1         0.8    1,414     25.4      0.2      604          7.7        LP
Lupin                         637    Buy         9,738        29.8         1.2    1,736     45.1     12.8    1,059         10.5      -9.1
Piramal Healthcare            175    Buy         8,992        15.9         8.6    1,828    -13.6     17.5      812        -43.3      35.6
Ranbaxy Labs                  164    Neutral    12,661       -25.5       -22.7   -1,266       PL        -   -1,646           PL         -
Sun Pharma *                1,080    Buy         8,911       -28.1        -3.0    2,978    -59.8    -28.0    2,591         20.0     -36.6
Sector Aggregate                               106,726         8.0        -3.9   19,386    -22.9    -11.8    6,920        -50.5     -37.4
Real Estate
DLF                           183    Buy         8,709       -79.8       -36.3    4,695    -83.1    -39.2    3,133       -85.6     -53.3
Unitech                        36    Neutral     3,885       -66.5       -20.6    1,671    -65.3    -31.6      428       -88.1     -69.0
Sector Aggregate                                12,594       -77.0       -32.1    6,366    -80.5    -37.4    3,561       -86.0     -56.0
Retailing
Pantaloon Retail              160    Buy        16,500        21.8        8.1     1,450     27.0    -7.8      304         -5.2      -9.3
Titan Industries              773    Neutral    10,274        24.9        0.3       851     15.3    18.4      516          2.2      22.5
Sector Aggregate                                26,774        23.0        5.0     2,301     22.4     0.4      820         -0.7       8.4
Telecom
Bharti Airtel                 622    Buy       100,166        28.1        4.0    40,811     25.5     3.5    22,552        21.7       4.4
Idea Cellular                  52    Neutral    29,070        46.4        6.4     7,245      7.6     3.9     1,919       -30.6     -12.5
Reliance Comm                 184    Buy        60,023        13.0        2.6    23,669      2.2     0.6    14,091       -10.0      -4.8
Sector Aggregate                               189,259        25.2        3.9    71,725     14.9     2.5    38,562         4.3      -0.1
Textiles
Alok Ind                       12    Buy         7,954         9.7        -2.6    1,875      4.0    -12.6      287       -55.6     -42.4
Arvind Mills                   14    Neutral     6,229        -5.4         3.9      852     20.4      4.3     -273          PL         -
Raymond                        78    Neutral     3,767       -13.6         5.0      269    -35.1      0.6     -117          PL         -
Vardhman Textiles              48    Buy         6,845        18.1         6.1      943     22.5      1.1       36       -74.3     -78.3
Sector Aggregate                                24,795         3.4         2.5    3,939      6.6     -5.3      -67      -105.7    -131.0
Utilities
CESC                          217    Neutral       6,509       2.0       -13.4    1,493     18.5    -1.1       919         6.9      -6.2
NTPC                          182    Neutral     122,368      13.9         8.5   31,600     12.0    -1.5    22,654         4.1      11.2
PTC India                      68    Buy          15,317     180.2       -27.6       33     20.5    22.6       249        29.3      -9.5
Reliance Infrastructure       567    Buy          25,657      49.6        -5.6    3,494     72.7    12.0     2,747       -24.9     -10.8
Tata Power                    782    Neutral      17,398       6.4        -0.1    3,116    118.5    41.2     1,509          LP      31.1
Sector Aggregate                                 187,248      22.6         0.6   39,736     20.6     2.0    28,078         6.1       8.6
UR - Under Review; * Note: Sun Pharma PAT adjusted for one-off upside.




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27 March 2009                                                                                                                          61
                                                                                                                        MOSL Universe




Ready reckoner: quarterly performance
                          CMP (RS)       RECO                   SALES                     EBITDA                     NET PROFIT

                            27.3.09                 MAR.09       VAR.     VAR.   MAR.09     VAR.    VAR.    MAR.09        VAR.     VAR.

                                                     RS M       % YOY   % QOQ     RS M    % YOY    % QOQ     RS M       % YOY     % QOQ
Others
Blue Star                      147       Buy         7,166        1.2     26.5      746      3.0     43.1      459         6.5     42.4
Bombay Rayon                   144       Buy         4,171       64.1     20.9      966     54.5     14.6      475        40.5     14.1
Everest Kanto                  115       Buy         3,131       90.7     25.1      684     86.9    -15.6      332        19.2    -29.1
Sintex Inds.                    99       Buy         9,286       -1.6     13.2    1,605      0.4     26.1      909        12.0     28.4
United Phosphorous              98       Buy        15,071       23.5     37.7    3,294     33.8     68.6    1,706        -7.7    164.0
Sector Aggregate                                    38,826       18.0     26.2    7,296     26.3     35.0    3,881         4.7     51.5
PL: Profit to Loss; LP: Loss to Profit




                          CMP (RS)       RECO                NET INT INCOME           OPERATING PR OFIT              NET PROFIT
                            27.3.09                 MAR.09       VAR.     VAR.   MAR.09     VAR.    VAR.    MAR.09        VAR.     VAR.

                                                     RS M       % YOY   % QOQ     RS M    % YOY    % QOQ     RS M       % YOY     % QOQ

Banks
Andhra Bank                 48           Buy         4,230       31.1     -6.4   3,142       0.4    -15.7    1,673        34.6     -21.4
Axis Bank                  431           Buy        10,142       22.4      9.1   8,659      19.8     -4.8    4,512        24.8      -9.9
Bank of Baroda             248           Buy        14,193       38.0     -2.9   9,373      15.1    -33.7    4,461        61.4     -37.0
Bank of India              234           Neutral    15,266       25.5      0.3 13,201        8.9    -25.1    8,028         6.1      -8.0
Canara Bank                167           Buy        11,864       28.6     -4.7   8,957      -4.6    -26.2    5,474        18.0     -22.0
Corporation Bank           175           Buy         4,395        9.2     -8.1   3,492     -13.5    -22.3    2,084         1.3     -18.8
Federal Bank               147           Buy         4,074       49.2      5.9   3,702      41.6     -3.7    1,423        38.4     -30.2
HDFC                     1,589           Neutral     8,907       -6.4      1.6   8,027     -10.2      2.1    6,036        -1.1      10.4
HDFC Bank                  997           Buy        20,118       22.5      1.6 14,224       30.7     -2.4    6,451        36.9       3.8
ICICI Bank                 385           Buy        19,604       -5.7     -1.5 20,142      -12.1    -27.3    6,971       -39.4     -45.2
Indian Bank                 88           Buy         6,730       31.1     -6.5   5,491       5.0    -12.0    3,208        32.7      -8.5
Indian Overseas Bank        48           Buy         8,114       18.9     -1.4   7,280      13.5    -16.1    3,370        10.2     -13.2
J&K Bank                   291           Buy         2,524       12.5     -3.7   2,235      10.2     19.5    1,179        97.2      -2.3
Oriental Bank of Commerce 119            Buy         5,678       29.9      0.0   5,116      57.4     32.5    2,434        19.0      -3.5
Punjab National Bank       441           Buy        19,510       28.6     -0.8 13,800       12.5    -23.6    8,114        49.2     -19.3
State Bank               1,125           Buy        58,021       20.9      0.8 55,023       25.8     22.7   24,756        31.5      -0.1
Union Bank                 152           Buy        10,688       34.0     -5.3 10,475       17.6     22.5    5,816        11.5     -13.4
Sector Aggregate                                   224,056       20.2     -0.6 192,340      12.3     -7.2   95,992        15.9     -14.0




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27 March 2009                                                                                                                         62
                                                                                                                 Results Preview
                                                                                                       QUARTER ENDING MARCH 2009




                                                                                                         Automobiles
BSE Sensex: 10,049         S&P CNX: 3,109                                                                         27 March 2009

COMPANY NAME                       Initial signs of volume recovery: Auto sector witnessed revival in volumes in 4QFY09,
Bajaj Auto
                                   getting a boost from the government’s stimulus package, robust farm income, higher
                                   disposable incomes with government employees, and new product launches. While two-
Hero Honda
                                   wheelers (~6.3% YoY & 15% QoQ growth) and cars (~10.5% YoY & 41% QoQ growth)
Mahindra & Mahindra                continued growth momentum in 4QFY09, whereas commercial vehicles (~26% QoQ
                                   growth) and UVs (~45% QoQ growth) witnessed recovery.
Maruti Suzuki India
                                   Benefits of low commodity prices: Benefits of softening in prices of key raw materials
Tata Motors
                                   like steel, aluminum and rubber, though diluted due to rupee depreciation, would be realized
                                   from 4QFY09. We expect margins for our auto universe to expand by 200bp QoQ in
                                   4QFY09, driven by savings in raw material cost and return of operating leverage.

                                   Recent stimulus package by the government to boost demand: The auto industry
                                   would benefit from the recent fiscal (4% CENVAT rate cut) and monetary (rate reduction)
                                   policy measures, and fuel price cuts. Availability of finance would improve, with CRR
                                   being cut by 350bp, repo rate by 300bp and reverse repo rate by 150bp in the last two
                                   months. Measures adopted by the RBI to ease liquidity are expected to resolve financing
                                   issues for the auto industry, albeit with a lag of 3-6 months. Renewed focus of PSU
                                   banks, coupled with tie-up with financiers of major Auto OEMs would result in availability
                                   of finance.

                                   Valuation and view: Volume growth in domestic markets is showing initial signs of
                                   revival, boosted by the policy measures announced for the industry. Valuations in the
                                   sector remain attractive, especially considering impending improvement in the macro
                                   environment for the auto industry. Our top picks are Hero Honda and Bajaj Auto.




EXPECTED QUARTERLY PERFORMANCE SUMMARY                                                                                  (RS MILLION)

                       CMP (RS)    RECO                    SALES                      EBITDA                    NET PROFIT

                         27.3.09                MAR.09       VAR.    VAR.    MAR.09     VAR.    VAR.   MAR.09        VAR.     VAR.

                                                           % YOY    % QOQ             % YOY    % QOQ               % YOY     % QOQ

Automobiles
Bajaj Auto                  616    Buy         18,604       -10.3    -11.5    2,795      0.7    -8.6    1,780         8.6    -14.5
Hero Honda                1,086    Buy         33,167        18.9     15.4    5,152     25.1    25.7    3,833        28.3     27.6
Mahindra & Mahindra         385    Buy         31,497         0.0     25.7    2,988    -12.7   252.7    1,954        -7.0    518.4
Maruti Suzuki               766    Buy         61,875        22.6     32.2    6,080    -23.1    72.8    3,385       -34.2     59.5
Tata Motors                 189    Neutral     64,305       -27.5     36.4    3,599    -60.8   292.7      461       -93.2       LP
Sector Aggregate                              209,448        -4.5     24.1   20,615    -24.8    65.7   11,414       -38.7     92.4




Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                    63
                                                                                                Automobiles




                Initial signs of volume recovery
                Auto companies witnessed revival in volumes in 4QFY09, getting a boost from the
                government’s stimulus package, robust farm income, higher disposable incomes with
                government employees, and new product launches. Total aggregate volumes for the industry
                grew by 2.7% YoY (~10.2% QoQ growth) during 4QFY09, with domestic market volumes
                growing by 3.6% YoY (~17% QoQ growth) but export volumes declining by 3.6% YoY
                (~25% QoQ decline).

                ?   Two-wheeler volumes grew 6% YoY (~7% QoQ), with domestic volumes growing
                    7.2% YoY (~12% QoQ) and exports growing 2.7% YoY (decline of ~23% QoQ).
                    Hero Honda benefited the most, with 14% YoY (~27.5% QoQ) growth in volumes,
                    while TVS Motors reported 7% YoY (~7% QoQ) growth and Bajaj Auto’s two-wheeler
                    volumes declined 26% YoY (~3.5% QoQ).
                ?   Car volumes grew 12% YoY (~25.6% QoQ), driven by 21% YoY (but 21% QoQ de-
                    growth) in export volumes. Also, domestic car sales recovered, with volume growth of
                    41% QoQ (~10.5% YoY). Maruti Suzuki’s volumes grew 14% YoY (~38% QoQ) and
                    Tata Motors’ volumes grew 3% YoY (~44% QoQ).
                ?   The commercial vehicles segment benefited from the stimulus package (especially
                    accelerated depreciation at 50% till 31 March 2009), with a growth of 26% QoQ (but
                AUTO VOLUMES SNAPSHOT FOR APR - FEB FY09 YTD ('000)

                                               4QFY09E      YOY CHG (%)   QOQ CHG (%)   FY09E      CHG (%)

                Domestic Sales
                Motorcycles                     1,502            6.3         15.1       5,871         1.8
                Two wheelers                    1,907            7.2         11.7       7,478         3.2
                Three wheelers                    88            -0.9         16.4        348         -4.5
                Passenger cars                   405            10.5         41.3       1,346         3.2
                UVs                               57           -22.7         45.4        220        -10.4
                M&HCV                             37           -57.8         35.9        178        -34.9
                LCV                               52           -15.3         32.7        198         -8.2
                Total                           2,545            3.6         17.1       9,767         1.2
                Export Sales
                Motorcycles                      204            -1.5         -22.9       970         24.9
                Two wheelers                     210            -2.7         -23.1      1,002        22.3
                Three wheelers                    29           -18.6         -42.4       149         5.6
                Passenger cars                    76            21.2         -21.3       327         55.1
                UVs                                0           -82.0         -18.6         3        -52.1
                M&HCV                              3           -51.6         -23.2        16        -26.1
                LCV                                3           -73.9         -40.8        25        -31.4
                Total                            321            -3.6         -25.2      1,523        23.1
                Total Sales
                Motorcycles                     1,705            5.3          8.7       6,840          4.5
                Two wheelers                    2,116            6.1          6.9       8,480          5.1
                Three wheelers                   117            -6.0         -7.2        497          -1.7
                Passenger cars                   480            12.0         25.6       1,673         10.4
                UVs                               57           -24.2         44.8        223         -11.4
                M&HCV                             40           -57.4         28.3        194         -34.3
                LCV                               55           -24.1         24.7        223         -11.6
                Total                           2,866            2.7         10.1       11,290         3.7
                                                                                           Source: SIAM/MOSL

27 March 2009                                                                                               64
                                                                                                        Automobiles




                    43% YoY decline). While M&HCV volumes declined 57% YoY (~28% QoQ growth),
                    LCV volumes declined 24% YoY (~28% QoQ growth). In the domestic market, CV
                    volumes declined by 40% YoY (~34% QoQ growth), whereas export volumes declined
                    by 66% YoY (~33% QoQ).

                Benefits of low commodity prices
                Benefits of softening in prices of key raw materials like steel, aluminum and rubber, though
                diluted due to rupee depreciation, would be realized from 4QFY09. Savings in raw material
                cost savings and return of operating leverage would aid sequential improvement in margins.
                TREND IN COMMODITY PRICES (INDEX)

                STEEL - HRC (RS/TON)



                                                                  1,053       1,130
                                                        970                  (100.0%)
                                                                  (91.4%)
                                                       (70.9%)


                    550           565        590
                    -(9.1%)      (16.5%)    (16.8%)
                                                                                               390           391
                                                                                            -(33.9%)      -(59.7%)
                      1QFY08




                                   2QFY08




                                              3QFY08




                                                         4QFY08




                                                                    1QFY09




                                                                                2QFY09




                                                                                               3QFY09




                                                                                                            4QFY09
                COPPER (US$/TON)



                                  8,087                 8,510      8,693
                     7,678                             (23.0%)    (13.2%)
                                 (6.9%)     6,642                               6,388
                    (3.4%)
                                            (5.3%)                           -(21.0%)
                                                                                                          3,353
                                                                                              3,042
                                                                                            -(54.2%)     -(60.6%)
                      1QFY08




                                   2QFY08




                                              3QFY08




                                                         4QFY08




                                                                    1QFY09




                                                                                2QFY09




                                                                                               3QFY09




                                                                                                            4QFY09




                ZINC (US$/TON)


                     3,339
                                  3,063
                    (3.1%)
                                 -(7.9%)     2,354
                                                        2,293
                                            -(45.1%)   -(29.6%)    1,903      1,654
                                                                  -(43.0%)                   1,180
                                                                             -(46.0%)                      1,166
                                                                                            -(49.9%)      -(49.1%)
                      1QFY08




                                   2QFY08




                                              3QFY08




                                                         4QFY08




                                                                    1QFY09




                                                                                2QFY09




                                                                                               3QFY09




                                                                                                             4QFY09




                                                                                         Source: Bloomberg/Industry

27 March 2009                                                                                                         65
                                                                                                                                                                   Automobiles




                ALUMINIUM (US$/TON)



                                                                                     2,941                     3,065
                   2,676                                                                                      (14.5%)
                                         2,466                                       (6.2%)
                   (3.3%)                                     2,358                                                                2,377
                                         -(3.4%)             -(16.7%)                                                             -(3.6%)

                                                                                                                                                      1,508
                                                                                                                                                     -(36.1%)          1,363
                                                                                                                                                                     -(53.7%)
                       1QFY08




                                           2QFY08




                                                               3QFY08




                                                                                          4QFY08




                                                                                                                1QFY09




                                                                                                                                    2QFY09




                                                                                                                                                        3QFY09




                                                                                                                                                                        4QFY09
                RUBBER (BAHT/KG)


                 130
                                                                                                                  110
                                                                                                               (38.7%)
                 105                                                                     90                                         92
                              79                                  83                                                              (26.4%)
                                                                                      (10.6%)
                           -(24.6%)                73           (45.4%)
                                                                                                                                                        65
                  80                            -(3.0%)
                                                                                                                                                      -(21.9%)          53
                                                                                                                                                                     -(41.5%)
                  55

                  30
                                1QFY08




                                                    2QFY08




                                                                        3QFY08




                                                                                                   4QFY08




                                                                                                                         1QFY09




                                                                                                                                         2QFY09




                                                                                                                                                          3QFY09




                                                                                                                                                                         4QFY09
                * Figures in brackets indicates YoY change                                                                                        Source: Bloomberg/Industry


                We expect margins for our auto universe to expand 200bp QoQ (but decline 310bp YoY)
                to 9.3%, with the largest benefit for M&M (~610bp QoQ), Tata Motors (~370bp QoQ)
                and Maruti (~230bp QoQ).

                MARGINS TO IMPROVE FROM 4QFY09 ONWARDS

                                                                                 MAR-09                     MAR-08                 YOY                DEC-08              QOQ

                Bajaj Auto                                                         15.0                       13.4                 160                  14.5               50
                Hero Honda                                                         15.5                       14.8                  80                  14.3              130
                Mahindra & Mahindra                                                 9.5                       10.9                -140                   3.4              610
                Maruti Suzuki                                                       9.8                       15.7                -580                   7.5              230
                Tata Motors                                                         5.6                       10.3                -470                   1.9              370
                Auto Sector Aggregate                                               9.3                       12.4                -310                   7.4              200
                                                                                                                                                                   Source: MOSL



                Forex fluctuation continues to have a destabilizing effect
                Exchange rate fluctuation has led to concerns relating to export revenue realization and
                cost of imported inputs, and the effectiveness of hedging practices being followed by
                companies. While the rupee has depreciated considerably versus major currencies, its
                impact would vary depending upon the hedging strategies deployed by respective
                companies.

27 March 2009                                                                                                                                                                     66
                                                                                                                             Automobiles




                        TREND IN RUPEE MOVEMENT (INDEX)


                                                          USD                 Euro                GBP                JPY
                         136

          YOY    QOQ     122
USD       23.9    1.8
JPY       32.7   -0.6    108
EUR        2.3   -4.8
GBP      -10.3    0.4     94


                          80
                               Jun-06




                                                                     Jun-07




                                                                                                           Jun-08
                                        Sep-06


                                                 Dec-06




                                                                                Sep-07


                                                                                         Dec-07




                                                                                                                    Sep-08


                                                                                                                              Dec-08
                                                            Mar-07




                                                                                                  Mar-08




                                                                                                                                       Mar-09
                                                                                                                         Source: Bloomberg



                        Sector outlook remains positive
                        The auto sector had put forth mixed performance in FY08. While M&HCV, tractor, three-
                        wheeler and two-wheeler volumes were lower, LCVs and passenger vehicles continued
                        to register robust growth. Though there are concerns over higher input costs, volatility in
                        foreign currency exchange rates and higher interest rates in FY09, we are bullish on the
                        auto sector for the following reasons:
                        ? A revival in volumes would result in economies of scale for most companies over their
                            expanded capacities. Moreover, the leading companies have successfully undertaken
                            cost reduction and productivity improvement programs, which will help to partially
                            offset the pressures from rising input prices.
                        ? Ramping up of operations in tax-free zones like Uttaranchal would help to counter
                            cost pressures through lower tax burden. Auto majors like Tata Motors, Bajaj Auto,
                            TVS Motor, Hero Honda and Ashok Leyland have set up plants in the tax-exempt
                            region of Uttaranchal. All these companies have commenced operations at these plants.
                            As volumes ramp up further at these tax-exempt locations, the auto companies would
                            be in even better position to counter cost pressures. The recent excise duty cut by 4%
                            would also boost demand.
                        ? The exports market is yet to be fully tapped by Indian auto manufacturers; this segment
                            may become a further volume growth driver for the industry. Companies like Maruti,
                            Tata Motors, M&M, and Bajaj Auto are in a position to further increase their exports
                            by tapping newer destinations and increasing penetration in their existing markets.
                        ? The auto industry would benefit from the recent fiscal (4% CENVAT rate cut) and
                            monetary (rate reduction) policy measures, and fuel price cuts. While these measures
                            would be beneficial for the industry in the long run, they are unlikely to revive short-
                            term demand.




27 March 2009                                                                                                                              67
                                                                                                Automobiles




                Valuation and view
                Volume growth in the domestic market across categories (except two-wheelers) had been
                slowing down, as high interest rates and high cost of fuel had led to significant increase in
                the cost of ownership. The government’s stimulus package, which has attempted to address
                the above, should drive up volumes, albeit with a lag of 3-6 months. A challenging macro-
                environment coupled with weakening consumer sentiment would impact demand in the
                short term. However, there are re-rating triggers for the sector: (a) lower material cost;
                (b) lower interest cost / better availability of finance, (c) lower fuel cost, and (d) strong
                FY10 EPS growth on low base. Valuations are attractive, considering the positive long-
                term business outlook. Our top picks are Hero Honda and Bajaj Auto.




27 March 2009                                                                                             68
                                                                                                                                                    Automobiles




Stock performance and valuations

STOCK PERFORMANCE (%)

                                                   ABSOLUTE PERF                             REL PERF TO SENSEX                     REL PERF TO SECTOR

                                               3M                1 YEAR                      3M              1 YEAR                 3M               1 YEAR

Automobiles
Bajaj Auto                                      64                       -                    56                  -                  23                   -
Hero Honda                                      37                      58                    29                 95                  -5                  78
Mahindra & Mahindra                             45                     -44                    37                 -7                   4                 -24
Maruti Suzuki                                   50                      -9                    42                 29                   9                  11
Tata Motors                                     21                     -70                    14                -33                 -20                 -51




RELATIVE PERFORMANCE - 3 MONTH (%)                                               RELATIVE PERFORMANCE - 1 YEAR (%)


                  Sensex          MOSt Automobiles Index                                                   MOSt Automobiles Index            Sensex
 145                                                                                 115


 130                                                                                 100


 115                                                                                 85


 100                                                                                 70


  85                                                                                 55
         Dec-08            Jan-09         Feb-09              Mar-09                       Mar-08          Jun-08        Sep-08         Dec-08         Mar-09




                  CMP (RS)      RECO               EPS (RS)                           P/E (X)                       EV/EBITDA                     ROE (%)

                      27.3.09              FY09E     FY10E      FY11E        FY09E    FY10E        FY11E    FY09E     FY10E     FY11E     FY09E    FY10E    FY11E

Automobiles
Bajaj Auto           616        Buy         54.5      63.5       69.8         11.3       9.7         8.8      6.5        5.2      4.5      39.5      36.5     32.6
Hero Honda         1,086        Buy         63.2      79.5       88.7         17.2      13.7        12.2     10.6        8.3      7.2      37.6      37.6     30.4
Mahindra & Mahindra 385         Buy         55.8      60.6       70.0          6.9       6.4         5.5      9.4        7.2      6.3      14.6      16.6     17.2
Maruti Suzuki        766        Buy         46.3      50.1       60.2         16.5      15.3        12.7      8.5        7.3      5.8      13.7      13.4     14.1
Tata Motors          189        Neutral      9.7      16.7       19.4         19.4      11.3         9.7      6.7        5.5      4.9       5.9       8.6      9.5
Sector Aggregate                                                              16.0      13.1        11.4      8.4        6.8      5.7      16.2      17.4     17.7




27 March 2009                                                                                                                                                   69
                                                                                                                                                    Results Preview
                                                                                                                                         SECTOR: AUTOMOBILES




                                                                                                                                                Bajaj Auto
STOCK INFO.         BLOOMBERG
                                                27 March 2009
BSE Sensex: 10,049 BJAUT IN                                                                                                                                      Buy
                    REUTERS CODE

S&P CNX: 3,109      BJAT.BO                     Previous Recommendation: Buy                                                                                     Rs616
Equity Shares (m)             144.7             YEAR    NET SALES        PAT       EPS      EPS            P/E      P/BV        ROE       ROCE         EV/       EV/
                                                END      (RS M)      (RS M)        (RS) GROWTH (%)         (X)       (X)        (%)          (%)      SALES EBITDA
52-Week Range (Rs)          945/295
                                                3/08A   90,462       8,241        57.0            -      10.8        5.6        51.9         42.4      0.9       6.4
1,6,12 Rel.Perf.(%)           2/28/-
                                                3/09E   88,227       7,878        54.5       -4.4        11.3        4.5        39.5         35.2      0.9       6.5
M.Cap. (Rs b)                  89.1
                                                3/10E   92,059       9,181        63.5       16.5          9.7       3.5        36.5         35.2      0.8       5.2
M.Cap. (US$ b)                  1.8
                                                3/11E   99,706      10,102        69.8       10.0          8.8       2.9        32.6         33.7      0.7       4.5


?   We expect Bajaj Auto’s overall volumes to decline 19.5% YoY (~10% QoQ decline) in 4QFY09. Volumes would be
    impacted by 28% QoQ (~2% YoY) decline in exports, but 4% QoQ (~27% YoY decline) in exports. While we expect
    two-wheeler volumes to decline 22% YoY (~9% QoQ), three-wheeler volumes would decline 5% YoY (~14% QoQ).

?   We estimate net sales of Rs18.6b, a decline of 10% YoY. Realizations would improve by 11% YoY, reflecting
    improvement in product and segment mix. EBITDA margin would expand by 160bp to 15%, benefiting from lower
    RM cost and improvement in product mix. We estimate EBITDA at Rs2.8b (flat YoY) and adjusted PAT at Rs1.8b
    (up 8.6% YoY).

?   The newly launched XCD 135cc has received encouraging response, with volumes of 20,668 units in February 2009,
    the first month of launch. This coupled with four product upgrades in April 2009 would drive volume growth for the
    company.

?   Our FY10 earnings estimate factors in 5.7% growth in volumes, with domestic volume growth of 5.4% and export
    volume growth of 6.3%. The stock trades at 11.3x FY09E and 9.7x FY10E EPS. Maintain Buy.

QUARTERLY PERFORMANCE                                                                                                                                        (RS MILLION)

Y/E MARCH                                                    FY08                                                 FY09                               FY08         FY09E

                                          1Q            2Q          3Q            4Q          1Q            2Q             3Q          4QE

Total Volumes (nos)                571,591        614,093    713,135       552,101       620,095      640,040      493,748      444,513 2,451,407 2,198,396
Net Sales                           21,087         23,618     25,013        20,744        23,108       25,484       21,031       18,604    90,462    88,227
   Change (%)                                         -3.0                                    9.6           7.9       -15.9       -10.3                 -2.5
Total Cost                             18,264      19,791     21,343           17,969     20,440       22,046       17,973       15,809    77,366    76,267
EBITDA                                  2,823       3,827      3,670            2,776      2,668         3,439        3,058       2,795    13,095    11,960
   EBITDA Margins (%)                    13.4        16.2       14.7             13.4        11.5          13.5        14.5        15.0      14.5      13.6
Other Income                              333         260        430              205        288           221          379         215     1,227     1,103
Extraordinary Expenses                      0           77       512              671           0           611         611         611     1,185     1,833
Interest                                    1           14        19               18           9            59          90          75        52       234
Depreciation                              415         492        418              414        335           331          319         354     1,740     1,339
PBT                                     2,740       3,581      3,150            1,878      2,611         2,659        2,417       1,969    11,346     9,657
Tax                                       910       1,195      1,013              670        860           810          755         611     3,788     3,036
   Effective Tax Rate (%)                33.2        33.4       32.2             35.7       32.9           30.5        31.2        31.0      33.4      31.4
Rep. PAT                                1,830       2,386      2,137            1,208      1,751         1,849        1,662       1,359     7,558     6,621
   Change (%)                                       -28.0                                    -4.3       (22.5)       (22.2)        12.5               -12.4
Adj. PAT                                1,830       2,438       2,484           1,639      1,751         2,274        2,082       1,780     8,347     7,878
   Change (%)                                       -23.2                                    -4.3         (6.7)      (16.2)          8.6                -5.6
E: MOSL Estimates


Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                                          70
                                                                                                                                          Results Preview
                                                                                                                                   SECTOR: AUTOMOBILES




                                                                                                                                   Hero Honda
STOCK INFO.         BLOOMBERG
                                              27 March 2009
BSE Sensex: 10,049 HH IN                                                                                                                                  Buy
                    REUTERS CODE

S&P CNX: 3,109      HROH.BO                   Previous Recommendation:Buy                                                                              Rs1,086
Equity Shares (m)             199.7           YEAR    NET SALES          PAT    EPS      EPS          P/E          P/BV   ROE          ROCE     EV/       EV/

                                              END          (RS M)     (RS M)    (RS) GROWTH (%)       (X)          (X)     (%)         (%)     SALES EBITDA
52-Week Range           1,098/630
                                              3/08A 103,318           9,679    48.5       12.8      22.4           7.3    35.5         45.7     1.9      14.2
1,6,12 Rel. Perf. (%)       4/52/95
                                              3/09E 122,240         12,629     63.2       30.5      17.2           5.8    37.6         47.6     1.5      10.6
M.Cap. (Rs b)                 216.8
                                              3/10E 129,520         15,874     79.5       25.7      13.7           4.6    37.6         46.8     1.3       8.3
M.Cap. (US$ b)                  4.3
                                              3/11E   140,363       17,722     88.7       11.6      12.2           3.7    30.4         37.5     1.1       7.2



?   We expect Hero Honda’s volumes to grow 12.5% YoY (~16% QoQ) in 4QFY09. It continues to dominate the two-
    wheeler industry and has continuously gained market share. Also, realizations are likely to improve by 5.7% on
    account of price increase taken in 1HFY09 and higher sales from Haridwar. Our estimates factor in 280,000 units
    from Haridwar in 4QFY09.

?   Net sales would grow 19% YoY to Rs33.2b, while operating margins are likely to improve 70bp QoQ to 14.5%, driven
    by ramp-up at Haridwar plant and further benefit from softening in commodity prices. This coupled with lower tax
    (due to ramp-up at Haridwar) would boost PAT growth to 28% to Rs3.8b.

?   The recent lowering of peak excise duty rate from 10% to 8% would benefit Hero Honda on raw material sourcing
    at Haridwar, as excise paid on raw material sourced from outside of Haridwar is not MODVAT-able.

?   Our FY10 earnings estimate factors in 6% volume growth, 1.5% decline in net realizations, and about 1m units from
    Haridwar. The stock trades at 17.2x FY09E and 13.7x FY10E EPS. Maintain Buy.


QUARTERLY PERFORMANCE                                                                                                                                (RS MILLION)

Y/E MARCH                                                   FY08                                            FY09                              FY08        FY09E

                                        1Q            2Q            3Q         4Q         1Q         2Q              3Q          4QE

Total Volumes (nos)                802,853     756,633      893,581       884,075     894,244    972,095     857,806      994,601 3,337,142 3,718,746
Net Sales                           24,480      23,521       27,431        27,887      28,435     31,897      28,740       33,167   103,318   122,240
   Change (%)                           3.5         5.5          2.9           5.6       16.2       35.6          4.8        18.9        4.4     18.3
Total Cost                          21,845      20,606       23,605        23,768      25,025     27,672      24,643       28,015    89,824   105,354
EBITDA                               2,635       2,915        3,826         4,118       3,410      4,226       4,098        5,152    13,494    16,885
   As % of Sales                      10.8        12.4         13.9          14.8        12.0       13.2        14.3         15.5      13.1      13.8
Other Income                           389         393          521           551         467        662         508          566     1,854     2,204
Interest                               -90        -101          -87           -81         -50        -83         -87          -60      -358      -280
Depreciation                           376         384          408           435         422        466         475          506     1,603     1,869
PBT                                  2,737       3,024        4,026         4,316       3,505      4,505       4,219        5,272    14,103    17,501
Tax                                    839         980        1,276         1,329         777      1,442       1,214        1,439     4,424     4,872
   Effective Tax Rate (%)             30.6        32.4         31.7          30.8        22.2       32.0        28.8         27.3      31.4      27.8
PAT                                  1,898       2,043        2,750         2,987       2,729      3,063       3,004        3,833     9,679    12,629
Adj. PAT                             1,898       2,043        2,750         2,987       2,729      3,063       3,004        3,833     9,679    12,629
   Change (%)                        -20.1         -5.4        31.5          47.1        43.7       49.9          9.2        28.3       11.8     30.5
E: MOSL Estimates



Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                                   71
                                                                                                                                           Results Preview
                                                                                                                                    SECTOR: AUTOMOBILES




                                                                                                              Mahindra & Mahindra
STOCK INFO.       BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 MM IN                                                                                                                                   Buy
                  REUTERS CODE

S&P CNX: 3,109    MAHM.BO                  Previous Recommendation: Buy                                                                                   Rs385
Diluted Eq. Shares (m)       255.9         YEAR     NET SALES S/A PAT ADJ.EPS            CONS.         P/E       CONS,      ROE         ROCE     EV/       EV/
                                           END          (RS M)        (RS M)    (RS)    EPS (RS)        (X)      P/E (X)    (%)         (%)     SALES EBITDA
52-Week Range              718/236
                                           3/08A 114,106           9,009       35.2        64.5       10.9           6.0    20.7        19.5     0.5       4.8
1,6,12 Rel.Perf.(%)        11/-4/-7
                                           3/09E   119,441         6,707       26.2        55.8       14.7           6.9    14.6        12.4     0.7       8.7
M.Cap. (Rs b)                 98.6
                                           3/10E   127,511         8,372       32.7        60.6       11.8           6.4    16.6        15.1     0.7       6.6
M.Cap. (US$ b)                 1.9
                                           3/10E 136,923           9,721       38.0        70.0       10.1           5.5    17.2        16.3     0.7       5.8

?   We expect M&M to report overall volume growth of 24% QoQ (but 4% YoY decline) in 4QFY09, driven by 48%
    QoQ improvement (but 4% YoY decline) in UV volumes as well as 16% QoQ (~12% YoY) growth in three-wheeler
    volumes. However, tractor volumes declined by 5.5% QoQ (~9% YoY).
?   Net sales are likely to decline 1.4% YoY to Rs31b. Savings in raw material cost, coupled with return of operating
    leverage as well as non-recurrence of excess hedging related losses (present in 3QFY09) would drive 610bp QoQ
    improvement (but 140bp YoY decline) in EBITDA margin to 9.5%. Further, lower tax provisioning would boost
    recurring PAT to Rs1.95b.
?   UV volumes were boosted by the launch of Xylo (14 January), which registered sale of 2,287 units (~4,095 since
    launch). Xylo, which has received an encouraging response, would be the key volume driver for M&M in the UV
    segment, as no major product launch is expected in the medium term.
?   We are downgrading our standalone EPS estimates by 15% for FY09 and by 12% for FY10, and our consolidated
    EPS estimates by 9% for FY09 and by 18% for FY10. On a consolidated basis, the stock trades at 6.9x FY09E EPS
    and 6.4x FY10E EPS. Maintain Buy.
QUARTERLY PERFORMANCE                                                                                                                                 (RS MILLION)

Y/E MARCH                                                FY08                                                 FY09                             FY08       FY09E

                                      1Q           2Q            3Q            4Q          1Q          2Q              3Q         4QE

Total Volumes (nos)             67,232     69,411    77,086    79,025                  81,416      78,892       61,130      76,003        293,759       297,441
   Change (%)                      11.2         7.4       7.4      5.2                    21.1       13.7        -20.7         -3.8            8.0           1.3
Net Sales                       26,128     27,041    29,344    31,482                  31,952      30,930       25,063      31,497        114,106       119,441
   Change (%)                     17.8        10.4      13.9     14.7                     22.3       14.4        -14.6          0.0          14.3            4.7
Operating Other Income                      1,070        157                              152         450          130
Total Cost                      23,357     24,298    26,249    28,058                  28,803      28,451       24,345      28,510        101,672       110,109
EBITDA                           2,771      3,812      3,252    3,424                   3,301       2,929          847       2,988         12,434         9,332
   As % of Sales                  10.6        13.6      11.0     10.9                     10.3         9.3          3.4         9.5          10.9            7.8
   Change (%)                     10.3        15.8        5.0    10.5                     19.1      -23.2        -74.0       -12.7             3.6        -24.9
Other Income                       316         605       301      273                     447       1,143          436         208          1,682         2,234
Interest                            -51         82        72      139                      81         153          141         159            242           533
Gross Profit                     3,122      4,444      5,192    3,697                   2,888       3,255          682       3,036         16,454         9,129
Less: Depreciation                 571         577       590      649                     617         639          653         663          2,387         2,571
EO Expense                           16       -109    -1,711     -139                     779         665          461            0        -2,581         1,904
PBT                              2,551      3,867      4,601    3,048                   2,271       2,616           29       2,374         14,068         6,559
Tax                                640      1,008        550      837                     576         348           17         420          3,034         1,361
   Effective Tax Rate (%)         25.1        26.1      12.0     27.5                     25.4       13.3         58.9         17.7          21.6          20.8
Reported PAT                     1,912      2,859      4,052    2,211                   1,695       2,268           12       1,954         11,034         5,198
   Change (%)                      -6.4      -26.0      67.6      -6.3                   -11.3      -20.7        -99.7        -11.6            3.3        -52.9
Adj PAT                          1,924      2,774      2,710    2,102                   2,313       2,794          316       1,954          9,009         6,707
   Change (%)                       3.1       12.2      11.8    -13.7                     20.2         0.7       -88.3         -7.0           -4.9        -25.6
E: MOSL Estimates
Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                                    72
                                                                                                                                              Results Preview
                                                                                                                                       SECTOR: AUTOMOBILES




                                                                                                                       Maruti Suzuki India
STOCK INFO.       BLOOMBERG
                                            27 March 2009
BSE Sensex: 10,049 MSIL IN                                                                                                                                    Buy
                  REUTERS CODE

S&P CNX: 3,109    MRTI.BO                   Previous Recommendation: Buy                                                                                     Rs766
Diluted Equity Shares (m)     289.0         YEAR     TOTAL INC.         PAT     ADJ. EPS    EPS          P/E           P/BV   ROE          ROCE     EV/       EV/
                                            END          (RS M)        (RS M)     (RS) GROWTH (%)         (X)          (X)     (%)         (%)     SALES EBITDA
52-Week Range               854/428
                                            3/08A 182,599         17,100         59.2         9.1       12.9           2.6    20.6         26.7     1.0       6.7
1,6,12 Rel.Perf.(%)          0/36/29
                                            3/09E 207,207         13,375         46.3       -21.8       16.5           2.3    13.7         18.7     0.9       8.5
M.Cap. (Rs b)                 221.4
                                            3/10E 226,461         14,473         50.1         8.2       15.3           2.0    13.4         17.9     0.8       7.3
M.Cap. (US$ b)                   4.4
                                            3/11E   259,489       17,396         60.2        20.2       12.7           1.8    14.1         19.0     0.7       5.8

?   We expect Maruti’s volumes to grow 13% YoY (~33% QoQ) in 4QFY09, benefiting from improvement in consumer
    sentiment and A-Star launch. While volumes in A1 and MPV segments continue to decline, the A2 and A3 segments
    are witnessing robust volume growth. Also, export volumes are likely to grow by about 45%, driven by commencement
    of A-Star exports. However, export of other models is under pressure.
?   Net sales are likely to grow by 23% YoY to Rs61.9b, driven by 13% volume growth and 10% improvement in
    realizations driven by improvement in product mix. EBITDA margin would expand by 230bp QoQ (but contract by
    590bp YoY) to 9.8%, benefiting from better product mix and lower raw material cost. However, higher depreciation
    (due to change in accounting policy) would result in 34% YoY decline in recurring PAT to Rs3.4b.
?   Growth in the domestic market is driven by A-Star (launched in November 2008) and Swift DZire (launched in
    March 2008). While A-Star would be a key growth driver going forward (coupled with launch of Splash in 1QFY10),
                 s
    Swift Dzire’ contribution to volume growth would decline from March 2009, as the base-effect gets neutralized.
?   Our FY10 earnings estimate factors in 9.7% volume growth, with 8% growth in domestic volumes and 28% growth
    in export volumes. Our estimate does not factor in potential export order for A-Star from Nissan, which could add
    30,000-70,000 units. The stock trades at 16.5x FY09E and 15.3x FY10E earnings. Maintain Buy.
QUARTERLY PERFORMANCE                                                                                                                                    (RS MILLION)

Y/E MARCH                                                 FY08                                                  FY09                              FY08       FY09E

                                       1Q           2Q            3Q            4Q           1Q          2Q              3Q          4QE

Total Volumes (nos)            169,669 191,325 201,623 202,225                          192,584     189,451      173,494      230,217        764,842       785,746
   Change (%)                      17.1       21.3      17.1       1.1                     13.5         -1.0       -14.0         13.8           13.3            2.7
Realizations (Rs/car)          231,676 237,678 231,825 239,258                          246,832     254,961      264,685      264,475        235,221       257,903
   Change (%)                        7.4        9.6       8.5      8.1                       6.5         7.3        14.2         10.5           13.3            9.6
Net Op. Revenues                40,141     46,787    47,594    50,472                    48,588      49,936       46,808       61,875        184,785       207,207
   Change (%)                      26.0       34.4      26.7      11.1                     21.0          6.7         -1.7        22.6             0.2         12.4
EBITDA                           6,580      7,077      6,986    7,904                     5,868       5,357        3,518        6,080         28,553        20,823
   As % of Sales                   16.4       15.1      14.7     15.7                      12.1        10.7           7.5          9.8          15.5          10.0
Non-Operating Income             1,400         786       853      772                     2,236         960        1,209          768          3,974         5,173
Extraordinary Expense                  0          0         0   3,173                       179         200           -18            0         1,050           361
Interest                            151        140       144      161                       168         208            45          69            596           490
Gross Profit                     7,829      7,722      7,695    5,342                     7,756       5,910        4,700        6,780         28,589        25,145
Less: Depreciation                  822        881       867      988                     1,661       1,658        1,775        1,800          5,682         6,894
PBT                              7,007      6,841      6,828    4,354                     6,096       4,252        2,925        4,980         25,030        18,251
Tax                               2,011     2,176      2,158    1,377                     1,437       1,290          789        1,594          7,722         5,110
   Effective Tax Rate (%)          28.7       31.8      31.6     31.6                      23.6        30.3         27.0         32.0           30.9          28.0
PAT                              4,996      4,665      4,670    2,977                     4,659       2,961        2,136        3,385         17,308        13,141
Adjusted PAT                     4,996      4,665      4,670    5,146                     4,796       3,101        2,122        3,385         19,472        13,401
   Change (%)                      36.4       25.6      26.9      -0.2                      -4.0      -33.5        -54.6        -34.2             0.1        -25.7
E: MOSL Estimates
Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                                       73
                                                                                                                                          Results Preview
                                                                                                                                   SECTOR: AUTOMOBILES




                                                                                                                                       Tata Motors
STOCK INFO.        BLOOMBERG
                                          27 March 2009
BSE Sensex: 10,049 TTMT IN                                                                                                                       Neutral
                   REUTERS CODE
S&P CNX: 3,109     TAMO.BO                Previous Recommendation: Neutral                                                                           Rs189
Diluted Eq.Shares (m)        535.9        YEAR         SALES     S/A PAT ADJ EPS       CONS,          P/E      CONS.      ROE          ROCE    EV/    EV/
                                          END          (RS M)     (RS M)    (RS)     EPS (RS)        RATIO     P/E (X)     (%)         (%)    SALES EBITDA
52-Week Range             743/122
                                          3/08A 285,314         17,431     32.5         36.1          5.8          5.2    22.2         17.3    0.2    2.3
1,6,12 Rel. Perf. (%)   13/-26/-33
                                          3/09E 251,965           4,893     9.1           9.7        20.7      19.4        5.9          8.0    0.4    6.4
M.Cap. (Rs b)                101.3
                                          3/10E 240,135           7,498    14.0         16.7         13.5      11.3        8.6         10.6    0.5    5.4
M.Cap. (US$ b)                 2.0
                                          3/11E   259,717         8,678    16.2         19.4         11.7          9.7     9.5         11.7    0.4    4.7

?   We expect Tata Motors to post volume growth of 35% QoQ (but 24% YoY decline) in 4QFY09, driven by 50% QoQ
    growth in M&HCVs and 25% QoQ growth in LCVs, benefiting from the stimulus package (especially accelerated
    depreciation at 50% till March 2009). Also, UV volumes grew by 69% QoQ while car volumes grew by 35% QoQ.
?   Net sales grew by 36% QoQ to Rs64.3b, benefiting from 35% QoQ growth in volumes and 1% QoQ increase in
    realization. Further, raw material cost savings and return of operating leverage would result in 370bp QoQ improvement
    (but 470 YoY decline) in EBITDA margins to 5.6%. Further, lower other income, higher interest and higher depreciation
    would impact recurring PAT, which we estimate at Rs461m (~93% YoY decline).
?   Tata Motor’s CV volumes have improved, driven by increase in accelerated depreciation on CVs purchased till 31
    March 2009. However, momentum in CV volumes might not sustain post 4QFY09. Sustained pick-up in CV volumes
    would be a key to improvement in the company’s financials.
?   We are upgrading our consolidated EPS estimate for FY10 by 6% to Rs16.7, to factor in higher volumes in all
    segments. Our FY10 estimates factor in volume de-growth of 3%, with CV volume de-growth of 9% and car & UV
    volume growth of 5%. The stock trades at 19.4x FY09E and 11.3x FY10E EPS. Maintain Neutral.
QUARTERLY PERFORMANCE                                                                                                                            (RS MILLION)

Y/E MARCH                                               FY08                                                FY09                              FY08   FY09E

                                     1Q           2Q            3Q         4Q            1Q           2Q             3Q          4QE

Total Volumes (nos)            128,095 136,573 144,608 175,472                     133,079      135,037       98,760      133,608         582,401 496,937
Net Sales                       60,568     63,952    72,060    88,734               69,284       70,293       47,136       64,305         285,314 251,965
   Change (%)                        4.7      -2.7        5.6      7.9                 14.4           9.9       -34.6        -27.5             4.1   -11.7
Total Cost                      55,105     58,778    64,321    79,557               63,980       65,035       46,670       60,706         257,761 236,390
EBITDA                           5,463      5,954      8,197    9,178                5,305        5,754           917       3,599          27,553 15,574
   EBITDA Margins (%)                9.0        9.3     11.4     10.3                    7.7          8.2          1.9          5.6            9.7      6.2
   Change (%)                     -27.2      -23.5       -2.8      0.3                 -2.9         -3.4        -88.8        -60.8          -16.2    -43.5
Non-Operating Income                863        705       267    1,609                2,020           705          517          831          3,444   4,073
Forex Gain / (Loss)              2,059         309       275   -1,266               -1,999       -2,850       -2,265       -1,750           1,376  -8,864
Extraordinary Income                 20     1,994        650      718                1,136        3,588           478             0         3,382   5,202
Interest                            816        965       918      126                1,123        1,483        1,684        1,650           2,824   5,940
Gross Profit                     7,589      7,997      8,472   10,112                5,339        5,714       -2,038        1,031          32,931 10,045
Depreciation & Amort.            1,475      1,597      1,675    1,776                1,808        2,029        2,017        2,191           6,523   8,045
Product Dev. Expenses               193        188       147      116                    79          105          137          129            644      450
PBT                              5,921      6,212      6,650    8,221                3,451        3,580       -4,192       -1,289          25,765   1,550
Tax                              1,254         944     1,661    1,618                   190          110      -1,559          -425          5,476  -1,684
   Effective Tax Rate (%)          21.2       15.2      25.0     19.7                    5.5          3.1        37.2         33.0           21.3  -108.7
PAT                              4,668      5,268      4,989    6,603                3,261        3,470       -2,633          -864         20,289   3,235
   Change (%)                      22.2       19.3       -2.8    14.5                 -30.1        -34.1      -152.8       -113.1              6.0   -84.1
Adj PAT                          3,275      3,267      4,155    6,734                3,578        2,447       -1,593           461         17,431   4,893
   Change (%)                     -27.3      -26.7       -5.7    20.4                    9.3       -25.1      -138.3         -93.2          -14.6    -71.9
E: MOSL Estimates
Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                               74
                                                                                                                    Results Preview
                                                                                                          QUARTER ENDING MARCH 2009




                                                                                                                       Banking
BSE Sensex: 10,049         S&P CNX: 3,109                                                                            27 March 2009

COMPANY NAME                       Macroeconomic environment remains challenging
Andhra Bank                        The macro economic environment continues to be challenging with a significant fall in IIP
Axis Bank                          numbers and exports, sharp rupee depreciation, impending economic slowdown over the
Bank of Baroda                     next year, and signs of asset quality deterioration. However, with a sharp fall in crude oil
Bank of India                      and other commodity prices, inflation is declining at a rapid pace (touched 0.3% as of 11
Canara Bank                        March 2009). This has given the much needed comfort for the expansionary monetary
Corporation Bank                   policy for RBI. As a result, the stance of the monetary policy has shifted from inflation to
HDFC                               growth. During the quarter, the RBI cut CRR rates further by 50bp to 5% (400bp in
HDFC Bank                          2HFY09), Repo rate by 150bp to 5% (400bp in 2HFY09) and Reverse repo rate by 150bp
Federal Bank                       to historic level of 3.5% (250bp in 2HFY09), which led to improved liquidity situation and
ICICI Bank                         paved the way for lower interest rates industrywide.
Indian Bank
Indian Overseas Bank               We expect aggregate loan growth for the banks under our coverage to slow down to
J&K Bank                           ~20% and margins to decline QoQ. However, on a YoY basis, margin is expected to
Oriental Bank                      remain stable or show improvement, which will lead to strong NII growth. We believe
Punjab National Bank               trading profits will also be strong (although significantly lower than 3QFY09) due to active
State Bank                         churning of portfolios by banks. In our view, on the back of strong operating income, banks
Union Bank                         will continue to make higher NPA provisions. In terms of asset quality, RBI guidelines on
                                   restructuring of stress assets will lead to postponement of recognition of NPAs till 3QFY10.
                                   Our industry interaction suggests that the restructuring amount is likely to be in the range
                                   of 2-4% of the loan book. RBI’s clarification regarding treatment of floating provisions
                                   will lead to higher reported Net NPA figures in 4QFY09.
EXPECTED QUARTERLY PERFORMANCE SUMMARY                                                                                     (RS MILLION)
                       CMP (RS)     RECO                 NET INT INCOME             OPERATING PR OFIT              NET PROFIT
                         27.3.09                MAR.09       VAR.      VAR.   MAR.09     VAR.      VAR.   MAR.09        VAR.     VAR.

                                                            % YOY    % QOQ              % YOY    % QOQ                % YOY     % QOQ

Banks
Andhra Bank                 48      Buy          4,230       31.1      -6.4   3,142        0.4    -15.7    1,673        34.6     -21.4
Axis Bank                  431      Buy         10,142       22.4       9.1   8,659       19.8     -4.8    4,512        24.8      -9.9
Bank of Baroda             248      Buy         14,193       38.0      -2.9   9,373       15.1    -33.7    4,461        61.4     -37.0
Bank of India              234      Neutral     15,266       25.5       0.3 13,201         8.9    -25.1    8,028         6.1      -8.0
Canara Bank                167      Buy         11,864       28.6      -4.7   8,957       -4.6    -26.2    5,474        18.0     -22.0
Corporation Bank           175      Buy          4,395        9.2      -8.1   3,492      -13.5    -22.3    2,084         1.3     -18.8
Federal Bank               147      Buy          4,074       49.2       5.9   3,702       41.6     -3.7    1,423        38.4     -30.2
HDFC                     1,589      Neutral      8,907       -6.4       1.6   8,027      -10.2      2.1    6,036        -1.1      10.4
HDFC Bank                  997      Buy         20,118       22.5       1.6 14,224        30.7     -2.4    6,451        36.9       3.8
ICICI Bank                 385      Buy         19,604       -5.7      -1.5 20,142       -12.1    -27.3    6,971       -39.4     -45.2
Indian Bank                 88      Buy          6,730       31.1      -6.5   5,491        5.0    -12.0    3,208        32.7      -8.5
Indian Overseas Bank        48      Buy          8,114       18.9      -1.4   7,280       13.5    -16.1    3,370        10.2     -13.2
J&K Bank                   291      Buy          2,524       12.5      -3.7   2,235       10.2     19.5    1,179        97.2      -2.3
Oriental Bank of Commerce 119       Buy          5,678       29.9       0.0   5,116       57.4     32.5    2,434        19.0      -3.5
Punjab National Bank       441      Buy         19,510       28.6      -0.8 13,800        12.5    -23.6    8,114        49.2     -19.3
State Bank               1,125      Buy         58,021       20.9       0.8 55,023        25.8     22.7   24,756        31.5      -0.1
Union Bank                 152      Buy         10,688       34.0      -5.3 10,475        17.6     22.5    5,816        11.5     -13.4
Sector Aggregate                               224,056       20.2      -0.6 192,340       12.3     -7.2   95,992        15.9     -14.0

Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                        75
                                                                                                                             Banking




                                 Restructuring of loans – key to watch
     Restructuring amount is     Disclosures about the restructuring of loans would be a key area to watch in the 4QFY09
 likely to be 2-4% of the loan   results. Bankers are expected to consider all applications received up to 31 March 2009
         book for PSU banks      for the restructuring exercise. All the loans which were standard as on 1 September 2008
                                 could be considered for restructuring and still be classified as standard loans. Our interactions
                                 with PSU bankers suggest that the restructuring amount is expected to be 2-4% of the
                                 loan book. A large part of the restructuring has been in the form of rescheduling
                                 (postponement) of repayment period and borrowers have agreed to pay interest during the
                                 extended period. However; bankers will have to make present value discounting provisions
                                 for the rescheduling or restructuring.


                                 On books asset quality will not weaken significantly ahead
                                 Asset quality would not weaken significantly in 4QFY09 due to the restructuring window.
                                 In 3QFY09, gross NPAs grew 11% QoQ for private banks and remained stable for state-
                                 owned banks. We believe this trend will continue in 4QFY09 as well in the wake of
                                 restructuring guidelines. Banks have turned cautious in lending owing to the possibility of
                                 rising NPAs going forward.

                                 We believe NPA recognition would be delayed by a couple of quarters on back of the
                                 various measures announced by RBI in 2HFY09 like: (1) to exempt specific infrastructure
                                 projects from being classified as NPAs (due to technical reasons); (2) allowing one-time
                                 restructuring of real estate loans, and (3) allowing second time restructuring of loans given
                                 to other sectors.

                                 WE HA VE ASSUMED HIGHER GROSS NPAS GOING FORWARD (YOY GROWTH %)

                                                       SEP-07   DEC-07   MAR-08   JUN-08   SEP-08   DEC-08   FY09E   FY10E    FY11E

                                 State Owned Banks
                                 SBI                      3.2      7.5     36.0      0.2     18.1     25.1    17.9    78.5     47.0
                                 Canara                 -10.0    -18.6     -5.2     -1.9     -0.8     65.0    50.9    87.6     62.8
                                 PNB                     52.6     30.1     -2.1    -12.0    -33.8    -23.2    25.0    68.9     50.4
                                 BoI                    -11.5     -9.9     -8.1     -0.5      0.7     12.4    32.8   133.4     59.4
                                 BOB                    -14.4    -14.6     -5.3     -5.3     -8.2     -5.8    -1.7   143.1     67.7
                                 Union                  -17.7    -18.1    -11.5    -10.9      0.9      6.6     8.8    92.9     55.6
                                 IOB                    -11.7     -9.0    -11.0     -3.3     60.2     68.2    81.7    77.1     50.0
                                 OBC                    -24.9    -20.1    -12.0    -18.0    -15.2    -22.1    -7.6    74.4     26.7
                                 Indian Bank            -17.5    -12.4    -10.8    -23.1     -8.8     -9.4     9.1   215.8     67.4
                                 Private Banks
                                 ICICI                   80.7     66.4     72.2     53.6     53.6    49.6     27.0    26.4   16.8
                                 HDFC Bk                 24.5     33.9     37.9    111.6    118.1   120.5     69.8    84.4   47.4
                                 Axis                    11.0     -5.2     18.1     32.1     45.8    76.0    140.9   136.8   69.3
                                                                                                             Source: Company/MOSL




27 March 2009                                                                                                                    76
                                                                                                                          Banking




                               Reported net NPAs to rise for certain banks
                               During the Quarter RBI had issued clarification regarding the treatment of floating provisions
                               which will lead to higher reported Net NPA figures for certain banks. Earlier floating
                               provision had two accounting options: a) deduct from gross NPAs to arrive at Net NPAs
                               or b) treat it as a part of Tier II capital. Now banks can only treat it as Tier II capital. The
                               biggest impact for the reported Net NPA figures is likely to come for Union bank, PNB,
                               and BoB.

                               IMPACT OF FLO ATING PRO VISION RECLASSIFICATION (RS B)

                                                 3QFY09      FLOATING    ADJUSTED                  RWAS     REPORTED     ADJUSTED

                                                NET NPAS     PROVISION     NPAS                   3QFY09     TIER II %   TIER II %

                               SBI Consol         81.1          6.9      88.0       SBI*           6,340        4.2      4.3
                               PNB                5.5          10.0      15.5       PNB            1,451        4.5      5.2
                               BoI                7.0           3.0       7.0       BoI            1,315        4.7      4.7
                               Indian Bank        0.8           0.9       1.7       Indian Bank      520        2.1      2.2
                               BoB                4.7           5.5      10.2       BoB            1,223        4.7      5.1
                               UBI                1.3           5.1       6.4       UBI            1,009        4.8      5.3
                               *Calculated; RWA refers to Risk Weighted Assets                             Source: Company/MOSL



                               Loan growth moderating; deposit growth remains strong
  Loans have grown by mere     Loan growth for the sector moderated significantly to 18.1% in 4QFY09 (as on 13th March
        Rs382b (1.5%) from     2009) from 24% YoY in 9MFY09. Loans in absolute amount are marginally up by Rs382b
            December 2008      (1.5%) from December 2008 level. YTD basis 13 March 2009, loan growth is 18% only
                               v/s 21% YTD 15 March 2008. To achive the RBI target of 24% YoY loan growth the
                               commercial banks need to increase their loan book by Rs2.2t or 8.2% in the last fortnight.
                               This is unlikely.

                               We have downgraded the aggregate loan growth for the banks under our coverage to
                               20% in FY09 and 16% in FY10-11, as we expect demand for corporate credit to remain
                               lower in FY10-11 on the back of slowdown in industrial production, lower working capital
                               requirement (driven by sharp fall in raw material prices) and postponement of planned
                               capex. Replacement of foreign credit by INR credit can, however, create growth for
                               Indian banks if global debt markets remain weak.

     Deposits have grown by    In 4QFY09 (as on 13March 2009), deposits grew 21% YoY and 3.1% QoQ to Rs37,325b.
      Rs1,137b (3.1%) from     On a YTD basis deposits growth stood at ~17%. We have factored in the deposits growth
            December 2008      to moderate to 16% in FY10-11 on back of expected fall in the deposit rates and moderating
                               corporate savings.


                               Surplus liquidity finds its way to reverse repo and G-secs
    SLR ratio increased from   Surplus liquidity in the system was the highlight of the quarter. Slowing credit demand,
   27% in FY08 to 28.6% in     CRR cut and sustained deposit inflows led to the liquidity surplus in the system. Banks
                March 2009     parked a daily average of ~Rs500b during 4QFY2009 with RBI under reverse repo window.
                               Banks have been aggressively buying G-Secs during 4QFY09 as aversion to lending was

27 March 2009                                                                                                                   77
                                                                                                                      Banking




                               rampant. Banks have invested Rs356b in G-Secs during 4QFY09 - higher than loan book
                               growth. YTD investments into G-Secs has been Rs2010b (incremental SLR ratio of 30%).
                               Despite SLR cut of 100bp by RBI, actual SLR ratio has increased from 27% in April 2008
                               to 28.6% in March 2009.


                               Wholesale borrowing rates have come off
 Wholesale deposit rates are   Certificate of deposits rates were down from peak of 14% in 3QFY09 to 7.6% in 4QFY09.
    down by 700bp from the     Most banks have used CoD route to raise resources during the quarter, wholesale deposit
    peak and 300-400bp on      rates are at a discount to retail deposit rates currently – highlighting the excess liquidity in
 average from 3QFY09 levels    the system. The sharp downward repricing of bulk deposits would have relatively higher
                               positive margin impact for ICICI Bank, Axis Bank, OBC, Canara Bank during next quarter.


                               Net interest margin to fall QoQ
                               In 2HFY09, most banks reduced their PLR by ~200bp (75bp in 3QFY09) taking a cue
                               from the cut in benchmark rates by the RBI. Banks have also reduced deposit rates by
                               150-200bp from the peak across maturities. 3QFY09 was the quarter in which banks’
                               pricing power was at the peak. We expect margins to fall on a QoQ basis for banks
                               (exceptions being Axis Bank and HDFC Bank) due to PLR cut and loss of pricing power.
                               The liquidity built up in the balance sheet would also have an adverse impact on margins
                               during the quarter.


                               G-sec yields have hardened ... but not likely to impact earnings meaningfully
    Treasury gains would be    In 3QFY09, yields on 10-year G-secs had fallen by ~350bp across maturities which led to
      lower significantly on   significant trading profits and MTM reversal for the banks. However, in 4QFY09, 1year
                a QoQ basis    and 10-year G-Secs increased by ~15bp and ~170bp resp. The yield curve has become
                               steep and expected to remain so. While MTM losses could occur in 4QFY09 due to
                               hardening of yields, we do not expect them to create any meaningful adverse impact on
                               earnings. Our interaction with bankers suggest that most of them have been able to make
                               decent trading profits in the quarter by actively churning the portfolio.


                               Top picks
                               The valuations of state owned banks are at 0.4x - 1x FY10E ABV, with RoEs in the range
                               of 14-23%. We prefer selective buying and like banks with strong core deposit franchise,
                               higher tier I capital and high provision coverage ratio. We continue to maintain HDFC
                               Bank as our top pick among the private banks, and PNB, BoB, Union Bank and Indian
                               Bank among the state-owned banks.




27 March 2009                                                                                                              78
                                                                                                                          Banking




READY RECKONER (%) - KEY INDICATORS

                             SBI        PNB      BOB         BOI      UNION     INDIAN      ICICI      AXIS      HDFC       HDFC

                        (STAND ALONE)                                 BANK       BANK      BANK       BANK       BANK

Loan Growth
FY08                        23.5        23.7     27.6       33.6       19.2      37.1       15.2       61.8      38.0       29.2
FY09                        23.0        26.0     24.0       24.0       27.0      31.0       -3.8       36.0      30.0       20.2
FY10                        16.0        17.0     16.0       17.0       16.0      17.0        5.0       25.0      22.0       15.7
Deposits Growth
FY08                        23.4        19.0     21.7       25.1       21.9      29.6       6.0        49.1      48.0       20.9
FY09                        31.0        23.0     20.0       20.0       26.0      18.0      -12.0       30.0      20.0       23.1
FY10                        16.0        17.0     15.0       16.0       16.5      16.5       6.0        25.0      20.0       15.1
GNPA Ratio
FY08                         3.0        2.7       1.8        1.7       2.2        1.2       3.3        0.7        1.7       0.7
FY09                         2.9        2.7       1.4        1.7       1.9        1.0       4.3        1.5        2.2       0.9
FY10                         4.4        3.8       3.0        3.5       3.1        2.7       5.2        2.8        3.4       1.0
NNPA Ratio
FY08                         1.8        0.6       0.5        0.4       0.2        0.2       1.5        0.4        0.5       0.2
FY09                         1.5        0.6       0.3        0.5       0.1        0.2       1.9        0.7        0.8       0.3
FY10                         2.3        1.4       1.0        1.4       1.0        0.7       2.1        1.3        1.1       0.3
Slippage Ratio
FY08                         2.3        2.0       1.2        1.6       1.2        1.5       1.9        1.0        2.6       0.2
FY09                         2.4        2.5       1.0        1.8       1.5        1.0       2.3        2.5        2.8       0.3
FY10                         3.5        3.0       3.0        3.3       3.0        3.0       2.5        3.5        3.3       0.2
Provision Coverage Ratio
FY08                        42.2        77.3     75.1       78.7       92.3      80.0       53.9       50.0      68.5       75.0
FY09                        45.0        80.0     77.5       68.0       95.0      85.0       58.0       55.0      65.0       70.0
FY10                        50.0        65.0     68.0       60.0       70.0      75.0       60.0       55.0      66.0       70.0
Credit Cost
FY08                         0.8        0.5       0.8        1.0       1.1        1.5       1.4        1.3        2.5       0.1
FY09                         0.7        0.9       0.4        0.7       0.7        1.3       1.7        1.4        2.0       0.1
FY10                         1.4        1.3       1.2        1.6       1.3        1.6       1.7        1.5        2.2       0.1
Capital Adequacy Ratio
FY08                        13.5        13.5     12.9       12.0       12.5      12.9       14.0       13.7      13.5       16.5
FY09                        11.6        11.8     12.2       12.7       11.9      11.4       15.4       12.5      12.0       14.8
FY10                        10.8        11.1     12.0       11.5       11.8      11.7       14.7       11.1      11.3       14.1
Tier I Capital Ratio
FY08                         9.1        9.0       7.6        7.7       7.5       11.4       11.8       10.2      10.6       NM
FY09                         8.0        8.9       7.4        8.7       7.4       10.2       11.7       8.5       8.8        NM
FY10                         7.4        8.7       7.3        8.2       7.5       9.9        11.0       7.6       8.4        NM
Yield on Loans
FY08                        9.3         9.7       8.8       9.3        9.8       10.2       10.7       9.8       12.5       11.1
FY09                        10.3        10.9      9.3       10.0       10.6      11.1       10.3       10.9      12.9       12.2
FY10                        9.9         10.5      9.1       9.7        10.1      10.5       9.8        10.3      12.4       11.4
Cost of Deposits
FY08                         5.6        5.4       5.3        5.2       6.1        5.5       7.2        5.1        5.5       8.1
FY09                         6.1        6.4       5.7        5.9       6.2        6.0       7.4        6.2        6.1       9.6
FY10                         5.9        6.2       5.7        5.9       6.0        5.9       6.7        5.9        5.8       8.7
Net Interest Margins
FY08                         2.8        3.4       2.7        2.9       2.9        3.5       2.1        3.1        5.0       3.9
FY09                         2.9        3.6       2.8        3.1       3.2        3.8       2.3        3.2        4.9       3.5
FY10                         2.7        3.4       2.7        3.0       3.0        3.7       2.6        3.1        5.0       3.4
Note: FY09 and FY10 MOSL est; Slippage Ratio = Additions to GNPA/Opening loans; Credit Cost = (Provisions on loans + Standard
Assets Provisions)/Opening loans;                                                                                      Source: MOSL




27 March 2009                                                                                                                     79
                                                                                                                                                                                                                                                                                                                                                 Banking




DEPOSITS GROWTH STRONG AT ~21% YOY                                                                                                                                   LOAN GROWTH MODERATED SIGNIFICANTLY TO 18% YOY


 40                           Deposits (Rs t)                                       Chg YoY (%) RHS                                              35                      28                        Loans (Rs t) LHS                                                           Chg YoY (%) RHS                                                                      35

                                                                                                                                                                                                                                    31
 32                                                                                                                                              30                      23        31 31                                                         28                                                                                                                30
                                                                                                                                                                                                             30
                                                                                                                                                                                                                                                                                                               26 25
 24                                                                         25                                                                   25                      18                                                                                    24                                                                                                  25
                                               24        25 24                                                                                                                                                                                                                                                                               24
                                      23                                                 22 22                                                                                                                                                                               23
                    21                                                                                                                          21
 16                          20                                                                                           21                      20                     13                                                                                                           21 22                                                                        20
                                                                                                                 20
          18                                                                                                                                                                                                                                                                                                                                                  18
  8                                                                                                                                              15                      8                                                                                                                                                                                         15
                         1HFY07




                                                             1HFY08




                                                                                                         1HFY09



                                                                                                                                    13-Mar-09




                                                                                                                                                                                                                 1HFY07




                                                                                                                                                                                                                                                                     1HFY08




                                                                                                                                                                                                                                                                                                                        1HFY09



                                                                                                                                                                                                                                                                                                                                                      13-Mar-09
               1QFY07



                                  9MFY07



                                                    1QFY08



                                                                       9MFY08



                                                                                              1QFY09



                                                                                                                      9MFY09




                                                                                                                                                                                               1QFY07



                                                                                                                                                                                                                               9MFY07



                                                                                                                                                                                                                                                       1QFY08



                                                                                                                                                                                                                                                                                  9MFY08



                                                                                                                                                                                                                                                                                                          1QFY09



                                                                                                                                                                                                                                                                                                                                        9MFY09
        FY06




                                            FY07




                                                                                    FY08




                                                                                                                                                                                   FY06




                                                                                                                                                                                                                                           FY07




                                                                                                                                                                                                                                                                                                FY08
                                                                                                                                                                                                                                                                                                                   Source: RBI/MOSL


                                                                      CREDIT TO DEPOSITS RATIO AT ~72%


                                                                        76
                                                                                               74                                                                                                                         74                                                          74
                                                                        74                                                                                                                                                                                                                                         73
        Strong deposits growth                                                                                                                                                                                                                        73
                                                                                                                                                                                                                                                                                                                                                        72
                                                                                                                                                                                    72
      coupled with muted loans                                          72                                                                                 71
                                                                                                                           70
       growth leading to lower
                                                                        70
                                           CD ratio
                                                                        68

                                                                        66
                                                                                                                                                            1HFY08




                                                                                                                                                                                                                                                                                       1HFY09




                                                                                                                                                                                                                                                                                                                                                 13-Mar-
                                                                                                                               1QFY08




                                                                                                                                                                                    9MFY08




                                                                                                                                                                                                                                                        1QFY09




                                                                                                                                                                                                                                                                                                                      9MFY09
                                                                                                 FY07




                                                                                                                                                                                                                          FY08




                                                                                                                                                                                                                                                                                                                                                   09
                                                                                                                                                                                                                                                                                                  Source: Company/MOSL



                                                                      INFLATION FELL SIGNIFICANTLY-WPI AT MAR CH 2008 LEVEL


                                                                                                                                                           Inflation (%) - (LHS)                                                        WPI - Index (RHS)
                                                                       14                                                                                                                                                                                                                                                                                         252
                                                                                           Inflation index fell sharply; WPI index below
                                                                                           227 (lowest since March 2008)
       Falling inflation giving                                        11                                                                                                                                                                                                                                                                                         234
                                                                                                         Reported inflation nos near to zero
         room for expansionary
                                                                        7                                                                                                                                                                                                                                                                                         216
                        monetary policy
                                                                        4                                                                                                                                                                                                                                                                                         198


                                                                        0                                                                                                                                                                                                                                                                                         180
                                                                                            Jul-06




                                                                                                                                                                                                                                                                                  Jul-08
                                                                                                                                        Jan-07




                                                                                                                                                                          Jun-07




                                                                                                                                                                                                                                        Feb-08




                                                                                                                                                                                                                                                                                                                                             Feb-09
                                                                                                        Sep-06




                                                                                                                                                                                                                          Dec-07




                                                                                                                                                                                                                                                                                                 Sep-08



                                                                                                                                                                                                                                                                                                                               Dec-08
                                                                                                                                                  Mar-07




                                                                                                                                                                                                                                                      Mar-08
                                                                                                                      Nov-06




                                                                                                                                                                                                                                                                                                             Nov-08
                                                                                                                                                                                                        Oct-07
                                                                                May-06




                                                                                                                                                                                      Aug-07




                                                                                                                                                                                                                                                                    May-08
                                                                                                                                                                Apr-07




                                                                                                                                                                                                                                                                                                                   Source: RBI/MOSL




27 March 2009                                                                                                                                                                                                                                                                                                                                                      80
                                                                                                                                                                                                                                                                                                                          Banking




CRR WAS CUT FURTHER BY 50BP - INFUSED RS200B IN THE SYSTEM                                                                                                            EXPANSIONARY MONETARY POLICY LED TO STR ONG LIQUIDITY


                                                                                                       9.0                                                                                                                          Net Repo (Rs B)
 9.0
                                                                                      8.3                                                                              1,000
                                                                                                                                                                                                               In 4QFY09 RBI on an average
 8.0                                                                                                                                                                                                           daily basis absorbed ~Rs500b
                                                                    7.0                                                                                                  500
 7.0                                                  6.5                                                           6.5
                                                                                                                                6.0                                         0
 6.0                                                                                                                                       5.5
                                    5.3
                                                                                                                                                     5.0
        4.8                                                                                                                                                             -500In Oct 2008 RBI average
 5.0                 4.5                                                                                                                                                    daily basis infused
                                                                                                                                                                            ~Rs370b in the system
 4.0                                                                                                                                                                  -1,000




                                                                                                                                                                                                                           Jul-08
                                                                                                                                                                                                                                     Jul-08
                                                                                                                                                                                                                Jun-08




                                                                                                                                                                                                                                                                                                            Jan-09
                                                                                                                                                                                                                                                                                                                     Feb-09
                                                                                                                                                                                                                                                        Sep-08




                                                                                                                                                                                                                                                                                               Dec-08




                                                                                                                                                                                                                                                                                                                               Mar-09
                                                                                                                                                                                                                                                                           Nov-08
                                                                                                                                                                                                                                                                                      Nov-08
                     June 03




                                                                                                                                                                                                                                                                 Oct-08
                                                                                                                                                      Jan 09




                                                                                                                                                                                                      May-08




                                                                                                                                                                                                                                              Aug-08
                                    Dec 06




                                                                                                                                                                                Apr-08
                                                                                                                                                                                         Apr-08
        Nov 02




                                                                                                                                            Nov 08
                                                                                                                      Oct 08

                                                                                                                                 Oct 08
                                                                        Aug 07

                                                                                           May 08

                                                                                                         Aug 08
                                                      Apr 07




REPO RATES CUT FURTHER BY 150BP IN 4QFY09                                                                                                                             REVERSE REPO RATES DO WN TO HISTORIC LEVELS


 10.0                                                                                                                                                                 7.0
                                                                                 9.0
                                                                                                                                                                                                                                                                                6.0
                                                                                                    8.0                                                               6.0                                                                                        5.8
                                                           7.8                                                                                                              5.5
  8.0                                                                                                             7.5                                                                                                                           5.3
         7.0                            6.8                                                                                                                                                  5.0                                                                                                5.0
                                                                                                                               6.5                                    5.0                                                           4.8
                        6.0                                                                                                                                                                                     4.5
  6.0                                                                                                                                     5.5                                                                                                                                                                        4.0
                                                                                                                                                     5.0              4.0                                                                                                                                                          3.5

  4.0                                                                                                                                                                 3.0
                                                                                                                                           Jan 09
                                             Jun 06




                                                                                                                               Dec 08
            Mar 03




                                                                                                                                                     Mar 09
                           Mar 04




                                                               Mar 07

                                                                                 July 08




                                                                                                                  Nov 08




                                                                                                                                                                                                                                                                                    Jul 06
                                                                                                                                                                                                                                                                  Jun 06




                                                                                                                                                                                                                                                                                                                     Jan 09
                                                                                                    Oct 08




                                                                                                                                                                                Feb 03




                                                                                                                                                                                                                                                                                                   Dec 08
                                                                                                                                                                                                                  Mar 04




                                                                                                                                                                                                                                                                                                                                        Mar 09
                                                                                                                                                                                                                                    Oct 04

                                                                                                                                                                                                                                                   Oct 05
                                                                                                                                                                                                  Aug 03




                                                                                                                                                                                                                                                                                               Source: RBI/MOSL




SBI CUTS DEPOSIT RATE FURTHER BY 50BP; PEAK DEPOSITS RATE CAME DOWN TO 8.5%

                                                                                                    JAN-08                      JUN-08                    JUN-08            AUG-08                                OCT-08                               DEC-08                            JAN-09                               MAR-09

15days-45days                                                                                           4.75                            4.75                   4.75              4.75                                4.75                               4.75                       4.25        4.25
46days-90days                                                                                           5.25                            5.25                   5.25              5.25                                5.25                               5.25                       5.25        5.25
91days-180days                                                                                          7.00                            7.00                   7.00              7.50                                7.50                               7.00                       6.50        6.50
180days-less than 1year                                                                                 7.50                            7.50                   8.00              8.50                                8.50                               8.00                       7.25        7.25
1year to less than 2years                                                                               8.75                            8.75                   9.50             10.00                               10.00                               9.50                       8.50        8.10
1,000 days deposit scheme                                                                                                                                                                                           10.50                              10.00                       9.00        8.50
2 years to less than 3years                                                                             8.50                            8.75                   9.50                9.50                              9.50                               9.00                       8.75        8.25
3 years to less than 5years                                                                             8.50                            8.85                   9.00                9.75                              9.75                               9.25                       8.50        8.50
5 years and above                                                                                       8.50                            9.00                   9.00                9.25                              9.25                               9.00                       8.50        8.50
                                                                                                                                                                                                                                                                               Source: Company/MOSL




27 March 2009                                                                                                                                                                                                                                                                                                                               81
                                                                                                                                                                                                                                                                                            Banking




SIGNIFICANT V OLATILY WILL HELP BANKS T O EARN HIGHER TRADING PR OFITS

1YEAR G-SEC YIELD INCREASED BY ~15BP TO 5.2%                                                                                 10 YEAR G-SEC YIELD INCREASED BY ~170BP TO 7%


 10.00                                                                                                                       10.00
                               9.4                                                                                                                                                                                    9.4
                                             9.1
  9.00                                                                                                                           9.00
                                                                                                                                                                                                                                                 8.6
                    7.9
  8.00
         7.3                                                                                                                     8.00
                                                                                                                                               7.8                                                                                                                   7.6
  7.00                                                                                                                                                                                                                                                                                                    7.0
                                                                           6.4                                                   7.00
  6.00                                                                                                                                                                                                                                                                              6.3
                                                                                                        5.2                      6.00
  5.00
                                                                                                                                                                                                                                                                                  5.2
  4.00                                                                                                                           5.00




                                                                                                                                                    Jul-08
                                                                                                                                                   Jan-08
                                                                                                                                                   Jan-08




                                                                                                                                                   Jun-08




                                                                                                                                                   Jan-09
                                                                                                                                                   Feb-08




                                                                                                                                                   Feb-09
                                                                                                                                                   Sep-08




                                                                                                                                                   Dec-08
                                                                                                                                                   Mar-08




                                                                                                                                                   Mar-09
                                                                                                                                                   Mar-09
                                                                                                                                                   Nov-08
                                                                                                                                                   Oct-08
                                                                                                                                                   Oct-08
                                                                                                                                                   May-08
                                                                                                                                                   May-08



                                                                                                                                                   Aug-08
                                                                                                                                                   Apr-08
          Jul-08
         Jan-08
         Jan-08




         Jun-08




         Jan-09
         Feb-08




         Feb-09
         Sep-08




         Dec-08
         Mar-08




         Mar-09
         Mar-09
         Nov-08
         Oct-08
         Oct-08
         May-08
         May-08



         Aug-08
         Apr-08




                                                                                                                                                                                                                                                 Source: Company/MOSL




                                  CoD RATES CAME DOWN FROM THE PICK OF 14% IN 3QFY09 TO 7.6% IN 4QFY09


                                                                                                                                6 Month (%)                                        12 Month (%)
                                     15
                                                                                                                                                                                                       14.0
                                     13

                                     11

                                      9
                                                                                                                                                                                                                                                                                                         7.6
                                      7

                                      5
                                                                                                         Jul-08
                                                                                                                  Jul-08
                                                                                                                             Jul-08
                                                                                     Jun-08
                                                                                               Jun-08




                                                                                                                                                                                                                                                   Jan-09
                                                                                                                                                                                                                                                                Jan-09
                                                                                                                                                                                                                                                                         Feb-09
                                                                                                                                                                                                                                                                                   Feb-09
                                                                                                                                                            Sep-08
                                                                                                                                                                         Sep-08




                                                                                                                                                                                                                               Dec-08
                                                                                                                                                                                                                                        Dec-08




                                                                                                                                                                                                                                                                                                Mar-09
                                                                                                                                                                                                       Nov-08
                                                                                                                                                                                                                     Nov-08
                                                                                                                                                                                    Oct-08
                                                                                                                                                                                             Oct-08
                                                                  May-08
                                                                           May-08




                                                                                                                                          Aug-08
                                                                                                                                                   Aug-08
                                          Apr-08
                                                       Apr-08




                                  CP RATES CAME DOWN FROM THE PICK OF 15% IN 3QFY09 TO 10% IN 4QFY09


                                     16.0
                                                                                                                                                                                                                                                                                  15.0
                                     14.0

                                     12.0

                                     10.0
                                                                                                                                                                                                                                                                                                     10.0
                                      8.0

                                      6.0
                                                                                          Jul-06




                                                                                                                                                                Jun-07




                                                                                                                                                                                                            Jan-08




                                                                                                                                                                                                                                          Jun-08




                                                                                                                                                                                                                                                                                       Jan-09
                                                                Feb-06




                                                                                                                                      Feb-07
                                              Dec-05




                                                                                                        Sep-06




                                                                                                                                                                                  Sep-07




                                                                                                                                                                                                                              Mar-08




                                                                                                                                                                                                                                                                                                         Mar-09
                                                                                                                    Nov-06




                                                                                                                                                                                              Nov-07




                                                                                                                                                                                                                                                                         Oct-08
                                                                            May-06




                                                                                                                                                                                                                                                            Aug-08
                                                                                                                                                   Apr-07




                                                                                                                                                                                                                                                 Source: Company/MOSL




27 March 2009                                                                                                                                                                                                                                                                                                82
                                                                                                                                                    Banking




Stock performance and valuations
STOCK PERFORMANCE (%)

                                                  ABSOLUTE PERF                           REL PERF TO SENSEX                    REL PERF TO SECTOR

                                                3M               1 YEAR                   3M              1 YEAR                3M               1 YEAR

Banking
Andhra Bank                                     -13                 -35                   -21                  2                 -7                   1
Axis Bank                                       -10                 -46                   -18                 -8                 -4                 -10
Bank of Baroda                                   -6                 -15                   -13                 23                  0                  21
Bank of India                                   -16                 -11                   -24                 26                -10                  24
Canara Bank                                     -11                 -24                   -19                 13                 -5                  11
Corporation Bank                                 -5                 -39                   -12                 -1                  1                  -3
Federal Bank                                     -6                 -33                   -14                  4                  0                   3
HDFC                                             10                 -40                     2                 -3                 16                  -5
HDFC Bank                                         2                 -31                    -5                  7                  8                   5
ICICI Bank                                       -8                 -54                   -16                -17                 -2                 -18
Indian Bank                                     -31                 -49                   -39                -12                -25                 -14
Indian Overseas Bank                            -31                 -64                   -38                -27                -25                 -28
J&K Bank                                        -17                 -57                   -25                -19                -11                 -21
Oriental Bank of Commerce                       -19                 -33                   -27                  4                -13                   2
Punjab National Bank                            -12                 -16                   -19                 22                 -6                  20
State Bank                                      -10                 -32                   -17                  5                 -4                   4
Union Bank                                       -3                   6                   -11                 44                  3                  42



RELATIVE PERFORMANCE - 3 MONTH (%)                                            RELATIVE PERFORMANCE - 1 YEAR (%)


                   Sensex        MOSt Banking Index                                                      MOSt Banking Index           Sensex
 120                                                                              115
 105                                                                              100
  90                                                                              85
  75                                                                              70
  60                                                                              55
         Dec-08         Jan-09         Feb-09           Mar-09                          Mar-08          Jun-08        Sep-08         Dec-08        Mar-09



                  CMP (RS)   RECO                 EPS (RS)                         P/E (X)                       P/BV (X)                     ROE (%)

                   27.3.09                FY09E       FY10E   FY11E       FY09E    FY10E        FY11E    FY09E     FY10E    FY11E     FY09E    FY10E    FY11E

Banks
Andhra Bank            48    Buy           12.8        12.9    13.9         3.8       3.7         3.5      0.6       0.6       0.5     18.0      16.4     15.9
Axis Bank             431    Buy           47.1        51.3    63.6         9.2       8.4         6.8      1.5       1.4       1.2     17.9      17.1     18.6
Bank of Baroda        248    Buy           52.5        50.5    56.9         4.7       4.9         4.4      0.8       0.7       0.6     18.2      15.4     15.4
Bank of India         234    Neutral       57.0        47.2    53.6         4.1       5.0         4.4      1.1       0.9       0.8     29.5      19.8     19.0
Canara Bank           167    Buy           46.4        37.5    41.9         3.6       4.5         4.0      0.7       0.6       0.6     21.1      14.9     14.9
Corporation Bank      175    Buy           58.6        54.0    56.7         3.0       3.2         3.1      0.5       0.5       0.4     18.4      15.0     14.1
Federal Bank          147    Buy           30.9        33.5    38.8         4.8       4.4         3.8      0.6       0.5       0.5     12.8      12.6     13.2
HDFC                1,589    Neutral       74.8        85.2    99.3        21.2      18.6        16.0      3.4       3.2       2.9     16.8      17.5     18.7
HDFC Bank             997    Buy           53.2        65.5    82.6        18.7      15.2        12.1      2.9       2.4       2.1     15.8      17.3     18.6
ICICI Bank            385    Buy           33.4        33.6    42.2        11.5      11.5         9.1      0.9       0.8       0.8      7.8       7.5      8.9
Indian Bank            88    Buy           27.3        27.8    32.3         3.2       3.2         2.7      0.7       0.6       0.5     23.2      20.0     20.0
Indian Overseas Bank 48      Buy           24.6        23.0    25.6         1.9       2.1         1.9      0.4       0.4       0.3     25.4      19.8     18.9
J&K Bank              291    Buy           92.6        99.9   117.7         3.1       2.9         2.5      0.5       0.5       0.4     18.1      17.0     17.5
Oriental Bank         119    Buy           38.0        37.7    40.9         3.1       3.2         2.9      0.5       0.4       0.4     15.5      13.6     13.3
Punjab National Bank 441     Buy           96.3        95.8   110.8         4.6       4.6         4.0      1.1       0.9       0.8     25.3      21.0     20.7
State Bank          1,125    Buy          140.2       134.2   155.6         8.0       8.4         7.2      1.3       1.1       1.0     16.9      14.4     15.0
Union Bank            152    Buy           36.5        35.5    41.5         4.2       4.3         3.7      1.1       0.9       0.8     29.0      23.1     22.6
Sector Aggregate                                                            7.9       8.0         6.8      1.3       1.2       1.1     16.8      14.8     15.5


27 March 2009                                                                                                                                               83
                                                                                                                                                  Results Preview
                                                                                                                                               SECTOR: BANKING




                                                                                                                                       Andhra Bank
STOCK INFO.         BLOOMBERG
                                                27 March 2009
BSE Sensex: 10,049 ANDB IN                                                                                                                                       Buy
                    REUTERS CODE
S&P CNX: 3,109      ADBK.BO                     Previous Recommendation: Buy                                                                                      Rs48
Equity Shares (m)             485.0             YEAR     NET INCOME          PAT       EPS      EPS         P/E          P/BV   CAR         ROAE      ROAA      P/ABV
                                                END            (RS M)     (RS M)       (RS) GROWTH (%)      (X)          (X)    (%)         (%)        (%)      RATIO
52-Week Range                 88/35
                                                3/08A      20,012        5,756        11.9        7.0       4.1          0.7    11.7        18.0       1.1       0.7
1,6,12 Rel.Perf.(%)           -1/8/2
                                                3/09E      22,975        6,189        12.8        7.5       3.8          0.6    10.7        18.0       1.0       0.7
M.Cap. (Rs b)                  23.4
                                                3/10E      25,935        6,274        12.9        1.4       3.7          0.6    10.2        16.4       0.9       0.6
M.Cap. (US$ b)                  0.5
                                                3/11E      28,832        6,761        13.9        7.8       3.5          0.5     9.5        15.9       0.8       0.6



?   We expect net interest income (NII) to grow 31% YoY to Rs4.2b on the back of lower base effect and 25% YoY
    growth in loans. On a QoQ basis NII is expected to decline by 6% on the back of expected fall in margins (PLR cuts
    and loss of pricing power).

?   Moderate growth in fee-based income (~10% expected) coupled with lower trading profits and recoveries are likely
    to keep non-interest income under pressure. In 4QFY08, the bank had earned trading profits of Rs320m and recovered
    Rs310m from written off accounts.

?   With gross NPAs at just 0.9% and net NPAs at 0.21%, incremental provisioning for NPA would be low.

?   The stock is trading at 3.7x FY10E EPS and 0.6x FY10E ABV. The stock also offers an attractive dividend yield of
    ~8%. Maintain Buy.

QUARTERLY PERFORMANCE                                                                                                                                       (RS MILLION)

Y/E MARCH                                                       FY08                                              FY09                              FY08        FY09E

                                          1Q             2Q             3Q            4Q         1Q         2Q             3Q         4QE

Interest Income                        9,704      10,455          10,654       11,489        11,574     13,281      13,824      14,016            42,096       52,695
Interest Expense                       6,273       7,008           7,156        8,263         8,111      8,948       9,305       9,786            28,700       36,151
Net Interest Income                    3,431       3,447           3,498        3,226         3,463      4,333       4,519       4,230            13,396       16,544
   % Change (Y-o-Y)                                                                              0.9      25.7        29.2        31.1               -0.3        23.5
Other Income                           1,315          1,379        1,680           2,036      1,187      1,354       2,165       1,725             6,617        6,431
Net Income                             4,746          4,826        5,178           5,262      4,649      5,687       6,684       5,955            20,012       22,975
Operating Expenses                     2,512          2,505        2,295           2,131      2,597      2,905       2,958       2,812             9,443       11,272
Operating Profit                       2,234          2,322        2,883           3,131      2,053      2,782       3,725       3,142            10,569       11,703
   % Change (Y-o-Y)                     18.2           13.6         19.1              5.9       -8.1      19.8        29.2          0.4             13.5         10.7
Other Provisions                          93            110          278             914      1,227        569         249         490             1,394        2,534
Profit before Tax                      2,141          2,212        2,605           2,218        826      2,213       3,477       2,653             9,176        9,169
Tax Provisions                           730            700        1,015             975          50       600       1,350         980             3,420        2,980
Net Profit                             1,411          1,512        1,590           1,243        776      1,613       2,127       1,673             5,756        6,189
   % Change (Y-o-Y)                     21.2             3.3        16.7           -10.5      -45.0         6.7       33.8        34.6                7.0          7.5
Interest Exp/Interest Income (%)        64.6           67.0         67.2            71.9       70.1       67.4        67.3        69.8              68.2         68.6
Other Income/Net Income (%)             27.7           28.6         32.4            38.7       25.5       23.8        32.4        29.0              33.1         28.0
Cost/Income Ratio (%)                   52.9           51.9         44.3            40.5       55.8       51.1        44.3        47.2              47.2         49.1
Provisions/Operating Profits (%)          4.2            4.7          9.6           29.2       59.8       20.4          6.7       15.6              13.2         21.6
Tax Rate (%)                            34.1           31.6         39.0            44.0         6.1      27.1        38.8        36.9              37.3         32.5
E: MOSL Estimates

Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                                          84
                                                                                                                                       Results Preview
                                                                                                                                    SECTOR: BANKING




                                                                                                                                   Axis Bank
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 AXSB IN                                                                                                                          Buy
                    REUTERS CODE
S&P CNX: 3,109      AXBK.BO                Previous Recommendation: Buy                                                                             Rs431
Equity Shares (m)             357.7        YEAR    NET INCOME         PAT   EPS      EPS        P/E       P/BV       CAR         ROAE     ROAA      P/ABV
                                           END          (RS M)    (RS M)    (RS) GROWTH (%)      (X)          (X)    (%)         (%)       (%)      RATIO
52-Week Range            970/279
                                           3/08A    43,808       10,710     29.9      28.0     14.4           1.8    13.7        17.6      1.2       1.8
1,6,12 Rel.Perf.(%)      11/-16/-8
                                           3/09E    63,685       16,851     47.1      57.3      9.2           1.5    12.5        17.9      1.3       1.6
M.Cap. (Rs b)                 154.2
                                           3/10E    74,057       18,348     51.3       8.9      8.4           1.4    11.1        17.1      1.2       1.5
M.Cap. (US$ b)                  3.0
                                           3/11E    89,484       22,761     63.6      24.1      6.8           1.2    10.0        18.6      1.2       1.3



?   We expect NII growth of ~22% YoY in 4QFY09 on the back of 36% loan growth and improved yield on advances.
    NII at end-4QFY08 was substantial (a large base) owing to the raising of capital

?   We expect margins to improve QoQ from 3.1% in 3QFY09, as we expect cost of funds to decline in the quarter due
    to downward repricing of bulk deposits and better liquidity.

?   We expect fee income growth to slow down to ~25% in 4QFY09 due to growth pressure on retail fee.

?   We have factored in higher NPA provisions during 4QFY09.

?   The stock is trading at 8.4x FY10E EPS and 1.5x FY10E ABV. Maintain Buy.


QUARTERLY PERFORMANCE                                                                                                                           (RS MILLION)

Y/E MARCH                                                FY08                                          FY09                              FY08       FY09E

                                      1Q           2Q            3Q         4Q        1Q        2Q              3Q         4QE

Interest Income                  15,111      16,765        18,023       20,154     22,664    25,450      29,848      31,029            70,053     108,991
Interest Expense                 10,901      10,878        10,550       11,870     14,560    16,316      20,551      20,888            44,200      72,314
Net Interest Income               4,209       5,887         7,473        8,284      8,105     9,134       9,297      10,142            25,854      36,677
   % Change (Y-o-Y)                41.3        72.9          91.1         88.7       92.5      55.2        24.4        22.4              76.1        41.9
Other Income                      3,682       3,829         4,879        5,565      6,248     6,944       7,322       6,494            17,955      27,008
Net Income                        7,892       9,716        12,352       13,849     14,353    16,078      16,619      16,636            43,808      63,685
Operating Expenses                4,212       5,087         5,630        6,621      6,329     7,334       7,522       7,977            21,549      29,163
Operating Profit                  3,679       4,629         6,723        7,228      8,023     8,744       9,096       8,659            22,259      34,522
   % Change (Y-o-Y)                29.9        85.3         101.4         82.1      118.1      88.9        35.3        19.8              76.1        55.1
Other Provisions                  1,009       1,145         2,001        1,642      2,967     2,558       1,320       2,146             5,794       8,991
Profit before Tax                 2,670       3,484         4,722        5,586      5,056     6,186       7,777       6,513            16,465      25,531
Tax Provisions                      921       1,206         1,654        1,972      1,754     2,157       2,768       2,001             5,755       8,681
Net Profit                        1,750       2,278         3,068        3,614      3,302     4,029       5,009       4,512            10,710      16,851
   % Change (Y-o-Y)                45.2        60.5          66.2         70.5       88.7      76.8        63.2        24.8              62.5        57.3
Interest Exp/Interest Income (%)   72.1        64.9          58.5         58.9       64.2      64.1        68.9        67.3              63.1        66.3
Other Income/Net Income (%)        46.7        39.4          39.5         40.2       43.5      43.2        44.1        39.0              41.0        42.4
Cost/Income Ratio (%)              53.4        52.4          45.6         47.8       44.1      45.6        45.3        47.9              49.2        45.8
Provisions/Operating Profits (%)   27.4        24.7          29.8         22.7       37.0      29.3        14.5        24.8              26.0        26.0
Tax Rate (%)                       34.5        34.6          35.0         35.3       34.7      34.9        35.6        30.7              35.0        34.0
E: MOSL Estimates


Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                              85
                                                                                                                                        Results Preview
                                                                                                                                     SECTOR: BANKING




                                                                                                                      Bank of Baroda
STOCK INFO.         BLOOMBERG
                                            27 March 2009
BSE Sensex: 10,049 BOB IN                                                                                                                            Buy
                    REUTERS CODE
S&P CNX: 3,109      BOB.BO                  Previous Recommendation: Buy                                                                            Rs248
Equity Shares (m)             365.5         YEAR    NET INCOME         PAT    EPS     EPS         P/E          P/BV   CAR         ROAE     ROAA     P/ABV
                                            END          (RS M)     (RS M)    (RS) GROWTH (%)     (X)          (X)    (%)         (%)      (%)      RATIO
52-Week Range               338/181
                                            3/08A    59,628       14,355     39.3      39.8       6.3          0.9    12.9        15.6     0.9       1.0
1,6,12 Rel.Perf.(%)          -1/8/23
                                            3/09E    74,509       19,206     52.5      33.8       4.7          0.8    12.2        18.2     1.0       0.8
M.Cap. (Rs b)                  90.6
                                            3/10E    79,272       18,467     50.5      -3.8       4.9          0.7    12.0        15.4     0.8       0.8
M.Cap. (US$ b)                   1.8
                                            3/11E    88,058       20,794     56.9      12.6       4.4          0.6    11.7        15.4     0.8       0.7



?   We expect NII to grow 38% YoY to Rs14.1b on the back of strong growth in loans (24% YoY) and expected
    improvement in margins on a YoY basis. However, on a QoQ basis NII is expected to fall by 3% despite expected
    increase in loan growth (4% QoQ) due to pressure on margins.

?   We have factored in fee income growth of 18% YoY and lower recoveries and trading profits of Rs830m v/s Rs2b in
    4QFY08.

?   We believe the bank will make higher NPA provisions and improve provision coverage in view of the expected
    worsening asset quality. We have factored in the NPA provisions of Rs2.3b in 4QFY09.

?   The stock is trading at 0.8x FY10E ABV and 4.9x FY10E EPS. Maintain Buy.


QUARTERLY PERFORMANCE                                                                                                                           (RS MILLION)

Y/E MARCH                                                 FY08                                          FY09                             FY08       FY09E

                                       1Q           2Q            3Q         4Q        1Q        2Q              3Q         4QE

Interest Income                  26,006       28,798        30,022       33,311     32,938    35,510      41,080      42,958        118,135       152,486
Interest Expense                 16,961       18,983        20,047       23,026     22,368    24,172      26,462      28,765         79,017       101,767
Net Interest Income               9,046        9,814         9,975       10,285     10,570    11,338      14,618      14,193         39,118        50,719
   % Change (Y-o-Y)                16.3         17.1            9.8         -2.4      16.9      15.5        46.6        38.0             9.3         29.7
Other Income                      4,242        4,541         6,180        5,546      5,126     4,759       9,156       4,750         20,510        23,790
Net Income                       13,287       14,355        16,155       15,831     15,696    16,097      23,774      18,942         59,628        74,509
Operating Expenses                6,843        7,983         6,831        7,687      7,094     7,641       9,627       9,570         29,343        33,931
Operating Profit                  6,445        6,372         9,324        8,145      8,602     8,456      14,147       9,373         30,286        40,578
   % Change (Y-o-Y)                25.9         23.7          30.1           5.4      33.5      32.7        51.7        15.1           25.4          34.0
Other Provisions                  1,414          981         1,570        4,250      2,803     2,419       3,501       3,189          8,214        11,912
Profit before Tax                 5,030        5,392         7,754        3,895      5,799     6,037      10,646       6,183         22,072        28,665
Tax Provisions                    1,722        2,120         2,744        1,131      2,090     2,084       3,562       1,723          7,716         9,460
Net Profit                        3,308        3,272         5,010        2,764      3,709     3,953       7,084       4,461         14,355        19,206
   % Change (Y-o-Y)               102.6         13.5          52.2         12.5       12.1      20.8        41.4        61.4           39.8          33.8
Interest Exp/Interest Income (%)   65.2         65.9          66.8         69.1       67.9      68.1        64.4        67.0           66.9          66.7
Other Income/Net Income (%)        31.9         31.6          38.3         35.0       32.7      29.6        38.5        25.1           34.4          31.9
Cost/Income Ratio (%)              51.5         55.6          42.3         48.6       45.2      47.5        40.5        50.5           49.2          45.5
Provisions/Operating Profits (%)   21.9         15.4          16.8         52.2       32.6      28.6        24.7        34.0           27.1          29.4
Tax Rate (%)                       34.2         39.3          35.4         29.0       36.0      34.5        33.5        27.9           35.0          33.0
E: MOSL Estimates



Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                              86
                                                                                                                                        Results Preview
                                                                                                                                     SECTOR: BANKING




                                                                                                                             Bank of India
STOCK INFO.         BLOOMBERG
                                            27 March 2009
BSE Sensex: 10,049 BOI IN                                                                                                                   Neutral
                    REUTERS CODE
S&P CNX: 3,109      BOI.BO                  Previous Recommendation: Neutral                                                                         Rs234
Equity Shares (m)              525.9        YEAR    NET INCOME         PAT    EPS     EPS         P/E          P/BV   CAR         ROAE     ROAA     P/ABV
                                            END          (RS M)     (RS M)    (RS) GROWTH (%)     (X)          (X)    (%)         (%)      (%)      RATIO
52-Week Range                369/180
                                            3/08A    63,461       20,094     38.2      66.1       6.1          1.4    12.0        27.6     1.3       1.4
1,6,12 Rel.Perf.(%)          -9/8/26
                                            3/09E    84,377       29,998     57.0      49.3       4.1          1.1    12.7        29.5     1.5       1.1
M.Cap. (Rs b)                  122.9
                                            3/10E    90,139       24,828     47.2     -17.2       5.0          0.9    11.5        19.8     1.1       1.0
M.Cap. (US$ b)                   2.4
                                            3/11E   100,494       28,195     53.6      13.6       4.4          0.8    11.3        19.0     1.1       0.9



?   We expect strong loan growth of 24% and deposit growth of ~20%. In 4QFY08, loans and deposits for the bank grew
    10%+ QoQ whereas, in 4QFY09 we expect the deposits to grow ~4% and loan to grow ~3%.

?   We expect margins to come under pressure QoQ, which will lead to flat NII growth on a QoQ basis. BoI’s cost of
    funds remains one of the best in the industry due to the strong retail term deposit franchise and efficient asset liability
    management.

?   We have assumed significantly lower trading profits and recoveries from written off accounts on a YoY as well as
    QoQ basis.

?   We believe BoI has many levers to ring in positive surprises versus our earnings estimate. The stock is trading at 5x
    FY10E EPS and 1x FY10E ABV. We maintain Neutral.


QUARTERLY PERFORMANCE                                                                                                                           (RS MILLION)

Y/E MARCH                                                 FY08                                          FY09                             FY08       FY09E

                                       1Q           2Q            3Q         4Q        1Q        2Q              3Q         4QE

Interest Income                  27,273       29,752        31,511       35,016     35,483    39,628      43,432      44,654        123,552       163,197
Interest Expense                 17,801       19,895        20,717       22,848     23,676    25,996      28,215      29,388         81,260       107,275
Net Interest Income               9,472        9,858        10,795       12,168     11,808    13,631      15,217      15,266         42,292        55,921
   % Change (Y-o-Y)                23.9         16.1          25.7         25.7       24.7      38.3        41.0        25.5           22.9          32.2
Other Income                      3,812        5,284         5,541        6,532      5,664     6,495      10,506       5,791         21,169        28,456
Net Income                       13,284       15,142        16,336       18,700     17,472    20,126      25,722      21,056         63,461        84,377
Operating Expenses                6,506        6,744         6,622        6,579      6,748     7,979       8,107       7,855         26,450        30,688
Operating Profit                  6,778        8,398         9,714       12,122     10,724    12,147      17,616      13,201         37,012        53,689
   % Change (Y-o-Y)                45.0         75.3          75.6         35.4       58.2      44.6        81.4          8.9          54.5          45.1
Other Provisions                  1,992        2,993         2,314        2,866      3,490     2,868       2,720       2,947         10,165        12,025
Profit before Tax                 4,786        5,405         7,400        9,256      7,234     9,280      14,896      10,254         26,847        41,664
Tax Provisions                    1,634        1,153         2,281        1,686      1,615     1,651       6,174       2,226          6,753        11,666
Net Profit                        3,152        4,253         5,119        7,570      5,620     7,629       8,722       8,028         20,094        29,998
   % Change (Y-o-Y)                51.0        100.5         100.8         69.2       78.3      79.4        70.4          6.1          78.9          49.3
Interest Exp/Interest Income (%)   65.3         66.9          65.7         65.3       66.7      65.6        65.0        65.8           65.8          65.7
Other Income/Net Income (%)        28.7         34.9          33.9         34.9       32.4      32.3        40.8        27.5           33.4          33.7
Cost/Income Ratio (%)              49.0         44.5          40.5         35.2       38.6      39.6        31.5        37.3           41.7          36.4
Provisions/Operating Profits (%)   29.4         35.6          23.8         23.6       32.5      23.6        15.4        22.3           27.5          22.4
Tax Rate (%)                       34.1         21.3          30.8         18.2       22.3      17.8        41.4        21.7           25.2          28.0
E: MOSL Estimates


Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                              87
                                                                                                                                       Results Preview
                                                                                                                                    SECTOR: BANKING




                                                                                                                            Canara Bank
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 CBK IN                                                                                                                           Buy
                    REUTERS CODE
S&P CNX: 3,109      CNBK.BO                Previous Recommendation: Neutral                                                                         Rs167
Equity Shares (m)             410.0        YEAR    NET INCOME         PAT    EPS     EPS         P/E          P/BV   CAR         ROAE     ROAA     P/ABV
                                           END          (RS M)     (RS M)    (RS) GROWTH (%)     (X)          (X)    (%)         (%)      (%)      RATIO
52-Week Range               250/135
                                           3/08A    57,507       15,650     38.2      10.1       4.4          0.8    13.3        19.1     0.9       0.9
1,6, 12 Rel.Perf.(%)    -12/11/13
                                           3/09E    65,657       19,010     46.4      21.5       3.6          0.7    12.4        21.1     1.0       0.8
M.Cap. (Rs b)                  68.5
                                           3/10E    69,811       15,379     37.5     -19.1       4.5          0.6    11.7        14.9     0.7       0.8
M.Cap. (US$ b)                  1.4
                                           3/11E    76,718       17,163     41.9      11.6       4.0          0.6    11.0        14.9     0.6       0.7



?   We expect loans to grow by 21% YoY (on a higher base) and deposits to grow 20% YoY. On a QoQ basis deposits
    are expected to grow 6% and loans will likely be flat.

?   We expect NII to grow 29% YoY due to the lower base effect. In 4QFY08, NII declined 13% YoY.

?   We expect operating profit to fall by 5% YoY due to lower expected trading profits and higher operating expenses
    (due to higher provisions for wage revision).

?   In 3QFY09 gross NPAs for the bank increased 60% QoQ (~Rs10b), as the bank recognized some of the technical
    NPAs, of which Rs5b is expected to reverse in 4QFY09. We have modeled higher NPA provision of Rs1.8b.

?   The stock is trading at 4.5x FY10E EPS and 0.8x FY10E ABV. We maintain Buy.


QUARTERLY PERFORMANCE                                                                                                                          (RS MILLION)

Y/E MARCH                                                FY08                                          FY09                             FY08       FY09E

                                      1Q           2Q            3Q         4Q        1Q        2Q              3Q         4QE

Interest Income                  33,800      34,826        35,502       37,880     37,305    41,092      46,254      45,981        142,007       170,633
Interest Expense                 24,859      26,957        26,158       28,655     27,114    29,602      33,811      34,117        106,629       124,644
Net Interest Income               8,941       7,869         9,344        9,225     10,192    11,490      12,443      11,864         35,378        45,989
   % Change (Y-o-Y)                 -5.7      -19.8         -10.1        -12.9       14.0      46.0        33.2        28.6          -12.1          30.0
Other Income                      3,801       5,721         5,464        7,143      3,685     3,388       7,575       5,021         22,129        19,668
Net Income                       12,742      13,590        14,808       16,368     13,877    14,877      20,018      16,885         57,507        65,657
Operating Expenses                6,621       7,086         7,230        6,976      6,841     7,142       7,877       7,927         27,913        29,788
Operating Profit                  6,121       6,503         7,578        9,392      7,036     7,735      12,141       8,957         29,594        35,869
   % Change (Y-o-Y)                  3.7         5.7           8.0         -6.6      15.0      18.9        60.2         -4.6            1.6         21.2
Other Provisions                  3,015       1,787         1,990        3,751      5,409     1,441       3,526       2,024         10,544        12,400
Profit before Tax                 3,106       4,716         5,588        5,641      1,627     6,294       8,615       6,934         19,050        23,470
Tax Provisions                      700         700         1,000        1,000        400     1,000       1,600       1,459          3,400         4,459
Net Profit                        2,406       4,016         4,588        4,641      1,227     5,294       7,015       5,474         15,650        19,010
   % Change (Y-o-Y)                26.0         11.0         26.1          -8.0     -49.0      31.8        52.9        18.0           10.1          21.5
Interest Exp/Interest Income (%)   73.5        77.4          73.7         75.6       72.7      72.0        73.1        74.2           75.1          73.0
Other Income/Net Income (%)        52.0        52.1          48.8         42.6       49.3      48.0        39.4        46.9           48.5          45.4
Cost/Income Ratio (%)              29.8        42.1          36.9         43.6       26.6      22.8        37.8        29.7           38.5          30.0
Provisions/Operating Profits (%)   49.3        27.5          26.3         39.9       76.9      18.6        29.0        22.6           35.6          34.6
Tax Rate (%)                       22.5        14.8          17.9         17.7       24.6      15.9        18.6        21.0           17.8          19.0
E: MOSL Estimates

Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                             88
                                                                                                                                         Results Preview
                                                                                                                                      SECTOR: BANKING




                                                                                                                     Corporation Bank
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 CRPBK IN                                                                                                                          Buy
                    REUTERS CODE
S&P CNX: 3,109      CRBK.BO                Previous Recommendation: Neutral                                                                          Rs175
Equity Shares (m)             143.4        YEAR    NET INCOME         PAT    EPS      EPS         P/E          P/BV   CAR          ROAE      ROAA    P/ABV
                                           END          (RS M)     (RS M)    (RS) GROWTH (%)      (X)          (X)     (%)         (%)        (%)   RATIO
52-Week Range            358/155
                                           3/08A    21,431        7,350     51.2       37.1       3.4          0.6    12.0         18.4       1.2    0.6
1,6,12 Rel.Perf.(%)      -9/-12/-1
                                           3/09E    24,906        8,406     58.6       14.4       3.0          0.5    11.0         18.4       1.2    0.5
M.Cap. (Rs b)                  25.1
                                           3/10E    28,390        7,739     54.0       -7.9       3.2          0.5    11.0         15.0       0.9    0.5
M.Cap. (US$ b)                  0.5
                                           3/11E    31,917        8,135     56.7        5.1       3.1          0.4     0.0         14.1       0.9    0.5



?   We expect loans to grow by 20% and deposits by 17% on a higher base. However, QoQ basis we expect the bank to
    grow its loans and deposits by 4% and 5%. On a QoQ basis, margin is expected to fall, which will lead to fall in NII
    by 8%.

?   We expect operating profit to fall 13% due to higher operating expenses (on account of higher wage revision provision)
    and lower trading profits and recoveries (Rs293m in 4QFY09 v/s Rs1b in 4QFY08).

?   Asset quality remains robust with net NPAs at 0.3%. We do not expect any material weakening of the asset portfolio
    for the bank, however the restructuring amount can throw negative surprises.

?   The stock is trading at P/E of 3.2x of FY10E EPS of Rs54 and P/ABV of 0.5x of FY10E ABV of Rs360. Maintain
    Buy.
QUARTERLY PERFORMANCE                                                                                                                           (RS MILLION)

Y/E MARCH                                                FY08                                           FY09                                FY08     FY09E

                                      1Q           2Q            3Q         4Q         1Q        2Q              3Q          4QE

Interest Income                  11,004      10,779        11,134       12,535     12,887     14,488      16,235       16,933             45,166    60,542
Interest Expense                  7,479       7,092         7,652        8,510      9,107     10,421      11,455       12,538             30,732    43,521
Net Interest Income               3,525       3,687         3,482        4,026      3,780      4,067       4,780        4,395             14,433    17,021
   % Change (Y-o-Y)                16.6        22.2          10.6           3.4        7.2      10.3        37.3           9.2              10.3      17.9
Other Income                      1,384       1,690         1,524        2,112      1,576      1,744       2,820        1,745              6,998     7,885
Net Income                        4,909       5,377         5,007        6,138      5,356      5,810       7,600        6,140             21,431    24,906
Operating Expenses                2,154       2,432         2,231        2,103      2,146      2,295       3,106        2,648              8,920    10,195
Operating Profit                  2,756       2,945         2,775        4,035      3,210      3,515       4,494        3,492             12,511    14,711
   % Change (Y-o-Y)                 -8.6       33.4            1.1        17.6       16.5       19.3        61.9        -13.5                 9.7     17.6
Other Provisions                    200         542            97        1,019      1,008        558         185          413              1,857     2,164
Profit before Tax                 2,556       2,404         2,678        3,016      2,201      2,957       4,309        3,079             10,654    12,547
Tax Provisions                      785         790           769          960        358      1,042       1,744          996              3,304     4,140
Net Profit                        1,771       1,614         1,909        2,056      1,843      1,915       2,565        2,084              7,350     8,406
   % Change (Y-o-Y)                22.8        27.1          30.4         73.5         4.1      18.7        34.3           1.3              37.1      14.4
Interest Exp/Interest Income (%)   68.0        65.8          68.7         67.9       70.7       71.9        70.6         74.0               68.0      71.9
Other Income/Net Income (%)        28.2        31.4          30.4         34.4       29.4       30.0        37.1         28.4               32.7      31.7
Cost/Income Ratio (%)              43.9        45.2          44.6         34.3       40.1       39.5        40.9         43.1               41.6      40.9
Provisions/Operating Profits (%)     7.2       18.4            3.5        25.3       31.4       15.9          4.1         11.8              14.8      14.7
Tax Rate (%)                       30.7        32.9          28.7         31.8       16.3       35.2        40.5         32.3               31.0      33.0
E: MOSL Estimates


Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                              89
                                                                                                                                                Results Preview
                                                                                                                                             SECTOR: BANKING




                                                                                                                                     Federal Bank
STOCK INFO.         BLOOMBERG
                                               27 March 2009
BSE Sensex: 10,049 FB IN                                                                                                                                    Buy
                    REUTERS CODE
S&P CNX: 3,109      FED.BO                     Previous Recommendation: Buy                                                                                 Rs147
Equity Shares (m)              171.0           YEAR    NET INCOME          PAT       EPS     EPS         P/E           P/BV   CAR         ROAE      ROAA    P/ABV
                                               END           (RS M)     (RS M)       (RS) GROWTH (%)      (X)          (X)    (%)         (%)        (%)   RATIO
52-Week Range                265/111
                                               3/08A     12,630        3,680        21.5    -37.1        6.8           0.6    22.5        13.6       1.3    0.6
1,6,12 Rel.Perf.(%)           5/-6/4
                                               3/09E     18,934        5,287        30.9     43.6        4.8           0.6    18.9        12.8       1.5    0.6
M.Cap. (Rs b)                   25.1
                                               3/10E     19,959        5,721        33.5       8.2       4.4           0.5    17.7        12.6       1.5    0.5
M.Cap. (US$ b)                   0.5
                                               3/11E     22,205        6,628        38.8     15.9        3.8           0.5    17.0        13.2       1.5    0.5


?   We expect NII growth of 49% on the back of improved margins (due to large capital raising of Rs21b in 4QFY08).
?   On a higher base, we expect loans to grow 19% YoY and deposits to grow 12% YoY. On a QoQ basis, loans and
    deposits is expected to grow 4% and 6% respectively
?   In 9MFY09, fee income for the bank grew 60%+ and we expect the strong traction to continue in 4QFY09 as well.
?   A sharp QoQ fall in trading gains and MTMs would lead to equally sharp earnings decline.
?   In 9MFY09, gross NPA for the bank increased 34% YTD due to the slippage of some of the large technical accounts.
    The bank expects to restrict the gross NPA in 4QFY09. We expect the bank to improve its provision coverage ratio
    from 88% to 94% in 4QFY09 on back of strong operating profits (42% YoY) and expected increase in slippages in
    FY10. Reported net NPAs would jump significantly due to floating provision reclassification.
?   Federal Bank is a value pick. The stock is trading at 4.4x FY10E EPS and 0.5x FY10E ABV with RoA of 1.4%+,
    however RoE is likely to remain lower due to lower leverage. Maintain Buy.

QUARTERLY PERFORMANCE                                                                                                                                 (RS MILLION)

Y/E MARCH                                                     FY08                                              FY09                               FY08     FY09E

                                         1Q            2Q             3Q            4Q        1Q         2Q              3Q         4QE

Interest Income                        5,553         5,943       6,487           7,172     7,451       8,281       8,764        9,128            25,154    33,624
Interest Expense                       3,665         3,918       4,450           4,442     4,669       4,963       4,918        5,054            16,474    19,605
Net Interest Income                    1,889         2,024       2,037           2,730     2,782       3,318       3,846        4,074             8,680    14,019
   % Change (Y-o-Y)                     22.2          23.9        16.6            22.0      47.3        63.9        88.8         49.2              21.1      61.5
Other Income                           1,044           808         850           1,249       962       1,042       1,648        1,263             3,950     4,915
Net Income                             2,932         2,832       2,887           3,979     3,744       4,360       5,494        5,336            12,630    18,934
Operating Expenses                     1,048         1,066       1,210           1,365     1,209       1,331       1,650        1,634             4,689     5,823
Operating Profit                       1,884         1,766       1,676           2,614     2,535       3,029       3,844        3,702             7,941    13,111
   % Change (Y-o-Y)                     65.7          27.1        23.7            16.3      34.5        71.5       129.3         41.6              29.6      65.1
Other Provisions                         670           548         345           1,377     1,724       1,569         500        1,766             2,940     5,558
Profit before Tax                      1,214         1,218       1,331           1,238       811       1,461       3,344        1,936             5,002     7,552
Tax Provisions                           545           265         302             209       130         318       1,306          513             1,321     2,266
Net Profit                               669           953       1,029           1,029       682       1,143       2,039        1,423             3,680     5,287
   % Change (Y-o-Y)                     66.6          37.2        22.8              3.6       1.8       19.9        98.1         38.4              25.7      43.6
Interest Exp/Interest Income (%)        66.0          65.9        68.6            61.9      62.7        59.9        56.1         55.4              65.5      58.3
Other Income/Net Income (%)             35.6          28.5        29.4            31.4      25.7        23.9        30.0         23.7              31.3      26.0
Cost/Income Ratio (%)                   35.7          37.6        41.9            34.3      32.3        30.5        30.0         30.6              37.1      30.8
Provisions/Operating Profits (%)        35.6          31.0        20.6            52.7      68.0        51.8        13.0         47.7              37.0      42.4
Tax Rate (%)                            44.9          21.8        22.7            16.9      16.0        21.8        39.0         26.5              26.4      30.0
E: MOSL Estimates




Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                                     90
                                                                                                                                           Results Preview
                                                                                                                                       SECTOR: BANKING




                                                                                                                                                HDFC
STOCK INFO.         BLOOMBERG
                                               27 March 2009
BSE Sensex: 10,049 HDFC IN                                                                                                                     Neutral
                    REUTERS CODE

S&P CNX: 3,109      HDFC.BO                    Previous Recommendation: Neutral                                                                       Rs1,589
Equity Shares (m)             287.7            YEAR    NET INCOME         PAT    EPS      EPS       P/E*          P/BV   CAR         ROAE     ROAA     P/ABV*
                                               END          (RS M)     (RS M)    (RS) GROWTH (%)     (X)          (X)    (%)         (%)      (%)       RATIO
52-Week Range          2,950/1,116
                                               3/08A        30,532    19,400     68.3     11.9      16.8          3.8    16.5        22.2     2.6        3.7
1,6,12 Rel.Perf.(%)       12/-1/-3
                                               3/09E        33,943    21,528     74.8      9.5      16.1          3.4    14.8        16.8     2.3        3.3
M.Cap. (Rs b)                 457.3
                                               3/10E        38,729    24,526     85.2     13.9      13.4          3.2    14.1        17.5     2.2        3.2
M.Cap. (US$ b)                  9.0
                                               3/11E        45,010    28,571     99.3     16.5      11.1          2.9    13.6        18.7     2.3        2.9
                                           * Price is adjusted for value of key ventures. Book Value is adjusted by deducting investments in
                                           key ventures from net worth
?   We expect HDFC’s disbursement growth to be muted at ~4% YoY in 4QFY09 — significantly lower than 22%
    growth registered in 9MFY09. We expect loan growth to slow down from ~24% YoY in 9MFY09 to 20% YoY in
    FY09.
?   Despite lending rate cuts, we expect spread to be unaffected due to significant reduction in wholesale borrowing
    costs during the quarter.
?   During 4QFY08, there was Rs2b exceptional gain (before tax) on stake sale in general insurance to Egro. Adjusted
    for extra-ordinary income earnings is expected to remain flat for the company.
?   At current price, HDFC is trading at 3.4x FY10E AP/ABV (price adjusted for value of other businesses and book
    value adjusted for investments made in those businesses). This is higher than our target multiple of 3x P/BV for the
    stock. Further BV multiple re-rating, in our view, is limited given the limited scope to the RoE expansion. Maintain
    Neutral.
QUARTERLY PERFORMANCE                                                                                                                              (RS MILLION)

Y/E MARCH                                                    FY08                                          FY09                             FY08       FY09E

                                         1Q            2Q            3Q         4Q         1Q       2Q              3Q         4QE

Income from Operations                18,269     18,869        21,504       23,112      23,135   26,151      29,193      28,993         81,764       107,471
Other Income                              34         39            44           90          51       55           56          78           197           240
Reported Total Income                 18,303     18,908        21,547       23,202      23,186   26,206      29,248      29,071         81,961       107,711
Total Income ex invst. profits        18,043     18,896        20,513       23,178      23,186   25,980      29,233      29,061         80,628       107,461
   YoY Change (%)                       50.3       38.8          47.6         40.8        28.5     37.5        42.5        25.4           44.7           33.3
Interest and Other Charges            12,451     12,220        13,160       13,598      15,684   17,573      20,427      20,085         51,429        73,768
Other Expenses                           765        823           741          664         967      991         960         958          2,993         3,877
Total Expenses                        13,217     13,043        13,901       14,262      16,651   18,563      21,387      21,044         54,422        77,645
PBDT                                   5,086      5,866         7,646        8,940       6,535    7,643       7,861       8,027         27,538        30,066
   YoY Change (%)                       32.7       33.0          70.1         31.2        28.5     30.3          2.8      -10.2           41.1            9.2
Depreciation                              37         40            44           45          37       43           45          41           166           166
PBT (Excl Exceptional)                 5,049      5,826         7,602        8,896       6,499    7,600       7,816       7,986         27,372        29,900
PBT Ex Invest. profits                 4,789      5,813         6,568        8,871       6,499    7,374       7,801       7,977         26,040        29,650
   YoY Change (%)                       45.8       54.7          74.4         50.7        35.7     26.9        18.8       -10.1           58.5           13.9
Exceptional Profits                        0      3,133         1,209        2,021           0        0            0           0         6,363              0
Reported PBT                           5,049      8,958         8,812       10,916       6,499    7,600       7,816       7,986         33,735        29,900
Provision for Tax                      1,322      2,493         2,323        3,235       1,818    2,258       2,348       1,950          9,373         8,372
Reported PAT                           3,727      6,465         6,489        7,681       4,681    5,342       5,468       6,036         24,363        21,528
   YoY Change (%)                       24.4       75.7          82.5         39.6        25.6    -17.4       -15.7       -21.4           55.1          -11.6
PAT (Excl exceptional)                 3,727      4,022         5,546        6,105       4,681    5,342       5,468       6,036         19,400        21,528
   YoY Change (%)                       24.4       17.5          56.0          11.0       25.6     32.8         -1.4        -1.1          25.6           11.0
E: MOSL Estimates

Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                               91
                                                                                                                                    Results Preview
                                                                                                                                   SECTOR: BANKING




                                                                                                                               HDFC Bank
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 HDFCB IN                                                                                                                         Buy
                    REUTERS CODE
S&P CNX: 3,109      HDBK.BO                Previous Recommendation: Buy                                                                             Rs997
                                           YEAR    NET INCOME          PAT      EPS    EPS         P/E       P/BV       CAR      ROAE    ROAA      P/ABV
Equity Shares (m)             424.3
                                           END          (RS M)        (RS M)    (RS) GROWTH (%)    (X)           (X)    (%)      (%)       (%)     RATIO
52-Week Range           1,575/774
                                           3/08A* 88,552          17,294       40.8     20.5      24.5       3.1        13.5     16.0     1.3        3.1
1,6,12 Rel.Perf.(%)           0/3/7
                                           3/09E 106,389          22,592       53.2     30.6      18.7       2.9        12.0     15.8     1.3        3.0
M.Cap. (Rs b)                 422.8
                                           3/10E 129,357          27,799       65.5     23.1      15.2       2.4        11.3     17.3     1.3        2.6
M.Cap. (US$ b)                  8.4
                                           3/11E   156,844        35,055       82.6     26.1      12.1       2.1        10.7     18.6     1.4        2.2
                                       * Includes pro forma merged figures for HDFC Bank and CBoP

?   HDFC Bank would consolidate CBoP in 4QFY09. We have included the impact of CBoP merger in our 4QFY09E.
?   On an adjusted basis, we expect loans to grow by 30% YoY and deposits to grow 20% YoY. We expect margins to
    remain stable QoQ.
?   We expect other income to decline QoQ due to lower treasury gains during the quarter. During 3QFY09, HDFC
    Bank has reported a strong treasury gain of Rs2.3b (25% of other income).
?   We do not expect overall provisions to increase significantly YoY due to (a) 4QFY08 provisions include exceptional
    provision towards MTM losses on derivative contracts (b) standard asset provision would be nil due to relaxation by
    RBI on some products.
?   On a reported basis, we expect HDFC Bank to report 37% earnings growth. However adjusted for CBoP (on an
    estimated basis) acquisition, earnings growth is expected to be ~29%.
?   We have not considered conversion of warrants by HDFC during FY10 in our estimates. We estimate PAT CAGR
    of 25% over FY09-FY11E with RoE increasing to 18.5% by FY11 (combining CBoP with HDFC Bank from FY08
    itself). The stock is trading at 2.6x FY10E ABV and 15.2x FY10E EPS. Maintain Buy.
QUARTERLY PERFORMANCE                                                                                                                          (RS MILLION)

Y/E MARCH                                                FY08                                            FY09*                          FY08      FY09E*

                                      1Q           2Q            3Q            4Q       1Q        2Q               3Q      4QE

Interest Income                  20,692  23,628    27,269   29,562     36,217     39,912     44,685  45,578                        101,150       166,392
Interest Expense                 10,836  12,001    12,893   13,141     18,983     21,248     24,893  25,460                         48,871        90,583
Net Interest Income               9,855  11,627    14,376   16,421     17,234     18,665     19,793  20,118                         52,279        75,810
   % Change (Y-o-Y)                30.1    47.6      65.6      55.7        74.9      60.5      37.7    22.5                           50.7          45.0
Other Income                      5,725   4,824     6,789    5,493       5,934      6,431     9,394   8,820                         22,825        30,579
Net Income                       15,581  16,451    21,165   21,914     23,169     25,096     29,186  28,938                         75,103       106,389
Operating Expenses                7,744   8,184    10,501   11,027     12,894     13,867     14,606  14,714                         37,456        56,080
Operating Profit                  7,837   8,267    10,664   10,887     10,275      11,229    14,581  14,224                         37,647        50,308
   % Change (Y-o-Y)                41.0    36.3      67.5      42.3        31.1      35.8      36.7    30.7                           46.8          33.6
Other Provisions                  3,071   2,894     4,231    4,651       3,445      3,460     5,318   4,862                         14,843        17,085
Profit before Tax                 4,766   5,373     6,432    6,236       6,830      7,768     9,263   9,362                         22,804        33,223
Tax Provisions                    1,553   1,688     2,139    1,525       2,187      2,488     3,046   2,911                          6,905        10,631
Net Profit                        3,212   3,685     4,294     4,711      4,643      5,280     6,217   6,451                         15,899        22,592
   % Change (Y-o-Y)                34.2    40.1      45.2      37.1        44.5      43.3      44.8    36.9                           39.3          42.1
Interest Exp/Interest Income (%)   52.4    50.8      47.3      44.5        52.4      53.2      55.7    55.9                           48.3          54.4
Other Income/Net Income (%)        36.7    29.3      32.1      25.1        25.6      25.6      32.2    30.5                           30.4          28.7
Cost/Income Ratio (%)              49.7    49.7      49.6      50.3        55.7      55.3      50.0    50.8                           49.9          52.7
Provisions/Operating Profits (%)   39.2    35.0      39.7      42.7        33.5      30.8      36.5    34.2                           39.4          34.0
Tax Rate (%)                       32.6    31.4      33.2      24.4        32.0      32.0      32.9    31.1                           30.3          32.0
E: MOSL Estimates; *FY09 numbers include merger of CBoP. They are not strictly comparable to FY08 numbers

Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                           92
                                                                                                                                             Results Preview
                                                                                                                                             SECTOR: BANKING




                                                                                                                                       ICICI Bank
STOCK INFO.         BLOOMBERG
                                               27 March 2009
BSE Sensex: 10,049 ICICIBC IN                                                                                                                             Buy
                    REUTERS CODE

S&P CNX: 3,109      ICBK.BO                 Previous Recommendation: Buy                                                                                  Rs385
Equity Shares (m)         1,112.7              YEAR    NET INCOME         PAT   EPS       EPS        P/E      AP/E*       P/BV     AP/ABV*      CAR       ROE
                                               END          (RS M)    (RS M)    (RS) GROWTH (%)      (X)          (X)     (X)          (X)       (%)       (%)
52-Week Range            961/253
                                               3/08A    161,149       41,577    37.4      8.0       10.3          7.2     0.9          0.8      14.0      11.7
1,6,12 Rel.Perf.(%)       4/-8/-17
                                               3/09E    158,496       37,118    33.4     -10.7      11.5          8.1     0.9          0.7      15.4       7.8
M.Cap. (Rs b)                 428.6
                                               3/10E    163,252       37,396    33.6      0.7       11.5          7.7     0.8          0.7      14.7       7.5
M.Cap. (US$ b)                  8.5
                                               3/11E    187,733       46,911    42.2     25.4        9.1          6.1     0.8          0.7      13.4       8.9
                                           *Price is adjusted for value of key ventures; Book value adjusted for investment in subsidiaries


?   We expect loans to decline 4% YoY as retail loan growth has slowed down significantly. However, on a QoQ basis
    loan growth may come from increase in agriculture and priority sector lending related activities. We expect deposits
    to decline 12% YoY due to net repayment of bulk deposits in the quarter and moderation in loan book growth.
?   We expect the margins to fall QoQ due to: a) carrying costs of high cost deposits raised during 3QFY09, b) build up
    of low yielding loan book during the quarter and c) existing home loan rate reduction during 4QFY09.
?   On a high base of 4QFY08, we expect fees to decline by ~25% YoY. We also expect the trading profits to be muted
    in the quarter. We have assumed trading profits of Rs2.3b v/s Rs9.8b in 3QFY09 and Rs1.6b in 4QFY09.
?   With deteriorating asset quality and exposure to riskier asset classes, we expect NPA provisions to remain high.
?   Excluding subsidiaries, the stock is trading adjusted P/E at 7.7x FY10E and 0.7x FY10E adjusted ABV. We maintain
    Buy.
QUARTERLY PERFORMANCE                                                                                                                                 (RS MILLION)

Y/E MARCH                                                    FY08                                          FY09                                FY08       FY09E

                                         1Q            2Q            3Q         4Q         1Q        2Q              3Q          4QE

Interest Income                       73,308     75,165        79,118       80,293     78,918    78,350      78,361        76,905        307,883        312,534
Interest Expense                      58,519     57,305        59,521       59,498     58,021    56,874      58,457        57,301        234,842        230,652
Net Interest Income                   14,790     17,860        19,597       20,795     20,898    21,476      19,904        19,604         73,041         81,882
   % Change (Y-o-Y)                     22.4       33.9          32.0         29.3       41.3      20.2          1.6          -5.7          29.6           12.1
Other Income                          19,506     20,719        24,266       23,617     15,382    18,773      25,145        17,314         88,108         76,615
Net Income                            34,295     38,579        43,863       44,411     36,279    40,250      45,050        36,918        161,149        158,496
Operating Expenses                    19,053     19,708        21,276       21,505     19,136    17,400      17,341        16,776         81,542         70,653
Operating Profit                      15,242     18,871        22,587       22,907     17,144    22,849      27,708        20,142         79,607         87,843
   % Change (Y-o-Y)                     58.0       37.8          28.9         28.1       12.5      21.1        22.7         -12.1           35.5           10.3
Other Provisions                       5,523      6,445         7,603        9,475      7,925     9,235      10,077        10,447         29,046         37,684
Profit before Tax                      9,720     12,427        14,984       13,432      9,219    13,614      17,631         9,696         50,561         50,159
Tax Provisions                         1,969      2,401         2,681        1,933      1,935     3,472       4,910         2,725          8,984         13,041
Net Profit                             7,751     10,026        12,303       11,498      7,283    10,142      12,722         6,971         41,577         37,118
   % Change (Y-o-Y)                     25.1       32.7          35.2         39.4        -6.0       1.2         3.4        -39.4           33.7          -10.7
Interest Exp/Interest Income (%)        79.8       76.2          75.2         74.1       73.5      72.6        74.6          74.5           76.3           73.8
Other Income/Net Income (%)             56.9       53.7          55.3         53.2       42.4      46.6        55.8          46.9           54.7           48.3
Cost/Income Ratio (%)                   55.6       51.1          48.5         48.4       52.7      43.2        38.5          45.4           50.6           44.6
Provisions/Operating Profits (%)        36.2       34.2          33.7         41.4       46.2      40.4        36.4          51.9           36.5           42.9
Tax Rate (%)                            20.3       19.3          17.9         14.4       21.0      25.5        27.8          28.1           17.8           26.0
E: MOSL Estimates


Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                                    93
                                                                                                                                         Results Preview
                                                                                                                                     SECTOR: BANKING




                                                                                                                               Indian Bank
STOCK INFO.         BLOOMBERG
                                            27 March 2009
BSE Sensex: 10,049 INBK IN                                                                                                                            Buy
                    REUTERS CODE
S&P CNX: 3,109      INBA.BO                 Previous Recommendation: Buy                                                                               Rs88
Equity Shares (m)              429.8        YEAR    NET INCOME         PAT    EPS       EPS        P/E          P/BV   CAR         ROAE     ROAA     P/ABV
                                            END          (RS M)     (RS M)    (RS) GROWTH (%)      (X)          (X)    (%)         (%)      (%)      RATIO
52-Week Range                 183/64
                                            3/08A        30,596    10,087     23.5      32.8       3.8          0.8    12.9        25.8     1.6       0.8
1,6,12 Rel.Perf.(%)     -11/-8/-12
                                            3/09E        36,081    11,720     27.3      16.2       3.2          0.7    10.2        23.2     1.5       0.7
M.Cap. (Rs b)                   37.9
                                            3/10E        40,220    11,933     27.8      1.8        3.2          0.6    9.9         20.0     1.3       0.6
M.Cap. (US$ b)                   0.7
                                            3/11E        45,279    13,887     32.3      16.4       2.7          0.5    9.6         20.0     1.3       0.5



?   We expect loan book growth to remain strong at ~30%. During 9MFY09, the bank reduced the share of bulk deposits
    to 9.5% (14.4% in 4QFY08), which will help the bank maintain margins despite cut in PLR. We have factored in
    lower interest on recoveries in our 4QFY09 estimates. Any positive surprise on that front can lead to higher than
    expected NII growth.
?   In 9MFY09, fee income grew 35%+ and we expect the strong traction to continue. We have factored in ~20%
    growth in fees. In 4QFY08, the bank earned the trading profits and recoveries from written off accounts of Rs1.5b,
    which we expect to be lower. Higher-than-expected recoveries and trading profits would provide upside to our
    earnings estimates.
?   Asset quality of the bank remains strong with GNPA at 0.9% and net NPAs at 0.2%. We have factored in accelerated
    NPA provisions as operating profit growth remains strong.
?   The stock is trading at 3.2x FY10E EPS and 0.6x FY10E ABV. Maintain Buy.

QUARTERLY PERFORMANCE                                                                                                                            (RS MILLION)

Y/E MARCH                                                 FY08                                           FY09                             FY08       FY09E

                                       1Q           2Q            3Q         4Q          1Q       2Q              3Q         4QE

Interest Income                  11,952       12,574        13,911       13,600      15,018    16,882      17,840      17,977         51,508        67,717
Interest Expense                  7,124        7,862         8,137        8,468       9,623    10,063      10,644      11,247         31,591        41,578
Net Interest Income               4,828        4,712         5,774        5,132       5,395     6,818       7,196       6,730         19,917        26,139
   % Change (Y-o-Y)                24.8           9.1         39.5          -6.7        11.7     44.7        24.6        31.1            11.8         31.2
Other Income                      1,815        2,357         2,849        3,129       2,432     2,128       2,873       2,509         10,679         9,942
Net Income                        6,644        7,069         8,623        8,261       7,827     8,946      10,069       9,238         30,596        36,081
Operating Expenses                3,346        3,635         3,991        3,031       3,461     3,618       3,833       3,748         14,003        14,659
Operating Profit                  3,297        3,434         4,632        5,230       4,366     5,328       6,237       5,491         16,593        21,422
   % Change (Y-o-Y)                43.7         15.5          59.6          -3.4       32.4      55.1        34.6          5.0          17.4          17.9
Other Provisions                    907          497         1,057        1,782       1,690     1,089       1,410         841          4,243         5,030
Profit before Tax                 2,390        2,937         3,575        3,448       2,676     4,239       4,827       4,650         12,350        16,392
Tax Provisions                      270          461           500        1,031         500     1,409       1,320       1,442          2,262         4,672
Net Profit                        2,120        2,476         3,075        2,417       2,176     2,829       3,507       3,208         10,087        11,720
   % Change (Y-o-Y)                28.7         46.4          61.4           2.7         2.6     14.3        14.0        32.7           32.8          16.2
Interest Exp/Interest Income (%)   59.6         62.5          58.5         62.3        64.1      59.6        59.7        62.6           61.3          61.4
Other Income/Net Income (%)        27.3         33.3          33.0         37.9        31.1      23.8        28.5        27.2           34.9          27.6
Cost/Income Ratio (%)              50.4         51.4          46.3         36.7        44.2      40.4        38.1        40.6           45.8          40.6
Provisions/Operating Profits (%)   27.5         14.5          22.8         34.1        38.7      20.4        22.6        15.3           25.6          23.5
Tax Rate (%)                       11.3         15.7          14.0         29.9        18.7      33.3        27.3        31.0           18.3          28.5
E: MOSL Estimates

Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                               94
                                                                                                                                         Results Preview
                                                                                                                                     SECTOR: BANKING




                                                                                                     Indian Overseas Bank
STOCK INFO.         BLOOMBERG
                                            27 March 2009
BSE Sensex: 10,049 IOB IN                                                                                                                             Buy
                    REUTERS CODE
S&P CNX: 3,109      IOBK.BO                 Previous Recommendation: Buy                                                                               Rs48
Equity Shares (m)              544.8        YEAR    NET INCOME         PAT    EPS       EPS        P/E          P/BV   CAR         ROAE     ROAA     P/ABV
                                            END          (RS M)     (RS M)    (RS) GROWTH (%)      (X)          (X)    (%)         (%)      (%)      RATIO
52-Week Range                 157/38
                                            3/08A        34,871    11,973     22.0      18.7       2.2          0.6    11.1        27.8     1.3       0.6
1,6,12 Rel.Perf.(%)     -9/-28/-27
                                            3/09E        42,850    13,405     24.6      12.0       1.9          0.4    11.8        25.4     1.2       0.5
M.Cap. (Rs b)                   26.1
                                            3/10E        48,631    12,538     23.0      -6.5       2.1          0.4    11.5        19.8     1.0       0.4
M.Cap. (US$ b)                   0.5
                                            3/11E        53,711    13,972     25.6      11.4       1.9          0.3    11.5        18.9     1.0       0.4


?   We expect NII to grow 19% YoY on the back of the lower base effect. In 4QFY08, NII declined 11%. We expect
    loan growth to slow down to 22% YoY from 30%+ YoY in December 2008 (largely on account of the higher base
    effect).
?   In 9MFY09, fee income grew 16% YoY and we expect the traction to continue in 4QFY09 as well. We have
    assumed trading profits of Rs600m v/s Rs1b in 4QFY08 and Rs3.6b in 3QFY09.
?   Operating expenses likely to increase as the bank has started making provisions for the likely wage revisions. It has
    already provided Rs1.5b in 9MFY09.
?   In 9MFY09, IOB’s provision coverage worsened to 46% v/s 81% in 3QFY08 due to large slippages. We expect the
    bank to improve provision coverage in the quarter, as operating profit growth would remain strong.
?   PAT growth is likely to be 10% in 3QFY09, driven by higher growth in net interest income and treasury profits.
?   The stock is trading at 2.1x FY10E EPS and 0.4x FY10E ABV. We maintain Buy.
QUARTERLY PERFORMANCE                                                                                                                            (RS MILLION)

Y/E MARCH                                                 FY08                                           FY09                             FY08       FY09E

                                       1Q           2Q            3Q         4Q          1Q       2Q              3Q         4QE

Interest Income                  18,462       19,303        20,759       21,159      22,171    24,270      26,541      26,852         79,683        99,835
Interest Expense                 11,372       12,982        14,199       14,335      14,909    16,420      18,315      18,738         52,888        68,383
Net Interest Income               7,090        6,321         6,560        6,823       7,262     7,850       8,227       8,114         26,795        31,452
   % Change (Y-o-Y)                23.2           3.3           8.4        -11.2         2.4     24.2        25.4        18.9             4.6         17.4
Other Income                        616        1,745         2,195        3,521        -303     2,835       5,508       3,358          8,076        11,398
Net Income                        7,706        8,066         8,755       10,344       6,959    10,684      13,734      11,472         34,871        42,850
Operating Expenses                3,614        3,486         3,824        3,929       4,547     4,670       5,057       4,192         14,853        18,467
Operating Profit                  4,092        4,580         4,931        6,415       2,412     6,014       8,677       7,280         20,018        24,383
   % Change (Y-o-Y)                93.8         27.5          15.2          14.2      -41.1      31.3        76.0        13.5           28.3          21.8
Other Provisions                    620           83           367        2,398        -605     1,790       1,731       2,317          3,521         5,234
Profit before Tax                 3,472        4,497         4,564        4,017       3,017     4,224       6,946       4,962         16,497        19,149
Tax Provisions                      787        1,300         1,482          957         457       633       3,062       1,592          4,524         5,745
Net Profit                        2,685        3,197         3,082        3,060       2,560     3,590       3,884       3,370         11,973        13,405
   % Change (Y-o-Y)                20.9         28.0          24.9           5.6        -4.7     12.3        26.0        10.2           18.7          12.0
Interest Exp/Interest Income (%)   61.6         67.3          68.4          67.8       67.2      67.7        69.0        69.8           66.4          68.5
Other Income/Net Income (%)          8.0        21.6          25.1          34.0        -4.3     26.5        40.1        29.3           23.2          26.6
Cost/Income Ratio (%)              46.9         43.2          43.7          38.0       65.3      43.7        36.8        36.5           42.6          43.1
Provisions/Operating Profits (%)   15.2           1.8           7.4         37.4      -25.1      29.8        20.0        31.8           17.6          21.5
Tax Rate (%)                       22.7         28.9          32.5          23.8       15.2      15.0        44.1        32.1           27.4          30.0
E: MOSL Estimates

Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                               95
                                                                                                                                                Results Preview
                                                                                                                                             SECTOR: BANKING




                                                                                                       Jammu & Kashmir Bank
STOCK INFO.         BLOOMBERG
                                               27 March 2009
BSE Sensex: 10,049 JKBK IN                                                                                                                                    Buy
                    REUTERS CODE
S&P CNX: 3,109      JKBK.BO                    Previous Recommendation: Buy                                                                                   Rs291
Equity Shares (m)             48.5             YEAR     NET INCOME          PAT      EPS     EPS          P/E      P/BV       CAR         ROAE      ROAA      P/ABV
                                               END            (RS M)    (RS M)       (RS) GROWTH (%)      (X)          (X)    (%)         (%)        (%)      RATIO
52-Week Range             754/210
                                               3/08A      10,555        3,600       74.2      31.2        3.9          0.6    12.8        16.7       1.2       0.6
1,6,12 Rel.Perf.(%)      9/-12/-19
                                               3/09E      12,340        4,491       92.6      24.7        3.1          0.5    11.6        18.1       1.3       0.6
M.Cap. (Rs b)                 14.1
                                               3/10E      13,531        4,842       99.9       7.8        2.9          0.5    11.6        17.0       1.2       0.5
M.Cap. (US$ b)                  0.3
                                               3/11E      15,307        5,705       117.7     17.8        2.5          0.4    11.6        17.5       1.3       0.4



?   NII is expected to grow 12% to Rs2.5b in 4QFY09 on the back of expected muted loan growth of 15% (5% QoQ).
    We expect margins to come under pressure in 4QFY09 v/s 3QFY09 however, it is expected to remain higher than
    FY08 levels of 2.95%.

?   Other income growth is likely to be subdued due to lackluster fee-based income growth.

?   Management guided that it would be making higher NPA provisions, as trading profits have been strong in the quarter.
    We have modeled trading profits of Rs450m and NPA provisions of Rs500m in our estimates for 4QFY09.

?   The stock is trading at 2.9x FY10E EPS and 0.5x FY10E ABV. We maintain Buy.




QUARTERLY PERFORMANCE                                                                                                                                     (RS MILLION)

Y/E MARCH                                                      FY08                                             FY09                              FY08        FY09E

                                         1Q             2Q             3Q           4Q        1Q          2Q             3Q         4QE

Interest Income                       5,751          5,967        6,183           6,442     6,514      7,478       8,000        8,206           24,342       30,198
Interest Expense                      3,854          4,016        4,169           4,198     4,252      4,865       5,379        5,682           16,238       20,177
Net Interest Income                   1,896          1,951        2,013           2,244     2,263      2,613       2,621        2,524            8,104       10,021
   % Change (Y-o-Y)                      6.2            1.7          3.2           10.9      19.3       33.9        30.2         12.5               5.5        23.6
Other Income                            358            581          705             806       649        411         394          866            2,450        2,319
Net Income                            2,254          2,532        2,718           3,050     2,911      3,024       3,015        3,390           10,555       12,340
Operating Expenses                      943          1,034        1,039           1,021     1,096      1,148       1,145        1,155            4,036        4,544
Operating Profit                      1,312          1,498        1,679           2,029     1,815      1,876       1,870        2,235            6,518        7,796
   % Change (Y-o-Y)                    11.7           10.0         20.8            38.0      38.4       25.2        11.4         10.2             17.3         19.6
Other Provisions                        190             40           88             441       414        243         120          510              759        1,288
Profit before Tax                     1,122          1,458        1,591           1,588     1,401      1,633       1,750        1,725            5,760        6,509
Tax Provisions                          289            380          500             990       455        474         543          546            2,160        2,018
Net Profit                              832          1,078        1,091             598       946      1,159       1,207        1,179            3,600        4,491
   % Change (Y-o-Y)                    33.4           30.0         30.1            32.1      13.6         7.5       10.6         97.2             31.2         24.7
Interest Exp/Interest Income (%)       67.0           67.3         67.4            65.2      65.3       65.1        67.2         69.2             66.7         66.8
Other Income/Net Income (%)            15.9           22.9         25.9            26.4      22.3       13.6        13.1         25.5             23.2         18.8
Cost/Income Ratio (%)                  41.8           40.8         38.2            33.5      37.7       38.0        38.0         34.1             38.2         36.8
Provisions/Operating Profits (%)       14.5             2.7          5.2           21.7      22.8       12.9          6.4        22.8              11.6        16.5
Tax Rate (%)                           25.8           26.1         31.4            62.4      32.5       29.0        31.0         31.6             37.5         31.0
E: MOSL Estimates


Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                                        96
                                                                                                                                        Results Preview
                                                                                                                                     SECTOR: BANKING




                                                                                        Oriental Bank of Commerce
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 OBC IN                                                                                                                              Buy
                    REUTERS CODE
S&P CNX: 3,109      ORBC.BO                Previous Recommendation: Buy                                                                                Rs119
Equity Shares (m)             250.5        YEAR    NET INCOME         PAT    EPS      EPS         P/E          P/BV   CAR         ROAE      ROAA      P/ABV
                                           END          (RS M)     (RS M)    (RS) GROWTH (%)      (X)          (X)    (%)         (%)        (%)      RATIO
52-Week Range               229/95
                                           3/08A    22,987        8,409     33.6        1.7       3.6          0.5    12.1        14.8       1.0       0.6
1,6,12 Rel. Perf.(%)        -9/-2/4
                                           3/09E    30,308        9,531     38.0       13.3       3.1          0.5    12.0        15.5       1.0       0.5
M.Cap. (Rs b)                  29.9
                                           3/10E    34,313        9,443     37.7       -0.9       3.2          0.4    11.1        13.6       0.8       0.4
M.Cap. (US$ b)                  0.6
                                           3/11E    37,353       10,239     40.9        8.4       2.9          0.4    10.2        13.3       0.8       0.4



?   We expect OBC’s margin to remain stable (with downward bias) in 4QFY09, as a significant share of bulk deposits
    are expected to be repriced at lower rates.

?   Management has guided that loan growth would come down to ~20% in 4QFY09 from 28% YoY in 3QFY09 due to
    higher repayments from OMC. We expect loan growth of 20% and deposits growth of 18% respectively in 4QFY09.

?   We expect trading profits to remain high in the quarter, as the bank holds ~40% of the investment portfolio in the AFS
    category. The bank has not completely reversed the AFS MTM provisions in 3QFY09. Strong trading profits (largely
    on back of churning the portfolio) would enable the bank to make higher NPA provisions for the expected slippages.

?   The stock is trading at 3.2x FY10E EPS and 0.4x FY10E ABV. We maintain Buy.



QUARTERLY PERFORMANCE                                                                                                                             (RS MILLION)

Y/E MARCH                                                FY08                                           FY09                              FY08        FY09E

                                      1Q           2Q            3Q         4Q         1Q         2Q             3Q         4QE

Interest Income                  15,341      16,457        17,479       19,105     19,537     21,518      24,028      24,833            68,382       89,917
Interest Expense                 10,910      12,462        13,456       14,734     15,070     16,302      18,350      19,155            51,562       68,876
Net Interest Income               4,431       3,995         4,024        4,370      4,467      5,217       5,678       5,678            16,820       21,040
   % Change (Y-o-Y)                  7.8        -3.2          -4.5         -2.1        0.8      30.6        41.1        29.9               -0.6        25.1
Other Income                      1,462       1,425         1,674        1,606      2,055      2,092       3,154       1,967             6,167        9,268
Net Income                        5,893       5,420         5,697        5,976      6,522      7,308       8,832       7,645            22,987       30,308
Operating Expenses                2,642       2,698         2,730        2,726      2,985      3,241       4,970       2,529            10,796       13,725
Operating Profit                  3,251       2,722         2,967        3,250      3,537      4,067       3,862       5,116            12,190       16,583
   % Change (Y-o-Y)                 -7.4      -13.3           -3.2          0.0        8.8      49.4        30.2        57.4               -6.0        36.0
Other Provisions                    506        -191           258       -1,001      2,071      1,875         519       1,035              -429        5,501
Profit before Tax                 2,745       2,913         2,710        4,251      1,466      2,192       3,343       4,081            12,619       11,082
Tax Provisions                      741         551           713        2,206       -739       -177         821       1,647             4,210        1,552
Net Profit                        2,004       2,362         1,997        2,046      2,206      2,369       2,522       2,434             8,409        9,531
   % Change (Y-o-Y)                29.1       -24.0         -18.0          74.6      10.0         0.3       26.3        19.0                1.7        13.3
Interest Exp/Interest Income (%)   71.1        75.7          77.0          77.1      77.1       75.8        76.4        77.1              75.4         76.6
Other Income/Net Income (%)        24.8        26.3          29.4          26.9      31.5       28.6        35.7        25.7              26.8         30.6
Cost/Income Ratio (%)              44.8        49.8          47.9          45.6      45.8       44.3        56.3        33.1              47.0         45.3
Provisions/Operating Profits (%)   15.6         -7.0           8.7        -30.8      58.5       46.1        13.4        20.2               -3.5        33.2
Tax Rate (%)                       27.0        18.9          26.3          51.9     -50.4        -8.1       24.6        40.4              33.4         14.0
E: MOSL Estimates

Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                                97
                                                                                                                                     Results Preview
                                                                                                                                 SECTOR: BANKING




                                                                                                    Punjab National Bank
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 PNB IN                                                                                                                         Buy
                    REUTERS CODE
S&P CNX: 3,109      PNB.BO                 Previous Recommendation: Buy                                                                           Rs441
Equity Shares (m)             315.3        YEAR    NET INCOME         PAT    EPS    EPS        P/E          P/BV   CAR         ROAE     ROAA     P/ABV
                                           END          (RS M)     (RS M)    (RS) GROWTH (%)   (X)          (X)    (%)         (%)      (%)      RATIO
52-Week Range               580/286
                                           3/08A        75,317    20,488    65.0    33.0       6.8          1.3    13.5        19.6     1.1       1.4
1,6,12 Rel.Perf.(%)      18/17/22
                                           3/09E        96,731    30,367    96.3    48.2       4.6          1.1    11.8        25.3     1.4       1.1
M.Cap. (Rs b)                 139.1
                                           3/10E    107,697       30,196    95.8    -0.6       4.6          0.9    11.1        21.0     1.2       1.0
M.Cap. (US$ b)                  2.7
                                           3/11E    121,906       34,932    110.8   15.7       4.0          0.8    10.4        20.7     1.2       0.9


?   We expect loan growth to come down to 26% YoY in 4QFY09 v/s 39% YoY in 3QFY09 largely on the back of strong
    base effect. On a QoQ basis, we expect the bank to report loan growth of 6%. In 4QFY08, loans grew 18% QoQ
    and deposits grew 9% QoQ. Margins are expected to decline QoQ due to sharp PLR cuts and loss of pricing power.
?   We expect trading profits of Rs250m v/s Rs3.4b in 3QFY09 and Rs719b in 4QFY08. We expect fees to grow ~15%.
?   Gross NPA and net NPA ratio remains comfortable at 2.3% and 0.4% with provision coverage ratio of 83% as on
    December 2008. However, on the back of strong profitability we have assumed NPA provisions of Rs3.3b for
    4QFY09. PNB's reported net NPAs would rise significantly QoQ due to reclassification of floating provision.
?   We expect the bank to report PAT growth of 50% in 4QFY09 largely on back of strong core operations. In 4QFY08,
    the bank had a higher tax rate of 49%.
?   The stock is trading at 4.6x FY10E EPS and 1x FY10E ABV. We maintain Buy.
QUARTERLY PERFORMANCE                                                                                                                        (RS MILLION)

Y/E MARCH                                                FY08                                        FY09                             FY08       FY09E

                                      1Q           2Q            3Q         4Q       1Q        2Q             3Q         4QE

Interest Income                  32,860   34,631  36,361      38,798     41,385      46,504            52,947      53,620        142,650       194,455
Interest Expense                 19,850   21,716  22,119      23,625     26,937      29,382            33,274      34,110         87,309       123,703
Net Interest Income              13,010   12,915  14,242      15,173     14,448      17,122            19,674      19,510         55,342        70,753
   % Change (Y-o-Y)                  7.4      0.4     4.0       12.7        11.0       32.6              38.1        28.6             6.2         27.8
Other Income                      5,091    4,678   4,834       5,372      4,561       6,628             9,452       5,337         19,976        25,978
Net Income                       18,101   17,593  19,076      20,545     19,009      23,750            29,126      24,847         75,317        96,731
Operating Expenses                8,770    9,043   9,165       8,277      9,185      10,072            11,066      11,046         35,255        41,369
Operating Profit                  9,331    8,550   9,912      12,268      9,824      13,678            18,059      13,800         40,062        55,362
   % Change (Y-o-Y)                89.7      -5.0     3.6       39.0         5.3       60.0              82.2        12.5           10.7          38.2
Other Provisions                  3,072      779   1,576       1,677      2,105       3,177             1,813       2,943          7,103        10,039
Profit before Tax                 6,259    7,771   8,336      10,591      7,719      10,501            16,246      10,858         32,959        45,324
Tax Provisions                    2,009    2,386   2,923       5,154      2,595       3,430             6,188       2,744         12,472        14,957
Net Profit                        4,251    5,385   5,413       5,438      5,124       7,071            10,058       8,114         20,488        30,367
   % Change (Y-o-Y)                15.7       6.6   25.9       128.8       20.5        31.3              85.8        49.2           33.0          48.2
Interest Exp/Interest Income (%)   60.4     62.7    60.8        60.9       65.1        63.2              62.8        63.6           61.2          63.6
Other Income/Net Income (%)        28.1     26.6    25.3        26.1       24.0        27.9              32.5        21.5           26.5          26.9
Cost/Income Ratio (%)              48.4     51.4    48.0        40.3       48.3        42.4              38.0        44.5           46.8          42.8
Provisions/Operating Profits (%)   32.9       9.1   15.9        13.7       21.4        23.2              10.0        21.3           17.7          18.1
Tax Rate (%)                       32.1     30.7    35.1        48.7       33.6        32.7              38.1        25.3           37.8          33.0
E: MOSL Estimates; Quarterly and Annual numbers may not tally due to reclassification




Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                           98
                                                                                                                                          Results Preview
                                                                                                                                       SECTOR: BANKING




                                                                                                                 State Bank of India
STOCK INFO.         BLOOMBERG
                                            27 March 2009
BSE Sensex: 10,049 SBIN IN                                                                                                                             Buy
                    REUTERS CODE
S&P CNX: 3,109      SBI.BO                  Previous Recommendation: Buy                                                                            Rs1,125
Equity Shares (m)            631.5          YEAR    NET INCOME         PAT    EPS     CON. EPS      CON.       P/BV      CON.       CAR      ROAE     ROAA
                                            END          (RS M)     (RS M)    (RS)       (RS)      P/E (X)       (X)    P/BV (X)    (%)      (%)       (%)
52-Week Range           1,840/894
                                            3/08A 257,162         67,291 106.6          141.9       7.9          1.4      1.2       13.5    16.8       1.0
1,6,12 Rel.Perf.(%)          -3/2/5
                                            3/09E 336,564         88,545 140.2          180.6       6.2          1.3      1.0       11.6    16.9       1.1
M.Cap. (Rs b)                710.6
                                            3/10E 369,352         84,755 134.2          176.4       6.4          1.1      1.0       10.8    14.4       0.9
M.Cap. (US$ b)                14.0
                                            3/11E   418,296       98,281 155.6          198.8       5.7          1.0      0.9       10.5    15.0       0.9
                                        Consolidated

?   We expect loans growth of ~23 YoY and deposit growth of 30%+ YoY for the bank. On a QoQ basis loans and
    deposits are expected to grow ~2% each.
?   We expect margins to decline QOQ due to lending rate cut and significant liquidity in the balance sheet.
?   In 9MFY09, fee income grew ~50% YoY for the bank. 4Q fees for SBI are lumpy in nature and usually equal to total
    fees booked in first three quarters. We have assumed fee income to remain flat on a YoY basis in 4QFY09 (and
    ~25% lower than 9MFY09 fees). Trading profits are expected to remain lower than 3QFY09 level.
?   We expect opex to decline QoQ as 3QFY09 included exceptional pension liability provision of Rs7.5b. SBI had not
    fully reversed MTM gains on its investments during 3QFY09. Thus we expect MTM provisions would be marginal
    during 4QFY09 despite hardening of yields.
?   We have factored in higher NPA provisions of Rs14.4b due to lower provision coverage and increased NPA concerns.
    We note that SBI can surprise positively on the provision front.
?   The stock is trading at 6.4x FY10E consolidated EPS and 1x FY10E consolidated ABV. Maintain Buy.
QUARTERLY PERFORMANCE                                                                                                                             (RS MILLION)

Y/E MARCH                                                 FY08                                            FY09                             FY08       FY09E

                                      1Q            2Q            3Q         4Q          1Q         2Q             3Q         4QE

Interest Income                  110,905     116,163       126,668      135,767      137,992    155,665      180,303     191,447      489,503       665,407
Interest Expense                  68,891      78,534        84,105       87,761       89,815    101,112      122,722     133,426      319,291       447,074
Net Interest Income               42,014      37,629        42,564       48,006       48,177     54,554       57,582      58,021      170,212       218,333
   % Change (Y-o-Y)                 19.0          6.3         23.8           5.6        14.7       45.0         35.3        20.9           0.0         28.3
Other Income                      11,386      20,419        26,972       28,172       24,039     23,431       32,256      38,505       86,949       118,231
Net Income                        53,400      58,049        69,536       76,178       72,215     77,985       89,838      96,526      257,162       336,564
Operating Expenses                29,785      30,916        32,938       32,447       32,592     36,053       45,011      41,504      126,086       155,160
Operating Profit                  23,615      27,132        36,597       43,731       39,623     41,932       44,826      55,023      131,076       181,404
   % Change (Y-o-Y)                 30.8        28.4          55.7         10.2         67.8       54.5         22.5        25.8           0.0         38.4
Other Provisions                   1,594         857         8,044       16,191       15,495      6,106        1,968      16,163       26,687        39,732
Profit before Tax                 22,021      26,275        28,553       27,540       24,129     35,826       42,858      38,860      104,389       141,673
Tax Provisions                     7,763      10,161        10,467        8,707        7,721     13,229       18,074      14,104       37,098        53,127
Net Profit                        14,258      16,114        18,086       18,833       16,408     22,597       24,784      24,756       67,291        88,545
   % Change (Y-o-Y)                 78.5        36.0          69.8         26.1         15.1       40.2         37.0        31.5         48.2          31.6
Interest Exp/Interest Income (%)    62.1        67.6          66.4         64.6         65.1       65.0         68.1        69.7         65.2          67.2
Other Income/Net Income (%)         21.3        35.2          38.8         37.0         33.3       30.0         35.9        39.9         33.8          35.1
Cost/Income Ratio (%)               55.8        53.3          47.4         42.6         45.1       46.2         50.1        43.0         49.0          46.1
Provisions/Operating Profits (%)      6.7         3.2         22.0         37.0         39.1       14.6           4.4       29.4         20.4          21.9
Tax Rate (%)                        35.3        38.7          36.7         31.6         32.0       36.9         42.2        36.3         35.5          37.5
E: MOSL Estimates

Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                                99
                                                                                                                                        Results Preview
                                                                                                                                     SECTOR: BANKING




                                                                                                          Union Bank of India
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 UNBK IN                                                                                                                            Buy
                    REUTERS CODE
S&P CNX: 3,109      UNBK.BO                Previous Recommendation: Buy                                                                               Rs152
Equity Shares (m)             505.1        YEAR    NET INCOME         PAT    EPS      EPS        P/E       P/BV       CAR         ROAE      ROAA      P/ABV
                                           END          (RS M)    (RS M)     (RS) GROWTH (%)      (X)          (X)    (%)         (%)        (%)      RATIO
52-Week Range             178/96
                                           3/08A    41,734       13,871     27.5      64.1       5.6           1.4    12.5        26.8       1.2       1.4
1,6,12 Rel.Perf.(%)       5/29/44
                                           3/09E    51,971       18,431     36.5      32.9       4.2           1.1    11.9        29.0       1.3       1.1
M.Cap. (Rs b)                  77.0
                                           3/10E    59,381       17,947     35.5       -2.6      4.3           0.9    11.8        23.1       1.1       1.0
M.Cap. (US$ b)                  1.5
                                           3/11E    68,490       20,945     41.5      16.7       3.7           0.8    11.7        22.6       1.1       0.9


?   We expect loan growth and deposit growth of ~27%. We expect margins to be under marginal pressure due to the cut
    in PLR and loss of pricing power. NII is expected to grow 34% YoY on a lower base (in 4QFY08, NII fell 5% YoY).
    However, on a QoQ basis we expect NII to fall by 5%.
?   Core fee income is likely to grow strongly at ~20% YoY in 4QFY09 on the back of the bank’s increased thrust on
    scaling up traditional non-fund based revenue.
?   We have assumed the trading profits of Rs470m v/s Rs400m in 4QFY08 and Rs980m in 3QFY09.
?   The bank enjoys the best asset quality with GNPA at 1.7% and NNPA at 0.14%. However, on the back of the higher
    operating profits, we expect the bank to accelerate NPA provisions in the quarter. We have modeled NPA provisions
    of Rs1.7b in 4QFY09. Reported NPAs could rise ~5x from December 2008 level due to reclassification of floating
    provisions as per RBI’s new requirement.
?   The stock is trading at 4.3x FY10E EPS and 1x FY10E ABV. We maintain Buy.

QUARTERLY PERFORMANCE                                                                                                                             (RS MILLION)

Y/E MARCH                                                FY08                                           FY09                              FY08        FY09E

                                      1Q           2Q            3Q         4Q         1Q        2Q              3Q         4QE

Interest Income                  20,741      22,384        24,227       25,664     25,332     28,313      32,617      32,749            93,016      119,011
Interest Expense                 13,399      15,820        16,705       17,685     17,232     18,560      21,333      22,061            63,609       79,186
Net Interest Income               7,342       6,564         7,522        7,979      8,100      9,753      11,284      10,688            29,406       39,825
   % Change (Y-o-Y)                15.7          4.6           9.7         -5.3      10.3       48.6        50.0        34.0               11.6        35.4
Other Income                      2,150       2,873         3,838        3,467      2,217      2,833       3,921       3,176            12,327       12,146
Net Income                        9,492       9,436        11,360       11,446     10,317     12,586      15,205      13,864            41,734       51,971
Operating Expenses                4,241       4,153         4,997        2,539      4,157      5,589       6,656       3,389            15,930       19,791
Operating Profit                  5,251       5,283         6,363        8,907      6,160      6,997       8,548      10,475            25,804       32,180
   % Change (Y-o-Y)                35.5        35.8          36.6         17.4       17.3       32.4        34.3        17.6              29.0         24.7
Other Provisions                  1,554         976         1,150        3,520      2,957      2,033        -449       2,041             7,199        6,581
Profit before Tax                 3,697       4,308         5,213        5,387      3,203      4,965       8,997       8,434            18,605       25,599
Tax Provisions                    1,450       1,550         1,564          170        920      1,350       2,280       2,618             4,734        7,168
Net Profit                        2,247       2,758         3,649        5,217      2,283      3,615       6,717       5,816            13,871       18,431
   % Change (Y-o-Y)                34.8        42.0          42.4        128.7         1.6      31.1        84.1         11.5             64.1         32.9
Interest Exp/Interest Income (%)   64.6        70.7          69.0         68.9       68.0       65.6        65.4        67.4              68.4         66.5
Other Income/Net Income (%)        22.6        30.4          33.8         30.3       21.5       22.5        25.8        22.9              29.5         23.4
Cost/Income Ratio (%)              44.7        44.0          44.0         22.2       40.3       44.4        43.8        24.4              38.2         38.1
Provisions/Operating Profits (%)   29.6        18.5          18.1         39.5       48.0       29.0         -5.3       19.5              27.9         20.5
Tax Rate (%)                       39.2        36.0          30.0           3.2      28.7       27.2        25.3        31.0              25.4         28.0
E: MOSL Estimates

Ajinkya Dhavale (AjinkyaDhavale@MotilalOswal.com) + 91 22 3982 5426/Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415

27 March 2009                                                                                                                                            100
                                                                                                                                                                        Results Preview
                                                                                                                                                           QUARTER ENDING MARCH 2009




                                                                                                                                                                             Cement
BSE Sensex: 10,049            S&P CNX: 3,109                                                                                                                             27 March 2009

                                      Snapshot of 4QFY09
COMPANY NAME
                                      ? Volumes expected to be higher by 8.5%
ACC
                                      ? Domestic prices expected to be higher by 2.4% YoY, but flat QoQ

Ambuja Cements                        ? Export realizations decline by US$10/ton and US$5/ton for cement and clinker
                                      ? Capacity utilization to improve to 95% (v/s 87% in 3QFY09), but lowest in 4Q in last

Birla Corporation                        four years
                                      ? Cost savings on account of lower energy cost and freight to be realized from 4QFY09
Grasim Industries                     ? 4QFY09 aggregate EBITDA margins to improve by 200bp QoQ (~330bp YoY
                                         decline). Margins to improve over next 2-3 quarters, driven by cost savings and
India Cements                            recovery in prices.
                                      ? Upgrade FY10E EPS by 0%-8% across companies, based on assumption of stable
Shree Cement                             cement prices till 1QFY10 but Rs10/bag decline in 2QFY10 and 3QFY10 each.
                                      ? Valuations attractive, short-term news flows to remain positive. However, post
UltraTech Cement                         1QFY10 demand is expected to slowdown as well impending supply would impact
                                         pricing and profitability.
                                      ? Prefer companies with combination of volume growth, cost saving triggers, ungeared
                                         balance sheet and attractive valuations. Grasim, Shree Cement and Birla Corp
                                         are our top picks.

                                      CEMENT INDUSTRY DYNAMICS: DEMAND AND PRICE TRENDS
CHANGE DISPATCHES      PRICES

(%)      YOY    QOQ   YOY   QOQ        (MT)                          Despatches (MT)                   Avg National Retail Prices (Rs/bag)                                          (Rs/bag)
                                                                                                                                     46.1                                         50.0
4QFY09 8.5 11.8 2.4 -0.1               52                                                                                                                                                240
                                                                                                                                                                               239
FY08   8.2       3.0                                                                         42.2                                          232
                                       43       39.6                                             213                                                                                             215
FY09   7.7      12.7
                                       34                                                                                                                                                        190
                                                     173
                                       25                                                                                                                                                        165
                                                 4QFY06


                                                            1QFY07


                                                                        2QFY07


                                                                                    3QFY07


                                                                                              4QFY07


                                                                                                        1QFY08


                                                                                                                 2QFY08


                                                                                                                            3QFY08


                                                                                                                                      4QFY08


                                                                                                                                                  1QFY09


                                                                                                                                                              2QFY09


                                                                                                                                                                          3QFY09


                                                                                                                                                                                      4QFY09




                                                                                                                                                                        Source: CMA/MOSL
EXPECTED QUARTERLY PERFORMANCE SUMMARY                                                                                                                                             (RS MILLION)

                        CMP (RS)      RECO                                       SALES                                    EBITDA                                       NET PROFIT

                            27.3.09                        MAR.09                 VAR.          VAR.        MAR.09          VAR.               VAR.        MAR.09              VAR.             VAR.

                                                                                 % YOY       % QOQ                        % YOY         % QOQ                             % YOY                % QOQ

Cement
ACC                            579    Neutral              20,020                 13.3           2.6         5,145           9.3               15.6         3,374            1.9                  0.9
Ambuja Cements                  72    Neutral              17,998                  8.8          11.9         4,622         -10.4               22.1         3,001           -9.1                 20.5
Birla Corporation              174    Buy                   4,932                  0.9           9.1         1,273          -3.0               24.9           897            3.6                 10.2
Grasim Industries            1,607    Buy                  26,680                 -2.7           0.5         5,795         -12.5               16.0         3,573          -19.7                  8.4
India Cements                  110    Buy                   8,923                  5.7          18.5         2,631           0.1               46.1         1,385           -1.6                 97.8
Shree Cement                   671    Buy                   7,188                 10.6           8.0         2,528          -0.3               11.4         1,096          166.9                -14.2
UltraTech Cement               529    Buy                  17,947                 12.1          10.1         4,816          -1.4               11.8         2,567           -9.3                  7.7
Sector Aggregate                                          103,688                  6.4           6.7        26,809          -3.7               18.5        15,894           -4.1                 11.1
Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416
27 March 2009                                                                                                                                                                                     101
                                                                                                                                                                                Cement




Pricing: Cement prices remain stable

    4QFY09 Highlights
    ? YoY Comparative: higher by 2.4%
    ? QoQ Comparative: flat




4QFY09: SUMMARY PRICING TREND                                                                 PRICE TREND – NORTH (RS/BAG)

                                                   PRICE CHANGE (%) *

                                         YOY                                     QOQ
                                                                                               250                                 229 230 229 229 229
                                                                                                                            222
                                                                                                                                  (3.2%)(4.4%)(4.2%)(1.6%)
North                                2.0                    0.2                                                        203 (9.4%)
East                                 2.3                   -1.9                                210                   (24.5%)
West                                 0.1                   -0.4
                                                                                                            163
South                                5.5                   -0.5                                       154
                                                                                               170        (5.8%)
Central                              1.4                    2.9                                      (8.5%)
National                             2.4                   -0.1
* adjusted for changes in prices for excise duty                                               130




                                                                                                                                        1QFY09


                                                                                                                                                  2QFY09


                                                                                                                                                             3QFY09


                                                                                                                                                                      4QFY09
                                                                                                      FY05


                                                                                                              FY06


                                                                                                                       FY07


                                                                                                                                 FY08




                                                                                                                                                                                  FY09
                           Source: Industry/Motilal Oswal Securities



PRICE TREND – EAST (RS/BAG)                                                                   PRICE TREND – WEST (RS/BAG)


 250                                   233   234 228             230                           260                              238 242      242 242 241 242
                                221          (5.2%)(5.7%) 223                                                                        (1.7%) (2.8%) (1.2%)(2.0%)
                                                                                                                               (12.3%)
                                      (4.1%)
                                (11.1%)                   (3.0%)
                        199                                                                                            212
 210                   (20.6%)                                                                 220                   (29.3%)

        161    165
 170    (8.2%)(2.5%)                                                                           180          164
                                                                                                       148 (10.8%)
                                                                                                     (10.2%)
 130                                                                                           140
                                          1QFY09


                                                      2QFY09


                                                               3QFY09


                                                                        4QFY09




                                                                                                                                        1QFY09


                                                                                                                                                  2QFY09


                                                                                                                                                             3QFY09


                                                                                                                                                                      4QFY09
         FY05


                FY06


                         FY07


                                  FY08




                                                                                       FY09




                                                                                                      FY05


                                                                                                              FY06


                                                                                                                       FY07


                                                                                                                                 FY08




                                                                                                                                                                                  FY09

PRICE TREND – SOUTH (RS/BAG)                                                                  PRICE TREND – CENTRAL (RS/BAG)


                                                    266 265                                    250
 280                              242 249 257 (5.6%)(8.4%) 259
                                             (8.9%)                                                                          215 215 214        210 216
                                      (7.0%)                                                                                      -(0.5%)
                                                                                                                                        (0.7%)               214
                                (18.0%)                                                                                194  (10.8%)                  -(3.1%)
                                                                                                                                               -(1.8%)
                        205                                                                    210                    (32.0%)
 230
                       (27.3%)

        154    161
 180                                                                                           170          147
             (4.5%)                                                                                   136 (8.1%)
        (5.3%)
                                                                                                     (9.5%)
 130                                                                                           130
                                          1QFY09


                                                      2QFY09


                                                               3QFY09


                                                                        4QFY09




                                                                                                                                         1QFY09


                                                                                                                                                   2QFY09


                                                                                                                                                             3QFY09


                                                                                                                                                                       4QFY09
         FY05


                FY06


                         FY07


                                  FY08




                                                                                       FY09




                                                                                                       FY05


                                                                                                              FY06


                                                                                                                        FY07


                                                                                                                                 FY08




                                                                                                                                                                                  FY09




* Figure in bracket indicates YoY Change                                                                                                                    Source: CMA/MOSL




27 March 2009                                                                                                                                                                      102
                                                                                                                                                                                                                           Cement




                             MOSL CEMENT UNIVERSE: 4QFY09 PERFORMANCE AT A GLANCE

                                                                 VOL (M TON)                               GROWTH (%)                      REAL (RS/BAG)                                     CHANGE (%)

                                                                           4QFY09                        YOY                 FY09E                   4QFY09                      YOY                 QOQ                   FY09E

                             ACC                           5.6                                           3.7                      5.2                     179                     9.3                 0.0       7.4
                             Ambuja Cements                5.1                                           5.8                      5.0                     177                     2.8                -0.8       5.4
                             Grasim                        4.7                                           7.1                      4.9                     172                     5.6                 1.5       7.0
                             UltraTech                     5.1                                           6.7                      4.4                     174                     5.0                -2.2       8.9
                             Birla Corp                    1.5                                           1.5                     -1.6                     151                     1.7                 2.8       0.8
                             India Cements                 2.4                                          -0.6                      0.2                     180                     6.9                -0.6       8.6
                             Shree Cement                  2.3                                          11.1                     26.1                     153                    -3.2                 0.3       0.9
                             Industry                    50.0                                            8.5                      7.7                     238                     3.0                -0.1       3.0
                             * Adjusted for change in excise                                                                                                                                        Source: CMA/MOSL


                             Demand momentum continues with growth of 8.5%
                             Demand in the domestic market is expected to grow at 8.5% in 4QFY09 as against 6.9%
                             in 1HFY09. Cement demand over the last three months has been driven by individual
                             housing and pre-election spent on infrastructure at both the state and the central government
                             level. However, there has been a fall in demand from organized real-estate sector, ITES
                             and organized retail segment. Demand growth in 4QFY09 would have been higher but for
                             continued slowdown in demand in the Western (~0.3% growth) - since the last 6-9 months
                             - and southern (~4.6% growth) regions. While the eastern region continued its momentum
                             with about 16% growth, the northern and central regions witnessed recovery in demand
                             with 9.4% and 15% growth respectively.

                             DOMESTIC DEMAND GROWTH STABLE AT ~8%


                              (MT)                                                                   Despatches (MT)                                  Growth (%)
                              52                                                                                                                                                                                      50.0 18%
                                                                                                                                                                                 46.1
PERIOD     MT   GROWTH (%)
                                                                                                                                           42.2
FY08      168      8.2        43                                                                     39.6                                                                                                                       12%
FY09E     181      7.7
4QFY09     50      8.5                                          34.2
                              34                                                                                                                                                                                                6%


                              25                                                                                                                                                                                                0%
                                     1QFY05

                                              2QFY05

                                                       3QFY05

                                                                 4QFY05
                                                                          1QFY06

                                                                                   2QFY06

                                                                                            3QFY06

                                                                                                      4QFY06
                                                                                                               1QFY07

                                                                                                                        2QFY07

                                                                                                                                  3QFY07

                                                                                                                                            4QFY07
                                                                                                                                                      1QFY08

                                                                                                                                                               2QFY08

                                                                                                                                                                        3QFY08

                                                                                                                                                                                  4QFY08
                                                                                                                                                                                           1QFY09

                                                                                                                                                                                                    2QFY09

                                                                                                                                                                                                             3QFY09

                                                                                                                                                                                                                       4QFY09




                                                                                                                                                                                                    Source: CMA/MOSL



                             Capacity utilization to pick up with peak demand
                             Capacity utilization for 4QFY09 is estimated to improve to 95% (v/s 87% in 3QFY09), as
                             4Q would witness peak demand. However, industry’s capacity utilization at 95% would be
                             lowest for 4Q in the last four years. Capacity utilization for the industry is expected to
                             ease from ~93% in FY09 to ~81% in FY10E and FY11E on the back of 70-90MT capacity
                             addition over the next two to three years.



27 March 2009                                                                                                                                                                                                                   103
                                                                                                                                                                                           Cement




                       CAPA CITY UTILIZATION: NEW CAPACITY ADDITIONS EASING THE PRESSURE


                        110%
CAP UTILIZATION   %
                                                                                                                           104%                               102%
FY08              98
                        100%                                                                  99%
FY09E             93                                                                                                                                                                        95%
FY10E             81                                     89%
                         90%             88%
4QFY09            95

                         80%


                         70%
                               4QFY04



                                                2QFY05



                                                                4QFY05



                                                                                   2QFY06



                                                                                                 4QFY06



                                                                                                                2QFY07



                                                                                                                                4QFY07



                                                                                                                                            2QFY08



                                                                                                                                                               4QFY08



                                                                                                                                                                                  2QFY09



                                                                                                                                                                                                  4QFY09
                                                                                                                                                                    Source: CMA/MOSL


                       Domestic cement prices recover to stabilize QoQ
                       Cement prices are expected to remain stable sequentially as prices recovered in North,
                       East and Central India, after witnessing decline in last 6-9 months. While price increases
                       in Central (up by Rs15-20/bag), Eastern (up by Rs7-10/bag), North (up by Rs10-15/bag)
                       and Andhra Pradesh (up by Rs8-10/bag) markets was driven by strong demand, price
                       increase in the Western region was despite muted demand. However, prices were stable
                       in South and Gujarat as demand is muted.

                       PRICES RECOVER AFTER DECLINING IN THE LAST 6 MONTHS (RS/BAG) (NATIONAL AVERAGE, RS/BAG)


                        255                                                                                  235                 238           238                238                    237
                                                                                              230                                            (3.2%)
                                                                                                            (3.0%)             (4.7%)                           (2.4%)                (3.0%)
                                                                                            (12.7%)
                                                                           204
                        215                                              (27.5%)


                        175                            160
                                   151               (6.0%)
                                  (8.1%)

                        135
                                                                                                                1QFY09



                                                                                                                                   2QFY09



                                                                                                                                                     3QFY09



                                                                                                                                                                        4QFY09
                                        FY05



                                                         FY06



                                                                            FY07



                                                                                               FY08




                                                                                                                                                                                           FY09




                                               Sep-08                    Dec-08                 Mar-09
                        275                                                                                              267      267


                        250                                                                  243          243                                                                    240       243
                                                237             234
                                   230                                      231
                                                                                                                                                              224
                        225                                                                                                                   213

                        200
                                         North                           East                   West                       South                     Central                     National
                                                                                                                                                                                 Average

                       * Figure in bracket indicates YoY Change                                                                                                     Source: CMA/MOSL

27 March 2009                                                                                                                                                                                     104
                                                                                                                Cement




                Export realizations decline …
                Export realizations for cement have declined by US$10/ton f.o.b. to about US$53-55/ton,
                whereas clinker realizations have declined by US$5/ton f.o.b. to about US$48-50/ton.
                However, demand from the export market remains stable. Decline in export realizations
                would impact UltraTech Cement and Ambuja Cements the most.


                Cost benefit to reflect from 4QFY09
                Cost push in the form of energy prices and freight costs had impacted industry profitability
                in last few quarters. Prices of imported coal/pet coke have declined by ~60% from the
                peak, whereas crude prices have also declined by ~70% resulting in Rs4/liter (since
                November 2008) decline in diesel prices. While benefit of moderation in imported coal
                prices would be only reflected in 4QFY09 owing to inventories/contracts, benefit of decline
                in diesel cost (in road freight) would be diluted by about 7-8% increase in rail freight (in
                December 2008). Overall, we expect cost savings of Rs6-19/bag from 2QFY09 cost
                base for the companies under our coverage.

                SIGNIFICANT COST SAVINGS FROM 2QFY09 BASE (RS/BAG)

                                                         ENERGY COST            FREIGHT COST             TOTAL

                ACC                                         6.5                      0.4                   6.9
                Ambuja Cements                              10.0                     1.4                  11.4
                Grasim                                      8.0                      0.8                   8.8
                UltraTech                                   10.0                     1.1                  11.1
                Birla Corp                                  8.0                      0.9                   8.9
                India Cements                               15.0                     1.5                  16.5
                Shree Cement                                17.0                     1.8                  18.8
                                                                                               Source: Company/MOSL



                Revenue growth driven by higher volumes, stable prices
                We expect MOST Cement universe to report around 5.3% volume growth, being impacted
                by lower volumes for India Cement (production bottleneck) and Birla Corp (operating at
                optimum capacity). Stable realizations (flat QoQ, but Rs8/bag higher YoY), coupled with
                cost savings would drive EBITDA increase of Rs3/bag QoQ (but Rs3/bag YoY decline) to
                Rs48/bag.

                TREND IN 4QFY09 KEY OPERATING PARAMETERS

                                              VOLUME (M TON)        REALIZATION (RS/BAG)         EBITDA (RS/BAG)

                                     4QFY09       YOY       QOQ    4QFY09     YOY     QOQ     4QFY09     YOY       QOQ

                                                   (%)       (%)              (RS)     (RS)              (RS)      (RS)

                ACC                     5.6        3.7       2.6       179   15.2      0.0       46     2.4    5.2
                Ambuja Cements          5.1        5.8      12.8       177    4.8     -1.4       45    -8.3    3.5
                Grasim                  4.7        7.1      14.8       172    9.1      2.5       50    -4.6    0.6
                UltraTech               5.1        6.7      12.6       174    8.3     -4.0       47    -3.9   -0.3
                Birla Corp              1.5        1.5       7.0       151    2.5      4.1       44    -4.3    3.2
                India Cements           2.4       -0.6      22.1       180   11.6     -1.2       54     0.4    8.8
                Shree Cement            2.3       11.1       8.5       153   -5.1      0.5       55    -6.3    1.5
                Sector Aggregate       26.7        5.3      10.8       173    8.0     -0.3       48    -3.3    3.0
                                                                                                  Source: CMA/MOSL

27 March 2009                                                                                                       105
                                                                                                                    Cement




                Overall, we expect our cement universe’s revenue to grow by 11% YoY, with EBITDA
                margin improving by 190bp QoQ (~340bp YoY decline) to 26.6%, translating into 1.3%
                YoY increase in PAT (excluding Grasim).

                TREND IN 4QFY09 KEY FINANCIAL PARAMETERS

                                            NET SALES (RS M)          EBITDA MARGIN (%)              NET PROFIT (RS M)

                                         4QFY09    YOY      QOQ      4QFY09    YOY          QOQ    4QFY09    YOY     QOQ

                                                    (%)        (%)             (BP)         (BP)              (%)        (%)

                ACC                   20,020   13.3       2.6    25.7      -90      290   3,374      1.9    0.9
                Ambuja Cements        17,998    8.8      11.9    25.7    -550       210   3,001     -9.1   20.5
                Grasim*               19,480   16.1      12.9    24.3    -450        70   3,573    -19.7    8.4
                UltraTech             17,947   12.1      10.1    26.8    -370        40   2,567     -9.3    7.7
                Birla Corp             4,932    0.9       9.1    25.8    -100       330      897     3.6   10.2
                India Cements          8,923    5.7      18.5    29.5    -170       560   1,385     -1.6   97.8
                Shree Cement           7,188   10.6       8.0    35.2    -380       110   1,096    166.9  -14.2
                Sector Aggregate* 96,488       11.1       9.8    26.7    -330       200 12,320       1.6   11.9
                * Grasim’s sales and EBITDA margin for cement business only; Sector PAT excl Grasim
                                                                                               Source: CMA/MOSL



                Revising estimates
                We are revising our FY10 estimates upwards for all cement companies under our coverage
                to factor in positive short term outlook. Our cement price assumption is based on stable
                prices till 1QFY10, but Rs10/bag decline in 2QFY10 and 3QFY10 each (as against Rs10/
                bag decline from 4QFY09 levels). This is the second time we have upgraded our estimates
                in the last x months. The last upgrade in earnings was done in January 2009 to factor in
                increase in cement prices.

                REVISED FY10E EPS (RS)

                                                     REV                              OLD                     CHG (%)

                ACC                                  55.5                         52.7                             5.3
                Ambuja Cements                        7.1                          6.5                             8.4
                Grasim                              183.6                        179.6                             2.2
                UltraTech                            76.5                         75.7                             1.0
                Birla Corp                           36.9                         36.2                             2.0
                India Cements                        20.8                         20.9                            -0.4
                Shree Cement                         98.8                         94.4                             4.7
                                                                                                        Source: CMA/MOSL



                Valuation and view
                While volume growth is expected to remain stable, new capacities (~80MT in FY08-11E)
                would result in excessive supply. However, impact of these new capacities on the demand-
                supply equilibrium is expected only by 2QCY09. In the interim, margins are expected to
                improve from 2QFY09 levels, with recovery in prices and moderation in energy cost. The
                excess supply situation is expected to continue at least until FY11, curtailing pricing power
                for the industry.




27 March 2009                                                                                                            106
                                                                                                         Cement




                Asset valuations for all the companies are below the replacement cost of US$100/ton.
                Cement stocks have outperformed the benchmark, driven by positive news flow in the
                form of higher demand growth, stronger pricing and positive government actions. However,
                post 1QFY10, impending excess supply situation would put pressure on volumes and
                profitability. We prefer companies that are ahead of the curve in adding capacity, along
                with strong cost saving possibilities. Among large cap stocks, Grasim remains our top pick,
                while we prefer Birla Corp and Shree Cement among mid-caps.

                VALUATIONS – AT STEEP DISCOUNT TO REPLACEMENT COST



                           $120                                                         Replacement Cost
                                                                                        at US$100/ton
                                                                ACC
                           $90
                                                             ($72, 19%)     Ambuja
                 RoE (%)




                                                                                                    UltraTech
                                            Grasim                        ($74, 18%)
                           $60                                                                     ($68, 24%)
                                          ($76, 14%)                                Shree Cement
                                                       India Cement                  ($61, 22%)
                           $30
                                                        ($47, 18%)         Birla Corp
                                                                          ($17, 19%)
                            $0
                             10%   12%     14%         16%       18%      20%           22%    24%       26%
                                                             EV (US$/Ton)

                                                                                                     Source: MOSL




27 March 2009                                                                                                   107
                                                                                                                                                            Cement




Stock performance and valuations

STOCK PERFORMANCE (%)

                                                   ABSOLUTE PERF                           REL PERF TO SENSEX                       REL PERF TO SECTOR

                                                  3M              1 YEAR                   3M              1 YEAR                   3M               1 YEAR

Cement
ACC                                               27                 -29                    19                     8                  0                      7
Birla Corporation                                 46                  -4                    38                    33                 19                     33
Grasim Industries                                 35                 -40                    27                    -3                  8                     -4
Ambuja Cements                                     8                 -42                     1                    -4                -19                     -5
India Cements                                     17                 -44                     9                    -7                -10                     -7
Shree Cement                                      43                 -32                    35                     5                 16                      4
UltraTech Cement                                  46                 -31                    38                     6                 19                      5




RELATIVE PERFORMANCE - 3 MONTH (%)                                             RELATIVE PERFORMANCE - 1 YEAR (%)


                      Sensex          MOSt Cement Index                                                   MOSt Cement Index               Sensex
 130                                                                               120


 120                                                                               95


 110                                                                               70


 100                                                                               45


  90                                                                               20
          Dec-08         Jan-09          Feb-09          Mar-09                          Mar-08          Jun-08          Sep-08         Dec-08         Mar-09




                    CMP (RS)   RECO                EPS (RS)                         P/E (X)                       EV/EBITDA                       ROE (%)

                     27.3.09               FY09E       FY10E   FY11E       FY09E    FY10E        FY11E    FY09E        FY10E   FY11E      FY09E    FY10E     FY11E

Cement
ACC                 579        Neutral      62.7        55.5    35.9         9.2      10.4        16.1      5.6          5.7      8.5      23.9      18.8        11.5
Ambuja Cements       72        Neutral       7.4         7.1     5.3         9.6      10.1        13.6      5.6          5.6      6.6      22.1      17.9        12.3
Birla Corporation   174        Buy          41.9        36.9    27.5         4.2       4.7         6.3      2.0          1.7      1.0      25.1      18.6        12.5
Grasim Industries 1,607        Buy         238.5       183.6   150.5         6.7       8.8        10.7      5.4          5.5      5.9      21.7      14.4        10.3
India Cements       110        Buy          19.1        20.8    16.7         5.8       5.3         6.6      3.9          3.2      3.5      18.7      17.6        12.5
Shree Cement        671        Buy         136.7        98.8    58.8         4.9       6.8        11.4      3.8          3.6      3.9      53.2      26.9        13.3
UltraTech Cement    529        Buy          74.2        76.5    56.5         7.1       6.9         9.4      5.0          4.4      4.8      29.6      23.8        14.8
Sector Aggregate                                                             7.4       8.4        11.2      4.6          4.5      5.2      23.1      17.5        11.8




27 March 2009                                                                                                                                                    108
                                                                                                                                     Results Preview
                                                                                                                                     SECTOR: CEMENT




                                                                                                                                                  ACC
STOCK INFO.         BLOOMBERG
                                            27 March 2009
BSE Sensex: 10,049 ACC IN
                    REUTERS CODE
                                                                                                                                            Neutral
S&P CNX: 3,109      ACC.BO                  Previous Recommendation: Neutral                                                                        Rs579
Equity Shares (m)             187.9          YEAR    NET SALES          PAT      EPS*   EPS         P/E     P/BV      ROE         ROCE      EV/       EV/
                                             END         (RS M)        (RS M)    (RS) GROWTH (%)    (X)         (X)   (%)         (%)      SALES EBITDA
52-Week Range               855/369
                                             12/07A 68,807         12,798        68.1    15.4       8.5     2.6       30.8        33.7      1.4       5.0
1,6,12 Rel. Perf. (%)        -6/18/8
                                             12/08A 73,086         11,787        62.7    -7.9       9.2     2.2       23.9        25.0      1.3       5.6
M.Cap. (Rs b)                 108.8
                                             12/09E 77,033         10,423        55.5   -11.6      10.4     2.0       18.8        20.7      1.2       5.7
M.Cap. (US$ b)                   2.2
                                             12/10E 78,385             6,749     35.9   -35.2      16.1     1.9       11.5        11.6      1.3       8.5
                                        * Fully Diluted EPS

?   Dispatches during 1QCY09 are expected to have muted growth at 3.7% to 5.6mt, as it continues to operate at
    optimal rate. Average realizations are expected to remain flat at Rs3,575/ton (~9.3% higher YoY).
?   Net sales are expected to grow by 13% YoY to Rs20b. Cement business EBITDA margin is expected to improve by
    290bp QoQ (~90bp YoY decline) to 25.7%, as benefit of lower energy cost starts reflecting. As a result, EBITDA is
    expected to decline 9% YoY to Rs5.1b. Higher depreciation, interest cost and tax provisioning would restrict impact
    PAT growth to 1.9% to Rs3.4b.
?   ACC, with about 85% dependence on domestic coal, would benefit from moderation in domestic open market coal
    prices. We estimate Rs6-7/bag savings in cost.
?   We are upgrading our earnings estimates for CY09 by 5.3% to Rs55.5 to factor in change in pricing assumption for
    stable prices till 1QFY10 and Rs10/bag decline in 2QFY10 and 3QFY10 each. Valuations at 10.4x CY09E EPS and
    5.7x CY09E EV/EBITDA appear rich. Maintain Neutral.

QUARTERLY PERFORMANCE (STANDALONE)                                                                                                              (RS MILLION)

Y/E DECEMBER                                             CY08                                           CY09E                            CY08       CY09E

                                       1Q           2Q            3Q            4Q      1Q         2Q            3Q          4Q

Cement Sales (m ton)              5.40        5.29        4.86       5.46     5.60      5.50      5.25     5.92       21.0       22.3
   YoY Change (%)                   9.5        -0.9         3.8        8.8      3.7       4.0       8.0      8.4        5.2       6.0
Cement Realization               3,271       3,375      3,599       3,575    3,575     3,625    3,425     3,225      3,479     3,459
   YoY Change (%)                   3.8         3.4         5.9      10.4       9.3       7.4     -4.8      -9.8        6.7      -0.6
   QoQ Change (%)                   1.0         3.2         6.6       -0.7      0.0       1.4     -5.5      -5.8
Net Sales                      17,663      17,857      18,046      19,520   20,020   19,938    17,981   19,094      73,086    77,033
   YoY Change (%)                   8.0        -3.1         7.5      13.2     13.3      11.6      -0.4      -2.2        6.2       5.4
EBITDA                           4,706       4,136      4,382       4,449    5,145     5,112    3,357     3,051     17,332    16,665
   Margins (%)                    26.6        23.2        24.3       22.8     25.7      25.6      18.7     16.0       23.7       21.6
Depreciation                       714         724         736        768      780       810       875      987      2,942     3,452
Interest                             56        108         116        120      110       112       125       119       400       466
Other Income                       656         472         661      1,098      600       450       550      650      2,887     2,250
PBT before EO Item               4,593       3,776      4,190       4,660    4,855     4,640    2,907     2,594     16,877    14,997
EO Income/(Expense)                366         123            0          0        0         0         0        0       489          0
PBT after EO Item                4,958       3,899      4,190       4,660    4,855     4,640    2,907     2,594     17,366    14,997
Tax                              1,383       1,185      1,356       1,315    1,481     1,415       887      791      5,238     4,574
   Rate (%)                       27.9        30.4        32.4       28.2     30.5      30.5      30.5     30.5       30.2       30.5
Reported PAT                     3,575       2,714      2,834       3,345    3,374     3,225    2,021     1,803     12,128    10,423
Adjusted PAT                     3,312       2,629      2,834       3,345    3,374     3,225    2,021     1,803     11,787    10,423
   Margins (%)                    18.7        14.7        15.7       17.1     16.9      16.2      11.2       9.4      16.1       13.5
   YoY Change (%)                  -5.9      -24.4          0.9        8.5      1.9     22.7     -28.7    -46.1        -7.9     -11.6
E: MOSL Estimates; Note: The quarterly results are not strictly comparable due to demerger of RMC business from January 2008.
Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                          109
                                                                                                                                            Results Preview
                                                                                                                                            SECTOR: CEMENT




                                                                                                                       Ambuja Cements
STOCK INFO.         BLOOMBERG
                                                27 March 2009
BSE Sensex: 10,049 ACEM IN                                                                                                                        Neutral
                    REUTERS CODE
S&P CNX: 3,109      GACM.BO                     Previous Recommendation: Neutral                                                                            Rs72
                                                YEAR   NET SALES          PAT    EPS       EPS         P/E      P/BV      ROE         ROCE       EV/       EV/
Equity Shares (m)         1,522.4
                                                END         (RS M)     (RS M)    (RS) GROWTH (%)       (X)       (X)      (%)         (%)      SALES EBITDA
52-Week Range             126/43
                                                12/07A 56,314        13,078       8.6       -2.8       8.3       2.3      32.2        43.0       1.6       4.4
1,6,12 Rel. Perf. (%)     0/10/-4
                                                12/08A 62,347         11,335      7.4      -13.3       9.6       1.9      22.1        31.1       1.6       5.6
M.Cap. (Rs b)                 108.9
                                                12/09E 64,721        10,738       7.1       -5.3      10.1       1.7      17.9        24.4       1.5       5.6
M.Cap. (US$ b)                  2.2
                                                12/10E 67,044          8,019      5.3      -25.3      13.6       1.6      12.3        16.5       1.4       6.6


?   Dispatches are expected to be 5.1mt (growth of ~6% YoY), whereas average realizations are expected to be at
    Rs3,543/ton (up ~3% YoY and 1% QoQ decline). As a result, 1QCY09 sales are expected to be at Rs18b (up ~9%
    YoY).
?   EBITDA margin is expected to improve 220bp QoQ (~550YoY decline) to 25.7%. However, there wouldn’t be any
    benefit of lower imported coal prices in 1QCY09 as the company is carrying inventory of high cost imported coal.
    Recurring PAT is estimated to decline by 9% to Rs3b.
?   Ambuja would benefit from lower imported coal prices from 2QCY09. We estimate cost savings of about Rs10-11/
    bag, including savings in freight cost.
?   We are upgrading our earnings estimates for CY09 by 8.4% to Rs7.1 to factor in change in pricing assumption for
    stable prices till 1QFY10 and Rs10/bag decline in 2QFY10 and 3QFY10 each. Valuations at 10.1x CY09E earnings
    and 5.6x CY08E EV/EBITDA are a fair reflection of business fundamentals. Maintain Neutral.

QUARTERLY PERFORMANCE (STANDALONE)                                                                                                                    (RS MILLION)

Y/E DECEMBER                                                CY08                                             CY09E                            CY08        CY09E

                                          1Q           2Q            3Q         4Q          1Q         2Q            3Q          4Q

Sales Volume (m ton)                    4.80        4.38         3.92          4.50       5.08       4.70        4.20        4.88            17.60        18.86
   YoY Change (%)                       10.6         -0.3          4.0          5.7         5.8        7.4         7.1        8.4               5.0          7.2
Realization (Rs/ton)                   3,448       3,588        3,576        3,570       3,543      3,593       3,393      3,193             3,542        3,431
   YoY Change (%)                         5.4         8.6          4.3          3.6         2.8        0.2        -5.1     -10.6                5.4         -3.1
   QoQ Change (%)                         0.0         4.1         -0.3         -0.2        -0.8        1.4        -5.6       -5.9
Net Sales                             16,549      15,698       14,019       16,081      17,998     16,887      14,251     15,585         62,347          64,721
   YoY Change (%)                       16.6          8.2          8.5          9.5         8.8        7.6         1.6       -3.1         259.3           228.9
EBITDA                                 5,160       4,743        4,091        3,785       4,622      5,182       3,539      3,462         17,779          16,804
   Margins (%)                          31.2        30.2         29.2          23.5       25.7       30.7        24.8        22.2          28.5            26.0
Depreciation                             618         616          654          709         715        720         880        986          2,598           3,301
Interest                                   57          57           59         148           70        72           78         74           321             294
Other Income                             406         350          333          666         450        375         350        635          1,754           1,810
PBT before EO Item                     4,890       4,420        3,711        3,594       4,287      4,765       2,931      3,036         16,615          15,018
Extraordinary Inc/(Exp)                   -59      3,142             0            0           0          0           0          0         3,083                0
PBT after EO Exp/(Inc)                 4,832       7,562        3,711        3,594       4,287      4,765       2,931      3,036         19,698          15,018
Tax                                    1,570       1,791        1,210        1,105       1,286      1,382         791        821          5,676           4,280
   Rate (%)                             32.5        23.7         32.6          30.7       30.0       29.0        27.0        27.0          28.8            28.5
Reported Profit                        3,262       5,770        2,501        2,490       3,001      3,383       2,139      2,215         14,023          10,738
Adj PAT                                3,302       3,043        2,501        2,490       3,001      3,383       2,139      2,215         11,335          10,738
   YoY Change (%)                        -7.8      -20.1        -14.0         -11.0        -9.1       11.2      -14.5       -11.0         -13.3             -5.3
E: MOSL Estimates

Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                                110
                                                                                                                                            Results Preview
                                                                                                                                            SECTOR: CEMENT




                                                                                                                              Birla Corporation
STOCK INFO.         BLOOMBERG
                                               27 March 2009
BSE Sensex: 10,049 BJUT IN
                    REUTERS CODE
                                                                                                                                                              Buy
S&P CNX: 3,109      BRLC.BO                    Previous Recommendation: Buy                                                                                  Rs174
Equity Shares (m)              77.0             YEAR    NET SALES          PAT      EPS       EPS         P/E          P/BV    ROE       ROCE        EV/       EV/

52-Week Range                227/71             END         (RS M)        (RS M)    (RS) GROWTH (%)       (X)          (X)      (%)      (%)       SALES EBITDA

1,6,12 Rel. Perf. (%)    -1/63/33               03/08A 17,248             3,932     51.1      20.5        3.4          1.3     39.1      42.5        0.6       1.7
                                                03/09E 17,130             3,226     41.9     -18.0        4.2          1.0     25.1      28.5        0.5       2.0
M.Cap. (Rs b)                  13.4
                                                03/10E 17,388             2,844     36.9      -11.8       4.7          0.9     18.6      23.2        0.4       1.7
M.Cap. (US$ b)                  0.3
                                                03/11E 17,835             2,119     27.5     -25.5        6.3          0.8     12.5      16.1        0.2       1.0


?   During 4QFY09, Birla Corporation’s revenues are expected to grow by just 1% to Rs4.9b. Cement realizations are
    likely to improve by 3% QoQ (~1.7% YoY) to Rs3,013/ton, whereas volumes are expected to grow by 1.5% to
    1.5MT.
?   Higher realizations would translate into 230bp QoQ improvement (~200bp YoY decline) in EBITDA margin to 24.8%.
    Also, it would benefit from decline in pet coke and domestic open market coal prices. Further, lower tax provisioning
    at 26.8% of PBT (v/s 30.9% in 4QFY08) would boost recurring PAT to Rs897m (~3.6% YoY).
?   Birla Corp would benefit from recent recovery in cement prices in its key market of North, Central and East. While
    partial benefit of higher cement prices would be reflected in 4QFY09, full benefit is expected to reflect only from
    1QFY10. This coupled with savings of Rs8-9/bag, on account of energy and freight cost, augurs well for the company.
?   The stock trades at 4.7x FY10 EPS, 1.7x EV/EBITDA and EV/ton of US$16/ton (at 7.5mt capacity), which is at a
    discount to comparable peers. We believe the discount is not justified and valuations, based on earnings as well as
    replacement cost, are compelling. Maintain Buy.

QUARTERLY PERFORMANCE                                                                                                                                    (RS MILLION)

Y/E MARCH                                                   FY08                                                FY09                             FY08        FY09E

                                         1Q            2Q            3Q            4Q         1Q         2Q              3Q       4QE

Cement Sales (m ton)                   1.28        1.20         1.33           1.48         1.19       1.11         1.40         1.50            5.28         5.20
   YoY Change (%)                        2.9        -4.2          0.8            3.8         -7.1       -7.2          5.3          1.5             0.9         -1.6
Cement Realization                    2,972       3,064        3,016          2,963        3,096      3,083        2,931        3,013           3,001        3,025
   YoY Change (%)                      15.8        16.9           7.9            1.6          4.2        0.6         -2.8          1.7             9.8          0.8
   QoQ Change (%)                        1.9         3.1         -1.6           -1.7          4.5       -0.4         -4.9          2.8
Net Sales                             4,093       3,940        4,329          4,887        3,959      3,718        4,521        4,932      17,248           17,130
   YoY Change (%)                      17.3          8.0          5.8          10.1          -3.3       -5.6          4.5          0.9       10.1              -0.7
Total Expenditure                     2,655       2,440        2,823          3,575        2,816      2,941        3,503        3,659      11,493           12,918
EBITDA                                1,438       1,500        1,506          1,312        1,143        777        1,019        1,273       5,755            4,212
   Margins (%)                         35.1        38.1         34.8           26.8         28.9       20.9         22.5         25.8        33.4             24.6
Depreciation                            103         103          102            107            98       100           110         111         419              419
Interest                                 50           53           54             54           50         37           56          34         211              177
Other Income                             88           98           97           101          235        121          191           97         383              644
Profit before Tax                     1,372       1,441        1,447          1,253        1,230        760        1,044        1,225       5,508            4,258
Tax                                     398         409          382            387           311       163          230          328       1,576            1,033
   Rate (%)                            29.0        28.4         26.4           30.9         25.3       21.5         22.1         26.8        28.6             24.3
Adjusted PAT                            975       1,031        1,065            866          918        597          814          897       3,932            3,226
   Margins (%)                         23.8        26.2         24.6           17.7         23.2       16.1         18.0         18.2        22.8             18.8
   YoY Change (%)                      56.3        52.7         11.9          -14.5          -5.8     -42.1        -23.6           3.6       20.5            -18.0
E: MOSL Estimates

Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                                   111
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                                                                                                                                      SECTOR: CEMENT




                                                                                                                  Grasim Industries
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 GRASIM IN
                                                                                                                                                   Buy
                    REUTERS CODE
S&P CNX: 3,109      GRAS.BO                Previous Recommendation: Buy                                                                         Rs1,607
Equity Shares (m)              91.7        YEAR   NET SALES          PAT    EPS    EPS         P/E          P/BV    ROE         ROCE     EV/       EV/
                                           END*        (RS M)     (RS M)    (RS) GROWTH (%)    (X)          (X)     (%)         (%)     SALES EBITDA
52-Week Range           2,768/831
                                         03/08A 169,739         26,951 293.9        37.0       5.5          1.6     34.3        31.1     1.2       4.1
1,6,12 Rel. Perf. (%)     4/15/-3
                                         03/09E 177,477         21,870 238.5       -18.9       6.7          1.3     21.7        20.3     1.3       5.4
M.Cap. (Rs b)                 147.3
                                         03/10E 173,595         16,835 183.6       -23.0       8.8          1.2     14.4        15.9     1.2       5.5
M.Cap. (US$ b)                  2.9
                                         03/11E 187,702         13,804 150.5       -18.0      10.7          1.1     10.3        15.4     1.1       5.9
                                        * Consolidated

?   Grasim (standalone) is estimated to post sales decline of 3% YoY to Rs26.7b in 4QFY09, impacted by severe
    slowdown in VSF business. However, cost savings in cement business would drive margin improvement of 290bp
    QoQ (~250bp YoY decline) to 21.7%. Further, higher depreciation and interest cost due to commissioning of new
    cement capacities would further result in PAT de-growth to 31% at Rs3.1b.
?   The cement volumes are expected to benefit from commencement of new 4.5MT capacity at Rajasthan, driving
    7.1% YoY growth in volumes to 4.65mt. Realizations expected to improve by 1.5% QoQ (~5.6% YoY) to Rs3,450/
    ton. Cement division’s operating margins are expected to improve by 70bp QoQ (~450bp YoY decline) to 24.3%,
    benefiting from lower energy cost.
?   VSF volumes are likely to decline by 15% YoY and realizations are likely to decline by 7.9% QoQ (~17% YoY) to
    Rs89/kg. As a result, operating margins for VSF business are expected to decline by 14.7pp YoY (~70bp QoQ
    improvement) to 12%.
?   We are upgrading our earnings estimates for FY10 by 2% to Rs183.6 to factor in change in pricing assumption for
    stable prices till 1QFY10 and Rs10/bag decline in 2QFY10 and 3QFY10 each. Valuations at 8.8x PER FY10E and
    5.5x FY10E EV/EBITDA (consolidated) appears reasonable. Maintain Buy.

QUARTERLY PERFORMANCE (STANDALONE)                                                                                                            (RS MILLION)

Y/E MARCH                                               FY08                                         FY09                              FY08       FY09E

                                      1Q          2Q            3Q         4Q       1Q        2Q              3Q          4QE

Net Sales                       24,448      24,776    25,931      27,424     25,923    26,853          26,536       26,680        102,781       105,991
   YoY Change (%)                   29.2      23.2        13.7      10.8          6.0       8.4            2.3         -2.7          18.9            3.1
EBITDA                            7,921      7,852      8,409      6,623       7,520    5,792           4,995        5,795         31,097        24,102
   Margins (%)                      32.4      31.7        32.4      24.2        29.0      21.6           18.8         21.7           30.3          22.7
Depreciation                        850        875         865        942      1,050    1,069           1,198        1,338          3,533         4,654
Interest                            285        280         234        272        305       288            444          614          1,070         1,650
Other Income                        677        783         796     1,187         822       997            806          726          3,148         3,350
PBT before EO Items               7,464      7,480      8,106      6,597       6,988    5,431           4,159        4,569         29,642        21,147
Extraordinary Inc/(Exp)                0         0          39     2,257            0         0              0            0         2,307              0
PBT after EO Items                7,464      7,480      8,145      8,853       6,988    5,431           4,159        4,569         31,949        21,147
Tax                               2,347      2,478      2,616      2,182       1,846    1,236             864          996          9,623         4,942
   Rate (%)                         31.4      33.1        32.1      24.7        26.4      22.8           20.8         21.8           30.1          23.4
Reported PAT                      5,117      5,002      5,529      6,671       5,142    4,195           3,296        3,573         22,326        16,206
Adj. PAT                          5,117      5,002      5,490      4,453       5,142    4,195           3,296        3,573         20,071        16,206
   YoY Change (%)                   64.0      48.0        33.4       -0.8         0.5    -16.1          -40.0        -19.7           32.9         -19.3
E: MOSL Estimates; Quarterly results do not add-up to full year results due to restatement

Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                        112
                                                                                                                                             Results Preview
                                                                                                                                             SECTOR: CEMENT




                                                                                                                             India Cements
STOCK INFO.         BLOOMBERG
                                            27 March 2009
BSE Sensex: 10,049 ICEM IN
                                                                                                                                                            Buy
                    REUTERS CODE
S&P CNX: 3,109      ICMN.BO                 Previous Recommendation: Buy                                                                                    Rs110
Equity Shares (m)             281.9         YEAR   NET SALES          PAT       EPS     EPS          P/E          P/BV     ROE         ROCE       EV/       EV/
                                            END         (RS M)     (RS M)       (RS) GROWTH (%)      (X)           (X)     (%)         (%)      SALES EBITDA
52-Week Range                200/69
                                            03/08A 30,442          6,739       24.7     29.7         4.4          1.2      34.0        25.6       1.4       3.9
1,6,12 Rel. Perf. (%)         0/9/-7
                                            03/09E 34,282          5,201       19.1    -22.8         5.8          1.0      18.7        19.8       1.1       3.7
M.Cap. (Rs b)                  30.9
                                            03/10E 36,086          5,669       20.8       9.0        5.3          0.9      17.6        19.6       0.9       3.0
M.Cap. (US$ b)                  0.6
                                            03/11E 38,152          4,564       16.7    -19.5         6.6          0.8      12.5        14.8       0.8       3.2


?   India Cement is expected to report 5.7% YoY sales growth to Rs8.9b, driven by 7% YoY (flat QoQ) higher realizations
    to Rs3,605/ton and flat volumes to 2.44MT. Volumes are impacted due to on-going brownfield expansion at its key
    plants.

?   Savings from lower imported coal cost would translate into EBITDA margin improvement of 560bp QoQ (~160bp
    YoY decline) to 29.5% and flat EBITDA to Rs2.6b. Our estimates doesn’t factor in for any expenses related to IPL.
    Lower tax provisioning would restrict PAT de-growth to 1.6% to Rs1.38b.

?   India Cement would be one of the biggest beneficiaries of decline in imported coal prices. We estimate saving of
    about Rs16-17/bag from energy cost and freight cost savings from 4QFY09.

?   At valuations of 5.3x FY10E EPS and 3x FY10E EBITDA, the stock is attractive. Maintain Buy.
QUARTERLY PERFORMANCE                                                                                                                                  (RS MILLION)

Y/E MARCH                                                FY08                                              FY09                                FY08        FY09E

                                       1Q          2Q            3Q            4Q        1Q          2Q              3Q          4QE

Sales Dispatches (m ton)          2.31      2.27             2.18            2.46      2.37        2.43            2.00       2.44             9.22         9.24
   YoY Change (%)                 24.5      20.9             25.5                -       2.7         6.9            -8.3       -0.6              9.4          0.2
Realization (Rs/ton)             3,033    3,339             3,395           3,373     3,440       3,585           3,629      3,605            3,280        3,562
   YoY Change (%)                 16.4      22.2             25.0            21.7      13.4          7.4             6.9        6.9            23.2           8.6
   QoQ Change (%)                   9.4     10.1               1.7            -0.7       2.0         4.2             1.2       -0.6
Net Sales                        7,012    7,612             7,379           8,440     8,375       9,455           7,529      8,923        30,443          34,282
   YoY Change (%)                 44.5      47.4             56.2              8.0     19.4        24.2              2.0        5.7         35.0            12.6
Total Expenditure                4,369    4,539             4,930           5,811     5,393       6,554           5,728      6,293        19,648          23,968
EBITDA                           2,643    3,074             2,449           2,629     2,981       2,901           1,801      2,631        10,794          10,314
   Margins (%)                    37.7      40.4             33.2            31.1      35.6        30.7            23.9       29.5          35.5            30.1
Depreciation                       275      303               311             390       490         498             513        584         1,279           2,084
Interest                           226      283               273             229       230         248             293        283         1,099           1,054
Other Income                        10        11               30             325       132          91             141        167           511             530
PBT before EO Expense            2,151    2,499             1,895           2,335     2,392       2,246           1,136      1,931         8,928           7,706
Extra-Ord Expense                  -88       -47                 0            481       218         296             132          60          481             705
PBT                              2,239    2,546             1,895           1,854     2,175       1,950           1,004      1,871         8,446           7,001
Tax                                317      320               624             810       754         608             385        529         2,071           2,275
   Rate (%)                       14.2      12.6             32.9            43.7      34.6        31.2            38.3       28.3          24.5            32.5
Reported PAT                     1,921    2,227             1,271           1,044     1,421       1,343             619      1,342         6,375           4,725
Adj PAT                          1,846    2,185             1,271           1,408     1,564       1,546             700      1,385         6,739           5,201
   YoY Change (%)                 64.0      86.2             59.3           -16.8     -15.3       -29.2           -44.9        -1.6         40.7           -22.8
   Margins (%)                    26.3      28.7             17.2            16.7      18.7        16.4              9.3      15.5          22.1            15.2
E: MOSL Estimates; *Excluding Visaka merger
Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                                 113
                                                                                                                                                 Results Preview
                                                                                                                                                 SECTOR: CEMENT




                                                                                                                                 Shree Cement
STOCK INFO.         BLOOMBERG
                                               27 March 2009
BSE Sensex: 10,049 SRCM IN
                                                                                                                                                               Buy
                    REUTERS CODE
S&P CNX: 3,109      SHCM.BO                    Previous Recommendation: Buy                                                                                   Rs671
Equity Shares (m)             34.8             YEAR      NET SALES          PAT       EPS     EPS          P/E          P/BV   ROE         ROCE      EV/       EV/
                                               END            (RS M)     (RS M)       (RS) GROWTH (%)      (X)          (X)    (%)         (%)      SALES EBITDA
52-Week Range           1,148/330
                                               03/08A 20,659             2,879       82.6     83.2         8.1          3.5    51.1        27.0      1.5       3.7
1,6,12 Rel. Perf. (%)        6/50/5
                                               03/09E 26,276             4,762 136.7          65.4         4.9          2.1    53.2        33.7      1.2       3.8
M.Cap. (Rs b)                 23.4
                                               03/10E 26,845             3,441       98.8    -27.7         6.8          1.6    26.9        24.6      1.2       3.6
M.Cap. (US$ b)                  0.5
                                               03/11E 27,048             2,049       58.8    -40.4        11.4          1.4    13.3        14.8      1.0       3.9


?   Sales in 4QFY09 are expected to grow by 11% YoY to Rs7.2b driven by volume growth of 11% YoY to 2.28mt, while
    realizations are expected to remain flat QoQ (~3% YoY decline) to Rs3,059/ton.
?   Significant savings in energy cost, coupled with freight cost savings, would translate in EBITDA margin improvement
    of 110bp QoQ (~380bp YoY decline) to 35.2% and EBITDA to Rs2.5b. Shree Cement would benefit from about 50%
    drop in pet coke prices, with savings of about Rs17-18/bag which would be reflected from 4QFY09.
?   Depreciation is expected to increase QoQ by 96% to Rs1b as unit VII is expected to be capitalized in 4QFY09. As
    a result, PAT is expected to de-grow 14% QoQ (~167% YoY growth) to Rs1.1b.
?   We are upgrading our earnings estimates for FY10 by 4.7% to Rs98.8 to factor in change in pricing assumption for
    stable prices till 1QFY10 and Rs10/bag decline in 2QFY10 and 3QFY10 each. The stock trades at attractive valuations
    of 6.8x FY10E EPS and 3.6x FY10E EBITDA. Maintain Buy.

QUARTERLY PERFORMANCE                                                                                                                                     (RS MILLION)

Y/E MARCH                                                      FY08                                              FY09                              FY08       FY09E

                                         1Q             2Q             3Q            4Q        1Q          2Q             3Q         4QE

Sales Dispatches (m ton)               1.44           1.49         1.62            2.06      1.92        2.02        2.11         2.28             6.60        8.33
   YoY Change (%)                      24.0           34.5         24.9            61.1      33.7        35.1        30.2         11.1             33.6        26.1
Realization (Rs/ton)                  3,073          3,188        3,275           3,162     3,201       3,055       3,049        3,059            3,129       3,089
   YoY Change (%)                      15.3           12.0         16.3              6.7       4.2        -4.2        -6.9         -3.2            13.1         -1.3
   QoQ Change (%)                        3.7            3.7          2.7            -3.5       1.2        -4.6        -0.2          0.3
Net Sales                             4,410          4,760        5,296           6,501     6,143       6,292       6,653        7,188        20,659         26,276
   YoY Change (%)                      43.0           50.7         45.3            71.9      39.3        32.2        25.6         10.6          51.0           27.2
EBITDA                                1,823          2,011        2,253           2,537     2,106       1,828       2,269        2,528         8,624          8,730
   Margins (%)                         41.3           42.3         42.5            39.0      34.3        29.0        34.1         35.2          41.7           33.2
Depreciation                            358            688        1,875           1,867       461         537         509        1,000         4,788          2,507
Interest                                 39             85          127             246       171         167         166          186           497            689
Other Income                            126            291          170             146        118        336         183          164           733            800
PBT before EO Exp                     1,552          1,530          420             569     1,592       1,460       1,776        1,507         4,072          6,335
Extra-Ord Expense                          0              0            0               0        76          97          53           60          389            286
PBT                                   1,552          1,530          420             569     1,516       1,363       1,723        1,447         3,683          6,049
Tax                                     383            468           70             158       407         288         484          394         1,079          1,573
   Rate (%)                            24.7           30.6         16.7            27.8      26.9        21.1        28.1         27.2          29.3           26.0
Reported PAT                          1,169          1,062          350              411    1,109       1,075       1,239        1,053         2,604          4,476
Adj PAT                               1,169          1,062          350              411    1,164       1,151       1,278        1,096         2,879          4,688
   YoY Change (%)                      29.4           36.7        -66.4           920.0       -0.4         8.4      264.7        166.9          81.3           62.9
   Margins (%)                         26.5           22.3           6.6             6.3     19.0        18.3        19.2         15.3          13.9           17.8
E:MOSL Estimates; Quarterly results do not add up with FY results as it provides addl. depreciation and deferred tax at the end of year
Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                                    114
                                                                                                                                     Results Preview
                                                                                                                                     SECTOR: CEMENT




                                                                                                               UltraTech Cement
STOCK INFO.         BLOOMBERG
                                            27 March 2009
BSE Sensex: 10,049 UTCEM IN
                                                                                                                                                    Buy
                    REUTERS CODE
S&P CNX: 3,109      ULTC.BO                 Previous Recommendation: Buy                                                                           Rs529
Equity Shares (m)             124.5         YEAR   NET SALES          PAT    EPS    EPS        P/E          P/BV   ROE         ROCE       EV/       EV/
                                            END         (RS M)     (RS M)    (RS) GROWTH (%)   (X)          (X)    (%)         (%)      SALES EBITDA
52-Week Range            843/250
                                            03/08A 55,092        10,076     80.9     28.8      6.5          2.4    45.2        40.7       1.5       4.7
1,6,12 Rel. Perf. (%)     -1/22/6
                                            03/09E 63,177          9,242    74.2     -8.3      7.1          1.9    29.6        28.3       1.3       5.0
M.Cap. (Rs b)                  65.9
                                            03/10E 66,238          9,521    76.5      3.0      6.9          1.5    23.8        24.7       1.2       4.4
M.Cap. (US$ b)                  1.3
                                            03/11E 68,819          7,034    56.5    -26.1      9.4          1.3    14.8        17.3       1.0       4.8


?   Net sales expected to grow by 12% YoY to Rs18b driven by 4.1% YoY (~2.1% QoQ decline) higher realizations to
    Rs3,325/ton and 6.7% growth in volumes to 5.14MT. Also, strong growth in RMC business (~35% YoY) would
    support revenue growth.

?   While realizations in domestic market would remain stable, export realizations have declined by about US$10/ton for
    cement and US$5/ton for clinker.

?   Cost savings in the form of energy and freight cost would result in 40bp YoY decline (~370bp YoY decline) in
    EBITDA margin at 26.8% and flat EBITDA at Rs4.8b. However, higher depreciation and interest cost (on account
    of new capacity) would result in 9% de-growth in PAT to Rs2.6b.

?   At 6.9x FY10E EPS and 4.4x FY10E EV/EBITDA, valuations do not fully reflect the improving operating performance
    and organic growth visibility at the low cost of expansion. Maintain Buy.

QUARTERLY PERFORMANCE                                                                                                                          (RS MILLION)

Y/E MARCH                                                FY08                                        FY09                              FY08        FY09E

                                      1Q*          2Q            3Q         4Q       1Q        2Q             3Q         4QE

Sales (m ton)                      4.47       3.62        4.37      4.82        4.34       3.98          4.57        5.14             17.28        18.04
   YoY Change (%)                    0.4        0.4       -2.7       -4.6        -2.9      10.2            4.6         6.7              -2.3          4.4
Realization (Rs/ton)              2,946      3,119      3,039      3,193       3,271     3,346          3,398       3,325             3,075        3,335
   YoY Change (%)                   11.4      12.7          9.4      11.4       11.0        7.3           11.8         4.1             11.7           8.5
   QoQ Change (%)                    2.8        5.9       -2.6        5.1         2.5       2.3            1.5        -2.1
Net Sales                       13,600      11,676    13,802      16,017     14,960     13,962         16,308      17,947         55,092          63,177
   YoY Change (%)                  15.2       16.2          9.5       9.3       10.0       19.6          18.2        12.1           12.2            14.7
Total Expenditure                 9,222      8,366      9,126     11,132     10,501     10,995         12,000      13,131         37,892          46,627
EBITDA                            4,378      3,310      4,676      4,885       4,458     2,967          4,308       4,816         17,201          16,549
   Margins (%)                     32.2       28.3        33.9      30.5        29.8       21.3          26.4        26.8           31.2            26.2
Depreciation                        559        581         583       650          711      808            805       1,046          2,372           3,370
Interest                            222        203         186       193         247       309            359         422            757           1,337
Other Income                        247        259         222       270         266       278            204         202            999             950
PBT after EO Expense              3,844      2,786      4,129      4,312       3,766     2,129          3,348       3,550         15,070          12,792
Tax                               1,250        927      1,334      1,483       1,116       487            964         983          4,994           3,550
   Rate (%)                        32.5       33.3        32.3      34.4        29.6       22.9          28.8        27.7           33.1            27.8
Reported PAT                      2,594      1,859      2,795      2,829       2,650     1,642          2,384       2,567         10,076           9,242
Adj PAT                           2,594      1,859      2,795      2,829       2,650     1,642          2,384       2,567         10,076           9,242
   YoY Change (%)                  23.0       45.8        31.5      22.2          2.2     -11.7         -14.7         -9.3          28.8             -8.3
E: MOSL Estimates; Quarterly results do not add up to full year results due to recasting

Jinesh K Gandhi (Jinesh@MotilalOswal.com); Tel +91 22 39825416

27 March 2009                                                                                                                                         115
                                                                                                                                                                                     Results Preview
                                                                                                                                                                   QUARTER ENDING MARCH 2009




                                                                                                                                                                         Engineering
BSE Sensex: 10,049         S&P CNX: 3,109                                                                                                                                            27 March 2009

COMPANY NAME                       IPP/capital goods indices continues to be under pressure
ABB
                                   The IIP index for January 2009 witnessed negative growth of 0.5%, while growth in the
                                   capital goods index stood at 15.4% YoY. While cumulative growth for the IIP index
Bharat Electronics
                                   during April 2008-January 2009 stands at 3% YoY, the capital goods index has witnessed
                                   growth of 8.6% YoY over the corresponding period of the pervious year. Both the indices
BHEL
                                   have been reflecting a strain over FY09 until date, indicating moderation/slowdown in
                                   industrial activity. IIP index has remained at the near zero level for the fourth consecutive
Crompton Greaves
                                   month. For capital goods, the January growth is expected to be a blip since it owes its
                                   reasons to the base effect. Thus, we expect the capital goods index growth to moderate
Cummins India
                                   in February/March 2009. We believe the trend of moderation/ slowdown in investments
Larsen & Toubro
                                   has become evident during October 2008-January 2009.

                                   IIP INDEX (% YOY)                                                                          CAPITAL GOODS INDEX (% YOY)
Siemens
                                                                  FY07                     FY08                  FY09         35                            FY07                 FY08                     FY09
                                    16
Suzlon Energy
                                    12
                                                                                                                              25
Thermax                               8
                                               6.2                   6.4                                                                                       17.9 18.6
                                                                           6.0                                                15                                                                      15.4
                                      4                           5.4                                                                    12.4
                                                     4.4                                     1.7                                                           7.8
                                      0                                   1.7                                                  5                   4.3                          2.9
                                                                                                                                                                     0.9                                  5.2
                                                                                     0.1         -0.6         -0.5
                                     -4                                                                                                                                                -0.1
                                                                                                                               -5
                                                                                                        Jan
                                                                                                               Feb
                                                                               Sep



                                                                                                 Dec



                                                                                                                     Mar




                                                                                                                                                                                                    Jan
                                                                  July




                                                                                           Nov




                                                                                                                                                                                                           Feb
                                                                                                                                                                         Sep




                                                                                                                                                                                             Dec
                                             April




                                                                                     Oct




                                                                                                                                                                                                                 Mar
                                                     May



                                                                         Aug




                                                                                                                                                            July




                                                                                                                                                                                      Nov
                                                                                                                                     April
                                                           June




                                                                                                                                                                               Oct
                                                                                                                                             May




                                                                                                                                                                   Aug
                                                                                                                                                    June




                                                                                                                                                                   Source: Ministry of Statistics


EXPECTED QUARTERLY PERFORMANCE SUMMARY                                                                                                                                                             (RS MILLION)

                       CMP (RS)    RECO                                          SALES                                         EBITDA                                          NET PROFIT

                         27.3.09                           MAR.09                    VAR.              VAR.          MAR.09         VAR.             VAR.           MAR.09                  VAR.            VAR.

                                                                                 % YOY            % QOQ                         % YOY              % QOQ                              % YOY               % QOQ

Engineering
ABB                         420    Neutral              16,781                        9.3          -22.5              1,846       6.8              -31.1             1,166              -0.9              -39.6
Bharat Electronics          841    Buy                  26,761                       16.7          298.9              7,764      11.1              383.4             5,508              13.9              348.6
BHEL                      1,551    Neutral              92,027                       27.8           52.8             18,030      27.2               63.8            13,850              20.9               64.4
Crompton Greaves            118    Neutral              13,555                       16.9           25.5              1,890      20.7               36.4             1,145              21.3               35.1
Cummins India               179    Buy                   6,442                       -3.9          -14.1              1,083       8.0              -28.7               721              -4.6              -30.8
Larsen & Toubro             680    Neutral             103,078                       21.7           19.9             14,711      30.2               56.0            10,214              12.2               59.6
Siemens                     250    Neutral              19,471                       -9.6           18.7              1,944   1,177.4               14.2             1,265           7,489.0               17.9
Suzlon Energy                46    Neutral              41,247                       -1.6            4.9              5,666     -20.9               11.9             2,047             -63.9              -29.8
Thermax                     172    Neutral              10,042                        8.9           26.3              1,284       1.1               32.7               808               0.4               11.8
Sector Aggregate                                       329,403                       15.2           28.4             54,218      19.6               53.3            36,724               5.6               49.4



Satyam Agarwal (Agarwals@MotilalOswal.com)Tel: +91 22 3982 5410/ Shridatta Bhandwaldar (Shridatta.Bhandwaldar@MotilalOswal.com)

27 March 2009                                                                                                                                                                                                    116
                                                                                                                        Engineering




                                  4QFY09: Expect moderate growth but lower order intake
                                  For 4QFY09, we expect the capital goods space to deliver revenue growth of 15% YoY,
                                  EBITDA growth of 20% YoY and net profit growth of 6% YoY. We expect above-industry
                                  average performance from BHEL and L&T, driven by strong execution and benefits of
                                  lower commodity prices. We have witnessed a sharp decline in raw material prices (in
                                  steel, copper etc.) in the international markets, which should be positive for BHEL’s operating
                                  margins from 4QFY09/1QFY10. But we are not expecting any immediate impact for
                                  BHEL and L&T due to higher inventory levels. On the other hand, in the case of T&D
                                  players, a majority of the contracts are based on price variations, limiting benefits.


                                  Order intake: Public capex steady but headwinds to private/export
                                  investments
                                  Over the past 12 months, order book for BHEL, L&T and ABB has remained healthy,
                                  driven by strong project ordering in power equipment, hydrocarbons, process industries
                                  etc. However Suzlon, Crompton and Siemens experienced stagnation in order books over
                                  the past 6-9 months due to: concerns relating to blade cracks in the US market for Suzlon;
                                  lack of mega order intake at Siemens. Project award activity in T&D is likely to pick up in
                                  4QFY09 since (1) twelve 765kV substation orders are expected by 4QFY09/1QFY10,
                                  and (2) a large part of the public sector spending occurs in the last quarter of the year.



ORDER INTAKE (RS M, %YOY)

                      4QFY07       1QFY08      2QFY08       3QFY08        4QFY08    1QFY09       2QFY09        3QFY09        % YOY

ABB                   20,003       19,963      16,683       20,033       26,954     22,086       18,891       12,610       -37.1
BHEL                 133,480      109,696     146,393      109,289      137,323    159,313      147,983      159,533        16.2
Crompton                  NA       18,816      18,816       16,385       20,407     29,388       28,479       19,626        19.8
L&T                   76,630       98,810      75,470      130,190      119,750    122,340      124,530      146,319        12.4
Siemens               19,477       17,536       7,791       19,120       23,422     20,883       23,851       19,797         3.5
Suzlon                46,857       59,586      64,643       39,538       61,253      9,429       27,584        2,670       -89.0
                                                                                                                 Source: Company



                                  ORDER BACKLOG (RS B AND % YOY)

                                                                     DEC 07          DEC 08       GROWTH (%)    BOOK TO BILL(X)

      BHEL provides the best      ABB                                   49               62           25.7            0.9
                                  BHEL                                 780            1,135           45.5            4.5
      revenue visibility in the
                                  Crompton Greaves*                     51               66           29.3            1.0
  entire engineering universe     L&T                                  496              688           38.7            2.0
                                  Siemens                               94              103           9.5             1.2
                                  Suzlon                               171              104          -39.3            0.7
                                  *Based on power business only                                                  Source: Company




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                                                                                                                                                                                                   Engineering




                               ABB/SIEMENS HAS HIGHEST EXPOSURE (% OF REVENUE) TO INDUSTRIAL CAPEX

                                                                                        GOVERNMENT                          INDUSTRIAL                   INFRASTRUCTURE                        CONSUMERS

          ABB, Siemens and     ABB                                                                 62                                  38                                 0                0
   L&T derive ~40% of order    BHEL                                                                79                                  19                                 2                0
                               Crompton Greaves**                                                  70                                  15                                 0               15
  book from industrial capex
                               Larsen and Toubro                                                   20                                  42                                39                0
           which is slowing    Siemens                                                             48                                  37                                 8                8
                               Suzlon                                                              62                                  38                                 0                0
                               ** Based on the consolidated numbers                                                                                                            Source: Company/MOSL



                               Expect margin pressure in industrial/consumer businesses
                               During 4QFY09, we expect aggregate EBITDA margin to remain stable/improve marginally
                               to 16.5% (+60bp). This improvement is mainly on account of Siemens’ EBITDA margin in
                               4QFY08 (very low), which has increased by 928bp YoY. However, excluding Siemens,
                               the EBITDA margin has fallen by 22bp to 16.87%. A few trends observed in the previous
                               quarter are likely to continue:
                               ? Increased competitive pressures will impact profitability of the consumer and industrial
                                   businesses of L&T, ABB, CG etc. During 3QFY09, all the industrial/consumer related
                                   businesses witnessed a sharp decline in volumes and profitability.
                               ? Declining commodity prices could result in marginal EBITDA margin for players such
                                   as BHEL.
                               ? Renegotiation of the existing project pricing will impact the EBITDA margin negatively
                                   for players like L&T, Siemens, ABB etc. – players with considerable exposure to
                                   private capex.

                               TREND IN EBITDA AND PAT MARGINS (%)


                                                                                    EBITDA Margin (LHS)                                       Net Profit Margin (RHS)
                                 20                                                                                                                                                                               20
                                                                            18.1
                                                                                                                            17.5                                                                            16.5
                                 16                                                                                                                                      16.1                                   16
                                                                                                                 15.2                       14.3                                               13.8
                                                                  13.6                                                                                        13.5             11.8
                                 12                                                                12.4                                                                                                           12
                                                                                                                              8.6                                                   11.7
                                      8.7       8.7
                                                                                   10.1
                                  8                                                                                                                                                                               8

                                  4                                                                                                                                                                               4
                                       Jun-05




                                                                               Jun-06




                                                                                                                              Jun-07




                                                                                                                                                                           Jun-08
                                                Sep-05

                                                         Dec-05




                                                                                          Sep-06

                                                                                                        Dec-06




                                                                                                                                            Sep-07

                                                                                                                                                     Dec-07




                                                                                                                                                                                      Sep-08

                                                                                                                                                                                                Dec-08
                                                                   Mar-06




                                                                                                                   Mar-07




                                                                                                                                                                Mar-08




                                                                                                                                                                                                         Mar-09




                                                                                                                                                                                                 Source: MOSL




27 March 2009                                                                                                                                                                                                     118
                                                                                                Engineering




                FIXED PRICE CONTRACTS, % ORDER BOOK

                COMPANY                           RM/SALES (%)      FIXED PRICE CONTRACTS/ ORDER BOOK (%)

                ABB                                   74.0                           NA
                BHEL                                  47.6                           ~50
                Crompton                              70.0                           NA
                L&T                                   43.3                           ~35
                Siemens                               80.7                           ~50
                Suzlon                                58.0                           ~68
                                                                                      Source: Company/MOSL



                We remain Neutral on the sector
                Earnings visibility for the sector (except BHEL) has been impacted due to reduced visibility
                of the private/industrial capex during FY09. All the companies except BHEL and L&T
                witnessed meaningful decline in order intake. Also, exports, particularly to the Middle
                East have been impacted due to sharp decline in oil prices over 2HFY09. Most of the
                companies in our coverage universe have exports business between 5-30% (of order
                book) to the Middle East. Given the increased headwinds to revenue growth and profitability,
                we maintain our Neutral stance on the sector.




27 March 2009                                                                                           119
                                                                                                                                                   Engineering




Stock performance and valuations

STOCK PERFORMANCE (%)

                                                   ABSOLUTE PERF                           REL PERF TO SENSEX                      REL PERF TO SECTOR

                                                 3M               1 YEAR                   3M               1 YEAR                 3M               1 YEAR

Engineering
ABB                                               -4                 -64                   -11                 -27                  -8                 -17
Bharat Electron                                   22                 -25                    14                  13                  18                  23
BHEL                                              19                 -22                    12                  15                  15                  26
Crompton Greaves                                  -9                 -57                   -17                 -20                 -13                 -10
Cummins India                                     -9                 -38                   -17                   0                 -13                  10
Larsen & Toubro                                   -9                 -54                   -16                 -17                 -13                  -7
Siemens                                           -7                 -63                   -15                 -25                 -11                 -15
Suzlon Energy                                    -20                 -81                   -28                 -44                 -24                 -33
Thermax                                           -3                 -70                   -11                 -32                  -7                 -22




RELATIVE PERFORMANCE - 3 MONTH (%)                                             RELATIVE PERFORMANCE - 1 YEAR (%)


                   Sensex         MOSt Engineering Index                                                 MOSt Engineering Index           Sensex
 105                                                                               120


 100                                                                               100


  95                                                                               80


  90                                                                               60


  85                                                                               40
         Dec-08          Jan-09         Feb-09           Mar-09                          Mar-08          Jun-08         Sep-08         Dec-08         Mar-09




COMPARATIVE VALU ATION

                   CMP (RS)   RECO                 EPS (RS)                         P/E (X)                        EV/EBITDA                     ROE (%)

                    27.3.09                FY09E       FY10E   FY11E       FY09E    FY10E        FY11E     FY09E     FY10E     FY11E     FY09E    FY10E    FY11E

Engineering
ABB                  420      Neutral       25.1        24.1    23.1        16.7      17.5        18.2      11.2      10.9      11.1      28.5      21.8     17.6
Bharat Electronics   841      Buy          100.0       109.0   118.0         8.4       7.7         7.1       3.5       2.6       1.7      23.5      21.5     19.8
BHEL               1,551      Neutral       67.6        86.5   112.0        23.0      17.9        13.9      16.4      11.1       8.4      28.1      29.8     31.2
Crompton Greaves     118      Neutral       14.5        15.6    16.6         8.2       7.6         7.1       6.8       6.2       5.7      35.5      29.4     25.5
Cummins India        179      Buy           19.0        20.3    22.7         9.5       8.8         7.9       5.9       5.1       4.4      30.4      26.2     25.5
Larsen & Toubro      680      Neutral       55.5        57.9    62.5        12.3      11.8        10.9      12.1      10.3       9.3      24.3      21.0     19.5
Siemens              250      Neutral       14.6        14.4    16.7        17.1      17.4        15.0       9.7       8.4       7.2      28.5      18.1     16.7
Suzlon Energy         46      UR             7.2         6.1     8.5         6.3       7.4         5.4       6.6       6.9       5.8      13.0      10.0     12.7
Thermax              172      Neutral       23.2        21.2    21.0         7.4       8.1         8.2       4.8       5.1       5.1      33.5      26.8     24.6
Sector Aggregate                                                            14.6      13.5        11.4      10.9       9.1       7.6      25.0      22.7     22.9
UR = Under Review



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                                                                                                                                                            ABB
STOCK INFO.         BLOOMBERG
                                                  27 March 2009
BSE Sensex: 10,049 ABB IN                                                                                                                             Neutral
                    REUTERS CODE
S&P CNX: 3,109      ABB.BO                        Previous Recommendation: Neutral                                                                            Rs420
                                                  YEAR     NET SALES          PAT    EPS     EPS GR.       P/E      P/BV      ROE         ROCE       EV/       EV/
Equity Shares (m)              211.9              END           (RS M)    (RS M)     (RS)      (%)         (X)       (X)      (%)         (%)      SALES EBITDA

52-Week Range           1,240/344                 12/08A        68,370     5,325     25.1      8.3        16.7       4.2      28.5        45.6       1.2      11.2
1,6,12 Rel. Perf. (%)       1/-24/-27             12/09E        73,685     5,098     24.1      -4.3       17.5       3.5      21.8        35.1       1.2      10.9
M.Cap. (Rs b)                   89.0              12/10E        73,838     4,890     23.1      -4.1       18.2       3.0      17.6        28.4       1.1      11.1
M.Cap. (US$ b)                    1.8             12/11E        81,372     4,914     23.2     25.3        18.1       2.6      15.3        24.9       0.9       9.9


?   Order intake in 4QCY08 stood at Rs12.6b (down 37.1% YoY and 33.2% QoQ), the first instance of YoY decline
    since 4QCY05. Even during 2QCY08/3QCY08, order intake posted QoQ decline indicating slowing order flow.
    Order backlog at December 2008 was Rs61.6b (up 22.6% YoY), book-to-bill ratio of 0.9x CY08 revenues.
?   We expect subdued revenue growth of 9.3% YoY to Rs16.8b during 1QCY09, in line with our annual assumption of
    8% YoY growth. A majority of the contracts entail PVC, thus the commodity price decline could be largely pass
    through. Also, management indicated that price negotiations are in a few private sector projects.
?   EBITDA margin during CY08 has witnessed 100bp decline to 11.2%. While we have estimated further decline in
    EBITDA margin to 10.7% in CY09, the impact would be more prominent during 2HFY09. This could be due to
    reducing proportion of higher margin automation/private/products business.
?   We expect decline in the share of revenues of automation business from 42% in CY08 to 40% in CY09 and 36% in
    CY10; and share in EBIT to decline from 48% in CY08 to 42% in CY09 and 36% in CY10. Given the change in
    composition towards power business (relatively lower margin) in CY09 / CY10, we expect EBIT margin pressure
    during CY09/CY10.
?   During CY08, the working capital has witnessed deterioration and stands at 17% of revenues in CY08, v/s 8% in
    CY07. Also, net cash level has declined from Rs6.4b in December 2007 to Rs2.8b in December 2008.
?   The stock is trading at 17.5x CY09E and 18.2x CY10E earnings. We estimate EPS of Rs24.1/sh for CY09 and
    Rs23.1/sh for CY10. Maintain Neutral.
QUARTERLY PERFORMANCE                                                                                                                                     (RS MILLION)

Y/E DECEMBER                                                     CY08                                            CY09E                            CY08        CY09E

                                            1Q             2Q            3Q         4Q          1Q         2Q            3Q          4Q

Sales                                   15,353      16,163         15,191       21,663      16,781     17,504      15,966     23,434            68,370       73,685
   Change (%)                             17.0        15.4           10.3         17.8          9.3        8.3         5.1        8.2             15.3           7.8
EBITDA                                   1,728       1,902          1,348        2,680       1,846      1,943       1,437      2,629             7,658        7,855
   Change (%)                             34.8        16.1          -21.8           3.0         6.8        2.2         6.6       -1.9               5.7          2.6
   As % of Sales                           11.3        11.8            8.9        12.4         11.0       11.1         9.0       11.2              11.2        10.7
Depreciation                                83          88             92          103         105         110         113        118              367          446
Interest                                    28            8            67          159         148        100         125          77              262          450
Other Income                               185         184            399          507         187        186         186        266             1,275          825
PBT                                      1,801       1,990          1,589        2,925       1,780      1,919       1,385      2,699             8,304        7,784
Tax                                        624         701            540          993         614        662         478        931             2,858        2,685
   Effective Tax Rate (%)                 34.6        35.2           34.0         34.0        34.5       34.5        34.5       34.5              34.4         34.5
Repoted PAT                              1,177       1,289          1,048        1,931       1,166      1,257         907      1,768             5,446        5,098
Adj. PAT                                 1,177       1,289            927        1,931       1,166      1,257         907      1,768             5,325        5,098
   Change (%)                             35.9        19.5          -20.8           6.8        -0.9       -2.5        -2.2       -8.5               8.3         -4.3
E: MOSL Estimates


Satyam Agarwal (Agarwals@MotilalOswal.com)Tel: +91 22 3982 5410/ Shridatta Bhandwaldar (Shridatta.Bhandwaldar@MotilalOswal.com)

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                                                                                                                      Bharat Electronics
STOCK INFO.         BLOOMBERG
                                                27 March 2009
BSE Sensex: 10,049 BHE IN
                                                                                                                                                            Buy
                    REUTERS CODE
S&P CNX: 3,109      BAJE.BO                     Previous Recommendation: Buy                                                                                Rs841
Equity Shares (m)              80.0             YEAR     NET SALES          PAT    EPS       EPS        P/E          P/BV   ROE         ROCE       EV/       EV/
                                                END           (RS M)     (RS M)    (RS) GROWTH (%)      (X)          (X)    (%)         (%)       SALES EBITDA
52-Week Range           1,371/545
                                                3/08A     40,603        8,272 103.4           15.2      8.1          2.1    29.4        29.4       1.0       4.1
1,6,12 Rel. Perf. (%)   -15/20/13
                                                3/09E     45,116        7,998 100.0           -3.3      8.4          1.7    23.5        23.9       0.8       3.5
M.Cap. (Rs b)                  67.3
                                                3/10E     51,443        8,720 109.0            9.0      7.7          1.5    21.5        21.5       0.6       2.6
M.Cap. (US$ b)                  1.3
                                                3/11E     56,587        9,443     118.0        8.3      7.1          1.3    19.8        19.8       0.4       1.7


?   For 4QFY09 we expect Bharat Electronics to report revenue of Rs26.8b, up 16.7% YoY; EBITDA of Rs7.8b, up
    11.1% YoY; and net profit of Rs5.5b, up 9.1% YoY.
?   Management has guided for revenue of Rs100b for FY12, which is higher than the previous (April 2007) guidance of
    US$2b by FY12. It implies an impressive CAGR of 24.9% over FY08 gross revenues of Rs41.1b.
?   Order book position at the end of 3QFY09 stood at more than Rs100b, book-to-bill ratio of 2.2x FY09 revenues.
?   Every year BEL signs an MoU with the Ministry of Defense stating its target for the year. During FY09, BEL has to
    clock a turnover of Rs46.5b to achieve an excellent rating from the government. During FY08, BEL has achieved an
    excellent rating.
?   During 4QFY09, BEL signed MoUs with: (1) Astra Microwave Products for manufacturing microwave components
    and assemblies, products which will cater to the requirements of the Indian defense, government establishments etc.,
    (2) SELEX Galileo to explore opportunities in the filed of electronics warfare for the Indian and export market, (3)
    Boeing to open center to support India’s defense modernization. BEL has also been selected by Northrop Grumman
    Corporation to manufacture components for the F-16 fire control radar.
?   We expect the company to post revenue and earnings CAGR of 12% and 9% respectively during FY09-11E. The
    stock is trading at a P/E of 8.4x FY09E and 7.7x FY10E. Buy.

QUARTERLY PERFORMANCE                                                                                                                                   (RS MILLION)

Y/E MARCH                                                      FY08                                           FY09                              FY08        FY09E

                                          1Q            2Q             3Q         4Q          1Q        2Q             3Q         4QE

Sales                                  4,044          7,089       6,622       22,937       3,839     7,807       6,709      26,761            40,693       45,116
   Change (%)                           -16.3         -15.0       -23.3         32.3          -5.1    10.1          1.3       16.7                4.5        10.9
EBITDA                                    -46         1,534       1,269        6,986         -326    1,626       1,606       7,764             9,742       10,671
   Change (%)                         -106.4          -17.8       -35.8         44.1      -606.4        6.0       26.6         11.1               3.5          9.5
   As of % Sales                         -1.1          21.6        19.2         30.5          -8.5    20.8        23.9        29.0              23.9         23.7
Depreciation                              211           221         234          269          240      256         270         278               935        1,044
Interest                                    1             0           0            1             0      71            0        109                  3         180
Other Income                              656           497         647          522          612      532         456         715             2,303        2,316
Exceptional Items (reported)                0             0           0          212             0        0           0           0              232             0
PBT                                       398         1,809       1,681        7,450            46   1,832       1,793       8,093            11,338       11,762
Tax                                       135           581         552        2,402            20     594         565       2,585             3,669        3,764
   Effective Tax Rate (%)                33.9          32.1        32.8         32.2         44.8     32.4        31.5        31.9              32.4         32.0
Reported PAT                              263         1,228       1,130        5,048            25   1,237       1,228       5,508             7,670        7,998
   Change (%)                           -56.4         -17.2       -23.8         41.3        -90.4       0.7         8.7         9.1               7.4          4.3
Adj PAT                                   263         1,228       1,130        4,836            25   1,237       1,228       5,508             7,438        7,998
E: MOSL Estimates


Satyam Agarwal (Agarwals@MotilalOswal.com)Tel: +91 22 3982 5410/ Shridatta Bhandwaldar (Shridatta.Bhandwaldar@MotilalOswal.com)

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                                                                                                                                      SECTOR: ENGINEERING




                                                                                                                                                        BHEL
STOCK INFO.         BLOOMBERG
                                                 27 March 2009
BSE Sensex: 10,049 BHEL IN
                                                                                                                                                    Neutral
                    REUTERS CODE
S&P CNX: 3,109      BHEL.BO                      Previous Recommendation: Neutral                                                                         Rs1,551
Equity Shares (m)             489.5              YEAR     NET SALES          PAT    EPS        EPS        P/E          P/BV   ROE         ROCE      EV/      EV/
                                                 END           (RS M)     (RS M)    (RS) GROWTH (%)       (X)          (X)    (%)         (%)      SALES EBITDA
52-Week Range           2,103/984
                                                 03/08A 197,652          25,095     51.3       3.9       30.3          7.0    25.7        51.1      3.5     18.1
1,6,12 Rel. Perf. (%)       -2/23/15
                                                 03/09E 254,103          33,079     67.6       31.8      23.0          6.0    28.1        43.4      2.7     16.4
M.Cap. (Rs b)                 759.4
                                                 03/10E 311,286          42,359     86.5       28.1      17.9          4.8    29.8        49.1      2.3     11.1
M.Cap. (US$ b)                 15.0
                                                 03/11E    400,725       54,833     112.0      29.4      13.9          3.9    31.2        50.7      1.9      8.4


?   For 4QFY09, we expect revenue to grow 27.8% YoY to Rs92b, adjusted EBITDA to rise 27.2% YoY to Rs18b and
    adjusted net profit to grow 20.9% YoY to Rs13.9b.
?   The order book stood at Rs1,135b as of December 2008, up 45.5% YoY, while order intake during 9mFY09 was at
    Rs467b. The current order backlog represents a book-to-bill ratio of 4.6x FY09 revenues.
?   During 1QFY09, BHEL indicated that total provisions for wage revisions would be at Rs19.1b over 9 quarters
    starting from 4QFY07 to 4QFY09 i.e. Rs2.1b/quarter. Based on the provisioning of Rs5.9b during 4QFY07 and
    FY08, the provisions to be made during FY09 are Rs13.1b. Out of this, Rs8.4b has been provided during 9mFY09,
    indicating the relatively higher provisioning of Rs4.7b during 4QFY09.
?   During 4QFY09, BHEL bagged several large orders of ~Rs102b including, a key order of (1) 600MW rating Malwa
    thermal power plant (Rs31.5b), (2) orders worth Rs70b from NTPC (for Vindhyachal Super Thermal Power Project
    (STPP) Stage-IV and Rihand STPP Stage-III), MahaGenco (Parli TPP Stage-III), Tuticorin TPP etc.
?   In line with its previous JV with TNEB, BHEL signed a JV with Karnataka Power Corporation (KPCL) to set up
    supercritical thermal power projects.
?   The stock is trading at a P/E of 23x FY09E and 17.9x FY10E. Maintain Neutral.
QUARTERLY PERFORMANCE                                                                                                                                   (RS MILLION)

Y/E MARCH                                                       FY08                                            FY09                             FY08       FY09E

                                           1Q             2Q            3Q         4Q           1Q        2Q             3Q         4QE

Sales                                  32,339      39,654         49,641       72,019       43,292    53,426      60,223      92,027        193,654       248,969
   Change (%)                            21.7        18.7           14.4           4.1        33.9      34.7        21.3        27.8           12.3          28.6
EBITDA                                  3,107       6,952          9,976       13,633        3,737     7,107      10,207      15,409         33,667        36,460
   Change (%)                             -2.4       52.4             7.4       -14.1         20.3        2.2         2.3       13.0             2.3           8.3
   As a % Sales                            9.6       17.5           20.1         18.9           8.6     13.3        16.9        16.7           17.4          14.6
Adjusted EBITDA                         1,808       5,654          8,677       14,174        4,901     7,176      11,008      18,030         32,312        41,115
   Change (%)                           -43.2        23.9            -6.6         -2.7       171.0      26.9        26.9        27.2             2.2         27.2
   As a % Sales                            5.6       14.3           17.5         19.7          11.3     13.4        18.3        19.6           16.7          16.5
Interest                                    22        193              98           42          26        22         179          71            354           298
Depreciation                              689         694            762          827          726       744         865         872          2,972         3,206
Other Income                            2,063       5,009          2,649        4,242        2,917     3,072       3,063       4,227         13,962        13,279
PBT                                     4,460      11,074         11,765       17,005        5,903     9,414      12,226      18,693         44,303        46,236
Tax                                     1,570       4,197          4,046        5,897        2,059     3,256       4,321       6,547         15,711        16,183
   Effective Tax Rate (%)                35.2        37.9           34.4         34.7         34.9      34.6        35.3        35.0           35.5          35.0
Reported PAT                            2,890       6,877          7,719       11,108        3,844     6,158       7,906      12,146         28,593        30,053
   Change (%)                            22.1        91.0           15.6          -3.5        33.0     -10.5          2.4         9.3          18.4            5.1
Adj. PAT                                2,045       4,716          6,875       11,459        4,600     6,202       8,426      13,850         25,095        33,079
   Change (%)                           -13.6        31.0             3.0         -0.4       124.9      31.5        22.6        20.9             3.9         31.8
E: MOSL Estimates
Satyam Agarwal (Agarwals@MotilalOswal.com)Tel: +91 22 3982 5410/ Shridatta Bhandwaldar (Shridatta.Bhandwaldar@MotilalOswal.com)

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                                                                                                                                     SECTOR: ENGINEERING




                                                                                                                      Crompton Greaves
STOCK INFO.         BLOOMBERG
                                              27 March 2009
BSE Sensex: 10,049 CRG IN
                                                                                                                                                    Neutral
                    REUTERS CODE
S&P CNX: 3,109      CROM.BO                   Previous Recommendation: Neutral                                                                              Rs118
Equity Shares (m)             366.6           YEAR      NET SALES          PAT*   EPS*     EPS GR.       P/E          P/BV   ROE         ROCE      EV/       EV/
                                              END            (RS M)     (RS M)     (RS)      (%)         (X)          (X)    (%)         (%)      SALES EBITDA
52-Week Range               290/100
                                              3/08A      38,758        3,654      10.0       60.0       11.9          4.7    34.3        50.0      1.1       8.8
1,6,12 Rel. Perf. (%) -18/-29/-20
                                              3/09E      46,043        5,305      14.5       45.2        8.2          3.6    35.5        49.4      0.9       6.8
M.Cap. (Rs b)                  43.4
                                              3/10E      52,362        5,715      15.6        7.7        7.6          2.9    29.4        42.3      0.8       6.2
M.Cap. (US$ b)                  0.9
                                              3/11E      58,952        6,079      16.6        6.4        7.1          2.4    25.5        37.3      0.7       5.7
                                          * Consolidated; pre-exceptionals
?   As of December 2008, the order book (standalone) stood at Rs26.7b, up 22.9% YoY, and the order book for Pauwels
    and Ganz put together stands at Rs39.8b, up 33.9% YoY. The order book for Pauwels and Ganz is higher since the
    Euro has appreciated YoY versus the INR by ~15% YoY in 3QFY09.
?   The consolidated order book of Rs65.9b declined during 3QFY09 by 2.8% YoY and order intake witnessed its first
    steep QoQ fall. The order intake declined 31% QoQ. We expect 4QFY09 to be better on order flow from PGCIL.
?   Post growing at 51% YoY during 1HFY09, the international business (Pauwels /Ganz/Microsal) witnessed 34% YoY
    growth to Rs10.7b, partly due to the Euro appreciation of 15% YoY versus the INR and addition of Microsal. But
    even excluding the impact of these two aspects, international business grew at 19% YoY.
?   Power division (~50% of standalone revenues) reported improved performance during 3QFY09, with revenues up
    20% YoY and EBIT margin of 15.1% (+260bp YoY). In 3QFY09, revenue growth for industrial segment stood at
    3.5% YoY, with EBIT margin of 15.4% (down 290bp YoY). The decline in EBIT is due to pricing pressure given
    increased competitive intensity. Revenue growth of 3.4% YoY in 3QFY09 is an aberration, and management expects
    revenue growth at ~15% for the next 2 quarters. Consumer division reported revenue growth at 14.2% YoY and
    EBIT at 9.1% (down 70bpYoY).
?   We expect Crompton to report consolidated earnings of Rs14.5/sh in FY09 (up 45.2% YoY), Rs15.6/sh in FY10 (up
    7.7% YoY) and Rs16.6/sh(up 6.4% YoY) in FY11. The stock trades at a P/E of 8.2x FY09E and 7.6x FY10E.
    Maintain Neutral.
QUARTERLY PERFORMANCE (STANDALONE)                                                                                                                      (RS MILLION)

Y/E MARCH                                                     FY08                                             FY09                              FY08       FY09E

                                        1Q             2Q             3Q          4Q         1Q         2Q              3Q         4QE

Sales                                 8,961         9,050        9,152        11,595      10,829     10,862      10,797      13,555            38,758      46,043
   Change (%)                          21.0            9.8        12.6          17.1        20.8       20.0        18.0        16.9              15.1        18.8
EBITDA                                1,045         1,068        1,160         1,566       1,381      1,435       1,386       1,890             4,838       6,092
   Change (%)                          44.8          45.2         41.8          36.9        32.2       34.4        19.5        20.7              41.5        25.9
   As of % Sales (Adj)                 11.7          11.8         12.7          13.5        12.8       13.2        12.8        13.9              12.5        13.2
Depreciation                            105           113          115            74         108        120          94         122               407         444
Interest                                 66            60           72            74          22         39          47          67               271         175
Other Income                            126           185          144           241          81        102          85          93               696         361
PBT                                   1,000         1,080        1,117         1,659       1,332      1,379       1,330       1,793             4,856       5,834
Tax                                     313           339          438           628         443        453         483         648             1,717       2,027
   Effective Tax Rate (%)              31.2          31.4         39.2          37.8        33.3       32.9        36.3        36.2              35.4        34.8
Reported PAT                            688           742          679         1,031         889        925         847       1,145             3,139       3,807
Adj PAT                                 538           642          629           944         889        925         847       1,145             2,752       3,807
   Change (%)                          47.8          65.9         38.5          26.0        65.3       44.3        34.7        21.3              40.9        38.3
E: MOSL Estimates

Satyam Agarwal (Agarwals@MotilalOswal.com)Tel: +91 22 3982 5410/ Shridatta Bhandwaldar (Shridatta.Bhandwaldar@MotilalOswal.com)

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                                                                                                                          SECTOR: ENGINEERING




                                                                                                                  Cummins India
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 KKC IN                                                                                                                       Buy
                    REUTERS CODE
S&P CNX: 3,109      CUMM.BO                Previous Recommendation: Buy                                                                         Rs179
Equity shares (m)             198.0        YEAR   NET SALES          PAT    EPS    EPS GR.    P/E          P/BV   ROE         ROCE      EV/      EV/
                                           END         (RS M)     (RS M)    (RS)     (%)      (X)          (X)    (%)         (%)      SALES EBITDA
52-Week Range               349/148
                                           03/08A 26,555         3,249     16.4      21.2    10.9          2.9    28.8        34.9      1.0      6.9
1, 6, 12 Rel. Perf. (%)     3/-14/0
                                           03/09E 32,475         3,755     19.0      15.6     9.5          2.5    30.4        35.3      0.8      5.9
M. Cap. (Rs b)                 46.0
                                           03/10E 32,114         4,017     20.3       7.0     8.8          2.2    26.2        33.9      0.8      5.1
M. Cap. (US$ b)                 0.9
                                           03/11E 35,872         4,492     22.7      11.8     7.9          1.9    25.5        32.6      0.7      4.4
                                       Consolidated numbers


?   In the 3Q concall management had indicated softening of order flows from both the domestic and export markets.
    Demand from construction and automotive segments is worst affected. Further, the management expects sales
    channel correction (destocking) in 4QFY09. Combined, it had guided for a 20-30% QoQ decline in 4QFY09 revenue.
?   We believe the management guidance will be partly offset by the sharply weaker rupee. We have factored in 14%
    QoQ decline in sales to Rs6.4b (down 4% YoY). We expect PAT of Rs721m, down 5% YoY.
?   For FY10, we have revised our US$/Rs rate to Rs49.6 (Rs44 earlier). As a result, our FY10E EPS stands upgraded
    by 7.4% to Rs20.3 (up 7% YoY).
?   At CMP, the stock trades at attractive P/E of 9.5x FY09E and 8.8x FY10E. Cummins has attained financial critical
    mass – zero debt, healthy return ratios and high dividend payout. We believe it is well-placed to tide over the current
    slowdown. We maintain Buy with a target price of Rs243 (12x FY10E EPS).

QUARTERLY PERFORMANCE (STANDALONE)                                                                                                          (RS MILLION)

Y/E MARCH                                               FY08                                        FY09                             FY08       FY09E

                                      1Q          2Q            3Q         4Q        1Q      2Q              3Q         4QE                         **

Net Sales                           5,423      5,282   5,902       6,700     7,070    7,898    7,495     6,442     23,308      32,475
   Change (%)                        38.5       13.0    23.7        32.7      30.4     49.5     27.0       -3.9       26.6         39.3
Total Expenses                      4,684      4,556   5,035       5,964     6,133    6,852    6,190     5,539     20,239      28,073
EBITDA excl Optg OI                   740        726     867         736       938    1,047    1,305       902       3,069       4,401
   Margin (%)                        13.6       13.7    14.7        11.0      13.3     13.2     17.4      14.0        13.2         13.6
Operating Other Income                122         119    146         267       232      186      214       181         654          812
EBITDA                                862        845   1,013       1,003     1,169    1,232    1,519     1,083       3,723       5,213
   Change (%)                        23.6        -3.9   24.5          8.5     35.7     45.8     50.0        8.0       11.4         40.0
   EBITDA Margin (%)                 15.9       16.0    17.2        15.0      16.5     15.6     20.3      16.8        16.0         16.1
Depreciation                           76          77      86         90        99       99      110        112        330          466
Interest                                 2          1       0           4        6        2        0          5           7          14
Financial Income                      109        144     123         197       145      158      128        119        573          402
Extraordinary Inc/ (Exp)                 0          0       0           0        0        0      291          0           0           0
PBT                                   894         911  1,049       1,106     1,210    1,290    1,829     1,085       3,960       5,136
Tax                                   253        246     303         350       327      350      495       364       1,153       1,640
   Tax/PBT (%)                       28.3       27.0    28.9        31.7      27.1     27.2     27.1      33.5        29.1         31.9
Standalone PAT                        640        665     746         756       882      939    1,333       721       2,807       3,496
Adjusted PAT                          640        665     746         756       882      939    1,042       721       2,807       3,496
   Change (%)                        26.1         6.0   18.6        15.1      37.8     41.3     39.7       -4.6       16.0         24.5
Profit from Subsidiaries and Associates (includes Cummins Sales & Services in FY08)                                    442          259
Consolidated PAT                                                                                                     3,249       3,755
   Change (%)                                                                                                         21.2         15.6
E: MOSt Estimates; ** Full year standalone numbers not strictly comparable due to merger of Cummins Sales & Services w.e.f. 1 April 2008
Shrinath Mithanthaya (ShrinathM@MotilalOswal.com); Tel: +91 22 3982 5421

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                                                                                                                                       SECTOR: ENGINEERING




                                                                                                                              Larsen & Toubro
STOCK INFO.         BLOOMBERG
                                             27 March 2009
BSE Sensex: 10,049 LT IN                                                                                                                             Neutral
                    REUTERS CODE
S&P CNX: 3,109      LART.BO                  Previous Recommendation: Neutral                                                                                Rs680
                                             YEAR      NET SALES         PAT *    EPS*     EPS GR.       P/E*          P/BV    ROE         ROCE     EV/       EV/
Equity Shares (m)              584.7
                                             END           (RS M)        (RS M)    (RS)       (%)         (X)          (X)     (%)         (%)     SALES EBITDA
52-Week Range              1,631/557
                                              3/08A     249,387      22,910        39.3      25.1        17.3          4.2    27.0         29.5      1.6      14.3
1,6,12 Rel. Perf. (%)      -2/-22/-17
                                              3/09E     335,953      32,386        55.5      41.4        12.3          3.2    24.3         24.3      1.3      12.1
M.Cap. (Rs b)                  397.6
                                              3/10E     396,668      33,775        57.9       4.3        11.8          2.8    21.0         23.2      1.1      10.3
M.Cap. (US$ b)                   7.9
                                              3/11E     452,414      36,496        62.5       8.1        10.9          2.4    19.5         21.9      1.0      9.3

                                         * Consolidated; EPS is fully diluted
?   L&T’s order backlog as of December 2008 stood at Rs688b, up 38.7% YoY against Rs527b in December 2007. The
    order book-to-bill ratio on TTM basis stands at 2.2x. During the quarter (until date), L&T’s order intake has been
    below the average rate for the past three quarters, at ~Rs50b. Most incremental orders are for civil structures. Also,
    unlike management indication, there has been no project awards from the hydrocarbon (ONGC etc.) segment.
?   Until date there has been no announcement of formal delays/cancellations for any of the large projects. But we
    believe that the segments including real estate (6-7% of order book) and metals / minerals (8-9% of order book)
    would be vulnerable to project delays/cancellations.
?   During 3QFY09, performance of the machinery and industrial products (MIP) and electrical business group (EBG)
    business divisions was impacted due to slowing domestic volumes, higher competition, underutilization of capacities
    and lower commission income from the construction equipment business. Thus lower profitability in these two segments
    along with poor operating leverage in E&C business is likely to impact margins during 4QFY09 and FY10.
?   During 3QFY09, the book size for L&T Finance and L&T Infra Finance has witnessed a marginal decline QoQ at
    Rs56b and Rs21b respectively. Borrowings during 3QFY09 were at Rs64b, up from Rs36b in March 2008 and Rs48b
    in September 2008 on account of: (1) loans and advances of Rs14b to subsidiaries and associate companies (2)
    investments in subsidiaries of Rs6b and (3) capex of Rs13.5b to December 2008. As at December 2008, net DER
    was at 0.13x, v/s negative 0.17x at March 2008.
?   The stock is trading at a P/E of 14.7x FY09E and 13.5x FY10E. Maintain Neutral.
QUARTERLY PERFORMANCE (STANDALONE)                                                                                                                       (RS MILLION)

Y/E MARCH                                                   FY08                                                FY09                              FY08       FY09E

                                        1Q            2Q            3Q            4Q          1Q         2Q              3Q          4QE

Net Sales                        45,052   54,999     63,827    84,669                     69,014     76,864       85,940      103,078        248,547       334,896
   Change (%)                      29.9      47.2       55.0       35.5                     53.2       39.8         34.6         21.7           41.4          34.7
EBITDA                            4,240    5,880      6,956     11,302                     6,609      6,809        7,799       14,711         28,378        35,927
   Change (%)                      57.1      92.0       34.2       16.3                     55.9       15.8         12.1         30.2           61.2          26.6
Adjusted EBITDA                   4,240    5,880      7,465     11,302                     6,609      7,409        9,429       14,711         28,887        38,157
   Adjusted Margin (%)               9.4     10.7       11.7       13.3                       9.6        9.6         11.0        14.3            11.6          11.4
Depreciation                        424       483       527        682                       659        731          781          829          2,116         3,000
Interest                            157       132       438        499                       382        690          975          920          1,227         2,968
Other Income                      2,106       216       955      2,370                     1,983      1,518        3,072        2,096          5,647         8,668
Reported PBT                      5,764    5,481      6,946    12,491                      7,551      6,906        9,114       15,058         30,682        38,628
Tax                               1,995    2,001      2,128      3,696                     2,526      2,304        3,073        4,844          9,821        12,747
   Effective Tax Rate (%)          34.6      36.5       30.6       29.6                     33.5       33.4         33.7         32.2           32.0          33.0
Reported Profit                   3,769    3,480      4,817      9,668                     5,025      4,602        6,041       10,214         21,734        25,881
Adjusted PAT                      2,924    3,836      5,148      9,101                     4,906      5,004        6,401       10,214         21,008        26,524
   Change (%)                      59.0    109.5        49.7       29.9                     67.8       30.4         24.3         12.2           51.7          26.3
E: MOSL Estimates; All quarterly numbers are for standalone entity
Satyam Agarwal (Agarwals@MotilalOswal.com)Tel: +91 22 3982 5410/ Shridatta Bhandwaldar (Shridatta.Bhandwaldar@MotilalOswal.com)

27 March 2009                                                                                                                                                   126
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                                                                                                                                  SECTOR: ENGINEERING




                                                                                                                                           Siemens
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 SIEM IN                                                                                                                    Neutral
                    REUTERS CODE
S&P CNX: 3,109      SIEM.BO                Previous Recommendation: Neutral                                                                           Rs250
Equity Shares (m)             337.2        YEAR     NET SALES          PAT*    EPS*     EPS GR.        P/E          P/BV   ROE      ROCE     EV/       EV/
                                           END          (RS M)        (RS M)    (RS)       (%)         (X)          (X)    (%)      (%)     SALES EBITDA
52-Week Range             690/186
                                           9/07A        77,660        5,369     15.9      35.1        15.7          5.3    40.1     69.1     1.0       10.8
1,6,12 Rel. Perf. (%)    2/-18/-25
                                           9/08A        83,577        5,214     14.6      -8.3        17.1          4.1    28.5     46.2     0.9       9.7
M.Cap. (Rs b)                  84.4
                                           9/09E        74,860        4,620     14.4      -1.5        17.4          2.8    18.1     38.5     0.9       8.4
M.Cap. (US$ b)                  1.7
                                           9/10E        87,276        5,441     16.7      16.4        15.0          2.4    16.7     26.0     0.7       7.2
                                       *Consolidated

?   For 2QFY09 (September year ending), we expect Siemens to report revenue of Rs19.5b, down 9.6% YoY, EBITDA
    of Rs1.9b, and net profit of Rs1.3b.
?   Order intake during 1QFY09 stood at Rs19.8b (up 3.5% YoY, down 17%QoQ), while order backlog at Rs103b is up
    9.5% YoY. Stable to marginally increased order book will constrain the execution during FY09.
?   During 1QFY09, revenues from projects in the Middle East have been subdued mainly due to completion of Qatar
    transmission projects. Excluding impact of this order, revenues are up 5% YoY. With expected decline in exports
    largely comprising Qatar projects, the FY09 revenues would be impacted.
?   For past three consecutive quarters, the power division has posted healthy margins, implying increased profitability
    focus of the management. EBIT margin for the industrial segment has increased marginally to 5.2% in 1QFY09,
    from 4.8% in 1QFY08, whereas the energy segment’s EBIT margin had increased to 12.1% from 8.5% in 1QFY08.
?   Siemens decided to buy 50% stake in Flender for Rs875m. Flender is one of the leading players in the industrial
    gearboxes segment. Earlier in 2006 Siemens had acquired 50% stake in Flender for Rs678m. With this, Flender is
    now a 100% subsidiary of Siemens and has a manufacturing unit located at Kharagpur, West Bengal. The company
    caters to market segments like cement, sugar, steel, rubber etc.
?   The stock is trading at a P/E of 17.4x FY09E and 15x FY10E. We maintain Neutral.

QUARTERLY PERFORMANCE (STANDALONE)                                                                                                                (RS MILLION)

Y/E SEPTEMBER                                            FY08                                                FY09                          FY08       FY09E

                                      1Q           2Q            3Q            4Q          1Q         2QE            3QE      4QE

Total Revenues                   19,195   21,546          18,204         24,636        16,399     19,471       16,865      22,126      83,582        74,860
   Change (%)                      17.5        0.9            1.7           11.7        -14.6         -9.6        -7.4      -10.2          7.6        -10.4
EBITDA                            1,548       152          2,654          3,437         1,702       1,944       1,699       2,218       7,791         7,562
   Change (%)                      25.4     -90.9          191.7            -3.9         10.0     1,177.4       -36.0       -35.5          5.1          -2.9
   As % of Revenues                  8.1       0.7          14.6           13.9          10.4        10.0        10.1        10.0          9.3         10.1
Depreciation                        151       149            161            178           181         186         196         202         639           765
Interest Income                     131        54            111            157           165         160         168         171         451           663
Other Income                         16        15             16              21        2,233            0           0          0          67         2,233
PBT                               2,789        71          2,620          3,436         3,919       1,917       1,670       2,187       8,916         9,693
Tax                                 819        55            926          1,186           613         652         568         779       2,984         2,611
   Effective Tax Rate (%)          29.4      76.6           35.3           34.5          15.6        34.0        34.0        35.6        33.5          26.9
Reported PAT                      1,970        17          1,694          2,250         3,306       1,265       1,102       1,408       5,931         7,082
Adjusted PAT                      1,090        17          1,694          2,250         1,073       1,265       1,102       1,408       5,051         4,849
   Change (%)                      10.8     -98.5          164.0           14.8           -1.6      7,489       -34.9       -37.4          8.1          -4.0
E: MOSL Estimates; Nos are for standalone entity



Satyam Agarwal (Agarwals@MotilalOswal.com)Tel: +91 22 3982 5410/ Shridatta Bhandwaldar (Shridatta.Bhandwaldar@MotilalOswal.com)

27 March 2009                                                                                                                                            127
                                                                                                                                       Results Preview
                                                                                                                             SECTOR: ENGINEERING




                                                                                                                     Suzlon Energy
STOCK INFO.         BLOOMBERG
                                           27 March 2009
BSE Sensex: 10,049 SUEL IN
                                                                                                                                            Neutral
                    REUTERS CODE
S&P CNX: 3,109      SUZL.BO                Previous Recommendation: Neutral                                                                          Rs46
Equity Shares (m)         1,497.0          YEAR    NET SALES          PAT*   EPS*    EPS GR.*   P/E*          P/BV   ROE         ROCE      EV/       EV/
                                           END          (RS M)     (RS M)     (RS)      (%)     (X)           (X)    (%)         (%)      SALES EBITDA
52-Week Range                321/33
                                           3/08A 136,794         12,607       8.4      40.2     5.4           0.8    21.7        15.3      0.7       4.7
1,6,12 Rel. Perf. (%)   -1/-51/-44
                                           3/09E 184,485         11,229       7.2      -14.0    6.3           0.7    13.0        10.6      0.9       6.6
M.Cap. (Rs b)                  68.1
                                           3/10E 159,473          9,507       6.1      -15.3    7.4           0.7    10.0         7.8      0.9       6.9
M.Cap. (US$ b)                  1.3
                                           3/11E   192,168       13,156       8.5      38.4     5.4           0.6    12.7         9.0      0.8       5.8
                                       * Consolidated

?   The order book stood at Rs104b (-39.3%YoY, -26.1%QoQ) versus Rs183b order book at end-4QFY08. In terms of
    MW the order book stood at 1,916MW including domestic order book of 98MW and the international order book of
    1,818MW. Out of the current 1,916MW order book, ~900MW would be executed in 4QFY09, thus leaving ~1,000MW
    for FY10.
?   Suzlon’s management had indicated a possible order inflow of 1GW in the near future. Of this, it has already bagged
    two orders of 213MW from China and Australia during 4QFY09. Also, the Indian market order intake has been very
    poor during 3QFY09, which is expected to improve during 4QFY09 onwards, due to relatively improved credit
    environment.
?   Net profit in the previous quarter continued to be depressed due to additional provision for blade retrofitting, availability
    loss (Rs2.3bn) and MTM losses (Rs2.16bn). Suzlon does not expect any incremental provisions for the blade retrofitting
    program henceforth.
?   Suzlon’s gross debt stands at Rs122b at end-3QFY09. The increase in borrowings during FY09 is largely on account
    of working capital (Rs12b) and currency movement (Rs3b). Suzlon will need to reduce its net debt by Rs16b from the
    current level of Rs111b to avoid any breach of covenants.
?   We expect Suzlon to report EPS of Rs7.2/sh for FY09 and Rs6.1/sh for FY10. The stock is trading at a P/E of 6.3x
    FY09E and 7.4x FY10E consolidated earnings. We maintain Neutral.
QUARTERLY PERFORMANCE (CONSOLID ATED)                                                                                                           (RS MILLION)

Y/E MARCH                                                FY08                                          FY09                              FY08       FY09E

                                      1Q           2Q            3Q          4Q         1Q      2Q              3Q         4QE

Sales                          15,018       31,375   26,339     41,934   20,866    41,818      39,320                41,247        114,665       143,251
   Change (%)                                                               38.9       33.3      49.3                   -1.6                          24.9
EBITDA                           1,275        5,404   3,299      7,158     3,022      4,126     5,063                 5,666            17,136      17,877
   Change (%)                                                              137.0      -23.6      53.5                                                   4.3
   As of % Sales                    8.5        17.2     12.5      17.1      14.5         9.9     12.9                   13.7             14.9         12.5
Depreciation                       328          384      459       532       486        625       752                    908            1,703       2,771
Interest                           975        1,213   1,311      1,104     1,205      1,885     2,188                  2,534            4,603       7,812
Other Income                       358          435      611       565       429        159       534                    299            1,968       1,420
Exceptional Items (reported)       207          165       74     2,407     2,298      2,778     4,489                      0            2,852       9,565
PBT                                124        4,076   2,066      3,680      -538    -1,003     -1,832                  2,522            9,946         -851
Tax                                -49          328      793       421       351        302      -258                    475            1,493          871
   Effective Tax Rate (%)       (39.6)           8.0    38.4       11.4   (65.4)     (30.1)      14.1                   18.8             15.0     (102.4)
Reported PAT                       173        3,748   1,273      3,259      -889    -1,305     -1,575                  2,047            8,453      -1,722
   Change (%)                    -93.0         58.1    -26.3       -9.2  -169.8     -140.1     -223.7                                              -120.4
Adj. PAT                           380        3,913   1,346      5,665     1,409      1,473     2,914                  2,047           11,305       7,381
   Change (%)                   -112.9         66.3    -22.8      57.8        4.7     -74.0     116.4                                                -34.7
E: MOSL Estimates; excluding share of profit from Repower; * Loss on FCCB included in the interest cost
Satyam Agarwal (Agarwals@MotilalOswal.com)Tel: +91 22 3982 5410/ Shridatta Bhandwaldar (Shridatta.Bhandwaldar@MotilalOswal.com)

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                                                                                                                                      SECTOR: ENGINEERING




                                                                                                                                                 Thermax
STOCK INFO.         BLOOMBERG
                                              27 March 2009
BSE Sensex: 10,049 TMX IN
                                                                                                                                                     Neutral
                    REUTERS CODE
S&P CNX: 3,109      THMX.BO                   Previous Recommendation: Neutral                                                                               Rs172
Equity Shares (m)             119.2           YEAR     NET SALES          PAT*      EPS*   EPS GR.*      P/E*          P/BV   ROE         ROCE      EV/       EV/
                                              END           (RS M)     (RS M)       (RS)      (%)        (X)           (X)    (%)         (%)      SALES EBITDA
52-Week Range (Rs)          620/151
                                              03/08E 32,042           2,876         24.1     45.5        7.1           2.8    42.4        64.1      0.6       4.9
1,6,12 Rel. Perf. (%)   -5/-36/-32
                                              03/09E 33,625           2,762         23.2      -4.0       7.4           2.4    33.5        50.0      0.6       4.8
M.Cap. (Rs b)                  20.4
                                              03/10E 34,589           2,523         21.2      -8.6       8.1           2.2    26.8        40.3      0.5       5.1
M.Cap. (US$ b)                  0.4
                                              03/11E 36,909           2,506         21.0      -0.7       8.2           2.0    24.6        37.2      0.5       5.1
                                          * Consolidated

?   For 4QFY09, we expect revenue of Rs10b, up 8.9% YoY, EBITDA of Rs1.3b and net profit of Rs808m, up 0.4%
    YoY.

?   The consolidated order backlog for the company stood at Rs41b as of December 2008, up 40% YoY. During the
    concall for 3QFY09, management indicated slowing order inflow starting from October 2008. While enquiries were
    on track, they were not getting converted into actual orders with advances from the clients.

?   We expect Thermax to report consolidated net profit of Rs2.8b in FY09 (-4%YoY) and Rs2.5b (-8.6%YoY) in FY10.

?   The stock is trading at a P/E of 8.1x FY09E and 8.2x FY10E. Maintain Neutral.




QUARTERLY PERFORMANCE (STANDALONE)                                                                                                                       (RS MILLION)

Y/E MARCH                                                    FY08                                               FY09                              FY08       FY09E

                                        1Q            2Q             3Q            4Q         1Q         2Q              3Q         4QE

Sales                                 6,581         7,701       8,454            9,221     7,725      7,907        7,951      10,042            32,042      33,625
   Change (%)                         104.0          59.7        53.7             14.6      17.4         2.7         -6.0         8.9             49.9          4.9
EBITDA                                  680         1,011       1,049            1,270       864        799          968       1,284             4,096       3,915
   Change (%)                          77.9          33.3        38.1             43.2      27.0      -20.9          -7.8         1.1             47.6         -4.4
   As of % Sales                       10.3          13.1        12.4             13.8      11.2       10.1         12.2        12.8              12.8         11.6
Depreciation                             50            54          53               61        73         67            84         88               218          311
Interest                                  4             2           3                4          3          8            6           4               13           20
Other Income                             85           109          86              126       105        213            88         72               418         478
PBT                                     809         1,063       1,080            1,352       894        937          966       1,265             4,304       4,062
Tax                                     249           371         330              546       310        368          243         457             1,496       1,377
   Effective Tax Rate (%)              30.8          34.9        30.5             40.4      34.6       39.2         25.2        36.1              34.8        33.9
Reported PAT                            560           692         750              805       584        570          723         808             2,808       2,685
   Change (%)                                                                                 4.3     -17.7          -3.7         0.4             61.1         -4.4
E: MOSL Estimates




Satyam Agarwal (Agarwals@MotilalOswal.com)Tel: +91 22 3982 5410/ Shridatta Bhandwaldar (Shridatta.Bhandwaldar@MotilalOswal.com)

27 March 2009                                                                                                                                                   129
                                                                                                                Results Preview
                                                                                                      QUARTER ENDING MARCH 2009




                                                                                                                      FMCG
BSE Sensex: 10,049           S&P CNX: 3,109                                                                      27 March 2009

COMPANY NAME                         Prices cut due to reduction in excise and lower input prices; freebies on the
Asian Paints                         rise: 4QFY09 marked a trend reversal in FMCG sector with price reduction and discounts
                                     offered in few categories. Most FMCG products have witnessed excise duty reductions
Britannia Industries
                                     from 14-8%, which effectively translates into a saving of 1-1.25% (due to plants in
Colgate Palmolive                    excise-free zones) on the entire portfolio. In addition, prices of key crude-based inputs
                                     have declined by 30-40% from the peak. We have seen price reductions of 5-15% in
Dabur India
                                     soaps, low-end detergents and paints. Sales promotion offers are on the rise, with strong
GSK Consumer                         brands like Colgate and Rin Advanced offering freebies after a long time. We expect
                                     increased thrust on freebies to gain market share in the current operating environment.
Godrej Consumer Products

Hindustan Unilever                   Downtrading evident in few product categories; consumer demand steady:
                                     Increase in product prices and uncertain economic environment has resulted in consumer
ITC                                  downtrading in categories like soaps, detergents, dish wash, toothpastes and other
Marico
                                     household products. Consumer demand is holding strong in both rural and urban markets.
                                     The rural market is growing faster due to gains from sharp increase in crop prices, farm
Nestle India                         loan waiver and higher spends on national rural employment guarantee schemes. The
                                     focus of most FMCG companies has now shifted from protecting margins to boosting
Tata Tea
                                     sagging volume growth. We expect volume growth to taper off due to slowdown in the
United Spirits                       economy.

                                     Rupee depreciation and increase in prices of crude-linked inputs to limit gains:
                                     Prices of major crude-linked inputs for FMCG players (palm oil, LAB, and packaging
                                     material) appear to have decoupled from crude prices in the last couple of months.


EXPECTED QUARTERLY PERFORMANCE SUMMARY                                                                                 (RS MILLION)

                       CMP (RS)      RECO                  SALES                     EBITDA                    NET PROFIT

                           27.3.09              MAR.09      VAR.     VAR.   MAR.09     VAR.    VAR.   MAR.09        VAR.     VAR.

                                                          % YOY    % QOQ             % YOY    % QOQ               % YOY     % QOQ

FMCG
Asian Paints                  774    Neutral    12,176       7.5     -7.8    1,310    -15.9    19.9      717       -25.8     20.2
Britannia                   1,342    Buy         8,412      21.4      2.8      710     21.2     8.2      569        -8.7      8.2
Colgate                       460    Buy         4,471      14.3      6.7      611     20.8   -18.1      634        14.0    -18.4
Dabur                          93    Neutral     7,231      19.2     -7.1    1,158     18.4   -10.2      936        16.4    -13.7
Godrej Consumer               120    Buy         3,110      14.4     -9.1      568      0.3    17.6      473        15.8     18.0
GSK Consumer                  636    Buy         4,730      15.2     41.9      900     12.9   123.8      652        15.2    100.1
Hind. Unilever                240    Neutral    44,067      13.8      0.6    5,759     18.7   -24.6    4,609        21.8    -24.5
ITC                           187    Buy        46,419      15.2     20.3   13,852     17.0     0.5    8,635        12.6     -4.4
Marico                         59    Buy         5,780      23.6     -7.2      589     29.3   -25.5      368        22.0    -27.7
Nestle                      1,526    Buy        12,954      18.7     18.8    2,979     19.6    40.3    2,015        18.5     46.0
Tata Tea                      566    Neutral    12,914       9.7     -0.7    1,472     -8.9   -14.6      808        18.6     -1.5
United Spirits                678    Buy         8,897      17.2    -13.6    1,181    -12.7    11.1      490       -24.8     60.1
Sector Aggregate                               171,164      14.9      5.1   31,090     12.7    -2.2   20,906        11.7     -4.4


Amnish Aggarwal (AmnishAggarwal@MotilalOswal.com)Tel:+9122 39825404/Amit Purohit (AmitPurohit@MotilalOswal.com)Tel:+9122 39825418

27 March 2009                                                                                                                 130
                                                                                                      FMCG




                Though crude prices have continued their slide, prices of these inputs have moved up by
                20-40% from the panic bottoms. Further, rupee depreciation of 33% YoY will limit gains
                from palm oil price reduction for HUL and GCPL. Nestle and Britannia would be adversely
                impacted due to rising sugar and wheat prices while Marico would gain from lower prices
                of copra and safflower oil.

                Volatile operating environment; prefer niche players: We expect moderation in volume
                growth due to expected decline in disposable income of consumers in general and the
                lower middle section of the society in particular. We expect increase in competition, as
                benign commodity prices would aid resurgence of local/regional players. We prefer players
                with strong competitive advantage and entry barriers in niche segments. ITC and Nestle
                are our preferred bets among large caps. Marico and Godrej Consumer are our top
                picks in the mid-cap stream.


                Downtrading evident in few product categories
                Over the last twelve months, business dynamics of FMCG companies have been volatile.
                Rising raw material prices have forced FMCG companies to take price increases in varying
                proportions. The brands with sharp price increases have witnessed a decline in volume
                growth due to consumer switch to cheaper brands. There has been consumer downtrading
                in categories like soaps, detergents, dish wash, toothpastes and other household products.
                This has been prompted by: (1) sharp increase in prices, (2) reduction in grammage, (3)
                availability of comparable quality products at significant price discounts, and (