November 2007 Edition
Investment Strategy
Investment Strategy | India 07 November 2007
Where to Hide in a market correction?
Jyotivardhan Jaipuria >> +91 22 6632 8658
Undervalued, underperforming, under-owned stocks safer
Our Emerging market strategist, Michael Hartnett, expects a pull-back in the markets though the long term trend is still up. We believe that in case of a market correction, we will see stocks that have under-performed, are under-owned and have been relative laggards (under-performed) give a relatively better performance. Software, pharma, consumers and autos are probably places to hide. Our top picks here are M&M, TCS and Ranbaxy.
Research Analyst DSP Merrill Lynch (India) jyoti_jaipuria@ml.com
Anand Kumar >>
Research Analyst DSP Merrill Lynch (India) anand_k_kumar@ml.com
+91 22 6632 8683
Tactical stocks to leverage correction – have barbell strategy
We must stress that there has been a reason for these stocks to have lagged the broader markets. We think near term they will do well in a falling market since they are not ‘crowded trades’. But these are not necessarily stocks we would buy over next 6 months. We would recommend a barbell type of approach near term with exposure to some of the high performing but strong growth sectors combined with some exposure to the under-performers to leverage the correction.
Monthly Tables
Recommendation Changes Earnings Changes Out of Consensus Key Valuations India in Pictures Research Published
Triggers for top picks (M&M, TCS, Ranbaxy)
The key near term trigger for M&M could be the unlocking of value in the holiday resort business – we expect an IPO in the company’s holiday resort business. The key trigger for Ranbaxy could be a favorable lower Court ruling for Lipitor in Canada. The ruling is expected in over next few months. TCS stock could be helped by (a) any possible rupee depreciation or (b) large order win.
Other stocks include HPCL, HLL
Most pharma, software and auto names have been laggards. Consumer names like Hind Unilever and PSU oil companies like HPCL are other names that fit the criteria but where we have a negative view. Table 1: Recommended Stocks ML Performance PE(x) EPS CAGR ROE(%) P/BV Company Symbol QRQ Price YTD 1Year FY08E FY09E 07-09E FY08E FY08E
TCS Ranbaxy M&M TACSF 1 - Buy XIZZF 1 - Buy MAHHF 1 - Buy 1004 429 741 21% -9% 22% -4% 8% -1% 19.3 22.9 10.9 15.6 19.0 9.0 24.4% 30.3% 13.6% 45.1 26.9 28.3 7.2 5.8 2.6
Source: Merrill Lynch Research Estimates
>> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the NYSE/NASD rules. Refer to "Other Important Disclosures" for information on certain Merrill Lynch entities that take responsibility for this report in particular jurisdictions. Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of Merrill Lynch in the US can receive independent, third-party research on companies covered in this report, at no cost to them, if such research is available. Customers can access this independent research at http://www.ml.com/independentresearch or can call 1-800-6377455 to request a copy of this research. 10669424 Refer to important disclosures on page 37 to 40. Analyst Certification on page 35. Price Objective Basis/Risk on page 31.
Nove mber 2007 Edition 07 November 2007
Where to hide in a market correction?
Our Emerging market strategist, Michael Hartnett, expects a pull-back in the markets though the long term trend is still up. We believe that in case of a market correction, we will see stocks that have under-performed, are under-owned and have been relative laggards (under-performed) give a relatively better performance. After short listing the list further based on analyst expectations of near term growth prospects, we think stocks like M&M, Ranbaxy and TCS may be the best places to hide.
Tactical stocks to leverage correction – have barbell strategy
We must stress that there has been a reason for these stocks to have lagged the broader markets. We think near term they will do well in a falling market since they are not ‘crowded trades’ where there is lot of momentum. But these are not necessarily stocks we would buy over next 6 months. We would recommend a barbell type of approach near term with exposure to some of the high performing but strong growth sectors combined with some exposure to the under-performers to leverage the correction.
Looking for under-owned, under-valued, under-performing stocks
In an effort to find attractive stocks that are ignored by the market, we have run screens to look at stocks that are under-owned and ignored by the market and have consequently under-performed the market and are cheap relative to its historic trading history. Our approach has centred on finding stocks that are: Cheap: They are not at high premiums compared to historic valuations. Under-owned: These may have been ignored by the market Laggards: Stocks that have under-performed the market YTD.
Software, pharma, autos, consumers, PSU oil companies are unloved
The stocks that are broadly unloved and look relatively undervalued fall in the following sectors: 1. Autos: Most auto names including M&M, Tata Motors, Hero Honda and Bajaj Auto Pharma: Dr Reddys, Ranbaxy & Cipla Software: Infy, TCS, Satyam etc Consumers: Hind Unilever PSU oil R&M companies: HPCL
2. 3. 4. 5.
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Top stocks to hide – TCS, Ranbaxy, M&M
Screening for stocks where our analysts are positive, we short-list the following stocks as offering outperformance in a weak market. Table 2: Recommended Stocks ML Performance PE(x) Company Symbol QRQ Price YTD 1Year FY08E FY09E
TCS Ranbaxy M&M TACSF 1 - Buy 1004 XIZZF 1 - Buy 429 MAHHF 1 - Buy 741 21% -9% 22% -4% 8% -1% 19.3 22.9 10.9 15.6 19.0 9.0
EPS CAGR 07-09E
24.4% 30.3% 13.6%
ROE(%) P/BV FY08E FY08E
45.1 26.9 28.3 7.2 5.8 2.6
Source: Merrill Lynch Research Estimates
Possible triggers Mahindra & Mahindra
We believe there are 2 triggers that could help M&M stock performance near term: (a) unlocking of value in the holiday resort business – we expect an IPO in the company before the end of this fiscal year and (b) strong performance of the passenger car business (M&M-Renault JV). This is likely to achieve operating break-even in FY09E with their product being the top selling sedan within months of launch.
Ranbaxy
Ranbaxy stock performance could be aided by: (a) Demerger of Drug Discovery operations: The de-merger of this division has been approved and details are likely to be announced over next few weeks. The new entity is expected to be listed next year. (b) Lipitor launch in Canada: Ranbaxy has received a favorable lower Court ruling for Lipitor in Canada (US$800 mn market size) and the Appeals decision is expected in late 2007/early 2008. We believe a likely favorable ruling and launch could add at least 23% upside to CY08E EPS.
TCS
TCS alongwith other software stocks have been de-rated in the markets. Possible triggers are: (a) Rupee depreciation could be a positive. (b) Large order wins – TCS has announced 5 large deals (over $50 mn) and highlighted a pipeline of another 20 deals. (c) Valuations: Software stocks are trading at relatively very attractive valuations to the market (see charts below):
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Chart 1: TCS P-E Band
Shar e Pr i e ( Rs) c
1600 1450 1300 1150 1000 850 700 550 400 Aug-04 Aug-05 Aug-06 May-05 May-06 May-07 Nov-04 Nov-05 Nov-06 Aug-07 Feb-05 Feb-06 Feb-07
22x 26x
18 x
Source: Merrill Lynch Research
Chart 2: Infosys PE with respect to Sensex
210% 180% 150% 120% 90% 60% 30% 0% Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07
P/E Infosy s to Sensex
Source: Merrill Lynch Research
Methodology for identifying the stocks
Identifying cheap stocks
We ran screens to identify stocks which are not expensive compared to their historical valuations on a Price-to-earnings and Price-to-book parameter. We calculated the mean PER and PBV of stocks from March 2001 onwards (post ITbubble) and compared it with the current PER and PBV multiples respectively. Cheap or inexpensive stocks were trading at a discount or small premium to their mean values. Based on the above methodology we identify Pharma (Dr. Reddy’s, Ranbaxy, Cadila, Cipla), Software (Wipro, Tech Mahindra, Patni, Infosys), Cements (Shree Cements, Ultra Tech), HPCL and HLL to trade at discount/ small premium to their historic mean. M&M is also cheap once we strip the embedded value.
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In our analysis, we have also taken into account the embedded value in some stocks that make them cheaper than they appear in the Table. These include Bajaj Auto, Reliance Ind, ICICI Ltd, Grasim, M&M etc.
Identifying Under-owned stocks
Based on FII holdings (as in 30 June’07) in individual companies, we calculated an aggregate FII portfolio in India and their percentage holdings in various stocks and sectors. We then compared this with the MSCI weight to determine sectors and stocks that FIIs are O/W/U/W on. For the purpose of our analysis, we have added FII holdings in some of the larger companies that are not part of the MSCI index but where FIIs have a significant holding. We believe that stocks which are under-owned have in many cases been ignored by the market due to short term problems. We identify (refer Table 3) top underowned stocks such as Software(Infosys, Wipro, TCS), Auto (Mahindra, Tata Motors, Maruti), Pharma (Cipla, Dr. Reddy’s, Ranbaxy), Reliance Industries, Reliance Communications, L&T, R-Capital, HDFC Bank.
Identifying laggards
We screen for stocks which have underperformed the Sensex Year-To-Date (YTD). Markets have tended to ignore some of these stocks given near term issues. Some of the laggards YTD are in pharma (Cipla, Dr Reddys, GSK Pharma, and Matrix), autos (M&M, Tata Motors, and Bajaj Auto), cement (ACC, Guj Ambuja) and software (I-flex, wipro, TCS, Infosys).
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Chart 3: Cheap stocks on historical perspective
300.0%
250.0%
R-Cap
BHEL 200.0% ABB REL RIL 150.0% Bharti IDBI ZEE Div i's Lab 100.0% IndiaBulls Fin VSNL SBI Ax is Bank Tata Pow er
50.0%
ACC
Patni Ranbax y Dr Reddy 's -75.0% Wipro HPCL -25.0%
HUL GSK 0.0% Infosy s
Apaints Bajaj HDFC Bk Ambuja Cem. Cairn ITC Suzlon Maruti Saty am PNB Tata Motors IOCL
NTPC R-Comm
HDFC Grasim ONGC GAIL
ICICI
Hindalco Ind.
BPCL
Bh.Forge
TCS -50.0% 25.0% 75.0% 125.0% 175.0% 225.0%
Source: Merrill Lynch Research
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Table 3: Inexpensive Stocks Company
Dr Reddy's Lab Ranbaxy Lab HPCL Wipro Ltd. Tech Mahindra Cadila Patni Shree Cements TCS FirstSource HLL Nicholas Piramal Cipla Ltd GSK India Infosys UltraTech Cement Mphasis-BFL Wockhardt Assoc. Cement Tata Tea Colgate Palmolive Panacea Biotec Yes Bank BPCL Suzlon India Cements Satyam Computers Corp Bank Nestle India Ashok Leyland Oriental Bank of Commerce Matrix Lab Canara Bank Tata Motors Petronet LNG Bharat Forge Ambuja Cements Bank of Baroda Maruti PNB ITC Biocon Sun Pharma Hero Honda IOCL Union Bank Of India Asian Paints Glenmark Pharma Mahindra & Mahindra Cairn India Bharti Airtel R-Comm NTPC Ltd NALCO Bajaj Auto Ltd. HDFC Bank Divi's Lab MTNL IDBI Ltd IDFC Zee
PE Valuation (12m forward) Current Average Premium/Discount
13.5 19.3 5.8 18.6 15.4 12.9 12.8 14.7 18.0 18.7 23.8 16.1 19.7 19.2 20.6 13.5 17.5 13.7 16.1 10.7 19.6 13.8 23.8 9.3 33.0 10.1 16.9 8.5 28.2 11.6 6.1 20.5 6.5 13.7 16.2 20.2 15.9 7.4 15.7 8.1 20.3 17.9 20.0 15.1 9.6 7.0 23.7 16.6 10.5 161.6 24.5 28.5 22.3 12.0 18.4 29.0 27.4 22.8 14.2 26.7 31.4 43.6 33.0 8.6 27.0 20.1 16.7 16.2 17.4 21.2 21.8 26.5 17.8 21.0 20.3 21.6 14.0 18.1 13.6 15.5 10.3 18.6 13.0 22.1 8.6 29.9 8.9 14.8 7.4 24.2 9.9 5.2 17.3 5.4 11.3 13.2 16.2 12.7 5.8 12.4 6.4 15.9 14.0 15.5 11.8 7.3 5.2 17.0 11.8 7.4 111.7 16.8 19.1 14.9 8.0 12.2 18.1 16.6 13.8 8.5 15.9 18.0 -69.1% -41.4% -32.6% -31.4% -23.2% -22.9% -21.3% -15.7% -15.1% -14.1% -10.0% -9.7% -6.1% -5.4% -4.9% -3.7% -3.2% 0.9% 3.5% 3.7% 5.5% 5.9% 7.7% 8.2% 10.4% 13.4% 14.3% 15.6% 16.8% 17.6% 18.1% 19.0% 20.0% 21.0% 23.3% 24.8% 25.3% 26.1% 26.5% 27.1% 27.8% 27.9% 28.5% 28.5% 32.3% 34.6% 39.7% 41.1% 42.4% 44.7% 45.8% 49.5% 49.8% 49.9% 50.3% 60.3% 65.0% 65.4% 65.8% 68.0% 74.4%
PB Valuation (12m forward) Current Average Premium/Discount
2.1 4.9 0.7 5.2 7.6 3.1 2.2 4.9 6.2 2.4 16.8 4.2 3.5 5.9 6.0 4.1 4.3 3.1 4.1 1.8 25.1 3.4 5.3 1.0 10.1 2.4 3.9 1.3 31.2 2.3 0.9 2.8 0.9 3.0 3.6 3.4 3.5 1.1 3.4 1.3 5.3 2.8 5.6 4.7 1.3 1.2 8.7 6.3 2.5 1.2 8.5 5.5 3.4 2.0 3.7 4.4 9.8 1.0 1.5 4.1 7.0 3.4 6.4 1.2 7.8 10.2 3.2 2.4 2.5 9.3 2.6 15.7 3.9 4.9 5.6 7.4 4.0 3.8 4.0 2.9 1.5 12.3 3.3 3.5 1.3 8.1 1.9 3.2 1.1 18.9 2.1 0.9 2.4 0.9 2.6 2.7 4.0 2.6 0.8 2.7 1.0 4.0 2.7 5.3 5.5 1.3 0.9 5.6 3.6 1.7 0.9 3.6 3.4 2.0 1.7 2.5 3.0 4.7 0.8 0.7 2.4 3.3 -40.1% -22.3% -36.4% -33.1% -26.0% -4.0% -7.0% 96.3% -34.1% -8.6% 6.6% 8.2% -28.0% 4.8% -19.5% 0.3% 11.9% -22.9% 42.9% 19.4% 103.3% 1.8% 49.5% -23.3% 25.2% 27.0% 19.5% 22.3% 64.5% 12.3% -5.1% 13.9% 3.7% 15.2% 31.6% -15.3% 36.4% 44.8% 28.6% 24.3% 30.9% 2.4% 7.0% -14.9% 0.2% 38.9% 56.9% 75.3% 47.7% 39.4% 134.0% 59.1% 67.5% 17.2% 47.3% 46.3% 108.5% 22.8% 122.5% 68.7% 114.2%
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Table 3: Inexpensive Stocks Company
Grasim Bank of India ONGC United Phosphorus Gail India Limited HDFC IndiaBulls Financial Service Reliance Capital Ltd ICICI Bank Ltd. VSNL ABB BHEL SBI Neyveli Lignite Corp L&T IVRCL REL Hindalco RIL Nagarjuna Construction Co Axis Bank Tata Power SAIL
Source: Merrill Lynch Research
PE Valuation (12m forward) Current Average Premium/Discount
13.8 8.8 12.7 16.3 14.3 30.8 14.3 34.1 26.5 32.8 42.7 31.4 17.4 19.0 34.6 28.1 40.8 23.2 27.2 29.4 28.9 39.7 14.7 7.9 4.9 6.9 8.8 7.4 15.5 6.9 15.8 11.9 14.6 18.7 13.3 7.3 7.6 13.8 11.0 15.4 8.5 9.8 10.2 9.8 13.4 4.7 75.2% 80.9% 83.2% 85.5% 94.6% 98.8% 105.7% 116.3% 123.4% 124.1% 128.2% 135.3% 139.9% 150.5% 150.6% 154.9% 164.5% 172.4% 178.3% 188.3% 196.1% 197.1% 211.8%
PB Valuation (12m forward) Current Average Premium/Discount
4.3 1.6 2.9 3.3 2.5 6.6 2.7 6.4 2.7 2.3 14.0 8.7 2.8 2.3 11.3 4.0 4.1 1.5 4.1 4.0 3.6 3.2 4.2 2.6 0.7 1.8 1.6 1.5 3.9 1.3 1.8 1.6 1.1 4.9 2.7 1.2 1.0 3.4 1.5 1.4 1.1 1.5 1.3 1.6 1.1 1.5 60.7% 119.5% 60.4% 106.9% 63.8% 70.5% 108.3% 257.1% 72.0% 105.7% 189.0% 216.0% 137.3% 120.6% 234.2% 170.8% 187.3% 36.1% 174.3% 210.1% 123.8% 182.0% 180.4%
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Table 4: Over-owned/ Under-owned Stocks Current MSCI Weight in FII Company Name Weight Portfolio
Reliance Inds Infosys RCVL HLL Larsen & Toubro ITC Unitech Reliance Capital HDFC Bank Wipro Ltd TCS Siemens India Cipla Ltd Reliance Energy Mah & Mah Tata Motors Indian Hotels Co Tata Power Ranbaxy Tata Tea Hindalco Dr Reddy's Maruti Udyog Ltd Kotak Mahindra Nestle India Ltd Bharat Forge ONGC Ultratech Cement Co VSNL A.C.C. MTNL Bharat Electron Jindal Steel & P BPCL Bajaj Auto Sun Pharma INDIABULLS REAL ESTATE Zee Telefilms Biocon Moser Baer India Glenmark Pharma HPCL Hero Honda Bajaj Hindustan Jet Airways Colgate-Palmoliv GSK Pharma Gail India
Source: Merrill Lynch Research
Current Overweight/ Current MSCI Weight (underweight) Company Name
-4.5% -2.0% -1.6% -1.0% -0.9% -0.8% -0.6% -0.6% -0.5% -0.5% -0.4% -0.4% -0.4% -0.4% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% ICICI Bank SBI HDFC Satyam IDFC UTI Bank Tata Steel Jaiprakash Assoc Grasim BHEL Bank Of Baroda Ashok Leyland I-Flex Solutions Indiabulls Fin. Castrol India Gujarat Ambuja Britannia Matrix Laboratories Abb Nicholas Piramal Asian Paints Arvind Mills 7.9% 1.1% 5.0% 2.9% 0.5% 0.9% 1.1% 0.5% 1.2% 2.4% 0.3% 0.2% 0.0% 1.2% 0.0% 1.0% 0.1% 0.1% 0.7% 0.2% 0.3% 0.1%
Weight in FII Portfolio
10.4% 2.7% 6.0% 3.6% 0.9% 1.2% 1.4% 0.7% 1.4% 2.5% 0.3% 0.2% 0.0% 1.2% 0.0% 1.0% 0.1% 0.1% 0.7% 0.2% 0.3% 0.0%
Current Overweight/ (underweight)
2.5% 1.7% 1.0% 0.7% 0.4% 0.3% 0.3% 0.2% 0.2% 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
14.0% 11.6% 4.2% 1.9% 3.1% 2.2% 1.3% 1.6% 3.4% 1.4% 1.9% 0.7% 0.8% 0.9% 1.3% 1.7% 0.6% 0.6% 0.7% 0.3% 1.1% 1.0% 0.7% 1.0% 0.4% 0.4% 3.0% 0.4% 0.4% 0.6% 0.4% 0.4% 0.6% 0.4% 0.8% 0.7% 1.0% 0.8% 0.1% 0.3% 0.4% 0.3% 0.7% 0.2% 0.2% 0.2% 0.3% 1.0%
9.5% 9.6% 2.6% 0.9% 2.2% 1.4% 0.6% 1.0% 2.9% 0.9% 1.5% 0.3% 0.5% 0.6% 1.1% 1.4% 0.4% 0.4% 0.4% 0.1% 0.9% 0.8% 0.5% 0.8% 0.2% 0.2% 2.8% 0.2% 0.2% 0.5% 0.2% 0.2% 0.4% 0.3% 0.7% 0.5% 0.9% 0.7% 0.1% 0.2% 0.3% 0.2% 0.7% 0.1% 0.1% 0.1% 0.3% 1.0%
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Table 5: Leaders and Laggards Performance (YTD) Absolute Returns Relative to Sensex
Jindal Steel & P Reliance Petroleum Reliance Energy Reliance Capital Larsen & Toubro SAIL GMR Infra Kotak Mahindra Indiabulls Fin. IDFC BHEL Tata Power ABB Reliance Inds Tata Steel Jaiprakash Assoc UTI Bank SBI NTPC Siemens India Indian Petrochem Glenmark Pharma RCVL HDFC Bank Unitech HDFC ONGC Bank Of Baroda Biocon Suzlon Gail India ICICI Bank Asian Paints Bharti NALCO Bharat Electron Britannia Nestle India Ltd Grasim Jet Airways Arvind Mills Moser Baer India Zee Telefilms VSNL
Source: Merrill Lynch Research
Performance (YTD) Absolute Returns Relative to Sensex
Cipla Ltd Tech Mahindra Dr Reddy's Lab I-Flex Solutions Wipro Ltd Mah & Mah TCS Tata Motors Infosys Bajaj Hindustan HPCL Ashok Leyland Hero Honda Ultratech Cement Co GSK Pharma HLL Indian Hotels Co Bajaj Auto HCL Tech A.C.C. Satyam Colgate-Palmoliv ITC Bharat Forge BPCL Gujarat Ambuja Oriental Bank Of Dabur India Punjab Natl Bank Matrix Laboratories Hindalco Maruti Udyog Ltd Indian Oil Corp Tata Tea Ranbaxy Castrol India MTNL Nicholas Piramal Sun Pharma -30.8% -30.6% -24.3% -21.5% -18.6% -16.6% -16.2% -16.1% -14.8% -14.2% -14.1% -13.6% -11.5% -11.2% -9.7% -9.6% -8.7% -7.5% -7.2% -4.9% -4.5% -0.9% -0.3% 1.0% 1.7% 2.4% 5.4% 6.1% 6.8% 7.6% 7.7% 10.1% 10.1% 11.0% 11.9% 16.6% 17.0% 17.6% 18.3% -76% -76% -69% -66% -63% -61% -61% -61% -60% -59% -59% -59% -56% -56% -55% -54% -54% -52% -52% -50% -49% -46% -45% -44% -43% -42% -39% -39% -38% -37% -37% -35% -35% -34% -33% -28% -28% -27% -27%
458.3% 328.0% 256.4% 227.5% 209.2% 191.4% 157.3% 152.4% 149.6% 143.0% 136.3% 131.7% 115.6% 113.5% 109.7% 99.2% 98.1% 80.7% 72.1% 67.9% 67.5% 66.7% 66.7% 64.4% 64.0% 63.3% 57.0% 55.4% 51.5% 50.9% 50.4% 49.4% 44.8% 42.3% 41.8% 38.1% 37.4% 34.6% 34.3% 33.7% 33.5% 31.8% 31.7% 20.1%
413% 283% 212% 183% 164% 147% 112% 108% 105% 98% 91% 87% 71% 69% 65% 54% 53% 36% 27% 23% 23% 22% 22% 20% 19% 18% 12% 11% 7% 6% 6% 5% 0% -3% -3% -7% -7% -10% -11% -11% -11% -13% -13% -25%
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Select Sectors & Stocks
Most favoured sector – Engineering & Construction
We are overweight the capital goods sector due to a strong growth in order backlog, led by a rebound in the capex cycle. This is more pronounced in companies linked to the power sector, as this sector is seeing the highest growth in capex among India’s infrastructure sector. Consequently, we expect the companies under our coverage to witness 30-35% earnings CAGR over FY05-07. Key issues to watch out for are, rising raw material costs and continuity of power reforms at the state level. Factors underpinning the capex recovery are highlighted below:
Power capex on track - driving order backlog
We expect India to commission 30 GW in the X plan vs target of 41GW, which presents growth of 58%. Further, the Indian Ministry of Power is working on 60 GW of capacity addition for XI plan and we expect commissioning of 46 GW, a growth of 58% over X plan. We believe power capex is now more wide-spread with the state and private capex joining the central utility capex. Funding of viable projects does not seem to be an issue any more, in our view. We highlight that increasing XI plan projects are coming up for bidding and almost a-third of the likely capacity add would be under-construction as on zero date (April 2007). This, coupled with planned doubling of T&D spend in X plan to Rs510bn led by national grid, APDRP spends and spend by Delhi private utilities, should present a significant growth opportunity for capital goods companies linked to the power sector.
Recovery in industry capex aiding to momentum
The key change in the last one year in the capital goods sector has been the steep recovery in industrial sector capex and trend towards increased automation. Orders from brownfield expansion, especially in the metal sector, is key here. We see enhanced newsflow on US$1bn plus greenfield expansions, such as those by TISCO and Jindal.
The outsourcing theme is growing
India is also emerging as an outsourcing base for engineering and construction (E&C) activities. This is evident from rising exports from companies such as ABB – exports up to 20% of sales in 2003 v/s 8% two years ago and Cummins India aiming for 25% of export sales in FY05 v/s 21% in FY03 EPC players such as L&T and KEC too are active in Gulf Co-operation Council countries and benefit from higher oil prices, aiding capex in this region.
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Table 6: Country strategy: Most favoured stocks Company Reco
BHEL Price Price Obj. ML Ticker Opinion Buy Rs2,663 Rs3,000 BHHEF C-1-7
Analyst
Bharat Parekh
Reason
Our Price Objective of Rs3,000 is based on 1-year forward PER of 30x – 20% premium to peak PE in the last cycle (94-97) & 14% discount to its current multiples. BHEL currently trades at 29.7x FY09E PER vs BSE Sensex at 20.8x. However, we believe that premium valuation is justified given BHEL’s superior market position, earnings growth (34% for BHEL vs market at 16%) and RoE (32% v/s market 22%). Regionally, BHEL trades at 29.7x FY09E vs Asian comps at 24.4x. However, we believe, that premium valuation for BHEL is justified given its superior RoE (32% vs regional average at 23%) and consistency & its sustainability of growth. Risks to our price objective are Chinese & Korean competition and project execution Our price target of Rs4450/sh for Grasim is based on sum-of-parts for FY08E. Risks stem from: 1) possible government intervention in cement pricing, 2) unexpected slowdown in VSF demand or irrational VSF pricing by China post expiry of CY07-quotas. We are raising PO on ICICI Bank to Rs1275 and US$65 on the ADR due to higher general insurance valuations and 2QFY08 results, which reflected lower NPL accretion and 4-5bps margin expansion qoq - key issues impacting the stock. We believe the stock, at 1.5x FY09E adj. book could re-rate to 2.0x FY09E adj. book and 1.7-1.8x FY10E as it delivers on earnings, asset quality and margins, implying a price of Rs800 on FY10E valuation. Adding Rs497 for a new sum of the parts, we get a price of Rs1400 for Mar’09. This implies a 12-month PO of Rs1275. Risks to our price objective are 1) a sharp rise in NPLs and 2) interest rates dampening growth. We are raising our PO further to Rs2150 (from Rs1850) as the growth momentum continues unabated relative to even our revised estimates. The biggest upside to our new SOTP of Rs2271 (v/s Rs2033 for Mar’09) comes from the consumer biz. valuations, asset management owing to sharply higher growth in equity AUM and incorporating our revised general insurance valuations (detailed in our sector report 2 weeks ago). As highlighted in the past, we believe R-Cap’s consumer foray should be valued on the P/forecast Book (and not free net worth), consistent with our valuation of NBFC’s and banks. Sharp correction in equity markets is a key risk to our PO as many of R-Cap’s businesses are leveraged to the equity markets. RIL’s price objective on a sum-of–the-parts basis works out to Rs2,834/share. The value of the core refining and petrochemical business has been calculated on DCF. Value of its investment in Reliance Petroleum is calculated on DCF value of RPL and applying it to RIL’s holding in RPL. We have a scenario based valuation approach for valuing RIL’s stake in RPL with equal weightage being given to each of the four scenarios assumed. RIL’s oil and gas reserves and resources are also valued on a DCF basis. RIL’s Retail business is also calculated on a DCF basis. Significant weakening in refining and petrochemical margins even below our expectation is a risk to our price objective. Large disappointments on the E&P front could be another risk to our price objective. Our PO of Rs2,150 is based on 25x 1-year-forward earnings, which we believe is conservative considering it is 19% discount to its current multiples, 8% discount to DCF and 28% discount to its peers despite Suzlon's superior growth and return profile. We have upgraded our target PER multiple to 25x vs 24x earlier to factor in likely earnings upgrade momentum and sector re-rating in India & abroad. Risks: Headwind for wind turbine business & execution risk in the wake of component shortages. Also, we note that the deal with Areva is not a put/call forward sale structure and hence if REpower stock shoots up in the future then Suzlon may have to pay a higher price for acquiring Areva's stake.
Grasim Industries Price Price Obj. ML Ticker Opinion ICICI Bank Price Price Obj. ML Ticker Opinion
Buy Rs3,707 Rs4,450 GRSJF C-1-7 Buy Rs1,271 Rs1,275 ICIJF C-1-7
Reena Verma Bhasin, CFA
Rajeev Varma
Reliance Cap Price Price Obj. ML Ticker Opinion
Buy Rs1,902 Rs2,150 RLCCF C-1-7
Rajeev Varma
Reliance Industries Price Price Obj. ML Ticker Opinion
Buy Rs2,664 Rs2,834 XRELF B-1-7
Vidyadhar Ginde
Suzlon Energy Price Price Obj. ML Ticker Opinion
Buy Rs1,932 Rs2,150 SZEYF C-1-7
Bharat Parekh
Source: Merrill Lynch Research Estimates
12
Nove mber 2007 Edition 07 November 2007
Least favored sector – Metals
We remain negative on the metals sector owing to our expectation of limited price upside from current levels. Steel - Even though domestic prices have begun to rise, we see limited upside in domestic steel prices, since domestic prices are already at a significant premium to regional prices. Aluminum - Aluminum prices have run up hard - up 29% in the last 6-7 months. Further significant upside appears limited, given easing power shortages in China and possibility of import duty cut in India. Table 7: Least favored companies Company Reco
Analyst
Reason
Hindalco's likely bid for Novelis is supported by management's plans to expand into downstream businesses. We believe the negatives outweigh the positives should Hindalco buy Novelis. Our DCF valuation for the retail business yields a value of Rs493/share. This is based on an optimistic scenario where we assume all store rollouts happen as per schedule, all formats are successful, and working capital requirements fall sharply. In addition, we estimate nonretail ventures add Rs133/share, which gives us total potential value of Rs627/share. This is a mere 3% higher than the current share price and makes the risk/reward profile appear unfavorable in our view. Strong profit, weak margins; Standalone results disappointed; We expect truck sales to contract in FY08; Fairly valued, Maintain Neutral
Price
Ticker
Opinion
Hindalco
3 - Sell
Luthra,Vandana
184
HNDFF
C-3-7
Pantloon
3 - Sell
Luthra,Vandana
601
PFIAF
C-3-7
Tata Motors Ltd.
Source: Merrill Lynch Research
2 - Neutral
Arun, S
740
TENJF
C-2-7
13
Nove mber 2007 Edition 07 November 2007
Regional Snapshot
Strategy
Willie Chan>> Strategist, Merrill Lynch (Hong Kong) (852) 2536 3960 willie_chan@ml.com
Key Investment Themes
The small upward momentum in the RMB does not adequately address the global trade imbalance. The +5% move to date fails to erode China’s export competitiveness and the RMB remains under-valued we feel. With further currency appreciation likely, Asia will continue to attract global capital, helping to cap interest rates and underpin regional equities. Our preferred markets are the open economies of Korea, Singapore, Malaysia and Pakistan while we dislike Thailand and Taiwan due to ongoing structural declines in their economies. Ongoing urbanisation and infrastructure spending both remain in a multi-year upcycle due to ongoing economic development in key economies such as China and India. It is materials intensive benefiting specialist contractors and equipment companies.
Table 8: Asia Pacific ex-Japan Country Asset Allocation
ML Country Asset FY2008E Country Weight (%) Allocation PE (x) EPS Gth (%) RoE (%) PB (x) Yield (%) Korea 5.5 UW 12.4 16.1 13.8 1.6 1.6 Taiwan 3.0 UW 13.1 21.2 18.7 2.5 4.4 Hong Kong 14.0 OW 19.4 13.1 15.3 2.9 2.6 China 24.5 OW 21.6 20.3 18.3 4.0 1.8 Singapore 6.0 OW 17.2 14.4 13.4 2.3 2.9 Malaysia 5.0 OW 15.7 7.6 17.6 1.9 3.9 Thailand 1.0 UW 10.6 16.4 17.5 2.8 3.5 Indonesia 1.5 MW 17.8 37.5 26.7 6.0 2.8 Philippines 2.0 OW 14.0 14.0 13.5 1.9 2.3 Australasia* 28.0 MW 16.2 8.9 16.6 2.7 3.5 India* 7.0 MW 19.3 15.2 22.2 4.0 1.2 Pakistan* 2.5 OW 11.3 12.4 26.0 2.8 4.7 Total 100
Source: Merrill Lynch Asia Pacific Equity Strategy Group
What to look for in 2007/08
APR economies are better placed to withstand a US consumer slowdown. Growth in recent years has stemmed from EU, Japan and China, not the USA. Asian fun`damentals are strong but regional markets follow US Resumption of FX appreciation. Higher regional CPI is the more likely trigger - the possibility of a further RMB revaluation cannot be entirely counted out. Balance sheets have significantly de-geared so much so that capital structures are becoming increasingly sub-optimal. We still expect increased capex, M&A and capital management over the next 12 months.
India – OW
Chart 4: India’s M1/Market cap ratio–in sell territory and looking toppy
0.10 0.20 0.30 0.40 0.50 0.60 1500 0.70 0.80 1000 0.90 1.00 1.10 1.20 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 India's M1 to Mkt Cap Ratio (LHS, Inv) INDIA-DS Market - PRICE INDEX(R.H.SCALE) Source: DATASTREAM 0 BUY TRIGGER 500 2500 3000
India has the second-strongest growth, and the second-largest economy, after China. The two economies complement each other, and given Asian markets are being propelled by top-down factors and not valuations. India has shifted it economy towards services and skipped establishing a manufacturing base. With services accounting for over half of real GDP growth, India has taken a huge leap in catching up with other developing economies. The combination of India and China will be a powerful moderating influence on global prices of goods and services, stimulating new consumption around the world, and demand for Chinese and Indian products.
SELL TRIGGER 2000
Source: Thomson Financial DataStream
14
Nove mber 2007 Edition 07 November 2007
Quantitative Strategy
Nigel Tupper>> Merrill Lynch (Australia) Nigel_Tupper@ml.com (61 2) 9226-5747 Carrie Zhao - MLPF&S Carrie_Zhao@ml.com (1 212) 449-6045 Michael Salvatico>> Merrill Lynch (Australia) Michael_Salvatico@ml.com (61 2) 9226-5731 Girish Nair>> Merrill Lynch (Australia) Girish_Nair@ml.com (61 2) 9226-5749 Chart 5: India–Earnings Revision Ratio & Forecast Profits
2.0 # Stocks Upgraded / # Downgraded 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Earnings Revision Ratio – 3m Forecast Profits Cycle – 6m Chg in EPS (RHS)
India – Profit environment and country momentum & value
Chart 1 below shows two measures of profits for India. The thin line shows the ratio of upgrades-to-downgrades has improved recently. The thick line shows the 6m change in forecast EPS, which has strengthened in recent months. Chart 2 illustrates the price and earnings relative to the region. The thick line is the momentum in earnings forecasts of the country relative to the Asia Pacific region. The thin line is the performance of the country relative to the region, while the gap between the two lines indicates the PE premium or discount the country is trading on relative to the region. A price relative above the earnings relative indicates a PE premium to the region while the inverse indicates a PE discount. Forecast earnings in India have been similar to those of the region recently, and the country performance has been weaker than the region. Chart 6: India – Relative Earnings Momentum & Valuation
60% 50% Change in Forecast EPS 40% 30% 20% 10% 0% -10% -20%
110 100 90 80 70 60 50 40
110 100 90 80 70 60 50 40
30 24
30 24
Price Rel to Asia Pac EPS Rel to Asia Pac
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Source: Merrill Lynch Asia Pacific Quantitative Strategy, MSCI, IBES
Source: DATASTREAM
Source: Merrill Lynch Asia Pacific Quantitative Strategy, MSCI, IBES
Quantitative Stock Selection Ideas
Chart 3 below shows the earnings momentum and price momentum characteristics of the largest stocks in India. Stocks in the top-right quadrant are expected to outperform, while stocks in the bottom-left quadrant are expected to underperform. For more information, please refer to “Asia Pacific Quant Panorama”. Chart 7: India – Earnings Momentum and Price Momentum Characteristics of Largest Stocks vs. the Asia Pacific Region
100 Earnings Momentum Rank (100 = Best) 90 80 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 Price Momentum Rank (100 = Best) 70 80 90 100 Hindustan Lever Infosys Tech WIPRO Reliance Comm. Reliance Inds Steel Authority of India BHEL Bharti Larsen & Toubro ITC Limited Reliance Energy HDFC Bank HDFC National Thermal ICICI Bank Suzlon Energy Unitech Sterlite State Bk of India
Oil & Natural Gas
Source: Merrill Lynch Asia Pacific Quantitative Strategy, MSCI, IBES
15
Nove mber 2007 Edition 07 November 2007
“Asia Pacific Momentum & Value”—Stock Picks*
One of the primary drivers of stock prices appears to be changing earnings expectations. The following charts show how consensus earnings expectations for each stock are changing versus the region (thick lines), and whether these changing expectations have been reflected in stock prices (thin lines). For more information, please refer to “Asia Pacific Momentum & Value”. The following charts on the left illustrate the three highest rated stocks in the India market from the latest edition of “Asia Pacific Momentum & Value”, and the charts to the right are the three lowest rated stocks. Chart 8: Steel Authority of India Limited
140 120 100 80 60 40 140 120 100 80 60 40
Chart 9: Infosys Technologies
180 160 140 120 100 80 60 40 20 180 160 140 120 100 80 60 40 20
20
20
3
4
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: DATASTREAM
4
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
3
Source: DATASTREAM
Source: Merrill Lynch Asia Pacific Quantitative Strategy, MSCI, IBES
Source: Merrill Lynch Asia Pacific Quantitative Strategy, MSCI, IBES
Chart 10: Grasim Industries
130 120 100 80 60 40 130 120 100 80 60 40
Chart 11: WIPRO
600 500 400 300 200 100 600 500 400 300 200 100
20
20
6
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: DATASTREAM
6
8
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: DATASTREAM
8
Source: Merrill Lynch Asia Pacific Quantitative Strategy, MSCI, IBES
Source: Merrill Lynch Asia Pacific Quantitative Strategy, MSCI, IBES
Chart 12: State Bank of India
160 140 120 100 80 60 40 160 140 120 100 80 60 40
Chart 13: Cipla Limited
260 250 200 150 100 260 250 200 150 100
50 20 20
50
12
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
12
24
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
24
Source: DATASTREAM
Source: DATASTREAM
Source: Merrill Lynch Asia Pacific Quantitative Strategy, MSCI, IBES
Source: Merrill Lynch Asia Pacific Quantitative Strategy, MSCI, IBES
* The comments and views in this section are those of the Quantitative Strategy team and do not necessarily coincide with the views of the Fundamental Equity Research Team.
16
Nove mber 2007 Edition 07 November 2007
Monthly Update
Recommendation Changes (For the week from 2 Oct. to 1 Nov)
Country Name
India India India India India India India India India India India India India India Aditya Birla Nu United Spirits Radico Khaitan Exide Indus Ltd Subex Azure Ltd Bajaj Auto Infosys Tech M&M Infotech India ONGC Grasim Patni Divi's Lab Bharat Forge
Analysts
Verma,Reena Luthra,Vandana Luthra,Vandana Satapathy,Sanjaya Krishnan,Pratish Arun,S Ghosh,Mitali Arun,S Deshmukh,Prasad Ginde,Vidyadhar Verma,Reena Ghosh,Mitali Chandramouli,Visalakshi Arun,S
Rating Previous
n/a n/a n/a n/a Buy Buy Buy Neutral Neutral Neutral Neutral Neutral Sell Sell
Current
Buy Buy Neutral Buy Neutral Neutral Neutral Buy Buy Buy Buy Sell Buy Buy
Date
22-Oct-07 22-Oct-07 22-Oct-07 29-Oct-07 23-Oct-07 15-Oct-07 12-Oct-07 24-Oct-07 17-Oct-07 7-Oct-07 4-Oct-07 31-Oct-07 29-Oct-07 28-Oct-07
Symbol
ADYAF UDSRF RKHAF XEDRF SBXSF BJJAF INFYF MAHHF IFKFF ONGCF GRSJF PATIF XXQPF XUUVF
QRQ
C-1-7 C-1-7 C-2-7 C-1-7 C-2-7 C-2-7 C-2-7 C-1-7 C-1-7 C-1-7 C-1-7 C-3-7 C-1-7 C-1-7
Remarks
Initial Opinion Initial Opinion Initial Opinion Initial Opinion Rating change Rating change Rating change Rating change Rating change Rating change Rating change Rating change Rating change Rating change
Source: ML Research
Earnings Estimates Changes (For the week from 2 Oct. to 1 Nov)
India companies ordered by percentage change based on “Current Year”. When only “Next Year” estimate has changed, ordered based on “Next Year”.
Company
Nicholas Larsen & Toubro Suzlon Energy Glenmark Pharm Ranbaxy Lab Gujarat Gas Co Cipla Ltd. Jaiprakash Colgate India Bharat Forge Grasim Yes Bank Ltd Gail India DLF Limited RCVL ^ MTNL ^ Maruti Suzuki India Rolta India Bank of Baroda ONGC India Cements Satyam SBI Bharti ^ Bajaj Auto ^ Hero Honda ^ M&M Cairn India ^ UltraTech Cemen ^ Sterlite Industr ^ Bank of India ^ Assoc. Cement ^ Infrastruct Dev ^ BIOCON LTD ^ Ashok Leyland ^ Reliance Capital ^ Mphasis ^ Arvind Mills Ltd ^
Source: ML Research
Price 1-Nov Opinion
305 4,427 1,963 484 436 334 176 1,387 374 349 3,666 221 407 928 791 168 1,004 700 350 1,330 276 471 2,071 943 2,422 687 765 219 989 1,027 377 1,053 186 550 39.00 1,964 289 66.80 Neutral Buy Buy Neutral Buy Sell Sell Buy Buy Buy Buy Buy Neutral Buy Buy Sell Buy Buy Buy Buy Neutral Buy Buy Buy Neutral Neutral Buy Buy Neutral Buy Buy Neutral Neutral Buy Sell Buy Buy Sell
FY End
Mar-08 Mar-08 Mar-08 Mar-08 Dec-07 Dec-07 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Jun-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Dec-07 Mar-08 Mar-08 Mar-07 Dec-07 Mar-07 Mar-08 Mar-08 Mar-07 Mar-08 Mar-08
Current FY From
13.62 77.62 38.97 20.72 16.32 16.25 7.77 24.35 16.56 13.48 270 6.23 26.22 38.81 22.44 7.32 65.85 29.96 38.18 89.32 32.03 24.60 103 34.94 127 43.88 67.77 1.38 83.53 70.31 23.01 77.62 4.37 25.32 3.34 28.42 13.21 1.34
To
17.18 95.35 45.19 23.80 18.73 18.33 8.59 26.75 18.06 14.46 286 6.59 27.73 40.97 23.44 7.57 67.77 30.69 38.98 91.17 32.65 25.07 104 35.52 128 43.95 67.82 1.38 79.95 70.31 23.01 74.06 4.37 24.99 3.30 28.42 13.12 1.34
% Chg FY End
26.1 22.8 16.0 14.8 14.8 12.8 10.5 9.9 9.0 7.3 5.9 5.8 5.8 5.5 4.4 3.3 2.9 2.4 2.1 2.1 1.9 1.9 1.7 1.7 0.2 0.1 0.1 -0.6 -4.3 0.0 0.0 -4.6 0.0 -1.3 -1.0 0.0 -0.7 0.0 Mar-09 Mar-09 Mar-09 Mar-09 Dec-08 Dec-08 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Jun-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Dec-08 Mar-09 Mar-09 Mar-08 Dec-08 Mar-08 Mar-09 Mar-09 Mar-08 Mar-09 Mar-09
Next FY From
15.78 101 60.91 26.17 21.45 16.84 8.87 29.17 16.57 16.09 241 9.98 28.92 61.31 29.94 8.27 77.78 38.95 46.12 83.66 25.70 30.13 124 44.25 146 51.99 81.71 1.11 64.99 72.58 29.49 64.12 5.81 30.29 3.52 41.16 18.91 2.37
To
20.21 124 68.95 27.12 22.65 20.68 9.93 32.97 20.86 18.24 263 10.68 28.93 64.28 29.26 8.19 80.37 42.22 46.80 91.41 26.97 30.26 131 44.00 143 51.98 81.90 1.24 71.43 79.39 31.23 65.88 5.96 30.77 3.57 41.57 18.97 2.37
% Chg Symbol
28.1 22.4 13.2 3.6 5.6 22.8 11.9 13.0 25.9 13.3 9.2 7.1 0.0 4.8 -2.3 -0.9 3.3 8.4 1.5 9.3 5.0 0.4 5.2 -0.6 -2.1 0.0 0.2 11.4 9.9 9.4 5.9 2.7 2.5 1.6 1.4 1.0 0.3 0.2 XNIGF LTOUF SZEYF XVQWF XIZZF GJGCF XCLAF JPRKF CPIYF XUUVF GRSJF YESBF XGLAF XVDUF RLCMF XMTNF MUDGF RLTAF BKBAF ONGCF INIAF SAYPF SBINF BHTIF BJJAF HRHDF MAHHF XCANF XDJNF XTNDF XDIIF ADCLF IFDFF BCLTF XDBVF RLCCF MPSSF ARVZF
QRQ
C-2-7 C-1-7 C-1-7 C-2-7 C-1-7 C-3-8 C-3-7 C-1-7 C-1-7 C-1-7 C-1-7 C-1-7 C-2-7 C-1-7 C-1-7 C-3-7 C-1-7 C-1-7 C-1-7 C-1-7 C-2-9 C-1-7 C-1-7 C-1-9 C-2-7 C-2-7 C-1-7 B-1-7 C-2-7 C-1-7 C-1-7 C-2-7 C-2-7 C-1-7 C-3-7 C-1-7 C-1-7 C-3-7
17
Nove mber 2007 Edition 07 November 2007
Earnings Estimates Changes (For the week from 2 Oct. to 1 Nov)
India companies ordered by percentage change based on “Current Year”. When only “Next Year” estimate has changed, ordered based on “Next Year”. Table 9: Earnings Estimates Changes Company
Pantaloon Subex Azure Ltd Gujarat Inds Idea Cellular Panacea Biotec Hexaware Tech United Phosphoru Axis Bank Tech Mahindra Gateway Distrip Sasken Communic Sun TV LTD Container Corp Assoc. Cement ^ Nagarjuna Const IDBI UltraTech Cemen ^ Vijaya Bank Wipro Union Bank India Infosys Tech HDFC Bank Patni Infotech India BIOCON LTD ^ Ashok Leyland ^ Tata Consultancy Mphasis ^ Cairn India ^ Shree Cements IndiaBulls Finan Punjab RCVL ^ Bajaj Auto ^ MTNL ^ Bharti ^ Mastek
Source: ML Research
Price 1-Nov Opinion FY End
594 333 107 133 375 99.75 362 913 1,165 130 287 316 1,978 1,053 287 153 989 60.60 499 177 1,870 1,676 377 275 550 39.00 1,020 289 219 1,447 687 535 791 2,422 168 943 330 Sell Neutral Neutral Buy Buy Buy Buy Buy Buy Buy Neutral Buy Sell Neutral Buy Neutral Neutral Buy Neutral Buy Neutral Buy Sell Buy Buy Sell Buy Buy Buy Neutral Buy Buy Buy Neutral Sell Buy Sell Jun-08 Mar-08 Mar-08 Mar-08 Mar-08 Dec-07 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Dec-07 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Dec-07 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Dec-07 Mar-08 Mar-07 Mar-07 Mar-08 Mar-08 Mar-08 Mar-08 Jun-07
Current FY From To
7.93 26.27 10.44 4.89 26.81 8.96 19.68 30.84 65.54 7.24 14.71 11.09 119 77.62 8.92 9.85 83.53 9.03 24.33 21.12 82.07 47.19 31.72 18.26 25.32 3.34 52.56 13.21 1.38 105 20.78 48.84 22.44 127 7.32 34.94 31.77 3.50 20.91 8.42 4.04 22.66 7.92 17.62 28.59 61.14 6.78 13.80 10.45 113 74.06 8.52 9.42 79.95 8.71 23.46 20.49 79.68 46.12 31.16 18.00 24.99 3.30 52.08 13.12 1.38 104 20.78 48.84 23.44 128 7.57 35.52 31.77
% Chg
-55.9 -20.4 -19.3 -17.4 -15.5 -11.7 -10.5 -7.3 -6.7 -6.3 -6.1 -5.8 -5.0 -4.6 -4.6 -4.3 -4.3 -3.6 -3.6 -2.9 -2.9 -2.3 -1.8 -1.4 -1.3 -1.0 -0.9 -0.7 -0.6 -0.3 0.0 0.0 4.4 0.2 3.3 1.7 0.0
FY End
Jun-09 Mar-09 Mar-09 Mar-09 Mar-09 Dec-08 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Dec-08 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Dec-08 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Dec-08 Mar-09 Mar-08 Mar-08 Mar-09 Mar-09 Mar-09 Mar-09 Jun-08
Next FY From
9.59 44.90 9.82 5.12 32.58 12.14 27.13 39.57 100 8.76 30.77 14.28 136 64.12 12.05 11.25 64.99 10.97 30.74 25.49 103 60.74 33.97 25.23 30.29 3.52 66.41 18.91 1.11 101 33.77 59.00 29.94 146 8.27 44.25 36.91
To
8.70 37.23 9.53 4.73 32.21 11.01 25.98 34.01 91.95 8.76 28.74 13.64 127 65.88 11.53 10.89 71.43 10.78 29.40 24.86 97.11 58.37 28.72 24.71 30.77 3.57 64.57 18.97 1.24 97.85 31.04 56.69 29.26 143 8.19 44.00 36.73
% Chg Symbol QRQ
-9.2 -17.1 -2.9 -7.6 -1.1 -9.3 -4.2 -14.1 -8.2 0.0 -6.6 -4.5 -7.1 2.7 -4.3 -3.2 9.9 -1.7 -4.4 -2.5 -5.8 -3.9 -15.4 -2.1 1.6 1.4 -2.8 0.3 11.4 -3.3 -8.1 -3.9 -2.3 -2.1 -0.9 -0.6 -0.5 PFIAF SBXSF GUJIF IDEAF XPEAF XFTCF UPHHF UTBKF TMHAF GYDPF SKNCF SUTVF CIDFF ADCLF NGRJF XDBIF XDJNF VJYAF WIPRF UBOIF INFYF XHDFF PATIF IFKFF BCLTF XDBVF TACSF MPSSF XCANF SREEF IBLFF PUJBF RLCMF BJJAF XMTNF BHTIF MSKDF C-3-7 C-2-7 C-2-7 C-1-9 C-1-7 C-1-7 C-1-7 C-1-7 C-1-7 C-1-7 C-2-7 C-1-7 C-3-7 C-2-7 C-1-7 C-2-7 C-2-7 C-1-7 C-2-7 C-1-7 C-2-7 C-1-7 C-3-7 C-1-7 C-1-7 C-3-7 C-1-7 C-1-7 B-1-7 C-2-7 C-1-7 C-1-7 C-1-7 C-2-7 C-3-7 C-1-9 C-3-7
18
Nove mber 2007 Edition 07 November 2007
Out of Consensus* - Where We Are Higher
India companies for which the ML Estimate differs from the I/B/E/S consensus estimate by more than 10% (by % difference) Company
Firstsource Divi's Lab Glenmark Pharm Jet Airways VSNL Gujarat State TVS Motor India Cements Eicher Motors Yes Bank Ltd Larsen & Toubro Cairn India Radico Khaitan Hindustan Petro. Dr Reddy's Lab Nicholas Canara Bank DLF Limited Suzlon Energy Ranbaxy Lab Grasim Ambuja Cements
Source: ML Research
Price 1-Nov Opinion
70.25 1,668 484 831 517 58.95 57.00 276 451 221 4,427 219 182 235 611 305 298 928 1,963 436 3,666 144 Buy Buy Neutral Neutral Neutral Buy Sell Neutral Sell Buy Buy Buy Neutral Buy Buy Neutral Neutral Buy Buy Buy Buy Neutral
EPS Estimates# IBES ML
1.94 34.90 18.04 -11.29 12.80 1.87 2.27 26.39 19.97 5.55 80.41 1.16 4.55 35.88 34.32 15.02 35.76 35.94 40.01 16.80 258 9.98 3.25 48.41 23.80 -14.71 16.25 2.33 2.80 32.65 24.06 6.59 95.35 1.38 5.33 41.81 39.34 17.18 40.81 40.97 45.19 18.73 286 11.06
% Diff frm IBES
67.9 38.7 31.9 30.4 26.9 24.9 23.8 23.7 20.5 18.6 18.6 18.4 17.1 16.5 14.6 14.4 14.1 14.0 12.9 11.5 10.9 10.9
IBES Est Range High Low FY End
1.96 38.08 23.20 0.20 21.99 2.30 3.75 29.60 19.96 6.59 90.20 1.97 4.60 47.92 39.34 18.80 40.81 40.73 46.20 20.32 306 11.33 1.91 27.95 7.45 -28.13 3.61 1.44 0.68 21.40 19.96 3.98 62.70 0.40 4.51 19.51 27.55 13.10 30.50 31.10 31.57 12.78 188 7.35 Mar-08 Mar-08 Mar-08 Mar-07 Mar-08 Mar-08 Mar-07 Mar-08 Mar-07 Mar-08 Mar-08 Dec-07 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Mar-08 Dec-07 Mar-08 Dec-07
Symbol QRQ Analyst
FSSOF XXQPF XVQWF JTAIF VSLSF GJRSF XFKMF INIAF XEICF YESBF LTOUF XCANF RKHAF XHTPF DRYBF XNIGF CNRKF XVDUF SZEYF XIZZF GRSJF AMBUF C-1-7 C-1-7 C-2-7 C-2-8 C-2-8 C-1-7 C-3-7 C-2-9 C-3-7 C-1-7 C-1-7 B-1-7 C-2-7 C-1-7 C-1-7 C-2-7 C-2-7 C-1-7 C-1-7 C-1-7 C-1-7 C-2-7 Ghosh,Mitali Chandramouli,Visalakshi Chandramouli,Visalakshi Arun,S Verma,Reena Ginde,Vidyadhar Arun,S Verma,Reena Arun,S Varma,Rajeev Parekh,Bharat Ginde,Vidyadhar Luthra,Vandana Ginde,Vidyadhar Chandramouli,Visalakshi Chandramouli,Visalakshi Varma,Rajeev Agarwal,Amit Parekh,Bharat Chandramouli,Visalakshi Verma,Reena Verma,Reena
19
Nove mber 2007 Edition 07 November 2007
Out of Consensus* - Where We Are Lower
India companies for which the ML Estimate differs from the I/B/E/S consensus estimate by more than 10% (by % difference) Company
Aban Offshore L Hindalco APIL Shoppers' Stop Yes Bank Ltd SBI IndiaBulls Finan Glenmark Pharm United Phosphoru Subex Azure Ltd Sun TV LTD Sasken Communic Jaiprakash Reliance Capital Raymond Ltd Himatsingka Seid Colgate India HDFC Bank Panacea Biotec Divi's Lab Punjab Union Bank India Axis Bank Infrastruct Dev VSNL Indraprastha Gas Tata Pwr. Co. Shree Cements Bank of India Corporation Bank Petronet LNG Ltd HCL Reliance Energy Motherson Sumi Jaiprakash Hydro i-flex Maruti Suzuki India Nagarjuna Const Pantaloon Suzlon Energy IDBI HDFC Rico Auto Ind
Source: ML Research
Price 01-Nov Opinion
3,237 165 284 535 197 1,848 580 395 373 434 342 340 1,043 1,498 316 103 403 1,375 407 1,208 536 159 756 143 435 133 833 1,415 261 380 83.95 297 1,026 111 74.35 1,856 962 239 540 1,434 154 2,477 39.65 Buy Sell Buy Sell Buy Buy Buy Neutral Buy Buy Buy Neutral Buy Buy Sell Neutral Buy Buy Buy Buy Buy Buy Buy Neutral Neutral Sell Neutral Neutral Buy Sell Sell Neutral Buy Buy Sell Neutral Buy Buy Sell Buy Neutral Buy Buy
EPS Estimates % Diff IBES ML frm IBES
145 19.94 31.37 11.82 5.26 125 29.84 17.47 19.56 34.46 10.33 18.92 31.19 36.16 18.13 7.89 17.15 44.73 24.95 34.28 59.84 20.47 28.28 5.24 19.25 11.30 31.25 123 26.94 43.76 5.60 19.00 42.18 4.93 2.54 48.17 61.21 10.07 5.85 43.76 9.77 69.58 3.52 27.20 5.95 13.88 7.30 3.43 86.29 20.78 12.28 14.49 26.27 7.90 14.71 24.35 28.42 14.26 6.30 13.82 36.09 20.17 27.95 48.84 16.74 23.52 4.37 16.25 9.55 26.61 105 23.01 37.38 4.80 16.63 37.01 4.33 2.23 42.48 54.05 8.92 5.20 38.97 8.71 62.50 3.16 -81.3 -70.2 -55.8 -38.3 -34.7 -30.9 -30.4 -29.7 -25.9 -23.8 -23.6 -22.3 -21.9 -21.4 -21.3 -20.0 -19.4 -19.3 -19.2 -18.5 -18.4 -18.3 -16.8 -16.6 -15.6 -15.4 -14.9 -14.8 -14.6 -14.6 -14.3 -12.5 -12.3 -12.2 -12.2 -11.8 -11.7 -11.4 -11.1 -10.9 -10.9 -10.2 -10.1
IBES Est Range High Low FY End
225 24.79 35.83 17.55 6.23 148 33.77 20.92 20.80 40.06 11.10 30.00 39.42 41.91 21.83 10.04 19.48 48.41 26.81 38.08 68.63 22.19 30.84 5.81 21.99 11.60 42.84 136 29.49 45.53 6.65 21.20 50.40 6.60 2.54 58.90 67.80 14.20 6.93 51.86 9.85 75.41 3.70 95.10 16.20 22.20 7.30 4.70 101 24.30 7.45 18.10 26.29 9.47 10.83 27.50 32.53 13.40 6.59 15.90 41.20 23.10 28.18 55.20 18.60 25.99 4.80 16.50 11.00 27.71 109 23.21 40.88 4.69 17.94 26.68 4.33 2.54 41.70 57.00 8.30 4.59 38.97 9.70 63.80 3.40 Mar-07 Mar-08 Mar-07 Mar-08 Mar-07 Mar-07 Mar-07 Mar-07 Mar-07 Mar-08 Mar-07 Mar-08 Mar-08 Mar-07 Mar-08 Mar-07 Mar-07 Mar-07 Mar-07 Mar-08 Mar-07 Mar-07 Mar-07 Mar-07 Mar-08 Mar-07 Mar-07 Mar-08 Mar-07 Mar-07 Mar-08 Jun-07 Mar-07 Mar-08 Mar-07 Mar-07 Mar-07 Mar-08 Jun-07 Mar-08 Mar-07 Mar-07 Mar-07
Symbol
XBWTF HNDFF ANSFF SHPSF YESBF SBINF IBLFF XVQWF UPHHF SBXSF SUTVF SKNCF JPRKF RLCCF XRAMF HMKFF CPIYF XHDFF XPEAF XXQPF PUJBF UBOIF UTBKF IFDFF VSLSF IAGSF XTAWF SREEF XDIIF XCRRF POLNF HCLTF RCTDF XMSUF XJSHF IFXXF MUDGF NGRJF PFIAF SZEYF XDBIF HGDFF XINAF
QRQ
C-1-7 C-3-7 C-1-7 C-3-7 C-1-7 C-1-7 C-1-7 C-2-7 C-1-7 C-1-7 C-1-7 C-2-7 C-1-7 C-1-7 C-3-7 C-2-7 C-1-7 C-1-7 C-1-7 C-1-7 C-1-7 C-1-7 C-1-7 C-2-7 C-2-8 C-3-7 C-2-7 C-2-7 C-1-7 C-3-7 C-3-7 C-2-7 C-1-7 C-1-7 C-3-7 C-2-7 C-1-7 C-1-7 C-3-7 C-1-7 C-2-7 C-1-7 C-1-7
Analyst
Ginde,Vidyadhar Luthra,Vandana Agarwal,Amit Sarawagi,Manish Varma,Rajeev Varma,Rajeev Varma,Rajeev Chandramouli,Visalakshi Chandramouli,Visalakshi Krishnan,Pratish Parekh,Bharat Krishnan,Pratish Parekh,Bharat Varma,Rajeev Sarawagi,Manish Sarawagi,Manish Luthra,Vandana Varma,Rajeev Chandramouli,Visalakshi Chandramouli,Visalakshi Varma,Rajeev Varma,Rajeev Varma,Rajeev Varma,Rajeev Verma,Reena Ginde,Vidyadhar Parekh,Bharat Verma,Reena Varma,Rajeev Varma,Rajeev Ginde,Vidyadhar Ghosh,Mitali Parekh,Bharat Satapathy,Sanjaya Parekh,Bharat Ghosh,Mitali Arun,S Parekh,Bharat Luthra,Vandana Parekh,Bharat Varma,Rajeev Varma,Rajeev Arun,S
20
India Valuation Table
EPS (Trade India Company
ABB Assoc. Cement Aditya Birla Nu Ambuja Cements APIL Arvind Mills Ltd BIOCON LTD Bharat Heavy Bharti Bajaj Auto Bank of Baroda Balaji Tele Container Corp Canara Bank Colgate India Dabur India Dr Reddy's Lab Educomp Solu Firstsource Gujarat Gas Co Gujarat State Gokaldas Exports Grasim Gujarat Inds GSK India Gateway Distrip HCL HDFC Hindustan Unilever Himatsingka Seid Hindalco Hero Honda Indraprastha Gas IndiaBulls Finan ICICI Bank Idea Cellular Infrastruct Dev Infotech India i-flex IVRCL Infrastruc Infosys Tech India Cements IOC ITC Limited Jaiprakash Jet Airways Larsen & Toubro
07 November 2007
EPS Growth (%) FY1
48.0 25.6 8.8 19.1 nm 37.5 24.8 27.0 58.1 1.4 38.8 15.2 26.8 5.9 17.8 12.6 18.6 -35.0 nm 30.1 35.5 41.8 15.7 33.4 4.5 18.2 0.6 37.7 23.9 17.3 26.3 -77.2 2.3 25.7 40.6 11.9 94.8 25.5 -0.7 52.0 34.7 19.1 49.2 -2.5 15.3 32.6 nm 43.5
ML EPS vs IBES (%) PE (x) FY1
67.0 14.2 47.8 13.0 17.3 49.7 22.0 42.5 26.5 19.0 9.0 20.5 15.0 17.4 7.3 20.7 26.9 15.5 85.3 21.6 18.2 25.2 12.1 12.8 12.8 20.6 19.2 18.6 43.2 23.7 16.7 31.6 15.6 14.2 33.1 37.2 32.9 42.5 15.3 36.4 32.9 23.5 8.5 9.9 20.8 51.8 nm 46.4
EV/EBITDA# (x) FY2
44.6 16.0 38.7 16.6 6.7 28.2 17.9 30.2 21.4 16.9 7.5 18.4 12.6 15.6 6.4 17.9 22.4 12.3 45.0 15.2 16.1 18.6 10.9 13.9 11.3 18.6 14.9 16.7 35.8 20.8 15.9 18.7 13.2 13.1 22.1 33.1 28.1 31.1 11.1 27.5 25.1 19.3 10.2 10.8 18.4 42.1 nm 35.7
Price ML Bloomberg Rating Rec
C-1-7 C-2-7 C-1-7 C-2-7 C-1-7 C-3-7 C-1-7 C-1-7 C-1-9 C-2-7 C-1-7 C-2-7 C-1-7 C-3-7 C-2-7 C-1-7 C-1-7 C-1-7 C-1-7 C-1-7 C-3-8 C-1-7 C-2-7 C-1-7 C-2-7 C-1-7 C-1-7 C-2-7 C-1-7 C-3-7 C-2-7 C-3-7 C-2-7 C-3-7 C-1-7 C-1-7 C-1-9 C-2-7 C-1-7 C-2-7 C-1-7 C-2-7 C-2-9 C-2-7 C-2-7 C-1-7 C-2-8 C-1-7 Buy Buy Buy Sell Buy Buy Buy Buy Buy Sell Buy Buy Buy Buy Buy Sell Buy Buy Buy Buy Buy Sell Sell Sell Buy Buy Buy Buy Buy
Mkt Cap US$m
8,495 4,855 3,635 5,554 694 359 1,424 32,665 42,335 6,170 3,355 462 979 3,273 3,108 1,325 2,270 2,607 1,433 745 536 825 216 8,654 408 2,273 376 5,068 18,255 10,909 260 5,704 3,422 470 3,918 35,330 8,644 6,008 319 3,238 1,671 27,491 1,795 14,865 16,878 7,920 1,812 31,640
Rel Perf@ 3mth 12mth
7.8 -22.7 -18.0 -17.7 -29.6 10.9 -5.9 17.0 -25.2 -21.7 -6.8 -15.9 -34.3 -29.2 -11.4 -28.4 -23.5 -27.9 3.5 -33.8 -13.5 -18.0 -20.9 -5.2 33.6 -32.0 -32.6 -24.7 0.3 -28.1 -38.5 -14.6 -22.9 -14.3 -4.5 5.4 -22.1 7.8 -38.4 -44.2 0.1 -26.0 -6.6 -8.1 -22.0 31.1 -13.7 31.1 42.3 -33.1 0.7 -22.4 -63.4 -28.4 -4.2 39.8 2.9 -44.3 -16.4 28.8 -43.2 -37.7 -34.9 -40.9 -34.0 -48.3 221 NA -11.1 -1.9 -48.6 -14.3 18.6 -42.2 -39.6 -37.1 16.8 -47.3 -47.9 -37.7 -43.5 -30.8 123 5.4 NA 48.6 -31.3 -35.8 7.3 -41.8 -19.7 -40.0 -40.1 56.5 -10.0 110
Ccy) FY1
23.76 74.06 32.74 11.06 13.88 1.34 24.99 62.65 35.52 128 38.98 14.00 20.98 113 40.81 18.06 3.90 39.34 38.75 3.25 18.33 2.33 20.52 286 8.42 51.24 6.78 16.63 62.50 8.19 6.30 5.95 43.95 9.55 20.78 34.96 4.04 4.37 18.00 42.48 14.76 79.68 32.65 48.99 8.27 26.75 -14.71 95.35
Yield (%) FY2
27.2 9.8 13.9 11.0 3.7 7.6 14.7 18.8 11.2 15.4 1.1 12.3 8.0 10.9 0.9 16.6 17.7 7.0 19.9 8.0 9.1 7.1 7.4 7.5 9.3 14.2 8.7 11.0 7.5 19.2 10.8 7.7 8.7 6.3 3.4 3.1 13.6 4.3 5.7 19.7 16.2 14.7 7.0 7.6 12.5 25.5 18.6 22.2
ROE (%) FY1
35.7 38.5 8.4 36.4 27.0 2.3 18.2 29.2 41.9 21.8 15.5 27.4 27.1 25.3 15.2 105 62.1 15.4 19.9 13.1 23.0 12.3 18.7 44.9 11.5 33.7 12.3 24.5 31.3 65.7 10.5 5.1 33.0 31.9 27.0 13.4 27.1 17.8 28.8 22.3 13.6 34.6 33.7 15.5 28.0 18.8 -5.7 35.3
FY0 01-Nov
2006 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2006 2007 2007 2006 2007 2007 2006 2007 2007 2007 2007 2007 2007 2007 1,591 1,053 1,566 144 241 66.80 550 2,661 943 2,422 350 287 314 1,978 298 374 105 611 3,305 70.25 334 58.95 247 3,666 107 1,057 130 310 2,697 194 105 188 687 136 687 1,299 133 186 275 1,547 485 1,870 276 483 172 1,387 831 4,427
FY2
35.66 65.88 40.43 8.67 35.84 2.37 30.77 87.98 44.00 143 46.80 15.63 24.91 127 46.56 20.86 4.69 49.65 73.46 4.61 20.68 3.17 22.73 263 9.53 56.94 8.76 18.55 75.41 9.33 6.59 10.07 51.98 10.32 31.04 39.18 4.73 5.96 24.71 56.18 19.35 97.11 26.97 44.73 9.36 32.97 -28.13 124
FY2
50.1 -11.1 23.5 -21.6 nm 76.2 23.1 40.4 23.9 12.1 20.0 11.7 18.7 11.6 14.1 15.5 20.2 26.2 89.6 41.7 12.9 35.7 10.8 -7.9 13.2 11.1 29.2 11.5 20.7 13.9 4.5 69.4 18.3 8.0 49.4 12.1 17.0 36.3 37.3 32.3 31.1 21.9 -17.4 -8.7 13.1 23.2 91.2 30.1
FY1
-3.0 0.3 -11.1 10.8 -55.8 -33.2 8.0 -2.8 4.5 1.3 7.1 -1.9 -4.8 -9.4 17.8 5.3 -1.3 15.1 2.7 67.9 3.2 36.3 -7.6 12.2 -19.3 7.2 -10.7 -12.5 -10.2 1.9 -20.0 -70.2 0.2 -15.4 -30.4 -7.0 -4.6 -16.6 -1.3 -11.8 -5.2 -1.6 28.9 0.9 2.0 -14.2 28.0 17.5
FY2
0.1 -15.0 -19.1 -15.4 -33.6 -36.1 11.3 7.6 -0.5 0.9 8.6 -6.4 -5.1 -13.1 16.5 6.7 -0.8 18.5 13.2 32.3 -6.0 0.1 -15.6 1.7 -2.9 5.9 -8.2 -18.9 -10.7 0.1 -37.4 -42.7 6.5 -20.3 -25.6 -20.1 -12.1 -13.1 -1.6 -11.7 2.8 -3.5 1.4 -11.1 -1.7 -17.4 -180 16.6
FY1
41.1 8.8 16.9 9.2 11.4 9.0 17.1 26.7 15.0 17.8 1.3 13.8 9.4 12.5 1.0 19.8 21.3 8.4 38.7 11.6 10.5 10.3 8.6 7.7 8.2 16.4 11.5 13.4 12.3 21.9 20.0 8.9 10.5 7.2 8.3 4.8 17.5 7.1 8.2 28.0 21.1 19.1 6.6 7.9 14.2 30.3 34.8 28.9
FY1
0.2 1.8 0.4 3.7 0.4 0.0 0.5 0.4 0.9 2.1 2.0 1.4 1.3 1.2 2.7 3.4 1.7 0.8 0.2 0.0 0.9 0.8 0.8 1.0 1.9 2.6 2.3 2.7 0.8 3.6 2.4 1.0 2.6 2.5 0.4 0.8 0.0 0.5 0.5 0.4 0.6 0.8 2.5 3.5 1.8 0.3 0.7 0.4
FY2
0.3 1.6 0.4 2.5 1.1 0.0 0.5 0.5 1.2 2.5 2.3 1.6 1.3 1.3 3.0 4.2 2.0 0.8 0.3 0.0 0.9 1.1 0.8 1.0 2.3 2.6 2.7 2.7 1.0 4.1 2.4 1.0 2.8 3.0 0.5 1.0 0.0 0.9 0.5 0.5 0.8 1.0 1.9 3.1 2.2 0.4 0.7 0.5
FY2 Analyst
38.7 Parekh,Bharat 26.7 Verma,Reena 9.7 Verma,Reena 22.5 Verma,Reena 34.3 Agarwal,Amit 3.8 Sarawagi,Manish 16.9 C,Visalakshi 32.4 Parekh,Bharat 38.5 Verma,Reena 21.5 Arun,S 16.3 Varma,Rajeev 25.7 Parekh,Bharat 25.9 C,Visalakshi 23.5 Sharda,Vikas 15.4 Varma,Rajeev 138 Luthra,Vandana 56.1 Luthra,Vandana 16.9 C,Visalakshi 20.5 Krishnan,Pratish 16.1 Ghosh,Mitali 21.2 Ginde,Vidyadhar 14.3 Ginde,Vidyadhar 17.6 Sarawagi,Manish 30.4 Verma,Reena 11.9 Parekh,Bharat 32.7 C,Visalakshi 14.8 Sharda,Vikas 23.8 Ghosh,Mitali 25.8 Varma,Rajeev 72.2 Luthra,Vandana 10.3 Sarawagi,Manish 7.9 Luthra,Vandana 33.3 Arun,S 29.0 Ginde,Vidyadhar 24.0 Varma,Rajeev 11.0 Varma,Rajeev 24.6 Verma,Reena 18.0 Varma,Rajeev 29.7 Deshmukh,Prasad 24.2 Ghosh,Mitali 15.9 Parekh,Bharat 32.0 Ghosh,Mitali 22.5 Verma,Reena 13.0 Ginde,Vidyadhar 27.6 Luthra,Vandana 19.7 Parekh,Bharat -8.5 Arun,S 36.8 Parekh,Bharat
ABVFF ABB IN ADCLF ACC IN ADYAF ABNL IN AMBUF ACEM IN ANSFF APIL IN ARVZF ARVND IN BCLTF BIOS IN BHHEF BHEL IN BHTIF BJJAF BLJIF CIDFF CPIYF BHARTI IN BJA IN BLJT IN CCRI IN CLGT IN
Neutral 2006 Neutral 2006
Neutral 2007 Neutral 2007
BKBAF BOB IN
CADILA HEALTHCAR CDLHF CDH IN CNRKF CBK IN DBUIF DABUR IN DRYBF DRRD IN EUSOF EDSL IN FSSOF FSOL IN GJGCF GGAS IN GJRSF GUJS IN GKLDF GEXP IN GRSJF GRASIM IN GUJIF GIP IN GXOLF GLXO IN GYDPF GDPL IN HCLTF HCLT IN HGDFF HDFC IN HINLF HUVR IN HMKFF HSS IN HNDFF HNDL IN HRHDF HH IN IAGSF IGL IN IBLFF ICIJF IDEAF IFDFF IFKFF IFXXF IIFRF INFYF INIAF ITCTF JTAIF IBULL IN ICICIBC IN IDEA IN IDFC IN INFTC IN IFLEX IN IVRC IN INFO IN ICEM IN ITC IN JETIN IN
Neutral 2007
Nove mber 2007 Edition
Neutral 2007 Neutral 2007
Neutral 2007
Neutral 2007 Neutral 2007
Neutral 2007 Neutral 2007 Neutral 2007 Neutral 2007 Neutral 2007 Neutral 2007 Buy Buy 2007 2007 Neutral 2007
IOCOF IOCL IN JPRKF JPA IN LTOUF LT IN
21
22
India Company
M&M Mphasis Mastek Maruti Suzuki India Matrix Lab Ltd NALCO Neyveli Lignite Nagarjuna Const NTPC Ltd ONGC ORBC Patni Pantaloon Petronet LNG Ltd Punjab Reliance Energy Radico Khaitan Reliance Capital RCVL Rolta India RPL Satyam SBI Subex Azure Ltd Shoppers' Stop SIFY Limited Sasken Communic Steel Authority Sun Pharma Shree Cements Sun TV LTD Suzlon Energy Tata Consultancy Tata Motors Ltd. Tech Mahindra Tata Tea Union Bank India United Spirits United Phosphoru Axis Bank Vijaya Bank VSNL Wipro WNS (Holdings) L Welspun India Asian Paints Automotive Axles BPCL Aban Offshore L Cairn India
07 November 2007
EPS (Trade Price ML Bloomberg Rating Rec
C-1-7 C-1-7 C-3-7 C-1-7 C-2-7 C-3-7 C-2-7 C-1-7 C-1-7 C-1-7 C-1-7 C-3-7 C-3-7 C-3-7 C-1-7 C-1-7 C-2-7 C-1-7 C-1-7 C-1-7 C-3-7 C-1-7 C-1-7 C-2-7 C-3-7 C-2-9 C-2-7 C-1-7 C-1-7 C-2-7 C-1-7 C-1-7 C-1-7 C-2-7 C-1-7 C-3-7 C-1-7 C-1-7 C-1-7 C-1-7 C-1-7 C-2-8 C-2-7 C-3-7 C-1-9 C-1-7 C-1-7 C-2-7 C-1-7 B-1-7 Buy Buy Sell Buy Sell Buy Buy Buy Buy Sell Sell Sell Buy Buy Buy Buy Buy Sell Buy Buy Sell
EPS Growth (%) FY1
6.9 50.8 29.4 25.4 81.5 -26.6 6.7 39.9 22.1 5.0 8.1 65.6 nm 14.8 7.0 20.8 57.9 11.1 54.3 42.4 n/a 18.8 20.8 7.7 5.1 nm -7.6 20.9 14.1 1.9 37.0 51.1 24.8 2.6 29.8 19.8 22.5 31.9 31.9 21.6 13.9 1.9 13.1 8.3 22.3 26.8 24.0 -31.7 21.8 nm
ML EPS vs IBES (%) PE (x) FY1
11.3 22.0 10.4 14.8 25.4 11.4 20.4 33.7 24.4 14.6 6.6 12.1 170 18.2 10.9 47.8 34.1 69.1 33.7 22.8 n/a 18.8 19.9 15.9 70.4 42.2 20.8 15.1 25.1 13.9 30.3 43.4 19.6 13.4 19.1 13.3 8.7 58.5 20.5 31.9 7.0 31.8 21.3 30.0 7.1 28.7 12.8 8.0 177 159
EV/EBITDA# (x) FY2
9.3 15.2 9.0 12.5 17.8 12.3 19.3 24.9 21.5 14.6 5.7 13.1 68.2 16.5 9.4 43.7 26.1 47.2 27.0 16.6 n/a 15.6 15.8 9.0 53.4 42.0 10.0 13.9 18.1 14.8 23.2 28.5 15.8 12.0 12.7 9.3 7.1 30.3 13.9 26.9 5.6 28.6 17.0 23.4 5.1 23.6 10.9 9.4 22.5 176
Mkt Cap US$m
4,714 1,545 235 7,372 876 4,933 5,906 1,726 48,524 74,276 1,498 1,274 2,180 1,671 4,241 9,941 443 11,647 40,411 1,435 29,979 8,001 28,355 289 465 325 205 26,676 5,315 1,256 3,163 14,262 25,361 7,324 3,585 1,254 2,332 4,741 1,932 8,369 663 3,668 18,017 879 120 2,586 173 3,085 4,809 10,126
Rel Perf@ 3mth 12mth
-16.8 -24.8 -11.3 -9.9 -31.2 -11.3 43.8 22.0 5.4 15.2 -22.9 -37.8 -13.5 9.9 -19.8 71.4 -22.2 26.1 7.3 10.1 78.8 -25.5 0.3 -57.0 -28.7 -23.7 -41.3 31.9 -12.9 -14.2 -39.5 18.0 -30.8 -14.9 -32.6 -18.4 -3.5 6.5 -20.2 10.7 -12.6 -15.1 -21.7 -35.6 -20.1 -9.9 -31.4 -18.4 28.0 16.4 -37.4 -14.1 -39.1 -33.7 -45.1 -14.3 38.1 1.0 14.2 3.8 -41.3 -42.7 -2.0 4.1 -34.2 133 -23.2 103 28.3 107 164 -29.7 22.8 -63.9 -48.0 -43.6 -58.1 89.3 -18.8 -22.8 -35.4 -4.3 -39.3 -42.1 -25.8 -32.4 -10.4 59.1 -24.9 33.1 -31.2 -25.3 -41.4 -54.1 -53.1 -0.7 -46.4 -47.9 218 NA
Ccy) FY1
67.82 13.12 31.77 67.77 8.91 27.13 6.77 8.52 9.50 91.17 35.69 31.16 3.50 4.80 48.84 37.01 5.33 28.42 23.44 30.69 0.00 25.07 104 20.91 7.30 0.18 13.80 17.01 42.66 104 10.45 45.19 52.08 55.36 61.14 60.55 20.49 32.36 17.62 28.59 8.71 16.25 23.46 0.70 9.41 37.84 35.57 42.79 27.20 1.38
Yield (%) FY2
6.3 9.4 6.3 7.7 13.8 6.9 17.4 15.1 16.9 7.3 0.8 7.1 18.3 10.5 1.4 43.8 15.0 7.8 15.9 10.2 8.7 11.3 2.6 8.2 14.7 13.4 5.7 7.8 14.5 5.1 15.0 21.1 12.2 7.1 10.2 6.3 1.3 16.2 10.1 3.4 1.0 12.4 13.3 10.0 4.7 14.2 6.8 4.8 12.4 81.5
ROE (%) FY1
28.3 24.4 28.8 25.3 12.3 20.3 13.0 14.2 15.4 27.0 15.0 18.2 3.4 25.3 15.5 10.6 22.8 14.7 22.2 21.5 0.0 26.2 16.3 8.3 8.6 7.6 9.3 35.6 32.3 54.0 31.0 32.3 45.1 27.7 64.9 16.3 18.5 18.8 22.5 15.4 18.5 7.1 31.2 13.8 11.2 41.5 48.9 13.2 31.2 0.8
FY0 01-Nov
2007 2007 2007 2007 2007 2007 2007 2007 2007 2006 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 765 289 330 1,004 226 309 138 287 232 1,330 234 377 594 87.05 535 1,768 182 1,964 791 700 262 471 2,071 333 513 7.61 287 258 1,069 1,447 316 1,963 1,020 744 1,165 805 177 1,892 362 913 60.60 517 499 20.97 66.40 1,084 456 343 4,811 219
FY2
81.90 18.97 36.73 80.37 12.71 25.19 7.16 11.53 10.81 91.41 41.37 28.72 8.70 5.27 56.69 40.48 6.96 41.57 29.26 42.22 0.00 30.26 131 37.23 9.61 0.18 28.74 18.55 59.01 97.85 13.64 68.95 64.57 61.83 91.95 86.56 24.86 62.45 25.98 34.01 10.78 18.10 29.40 0.90 12.91 45.85 41.71 36.34 214 1.24
FY2
20.8 44.6 15.6 18.6 42.7 -7.2 5.7 35.3 13.8 0.3 15.9 -7.8 nm 10.0 16.1 9.4 30.6 46.3 24.9 37.6 n/a 20.7 25.3 78.1 31.7 0.5 nm 9.0 38.3 -6.3 30.5 52.6 24.0 11.7 50.4 42.9 21.3 93.0 47.4 18.9 23.8 11.4 25.3 28.5 37.2 21.2 17.3 -15.1 nm -9.8
FY1
12.6 -1.0 -0.6 10.7 -4.8 -3.2 19.3 -15.5 4.4 -0.7 2.4 -0.3 -40.3 -14.3 -18.4 -12.3 7.2 -21.4 1.8 3.5 n/a -0.1 -16.5 -39.3 -38.3 n/a -27.0 -3.7 -5.3 -15.0 1.2 3.3 0.6 0.6 -8.7 5.3 0.1 -16.8 -9.9 1.1 -5.8 -15.6 2.0 n/a 21.8 3.1 -2.9 0.5 -81.3 11.1
FY2
20.5 4.8 -4.4 16.3 -7.2 9.5 14.4 -11.5 8.1 -2.2 2.9 -14.6 -15.9 -9.8 -20.4 -11.6 10.9 -12.0 -3.8 9.8 -100.0 -0.6 -11.1 -21.7 -45.9 n/a 1.2 -4.0 6.7 -25.7 1.1 8.2 1.6 -1.5 -0.9 18.5 1.0 27.2 -6.1 -6.4 0.4 4.6 4.5 n/a 38.0 3.4 -2.9 -15.3 -41.3 3.3
FY1
7.7 13.3 6.3 9.7 17.3 6.1 17.8 19.6 21.1 7.2 0.9 6.7 28.9 10.4 1.6 46.9 19.7 9.1 20.6 14.9 8.7 14.8 3.0 19.4 22.5 14.4 10.7 8.6 19.4 5.7 20.0 31.5 15.6 8.4 15.9 7.3 1.5 24.9 12.8 3.8 1.2 13.6 17.4 13.6 5.8 17.1 7.4 4.4 97.5 59.2
FY1
1.6 0.9 1.2 0.5 0.5 1.6 1.1 0.6 1.7 2.3 2.0 1.1 0.0 1.1 2.4 0.5 0.3 0.2 0.2 0.8 0.0 0.8 0.7 1.3 0.3 0.0 1.5 1.5 0.5 0.4 1.3 0.4 1.5 2.0 1.1 1.9 2.3 0.1 0.3 0.5 3.3 0.9 1.5 0.4 0.0 1.4 3.1 3.8 0.1 0.0
FY2
1.7 0.9 1.4 0.6 0.5 1.6 1.4 0.9 2.0 2.4 2.1 1.3 0.1 1.2 1.6 0.5 0.4 0.2 0.2 1.1 0.0 1.0 0.7 2.2 0.3 0.0 3.0 1.6 0.5 0.5 1.7 0.5 1.9 2.3 1.6 2.0 2.5 0.2 0.3 0.5 3.3 1.0 1.7 0.5 0.0 1.7 3.7 3.5 0.2 0.0
FY2 Analyst
25.8 Arun,S 28.3 Krishnan,Pratish 26.4 Deshmukh,Prasad 23.9 Arun,S 15.6 C,Visalakshi 16.4 Luthra,Vandana 12.5 Parekh,Bharat 15.6 Parekh,Bharat 16.1 Parekh,Bharat 23.4 Ginde,Vidyadhar 15.3 Varma,Rajeev 15.4 Ghosh,Mitali 6.0 Luthra,Vandana 23.1 Ginde,Vidyadhar 16.0 Varma,Rajeev 10.8 Parekh,Bharat 19.9 Luthra,Vandana 17.8 Varma,Rajeev 22.4 Verma,Reena 24.5 Deshmukh,Prasad 0.0 Ginde,Vidyadhar 25.8 Ghosh,Mitali 17.7 Varma,Rajeev 13.5 Krishnan,Pratish 10.5 Sarawagi,Manish 7.1 Parekh,Bharat 17.6 Krishnan,Pratish 30.4 Luthra,Vandana 32.7 C,Visalakshi 33.6 Verma,Reena 34.0 Parekh,Bharat 36.9 Parekh,Bharat 38.2 Ghosh,Mitali 25.8 Arun,S 60.0 Krishnan,Pratish 19.5 Luthra,Vandana 19.3 Varma,Rajeev 17.4 Luthra,Vandana 24.3 C,Visalakshi 13.5 Varma,Rajeev 19.8 Varma,Rajeev 7.5 Verma,Reena 31.2 Ghosh,Mitali 15.9 Ghosh,Mitali 13.6 Sarawagi,Manish 40.4 Luthra,Vandana 44.4 Arun,S 10.4 Ginde,Vidyadhar 107 Ginde,Vidyadhar 0.7 Ginde,Vidyadhar
MAHHF MM IN MPSSF MPHL IN MSKDF MAST IN MUDGF MSIL IN MXLBF HDPH IN NAUDF NACL IN NEYVF NLC IN NGRJF NJCC IN NTHPF NATP IN ONGCF ONGC IN ORBCF OBC IN PATIF PFIAF PATNI IN PF IN
Neutral 2007 Neutral 2007
POLNF PLNG IN PUJBF PNB IN RCTDF RELE IN RKHAF RDCK IN RLCCF RCFT IN RLCMF RCOM IN RLTAF RLTA IN RPLUF RPET IN SAYPF SCS IN SBINF SBIN IN SBXSF SUBX IN SHPSF SHOP IN SIFY SIFY US SKNCF SACT IN SLAUF SAIL IN SPCEF SUNP IN SREEF SRCM IN SUTVF SUNTV IN SZEYF SUEL IN TACSF TCS IN TENJF TTMT IN TMHAF TECHM IN TTAIF TT IN UBOIF UNBK IN UDSRF UNSP IN UPHHF UNTP IN UTBKF AXSB IN VJYAF VJYBK IN VSLSF VSNL IN WIPRF WPRO IN WNS WNS US WPNIF WLSI IN XAPNF APNT IN XATOF ATXL IN XBPCF BPCL IN XBWTF ABAN IN XCANF CAIR IN
Neutral 2007
Nove mber 2007 Edition
Neutral 2007 Neutral 2007 Neutral 2007 Buy Buy Buy Buy Buy Buy Sell Buy Buy Buy Buy Buy 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007
Neutral 2007
Neutral 2007
Neutral 2007 Neutral 2007 Sell Buy Buy Buy Buy Buy 2007 2007 2007 2007 2007 2006
Neutral 2007
07 November 2007
EPS (Trade India Company
Cipla Ltd. Corporation Bank IDBI Ashok Leyland Bank of India UltraTech Cemen Wockhardt Exide Indus Ltd Eicher Motors Federal Bank TVS Motor Hexaware Tech Gail India GREAVES COTTON HDFC Bank Hindustan Petro. Rico Auto Ind Ranbaxy Lab Jaiprakash Hydro Motherson Sumi MTNL Max India Nicholas Nestle India Panacea Biotec Raymond Ltd Reliance Inds Tata Pwr. Co. Sterlite Industr Bharat Forge DLF Limited Glenmark Pharm Divi's Lab Zee Entertainmen Yes Bank Ltd Source: ML Research
EPS Growth (%) FY1
-0.1 20.6 8.2 0.0 92.3 27.2 15.6 nm 86.8 27.3 -43.1 -15.7 15.0 25.7 27.8 -9.8 -15.8 40.5 39.5 17.7 19.0 -59.1 69.2 24.6 3.5 -22.6 4.4 31.0 -14.3 16.5 nm 84.8 68.2 73.4 92.0
ML EPS vs IBES (%) PE (x) FY1
20.5 12.1 16.2 11.8 16.4 12.4 14.8 39.5 18.7 9.2 20.3 12.6 14.7 15.6 36.3 5.6 9.9 23.3 35.3 21.7 22.3 nm 17.7 37.8 16.5 24.3 29.6 46.2 14.6 24.2 22.7 20.3 34.4 36.3 33.6
EV/EBITDA# (x) FY2
17.7 10.3 14.0 10.9 12.1 13.9 13.5 28.4 22.6 7.8 83.7 9.1 14.1 12.7 28.7 5.8 9.1 19.2 31.0 17.2 20.6 34.1 15.1 31.7 11.6 16.8 25.3 43.5 12.9 19.1 14.4 17.8 24.4 25.8 20.7
Price ML Bloomberg Rating Rec
C-3-7 C-3-7 C-2-7 C-3-7 C-1-7 C-2-7 C-2-7 C-1-7 C-3-7 C-1-7 C-3-7 C-1-7 C-2-7 C-1-7 C-1-7 C-1-7 C-1-7 C-1-7 C-3-7 C-1-7 C-3-7 C-3-9 C-2-7 C-3-7 C-1-7 C-3-7 B-1-7 C-2-7 C-1-7 C-1-7 C-1-7 C-2-7 C-1-7 C-1-7 C-1-7 Sell Sell Sell Buy
Mkt Cap US$m
3,443 1,627 2,837 1,321 4,625 3,072 1,153 1,355 318 853 337 361 8,346 416 15,329 2,025 105 4,047 987 822 2,671 1,410 1,604 3,734 632 552 97,914 6,484 18,089 2,011 39,379 3,110 2,726 3,426 1,570
Rel Perf@ 3mth 12mth
-30.3 -7.4 9.2 -19.1 14.9 -19.5 -16.6 -3.9 -8.8 -20.0 -26.9 -40.2 -11.6 -31.4 9.8 -29.4 -34.4 -13.0 51.8 -20.5 -13.0 -14.1 -13.1 -6.7 -27.9 -4.9 10.3 32.2 21.0 -2.3 15.3 14.2 -3.2 -25.5 -10.9 -56.2 -26.8 21.0 -42.2 35.8 -29.0 -35.1 8.9 -19.5 15.5 -66.2 -62.7 -1.2 -41.3 8.4 -54.7 -70.6 -30.8 56.8 -7.5 -23.5 -14.0 -12.6 -6.6 -35.8 -49.9 33.7 44.6 26.7 -36.6 NA 47.6 87.2 -3.8 23.9
Ccy) FY1
8.59 37.38 9.42 3.30 23.01 79.95 28.49 1.84 24.06 43.53 2.80 7.92 27.73 21.89 46.12 41.81 3.16 18.73 2.23 4.33 7.57 -2.81 17.18 40.71 22.66 14.26 90.11 26.61 70.31 14.46 40.97 23.80 48.41 8.78 6.59
Yield (%) FY2
14.6 1.6 1.5 7.0 2.1 7.9 10.1 8.6 9.8 1.5 23.0 6.2 7.9 7.3 4.5 3.8 4.1 13.8 18.2 9.1 6.6 26.1 10.6 19.2 6.7 10.6 16.0 28.2 6.9 9.0 12.0 14.0 20.7 16.2 4.9
ROE (%) FY1
19.1 15.0 10.5 22.1 20.6 45.1 27.8 21.2 15.9 22.4 8.5 14.5 19.4 44.8 17.2 14.1 14.9 26.9 15.9 29.7 4.2 -1.7 30.3 106 26.4 6.0 17.8 9.2 30.4 20.0 63.9 61.2 45.6 21.7 21.0
FY0 01-Nov
2007 2007 2007 2007 176 453 153 39.00 377 989 421 72.70 451 399 57.00 99.75 407 341 1,676 235 31.30 436 78.80 93.95 168 254 305 1,539 375 346 2,672 1,229 1,027 349 928 484 1,668 319 221
FY2
9.93 44.01 10.89 3.57 31.23 71.43 31.12 2.56 19.97 51.38 0.68 11.01 28.93 26.83 58.37 40.24 3.45 22.65 2.54 5.46 8.19 7.44 20.21 48.52 32.21 20.61 105 28.27 79.39 18.24 64.28 27.12 68.42 12.34 10.68
FY2
15.6 17.8 15.6 8.0 35.7 -10.7 9.3 38.8 -17.0 18.0 -75.7 39.0 4.3 22.5 26.6 -3.8 9.3 20.9 13.9 26.2 8.3 nm 17.6 19.2 42.2 44.5 17.0 6.3 12.9 26.2 56.9 14.0 41.3 40.6 62.2
FY1
1.2 -14.6 -3.6 -4.7 -14.6 3.8 3.6 n/a 20.5 0.7 2.8 -15.9 -2.8 n/a 3.1 13.4 -10.1 11.7 -12.2 -12.2 -5.0 nm 19.1 -3.3 -9.2 -21.3 4.1 -14.9 -0.8 -3.0 11.5 36.2 41.2 5.4 25.4
FY2
-3.2 -14.7 -3.4 -2.2 -0.3 -13.0 -8.9 n/a -14.9 2.0 -81.3 -6.6 -3.0 n/a 1.4 -1.6 -26.0 20.0 -9.6 -14.2 -4.7 85.5 12.9 -4.1 -3.2 -10.5 -0.6 -18.9 20.0 -1.1 20.1 24.6 69.1 10.4 36.0
FY1
17.2 1.7 1.6 7.8 3.1 8.0 11.6 11.0 9.4 1.9 14.5 8.5 8.1 9.0 5.1 4.6 4.9 18.8 19.3 11.5 7.6 -475 12.8 20.5 9.8 14.0 18.4 31.2 7.6 11.7 19.2 15.6 28.0 23.2 6.4
FY1
1.1 2.0 1.6 3.8 1.1 0.8 1.2 0.7 7.3 1.3 1.5 2.0 2.5 2.8 0.5 6.4 2.4 2.1 2.0 1.4 2.4 0.0 1.1 2.6 0.4 1.4 0.4 0.6 0.3 1.1 0.2 0.7 0.1 0.6 0.0
FY2
1.1 2.2 2.0 4.1 1.3 0.7 1.2 1.0 1.1 1.5 1.8 2.0 2.7 2.8 0.7 6.4 3.2 2.1 2.0 1.8 2.4 0.0 1.1 2.4 0.4 1.7 0.4 0.6 0.4 1.3 0.2 0.7 0.1 0.9 0.2
FY2 Analyst
19.0 C,Visalakshi 15.9 Varma,Rajeev 11.3 Varma,Rajeev 20.8 Arun,S 20.8 Varma,Rajeev 29.3 Verma,Reena 24.4 C,Visalakshi 23.0 Satapathy,Sanjaya 12.1 Arun,S 21.8 Varma,Rajeev 2.0 Arun,S 17.8 Krishnan,Pratish 18.1 Ginde,Vidyadhar 43.7 Arun,S 16.6 Varma,Rajeev 12.6 Ginde,Vidyadhar 15.0 Arun,S 27.8 C,Visalakshi 17.4 Parekh,Bharat 25.9 Satapathy,Sanjaya 4.4 Verma,Reena 20.0 Varma,Rajeev 28.3 C,Visalakshi 121 Luthra,Vandana 28.8 C,Visalakshi 8.3 Sarawagi,Manish 16.3 Ginde,Vidyadhar 8.9 Parekh,Bharat 22.1 Luthra,Vandana 20.3 Arun,S 45.4 Agarwal,Amit 42.4 C,Visalakshi 42.1 C,Visalakshi 25.7 Parekh,Bharat 26.9 Varma,Rajeev
XCLAF CIPLA IN XCRRF CRPBK IN XDBIF XDIIF IDBI IN BOI IN XDBVF AL IN XDJNF UTCEM IN XDUVF WPL IN XEDRF CHLR IN XEICF EIM IN XFDRF FB IN XFKMF TVSL IN XFTCF HEXW IN XGLAF GAIL IN XGRVF GRV IN XHDFF HDFCB IN XHTPF HPCL IN XINAF XIZZF RAI IN RBXY IN
Neutral 2007
Neutral 2007 Neutral 2006 Buy Sell Buy Sell Buy Buy Buy Buy Buy Buy Sell Buy Sell Sell Sell Buy Sell Buy Buy Buy Buy Buy Buy Buy 2007 2007 2007 2007 2006 2007 2007 2007 2007 2006 2007 2007 2007 2007 2006 2007 2007 2007 2007 2007 2007 2007 2007 2007
Neutral 2007
Nove mber 2007 Edition
XJSHF JHPL IN XMSUF MSS IN XMTNF MTNL IN XMXIF MAX IN XNIGF NP IN XNTEF NEST IN XPEAF PNCB IN XRAMF RW IN XRELF RIL IN XTAWF TPWR IN XTNDF STLT IN XUUVF BHFC IN XVDUF DLFU IN XVQWF GNP IN XXQPF DIVI IN XZETF Z IN YESBF YES IN
Neutral 2007
Neutral 2007
Neutral 2007
23
Nove mber 2007 Edition 07 November 2007
India in Pictures
Macro Indicators
Chart 14: Quarterly Real GDP (% Change YoY)
% YoY 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FY98Q2 FY99Q3 FY01Q4 FY03Q1 FY04Q2 FY05Q3 FY06Q4 FY08Q1
Micro Indicators
Chart 15: Credit Growth (% Change YoY)
35.0% 30.0% 25.0% 20.0% 15.0% 10.0% Apr-03 Aug-05 Aug-06 Nov-03 Sep-07
0.06 0.05 0.04 0.03 0.02 0.01 0 Aug-07 Nov-06 Dec-06 May-07 Sep-07 Oct-06 Apr-07 Feb-07 Jan-07 Jun-07 Mar-07 Jul-07
Jul-04
Feb-05
Feb-06
Source: CSO
Source: RBI
Chart 16: IIP Growth (% Change YoY)
YoY chg (%) 16% 14% 12% 10% 8% 6% 4% 2% 0% Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07
Chart 17: Indian Wireless Market – Trend in Total Subscribers
Mn subs 220 200 180 160 140 120 100 80 60 40 20 0 Sep-06
Total Wireless Subs (LHS)-Mn
Source: COAI, AUSPI
MoM growth (RHS)
Source: CSO
Chart 18: Leading Economic Indicator (% Change YoY)
20.0% 15.0% 10.0% 5.0% 0.0% Oct-05 Dec-06 Feb-01 Sep-01 Apr-02 Jun-03 Jan-04 Aug-04 Mar-05 May-06 Nov-02 Jul-07
Chart 19: Cement Sales Growth (% Change YoY)
% YoY 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Jan-05 Sep-05 Jan-06 Sep-06 Jan-07 May-05 May-06 May-07 Sep-07
Real Narrow Money , 3M MA
Source: CSO, RBI
Industrial production3M MA
Source: Industry Data
24
Mar-07
Nove mber 2007 Edition 07 November 2007
Chart 20: Export Import Growth (% Change YoY)
80% 60% 40% 20% 0% -20% Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07
Chart 21: Money Supply (% Change YoY)
24.0% 22.0% 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% Aug-03 Apr-04 Jun-05 Jan-06 Feb-07 Nov-04 Sep-07
22-Sep-07 20-Oct-07
Ex ports Grow th (YoY %)
Source: CSO
Imports Grow th (YoY %)
Source: RBI
Chart 22: Forex Reserves
US$bn 270 220 170 120 70 20 Dec-02 Oct-03 Dec-05 Mar-04 Sep-04 Jul-05 May-03 Nov-06 Sep-07 Feb-05 Jan-02 Jun-02 Jun-06 Apr-07
Chart 23: Wholesale Price Index (% Change YoY)
(% Variation YoY) 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 21-Oct-06 10-Mar-07 18-Nov-06 25-Aug-07 10-Feb-07 16-Dec-06 13-Jan-07 30-Jun-07 5-May-07 28-Jul-07 7-Apr-07 2-Jun-07
Source: CEIC
Source: RBI
Chart 24: Rupee vs Dollar
46 45 44 43 42 41 40 39 Dec-06 Oct-06 Mar-07 Jan-07 Aug-07 May-07 Nov-06 Sep-07 Oct-07 Apr-07 Jul-07
Chart 25: Yield Curve
8.3 8.0 7.8 7.5 7.3 7.0 6.8 6.5 91-day s 1 Yr 3 Yrs 5 Yrs 7 Yrs 2-Nov -07 10 Yrs 5-Oct-07
Source: Market information
Source: Bloomberg
Jul-06
25
Nove mber 2007 Edition 07 November 2007
Chart 26: PE Band
19000 17000 15000 13000 11000 9000 7000 5000 3000 1000 Dec-03 Oct-06 Jan-02 Mar-99 Mar-00 Feb-01 Jan-03 Nov-04 Nov-05 Oct-07 Apr-98 20.0x 16.0x 13.0x 10.0x
Chart 27: Earnings Yield
2.5 2.0 1.5 1.0 0.5 0.0 -SD Oct-99 Apr-00 Oct-00 Apr-01 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06
35
Underv alued +SD Av erage = 1.00 Fair Range
Source: Merrill Lynch Research Source: Merrill Lynch Research
Chart 28: P/BV Band
19000 17000 15000 13000 11000 9000 7000 5000 3000 1000 Sep-00 Mar-04 Nov-01 May-05 Aug-06 Apr-98 Jun-99 Jan-03 Oct-07 4.4x 3.8x 3.0x 2.0x
Chart 29: Sector PEs (FY08E)
Industrials Teleco m Financials Utilities Energy Co n. Staples IT Health Care M aterials Co n. Discretio nary
10
15
20
25
30
Source: Merrill Lynch Research
Source: Merrill Lynch Estimates
Chart 30: EV/EBITDA
25.0 20.0 15.0 10.0 5.0 Feb-99 Jan-00 Sep-01 Aug-02 Jun-03 Nov-00 Mar-05 Jan-06 Nov-06 Oct-07 Apr-98 Apr-04
Chart 31: GDR Index vs Premium/Discount
250 200 150 100 50 0 Dec-06 Oct-06 Aug-06 Jun-06 Feb-07 Apr-07 Jul-07 May-06 Aug-07 (%) 15 10 5 0 -5 -10 -15
GDR Index (LHS)
Prem/Disc aggregated Figure
Source: Merrill Lynch Research
Source: Merrill Lynch Research
26
Apr-07 Oct-07
40
Nove mber 2007 Edition 07 November 2007
Chart 32: Net Buy/Sell – Foreign Institutions In Equities
US$mn 7000 6000 5000 4000 3000 2000 1000 0 -1000 -2000 -3000 Oct-02 Apr-05 Jan-04 Oct-07 Jul-01 Jul-06
Chart 33: Daily Turnover (BSE+NSE)
Rs bn 410 370 330 290 250 210 170 130 90 50 10 Dec-06 Mar-05 Mar-07 Jan-05 Jun-05 Aug-05 Feb-06 Sep-06 Nov-05 May-07 Aug-07 Oct-07 Apr-06 Jul-06
Source: BSE, NSE Source: SEBI
Chart 34: Net Buy/Sell – Domestic Institutions In Equities
Rs mn 80000 60000 40000 20000 0 -20000 -40000 -60000 Oct-01 Oct-03 Oct-05 Jun-02 Jun-04 Feb-03 Feb-05 Jun-06 Feb-07 Oct-07
Chart 35: Advance Decline Ratio
12 10 8 6 4 2 0 Jan-05 Sep-05 Jan-06 Sep-06 Jan-07 May-05 May-06 Jun-07 Oct-07
28%
7 6 5 4 3 2 1 0
NSE
Source: BSE, NSE
BSE (RHS)
Source: SEBI
Chart 36: MF – Asset Under Management (Sep. ‘07)
50 40 30 20 10 0 Income Liquid/Money Other ETFs Market Balanced Growth ELSS
Chart 37: 1-Month Sector Performance
Industrials Telecom Utilities Energy Financials Materials Sensex Healthcare Con Discre. IT Con Staples -8% -2% 4% 10% 16% 22%
Source: AMFI
Source: Merrill Lynch Research
27
Nove mber 2007 Edition 07 November 2007
India Research Published
(For the month from 01 Oct to 01 Nov 2007.) Table 10: Published Research
Strategy Earnings surprises unlikely Red Flags for the market Most-/least-preferred: Oct 2007 Political crisis blows over? Is it a temporary reprieve? P-Note-Short term pain, long term gains Corporate Performance: Lead Indicators Markets recover after FM's statement Weekly Rumblings Rural economy: the next growth driver in India Economic US$36.9bn 1HFY08 trade deficit Rate cyclke still peaking off 20K and three bits of good news Managing the Impossible Trinity Reworking the SLR math Wait and watch RBI policy Low inflation, rising risks Rethinking the rupee August 07 IIP rebounds Interesting times Watch October 12 Automobiles Not a festive month Alcoholic Beverages - India India liquor – ‘Spirited’ growth Indian Financial Services Undervalued; Despite moderation in growth Banks and Insurance Sector Engineering & Construction India's Largest Expressway Announced in Uttar Pradesh E&C: Set for a new orbit Oil & Gas YoY earnings rise for all oil companies in 1H FY08E The great Indian E&P story Telecom Services-Wireless/Cellular AT&T overview on the India option Company Reports ABB India Margin Expansion – a surprise Aditya Birla Nuvo Ltd. Weak 2Q; transformation underway Buy into the transformation Arvind Mills Ltd. Margin pressure continues Ashok Leyland No surprises, Maintain Sell Management guidance cut Asian Paints Ltd. Solid quarter once again Jaipuria, Jyoti Jaipuria, Jyoti Jaipuria, Jyoti Jaipuria, Jyoti Jaipuria, Jyoti Jaipuria, Jyoti Jaipuria, Jyoti Jaipuria, Jyoti India Research Team Gaba, Vijay Sen Gupta, Indranil Sen Gupta, Indranil Sen Gupta, Indranil Sen Gupta, Indranil Sen Gupta, Indranil Sen Gupta, Indranil Sen Gupta, Indranil Sen Gupta, Indranil Sen Gupta, Indranil Sen Gupta, Indranil Sen Gupta, Indranil Arun, S Luthra, Vandana Varma, Rajeev Varma, Rajeev Company Reports (Contd…) Associated Cement Companies One-offs drag 3Q; profits to recover Axis Bank Ltd. Raise PO on strong 2Q earnings Bajaj Auto Margin expansion a tad higher Earnings slashed, Rating cut Balaji Telefilms Ltd. 2Q not as exciting as meets the eye Bank of Baroda Strong core; Raise PO Bank of India Raise PO on another strong quarter Bharat Forge Imminent growth acceleration; Buy Forecast raised, Rating upgraded Bharat Heavy Electricals 2Q Conf Call Reinforce Bullish Stance 2Q Order Book +59%y-y; EBITDA +52%y-y Enters 800MW Super critical plants Bharat Petroleum Corp. 1H earnings up 38% YoY; 2H outlook may not be as good Bharti Airtel Bear case points to upside vs current levels Good 2Q; subscriber quality in focus Biocon Growth on-track; Reiterate Buy Cairn India Ltd. Long term story intact Good exploration track record Cipla Forex gains & technology fees drive 2Q; Maintain Sell Colgate Palmolive (India) Ltd. Steady and safe Container Corp of India Ltd. Early signs of worries Divi's Laboratories Upgrade to Buy – a follow up CMS surge to sustain; Up to Buy DLF Ltd. Strong results; PO raised Dr Reddy's Laboratories Adjusted 2Q in line; Maintain Buy Exide Industries Ltd. Thriving on strong domestic demand; a new Buy Thriving on strong domestic demand; a new Buy Gail India Ltd. Upgrade FY08E EPS by 6% Gateway Distriparks Limited Preparing for growth Neutral C-2-7 ADCLF Verma, Reena Buy C-1-7 UTBKF Varma, Rajeev Neutral C-2-7 BJJAF Arun, S Arun, S Neutral C-2-7 BLJIF Parekh, Bharat Buy C-1-7 BKBAF Varma, Rajeev Buy C-1-7 XDIIF Varma, Rajeev Buy C-1-7 XUUVF Arun, S Arun, S Buy C-1-7 BHHEF Parekh, Bharat Parekh, Bharat Parekh, Bharat Neutral C-2-7 XBPCF Ginde, Vidyadhar C-1-9 BHTIF Verma, Reena Verma, Reena C-1-7 BCLTF C, Visalakshi B-1-7 XCANF Ginde, Vidyadhar Ginde, Vidyadhar C-3-7 XCLAF
Buy
Buy Buy
Sell
Parekh, Bharat Parekh, Bharat
Ginde, Vidyadhar Ginde, Vidyadhar Verma, Reena Buy Buy C-1-7 ABVFF Parekh, Bharat C-1-7 ADYAF Verma, Reena Verma, Reena C-3-7 ARVZF Sarawagi, Manish C-3-7 XDBVF Arun, S Arun, S C-1-7 XAPNF Luthra, Vandana
Sell Sell
Buy
C, Visalakshi C-1-7 CPIYF Luthra, Vandana Sell C-3-7 CIDFF Sharda, Vikas Buy C-1-7 XXQPF C, Visalakshi C, Visalakshi Buy C-1-7 XVDUF Agarwal, Amit Buy C-1-7 DRYBF C, Visalakshi Buy C-1-7 XEDRF Satapathy, Sanjaya Satapathy, Sanjaya Neutral C-2-7 XGLAF Ginde, Vidyadhar Buy C-1-7 GYDPF Sharda, Vikas Buy
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Company reports (Contd…) Glenmark Pharmaceuticals Research milestones – key for stock performance Rs25/sh NPV for GRC 6211 deal; Neutral Grasim Industries VSF powers 2Q; expansions on track Good news to continue Gujarat Gas Company Ltd. Long term volume growth concerns remain Gujarat Industries Power Co. Disappointing 2Q; PAT down 15% HDFC Bank Raising PO on 2Q08 earnings Hero Honda Positive margin surprise Hexaware Technologies Ltd. Record order booking; Buy Hindustan Petroleum Corp. Ltd. Oil bonds boost 2Q profit Hindustan Unilever Ltd. De-rated but no triggers either; Sell Housing Development Finance Corp. Ltd. Consistency pays; Raising PO ICICI Bank Raising PO on strong core performance Idea Cellular Ltd. Revenue jitters in 2Q; we expect recovery India Cements Ltd. Strong 2Q; further margin rise unlikely IndiaBulls Financial Services PO cut; but growth still strong Indian Oil Corp. Oil bonds drive 1H earnings Industrial Development Bank of India Ltd. Maintain Neutral Infosys Technologies Lower to Neutral on Rupee, few catalysts Infotech Enterprises Ltd. Raised to Buy - a follow up Raise to Buy; Improved visibility/valuation Infrastructure Dev Finance Results in line; Maintain Neutral ITC Ltd. Unexciting outlook IVRCL Infrastructure & Proj Strong 2Q08; PAT Up 117%y-y But… Jaiprakash Associates Limited Raising PO to Rs1,530
Neutral C-2-7 XVQWF C, Visalakshi C, Visalakshi Buy C-1-7 GRSJF Verma, Reena Verma, Reena Sell C-3-8 GJGCF Ginde, Vidyadhar Neutral C-2-7 GUJIF Parekh, Bharat Buy C-1-7 XHDFF Varma, Rajeev Neutral C-2-7 HRHDF Arun, S Buy C-1-7 XFTCF Krishnan, Pratish Buy C-1-7 XHTPF Ginde, Vidyadhar Sell C-3-7 HINLF Luthra, Vandana Buy C-1-7 HGDFF Varma, Rajeev Buy C-1-7 ICIJF Varma, Rajeev Buy C-1-9 IDEAF Verma, Reena Neutral C-2-9 INIAF Verma, Reena Buy C-1-7 IBLFF Varma, Rajeev Neutral C-2-7 IOCOF Ginde, Vidyadhar Neutral C-2-7 XDBIF Varma, Rajeev Neutral C-2-7 INFYF Ghosh, Mitali Buy C-1-7 IFKFF Deshmukh, Prasad Ghosh, Mitali Neutral C-2-7 IFDFF Varma, Rajeev Neutral C-2-7 ITCTF Luthra, Vandana Buy C-1-7 IIFRF Parekh, Bharat Buy C-1-7 JPRKF Parekh, Bharat
Company reports (Contd…) Jaiprakash Hydro-Power Ltd. Most Expensive Utility Stock; Sell Jet Airways Mixed Q2, fairly valued Larsen & Toubro Ltd. Set To Win Its 2nd Largest Order What a result! Mahanagar Telephone Nigam Ltd. Results disappoint; Sell Mahindra & Mahindra Look beyond weak Q2; Buy Unlocking value; Upgrade to Buy Maruti Suzuki India Ltd. Minor upside on in-line Q2 Mastek Sell in the rally Motherson Sumi Systems Ltd. Strong growth continues MphasiS-BFL Ltd. Impressive revenue growth; Buy Nagarjuna Construction Co. First Disappointing Result; But Recovery Ahead Nicholas Piramal India In line 2Q; Await catalysts Oil & Natural Gas Corp. Ltd. 2Q beats expectations Upgrading PO to Rs1,348/share A giant awakens Panacea Biotec Ltd. 2Q disappoints; Growth drivers intact Pantaloon Retail (India) Limited Margins surprise positively Exuberance unlimited Patni Computer Systems Follow-up to our downgrade to Sell Downgrade to Sell Punjab National Bank Weak core; Maintain Buy Radico Khaitan Ltd. Limited valuation upside Ranbaxy Laboratories R&D to de-merge; Raising PO to Rs 529/sh Raymond Ltd. Earnings remain under pressure Reliance Capital Ltd. Raising PO on unabated growth Reliance Communication Ltd. Policy catalysts to drive upside
Sell
C-3-7 XJSHF Parekh, Bharat Neutral C-2-8 JTAIF Arun, S Buy C-1-7 LTOUF Parekh, Bharat Parekh, Bharat Sell C-3-7 XMTNF Verma, Reena Buy C-1-7 MAHHF Arun, S Arun, S Buy C-1-7 MUDGF Arun, S Sell C-3-7 MSKDF Deshmukh, Prasad Buy C-1-7 XMSUF Satapathy, Sanjaya Buy C-1-7 MPSSF Krishnan, Pratish Buy C-1-7 NGRJF Parekh, Bharat Neutral C-2-7 XNIGF C, Visalakshi Buy C-1-7 ONGCF Ginde, Vidyadhar Ginde, Vidyadhar Ginde, Vidyadhar Buy C-1-7 XPEAF C, Visalakshi Sell C-3-7 PFIAF Luthra, Vandana Luthra, Vandana Sell C-3-7 PATIF Ghosh, Mitali Ghosh, Mitali Buy C-1-7 PUJBF Varma, Rajeev Neutral C-2-7 RKHAF Luthra, Vandana Buy C-1-7 XIZZF C, Visalakshi Sell C-3-7 XRAMF Sarawagi, Manish Buy C-1-7 RLCCF Varma, Rajeev Buy C-1-7 RLCMF Verma, Reena
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Company reports (Contd…) Reliance Industries Ltd. Another earnings surprise Likely to get market price for gas sale to RNRL High Court ruling a setback Value accretion likely to continue Rolta India Ltd. Order book jumps, Raising PO, Buy Sasken Communication Technologies Ltd. Worst behind, limited catalysts Satyam Computer Services Impressive revenues Shree Cement Ltd Firm 2Q; volumes to be key profit driver State Bank of India Raising PO on rising SOTP Sterlite Industries India Ltd. More triggers unfolding; Buy Subex Azure Ltd. Guidance overhang remains; Neutral Subex Azure Ltd. Cut to Neutral on 2Q miss Sun Pharmaceuticals High quality 2Q; catalysts ahead Effexor XR – another surprise opportunity; Buy Trileptal exclusivity is a positive surprise; Buy Sun TV Ltd. 2Q PAT Up 67%YoY; But Not Enough Suzlon Energy Ltd. Begins To Beat The Street; PO Raised to Rs2150 Gearing Up; PO Raised to Rs2000
B-1-7 XRELF Ginde, Vidyadhar Ginde, Vidyadhar Ginde, Vidyadhar Ginde, Vidyadhar Buy C-1-7 RLTAF Deshmukh, Prasad Neutral C-2-7 SKNCF Krishnan, Pratish Buy C-1-7 SAYPF Ghosh, Mitali Neutral C-2-7 SREEF Verma, Reena Buy C-1-7 SBINF Varma, Rajeev Buy C-1-7 XTNDF Luthra, Vandana Neutral C-2-7 SBXSF Krishnan, Pratish Neutral C-2-7 SBXSF Krishnan, Pratish Buy C-1-7 SPCEF C, Visalakshi C, Visalakshi C, Visalakshi Buy C-1-7 SUTVF Parekh, Bharat Buy C-1-7 SZEYF Parekh, Bharat Parekh, Bharat
Buy
Company reports (Contd…) Tata Consultancy Svcs Encouraging hiring, Attractive valuation Tata Motors Margins muted, profits up Tata Power Yet another disappointing quarter Tech Mahindra Ltd. Earnings rebound expected; Buy UltraTech Cement Ltd. Costs drag 2Q; strong short-term outlook Union Bank Of India Core disappoints; Maintain Buy United Phosphorus Limited 2Q uneventful; outlook robust United Spirits Ltd. Multiple growth drivers Vijaya Bank Weak Core; Maintain Buy Welspun India Ltd. Good operating results Wipro Ltd. Worst behind? Lack of catalysts Yes Bank Ltd Raise PO on strong quarter; Maintain Buy Zee Entertainment Enterprises Triple 2Q PAT on Monetization of ratings
Source: ML Research
C-1-7 TACSF Ghosh, Mitali Neutral C-2-7 TENJF Arun, S Neutral C-2-7 XTAWF Parekh, Bharat Buy C-1-7 TMHAF Krishnan, Pratish Neutral C-2-7 XDJNF Verma, Reena Buy C-1-7 UBOIF Varma, Rajeev Buy C-1-7 UPHHF C, Visalakshi Buy C-1-7 UDSRF Luthra, Vandana Buy C-1-7 VJYAF Varma, Rajeev Buy C-1-9 WPNIF Sarawagi, Manish Neutral C-2-7 WIPRF Ghosh, Mitali Buy C-1-7 YESBF Varma, Rajeev Buy C-1-7 XZETF Parekh, Bharat
Buy
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Price objective basis & risk
BHEL (BHHEF)
Our Price Objective of Rs3,000 is based on 1-year forward PER of 30x – 20% premium to peak PE in the last cycle (94-97) & 14% discount to its current multiples. BHEL currently trades at 29.7x FY09E PER vs BSE Sensex at 20.8x. However, we believe that premium valuation is justified given BHEL’s superior market position, earnings growth (34% for BHEL vs market at 16%) and RoE (32% v/s market 22%). Regionally, BHEL trades at 29.7x FY09E vs Asian comps at 24.4x. However, we believe, that premium valuation for BHEL is justified given its superior RoE (32% vs regional average at 23%) and consistency & its sustainability of growth. Risks to our price objective are Chinese & Korean competition and project execution.
Reliance Industries (XRELF)
RIL’s price objective on a sum-of–the-parts basis works out to Rs2,834/share. The value of the core refining and petrochemical business has been calculated on DCF. Value of its investment in Reliance Petroleum is calculated on DCF value of RPL and applying it to RIL’s holding in RPL. We have a scenario based valuation approach for valuing RIL’s stake in RPL with equal weightage being given to each of the four scenarios assumed. RIL’s oil and gas reserves and resources are also valued on a DCF basis. RIL’s Retail business is also calculated on a DCF basis. RIL's sum of parts valuation INR/share Business/Investment
Petrochemicals Refining & Marketing Value of investment in RPL (Rs149/share) Exploration & production Retail Sum of parts valuation No of shares (excluding treasury shares)
Source: DSP Merrill Lynch Estimates
Valuation measure used
DCF DCF DCF DCF DCF
Valuation USDbn Rs-bn Rs/share
16.6 705 15.0 637 11.8 503 44.8 1,903 3.3 140 91.5 3,748 514 464 367 1,387 102 2,834 1,372
Risks Significant weakening in refining and petrochemical margins even below our expectation is a risk to our price objective. Such a decline in margins is more likely to be triggered by negative surprises on demand rather than supply. As discussed, our refining margin forecasts assume almost all possible refinery projects coming up. Large disappointments on the E&P front could be another risk to our price objective. We have valued even resources and exploration upside. Failure in the retail business would also be another risk to our valuation.
Reliance Capital (RLCCF)
We are raising our PO further to Rs2150 (from Rs1850) as the growth momentum continues unabated relative to even our revised estimates. The biggest upside to our new SOTP of Rs2271 (v/s Rs2033 for Mar’09) comes from the consumer biz. valuations, asset management owing to sharply higher growth in equity AUM and incorporating our revised general insurance valuations (detailed in our sector report 2 weeks ago). As highlighted in the past, we believe R-Cap’s consumer foray should be valued on the P/forecast Book (and not free net worth), consistent with our valuation of NBFC’s and banks.
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Sum of parts valuations FY10
Life Insurance General Insurance AMC Broking Consumer finance Value of investments Market Value (US$ bn)
Valuation parameters
Growth: 40% - 60% ; Valuing as x NBAP Valuing as % of NEP / DCF (bull case) Valuing as % of AUM Valuing on PER Valuing on P/adj. "forecast" FY10 book Valuing at BV; capital gains; MV (incl. BV)
Valuations (Price / Share)
Bear Case Base Case Bull Case 580 755 935 217 213 138 365 65 1,580 1,628 -9% 290 320 192 548 166 2,271 2,147 20% 385 366 231 658 231 2,805 2,548 43%
Value of all businesses (FY10) Equivalent in R-Cap share - 12 month Share Price (Rs / Share) target Upside by Mar'09 12 month upside
Source: Merrill Lynch Research Estimates
Key risks Sharp correction in equity markets is a key risk to our PO as many of R-Cap’s businesses are leveraged to the equity markets. We, however, believe that R-Cap is likely to still achieve a large share of its forecast growth even in volatile market conditions as much of its growth is coming through market share grab wherein it is leveraging its expanding distribution and aggressive marketing. Additionally, the market may be unwilling to provide higher multiples to its consumer finance foray in the event that the growth trajectory is slower than envisaged. To that extent, we could see some slippages in respect of valuations, though growth per se is still likely to be very strong. Finally, owing to the higher risk aversion markets may want to be more sure of the growth delivery prior to re-rating the stock. To that extent, the stock price moves could be much more gradual as compared to what we saw in the past.
Grasim (GRSJF/GRSJY)
Our price target of Rs4450/sh for Grasim is based on sum-of-parts for FY08E. Grasim: sum-of-parts valuation FY08E-EPS (Rs)
VSF Sponge Iron Cement Earnings Valuation of Grasim Stake in Idea Cellular (10% discount to target value) Target Share Price Of Grasim
Source: ML research
FY08E-P/E (x)
14 8 15
S-o-P Value (Rs/sh)
1243 57 2933 4233 217 4450
89 7 190 286
Risks stem from: 1) possible government intervention in cement pricing, 2) unexpected slowdown in VSF demand or irrational VSF pricing by China post expiry of CY07-quotas.
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ICICI Bank (ICIJF)
We are raising PO on ICICI Bank to Rs1275 and US$65 on the ADR due to higher general insurance valuations and 2QFY08 results, which reflected lower NPL accretion and 4-5bps margin expansion qoq - key issues impacting the stock. We believe the stock, at 1.5x FY09E adj. book could re-rate to 2.0x FY09E adj. book and 1.7-1.8x FY10E as it delivers on earnings, asset quality and margins, implying a price of Rs800 on FY10E valuation. Adding Rs497 for a new sum of the parts, we get a price of Rs1400 for Mar’09. This implies a 12-month PO of Rs1275. Risks to our price objective are 1) a sharp rise in NPLs and 2) interest rates dampening growth.
Suzlon Energy (SZEYF)
Our PO of Rs2,150 is based on 25x 1-year-forward earnings, which we believe is conservative considering it is 19% discount to its current multiples, 8% discount to DCF and 28% discount to its peers despite Suzlon's superior growth and return profile. We have upgraded our target PER multiple to 25x vs 24x earlier to factor in likely earnings upgrade momentum and sector re-rating in India & abroad. Risks: Headwind for wind turbine business & execution risk in the wake of component shortages. Also, we note that the deal with Areva is not a put/call forward sale structure and hence if REpower stock shoots up in the future then Suzlon may have to pay a higher price for acquiring Areva's stake.
M & M (MAHHF)
Our PO is based on sum of parts valuation on FY09E, for the core business segments, as well as key operating subsidiaries. We have imputed 12.5x multiple on tractors, as well as autos. Based on this, our PO is Rs 924. Sum-of-parts valuation Basis (FY09E)
Core Autos Tractors Subsidiaries Tech Mahindra M&M Financial Services Mahindra GESCO Punjab Tractors Mahindra Holidays Mahindra Renault Mahindra Systec Less: dividend from Subsidiaries Less: Holding company discount Consolidated Value/Share (Rs)
Source: Merrill Lynch Research estimates
Imputed Multiple (x)
12.5 12.5
Value/share
485 294 190 440 303 48 48 32 78 18 33 (8) (112) 924
P/E P/E Market Price Price to Adj BV Market Price P/E DCF EV/Sales EV/Sales
1.5 12.5 1.0 1.0 20%
Risks are higher input costs, rising competition and exchange fluctuations.
Tata Consultancy (TACSF)
Our PO of Rs1360 is at a rolling forward multiple of 20x 12 months estimated earnings ended Sep 09 at a 10% discount to Infy’s median PE or an implied FY09e target multiple of 21x. Risks: Rupee appreciation vs the USD, slowdown in the US economy and employee attrition.
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Ranbaxy Lab (XIZZF)
We recommend a Buy with a PO of Rs529/share, implying potential total return upside of 23.2%. We value Ranbaxy’s base business at Rs454/sh based on 20x CY08E EPS, nearly in-line with the stock’s historical average. Further, we assign Rs75/sh NPV for the three Para IV exclusivities expected in each of the next three years. Our recommendation is driven by a forecast robust 30% EPS CAGR (CY06-08E) given higher visibility in scale-up of international operations and US products/R&D milestone upsides. Our PO includes Rs30/sh for Lipitor’s early entry into the US, Rs25/sh for Valtrex settlement and Rs20/sh for another Para IV upside to be announced in Jan’08. Risks to our PO: Regulatory delays in product launches, litigation risks, higher than expected US generic pricing pressure, prolonged FDA manufacturing issues and EU healthcare reform pressure.
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Analyst Certification
We, Jyotivardhan Jaipuria, Vandana Luthra, Rajeev Varma, Reena Verma Bhasin, CFA, Bharat Parekh, Mitali Ghosh, Willie Chan, S. Arun, Visalakshi Chandramouli, Nigel Tupper and Vidyadhar Ginde, hereby certify that the views each of us has expressed in this research report accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.
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Special Disclosures
In accordance with the SEBI (Foreign Institutional Investors) Regulations and with guidelines issued by the Securities and Exchange Board of India (SEBI), foreign investors (individuals as well as institutional) that wish to transact the common stock of Indian companies must have applied to, and have been approved by SEBI and the Reserve Bank of India (RBI). Each investor who transacts common stock of Indian companies will be required to certify approval as a foreign institutional investor or as a sub-account of a foreign institutional investor by SEBI and RBI. Certain other entities are also entitled to transact common stock of Indian companies under the Indian laws relating to investment by foreigners. Merrill Lynch reserves the right to refuse copy of research on common stock of Indian companies to a person not resident in India. American Depositary Receipts (ADR) representing such common stock are not subject to these Indian law restrictions and may be transacted by investors in accordance with the applicable laws of the relevant jurisdiction. Global Depository Receipts (GDR) and the Global Depository Shares of Indian companies, Indian limited liability corporations, have not been registered under the U.S. Securities Act of 1933, as amended, and may only be transacted by persons in the United States who are Qualified Institutional Buyers (QIBs) within the meaning of Rule 144A under the Securities Act. Accordingly, no copy of any research report on Indian companies' GDRs will be made available to persons who are not QIBs.
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Important Disclosures
Investment Rating Distribution: Autos Group (as of 01 Oct 2007) Coverage Universe Count Percent
Buy Neutral Sell 45 43 13 44.55% 42.57% 12.87%
Inv. Banking Relationships*
Buy Neutral Sell
Count
7 6 1
Percent
18.92% 17.14% 8.33%
Investment Rating Distribution: Banks Group (as of 01 Oct 2007) Coverage Universe Count Percent
Buy Neutral Sell 130 121 32 45.94% 42.76% 11.31%
Inv. Banking Relationships*
Buy Neutral Sell
Count
55 60 19
Percent
52.88% 57.14% 63.33%
Investment Rating Distribution: Chemicals Group (as of 01 Oct 2007) Percent Coverage Universe Count
Buy Neutral Sell 54 27 7 61.36% 30.68% 7.95%
Inv. Banking Relationships*
Buy Neutral Sell
Count
7 9 0
Percent
14.29% 39.13% 0.00%
Investment Rating Distribution: Electrical Equipment Group (as of 01 Oct 2007) Coverage Universe Count Percent
Buy Neutral Sell 28 17 7 53.85% 32.69% 13.46%
Inv. Banking Relationships*
Buy Neutral Sell
Count
7 4 1
Percent
29.17% 25.00% 20.00%
Investment Rating Distribution: Engineering & Construction Group (as of 01 Oct 2007) Coverage Universe Count Percent Inv. Banking Relationships*
Buy Neutral Sell 21 6 0 77.78% 22.22% 0.00% Buy Neutral Sell
Count
5 2 0
Percent
29.41% 33.33% 0.00%
Investment Rating Distribution: Financial Services Group (as of 01 Oct 2007) Coverage Universe Count Percent
Buy Neutral Sell 108 156 14 38.85% 56.12% 5.04%
Inv. Banking Relationships*
Buy Neutral Sell
Count
45 67 4
Percent
44.55% 45.27% 28.57%
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Investment Rating Distribution: Health Care Group (as of 01 Oct 2007) Percent Coverage Universe Count
Buy Neutral Sell 105 109 11 46.67% 48.44% 4.89%
Inv. Banking Relationships*
Buy Neutral Sell
Count
27 31 2
Percent
27.55% 29.81% 20.00%
Investment Rating Distribution: Industrials/Multi-Industry Group (as of 01 Oct 2007) Coverage Universe Count Percent
Buy Neutral Sell 63 33 7 61.17% 32.04% 6.80%
Inv. Banking Relationships*
Buy Neutral Sell
Count
7 6 0
Percent
12.28% 26.09% 0.00%
Investment Rating Distribution: Non-Ferrous Metals/Mining & Minerals Group (as of 01 Oct 2007) Coverage Universe Count Percent Inv. Banking Relationships*
Buy Neutral Sell 60 44 11 52.17% 38.26% 9.57% Buy Neutral Sell
Count
15 14 1
Percent
30.00% 35.90% 14.29%
Investment Rating Distribution: Retailing Group (as of 01 Oct 2007) Coverage Universe Count Percent
Buy Neutral Sell 74 77 13 45.12% 46.95% 7.93%
Inv. Banking Relationships*
Buy Neutral Sell
Count
15 14 3
Percent
21.43% 20.00% 25.00%
Investment Rating Distribution: Technology Group (as of 01 Oct 2007) Coverage Universe Count Percent
Buy Neutral Sell 102 134 19 40.00% 52.55% 7.45%
Inv. Banking Relationships*
Buy Neutral Sell
Count
19 23 1
Percent
21.11% 18.70% 5.88%
Investment Rating Distribution: Global Group (as of 01 Oct 2007) Coverage Universe Count Percent
Buy Neutral Sell 1701 1611 305 47.03% 44.54% 8.43%
Inv. Banking Relationships*
Buy Neutral Sell
Count
437 425 58
Percent
29.15% 29.11% 21.09%
* Companies in respect of which MLPF&S or an affiliate has received compensation for investment banking services within the past 12 months.
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One or more analysts responsible for covering the securities in this report owns such securities: Reliance Inds, Tata Consultancy. The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: ICICI Bank, Reliance Capital, Reliance Inds, Tata Consultancy. MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: Hindalco, ICICI Bank, Reliance Capital, Reliance Inds, Tata Consultancy. The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: Hindalco, ICICI Bank, Reliance Capital, Reliance Inds, Tata Consultancy. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale: Bharat Heavy, Grasim, Hindalco, ICICI Bank, M & M, Pantaloon, Ranbaxy Lab, Reliance Capital, Reliance Inds, Suzlon Energy, Tata Consultancy, Tata Motors Ltd.. MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: ICICI Bank, Reliance Capital, Reliance Inds, Tata Consultancy. MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company within the next three months: Grasim, Hindalco, ICICI Bank, M & M, Reliance Capital, Reliance Inds, Suzlon Energy, Tata Consultancy, Tata Motors Ltd.. MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this company. If this report was issued on or after the 10th day of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 10th day of a month reflect the ownership position at the end of the second month preceding the date of the report: Grasim, M & M, Tata Motors Ltd.. The country in which this company is organized has certain laws or regulations that limit or restrict ownership of the company's shares by nationals of other countries: Bharat Heavy, Grasim, Hindalco, ICICI Bank, M & M, Pantaloon, Ranbaxy Lab, Reliance Capital, Reliance Inds, Suzlon Energy, Tata Consultancy, Tata Motors Ltd.. The company is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates: ICICI Bank, Reliance Capital, Reliance Inds, Tata Consultancy. The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of Merrill Lynch, including profits derived from investment banking revenues.
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Other Important Disclosures
UK readers: MLPF&S or an affiliate is a liquidity provider for the securities discussed in this report. MLPF&S or one of its affiliates has a significant financial interest in the fixed income instruments of the issuer. If this report was issued on or after the 10th day of a month, it reflects a significant financial interest on the last day of the previous month. Reports issued before the 10th day of a month reflect a significant financial interest at the end of the second month preceding the date of the report: Hindalco, ICICI Bank. 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Bhd.: Merrill Lynch (Malaysia); Merrill Lynch (Israel): Merrill Lynch Israel Limited; Merrill Lynch (Russia): Merrill Lynch CIS Limited, Moscow; Merrill Lynch (Turkey): Merrill Lynch Yatirim Bankasi A.S.; Merrill Lynch (Dubai): Merrill Lynch International Bank Ltd, Dubai Branch. This research report has been prepared and issued by MLPF&S and/or one or more of its non-U.S. affiliates. MLPF&S is the distributor of this research report in the U.S. and accepts full responsibility for research reports of its non-U.S. affiliates distributed in the U.S. Any U.S. person receiving this research report and wishing to effect any transaction in any security discussed in the report should do so through MLPF&S and not such foreign affiliates. 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Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. 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