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1QFY2011 Results Preview | July 2, 2010
Table of Contents
Strategy 2
Angel Research Model Portfolio 12
1QFY2011 Sectoral Outlook 19
Automobile 28
Banking 31
Capital Goods 34
Cement 37
FMCG 40
Infrastructure 43
Logistics 46
Metals 49
Oil & Gas 52
Pharmaceutical 55
Power 58
Real Estate 61
Retail 64
Software 67
Telecom 70
Note: Stock Prices as on July 2, 2010.
Refer to important Disclosures at the end of the report 1

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1QFY2011 Results Preview | July 2, 2010
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Indian markets resilient With this, overall on a yoy basis, the Indian markets were up
22.1% though was outpaced by Russia and Indonesia, which
1QFY2011 listless…
gained 50.2% and 43.7% yoy, respectively.
The Indian bourses continued to record a listless performance
for the third consecutive quarter, with the Sensex ending Fund inflows remain healthy in spite of global
1QFY2011 on a flat note. The markets have been confined to headwinds
a tight range in the last couple of quarters, which is evident
In spite of the global headwinds, fund inflows towards the Indian
from the fact that the Sensex has recorded gains of a mere
markets remained robust during the quarter. India, which is
1.4% since 3QFY2010. However, the performance should be
well on path of reverting back on high growth orbit driven by its
viewed against the backdrop of the global headwinds emanating
resilient domestic economy unlike its peers, in the current
from the crisis in the euro zone, which has increased the risk
uncertain global environment continues to attract fund inflows.
aversion of the investors during the period.
Notably, during the quarter the FII's invested Rs10,893cr
Exhibit 1: Quaterly Performance of Sensex (US $2.4bn), while the domestic institutional investors (DII's)
60 poured in Rs7,520cr (US $1.6bn) into the Indian markets. In
50 fact, the DII's have become an equal force in the markets as
40
they account for almost 53% of the cumulative net inflows into
30
the markets since FY2008. As far as the domestic mutual funds
% (qoq)
20
industry is concerned, they were once again in the profit-booking
10
0
mode throughout the quarter with net sales of Rs1,753cr.
4QFY2006
1QFY2007
2QFY2007
3QFY2007
4QFY2007
1QFY2008
2QFY2008
3QFY2008
4QFY2008
1QFY2009
2QFY2009
3QFY2009
4QFY2009
1QFY2010
2QFY2010
3QFY2010
4QFY2010
1QFY2011
(10)
(20) Exhibit 3: Net fund flows
40,000
(30)
Source: C-line, Angel Research 30,000
…but outperforms most peers 20,000
(Rs cr)
10,000
During the quarter like few of the other countries like Indonesia
and Korea, the Indian markets also remained flat and did not 0
1QFY2008
2QFY2008
3QFY2008
4QFY2008
1QFY2009
2QFY2009
3QFY2009
4QFY2009
1QFY2010
2QFY2010
3QFY2010
4QFY2010
1QFY2011
witness any significant declines as compared to some other (10,000)
global markets, which on an average, posted declines of 8% (20,000)
on a qoq basis. The fall was more severe in the developed FII DII
Source: Bloomberg, Angel Research
markets, which fell by 12.7% qoq, while the emerging markets
witnessed a downtrend of 5.7% qoq basis. Among the emerging EU crisis behind us
markets, China witnessed a significant fall of 23% qoq on the
PIGS countries at the center of the crisis; Other EU
back of the concerns of softening of the growth momentum in
countries in better frame
the region and its high exposure to the global economy, which
got accentuated after the rumblings from the euro zone. The economic slowdown post the credit crisis in 2008 saw its
ramifications in 2010 in the form of sovereign credit crisis that
Exhibit 2: Performance of key indices hit the countries of Portugal, Italy, Greece and Spain (PIGS) in
(%)
60 the European Union (EU), with Greece being at the core of the
50
problem. The country's fiscal deficit, which had risen to almost
40
30
14% in 2009, public debt stood as high as 115% (US $400bn,
20 with around 80% of it being external debt) and domestic savings
10
were abysmal at about 5.5% necessitated a bailout. Post this,
the EU and IMF have now agreed to set up an almost
0
US Dow
US Nasdaq
UK FTSE
Singapore
Indonesia
Korea
Japan
China
Brazil
Malaysia
Russia
India
HongKong
Taiwan
(10)
(20)
US $1trillion line of credit for troubled EU nations, which should
(30)
yoy qoq
have a similar effect as the US Federal Reserve's TARP package
Source: Bloomberg, Angel Research in restoring confidence in the financial markets. This significant
Refer to important Disclosures at the end of the report 2

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step follows the US $147bn bailout package for Greece on Given the country's small size (less than 3% of EU GDP and
May 2, 2010 to prevent it from defaulting on its public debt. In 0.6% of global GDP), the burden on EU to support its fiscal
return, Greece had to agree to reduce its fiscal deficit drastically. imbalances appears manageable. Portugal faces a similar
situation, with a GDP less than 2% of EU GDP and 0.4% of
Exhibit 4: Fiscal deficit of Greece (as a % of GDP) global GDP As far as Spain and Italy are concerned, they have
.
12
10.7 better fundamentals (savings rate of 22% and 16% and current
10
8.7
Severe Fiscal Reduction
Targeted
account deficit of 5% and 3% respectively), and with confidence
restoring in the financial markets, they are unlikely to utilise the
(% of GDP)
8 7.5
6 5.6 bailout funds.
4
2.8
Moreover, the US $1trillion bailout package that was announced
2
2
for troubled EU nations - like the US Fed's bailout packages - is
expected to resolve the crisis and restore confidence in the
0
2008 2009 2010E 2011E 2012E 2013E financial markets. To draw a parallel, the US bailout was an
Source: Growth and Stability programme estimated US $1.5trillion for a US $14trillion economy, which
tantamounts to 11% of the GDP In comparison, the US $1trillion
.
Greece's problems are symptomatic of its high median age of European package (for PIGS economies) works out to around
42 and the resulting low savings rate of 5.5%. In our view, a 24% of GDP (with the combined GDP of the PIGS countries
country with a high median age has two options to improve being around US $4.2trillion).
growth - if it is a net exporter of capital then on the back of its
Notably, the PIGS countries apart, the other prominent
strong currency it can run a higher fiscal deficit to support growth.
economies in the EU like Germany and Netherlands have better
The other option is to devalue its currency to increase exports
fundamentals, with current account surpluses and high savings
as a driver for GDP growth. In case of Greece, till it is a part of
rates of 24%.
the EU, currency devaluation is not an option. In such a situation,
even though it does not have its own strong currency, having a Global economy on the mend
higher fiscal deficit on the strength of the euro would have been
The global activity is recovering at varying speed - tepidly in
a viable option, had it been acceptable to other EU nations. But many of the advanced economies but more strongly in most
in its current form and unlike the US bailout packages last year, emerging and developing economies. Further, the stimulus
this bailout comes with substantial strings attached, requiring packages offered has put the economies back on growth path.
stringent belt-tightening like public sector wage cuts, sharp Policy intervention on an unprecedented scale has helped
increase in tax rates, cut in pension payments and raising of improve financial conditions and real activity, aiding the global
retirement ages, which we believe would have a detrimental recovery process. Thus, the global economy is all set for a
impact on the demand in the country. stronger rebound in 2010, with both the advanced as well as
developing markets moving onto a strong wicket as compared
Exhibit 5: Key economic data for 2009 (% of GDP) to 2009 when the global GDP posted its first dip of 0.6% in the
Current A/c Fiscal Deficit Savings Public Debt last many decades. Overall, as per an IMF estimate the real
Greece (10.1) 10.7 5.5 113.4 global GDP is set to rise by 4.2% during 2010.
Ireland (2.3) 13.0 13.1 63.7
Italy (2.6) 5.1 16.6 115.2 Exhibit 6: Global GDP growth trend
Portugal (8.4) 6.7 11.3 75.2 10.0 6.0
Spain (4.7) 7.9 21.9 50.0 8.0 5.0
France (2.0) 8.1 13.6 79.7 6.0 4.0
(% yoy growth)
(% yoy growth)
Germany 3.9 4.3 24.1 77.2 4.0 3.0
Netherland 5.1 4.6 24.2 62.2 2.0 2.0
UK (1.5) 14.0 13.5 68.5
0.0 1.0
Source: CIA World Factbook, Angel Research 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
(2.0) 0.0
(4.0) (1.0)
Advanced Economies (LHS) Developing Economies (LHS) World (RHS)
Source:IMF
Refer to important Disclosures at the end of the report 3

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Advanced economies to grow after the trough remain at the forefront of the global economic growth. The IMF
estimates the developing economies to post real GDP growth
After hitting a trough in 2009, where real output of the advanced
of 6.3% in 2010, accounting for ~ 50% of the global growth.
economies declined by 3.2%, they are set for a rebound in
2010. Ironically, amongst the advanced economies the recovery Indian economy on strong footing
would be more pronounced in the US, the epicenter of the credit FY2010- Growth returns back to averages, but for
crisis in 2008. Initiatives taken by the US government both fiscal agriculture
and monetary, have aided the recovery which has been on an
The Indian economy, which has been resilient amidst the global
uptrend since 3QCY2009 onwards. This recovery is broad based
meltdown, ended FY2010 with 7.4% GDP growth. The growth
with consumption, investments and trades all posting good
would have been higher but for the flat agriculture output, which
growth. For 1QCY2010, the US posted economic output of 3%
was impacted by bad monsoons, as indicated by the
qoq. With the trend expected to continue, the US economy would
ex-agriculture GDP growth. The ex-agriculture GDP growth for
be back to the pre-crisis levels. The EU, in spite of the concerns
FY2010 came in at 8.8%, in line with the the 5-year average
on the sovereign debt crisis is unlikely to witness a contraction
GDP growth of 8.5%. The recovery has been aided by the fiscal
in the economic activity, as most of the PIGS countries, barring
and monetary stimuli provided by the government. However,
Greece, are not in very bad shape. Howover, Greece with 2%
unlike FY2009, where the dependence on the government to
contribution to the EU GDP is too small to make a significant
prop the overall GDP growth was higher, as reflected in the
impact on the EU recovery. Moreover, any incremental weakness
ex-government GDP growth, which came down to 3.8% ( overall
would result in a lower euro, providing further boost to exports
GDP growth during the period was 6.7%), after averaging
from the region and boost growth. Overall, IMF pegs the 2010
around 9.7% during the last three years, FY2010 witnessed a
growth in the advanced economies at 2.3%.
rebound with ex-government GDP posting 6.6% growth.
Developing economies to remain at the forefront
Exhibit 8: Ex-agriculture GDP growth trend
The developing economies have posted sharp recovery, post 12.0 11.0
the downtrend in 2008. Moreover, the recovery has also been 10.5 10.2
10.0
more balanced in these economies than elsewhere, with output 7.7
8.8
8.0
growth supported by both external and domestic demand. And
(% yoy)
even though macroeconomic stimulus was substantial, private
6.0
demand also gained traction and is expected to drive growth in 4.0
the developing countries going forward. Further, the public 2.0
finances in these countries are strong, which provides a leg for 0.0
these governments to provide further stimulus if required. While FY2006 FY2007 FY2008 FY2009 FY2010
5-Year Average
the dependence of these economies on external funding is lower Source: Bloomberg, Angel Research
on the back of high savings rate (~30% of GDP), they would
continue to attract liquidity, which would provide further fillip to FY2011- Set for high growth
the growth in those countries. Hence, the developing economies
are structurally well placed to grow at a higher pace and would After the drought in FY2010, the monsoons are expected to be
normal in FY2011. Hence, agriculture which was a drag on
Exhibit 7: Contribution of economies to global GDP growth FY2010 GDP growth is expected to bounce back and post
100.0%
growth higher than its 5-year average of 3.1%, albeit on a low
80.0% base.
52.1%
63.0%
60.0% The manufacturing sector is already on an uptrend as witnessed
40.0%
by the strong IIP numbers, which came in at 17.6% for April
37.0%
47.9%
2010. Even after adjusting the IIP numbers for the base impact
20.0%
and taking a CAGR over a 2-year period, the IIP growth was
0.0% around 9.0%, well above the 15-year average of 7.0%. This is
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E
Developing Economies Advanced Economies
also reflected in the manufacturing sector GDP growth, which
Source: IMF at 9.3% was at the higher end of the last 5-year average growth
Refer to important Disclosures at the end of the report 4

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of 8.9%. Though growth of the capital goods, consumer durables Thus, as we enter FY2011, agriculture, services and
and intermediaries sectors, which contribute around 40% of manufacturing are likely to fire the growth of the economy.
the IIP might moderate on a high base, the rest 60%-i.e basic
, Further, the current European crisis would not have any impact
goods and consumer non-durables sectors, the laggards in as far India is concerned, as a large part of the country's growth
FY2010, would witness acceleration as growth becomes more hinges on domestic consumption and investments. Further, with
broad-based and exports pick up. Further, moderation in these a high savings rate of 32.5% of GDP (FY2009), India can grow
segments would not be reflective of the demand destruction, at 8-9% with little dependence on external funding. The same
but indicate of the supply constrains. Thus, the recovery in the was reflected in the way the economy grew in FY2009 (India's
manufacturing sector is well entrenched. GDP grew by around 6.7%) amidst the challenging
macro-economic environment. Thus, as we enter FY2011E, with
Exhibit 9: IIP growth trend (2 Year Rolling CAGR) normal monsoons expected, the Indian economy is expected to
14.00
12.00
revert to delivering 8-9% GDP growth on the back of domestic
10.00 consumption and investments.
8.00
(%)
6.00
Exhibit 11: India's GDP trend
60,00,000 12
4.00
2.00 50,00,000 9.5 9.7 10
9.2 9.0
8.5
-
40,00,000 8
(Rs cr)
7.4
1-Aug-96
1-Aug-97
1-Aug-98
1-Aug-99
1-Aug-00
1-Aug-01
1-Aug-02
1-Aug-03
1-Aug-04
1-Aug-05
1-Aug-06
1-Aug-07
1-Aug-08
1-Aug-09
1-Feb-97
1-Feb-98
1-Feb-99
1-Feb-00
1-Feb-01
1-Feb-02
1-Feb-03
1-Feb-04
1-Feb-05
1-Feb-06
1-Feb-07
1-Feb-08
1-Feb-09
1-Feb-10
30,00,000 6.7 6
15- Year Average 20,00,000 4
Source: Bloomberg, Angel Research
10,00,000 2
On the services front, which contributed around 57% of FY2010
0 0
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
GDP growth is expected to remain robust in spite of the
, Services (LHS) Manufacturing (LHS) Agriculture (LHS) YoY Growth (RHS)
moderation in the government-linked community and social Source: Bloomberg, Angel Research
services. This would mainly be driven by the improvement in
the hotels, transport and communication sectors as well as
Inflation to moderate in FY2011
finance and real estate, which contributes ~70% of the services, Food inflation continued to be the main cause for the runaway
would expand at a faster pace as compared to 2009-10 on the increase in overall WPI inflation to 10.16% yoy in May 2010,
back of revival in household demand and global economy. As apart from the base effect price increase in primary food articles
an illustration, the Indian software industry, which accounts for at elevated levels of 16.6% yoy. The manufactured product
~6% of the GDP will witness a strong uptrend in manpower
, inflation, another key contributor to the inflationary number,
addition after two years. The rise in manpower addition, which registered 6.4% yoy growth in May 2010. Thus, food inflation
was around 10% during FY2008-10, is expected to increase to continued to influence overall inflation.
20% during FY2010-12E, indicating strong traction in the IT
Going forward, food inflation which was exacerbated by the
sector going forward.
bad monsoons last year is likely to moderate. At the same time,
Exhibit 10: Recruitments in IT sector set for a rise due to the base effect, over the next 6-9 months overall inflation
4.0
3.5
30 is likely to once again come down to the manageable 4-5%
3.5
2.9
25 range. Even after assuming the recent hikes in the petroleum
3.0
2.4 20 products - the direct and indirect impact of which on inflation is
(in mn)
2.5 2.2
2.0
expected to be an increase of around 1.0% - inflation can be
(%)
2.0 1.6 15
1.5
1.1
1.3
10
expected to range between 5-6% during FY2011. Moreover,
1.0
5
while crude is up 2.4x from the bottom, it is 50% away from its
0.5
pre-crisis peak and from a fundamental perspective, we do not
0.0 0
FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E expect crude to increase materially from these levels.
Manpower Growth (yoy)
Source: Nasscom
Refer to important Disclosures at the end of the report 5