1. Market Outlook
India Research
June 14, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The key benchmark indices opened in green at the onset of the trading session BSE Sensex 0.8% 142.9 17,065
on firm Asian stocks. The market held firm in morning trade and extended gains Nifty 0.8% 40.8 5,119
in mid-morning trade on reports of strong industrial production growth in April MID CAP 0.3% 19.1 6,885
2010. Profits booking in the afternoon saw the market pare the day’s gains. SMALL CAP 0.4% 37.9 8,638
However, Sensex retained its psychological 17,000 mark at the end of the
BSE HC -0.6% (30.9) 5,590
trading session. The Sensex and Nifty gained 0.8% each. BSE mid-cap and
BSE PSU -0.0% (1.9) 9,046
small-cap indices also closed higher by 0.3% and 0.4%, respectively. Among
BANKEX 1.0% 110.6 10,748
the front-liners, RIL, BHEL, Mahindra & Mahindra, ICICI Bank and Jindal Steel
AUTO 1.0% 78.0 8,018
were up by 2–3%, while Bharti Airtel, Sterlite Industries, ACC, Reliance Infra and
Reliance Communications were down by 1–4%. In the mid-cap segment, Eicher METAL 0.2% 31.3 14,431
Motors, Fortis Health, IRB Infra., Jain Irrigation and Wockhardt were up by OIL & GAS 1.7% 167.5 10,172
6–17%, while Marico, United Phosphorus, Gujarat NRE Coke, Central Bank and BSE IT 0.1% 4.3 5,162
Texmaco were down by 2–3%.
Global Indices Chg (%) (Pts) (Close)
Markets Today
Dow Jones 0.4% 38.5 10,211
The trend deciding level for the day is 17064/5112 levels. If NIFTY trades NASDAQ 1.1% 24.9 2,244
above this level during the first half-an-hour of trade then we may witness a
FTSE 0.6% 31.2 5,164
further rally up to 17133 – 17201/5146 – 5173 levels. However, if NIFTY
Nikkei 1.7% 162.6 9,705
trades below 17064/5112 levels for the first half-an-hour of trade then it may
correct up to 16995 – 16926/5086 – 5052 levels. Hang Seng 1.2% 239.7 19,872
Straits Times 0.6% 16.7 2,796
Indices S2 S1 R1 R2 Shanghai Com 0.3% 7.4 2,570
SENSEX 16,926 16,995 17,064 17,133
NIFTY 5,052 5,086 5,112 5,146 Indian ADRs Chg (%) (Pts) (Close)
Infosys 0.9% 0.5 $59.4
News Analysis Wipro -0.1% (0.0) $20.6
Satyam 2.2% 0.1 $5.1
BWA Auction Outcome
ICICI Bank 1.3% 0.5 $36.6
Hotel Leela Venture- Initiate Coverage with Neutral view
HDFC Bank 1.0% 1.4 $145.4
RIL discovers more oil at Cambay basin
RIL acquires 95% stake in Infotel Broadband Services
Advances / Declines BSE NSE
HUL approves buyback up to maximum of Rs280, outlay of Rs630cr
Advances 1,556 703
ITC forays into Skincare
Declines 1,324 600
Refer detailed news analysis on the following page.
Unchanged 97 58
Net Inflows (June 10, 2010)
Rs cr Purch Sales Net MTD YTD
Volumes (Rs cr)
FII 2,061 1,673 389 776 21,311
BSE 4,395
MFs 757 547 210 658 (6,473)
NSE 13,270
FII Derivatives (June 11, 2010)
Open
Rs cr Purch Sales Net
Interest
Index Futures 1,828 809 1,019 13,618
Stock Futures 1,372 887 485 27,592
Gainers / Losers
Gainers Losers
Price Price
Company Chg (%) Company Chg (%)
(Rs) (Rs)
HDIL 235 6.7 Bharti Airtel 275 (3.8)
IRB Infra 278 6.0 Unitech 68 (3.5)
Jain Irrigation 1,080 6.0 Dr Reddys Lab 1,463 (2.3)
Indusind Bank 191 5.2 United Phos. 183 (2.2)
Mphasis 581 4.4 Guj NRE Coke 58 (2.2)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 0109965391

2. Market Outlook | India Research
BWA Auction Outcome
Broadband Wireless Access (BWA) auction concluded on Friday, June 11. The 16-day long
auction raised about Rs38,543cr for the government, over 3x of the budgeted estimate
and 7.3x over the reserved price of Rs1,750cr. The outcome was surprising with only Bharti
Airtel and Aircel emerging as successful bidders amongst the seven telecom operators in
the fray. Nahata Group-promoted Infotel Broadband stole the show as it bagged the Pan
India spectrum (all 22 circles) for Rs12,847cr, backed by Reliance Industries (acquired 95%
stake in Infotel for Rs4,800cr). Among the other major bidders, Bharti won 4 circles for an
outlay of Rs3,314cr (these circles account for 21% of its mobile subscriber base and 23%
of its gross revenue), Tikona won 5 circles (outlay of Rs1,058cr), Qualcomm won 4 circles
(outlay of Rs4,912cr), Augere got 1 circle (outlay of Rs125cr) and Aircel won 12 circles
(outlay of Rs3,438cr). Bharti Airtel won spectrum in 4 circles—Maharashtra, Karnataka,
Punjab and Kolkata. The operators will have to pay the amount before June 22, which
would result in increased capex and incremental strain on the balance sheet position.
Hotel Leela Venture- Initiate Coverage with Neutral view
Hotel Leela Venture (HLVL) is one of the key players in the premium segment of the
hospitality industry in India, with operations across six locations and a portfolio of 1,190
owned rooms. HLVL has expansion plans lined up in two phases, of which the New Delhi
and Chennai properties are expected to get operational in FY2011E. We expect the
industry and, in turn, hoteliers to regain their lost glory with tourist activity (domestic and
foreign) picking up. At the CMP, HLVL trades at FY2012E EV/Room of Rs2.2cr, which is
higher than the company's replacement cost of ~Rs1.8cr–2cr. Moreover, at current
valuations, HLVL is expensive as compared to its peers. Hence, we Initiate Coverage on the
stock with a Neutral view.
RIL discovers more oil at Cambay basin
RIL announced its sixth oil discovery in the CB-ONN-2003/1 (CB 10 A&B) exploratory
block, awarded under the NELP-Vth round of exploration bidding. The well flowed at a rate
of 415bopd. The discovery, named Dhirubhai–49, has been notified to the Government of
India and the Directorate General of Hydrocarbons. The potential commercial interest of
the discovery is being ascertained through additional data gathering and analysis. The
discovery is significant as it is expected to open more oil pool areas, leading to better
hydrocarbon potential within the block. The CB-ONN-2003/1 block is located at a
distance of about 130kms from Ahmedabad, Gujarat, in the Cambay basin. The block
covers an area of 635sq km in two parts, viz. Part A and Part B. RIL, as an operator, holds
100% participating interest in the block. While the entire block is covered with 2D seismic,
about 80% of the block area has 3D seismic coverage. Of the 16 exploratory wells drilled
in the block by RIL so far, 12 are located in Part A and the remaining in Part B. RIL is
continuing further exploratory drilling efforts in the block. The discovery supplements the
understanding of the petroleum system in the Cambay basin in general, and the block in
particular. Based on the interpretation of the acquired 3D seismic campaign in the contract
area, several more prospects with upside potential have been identified at different
stratigraphic levels. We maintain a Buy view on RIL, with a Target Price of Rs1,260.
June 14, 2010 2

3. Market Outlook | India Research
RIL acquires 95% stake in Infotel Broadband Services
RIL has announced acquisition of Infotel Broadband Services (P) Ltd promoted by the
Nahata Group. Infotel has emerged a successful bidder in all the 22 circles of the auction
for Broadband Wireless Access (BWA) Spectrum conducted by the DoT. Infotel is now the
only pan-India Wimax license holder owing to which it will emerge as the leader in the next
generation broadband services in the country. RIL will invest around Rs4,800cr by way of
subscription to fresh equity capital at par to be issued by Infotel. Post this investment, RIL
will own 95% of the equity and Infotel will become its subsidiary. Infotel has to pay
Rs12,848cr for the recent BWA licence. We believe funding of the same is likely to be done
by the equity infusion by RIL, while the balance would be funded through debt.
We believe that the venture would prove to be long gestation investment on account of low
internet penetration levels and high time taken (around 2 years) in rollout of the
technology on a pan-India basis. This coupled with upfront payment of the spectrum fees
could result in the deal being marginally dilutive for RIL on the Earnings front (2-3%) over
the next couple of years. Thus, RIL will take a long time to reap the benefits of the venture
and impact of the same could not be gauged at the current juncture. On account of lack of
clarity, currently we have not changed our estimates. The key factors to watch out for RIL
will be the execution and ramp-up of the Broadband foray. At 1.8x FY2012E P/BV, we
believe that RIL is relatively undervalued at current levels. We maintain a Buy on RIL, with a
Target Price of Rs1,260, translating into an upside of 20.4% from current levels.
HUL approves buyback up to maximum of Rs280, outlay of Rs630cr
HUL board has announced a buyback of shares at a price not exceeding Rs280 per share
and up to an aggregate amount of Rs630cr, which is within the 25% limit of total paid up
capital and free reserves as on March 31, 2010. The price stipulated is based on a
premium of 20% over its last three month’s average price. In our note earlier, we had
highlighted a price of Rs260 as the buyback price with a similar outlay. At the higher end
of the capped buyback price and outlay, the company would be able to purchase up to
~22.5mn equity shares of the outstanding 2,179.9mn shares or roughly ~1% of the
equity. We recall that during 2QCY2007, HUL had undertaken buyback of shares at a
price not exceeding Rs230 per share (~17% premium to CMP) up to an aggregate amount
of Rs630cr. However, the same was completed through open market purchase at an
average price of ~Rs207.
We believe the buyback would be EPS Neutral owing to reduction in other income (on
account of usage of cash). Hence, while we are enthused with the buyback price (likely to
limit downside risk), we believe the move will be purely a sentimental booster in the near
term. Hence, we believe the current buyback offers investors an excellent opportunity to exit
the stock and switch to other FMCG companies with more stable and higher earnings
growth. We recommend Reduce on the stock, with a Target Price of Rs226 (based on 20x
FY2012E EPS), owing to weak earnings growth vis-à-vis the FMCG sector, uncertain
earnings environment and significantly higher competitive intensity.
June 14, 2010 3

4. Market Outlook | India Research
ITC forays into Skincare
ITC announced its first foray into the fairness creams segment with the launch of Vivel
Active Fair, in line with our expectations. We highlight that in our recent report on ITC
(4QFY2010 result update dated May 22, 2010) it was stated – “Going ahead we expect,
revenue traction in the segment to continue and losses to reduce significantly, though
break-even is likely to be achieved only in FY2013. We expect ITC to enter a new category
(skin care) in FY2011.” Vivel Active Fair is currently available in SKUs of 50g, 25g and 9g
sachets for Rs70, Rs38 and Rs5, respectively, with distribution only in Kerala at present.
ITC’s cigarette business volumes have consistently exhibited impressive resilience towards
price hikes instilling confidence that FY2011 will be no exception. Hence, we have
modeled in 2% volume growth in cigarette volumes for FY2011, despite ~13% weighted
average price hike, which is likely to fully offset by 1) ~15% excise hike in budget and 2)
rise in VAT announced in several states. We believe the cigarette business is well poised to
post double-digit revenue and EBIT growth in FY2011E. Moreover, outlook for other SBUs
is highly promising. ITC’s non-cigarette FMCG business is exhibiting strong revenue
traction and reduction in losses; hotels business is expected to recover driven by improving
economic environment; and paperboards and agri-businesses are expected to post modest
revenue growth (though EBIT growth might be under pressure). We maintain Accumulate
with a Target Price of Rs305
Economic and Political News
SEZ contiguity norms may be relaxed for non-tax sops areas
Economy to grow by 8.5% in FY2011: PMEAC
Tax exemption limit on gratuity raised to Rs10lakh
Corporate News
ITC to launch Lucky Stride as competition fires up
Shree Renuka bags Brazil’s Equipav for 25% less than the original bid price
JSPL to acquire 60% in Africa’s ZISCO
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
June 14, 2010 4

5. Market Outlook | India Research
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June 14, 2010 5