1. Market Outlook
India Research
July 22, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The key benchmark indices edged higher in early trade on firm Asian stocks. BSE Sensex 0.6% 99.1 17,977
Metal stocks rose as metal prices gained on the London Metal Exchange, while Nifty 0.6% 31.4 5,399
auto stocks rose on expectations of strong 1Q results. The market extended MID CAP 0.5% 36.3 7,426
gains in early afternoon trade. The Sensex finally closed below the SMALL CAP 0.4% 33.7 9,466
psychological 18,000 mark after crossing that level during the day. European
BSE HC -0.3% (15.0) 5,644
markets like France's CAC, Britain's FTSE and Germany's DAX were trading 1–
BSE PSU 0.6% 57.7 9,485
2% higher at the time of closing of Indian equities. The Sensex and Nifty closed
BANKEX 0.0% 4.9 11,379
up by 0.6% each. BSE mid-cap and small-cap indices gained 0.5% and 0.4%,
AUTO 0.8% 68.5 8,328
respectively. Among the front liners, Sterlite, Tata Steel, Jindal Steel, M&M and
Hindalco gained between 2–4%, while HDFC, Bharti Airtel, Cipla, HDFC Bank METAL 3.2% 473.3 15,431
and Hero Honda were down by 1–2%. Among mid-caps, Motherson Sumi OIL & GAS 0.7% 74.4 10,522
Systems, Usha Martin, REI Agro, TVS Motors and Arss Infra Projects were up by BSE IT 0.6% 33.9 5,464
6–7%, while Gee Kay Finance, Shree Renuka Sugars, Indraprastha Gas, Bayer Global Indices Chg (%) (Pts) (Close)
Corp. and Emami declined by 3–5%. Dow Jones -1.1% (109.4) 10,121
NASDAQ -1.6% (35.2) 2,187
Markets Today
FTSE 1.5% 75.2 5,215
The trend deciding level for the day is 17954 / 5392 levels. If NIFTY trades
Nikkei -0.2% (21.6) 9,279
above this level during the first half-an-hour of trade then we may witness a
further rally up to 18035 – 18093 / 5416 – 5433 levels. However, if NIFTY Hang Seng 1.1% 222.6 20,487
trades below 17954 / 5392 levels for the first half-an-hour of trade then it may Straits Times -0.8% (22.5) 2,926
correct up to 17897 – 17816 / 5376 – 5352 levels. Shanghai Com 0.3% 6.7 2,535
Indices S2 S1 R1 R2
SENSEX 17,816 17,897 18,035 18,093 Indian ADRs Chg (%) (Pts) (Close)
NIFTY 5,352 5,376 5,416 5,433 Infosys -1.5% (0.9) $58.0
Wipro -1.0% (0.1) $12.7
News Analysis Satyam -2.4% (0.1) $4.9
India may consider buying BP stake in Vietnam field ICICI Bank -0.7% (0.3) $37.8
BGR Energy Systems secures another contract from NPCIL HDFC Bank -0.1% (0.2) $148.4
Dabur closes in on Turkish cosmetic company
Result Reviews: Orchid Chemicals, Thermax, TVS Motor Advances / Declines BSE NSE
Result Previews: ACC, Ambuja, Bajaj Auto, DRL, Gujarat Gas, Indoco, ITC, Advances 1,550 725
PNB Declines 1,349 591
Refer detailed news analysis on the following page.
Unchanged 126 63
Net Inflows (July 20, 2010)
Volumes (Rs cr)
Rs cr Purch Sales Net MTD YTD
FII 1,669 1,297 372 9,619 40,696 BSE 4,600
MFs 347 494 (147) (1,777) (10,317) NSE 12,558
FII Derivatives (July 21, 2010)
Open
Rs cr Purch Sales Net
Interest
Index Futures 1,301 1,228 73 18,256
Stock Futures 3,644 3,305 339 34,182
Gainers / Losers
Gainers Losers
Price Price Chg
Company Chg (%) Company
(Rs) (Rs) (%)
Crompton Gr 283 6.8 Renuka Sugar 64 (4.0)
JSW Steel 1,175 5.0 Sun TV 452 (2.8)
Havells India 673 4.5 Andhra Bk 146 (2.3)
1
PTC India 113 4.5 Balrampur Chini 79 (2.1)
Sterlite Ind 173 4.3 Dr Reddys 1,404 (2.0)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. Market Outlook | India Research
India may consider buying BP stake in Vietnam field
India may consider buying BP Plc’s stake in a natural gas field in Vietnam, after the British
company battling the worst US oil spill agreed to sell assets as part of a plan to raise funds
to meet liabilities. According to BP’s management, it plans to sell some US $10bn of assets
over 12 months to help pay for damages related to the Gulf of Mexico oil disaster. Oil
Minister Murli Deora is going to discuss the plan with Vietnamese Prime Minister Nguyen
Tan Dung today. ONGC is spearheading the South Asian nations’ quest for energy
resources overseas, competing with China for fields from Africa to Venezuela. BP has
agreed to sell oil and gas fields in the US, Canada and Egypt to Apache Corporation for
US $7bn, and it plans to sell assets in Pakistan and Vietnam. The acquisition of BP’s
Vietnam assets by OVL will boost its reserves. However, the value creation from the
acquired assets will be dependent on the price at which the deal is executed. We maintain
an Accumulate rating on ONGC with a target price of Rs1,356.
BGR Energy Systems secures another contract from NPCIL
BGR Energy Systems has secured an EPC contract for Rs17cr from Nuclear Power
Corporation of India (NPCIL) for power island area in the 500MW Prototype Fast Breeder
Reactor (PFBR) project of Bharatiya Nabhikiya Vidyut Nigam Limited (BHAVINI) at
Kalpakkam, Tamil Nadu. The contract work consists of erection and commissioning of
cabling system, cable tray system, lighting system, lightning protection and other
grounding system for power island area.
Prior to this contract, BGR Energy Systems has already secured two contacts from NCPIL,
viz. medium voltage switchgear package and 415V MCC package for the PFBR project in
Kalpakkam from NCPIL, and are currently executing them.
Dabur closes in on Turkish cosmetic company
Dabur is in advanced talks to buy Turkish personal care company Hobi Kozmetik, which
will be its first overseas acquisition. Hobi Kozmetik makes shampoos, hairstyling, hair care,
skincare and shower products for women, men and children under the brand names
Hobby and New Era. The company has a presence in more than 30 countries and has
~40% market share in Turkey's hair gel market. Dabur has sought a resolution to raise
Rs2,000cr to fund its acquisition. We are not factoring the deal yet in our numbers on
account of lack of clarity. The deal, if goes through, will be a long-awaited overseas deal
for Dabur. We maintain a Neutral view on the stock.
Result Reviews
Orchid Chemicals
Orchid Chemicals announced its 1QFY2011 results, which were above our expectation,
primarily driven by other operating income. Net sales came in at Rs305cr (Rs306cr), which
was flat on a yoy basis but above our estimate of Rs275cr, on the back of higher-than-
expected off-take under Hospira contract. On the operating front, the margins (excluding
other operating income) came in at 18.6% (20.2%). The company reported higher-than-
expected other operating income of Rs27cr (Rs3cr) on the back of milestone payments
under supply agreements and settlement income. Interest cost declined by 56.0% to Rs22cr
(Rs52cr). Orchid Chemicals reported net profit of Rs22cr (loss of Rs30cr) for the quarter.
The stock is currently trading at 14.3x FY2011E and 11.1x FY2012E earnings. We
recommend Neutral on the stock.
July 22, 2010 2

3. Market Outlook | India Research
Thermax
Thermax announced its 1QFY2011 results, which were in line with our estimates. The
company posted top-line growth of 45% yoy to Rs789.7cr (Rs544cr) for 1QFY2011. On
the operating front, the company reported operating margins at 10.8%. Net profit for the
quarter increased by 42.3% yoy to Rs66.1cr (Rs46.4cr). We will revisit our estimates after
the conference call and maintain a Neutral on the stock.
TVS Motor
For 1QFY2011, TVS Motor (TVSM) registered 41% yoy growth in net sales to Rs1,393cr
(Rs989cr), which was marginally below our expectation of Rs1,399cr. Sales growth was
aided by a substantial 32.8% yoy increase in total volumes and about 5.7% yoy jump in
average realisation. The company’s motorcycle, scooter and moped sales grew 31%, 42%
and 26% yoy, respectively, in 1QFY2011. Further, higher sales of the three-wheeler
segment at 7,799 units (2,130) also supported healthy revenue growth. On the operating
front, TVSM’s margin expanded marginally by 16bp to 6.5% during 1QFY2011, below our
estimates of 7.2%. This is largely on account of a 69bp increase in raw material cost,
which accounted for 71.4% (70.8%) of net sales. The company recorded net profit growth
of 123% yoy to Rs40.4cr (Rs18.1cr), which was below our expectation of about Rs45cr.
This was primarily due to the lower-than-expected operational performance.
We believe that post the recent run-up in the stock price, higher volume and earnings
growth expected over FY2010–12E is priced in. Future valuations of the stock would be
determined by consistent growth in volumes, improvement in market share and uptick in
margins. Hence, we recommend a Neutral rating on the stock.
Result Previews
ACC
We expect ACC to register a 3.2% yoy decline in top-line during the quarter to Rs2,051cr,
primarily on account of fall in realisations. The company’s OPM is expected to be down by
596bp on a yoy basis to 30.5% on the back of the fall in realisations and increased raw
material costs. We expect the company’s net profit to decline by 22% in 2QCY2010 to
Rs379cr, largely on account of the decline in operational profit. We remain Neutral on the
stock.
Ambuja Cements
We expect Ambuja Cements to post 11.3% yoy top-line growth to Rs2,055cr, mainly on
account of increased despatches due to new capacity addition. On the operating front, the
company’s OPM is expected to improve by 332bp on a yoy basis to 29.3%. We expect the
company’s net profit to increase by 21% yoy to Rs392cr in 2QCY2010. We remain Neutral
on the stock.
July 22, 2010 3

4. Market Outlook | India Research
Bajaj Auto
Bajaj Auto is slated to announce its 1QFY2011 results. We expect the company’s top line
to grow by 66.4% yoy to Rs3,760cr on account of 69.5% yoy growth in volumes and
improved realisations. On the operating front, EBITDA margin is expected to expand by
110bp yoy to 20.6%. Hence, the bottom line is expected to grow by 79.5% yoy to
Rs526.7cr. The stock rating is under review.
Dr Reddy’s Labs
Dr Reddy’s Lab (DRL) is slated to announce its 1QFY2011 results. DRL is expected to report
a 5.4% decline in sales to Rs1,684cr, as 1QFY2010 witnessed robust growth with the
launch of the generic version of Imitrex. Excluding the one-off, DRL's recurring sales are
expected to grow by 6.0%, driven by the US and India formulation segments. During the
quarter, DRL received US FDA approval for the generic versions of Lotrel, Valtrex, Prograf
and Camptosar. On the OPM front, margins are expected to come at 16.4%, with net
profit of Rs167cr. We recommend Neutral on the stock.
Gujarat Gas
Gujarat Gas is going to announce its 2QCY2010 results. We expect the company to report
top-line growth of 23.0% yoy to Rs417cr (Rs339cr) and bottom-line growth of 32.6% yoy to
Rs62cr (Rs47cr). Volumes will continue to be supported by LNG on account of subdued
LNG prices and higher gas availability from indigenous sources. We expect the company
to report volumes of 3.24mmscmd for the quarter, registering growth of 18.4% yoy and
0.2% qoq. Gross spread is expected to be flat sequentially at Rs4.24/scm (Rs4.26/scm).
We maintain a Neutral rating on Gujarat Gas.
Indoco Remedies
Indoco Remedies is likely to announce its 1QFY2011 results. The company is expected to
report top-line growth of 17.8% to Rs116cr, driven by the domestic formulation segment.
While the company’s OPM is expected to contract by 215bp to 16.8% on the back of
higher raw material cost. However, net profit is expected to increase by 14.4% to Rs19.3cr,
driven by other income. We recommend Accumulate on the stock with a target price of
Rs541.
ITC
ITC is expected to announce its 1QFY2011 results. For the quarter, we expect ITC to report
18.5% yoy growth in its top line to Rs4,840cr, aided by various new product launches,
recent price hikes in cigarettes, strong performance of non-cigarette FMCG and a bounce
back in its hotels business. ITC's earnings are expected to grow by strong 18.6% yoy, aided
by top-line growth (uptick in hotel revenue). At the operating front, the company is
expected to report a margin expansion of 25bp. We maintain a Neutral rating on the
stock.
July 22, 2010 4

5. Market Outlook | India Research
Punjab National Bank
Punjab National Bank is scheduled to announce its 1QFY2011 results. We expect the bank
to report strong NII growth of 31% yoy and marginal dip of 2.8% on a sequential basis.
However, NIM is expected to decline sequentially by 30bp to 3.3% during 1QFY2011 on
account of interest payment on savings accounts on a daily basis. The cost-to-income ratio
is expected to go up sequentially to 32% from 40% on account of higher branch additions.
The operating profit of the bank is expected to register growth of 13% yoy. Net profit
growth is expected to be flat at around 9% on a yoy basis to Rs908cr. At the CMP, the
stock is trading at relatively expensive valuations of 1.5x FY2012E ABV, We believe the
bank will not be able to sustain such high return on equity (RoE) going forward (26.6% in
FY2010). We have a Reduce rating on the stock, valuing it at 1.3x FY2012E ABV (closer to
the median of its five-year range), to arrive at a 12-month target price of Rs948.
Economic and Political News
India, EU officials to meet in September on drug seizure issue
Government to keep central GST concessional rate at 6%
Engineering exports up by 90% in June
Centre sanctions three more biomass cogeneration projects
Corporate News
EIL FPO to hit capital market on July 27
Vardhaman Textiles to spend Rs300cr this fiscal
GTL Infra-Rel Infratel merger to be over by mid-August: Tirodkar
REC aims to borrow US $1bn in overseas loans
Nilkamal raises Rs59cr via QIP
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
Events for the day
ACC Dividend, Results
AKZO INDIA Results
Ambuja Cements Dividend, Results
Bajaj Auto Bonus, Results
Dr Reddys Lab Results
Idea Cellular Results
ITC Results
Gujarat Gas Results
Unichem Lab Results, Stock Split
Wipro Results
July 22, 2010 5

6. Market Outlook | India Research
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July 22, 2010 6