1. Market Outlook
India Research
September 23, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The market breadth was weak, contrasting strong breadth in the opening BSE Sensex -0.3% (59.8) 19,942
session of trade. High volatility was the hallmark of the day's trading session. Nifty -0.3% (18.1) 5,991
The Sensex and Nifty slipped below the levels of 20,000 and 6,000, MID CAP -0.4% (29.9) 8,048
respectively, in mid-morning trade, after touching a 32-month peak in opening SMALL CAP -0.2% (22.8) 10,154
trade. The key benchmark indices slumped to the day's low in mid-afternoon BSE HC -0.3% (14.9) 5,924
trade as heavyweights underwent correction following a three-day surge and hit BSE PSU -0.1% (6.4) 10,265
fresh intraday lows in afternoon trade as European stocks fell in early trade. The BANKEX 0.4% 58.7 13,947
Sensex and Nifty closed down by 0.3% each. However, BSE mid and small-cap AUTO 0.1% 7.5 9,415
indices closed down by 0.4% and 0.2%, respectively. Among the front liners,
METAL 0.1% 10.1 16,615
Maruti Suzuki, HDFC, SBI, Tata Power and Wipro gained 1–4%, while
OIL & GAS -1.0% (111.0) 10,695
JP Associates, RCOM, L&T, TCS and Infosys lost 2–3%. Among mid caps,
BSE IT -1.3% (80.3) 5,941
JSL Ltd., Triveni Engg., Punj Lloyd, Hotel Leela, Gammon India and
Global Indices Chg (%) (Pts) (Close)
Dalmia Cement gained 5–17%, while Geekay Finance, Jubilant Food Works,
Berger Paints and Ispat Industries lost 4–5%. Dow Jones -0.2% (21.7) 10,739
NASDAQ -0.6% (14.8) 2,335
Markets Today FTSE -0.4% (24.3) 5,552
Nikkei -0.4% (35.8) 9,566
The trend deciding level for the day is 19950/5992 levels. If NIFTY trades
above this level during the first half-an-hour of trade then we may witness a Hang Seng 0.2% 45.1 22,048
further rally up to 20097–20252/6037–6083 levels. However, if NIFTY trades Straits Times 0.0% 0.7 3,096
below 19950 / 5992 levels for the first half-an-hour of trade then it may correct Shanghai Com 0.1% 2.8 2,592
up to 19795 –19649/5946-5901 levels.
Indian ADRs Chg (%) (Pts) (Close)
Indices S2 S1 R1 R2 Infosys -0.5% (0.3) $65.5
SENSEX 19,649 19,795 20,097 20,252 Wipro 1.4% 0.2 $14.3
Satyam 19.5% 1.1 $6.6
NIFTY 5,901 5,946 6,037 6,083
ICICI Bank 0.8% 0.4 $48.9
News Analysis HDFC Bank -0.7% (1.2) $180.9
Marico – Management Meet Note
Boiler failure hits power generation in GIPCL’s 125MW Unit-3 Advances / Declines BSE NSE
Sun acquires controlling stake in Taro
Advances 1113 444
Refer detailed news analysis on the following page.
Declines 1822 950
Net Inflows (September 21, 2010) Unchanged 142 37
Rs cr Purch Sales Net MTD YTD
FII 6,432 3,119 3,313 19,350 78,731 Volumes (Rs cr)
MFs 549 758 (209) (2,649) (18,763)
BSE 5,239
FII Derivatives (September 22, 2010) NSE 17,059
Open
Rs cr Purch Sales Net
Interest
Index Futures 4,277 5,994 (1,717) 24,074
Stock Futures 3,413 4,273 (860) 40,908
Gainers / Losers
Gainers Losers
Price chg Price chg
Company Company
(Rs) (%) (Rs) (%)
Tech Mahindra 787 8.2 Ispat Indus 23 (3.6)
Punj Lloyd 127 5.7 Bombay Dyeing 645 (3.0)
Zee Telefilms 307 4.4 Dabur India 106 (3.0)
IDBI Bank 147 3.7 Ib Real Estate 179 (2.9)
Maruti Suzuki 1,463 3.6 Hind Const 61 (2.8) 1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. Market Outlook | India Research
Marico – Management Meet Note
Core brands to post steady growth: Management is confident of driving 7–8% volume growth in
Parachute, aided by strong push of recruiter packs (5/10/20ml SKUs) and increased focus on
rural growth. Saffola is expected to sustain 14–15% volume growth, driven by strong
positioning as a good-for-heart brand.
Copra and rice bran oil rise, 3–5% price hikes taken: On a yoy basis YTD, copra prices have
risen by almost 12–15%. However, in 2QFY2011, copra prices witnessed a steep rise of
20–25% and rice bran oil was up almost 10% yoy. Hence, Marico initiated another price hike of
~5% (from Rs40 to Rs42) in the 200ml SKU in August and Rs3/litre hike (~3% hike) in Saffola
Gold/Saffola Active.
International business on strong footing, we peg 22% CAGR over FY2010–12E: Management is
confident of sustaining 20–25% growth across geographies, driven by better distribution reach
and new product launches. Moreover, current OPMs at ~12% in the international business are
likely to improve to ~14% over 2–3 years, aided by supply chain re-engineering and price
increases.
Kaya domestic under consolidation, 4–6 clinics to be opened in the Middle East: Focus on Kaya
has now shifted to improve consumer experience and pushing product revenue higher. In
2QFY2011, Marico opened one more clinic in the Middle East and Bangladesh respectively,
taking the total tally to 101 clinics. In FY2011, Marico plans to open no new clinics in India and
around 4–6 clinics in the Middle East. During 3QFY2011, management plans to introduce
Derma-Rx products in India and Middle East.
No major capex, tax guidance of 19–20% maintained: Capex for FY2011E includes
Rs15cr–20cr maintenance capex, Rs25cr additional capex for Baddi plant and Rs4cr–6cr for
Kaya clinics. Management has maintained its tax guidance of 19–20% due to rising
contribution from tax-saving plants (Baddi and Ponta Sahib) and international operations (low
tax rate).
Outlook and valuation: We have marginally tweaked our estimates upwards to account for: 1)
recent price hikes, 2) stronger growth in international business and 3) better margins, aided by
price hikes and improving profitability in the international business. At the CMP of Rs131, the
stock is trading at 22.4x FY2012E earnings, which is justified given the 22% earnings CAGR
over FY2010–12E. Hence, we upgrade the stock from Neutral to Accumulate with a Target
Price of Rs135 (Rs124) based on a P/E multiple of 23x FY2012E earnings.
September 23, 2010 2

3. Market Outlook | India Research
Boiler failure hits power generation in GIPCL’s 125MW Unit-3
Gujarat Industries Power Company (GIPCL) has informed the BSE that there was a failure
in the boiler of 125MW Unit-3 on September 17, 2010, at its Surat Lignite Power Plant.
This has damaged the Economizer Hopper and some parts of Back-pass of the Boiler
accidentally and has resulted in stoppage of power generation from the unit, which was
commissioned and synchronised recently in April 2010. The costs of repair will be borne
by the EPC Contractor as the unit is yet to be taken over by the company. The company
expects restoration work to be completed in about 30 days. As we had factored in only six
months of operation for Unit-3 in FY2011, this development does not affect our revenue
estimates. We expect the company’s top line and bottom line to log in CAGRs of 32.5%
and 28.3% over FY2010–12E, respectively. We expect RoE to improve from 8.8% in
FY2010E to 12.4% in FY2012E, following commissioning of new plants. At the CMP of
Rs116, the stock is trading at 1.2x P/BV and EV/MW of Rs3.5cr on FY2012E estimates,
which we believe is attractive compared to its peers. We maintain a Buy rating on the stock
with a Target Price of Rs135.
Sun acquires controlling stake in Taro
Sun Pharma (Sun) has announced that it has completed the acquisition of controlling stake
in Taro Pharma (Taro) post the closure of the tender offer. As a result, the company’s stake
in Taro would increase to 48.7% (c 36.6%) with voting rights of 65.8% (c 24%). Further,
directors of Sun and Taro have settled all outstanding litigation among themselves. The
acquisition of Levitt’s family stake would result into an outflow of US $37.2mn for Sun,
taking the total investment in Taro to US $165mn (including warrant conversions). We view
this development as positive as Sun would now get access to Taro’s dermatology product
portfolio in the US and new geographies, viz. Israel and Canada. For 1HCY2010, Taro
recorded net sales of US $187mn, with OPM of 19.7%. However, pending clarity on the
financials of Taro (audited financials for CY2008 and CY2009 have not been filed), we
have valued Sun’s stake in Taro at Rs85 per share (1x Mcap/Sales). The stock is currently
trading at 26.9x FY2011E and 22.7x FY2012E earnings; we maintain our Neutral rating
on Sun at these levels.
September 23, 2010 3

4. Market Outlook | India Research
Economic and Political News
EPFO asks private PF trusts to pay 9.5% interest
Farm output rise to ease food inflation, says Ahluwalia
Gold rises to record high after Fed rates nod
Corporate News
IOC unveils plan to double petrochemical revenue to Rs15,000cr
Nestle to invest Rs1,230cr in new plant, R&D centre
ONGC ventures into shale gas exploration
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
September 23, 2010 4

5. Market Outlook | India Research
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