- The key Indian indices (Sensex and Nifty) declined by 0.4% and 0.5% respectively, tracking subdued European markets and concerns over rising food inflation in India. - Banking, realty and oil & gas stocks led the declines, while HUL, ONGC and ITC gained 1-2%. Midcap stocks like Dalmia Cement rose 5-9% while losses were seen in Blue Star and Indusind Bank. - The article provides analysis on recent company news and IPOs, and recommends a neutral view on the Ashoka Buildcon IPO and subscribe view on the Tecpro Systems IPO.

1. Market Outlook
India Research
September 24, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The key benchmark indices skidded for the second straight day, tracking BSE Sensex -0.4% (80.7) 19,861
subdued European markets after data suggested weak economic activity in that Nifty -0.5% (31.4) 5,960
region. Moreover, in domestic economic news, the spike in food inflation in the MID CAP -0.2% (17.2) 8,031
latest week rekindled worries that the Central Bank may interfere to check it SMALL CAP 0.1% 6.7 10,160
earlier than expected. The market breadth turned negative in late trade from BSE HC 0.0% 0.9 5,925
positive breadth earlier in the day. Interest rate-sensitive banking and realty BSE PSU -0.1% (8.1) 10,257
stocks led the fall. The Sensex and Nifty closed down by 0.4% and 0.5%, BANKEX -1.2% (168.7) 13,778
respectively. While BSE mid-cap index closed low by 0.2%, the small-cap index AUTO 0.0% 4.1 9,419
closed flat in green. Among the front liners, HUL, ONGC, ITC, M&M and
METAL -0.1% (12.5) 16,602
JP Associates gained 1–2%, while ICICI Bank, RIL, Bharti Airtel, Cipla and DLF
OIL & GAS -1.0% (107.8) 10,588
lost 1–2%. Among mid caps, Dalmia Cement, BF Utilities, REI Agro, PTC India
BSE IT 0.0% 2.0 5,943
and HT Media gained 5–9%, while Blue Star, Rajesh Exports,
Global Indices Chg (%) (Pts) (Close)
Indiabulls Real Estate, Radico Khaitan and Indusind Bank lost 4–5%.
Dow Jones -0.7% (76.9) 10,662
Markets Today NASDAQ -0.3% (7.5) 2,327
The trend deciding level for the day is 19877/5966 levels. If NIFTY trades FTSE -0.1% (4.8) 5,547
above this level during the first half-an-hour of trade then we may witness a Nikkei -0.4% (35.8) 9,566
further rally up to 19982 – 20104/6000– 6041 levels. However, if NIFTY trades Hang Seng 0.2% 45.1 22,048
below 19877/5966 levels for the first half-an-hour of trade then it may correct Straits Times -0.4% (13.0) 3,083
up to 19756–19650/5926–5892 levels. Shanghai Com 0.1% 2.8 2,592
Indices S2 S1 R1 R2 Indian ADRs Chg (%) (Pts) (Close)
SENSEX 19,650 19,756 19,982 20,104 Infosys -0.2% (0.1) $65.4
NIFTY 5,892 5,926 6,000 6,041 Wipro -0.8% (0.1) $14.1
Satyam -7.4% (0.5) $6.1
News Analysis ICICI Bank -2.4% (1.2) $47.7
Ashoka Buildcon IPO Note: Neutral View HDFC Bank -1.0% (1.8) $179.2
Tecpro Systems IPO Note: Subscribe View
Container traffic falls 3.5% yoy in August 2010
Advances / Declines BSE NSE
Gujarat Gas enters into an agreement with BGIES
IVRCL Assets bags order worth Rs750cr Advances 1,394 572
J K Lakshmi Cement to invest Rs 1800cr to double capacity Declines 1,609 785
Refer detailed news analysis on the following page. Unchanged 82 45
Net Inflows (September 22, 2010)
Rs cr Purch Sales Net MTD YTD Volumes (Rs cr)
FII 4,630 3,125 1,505 20,317 79,443 BSE 4,597
MFs 549 758 (209) (2,649) (18,442) NSE 14,484
FII Derivatives (September 23, 2010)
Open
Rs cr Purch Sales Net
Interest
Index Futures 1,719 2,720 (1,000) 23,439
Stock Futures 3,094 3,852 (758) 41,173
Gainers / Losers
Gainers Losers
Price chg Price chg
Company Company
(Rs) (%) (Rs) (%)
PTC India 120 5.1 Ib Real Estate 172 (3.9)
Punj Lloyd 132 4.0 IndusInd Bank 255 (3.6)
Lupin 399 3.7 HDIL 264 (3.3)
1
Nagarjuna Cons 166 2.9 HCC 60 (2.8)
Crompton Grev 317 2.7 Unitech 83 (2.5)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. Market Outlook | India Research
Ashoka Buildcon IPO Note: Neutral View
IPO details: Ashoka is tapping the IPO market with an issue size of Rs225cr in the price
band of Rs297–324/share, resulting in a public issue of 0.69cr and 0.76cr equity shares at
the upper and lower price band, respectively, of face value Rs10, resulting in a dilution of
13.2% and 14.2%. The company plans to use the IPO proceeds for investment in capital
equipment, meet working capital requirements, repayment of loans and funding the
subsidiaries for prepayment/repayment of their loans.
Ashoka undertakes all activities related to a BOT road project right from tendering for the
project till the collection of tolls. We believe that its integrated structure enables it to bid for
BOT projects with confidence to complete and operate the project on a profitable basis. It
also results in capturing the entire value in the BOT development business, including EPC
margins, developer returns and operation and maintenance margins. Ashoka was one of
the early entrants in the road BOT segment with its first project bagged in 1997, resulting
in 13 years of experience in the road sector. We believe that this rich experience will allow
Ashoka to further enhance its presence in the BOT space. The company is also credited
with executing projects on time, which we believe is critical for maintaining the required
IRRs as this offers extended period of toll collection, thereby increasing overall revenue.
Ashoka’s outstanding order book, as on May 31, 2010, stood at ~Rs1,615cr or 2x
FY2010 revenue. This excludes the two recently bagged road projects of Rs1,600cr, which
are awaiting financial closure.
Outlook and Valuation: Ashoka is a pure play on the road segment and, with the sector in
sweet spot, the company is well placed to reap the benefits going ahead. However, we
believe that the company is not comparable to market leaders IRB Infra and ITNL on
account of having smaller scale of operations despite being an early entrant in the space.
The IPO is available at 2.5x and 2.3x FY2012E P/BV on the upper and lower price bands,
respectively, which again is at a premium to its peers, Sadbhav Engineering and NCC.
Hence, on account of being fairly priced and with most positives factored in,
we recommend a Neutral view to the IPO.
Key risks to our recommendation: 1) Ashoka’s business model is vulnerable to interest rate
fluctuations and traffic growth and 2) concentration of projects in Maharashtra and
Madhya Pradesh.
September 24, 2010 2

3. Market Outlook | India Research
Tecpro Systems IPO Note: Subscribe View
Tecpro Systems Ltd (Tecpro) will be accessing the capital market with an Initial Public
Offering (IPO) of 75.5 lac equity shares of Rs 10 each at a price band of Rs340 – 355
each share. The IPO comprises of fresh issue of up to 62.5 lac equity shares and an offer
for sale of up to 13 lacs equity shares by Metmin Investments Holdings Ltd. The issue
opens on September 23, 2010 and closes on September 28, 2010. The issue proceeds
would be utilized to fund working capital requirements and general corporate purposes.
Incorporated in 1990, Tecpro was promoted by Ajay Kumar Bishnoi and Amul Gabrani,
who have more than 25 years of experience in the material handling industry. The
company designs, engineers, manufactures, sells, commissions and services a range of
material handling systems and equipment for the core infrastructure related sectors like
power, steel, cement and other industries. Leveraging its capabilities in coal and ash
handling, the company has also taken up turnkey BoP contracts in the thermal power
generation sector.
At the upper price band, Tecpro is projected to trade at a P/E and EV/EBDITA of 16.5x and
8.3x its FY2010 earnings, respectively. When compared with its immediate competitors,
viz., Mcnally Bharat and TRF, the scrip is available at a discount of ~10-15% on FY2010
earnings. In addition, over the past five years the company has grown at a scorching pace
along with successfully entering the BoP-EPC segment. As and when Tecpro begins to
accumulate and execute larger size BoP projects going ahead, it will be able to command
premium valuations on superior growth and profitability margins. The successful execution
of few BoP projects over the next couple of years may also result in Tecpro exploring the
feasibility of taking up complete EPC for power plants (ie BTG + BoP), which would place it
in league with BGR Energy. We recommend a Subscribe view on the IPO.
Container traffic falls 3.5% yoy in August 2010
As per data released by the Indian Port Association, container volumes fell by 3.5% yoy in
August 2010. Among major ports, the JNPT port, which handles around 60% of the
country’s container volumes, witnessed substantial fall of 14.8% yoy in volumes during the
month. The drop in container volumes can mainly be attributed to complete closure of
JNPT port for five days and operations at ~60% capacity for nearly 10 days thereafter, due
to an oil spill from an accident between two cargo vessels on August 7, 2010. However,
volumes at the Chennai port, which handles around 16% of the country’s container traffic,
continued to witness a sharp rise, up by 32.1% yoy. Consequently, we expect container
traffic to grow by 10–12% for FY2011E at major ports. Company wise, we estimate
Concor to witness a ~3.0% yoy decline in Exim volumes and GDL to register a 6.9% yoy
decline in CFS volumes for 2QFY2011E, given the high volume contribution from JNPT.
We continue to remain Neutral on the logistics sector.
Gujarat Gas enters into an agreement with BGIES
Gujarat Gas Company has entered into an agreement with BG India Energy Solutions
(BGIES) for the purchase of 0.50mmscmd of RLNG on a firm basis from October 1, 2010,
to December 31, 2013 (i.e., for a period of 39 months). The aforesaid agreement is to
enable the company to meet natural gas requirements in its markets. The agreement is a
positive step as it improves visibility of gas supply availability. However, the company has
not disclosed the price at which gas is being procured; however, it remains confident of
maintaining its margins. Currently, we recommend Neutral on the stock.
September 24, 2010 3

4. Market Outlook | India Research
IVRCL Assets bags order worth Rs750cr
IVRCL’s subsidiary, IVRCL Assets & Holdings Ltd. has bagged an order worth Rs750cr for
four laning and improvement of Karanji-Wani-Ghuggus-Chandrapur Road, Maharashtra
State Highway – 6&7 on DBFOT basis. The project has a concession period of 30 years,
including a construction period of 24 months. The project involves viability gap funding of
Rs231.8cr provided by the state government. This is positive for the company as the
project’s construction will be undertaken by IVRCL itself, which adds to its revenue visibility.
We have valued IVRCL on an SOTP basis. The company’s core construction business is
valued at a P/E multiple of 14x FY2012E EPS of Rs10.9 (Rs153/share), whereas its stake in
its subsidiaries, IVR Prime (Rs49/share) and Hindustan Dorr-Oliver (Rs14/share), has been
valued on an Mcap basis, post assigning a 30% holding company discount. At the CMP of
Rs169, the stock is trading at P/E of 15.5x FY2012E EPS and 2.0x FY2012E P/BV on a
standalone basis and adjusting for its subsidiaries at P/E of 9.7x FY2012E EPS and 1.2x
FY2012E P/BV, which we believe is at attractive valuations. Therefore, on the back of the
company’s excellent execution track record, robust order book to sales ratio and attractive
valuations, we maintain a Buy rating on the stock with a Target Price of Rs216.
J K Lakshmi Cement to invest Rs 1800cr to double capacity
J K Lakshmi Cement (JKLC) has said that it would invest Rs1,800cr over the next three-four
years to double its cement production capacity to 10mtpa. The company, which currently
has a capacity of 5.4mtpa, is setting up a 2.7mtpa Greenfield plant at a cost of Rs1,200cr
in Chattisgarh. The company also plans to spend additional Rs600cr to increase its
capacity by about 2.3mtpa at its existing plants. At the CMP, the stock is trading at an
EV/EBITDA of 3x and EV/tonne of US $43 based on its FY2012E estimates. We have
valued JKLC at an average target EV/EBITDA of 4.5x and EV/tonne of US $60 to arrive at
a fair value of Rs92, which is still at a discount to its replacement cost. We maintain a Buy
rating on the stock.
Economic and Political News
Food grain output looks comfortable in kharif 2010, says Pawar
Food inflation rises to 15.46%; rains, floods push up prices
Govt. clears 24 FDI proposals worth Rs2,727cr
Corporate News
EIH to raise Rs1,300cr via rights issue; gets board nod
KEC Intl. completes acquisition of SAE Towers
L&T to foray into South Africa's power sector; to form a JV
RCOM moves TDSAT challenging disconnection notice by BSNL
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
September 24, 2010 4

5. Market Outlook | India Research
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