1. Strategy
gy
April 2010
Firing up!
Research Team
2. Table of Contents
Strategy ………..………2-8
Large Caps Federal Bank ……………. 36 Heritage Foods …….…….64
Bharti Airtel ……..….……. 10 GSFC …………….……… 39 JK Tyre and Ind. ……….…67
ICICI Bank ………..………13
B k 13 IVRCL Infra ………….….. 42
Maruti Suzuki ….……....... 16 Jagran Prakashan …....… 45
Reliance Infra …..……......19 Jyoti Structures ….……….48
SBI ………………............. 22 Spice Jet ……..…….….... 51
Tech Mahindra …...………25 TAJGVK …..…….………. 54
Mid Caps Small Caps
Anant Raj Ind. ………..…..29 Fag Bearings …………… 58
Electrosteel Castings ……32 Greenply I d t i …….. 61
G l Industries
3. New growth cycle from FY2011E
Signs of economic improvement are getting stronger in India with the IIP growth having recovered from lows of
-0.2% in December 2008 to hit a high of 16.7% in January 2010. We expect the economy to further strengthen
as low interest rates help kick-start another cycle of corporate and consumer credit expansion.
Correspondingly, Earnings expectations from Corporate India for FY2011E are increasing, coming off a low
base in FY2010E. For instance, with global economies improving, we have revised upwards our Earnings
estimates for Metal stocks by 10-20%; similar upgrades have also been made for several other sectors.
Overall, we expect the Benchmark Sensex companies to register 27% CAGR in Earnings over the next two
years. W expect sectors lik C it l G d & E i
We t t like Capital Goods Engineering, I f t t
i Infrastructure, B ki and R l E t t t l d
Banking d Real Estate to lead
from the front, even as the Telecom Sector is expected to stabilise in FY2012E.
Sensex EPS Growth
(Rs)
1,500
1,312
1,250
1,065
1,000
830 805 820
723
750
527
500
250
50
-
FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Source: Angel Research
2
4. Manufacturing and Capital Goods to
lead from front
Historical analysis of All-Industry Sales data indicates strong yoy growth, with an average growth rate of around
22% during FY2003-09.
The growth in Sales was achieved on the back of steady increase in capital expenditure in turn increasing the
Gross Block and Plant & Machinery (P&M). The average P&M turnover was around 2.5x during the mentioned
period with a peak rate of around 2.9x in FY2009.
To hi
T achieve th estimated S l growth of 22 24% over FY2010 12E we expect i d t t add P&M worth
the ti t d Sales th f 22-24% FY2010-12E, t industry to dd th
Rs2,64,000cr in FY2012E compared to the P&M addition of around Rs1,60,000cr in FY2009, implying a growth
of 65% over the period. This indicates the significant scope of growth for the Capital Goods Sector in India.
Capex E ti ti
C Estimation (Rs cr)
(R )
Particulars 2013E 2012E 2011E 2010E 2009 2008 2007 2006 2005 2004 2003
Gross Block 3,301,234 2,721,234 2,281,234 1,911,234 1,565,922 1,269,462 992,474 834,503 706,515 595,294 555,235
Plant and Machinery 1,980,740 1,632,740 1,368,740 1,146,740 937,265 777,194 633,965 546,789 464,244 423,509 393,196
Capital Work in Progress 580,000 440,000 370,000 345,312 235,380 148,600 95,058 71,200 74,772 63,911
Net Sales 5,715,628 4,609,377 3,717,240 3,046,918 2,720,462 2,208,030 1,713,108 1,329,333 1,103,187 898,690 807,378
Sales Growth (%) 24 24 22 12 23 29 29 20 23 11 16
Gross block turnover 1.7 1.7 1.6 1.6 1.7 1.7 1.7 1.6 1.6 1.5 1.5
P&M Turnover 2.9 2.8 2.7 2.7 2.9 2.8 2.7 2.4 2.4 2.1 2.1
Incremental Plant and Machinery 264,000 160,071
Growth 2009-12 (%) 65
Source: ACE Equity,, Angel Research
3
5. Inflation expected to decline
Visibly, the headline WPI inflation, which has WPI inflation to come down to 4-5% by March 2011
climbed to 9.9% yoy in February 2010, is the
main catalyst for the RBI’s tightening measures.
15%
Food inflation continues to be the main cause
12%
for this runaway increase in overall inflation. It 10%
remains at elevated levels of 16.3% yoy, while
9%
Non Food
Non-Food manufacturing products inflation
(having 52.2% weightage in the WPI Index) is
6%
just 4.3% in February 2010. 5%
3%
Going forward, Food inflation which was
exacerbated b the B d monsoons l
b d by h Bad last year, i
is
0%
likely to moderate. At the same time, due to the
base effect, over the next 6-9 months, overall
-3%
inflation is likely to once again come down to
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
the manageable 4 5% range
4-5% range.
Source: RBI, Angel Research
4
6. Monetary Tightening not a concern
Monetary Tightening began in Sep 2005, but Credit growth remained above 20% right up to Dec 2008
(%) (%)
9.00 60.0
8.00 50.0
7.00 40.0
6.00 30.0
5.00 20.0
4.00 10.0
3.00 -
Sep--04
Dec--05
Aug--07
Nov--08
Sep--09
Oct--06
Apr--09
Feb--05
Mar--07
Feb--10
Jul--05
May--06
Jan--08
Jun--08
Credit Growth yoy (RHS) Repo Rate (LHS) Reverse Repo Rate (LHS) CRR (LHS) Series5
Source: RBI, Angel Research
The RBI’s main objective is to control inflation expectations Nonetheless at the current juncture with growth
RBI s expectations. Nonetheless,
just picking up, stifling liquidity is not required. Hence, we expect the rate hikes to happen in small, step-by-
step increments, and it will take a dozen or more hikes spread over many quarters, before one needs to start
worrying about high interest rates affecting growth.
In fact, in the previous cycle, even with a 3-4% increase in interest rates, credit demand remained strong due
to robust economic activity and opportunity, buoyed by cheap foreign capital and strong domestic savings. The
present situation appears headed in a similar direction.
5
7. FII inflows to surge…
Even as fundamental factors continue to show significant upward momentum, the economy is also receiving FII
inflows. In fact, even during the crisis-ridden year of CY2009, the country received as much as Rs85,000cr of
FII inflows.
In the first couple of months of this calendar year, India has already received Rs15,000cr by way of FII inflow,
and considering the improving global and domestic scenario, this figure is likely to only improve going forward.
CY2010 is likely to end with at least Rs1-1.25lakh crore (US $20-25bn) of FII inflows.
FII Inflows
(Rs) Phenomenal FII inflows even
90,000 in a low global growth year
60,000
30,000
-
(30,000)
(60,000)
CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10
(YTD)
Source: Bloomberg, Angel Research
6
8. …and FDI is gaining prominence
FDI Inflows (% of World)
Country
y 1980 2000 2006 2008
World 100 100 100 100
Developed Economies 86.2 81.4 70.3 63.4
USA 31.3
31 3 22.7
22 7 16.2
16 2 18.6
18 6
UK 18.7 8.6 10.7 5.7
Developing Economies 13.8 18.6 29.7 36.6
Brazil 3.5 2.4 1.3 2.7
Russian Federation 0.0 0.2 2.0 4.1
China 1.8 8.4 9.0 11.0
India 0.1 0.3 1.4 2.4
Source: UNCTAD, Angel Research
7
9. Markets in Fair value zone, stock-picking
key to investment success
At current levels, the Sensex is trading at 13.4x FY2012E EPS v/s the 5-year average of 16.1x. While
valuations are not cheap, at the same time they are not factoring more than 8% GDP growth. With 8% growth
looking increasingly achievable, we expect the Sensex to touch 20,992 levels (an upside of 19%) by March
2011, based on T
2011 b d Target P/E of 16 FY2012E EPS
t f 16x EPS.
In the ensuing slides we have discussed 15 of our Top Picks that are expected to significantly outperform the
Sensex. We have chosen the stocks from across sectors including large, mid and small caps such as SBI, Tech
Mahindra, Electrosteel Casting, Greenply, etc.
, g, p y,
Sensex Earnings Yield
(Sensex) (%)
Sensex (LHS) Sensex Earnings Yield (%) (RHS) Avg. Bond Yields (%) (RHS)
23,000 11.0
20,500 10.0
18,000 9.0
15,500 8.0
13,000 7.0
10,500 6.0
8,000 5.0
5,500 4.0
3,000 3.0
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Source: Angel Research
8
11. Bharti Airtel
(CMP/TP: Rs310/406)
Minute of usage to grow by 20% over FY10-14: Total MoU has been growing at robust pace marking a
CAGR of 48% in last 4 years. The total minute of usage is likely to grow at a very high rate considering the
lower tele-density of 47% as against that of 88% for US and lower MoU/subscriber (just 458 vs 772 for US)
which provides enough headroom for future growth. We believe total MoU to grow by 20% over FY10-14.
Competition Intensity to reduce: We do not expect the ongoing price war to further intensify as the cost of
operation for the new players are high and not sustainable unless they gain scale. Hence, we believe that
Bharti with high EBIDTA per minute of Rs0.16 is relatively better placed than its peers.
LBO structuring to benefit: Though the Kuwait-based Zain Telecom (African Assets) has been valued higher
than that its closest peer MTN at US $9bn we believe it would still be value accretive for Bharti owing to
peer, MTN, $9bn,
financial leverage from the Leveraged Buy-Out structuring of the deal. Moreover, Bharti has also successfully
acquired 70% stake in Warid Telecom to capitalise on the untapped opportunity in the densely populated
Bangladesh market (160mn), which has low tele-density of 32%.
Trading at attractive valuations to Peers: Bharti Airtel is currently trading at 12.0 FY12E Earnings of Rs25.8,
which is at significant discount to its historical average of 26x as well as Sensex P/E of 14.5x FY12E Earnings,
despite higher average RoCE of 20% (FY10-12E) as against average RoCE of 18% for the Sensex. Hence, we
maintain a Buy on the stock based on 14x FY12E EPS for its Core business and Rs45 per share for its 42%
stake in Indus Towers.
Valuation Snapshot
EPS( Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)
FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12
24.1 23.8 25.8 26.6 21.3 19.4 12.7 13.0 12.0 2.9 2.6 2.2 3.1 2.7 2.2
10
12. Bharti Airtel
MoU to grow by 20% over FY10-14E Leadership maintained with high customer market share
450 130 30.0%
400
25.0%
350
110
300 20.0%
250
90 15.0%
200
150 10.0%
100 70
5.0%
50
0 50 0.0%
FY'07 FY'08E FY'09E FY'10E FY'11E FY'12E FY'13E FY'14E Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10
Total MOU (bn) Subscribers Market share
Source: Company, Angel Securities Source: Company, Angel Securities
Peer Group: Revenue per minute/ EBIDTA per minute Tenancy ratio going up
0.6
06 30,000
30 000 1.6
16
0.52 0.51
0.5 0.45 1.5
28,000
0.4 1.4
0.3 26,000 1.3
0.2
02 0.16
0 16 1.2
12
0.14
0.12 24,000
0.1 1.1
0 22,000 1
Bharti Rcom Idea Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10
RPM EPM No of towers Tenancy ratio
Source: Company, Angel Securities Source: Company, Angel Securities
11
13. Bharti Airtel
Profit & Loss Statement Balance Sheet
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 36,962 39,212 42,651 46,770 SOURCES OF FUNDS
% chg 36.8 6.1 8.8 9.7 Equity Share Capital 1,898 1,898 1,898 1,898
Total Expenditure 21,794 23,195 26,000 28,484 Reserves& Surplus 28,496 36,585 44,454 52,872
EBIDTA 15,168 16,017 16,652 18,287 Shareholders Funds 30,395 38,483 46,352 54,771
(% of Net Sales) Total Loans 11,880 10,152 7,873 5,762
41.0 40.8 39.0 39.1
Deferred Tax Liability 756 756 756 756
Other Income 152 627 618 678
Other Liabilities
Oth Li biliti 34 34 34 34
Depreciation& Amortisation 4,758 5,916 6,569 7,224
Minority Interest 1,070 1,255 1,438 1,636
Interest 1,161 - - -
Total Liabilities 44,134 50,679 56,452 62,958
PBT 9,401 10,728 10,701 11,741
APPLICATION OF FUNDS
(% of Net Sales) 16 16.4 17.1 18.1 Gross Block 55,809 67,609 75,073 82,088
Share in profit of JVs (71.3) 35.0 35.0 35.0 Less: Acc. Depreciation 14,895 20,811 27,380 34,604
Exceptional & Prior Period Net Block 40,914 46,798 47,693 47,485
22 22 22 22
Expenses
Goodwill 4,036 4,036 4,036 4,036
Tax 662 1396 1,500 1,763
Investments 14 14 14 14
(% of PBT) 7.1
71 13.0
13 0 14.0
14 0 15.0
15 0
Current Assets 14,408 15,817 21,958 30,026
Less: Minority interest (MI) 175.9 185.0 182.4 197.8
Current liabilities 15,238 15,986 17,249 18,603
PAT( After Minority
8,470 9,160 9,032 9,793 Net Current Assets 14,408 15,817 21,958 30,026
Interest)
% chg 26.4 8.1 (1.4) 8.4 Total Assets 44,134 50,679 56,452 62,958
12
14. ICICI Bank
(CMP/TP: Rs948/1,155)
Well-positioned to garner strong Market share gains in CASA deposits: In our view, the Bank’s substantial branch
expansion (210 branches added during last 12 months, about 875 more in next 12-18 months ie. 2.5 times the size 8
quarters back) as well as strong Capital Adequacy at 19.4% (Tier-I at 14.2%) have positioned it to gain market share that
will contribute to substantial Core business growth as the macro environment continues to improve. In fact, the Bank has
once again started gaining market share in Savings accounts; during 9MFY2010, the Bank has improved its market
share of Savings deposits by 20bp over FY2009 levels, capturing a substantial 6% incremental market share.
Improved Deposit Mix to reflect in better NIMs: The Bank is decisively executing a credible strategy of consolidation
that will drive materially improved Balance Sheet and Earnings quality over the next two years. The distinguishing feature
of the Bank’s performance in 9MFY2010 was the improvement in CASA ratio to 40% (transformative considering that the
ratio was as low as 22% at the end of FY2007 and 29% even as recently as FY2009). In light of this change in the
Liability-mix, we expect the Bank’s NIMs to improve to a healthy 2.8-3.0% over FY11-12E (2.6% in FY2009) .
Worst of Asset Quality issues over: The Bank’s asset quality is showing signs of stabilising, with 3QFY2010 slippages
coming down to Rs750cr (against run-rate of about Rs1,000cr per quarter). In absolute terms, Gross NPAs of the Bank
declined on a sequential basis for the third consecutive quarter to Rs8,926cr. The Bank has also done lower restructuring
of loans than PSU Banks (3.0% of total loans, 10.2% of net worth). Going forward, there could be potential upsides to our
( , ) g , p p
Earnings estimates on account of the better-than-expected performance on the Asset quality front.
Valuations attractive: At the CMP, the Bank’s Core Banking business (after adjusting Rs307 per share towards the
value of the subsidiaries) is trading at 1.9x FY12E ABV of Rs377. Including subsidiaries, the stock is trading at 1.4x
FY12E ABV of Rs512. We have valued the Bank’s subsidiaries at Rs307 per share of ICICI Bank and the core Bank at
Rs848 (2.25x FY12E ABV). We maintain a Buy on the stock, with a 12-month Target Price of Rs1,155.
12 month
Valuation Snapshot
Company Reco CMP (Rs) Tgt Price (Rs) Upside (%) P/ABV (x) Tgt P/ABV (x) P/E (x) EPS CAGR (%) RoA (%) RoE (%)
FY12E FY12E FY12E FY09-12E FY12E FY12E
ICICIBK Buy 948 1,155 21.7 1.9 2.3 15.6 21.8 1.3 15.1
13
15. ICICI Bank
Savings Deposits Market share Trend Well-positioned in terms of CAR and Branch expansion
6.0
5.0
4.0
3.0
2.0
1.0
-
Y2003
Y2004
Y2005
Y2006
Y2007
Y2008
Y2009
Y2010
FY
FY
FY
FY
FY
FY
FY
9MFY
% Savings Deposit Share
Source: Company, Angel Securities Source: Company, Angel Securities
Strong Traction expected in Profitability driven by lower Provisions SOTP Valuation Summary
40.0
40 0 1.6
16 Y/E March (Rs) Value Per Share
1.4 ICICIBK 848
30.0
ICICI Pru Life 154
1.2
20.0 ICICI Lombard General Insurance 13
1.0
10.0 0.8 ICICI Prudential AMC 15
0.6
06 ICICI Secu t es & PD
C C Securities 27
-
FY2009 FY2010E FY2011E FY2012E 0.4 ICICI Venture Funds management 14
(10.0)
0.2
ICICI UK, Canada 66
(20.0) - ICICI Home Finance 19
% Advances Growth (LHS) % Earnings growth (LHS)
% ROA (RHS) % Provisions/Assets (RHS) SOTP Value 1,155
Source: Company Angel Securities
Company, Source: Company, Angel Securities
14
16. ICICI Bank
Income Statement Balance Sheet
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Interest Income 9,092 8,918 10,169 12,877 Share Capital 1,463 1,463 1,463 1,463
- YoY Growth (%) 10.9 (1.9) 14.0 26.6 - Equity 1,113 1,113 1,113 1,113
Other Income 8,118 7,612 8,327 10,174 - Preference 350 350 350 350
- YoY Growth (%) (8.6) (6.2) 9.4 22.2 Reserve & Surplus 48,420 50,533 53,152 56,705
Operating Income 17,210 16,530 18,496 23,051 Deposits 218,348 212,889 263,983 327,338
- YoY Growth (%) 0.8 (3.9) 11.9 24.6 - Growth (%) (10.7) (2.5) 24.0 24.0
Operating Expenses
O ti E 7,045
7 045 5,983
5 983 7,131
7 131 9,445
9 445 Borrowings 67,324
67 324 64,557
64 557 77,678
77 678 93,473
93 473
- YoY Growth (%) (13.6) (15.1) 19.2 32.5 Tier 2 Capital 25,482 29,304 36,337 45,421
Other Liabilities & Provisions 18,265 5,176 9,835 13,825
Pre - Provision Profit 10,165 10,548 11,364 13,606
Total Liabilities 379,301 363,922 442,447 538,226
- YoY Growth (%) 13.9 3.8 7.7 19.7
Cash in Hand and with RBI 17,536 10,644 13,199 16,367
Provision and
5,048 5,229 4,698 4,482 Bal. with banks & money at
Contingencies 12,430 12,303 15,008 18,313
call
- YoY Growth (%) 30.4 3.6 (10.2) (4.6)
Investments 103,058 101,787 118,294 134,705
Profit Before Tax 5,117 5,319 6,667 9,124 Advances 218,311 212,853 263,938 329,922
- YoY Growth (%) 1.2 3.9 25.3 36.9 - Growth (%) (3.2) (2.5) 24.0 25.0
Provision for Taxation 1,359 1,337 1,686 2,332 Fixed Assets 3,802 3,164 3,743 4,431
- as a % of PBT 26.6 25.1 25.3 25.6 Other Assets 24,164 23,171 28,265 34,488
PAT 3,758 3,982 4,981 6,792 Total Assets 379,301 363,922 442,447 538,226
- YoY Growth (%) (9.6) 6.0 25.1 36.4 - Growth (%) (6.3) (4.1) 22.0 22.0
15
17. Maruti Suzuki
(CMP/TP: Rs1,396/1,861)
Per Capita near inflexion point for car demand: Car penetration in India is estimated at around 12
vehicles/1,000 people in FY2009 compared to around 21 vehicles/1,000 people in China. Moreover, India’s
PPP-based Per Capita is estimated to approach US $5,000 over the next 4-5 years, which is the inflexion point
for Car demand. Increasing penetration is estimated to drive around 14% CAGR in domestic volumes over
FY09-12E. Further,
FY09 12E Further Maruti has a sizeable competitive advantage over the new foreign entrants due to its
entrants,
widespread distribution network (service and sales outlets of around 2,767 and 681, respectively), which is not
easy to replicate.
Suzuki focusing to make Maruti a small car manufacturing hub: Suzuki Japan is making Maruti a
manufacturing hub to cater to increasing global demand for small cars due to rising fuel prices and stricter
emission standards. We estimate the company's export volume to grow at around 55% CAGR over
FY09-12E. Moreover, R&D capabilities, so far largely housed at Suzuki Japan, are progressively moving to
Maruti. The company is aiming to achieve full model change capabilities over the next couple of years, which
will enable it to launch new models and variants at a much faster pace.
Valuation: The company recorded a CAGR of 15% in volume over FY08-10E (in line with industry) and we
estimate it to continue to register double-digit growth of about 14% CAGR over FY2010-12E. We believe that
high growth potential of the Indian car market would mitigate the impact of rising competition for market leader
Maruti Suzuki. We recommend a Buy on the stock with a price target of Rs1,861, at which the stock would
trade at 17x FY2012E EPS, which is in line with our Sensex Target P/E.
Valuation Snapshot
EP (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)
FY10E FY11 FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E
88.0 96.6 109.4 20.5 18.7 17.8 15.9 14.5 12.8 3.3 2.7 2.3 1.1 0.9 0.7
16
18. Maruti Suzuki
High growth potential of Indian car market would mitigate the impact of rising competition for market leader Maruti Suzuki
Particulars* PPP-based/Capita Calorie Telecom Power Car
(US $) (Kilo/Capita) (MOU / Capita) (Kwh/year) (Car/1,000 people)
India 3,100 2,047 125 618
12
USA 46,400 3,900 624 14,240
449
India - Growth Opportunity (x) 15 2 5 23 37
Source: NSSO, CIA, FCC, ERS, Human Development Report 2007-08, Crisil Research, Angel Securities; *-Estimates
Car Sales growth - Tier II and III cities/towns remain to be tapped Rising income level to support volume growth
(in %) 3QFY10 2QFY10 1QFY10 4QFY09 3QFY092QFY09 1QFY09 100%
16.8 18.8 20.4
Top 10 Cities 50 8 (10) (9) (23) (7) 7 80% High Income (annual
income>Rs2.85lakh)
Next 10 Cities 57 23 12 8 (12) 0 8 60%
62.0 Medium Income
61.8 61.6
Next 20 Cities 56 35 9 10 (11) (4) 14 (annual income
40% Rs71000 Rs2.85lakh)
Rs71000-Rs2.85lakh)
Next 60 Cities 55 29 20 23 2 12 17 Low Income (annual
20% income<Rs71000)
Other Cities (36) 55 38 34 11 22 31 21.1 19.3 18.0
0%
All India 41 22 5 4 (13) (1) 12 2005-08 2008-09 2009-10E
Source: Industry Angel Securities
Industry, Source: NCAER Angel Securities
NCAER,
17
19. Maruti Suzuki
Profit & Loss Statement Balance Sheet
Y/E March FY2009 FY2010E FY2011E FY2012E Y/E March FY2009 FY2010E FY2011E FY2012E
Net Sales 20,530 28,299 32,936 38,463
SOURCES OF FUNDS
% chg 14.7 37.8 16.4 16.8 Equity Share Capital 144.5
144 5 144.5
144 5 144.5
144 5 144.5
144 5
Total Expenditure 19,095 24,588 28,847 33,694 Reserves& Surplus 9,200 12,258 14,768 17,609
EBIDTA 1,435 3,711 4,089 4,769 Shareholders Funds 9,345 12,402 14,912 17,754
(% of Net Sales) 7.0 13.1 12.4 12.4 Total Loans 698.9 698.9 698.9 698.9
Other Income 1,016 985 1,038 1,080 Deferred Tax Liability (net) 155.1
155 1 151.3
151 3 140.9
140 9 119.8
119 8
Depreciation & Amortisation 707 854 925 1,110 Total Liabilities 10,199 13,252 15,752 18,572
Interest 51.0 50.3 52.4 50.7 APPLICATION OF FUNDS
PBT 1,693 3,792 4,150 4,689 Gross Block 8,721 10,679 12,668 14,794
(
(% of Net Sales)
) 8.2 13.4 12.6 12.2 Less: Acc Depreciation
Acc. 4,650
4 650 5,504
5 504 6,429
6 429 7,538
7 538
Extraordinary Expense/(Inc.) 146.1 - - - Net Block 4,071 5,175 6,239 7,255
Tax 457 1,247 1,359 1,526 Capital Work-in-Progress 861 1,068 1,013 740
(% of PBT) 27.0 32.9 32.8 32.6 Investments 3,173 5,301 6,301 7,429
PAT 1,236 2,544 2,791 3,163 Current Assets 5,491
5 491 6,243
6 243 7,476
7 476 9,104
9 104
% chg (30.4) 105.9 9.7 13.3 Current liabilities 3,398 4,534 5,277 5,956
Ad. PAT 1,090 2,544 2,791 3,163 Net Current Assets 2,094 1,709 2,199 3,149
% chg (36.5) 133.5 9.7 13.3 Total Assets 10,199 13,252 15,752 18,572
18
20. Reliance Infra
(CMP/TP: Rs1,008/1,253)
Transformation into Infrastructure behemoth…: R-Infra offers strong near-term growth potential with
sustained long-term cash flows with nearly Rs1.6trillion (US $35bn) in assets under development across the
Infrastructure and Power verticals and ownership/control over around 3.8bn tonne coal reserves. Visibility in
execution is likely to improve substantially with two road projects already operational and Rs14,000cr worth
roads,
roads metro rail and power projects going on stream in the next 12 months
on-stream months.
…on the back of strong Balance Sheet…: R-Infra has one of the strongest Balance Sheets in the Infra space
in India, with a huge war chest. Given its high risk appetite, the company is uniquely positioned to gain from
India’s infra growth opportunity. Its cash and cash equivalent stood at around Rs10,000cr at end FY2009.
Compared with peers, it has an under leveraged Balance Sheet, with Gross Debt-to-Equity of around 62%.
p p , g , q y
Hence, we believe that there is ample scope for R-Infra to aggressively, albeit prudently, build its infrastructure
portfolio with strong net worth along with its execution experience, which makes it a serious contender for the
proposed mega infrastructure projects, which potentially offer higher returns by restricting competition.
…coupled with strong growth opportunities: Visible traction in road project awards by the NHAI and
planned awarding pipeline (37 050k over FY10 14E) are positives f i f
l d di i li (37,050km FY10-14E) ii for infrastructure d
developers lik R li
l like Reliance
Infra. Besides this, the Mega Road Projects and Ultra Mega Transmission Projects serve as potential
opportunities in the near term. Also, the large Metro Projects in Hyderabad and Bangalore are at advanced
stages of bidding with Reliance Infra also figuring amongst the bidders.
Valuation Snapshot
EPS (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)
FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E
54.1 54.4 68.3 6.5 6.2 7.2 18.6 18.5 14.8 1.2 1.2 1.1 2.5 2.4 2.0
19
21. Reliance Infra
Re-organisation to increase Value-unlocking potential
CBM (45 %)
Fuel Ou Blo
t cks (7 0%)
Mumbai Metro Line 1 (69%) Assets Coal Field (100%)
Delhi Airport Metro Express Reliance Infrastructure 45%
Reliance
Link (95%) EPC + Investments Power
(Listed Company) 51%
Mumbai Metro Line 2 (48%) Reliance
Cementation
100%
Reliance
BSES Energy Reliance Reliance Relia nce Relia nce Relia nce
Kerala Power Energy Property
Generation Energy InfraVentures
Power Transmission Trading Developers
Ltd Ltd Ltd
Ltd Ltd Ltd Ltd
(Dahanu)
100% Transmission Mumbai Energy Trading Road projects Real Estate
Projects distribution 5 projects in SEZ
Reliance (100%) Tamil Nadu
Goa & Delhi Discoms GF toll road
t ll d
Samalkot (49%)
Power Jaipur Reengus
Ltd toll road
Airport projects
Source: Company, Angel Securities
Huge infra portfolio: Metros to improve credibility
Order Book lends visibility R-Infra's Capex Concession
Project Detail Type of Project period+Const.
period+Const CoD
stake(%)
t k (%) (Rs bn)
(R b )
(Rs cr) period
Current projects
20,000
Delhi Airport Express Link Metro 95 28.9 28+2 FY11
Mumbai Metro phase I Metro 69 23.5 32.5+2.5 FY12
16,000 Namakkal - Karur (NK Toll) Road 100 3.5 18.5+1.5 Operational
5,400 9,900 Dindigul Samyanallore (DS Toll) Road 100 4.2 18.5+1.5 Operational
Trichy Karur (TK Toll) Road 100 7.5 28+2 FY12
12,000
Trichy Dindigul (TD Toll) Road 100 5.6 28+2 FY12
4,500 - Salem Ulenderpet (SU Toll) Road 100 10.8 23+2 FY12
8,000 Gurgaon - Faridabad Road 100 7.8 15+2 FY12
Total 91.8
4,000 9,000 Projects in-pipeline
7,200
Mumbai Metro Line 2 Metro 48 110 30+5 5yrs from FC
Mumbai Western Expressway Sea Link Urban Transport 51 35+5 NA
-
Jaipur-Reengus Road 100 5.9 15.5+2.5 NA
Existing Order Book Projects in Pipeline/ Pref erred Bidder Regional Airports Airport 100 1-1.5 95-year lease NA
Roads Power Transmission Metro's Total 169
Grand Total 260.7
Source: Company Angel Securities
Company, Source: C
S Company, A
Angel S
l Securities
iti
20
22. Reliance Infra
Profit & Loss Statement (Consolidated) Balance Sheet (Consolidated)
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 12,578 14,076 15,825 19,064 SOURCES OF FUNDS
% chg 50.8 11.9 12.4 20.5 Equity Share Capital 226.1
226 1 226.1
226 1 269.0
269 0 269.0
269 0
Total Expenditure 11,948 12,585 13,927 16,067
Reserves& Surplus 16,082 18,678 23,171 25,183
EBITDA 629.9 1,490.8 1,897.7 2,996.2
Shareholders Funds 16,308 18,904 23,440 25,452
(% of Net Sales) 5.0 10.6 12.0 15.7
Total Loans 10,217 13,812 16,446 16,624
Other Income 1,423.8 993.2 1,121.0 1,267.9
Depreciation & Amortisation 330.4 465.8 565.6 914.7 Deffered Tax Liability 211.3
211 3 194.0
194 0 194.0
194 0 194.0
194 0
Interest & other Charges 439.4 561.1 706.4 1,128.3 Total Liabilities 26,736 32,910 40,080 42,270
PBT 1,283.9 1,457.1 1,746.7 2,221.1 APPLICATION OF FUNDS
(% of Net Sales) 10.2 10.4 11.0 11.7 Gross Block 10,107 11,886 15,863 24,873
Extraordinary Inc
Inc. 53.6
53 6 - - - Less: Acc Depreciation
Acc. 4,638
4 638 5,104
5 104 5,669
5 669 6,584
6 584
Tax 78.3 233.1 283.7 383.9 Net Block 4,880 6,193 9,604 17,699
(% of PBT) 6.1 16.0 16.2 17.3 Capital Work-in-Progress 3,558 7,755 8,982 1,811
PAT 1,259.2 1,224.0 1,463.0 1,837.2
Investments 15,936 16,196 18,310 19,491
% chg 10.4 ( )
(2.8) 19.5 25.6
Current A
C t Assets
t 9,570
9 570 9,393
9 393 9,861
9 861 9,957
9 957
(% of Net Sales) 10.0 8.7 9.2 9.6
Current liabilities 7,208 6,627 6,677 6,688
Adj. PAT 1,205.6 1,224.0 1,463.0 1,837.2
% chg 92.7 1.5 19.5 25.6 Net Current Assets 2,362 2,767 3,184 3,269
(% of Net Sales) 9.6 8.7 9.2 9.6 Total Assets 26,736 32,910 40,080 42,270
21
23. State Bank of India
(CMP/TP: Rs2,073/2,586)
Improving Savings Market Share: During the past few years, the Bank witnessed a significant decline in CASA market
share with private sector banks pursuing aggressive branch expansion. However, the Bank’s market share of savings deposits
has expanded by a substantial 300bp to 23.5% during FY07-9MFY10 (only PSB to do so), driven by relatively faster branch
expansion (9.5% CAGR v/s 2-5% for most PSBs) leveraging its tremendous trust factor in the country.
Strongest Fee Income among PSU Banks: SBI has a relatively strong share of Fee Income flowing from commission,
g g y g g
exchange and brokerage, which is one of the highest amongst PSU banks, owing to its vast branch network and strong
corporate and government business relationships. During 9MFY10, the Bank continued its dominance with Non-Interest
Income/Assets at 1.2% (highest among PSU Banks).
Asset quality pressure – A short-term headwind: SBI has a Gross NPA ratio of 3.1% and Net NPA ratio of 1.9%, indicating
very low provision coverage ratio of 40.2%, (56% including technical write-offs) and restructured loans of Rs26,000cr,
y p g %, ( % g ) , ,
constituting 39.1% of its Net Worth. We expect pressure on Corporate and SME loans restructured to continue for another
couple of quarters. However, the Bank is expected to comfortably absorb asset quality pressures and we see this as a short-
term headwind over-discounted by the market, providing an attractive buying opportunity.
Banking and Non-Banking subsidiaries form significant portion of SOTP: Due to strong CASA and Fee Income, SBI’s
core RoEs have improved over the past few years and unlike virtually all other PSBs actual 9MFY2010 RoEs are below core
PSBs,
levels due to low asset yields, providing scope for upside as the CD ratio improves and yields normalise to sectoral averages.
Moreover, after a steep correction, SBI (excluding value of insurance and capital market subsidiaries), is trading at just 1.2x
FY2012E ABV v/s its 5-year range of 1.3-2.0x and median of 1.6x. We believe this provides sufficient margin of safety and
attractive upside, especially in light of its dominant position and reach, strong growth and superior Earnings quality. We
recommend a Buy on the stock, with a Target Price of Rs2,586.
Valuation Snapshot
Company Reco CMP (Rs) Tgt Price (Rs) Upside (%) P/ABV (x) Tgt P/ABV (x) P/E (x) EPS CAGR (%) RoA (%) RoE (%)
FY12E FY12E FY12E FY09-12E FY12E FY12E
SBI Buy 2,073 2,586 24.8 1.2 1.6 8.6 18.0 1.1 19.2
22
24. State Bank of India
Improving Market Share – Savings Deposits Fee Income/Assets – The best amongst PSU Banks
25.0
2.5
2.1
23.0
2.0 1.7 1.7
21.0
1.5
15
1.2 1.1
19.0 1.0 1.0
1.0 0.9 0.9 0.8 0.8 0.8 0.7
17.0 0.6 0.6
0.5
15.0
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
9MFY2010
-
SBI
DBK
BOI
PNB
OBC
XSB
SIB
PBK
NBK
BOB
DBK
CBK
IOB
NBK
ICICIBK
DEN
FED
HDFC
AX
P
UN
O
CRP
IND
B
% Savings Deposit Share
Source: Company, Angel Securities Source: Company, Angel Securities
Upside in Core RoE (%, 9MFY10) SOTP Valuation Summary
30 Y/E March (Rs) Target Multiple Value Per Share
25.4
25
20.6 SBI & Associates 1.6x ABV 2,342
19.3
20 17.5
16.3 15.8
15
Life 15.0x NBP 202
10
AMC 5% AUM 14
5
Others (Cap Mkt, Cards, Factors) 28
0
BOB PNB SBI SOTP Value 2,586
Actual RoE Core RoE
Source: Company Angel Securities
Company, Source: Company Angel Securities
Company,
23
25. State Bank of India
Income Statement Balance Sheet
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Interest Income 20,873 24,566 29,363 36,931
Share Capital 635 635 635 635
- YoY Growth (%) 22.6 17.7 19.5 25.8
Reserve & Surplus 57,313 64,707 73,390 85,184
Other Income 12,902 13,806 15,115 18,297
Deposits 742,073 801,439 961,727 1,144,455
- YoY Growth (%) 37.3 7.0 9.5 21.1
- Growth (%) 38.1 8.0 20.0 19.0
Operating Income 33,775 38,373 44,477 55,228
Borrowings 53,714 58,011 69,613 82,839
- YoY Growth (%) 27.8 13.6 15.9 24.2
Tier 2 Capital
C p ,
30,344 37,931
, 45,517
, 54,620
,
Operating Expenses
O ti E 15,649
15 649 19,012
19 012 21,674
21 674 24,708
24 708
Other Liabilities & Provisions 80,353 79,450 99,432 119,870
- YoY Growth (%) 24.1 21.5 14.0 14.0
Total Liabilities 964,432 1,042,171 1,250,313 1,487,604
Pre - Provision Profit 18,127 19,361 22,804 30,520
31.2 6.8 17.8 33.8 Cash in Hand and with RBI 55,546 40,072 48,086 57,223
- YoY Growth (%)
Bal.with banks & money at
Provision and 48,858
48 858 52,766
52 766 63,319
63 319 75,350
75 350
3,736 4,903 5,809 7,457 call
Contingencies
Investments 275,954 275,257 330,161 385,238
- YoY Growth (%) 10.8 31.2 18.5 28.4
Advances 542,503 629,304 755,164 906,197
Profit Before Tax 14,391 14,457 16,995 23,063
- Growth (%) 30.2 16.0 20.0 20.0
- YoY Growth (%) 37.9 0.5 17.6 35.7
Provision for Taxation 5,058 4,829 5,679 7,727 Fixed Assets
Fi d A 3,838
3 838 4,021
4 021 4,680
4 680 5,402
5 402
- as a % of PBT 35.2 33.4 33.4 33.5 Other Assets 37,733 40,752 48,902 58,194
PAT 9,332 9,628 11,316 15,335 Total Assets 964,432 1,042,171 1,250,313 1,487,604
- YoY Growth (%) 38.7 3.2 17.5 35.5 - Growth (%) 33.8 8.0 20.0 19.0
24
26. Tech Mahindra
(CMP/TP: Rs907/1,168)
Sustained traction from Non-BT clients: The company’s Revenues from Non-BT clients have continued to flourish and
marked a strong CQGR of 16.1% over 1QFY06-3QFY10. The sustained volume traction from Non-BT clients (4% CQGR
over 4QFY10-4QFY12E) continues to provide Revenue growth momentum, Margin improvement, geographical
diversification, increased Off-shoring mix and reduced client concentration. Moreover, net addition of 3,897 employees in
3QFY10 (highest in the last ten quarters) taking the total headcount to 30,404, indicates a strong pipeline .
( g ) g g
Restructuring ends the uncertainty: The recent deal restructuring with BT ends the uncertainty, as the new terms
ensure compensatory volumes. We believe that the Advance Revenues will help it maintain its existing level of Operating
Margins of 24%. Also, the repayment of loans from the compensatory fee receipt (upfront payment of Rs968cr) will
reduce Interest costs and support Earnings growth.
Positive news flow from Satyam: Positive news flow from Satyam by way of client retention, new deal wins and
favorable settlement with Upaid are also providing comfort on future business prospects.
Significant discount to Peers: Currently, the consolidated EBITDA margin outlook is relatively weak due to the BT deal
as well as the uncertainty regarding Satyam. However, considering the company's pedigree of a Tier-1 IT player, margins
s ou d e e tua y e e c ose pee e e s ased o t s p e se, c ud g Satya , t e stoc s oo g att act e o
should eventually revive close to peer levels. Based on this premise, including Satyam, the stock is looking attractive on
EV/Sales basis relative to peers, trading at 1.9x FY2010E sales, a substantial discount to its peers average of 3.5x. We
have valued TechM on SOTP basis, valuing Tech Mahindra (excl. Satyam) at 13x FY2012E EPS (40% discount to our
target P/E for Infosys v/s 55% at present and 20% to the 5-year average), and value its 42.7% stake in Mahindra Satyam
at Rs287 per share based on current market cap, applying a 25% holding company discount.
Valuation Snapshot (Financials are excluding Satyam Market Cap not adjusted for Satyam)
Satyam,
EPS (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)
FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E
53.2 60.7 67.8 28.5 25.1 22.1 17.0 14.9 13.4 4.3 3.3 2.6 1.9 1.7 1.4
25
