Weekly review 23-10-10

Please refer to important disclosures at the end of this report
WWWWWeekly Revieweekly Revieweekly Revieweekly Revieweekly Review
October 23, 2010
Markets remain flat
Markets closed flat during the week, which was marked by highly volatile
sessions. The Sensex ended the week higher by 0.2%, while the S&P CNX
Nifty increased by 0.1%. However, BSE mid-cap and small-cap indices
outperformed their large-cap counterparts, up 1.4% and 0.9%, respectively.
Volatility was backed by mixed global cues, with a surprise rate hike by
China, but strong performance by global markets. Earnings reported for
2QFY2011 met and in some cases beat the street's estimates. BSE healthcare
and BSE oil and gas (O&G) indices led during the week, up 2.8% and
2.7%, respectively. The BSE metal index, however, was the biggest loser,
down 2.7% during the week.
BSE O&G index - RIL leads the way
The BSE O&G index gained 2.7%, outperforming the Sensex. RIL, the
major contributor to the index (58.8% weightage), gained 3.9% after
prolonged underperformance relative to the Sensex. OMCs’ stocks witnessed
gains during the week, following the correction in the preceding week.
HPCL, BPCL and IOC gained 1.8%, 3.2% and 6%, respectively. Further,
with the recent hike in petrol prices, the government reposed its faith with
regard to petrol price deregulation. Subdued crude price, which stood flat
(~US $81/bbl), also helped the companies. Upstream oil companies like
ONGC and GAIL remained flat, as investors awaited news flows regarding
further oil reforms. Cairn also remained flat (down 0.6%), as it continued
to wait for government clearance for its deal with Vedanta Resources. Essar
Oil was the major gainer (up 7.2%) from the index post good 2QFY2011
performance. After the recent increase in the stock prices, weAfter the recent increase in the stock prices, weAfter the recent increase in the stock prices, weAfter the recent increase in the stock prices, weAfter the recent increase in the stock prices, we
have a Neutral view on the sector and our top pick is RIL.have a Neutral view on the sector and our top pick is RIL.have a Neutral view on the sector and our top pick is RIL.have a Neutral view on the sector and our top pick is RIL.have a Neutral view on the sector and our top pick is RIL.
Inside This Weekly
Aurobindo Pharma - Initiating Coverage:Aurobindo Pharma - Initiating Coverage:Aurobindo Pharma - Initiating Coverage:Aurobindo Pharma - Initiating Coverage:Aurobindo Pharma - Initiating Coverage: Aurobindo Pharma, over
the years, has transformed itself from being a low-margin API player to a
high-margin formulation player. Consequently, APL's FY2012 OPM and
RoE are at par with top Indian generic peers. The stock is currently trading
at 50% discount to the top Indian generic peers and unwarranted due to
the improving business mix, owing to which we believe the stock is poised
for re-rating. WWWWWe Initiate Coverage on the stock with a Buye Initiate Coverage on the stock with a Buye Initiate Coverage on the stock with a Buye Initiate Coverage on the stock with a Buye Initiate Coverage on the stock with a Buy
recommendation and an SOrecommendation and an SOrecommendation and an SOrecommendation and an SOrecommendation and an SOTP TTP TTP TTP TTP Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice of `````1,330.1,330.1,330.1,330.1,330.
Bombay Dyeing - Quick TBombay Dyeing - Quick TBombay Dyeing - Quick TBombay Dyeing - Quick TBombay Dyeing - Quick Take:ake:ake:ake:ake: We believe monetisation of land bank
and recovery in manufacturing (textile and polyester units) business will be
a catalyst for the stock. We value real estate business at `940/share and
manufacturing business at 0.5x of its asset value fetching `112/share.
Hence, we recommend Buy on the stock with a Twe recommend Buy on the stock with a Twe recommend Buy on the stock with a Twe recommend Buy on the stock with a Twe recommend Buy on the stock with a Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice of
`````894/share (15% discount to our NAV).894/share (15% discount to our NAV).894/share (15% discount to our NAV).894/share (15% discount to our NAV).894/share (15% discount to our NAV).
TIL - Quick TTIL - Quick TTIL - Quick TTIL - Quick TTIL - Quick Take:ake:ake:ake:ake: TIL is a construction equipment supplier to the core
sectors of the economy. We estimate TIL to post a CAGR of 31% in revenue
and 24% in profit over FY2010–12. At `681, TIL is trading at inexpensive
valuations of 7.4x FY2012E earnings. WWWWWe Initiate Coverage on thee Initiate Coverage on thee Initiate Coverage on thee Initiate Coverage on thee Initiate Coverage on the
stock with a Buy rating and a Tstock with a Buy rating and a Tstock with a Buy rating and a Tstock with a Buy rating and a Tstock with a Buy rating and a Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice of `````823.823.823.823.823.
Global Indices
Indices Oct. Oct. Weekly YTD
15, 10 22, 10 (% chg)
BSE 30 20,125 20,166 0.2 15.5
NSE 6063 6066 0.1 16.6
Nasdaq 2,469 2,479 0.4 9.3
DOW 11,063 11,133 0.6 6.8
Nikkei 9,500 9,427 (0.8) (10.6)
HangSeng 23,758 23,518 (1.0) 7.5
Straits Times 3,204 3,174 (1.0) 9.5
Shanghai Composite 2,971 2,975 0.1 (9.2)
KLSE Composite 1,490 1,491 0.1 17.1
Jakarta Composite 3,597 3,598 0.0 42.0
KOSPI Composite 1,902 1,897 (0.3) 12.7
Indices Oct. Oct. Weekly YTD
15, 10 22, 10 (% chg)
BANKEX 14,049 14,116 0.5 40.7
BSE AUTO 9,752 9,729 (0.2) 30.8
BSE IT 6,075 6,133 1.0 18.3
BSE PSU 10,332 10,436 1.0 9.5
Sectoral Watch
(Rs crore)
As on Purchases Sales Net Activity
Oct 14 344 1,429 (1,085)
Oct 15 417 1,466 (1,048)
Oct 18 600 460 139
Oct 19 537 487 50
Oct 20 837 658 179
NetNetNetNetNet 2,7342,7342,7342,7342,734 4,5004,5004,5004,5004,500 (1,766)(1,766)(1,766)(1,766)(1,766)
Mutual Fund activity (Equity)
(Rs crore)
Cash Futures Net
As on (Equity) Activity
Oct 15 654 (1,189) (535)
Oct 18 816 (1,044) (228)
Oct 19 341 331 672
Oct 20 811 (634) 177
Oct 21 977 949 1,925
NetNetNetNetNet 3,5983,5983,5983,5983,598 (1,588)(1,588)(1,588)(1,588)(1,588) 2,0112,0112,0112,0112,011
FII activity

October 23, 2010
For Private Circulation Only | Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP00000154 6 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 2
FFFFFundamental Fundamental Fundamental Fundamental Fundamental Focus |ocus |ocus |ocus |ocus |
Aurobindo Pharma - Buy
Entering the big league
Aurobindo Pharma (APL), over the years, has transformed itself
from being a low-margin API player to a high-margin
formulation player. Consequently, APL's FY2012 OPM and RoE
are on par with top Indian generic peers. Concerns on the debt
front are also receding and the company's net debt/equity ratio
is expected to improve to 0.6x in FY2012 from 1.1x in FY2010.
We expect net sales and recurring profit (excluding other
operating income) to post a CAGR of 15.6% and 29.1%
respectively, over FY2010-12. The stock is currently trading at
13.6x FY2011E and 10.3x FY2012E earnings, which is at 50%
discount to the top Indian generic peers and unwarranted due
to the improving business mix owing to which we believe that
the stock is poised for re-rating. WWWWWe Initiate Coverage on thee Initiate Coverage on thee Initiate Coverage on thee Initiate Coverage on thee Initiate Coverage on the
stock, with a Buy recommendation and SOstock, with a Buy recommendation and SOstock, with a Buy recommendation and SOstock, with a Buy recommendation and SOstock, with a Buy recommendation and SOTP TTP TTP TTP TTP Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice of
`````1,330.1,330.1,330.1,330.1,330.
Supply agreements to drive growth:Supply agreements to drive growth:Supply agreements to drive growth:Supply agreements to drive growth:Supply agreements to drive growth: To leverage on its cost
efficiency and strong product filings, APL entered into supply
agreements with Pfizer and AstraZeneca, which provides
significant revenue visibility. Under the Pfizer contract, APL would
supply more than 100 products post full commercialisation of
the contract and cover various geographies. In FY2010, APL
scaled up supply with 23 products to the US and clocked
revenues of US $48mn. Under its supply agreement with
AstraZeneca, APL would be supplying several solid dosage and
sterile products to the emerging markets covering therapeutic
segments such as anti-infective, CVS and CNS. APL is also in
talks with other MNCs for more supply agreements. Revenues
from the supply agreements are set to rise 3x over FY2010-12
from `227cr to `644cr.
US and ARV formulation segments to be key drivers for baseUS and ARV formulation segments to be key drivers for baseUS and ARV formulation segments to be key drivers for baseUS and ARV formulation segments to be key drivers for baseUS and ARV formulation segments to be key drivers for base
business:business:business:business:business: APL has commercialised 61 products in the US with
the top-10 products contributing nearly 60% of its revenues in
FY2010. The company primarily targets day-1 launches in the
US. APL's US base business (ex-Pfizer) is expected to post CAGR
of 36.0% over FY2010-12 to US $268mn with revenue per
product increasing to US $2.6mn from US $2.3mn. On ARV
front, we expect revenues to log CAGR of 11.1% to `612cr
over FY2010-12 as APL would continue to be the largest supplier
under the PEPFAR contract with a market share of 35%. APL
enjoys high market share as it is fully integrated in all its products
apart from having a larger product basket.
Initiating Coverage
Research Analyst - Sarabjit Kour Nangra/Sushant Dalmia, CFA
Price - `1,120
Target Price - `1,330
Source: Company, Angel Research; Price as on October 18, 2010
Key Financials (Consolidated)
Net SalesNet SalesNet SalesNet SalesNet Sales 2,9352,9352,9352,9352,935 3,3703,3703,3703,3703,370 3,7963,7963,7963,7963,796 4,5064,5064,5064,5064,506
% chg 20.8 14.8 12.7 18.7
Net PNet PNet PNet PNet Profitrofitrofitrofitrofit 100100100100100 563563563563563 479479479479479 617617617617617
% chg (58.0) 462.6 (15.0) 28.7
Recurring PRecurring PRecurring PRecurring PRecurring Profitrofitrofitrofitrofit 301301301301301 454454454454454 465465465465465 617617617617617
% chg 26.3 50.7 2.5 32.6
EPS (EPS (EPS (EPS (EPS (`````))))) 18.618.618.618.618.6 101.1101.1101.1101.1101.1 84.984.984.984.984.9 109.2109.2109.2109.2109.2
Adj EPSAdj EPSAdj EPSAdj EPSAdj EPS 56.056.056.056.056.0 81.581.581.581.581.5 82.482.482.482.482.4 109.2109.2109.2109.2109.2
EBITDA Margin (%) 12.7 18.3 18.6 20.4
P/E (x) 20.0 13.7 13.6 10.3
RoE (%) 25.5 29.6 22.7 24.1
RoCE (%) 7.3 12.1 12.3 15.5
P/BV (x) 4.9 3.4 2.8 2.2
EV/Sales (x) 2.8 2.5 2.2 1.8
EV/EBITDA (x) 22.0 13.5 11.6 8.7
Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E
VVVVValuation:aluation:aluation:aluation:aluation: We have valued APL on a SOTP basis. The base
business has been valued at 14x FY2012E core earnings (`90.2/
share), which is at 33% discount (on the back of low presence
in the high-margin domestic formulation business) to the top
Indian generic players and fetches `1,263/share. We have
assigned a higher multiple to APL's core business compared to
the multiple assigned by street and its historical average, as we
believe that the concerns about higher contribution of the API
business is unwarranted given that the company's FY2012 OPM
and RoE are on par with top Indian generic peers and are
likely to sustain going forward.
APL has also seen a substantial spurt in other operating income
on the back of dossier income primarily under the Pfizer
agreement and sale of dossiers in Europe. Other operating
income constituted nearly 31.9% of PBT in FY2010. However,
we have assigned a lower multiple as there is lack of clarity
regarding the time-line of the recurring nature of the dossier
income. We have valued other operating income at 7x 50% of
FY2012E income (`9.5/share) and ascribed `67/share.

October 23, 2010
Bombay Dyeing - Buy
We believe that Bombay Dyeing monetising its legacy land bank
in a timely manner will be a key trigger for its stock performance.
Moreover, recovery in its manufacturing (textile and polyester
units) business will be an additional catalyst for the stock. The
promoters recently issued 4mn warrants at `527.83/share,
which will increase their stake from 47.1% to 52.1% post
conversion. We have valued the real estate business at
`940/share and manufacturing business at 0.5x of its asset
value fetching `112/share. Hence, we recommend a Buy on
the stock with a Target Price of `894/share (15% discount to
our NAV).
LLLLLegacy land bank at prime location to unlock value:egacy land bank at prime location to unlock value:egacy land bank at prime location to unlock value:egacy land bank at prime location to unlock value:egacy land bank at prime location to unlock value: Bombay
Dyeing has ~65 acres of historical mill land located in Central
Mumbai. Both the properties have ~9mn sq ft of saleable area
(1mn sq ft already developed), which the company intends to
develop (mixed) over the next 8-10 years. The company has
already entered into a contract with L&T to develop the
properties. By end 2HFY2011, company intends to launch 1mn
sq ft for residential purposes at Spring Mills (Dadar). In
1HFY2011, the company's real estate segment reported EBIT
of `41.4cr.
Signs of improvement in manufacturing business:Signs of improvement in manufacturing business:Signs of improvement in manufacturing business:Signs of improvement in manufacturing business:Signs of improvement in manufacturing business: Bombay
Dyeing has undertaken measures to improve profitability of its
manufacturing business by reducing inventory, initiating cost
reduction measures viz. switching over from liquid fuel to natural
gas, shifting its manufacturing base and launching new
products. Consequently, EBIT loss was lower for Textile division
at `14.4cr in 1HFY2011 v/s `22.3cr in 1HFY2010 while the
Polyester division reported a profit of `9.1cr in 1HFY2011
v/s a loss of `39.6cr in 1HFY2010. Further, the demand has
been reviving in the domestic segment, which has improved
utilisation levels.
Valuation - Trading at significant discount to NAV
WWWWWe have assumed execution period of ten years for thee have assumed execution period of ten years for thee have assumed execution period of ten years for thee have assumed execution period of ten years for thee have assumed execution period of ten years for the
8mn sq ft of saleable area.8mn sq ft of saleable area.8mn sq ft of saleable area.8mn sq ft of saleable area.8mn sq ft of saleable area.
Spring Mill valued atSpring Mill valued atSpring Mill valued atSpring Mill valued atSpring Mill valued at `````954/share:954/share:954/share:954/share:954/share: We have assumed 5mn
sq ft as saleable area from the 40 acre Spring Mill project. The
Quick Take
Research Analyst - Param Desai/Mihir Salot
Key Financials (Standalone)
Net salesNet salesNet salesNet salesNet sales 505505505505505 973973973973973 1,3241,3241,3241,3241,324 1,6521,6521,6521,6521,652
% chg 92.6 36.1 24.8
Net profitNet profitNet profitNet profitNet profit 3636363636 1717171717 (195)(195)(195)(195)(195) 1818181818
% chg - (53.6) - -
EBITDA (%) 14.7 7.3 0.1 15.6
EPS (EPS (EPS (EPS (EPS (`````))))) 9.39.39.39.39.3 4.34.34.34.34.3 (50.4)(50.4)(50.4)(50.4)(50.4) 4.84.84.84.84.8
P/E (x) 67.1 144.5 - 130.8
P/BV (x) 6.0 5.9 6.5 11.5
RoE (%) 9.2 4.1 (50.0) 6.3
RoCE (%) 4.7 2.2 (2.8) 9.7
EV/Sales (x) 6.8 3.9 3.0 2.5
EV/EBITDA (x) 46.1 52.9 4,996.4 16.1
Y/E March (` cr) FY2007 FY2008 FY2009 FY2010
Vintage gains
selling price has been assumed at `20,000/sq ft for the
residential project and rental of `125/sq ft for the commercial
segment. From FY2012 onwards, we have factored in 5% price
escalation in the construction, capital and rental value of this
project. We have assumed that Bombay Dyeing will develop
the entire Spring Mill project by FY2021.
WWWWWorli Mill valued atorli Mill valued atorli Mill valued atorli Mill valued atorli Mill valued at `````720/share:720/share:720/share:720/share:720/share: We have assumed 3mn sq
ft as saleable area from its 20 acre Worli Mill project. The selling
price has been assumed at `25,000/ sq ft for the residential
project and rental of `150/sq ft for the commercial segment.
From FY2012 onwards, we have factored in 5% price escalation
in the construction, capital and rental value for this project. We
have assumed that Bombay Dyeing will develop the entire Worli
Mill project by FY2021.
WWWWWe have assigned 15% We have assigned 15% We have assigned 15% We have assigned 15% We have assigned 15% WAAAAACC and 10% capitalisation rateCC and 10% capitalisation rateCC and 10% capitalisation rateCC and 10% capitalisation rateCC and 10% capitalisation rate
WWWWWe have assumede have assumede have assumede have assumede have assumed `````4,000/sq ft of construction cost currently4,000/sq ft of construction cost currently4,000/sq ft of construction cost currently4,000/sq ft of construction cost currently4,000/sq ft of construction cost currently
WWWWWe have assumed tax rate of 33% for its real estate businesse have assumed tax rate of 33% for its real estate businesse have assumed tax rate of 33% for its real estate businesse have assumed tax rate of 33% for its real estate businesse have assumed tax rate of 33% for its real estate business
Price - `624
Target Price - `894

October 23, 2010
TIL - Buy
TIL, one of the oldest construction equipment (CE) suppliers in
India, caters to requirements of the core sectors of the economy
such as power, steel and infra. We believe that TIL is well placed
to capitalise on the burgeoning infra and industrial capex and
estimate the company to register a CAGR of 31% in revenues
and of 24% in profit over FY2010-12.
Rising infra spend, private capex to boost demand for CERising infra spend, private capex to boost demand for CERising infra spend, private capex to boost demand for CERising infra spend, private capex to boost demand for CERising infra spend, private capex to boost demand for CE::::: The
demand for CE is driven by infrastructure spend and private
capex. We expect the CE sector to achieve strong leg up with
the Government of India (GoI) having chalked out substantial
outlay for the infrastructure sector in the Eleventh Five-Year Plan.
As per industry reports, total infra spend and industrial capex is
expected to register a CAGR of 13% over FY2010-12 increasing
from `532,000cr in FY2010 to `684,400cr in FY2012. CE
volume is expected to register a CAGR of 18% over CY2009-
13 v/s 13% registered over CY2005-09. Consequently, total
demand for construction equipment is expected to increase from
35,000 units at the end of CY2009 to 68,000 units by CY2013.
Overall, we expect opportunity for the CE manufacturers to
remain robust.
In Sweet Spot:In Sweet Spot:In Sweet Spot:In Sweet Spot:In Sweet Spot: As per the Eleventh Five-year Plan, total demand
for CE arising from road and port sector is valued at `115,800cr.
Overall, we expect the Material Handling Equipment (MHE)
division to register a CAGR of 34.9% over FY2010-12 as against
1.4% recorded over FY2008-10. Moreover, TIL is the exclusive
dealer for global leader, Caterpillar's products primarily in north
and east India. We believe that TIL is in sweet spot given that
East India has approximately 40% of the country's iron ore
reserves and 45% of coal reserves. Overall, we expect TIL's
Coal & Mining Solution (CMS) division to grow at average rate
of 30% over FY2010-12 as against de-growth of 5% over
FY2008-10. Current Power System Solution (PSS) market
primarily comprises of diesel engines. Going ahead, due to
availability of gas we believe that there would be a shift and
expect TIL's PSS division to register 23.5% CAGR over FY2010-
12, as against 12.3% during FY2008-10.
Outlook:Outlook:Outlook:Outlook:Outlook: We believe that an improving economic scenario,
continued government focus on infrastructure spend and pick
up in private capex augurs well for companies supplying CE to
Quick Take
Research Analyst - Sageraj Bariya
Key Financials (Standalone)
% chg (1.9) 1.7 32.2 30.3
Adj PAdj PAdj PAdj PAdj Profitrofitrofitrofitrofit 4545454545 6060606060 6666666666 9292929292
% chg 3.8 33.1 10.2 39.8
EBITDA Margin (%) 9.1 11.4 9.7 9.9
P/E (x) 15.3 11.5 10.4 7.4
P/BV (x) 2.9 2.5 2.0 1.6
RoE (%) 21.7 23.4 21.5 24.4
RoCE (%) 24.2 25.9 24.6 28.1
EV/Sales (x) 0.7 0.7 0.6 0.4
EV/EBITDA (x) 8.2 6.5 6.2 4.4
‘Til’l long term
Price - `681
Target Price - `823
the core sectors of the economy. We expect TIL's CMS and PSS
division to revert to high growth path, while the MHE division
would continue to post healthy growth with the new plant coming
on stream by April 2011.
Attractive valuation:Attractive valuation:Attractive valuation:Attractive valuation:Attractive valuation: On the valuation front, at `681, TIL is
trading at 7.4x FY2012E earnings, which is at a discount to
peers like Bharat Earth Movers (BEML) and Action Construction
Equipment (ACE) that are trading at 12.4x and 9.9x FY2012E
earnings, respectively. Moreover, we believe that the discount
in valuation that the stock fetches due to the perceived risk of
termination or discontinuance of CAT dealership is unwarranted.
Also on comparing valuations of companies operating on
franchisee business model, we believe TIL's valuations are
undemanding. WWWWWe Initiate Coverage on the stock with a Buye Initiate Coverage on the stock with a Buye Initiate Coverage on the stock with a Buye Initiate Coverage on the stock with a Buye Initiate Coverage on the stock with a Buy
recommendation and Trecommendation and Trecommendation and Trecommendation and Trecommendation and Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice of `````823, at which level it823, at which level it823, at which level it823, at which level it823, at which level it
would trade at 9x FY2012E earnings.would trade at 9x FY2012E earnings.would trade at 9x FY2012E earnings.would trade at 9x FY2012E earnings.would trade at 9x FY2012E earnings.

October 23, 2010
Ceat - Buy
Ceat's top-line has been recovering following the uptick in OE
volumes. However, during 1HFY2011 and 2QFY2011, capacity
constraints restricted top-line growth. EBITDA margins came in
marginally lower than our expectations at 5.2%. Margins
declined by 962bp yoy due to the sharp increase in rubber
prices. Net profit fell following the steep decline in margins.
Nonetheless, on account of attractive valuations, we maintainwe maintainwe maintainwe maintainwe maintain
our estimates as well as the Buy recommendation on the stock.our estimates as well as the Buy recommendation on the stock.our estimates as well as the Buy recommendation on the stock.our estimates as well as the Buy recommendation on the stock.our estimates as well as the Buy recommendation on the stock.
TTTTTopopopopop-line up 17.1%:-line up 17.1%:-line up 17.1%:-line up 17.1%:-line up 17.1%: Ceat clocked turnover of `843cr (`719cr)
for 2QFY2011, up 17.1% yoy aided by the 54.4% yoy growth
in OEs and about 21.6% yoy growth in replacement sales. The
domestic market, following recovery in the industrial cycle,
registered 25.9% yoy growth in 2QFY2011. Exports recorded
13.5% yoy and 46.4% qoq growth post weak performance in
FY2010.
OPM at 5.2% marginally below expectation:OPM at 5.2% marginally below expectation:OPM at 5.2% marginally below expectation:OPM at 5.2% marginally below expectation:OPM at 5.2% marginally below expectation: Ceat clocked
operating profit of `44cr (`107cr) for 2QFY2011, a decline on
both yoy and qoq basis primarily due to the spurt in rubber
prices, which resulted in a substantial 1,677bp yoy increase in
raw material cost at 69.2% (52.4%) of sales in 2QFY2011.
OPM for the quarter stood at 5.2% (14.8%).
Net profit dips 75.2%:Net profit dips 75.2%:Net profit dips 75.2%:Net profit dips 75.2%:Net profit dips 75.2%: Ceat reported net profit of `15cr (`61cr)
for the quarter, which was lower than our expectation. Higher
input costs and increased interest and depreciation impacted
bottom-line, which fell 75% yoy while it increased 10% on a
qoq basis.
Key developments
Ceat is ramping up production at it's newly set up radial
tyre plant at Halol, Gujarat, and expects to achieve full capacity
realisation by mid-2011. The plant has been set up with an
investment of about `600cr and has the capacity to manufacture
2QFY2011 Result Update
Research Analyst - Vaishali Jajoo/Yaresh Kothari
Price - `160
Target Price - `200
Y/E Mar (Y/E Mar (Y/E Mar (Y/E Mar (Y/E Mar (` cr)cr)cr)cr)cr) 2QFY112QFY112QFY112QFY112QFY11 2QFY102QFY102QFY102QFY102QFY10 % chg% chg% chg% chg% chg 1QFY111QFY111QFY111QFY111QFY11 % chg% chg% chg% chg% chg
(yoy)(yoy)(yoy)(yoy)(yoy) (qoq)(qoq)(qoq)(qoq)(qoq)
Net SalesNet SalesNet SalesNet SalesNet Sales 843843843843843 719719719719719 17.117.117.117.117.1 772772772772772 9.19.19.19.19.1
EBITDA 44 107 (58.9) 41 7.1
EBITDA margin (%) 5.2 14.8 (962)bp 5.3 (10)bp
Reported PReported PReported PReported PReported PAAAAATTTTT 1515151515 6161616161 (75.2)(75.2)(75.2)(75.2)(75.2) 1414141414 10.110.110.110.110.1
Source: Company, Angel Research
Performance Highlights 300,000 passenger car radial tyres (PCRs) and 40,000 truck
and bus radial tyres (TBRs) a month.
Ceat has also increased tyre production capacity at its
Nashik plant by over 1,000 tonnes a month at an investment
of `20cr.
Outlook and Valuation
The tyre industry, during FY2010, benefited largely from the
substantial decline in raw material prices and spike in
replacement demand. Going ahead, we are positive on the
sector as the OEM off-take is expected to improve on overall
better auto industry volume growth. The recent run up in raw
material prices is however, a concern and expected to exert
pressure on OPMs in the near term. We estimate the company
to clock EPS of `21.7 in FY2011E and `39.9 in FY2012E.
We believe that strong demand, prevailing high capacity
utilisation levels and higher investment requirements, would
help the Indian tyre Industry to arrest the sharp decline in
margins despite the upward move in input costs (rubber and
carbon black). Thus, we maintain a Buy on Ceat, with a Twe maintain a Buy on Ceat, with a Twe maintain a Buy on Ceat, with a Twe maintain a Buy on Ceat, with a Twe maintain a Buy on Ceat, with a Targetargetargetargetarget
PPPPPrice ofrice ofrice ofrice ofrice of `````200, at which level the stock would trade at 5x, 5.1x200, at which level the stock would trade at 5x, 5.1x200, at which level the stock would trade at 5x, 5.1x200, at which level the stock would trade at 5x, 5.1x200, at which level the stock would trade at 5x, 5.1x
and 0.9x FY2012E EPSand 0.9x FY2012E EPSand 0.9x FY2012E EPSand 0.9x FY2012E EPSand 0.9x FY2012E EPS, EV/EBITD, EV/EBITD, EV/EBITD, EV/EBITD, EV/EBITDA and P/BA and P/BA and P/BA and P/BA and P/BVVVVV, respectively, respectively, respectively, respectively, respectively.....
Key Financials
% chg 8.2 11.4 17.5 13.9
Net PNet PNet PNet PNet Profitrofitrofitrofitrofit (16.1)(16.1)(16.1)(16.1)(16.1) 161.0161.0161.0161.0161.0 74.474.474.474.474.4 136.6136.6136.6136.6136.6
% chg - - (53.8) 83.6
EBITDA (%) 0.9 10.6 5.3 7.1
EPS (EPS (EPS (EPS (EPS (`````))))) (4.7)(4.7)(4.7)(4.7)(4.7) 47.047.047.047.047.0 21.721.721.721.721.7 39.939.939.939.939.9
P/E (x) - 3.4 7.4 4.0
P/BV (x) 1.1 0.9 0.8 0.7
RoE (%) 6.5 13.0 17.9 14.2
RoCE (%) (0.2) 21.9 9.7 14.6
EV/Sales (x) 0.4 0.4 0.4 0.3
EV/EBITDA (x) 40.5 3.4 7.0 4.6

October 23, 2010
Bajaj Auto - Accumulate
For 2QFY2011, Bajaj Auto (BAL) posted strong results with
better-than-expected top-line and bottom-line performance.
Growth was led by robust volume growth in the domestic and
export markets, improved operating leverage and higher other
income. We maintain our positive outlook on BAL and revise
our estimates marginally upwards to account for 1) higher other
operating income (higher export incentives) and 2) higher other
income on increased liquid investments.
Net sales up 50.4%; riding on 45.7% volume growth:Net sales up 50.4%; riding on 45.7% volume growth:Net sales up 50.4%; riding on 45.7% volume growth:Net sales up 50.4%; riding on 45.7% volume growth:Net sales up 50.4%; riding on 45.7% volume growth: BAL
reported 50.4% yoy jump in top line to `4,342cr (`2,888cr),
driven by robust 45.7% yoy increase in total volumes and 2.7%
yoy increase in average net realisation. Domestic revenue grew
by 52% yoy, while exports revenue grew by 44% yoy.
Discover and Pulsar continued to witness strong traction in
volumes and now contribute over 86% to BAL's domestic
motorcycle sales. The company's domestic motorcycle sales grew
53% (outperforming the industry growth of 21%) in 2QFY2011,
while domestic three-wheeler sales were up 28% yoy. Overall,
motorcycle sales grew 47.3%, whereas three-wheeler sales were
up 37.3% yoy during 2QFY2011.
In terms of volume market share, BAL’s overall, motorcycle
market share, including exports, improved to 33.8% in
1HFY2011 from 26.9% in 1HFY2010. However, BAL's domestic
three-wheeler passenger carrier market share declined to 47.1%
in 1HFY2011 from 48.3% in 1HFY2010.
EBITDEBITDEBITDEBITDEBITDA margins down 138bp yoy to 20.7%; marginally aheadA margins down 138bp yoy to 20.7%; marginally aheadA margins down 138bp yoy to 20.7%; marginally aheadA margins down 138bp yoy to 20.7%; marginally aheadA margins down 138bp yoy to 20.7%; marginally ahead
of estimates:of estimates:of estimates:of estimates:of estimates: During 2QFY2011, EBITDA margins declined by
138bp yoy to 20.7%, slightly ahead of our estimates of 20%.
The margin contraction was primarily on account of a 490bp
yoy increase in raw-material cost, which accounted for 69.6%
of net sales during the quarter. However, the decrease in
employee costs (~110bp decline) and other expenditure (208bp
Price - `1,513
Y/E Mar (Y/E Mar (Y/E Mar (Y/E Mar (Y/E Mar (` cr)cr)cr)cr)cr) 2QFY112QFY112QFY112QFY112QFY11 2QFY102QFY102QFY102QFY102QFY10 % chg% chg% chg% chg% chg AngelAngelAngelAngelAngel %%%%%
(yoy)(yoy)(yoy)(yoy)(yoy) est.est.est.est.est. DiffDiffDiffDiffDiff
Net salesNet salesNet salesNet salesNet sales 4,3424,3424,3424,3424,342 2,8882,8882,8882,8882,888 50.450.450.450.450.4 4,2124,2124,2124,2124,212 3.13.13.13.13.1
EBITDA 897 637 41.0 842 6.5
EBITDA margin (%) 20.7 22.0 (138)bp 20.0 66bp
Reported PReported PReported PReported PReported PAAAAATTTTT 682682682682682 403403403403403 69.369.369.369.369.3 644644644644644 6.06.06.06.06.0
Performance Highlights decline) helped arrest further margin erosion. As a result, overall
operating profit for the quarter increased by 41% yoy to `897cr
(`637cr).
Net profit surges 69.3% yoy on higher other income:Net profit surges 69.3% yoy on higher other income:Net profit surges 69.3% yoy on higher other income:Net profit surges 69.3% yoy on higher other income:Net profit surges 69.3% yoy on higher other income: BAL
recorded net profit growth of 69.3% yoy to `682cr (`403cr),
which was higher than our expectation by 6%, primarily due to
higher other income of `83.7cr (`21.7cr). Other income
comprised income earned on surplus cash and cash equivalents
of ~`3,700cr.
Outlook and valuation
At `1,513, the stock is trading at 15.1x FY2012E earnings, in
line with industry leader Hero Honda. We continue to prefer
BAL over Hero Honda in the two-wheeler segment. Hero
Honda's domestic market share in the motorcycle segment
dropped to 53.4% in September 2010 from 61.2% in September
2009. With new launches from HMSI, TVS and Yamaha
available for sale, Hero Honda's market share could decline
further. Until this happens, we see BAL outperforming Hero
Honda on the volume and profit fronts in FY2011. WWWWWeeeee
recommend Accumulate on BAL with a Trecommend Accumulate on BAL with a Trecommend Accumulate on BAL with a Trecommend Accumulate on BAL with a Trecommend Accumulate on BAL with a Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice of `````1,603.1,603.1,603.1,603.1,603.
Source: Company, Angel Research; Price as on October 19, 2010;
Note: EPS is adjusted for 1:1 bonus issue
Key Financials
Net salesNet salesNet salesNet salesNet sales 8,8108,8108,8108,8108,810 11,92111,92111,92111,92111,921 16,83316,83316,83316,83316,833 19,46019,46019,46019,46019,460
% chg (2.3) 35.3 41.2 15.6
Adj. net profitAdj. net profitAdj. net profitAdj. net profitAdj. net profit 769769769769769 1,7841,7841,7841,7841,784 2,5862,5862,5862,5862,586 2,9002,9002,9002,9002,900
% chg (4.9) 132.0 44.9 12.1
EBITDA margin (%) 11.1 20.2 20.9 20.0
Adj. EPS (Adj. EPS (Adj. EPS (Adj. EPS (Adj. EPS (`````))))) 26.626.626.626.626.6 58.858.858.858.858.8 89.489.489.489.489.4 100.2100.2100.2100.2100.2
P/E (x) 56.9 25.7 16.9 15.1
P/BV (x) 23.4 14.9 12.3 9.3
RoE (%) 44.5 74.4 79.8 70.2
RoCE (%) 26.7 58.8 73.9 68.6
EV/Sales (x) 4.8 3.4 2.3 1.9
EV/EBITDA (x) 44.2 17.0 11.1 9.7

October 23, 2010
FAG Bearings - Buy
FAG Bearings (FAG) recorded strong 3QCY2010 performance.
Top-line broadly came in line with our estimates aided by the
robust performance registered by the auto and industrial
segments. Operating performance improved on better
operating leverage. Net profit surged on better operating
performance and higher other income.
TTTTTopopopopop-line surges on robust auto growth and increase in industrial-line surges on robust auto growth and increase in industrial-line surges on robust auto growth and increase in industrial-line surges on robust auto growth and increase in industrial-line surges on robust auto growth and increase in industrial
segment:segment:segment:segment:segment: For 3QCY2010, the company's net sales grew 31.5%
yoy to `272cr (`207cr) as against our expectation of `276cr.
This was largely driven by a jump in overall auto volumes and
sharp recovery in the industrial bearing segment. Overall pickup
in economic activities helped the company to clock robust
top-line growth.
EBITDEBITDEBITDEBITDEBITDA margins up by 381bp on lower input cost:A margins up by 381bp on lower input cost:A margins up by 381bp on lower input cost:A margins up by 381bp on lower input cost:A margins up by 381bp on lower input cost: EBITDA
margin expanded by a substantial 381bp yoy to 17.7% (13.8%)
basically due to decrease in raw material costs by 480bp during
the quarter. Further, better operating leverage helped 48bp yoy
reduction in staff costs during the quarter. Other expenses,
however, increased by 147b yoy to 17.6% (16.1%). Overall,
operating profit increased substantially by 67.6% to `48cr
(`29cr), though marginally lower than our expectation by ~6%.
Bottom-line up 90.1%:Bottom-line up 90.1%:Bottom-line up 90.1%:Bottom-line up 90.1%:Bottom-line up 90.1%: For 3QCY2010, FAG registered 90.1%
yoy increase in bottom-line to `31.4cr (`16.5cr) largely on
account of robust top-line growth and substantial jump in
operating performance. Further, higher other income aided the
robust growth in net profit to a certain extent and helped the
company to register NPM of 11.5% (8%).
We believe that robust demand in the auto and industrial
segments will aid FAG in registering a CAGR of ~17% in net
3QCY2010 Result Update
Price - `876
Y/E Dec (Y/E Dec (Y/E Dec (Y/E Dec (Y/E Dec (` cr)cr)cr)cr)cr) 3QFY103QFY103QFY103QFY103QFY10 3QFY93QFY93QFY93QFY93QFY9 % chg% chg% chg% chg% chg AngelAngelAngelAngelAngel %%%%%
(yoy)(yoy)(yoy)(yoy)(yoy) est.est.est.est.est. DiffDiffDiffDiffDiff
Net SalesNet SalesNet SalesNet SalesNet Sales 272.4272.4272.4272.4272.4 207.2207.2207.2207.2207.2 31.531.531.531.531.5 275.9275.9275.9275.9275.9 (1.3)(1.3)(1.3)(1.3)(1.3)
EBITDA 48.1 28.7 67.6 51.3 (6.3)
EBITDA margin (%) 17.7 13.8 381bp 18.6 (94)bp
Reported PReported PReported PReported PReported PAAAAATTTTT 31.431.431.431.431.4 16.516.516.516.516.5 90.190.190.190.190.1 32.432.432.432.432.4 (2.8)(2.8)(2.8)(2.8)(2.8)
Performance Highlights sales and ~25% in net profit over CY2009-12E. We broadly
maintain our estimates for the company. The stock is currently
trading at 12.4x CY2010E and 11.4x CY2011E EPS. WWWWWe rollovere rollovere rollovere rollovere rollover
to CY2012E and recommend Buy on the stock, with a Tto CY2012E and recommend Buy on the stock, with a Tto CY2012E and recommend Buy on the stock, with a Tto CY2012E and recommend Buy on the stock, with a Tto CY2012E and recommend Buy on the stock, with a Targetargetargetargetarget
PPPPPrice ofrice ofrice ofrice ofrice of `````1,035, valuing the stock at 12x CY2012E earnings.1,035, valuing the stock at 12x CY2012E earnings.1,035, valuing the stock at 12x CY2012E earnings.1,035, valuing the stock at 12x CY2012E earnings.1,035, valuing the stock at 12x CY2012E earnings.
KKKKKey risks to our call include:ey risks to our call include:ey risks to our call include:ey risks to our call include:ey risks to our call include: 1) Lower demand and substantial
increase in steel prices could exert pressure on margins and
pose a downside risk to our estimates, 2) adverse currency
movement can impact FAG's trading business, 3) cheap imports
from China could impact the business of bearing players like
FAG.
Key Financials
Net salesNet salesNet salesNet salesNet sales 820820820820820 1,0491,0491,0491,0491,049 1,1851,1851,1851,1851,185 1,3261,3261,3261,3261,326
% chg 7.6 27.9 12.9 11.9
Adj. net profitAdj. net profitAdj. net profitAdj. net profitAdj. net profit 73.173.173.173.173.1 117.8117.8117.8117.8117.8 127.5127.5127.5127.5127.5 143.5143.5143.5143.5143.5
% chg (25.9) 61.2 8.2 12.5
EBITDA margin (%) 13.6 18.3 18.0 17.4
Adj. EPS (Adj. EPS (Adj. EPS (Adj. EPS (Adj. EPS (`````))))) 39.439.439.439.439.4 70.970.970.970.970.9 76.776.776.776.776.7 86.386.386.386.386.3
P/E (x) 22.2 12.4 11.4 10.1
P/BV (x) 3.2 2.6 2.1 1.8
RoE (%) 15.1 22.9 20.4 19.2
RoCE (%) 20.8 32.6 29.8 26.9
EV/Sales (x) 1.5 1.1 0.9 0.8
EV/EBITDA (x) 11.5 6.4 5.5 4.8
Y/E Dec (` cr) CY2009 CY2010E CY2011E CY2012E
Y/E DecY/E DecY/E DecY/E DecY/E Dec CY07CY07CY07CY07CY07 CY08CY08CY08CY08CY08 CY09CY09CY09CY09CY09 CY10ECY10ECY10ECY10ECY10E CY11ECY11ECY11ECY11ECY11E CY12ECY12ECY12ECY12ECY12E
Ball & Roller 45.3 46.0 50.2 61.6 67.7 74.5
Bearings (mn units)
yoy chg (%) 4.8 1.5 9.1 22.7 10.0 10.0
Utilisation (%) 96 93 95 117 123 129
Key assumptions

October 23, 2010
HCL Technologies - Accumulate
Broad-based growth momentum continues:Broad-based growth momentum continues:Broad-based growth momentum continues:Broad-based growth momentum continues:Broad-based growth momentum continues: For 1QFY2011,
HCL Technologies (HCL Tech) reported higher-than-expected
revenue at US $803.8mn (v/s our estimate of US$ 792.5mn),
up 9% qoq. Growth was backed by volume growth of 7.4% in
IT services and cross-currency benefit of 1.6%. Growth again
proved to be broad-based, spanning across verticals,
geographies and service lines with the BPO segment growing
5.7% qoq after posting de-growth since 4QFY2009.
EBIT margins slip:EBIT margins slip:EBIT margins slip:EBIT margins slip:EBIT margins slip: During the quarter, EBIT margins slipped by
242bp qoq on the back of a) annual wage inflation in July
2010, b) weak utilisations with increased hiring of freshers as
well as laterals to create capacity for foreseen demand and c)
higher SG&A to encash on the strong deal flow.
HCL Tech is witnessing a strong deal pipeline for
October-December 2010, which is almost 25% higher than
that witnessed in October-December 2008, which witnessed
total contract value (TCV) of almost US $1bn. The company
has been witnessing an 8.5% volume CQGR over 2QFY2010-
1QFY2011 in its core software business on the back of the
return of discretionary type of spending i.e., more
transformational engagements with increasing components of
enterprise application services. Also, clients are increasingly
looking at outsourcing engineering and R&D services to encash
the surge in consumer spending. Infrastructure management,
which proved to be the growth driver even in the downturn, has
also witnessed double-digit revenue growth at a 10% CQGR
over 1QFY2010-1QFY2011. Further, management is witnessing
a rise in outsourcing infrastructure and applications by clients
to derive cost efficiencies.
Research Analyst - Srishti Anand
Price - `423
Target Price - `462
% chg 39.2 18.2 26.6 22.4
Net profitNet profitNet profitNet profitNet profit 1,2331,2331,2331,2331,233 1,2141,2141,2141,2141,214 1,6321,6321,6321,6321,632 2,2142,2142,2142,2142,214
% chg 9.7 (1.5) 34.4 35.7
EBITDA margin (%) 22.1 20.5 17.6 18.2
FDEPS (FDEPS (FDEPS (FDEPS (FDEPS (`````))))) 17.917.917.917.917.9 17.617.617.617.617.6 23.523.523.523.523.5 31.931.931.931.931.9
P/E (x) 23.6 24.0 18.0 13.3
P/BV (x) 5.1 4.1 3.8 3.3
RoE (%) 22.6 19.1 22.1 26.6
RoCE (%) 18.7 15.8 15.6 17.3
EV/Sales (x) 2.8 2.3 1.8 1.4
EV/EBITDA (x) 12.9 11.4 10.1 7.5
Y/E June (` cr) FY2009 FY2010 FY2011E FY2012E
Y/E MarchY/E MarchY/E MarchY/E MarchY/E March 1 Q F Y 1 11 Q F Y 1 11 Q F Y 1 11 Q F Y 1 11 Q F Y 1 1 4 Q F Y 1 04 Q F Y 1 04 Q F Y 1 04 Q F Y 1 04 Q F Y 1 0 (qoq)(qoq)(qoq)(qoq)(qoq) 1 Q F Y 1 01 Q F Y 1 01 Q F Y 1 01 Q F Y 1 01 Q F Y 1 0 (yoy)(yoy)(yoy)(yoy)(yoy)
(((((` cr)cr)cr)cr)cr) % chg% chg% chg% chg% chg % chg% chg% chg% chg% chg
Net revenueNet revenueNet revenueNet revenueNet revenue 3,611.63,611.63,611.63,611.63,611.6 3,425.43,425.43,425.43,425.43,425.4 5 . 45 . 45 . 45 . 45 . 4 3,031.43,031.43,031.43,031.43,031.4 1 9 . 11 9 . 11 9 . 11 9 . 11 9 . 1
EBITDA margins (%) 16.3 18.6 (232)bp 22.7 (642)bp
PAAAAAT inc. ESOP chargeT inc. ESOP chargeT inc. ESOP chargeT inc. ESOP chargeT inc. ESOP charge 300.5300.5300.5300.5300.5 317.9317.9317.9317.9317.9 (5.6)(5.6)(5.6)(5.6)(5.6) 301.6301.6301.6301.6301.6 (0.3)(0.3)(0.3)(0.3)(0.3)
Source: Company, Angel Research; Note: US GAAP financials in rupee terms.
Note: The actual and estimates are based on convenience translation using
quarter closing rate: US $1=`44.93
Performance Highlights We expect HCL Tech to be the outperformer at the volume front
amongst Tier-I companies on the back of higher value services
portfolio, which is gaining momentum with clients' businesses
getting to normalcy. We expect revenue in dollar terms to grow
at a 27% CAGR over FY2010-12, with a 24% CAGR in rupee
terms over the same period. At the operating front, the company
has many levers such as 1) normalising employee pyramid (i.e.
hiring more low-cost freshers), 2) reaping the benefits of high
investments in SG&A planned in 1HFY2011, 3) increasing
utilisation and 4) turning around the BPO business by returning
it to profitability by 2HFY2012. Going forward, we expect
EBITDA to grow at a 17% CAGR over FY2010-12, but PAT
growth will be much higher at a 34% CAGR over the same
period on the back of nil forex losses, improved profitability in
FY2012 and better other income to be accrued from higher
liquid investments.
At `423, the stock is trading at 13.4x FY2012 EPS of `31.9 at
a 37% discount to Infosys (as compared to its
one-year historical discount of 35%). We value the stock at 14.5x
FY2012 EPS. WWWWWe revise our rating on the stock to Accumulatee revise our rating on the stock to Accumulatee revise our rating on the stock to Accumulatee revise our rating on the stock to Accumulatee revise our rating on the stock to Accumulate
(earlier Neutral) with a T(earlier Neutral) with a T(earlier Neutral) with a T(earlier Neutral) with a T(earlier Neutral) with a Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice of `````462.462.462.462.462.

October 23, 2010
HDFC Bank - Accumulate
For 2QFY2011, HDFC Bank reported 32.7% yoy and 12.4%
qoq growth in net profit to `912cr, in line with our estimate of
`908cr. A stronger-than-industry growth in advances and
deposits coupled with stable asset quality were the key highlights
of the results.
Robust performance on all parameters:Robust performance on all parameters:Robust performance on all parameters:Robust performance on all parameters:Robust performance on all parameters: Gross advances
registered a healthy growth of 6.4% qoq and 37.7% yoy, much
above industry growth. The retail loan book grew by a healthy
30.8% yoy during 2QFY2011 and constituted 51.7% of gross
advances. Deposits also registered an impressive growth of 6.7%
qoq and 30.4% yoy, compared to industry qoq growth of ~1.6%.
The CASA ratio improved to 50.6% of total deposits in
2QFY2011 as against 49.2% in 1QFY2011. With reported NIMs
at 4.2% in 2QFY2011 (4.3% in 1QFY2011), the bank recorded
NII growth of 29.2% yoy and 5.2% qoq to `2,526cr. The bank's
asset quality remained stable during the quarter, with gross
NPAs at 1.2% and net NPAs at 0.3%. The NPA provision
coverage ratio (excluding write-offs) stood at a healthy 77.8%
in 2QFY2011 compared to 77.0% in 1QFY2011. Fee income
grew by a moderate 16.0% yoy.
Strong capital adequacyStrong capital adequacyStrong capital adequacyStrong capital adequacyStrong capital adequacy, branch expansion lead to CASA and, branch expansion lead to CASA and, branch expansion lead to CASA and, branch expansion lead to CASA and, branch expansion lead to CASA and
credit market share gains, respectively:credit market share gains, respectively:credit market share gains, respectively:credit market share gains, respectively:credit market share gains, respectively: The bank's total capital
adequacy remained strong at 17.0%, with tier-1 constituting
74.7% of the total CAR. On the back of this strong CAR, we
expect the bank to increase its credit market share over FY2011-
12. Accordingly, we have increased our credit growth estimates
for FY2011 from 26% to 32% and for FY2012 from
27% to 30%.
Importantly, the bank's CASA deposits also grew by a robust
31.1% yoy and 9.8% sequentially, driven by 37.6% yoy growth
in savings deposits and 22.4% yoy growth in current deposits.
The strong traction in CASA growth can be attributed to the
bank's aggressive branch expansion during FY2010 and
Research Analyst - Vaibhav Agrawal/Amit Rane/Shrinivas Bhutda
Price - `2,366
PPPPParticularsarticularsarticularsarticularsarticulars 2QFY112QFY112QFY112QFY112QFY11 1QFY111QFY111QFY111QFY111QFY11 % chg% chg% chg% chg% chg 2QFY102QFY102QFY102QFY102QFY10 % chg% chg% chg% chg% chg
(((((` cr)cr)cr)cr)cr) (qoq)(qoq)(qoq)(qoq)(qoq) (yoy)(yoy)(yoy)(yoy)(yoy)
NIINIINIINIINII 2,5262,5262,5262,5262,526 2,4012,4012,4012,4012,401 5.25.25.25.25.2 1,9561,9561,9561,9561,956 29.229.229.229.229.2
Pre-prov. profit 1,807 1,749 3.3 1,593 13.4
PPPPPAAAAATTTTT 912912912912912 812812812812812 12.412.412.412.412.4 687687687687687 32.732.732.732.732.7
Performance Highlights
Key Financials
NII (NII (NII (NII (NII (````` cr)cr)cr)cr)cr) 7,4217,4217,4217,4217,421 8,3878,3878,3878,3878,387 10,45410,45410,45410,45410,454 13,39013,39013,39013,39013,390
% chg 42.0 13.0 24.6 28.1
Net PNet PNet PNet PNet Profit (rofit (rofit (rofit (rofit (````` cr)cr)cr)cr)cr) 2,2452,2452,2452,2452,245 2,9492,9492,9492,9492,949 3,9613,9613,9613,9613,961 5,4295,4295,4295,4295,429
% chg 41.2 31.3 34.3 37.1
NIM (%) 4.9 4.3 4.4 4.4
P/E (x) 44.8 36.7 27.3 19.9
P/ABV (x) 6.7 5.0 4.4 3.8
RoA (%) 1.4 1.5 1.6 1.7
RoE (%) 16.9 16.1 17.2 20.4
increasing productivity of the branch network of CBoP. The bank
plans to open 150 branches during FY2011. Against this
backdrop, we expect the bank to sustain its CASA ratio in the
49-52% range, going forward, factoring in the strong market
share gains on the CASA front as well. The bank's cost-to-income
ratio increased by 52bp qoq to 48.2% in 2QFY2011 compared
to 47.7% in 1QFY2011.
We believe HDFC is among the most competitive banks in the
sector, with an A-list management at the helm of affairs that
has one of the best track records in the sector. At the CMP, the
stock is trading at 3.8x FY2012E ABV of `628. We believe HDFC
Bank is well positioned for high qualitative growth, with the
CASA and cost-to-income ratio returning to pre-CBoP levels.
HDFC Bank has commanded a 32.9% premium to the Sensex
in terms of its one-year forward P/E multiple over the last five
years. We expect the premium to be around its historical average
on account of the robust growth and RoE prospects over the
next two years.
The stock is currently trading close to our target multiple of
4.0x (benchmarked at 30% premium to our Sensex target
multiple). Hence, we recommend Accumulate on the stock,Hence, we recommend Accumulate on the stock,Hence, we recommend Accumulate on the stock,Hence, we recommend Accumulate on the stock,Hence, we recommend Accumulate on the stock,
with a Twith a Twith a Twith a Twith a Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice of `````2,510.2,510.2,510.2,510.2,510.

October 23, 2010
Hindustan Zinc - Accumulate
Hindustan Zinc (HZL) reported net revenue of `2,163cr in
2QFY2011, marginally higher-than-our-estimate of `2,049cr.
However, net profit at `949cr was in line with our estimate of
`966cr.
TTTTTopopopopop-line growth on the back of higher volumes and prices:-line growth on the back of higher volumes and prices:-line growth on the back of higher volumes and prices:-line growth on the back of higher volumes and prices:-line growth on the back of higher volumes and prices:
During 2QFY2011, HZL's mined zinc production was higher
by 6.4% yoy and 12.6% qoq to 204,836 tonnes, as water
shortage that affected its production in 1QFY2011 was absent
and the new smelter is ramping up gradually. Zinc metal sales
volume grew by 24.4% yoy and 6.6% qoq to 175,309 tonnes
on account of the commissioning of the 210ktpa zinc smelter
at Rajpura Dariba in 4QFY2010, which produced ~39,000
tonnes in 2QFY2011. Lead metal sales volume increased by
27.0% yoy and 2.7% qoq to 14,458 tonnes during 2QFY2011.
During the quarter, zinc and lead realisations increased by
16.1% yoy to US $2,238/tonne and by 10.0% yoy to
US $2,338/tonne, respectively. In addition, saleable silver
production increased by 17.0% yoy to 35,341kg (30,324 kg),
while sales increased by 25.8% yoy to 36,879kg (29,326kg).
Average silver realisation increased by 35.6% yoy to
US $653/kg (US $482/kg). Thus, net revenue increased by
20.9% yoy to `2,163cr.
Operating performance remains muted:Operating performance remains muted:Operating performance remains muted:Operating performance remains muted:Operating performance remains muted: EBITDA grew by 4.6%
yoy to `1,125cr as margins dipped by 807bp yoy to 52.0%
(lower than our estimate of 54.2%) on account of a) higher
stripping costs at mines resulting in a 29.7% yoy increase in
mining expenses to `206cr, b) 90% yoy increase in stores and
spares cost to `227cr and c) 46.8% yoy increase in power costs
to `260cr on account of higher coal cost. Despite other income
increasing by 19.7% yoy to `184cr, net profit grew by only
1.5% yoy to `949cr on account of higher depreciation expense,
which increased by 50.2% to `116cr.
Research Analyst - Paresh Jain/Pooja Jain
Price - `1,227
(((((` cr)cr)cr)cr)cr) (yoy)(yoy)(yoy)(yoy)(yoy) (qoq)(qoq)(qoq)(qoq)(qoq)
Net salesNet salesNet salesNet salesNet sales 2,1632,1632,1632,1632,163 1,7901,7901,7901,7901,790 20.920.920.920.920.9 1,9511,9511,9511,9511,951 10.910.910.910.910.9
EBITDA 1,125 1,075 4.6 1,022 10.1
EBITDA margin (%) 52.0 60.1 (807bp) 52.4 (35bp)
Net profitNet profitNet profitNet profitNet profit 949949949949949 935935935935935 1.51.51.51.51.5 891891891891891 6.56.56.56.56.5
Key Financials
% chg (27.9) 41.1 12.2 23.1
% chg (38.0) 48.2 1.6 27.2
EBITDA margin (%) 48.1 58.3 53.6 55.1
P/E (x) 19.0 12.8 12.6 9.9
P/BV (x) 3.6 2.9 2.4 1.9
RoE (%) 20.8 24.9 20.5 21.4
RoCE (%) 18.0 25.6 20.9 22.1
EV/Sales (x) 7.4 5.0 4.1 2.9
EV/EBITDA (x) 15.4 8.6 7.7 5.2
Expansion projects
The 100ktpa lead smelter at Rajpura Dariba is delayed byis delayed byis delayed byis delayed byis delayed by
a quartera quartera quartera quartera quarter and is expected to be commissioned by 3QFY2011E.
The Sindesar Khurd mine project is also delayed by adelayed by adelayed by adelayed by adelayed by a
quarterquarterquarterquarterquarter and production is expected to commence from
3QFY2011E.
At `1,227, the stock is trading at 7.7x FY2011E and 5.2x
FY2012E EV/EBITDA. HZL is expected to benefit from the
expansion of zinc-lead smelting capacity and increased silver
production. Further, HZL had a huge cash balance of `12,213cr
at the end of the quarter (`289 per share). WWWWWe recommende recommende recommende recommende recommend
Accumulate on the stock with a revised TAccumulate on the stock with a revised TAccumulate on the stock with a revised TAccumulate on the stock with a revised TAccumulate on the stock with a revised Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice of `````1,3421,3421,3421,3421,342
(earlier(earlier(earlier(earlier(earlier `````1,227), valuing the stock at 6.0x FY2012E EV/EBITD1,227), valuing the stock at 6.0x FY2012E EV/EBITD1,227), valuing the stock at 6.0x FY2012E EV/EBITD1,227), valuing the stock at 6.0x FY2012E EV/EBITD1,227), valuing the stock at 6.0x FY2012E EV/EBITDAAAAA.....

October 23, 2010
Tata Consultancy Services - Neutral
Stellar double-digit revenue growth:Stellar double-digit revenue growth:Stellar double-digit revenue growth:Stellar double-digit revenue growth:Stellar double-digit revenue growth: For 2QFY2011,
TCS posted higher-than-expected revenue of US $2,004mn
(v/s our estimate of US $1,927mn), with double-digit growth
of 11.7% qoq. This is the first quarter ever when TCS reported
incremental revenue of US $210mn qoq (against Infosys at
US $111mn).
Strong growth was possible on the back of robust volume growth
of 11.2% (v/s our estimate of 8.1%). Revenue growth again
was broad-based in the true sense, as all the verticals and
services posted double-digit growth during 2QFY2011.
EBIT margin surge:EBIT margin surge:EBIT margin surge:EBIT margin surge:EBIT margin surge: EBIT margins surged by 86bp qoq,
surpassing the 28% mark. Growth was because of gains of
103bp, 95bp and 54bp due to favourable exchange rate,
improved productivity and SG&A efficiency, respectively, defying
the negative impact of 166bp from promotions and variable
allowances.
Hiring spree continues, utilisations remain unhamperedHiring spree continues, utilisations remain unhamperedHiring spree continues, utilisations remain unhamperedHiring spree continues, utilisations remain unhamperedHiring spree continues, utilisations remain unhampered: TCS
has been on the hiring spree since 3QFY2010. In 2QFY2011
itself, 10,229 employees were added in TCS Ltd. Net employee
addition in subsidiaries, including CMC, WTI, TCS e-Serve and
Diligenta, also stood decent at 488. During the quarter, attrition
rate inched up by 80bp qoq to 13.1% in TCS Ltd.; whereas, it
spiked up by whopping 250bp to 22.5% in the BPO segment.
Though hiring remained robust, utilisation including trainees
as well as excluding trainees peaked at 77.8% and 83.8%,
respectively, during the quarter. This was primarily because of
higher lateral hiring to map the surge in demand across various
verticals.
Management highlighted that the early indications from clients
on budgets point towards an increment in IT spending for
Research Analyst - Srishti Anand
Price - `1,040
(((((` cr)cr)cr)cr)cr) ( q o q )( q o q )( q o q )( q o q )( q o q ) ( y o y )( y o y )( y o y )( y o y )( y o y )
Net revenueNet revenueNet revenueNet revenueNet revenue 9 , 2 8 69 , 2 8 69 , 2 8 69 , 2 8 69 , 2 8 6 8 , 2 1 68 , 2 1 68 , 2 1 68 , 2 1 68 , 2 1 6 1 3 . 01 3 . 01 3 . 01 3 . 01 3 . 0 7 , 4 3 57 , 4 3 57 , 4 3 57 , 4 3 57 , 4 3 5 2 4 . 92 4 . 92 4 . 92 4 . 92 4 . 9
EBITDA 2,789 2,409 15.8 2,134 30.7
EBITDA margin (%) 30.0 29.3 72bp 28.7 133bp
PPPPP AAAAA TTTTT 2,1072,1072,1072,1072,107 1,8441,8441,8441,8441,844 1 4 . 21 4 . 21 4 . 21 4 . 21 4 . 2 1 , 6 2 41 , 6 2 41 , 6 2 41 , 6 2 41 , 6 2 4 2 9 . 72 9 . 72 9 . 72 9 . 72 9 . 7
% chg 21.7 8.0 21.3 19.6
% chg 1.8 32.9 19.8 13.5
EBITDA margin (%) 25.8 28.9 29.6 29.4
FDEPS (FDEPS (FDEPS (FDEPS (FDEPS (`````))))) 26.426.426.426.426.4 35.135.135.135.135.1 42.142.142.142.142.1 47.847.847.847.847.8
P/E (x) 39.4 29.6 24.7 21.8
P/BV (x) 13.0 11.0 8.9 7.2
RoE (%) 36.9 40.2 39.9 36.6
RoCE (%) 44.3 45.0 47.3 45.4
EV/Sales (x) 7.2 6.5 5.3 4.4
EV/EBITDA (x) 27.8 22.5 17.9 14.9
CY2011, with a possibility of an uptick in pricing. Along with
its peers, TCS is also witnessing a trend of clients looking out to
spend on IT to drive operational efficiencies and prepare for
future growth, which is leading to a surge in transformational
projects of large sizes. Clients are outsourcing projects, like
1. consolidation of ERP as well as core banking systems, and
2. virtualisation and rationalisation of infrastructure and
applications, to drive cost efficiencies. On the back of a strong
deal pipeline, TCS has raised its hiring target yet again from
36,000 at the start of the year to 40,000 at the end of
1QFY2011 and 50,000 plus currently for FY2011.
We expect TCS to witness a 24.2% CAGR (in US$ terms) and
a 20.4% CAGR (in INR terms) in revenue over FY2010-12E.
EBITDA is expected to witness a higher CAGR at 21.4%, as the
company is reaping the benefits of SG&A investments made in
the past. We value TCS at 22x FY2012 EPS of `47.8, i.e., at par
with industry benchmark, Infosys, as it continues to bridge the
margin gap even on the back of higher scale. At current levels,At current levels,At current levels,At current levels,At current levels,
we recommend a Neutral rating on the stock.we recommend a Neutral rating on the stock.we recommend a Neutral rating on the stock.we recommend a Neutral rating on the stock.we recommend a Neutral rating on the stock.

October 23, 2010
Yes Bank - Accumulate
Yes Bank reported robust net profit growth of 57.8% yoy and
12.7% qoq to `176cr well above our estimates of `138cr on
account of substantially higher balance sheet growth than
guided by the bank towards the beginning of the year. Robust
growth and stable asset quality were the key positives of the
results.
Robust growth in balance sheet continues:Robust growth in balance sheet continues:Robust growth in balance sheet continues:Robust growth in balance sheet continues:Robust growth in balance sheet continues: Advances grew by
a strong 15.6% qoq and 86.3% yoy compared to a marginal
industry qoq growth of ~0.6%. Deposits increased 32.3% qoq
and 106.6% yoy compared to ~1.6% qoq industry growth.
This drove 95.8% yoy growth in NII, in spite of the sequential
NIM compression of 10bp due to the higher-than-sector-
average (40bp) increase in cost of funds. Non-interest income
declined 13.6% yoy and 8.9% qoq to `131cr in 2QFY2011
due to the sharp fall in financial market income. The bank's
capital adequacy ratio (CAR) improved to 19.4%, with tier-I
capital of 11.0% (total CAR of 16.6% in 1QFY2011).
Strong NII growth:Strong NII growth:Strong NII growth:Strong NII growth:Strong NII growth: NII registered 95.8% yoy (77.9% yoy on
reclassified numbers) and 19.5% qoq growth to `313cr in
2QFY2011. Reported NIM declined by 10bp sequentially as
well as on yoy basis to 3.0% in 2QFY2011, due to a higher
then sector average increase in the cost of funds (by 40bp),
reflecting the bank's wholesale-oriented business model. Going
forward, as the interest rates start rising, the bank's NIMs are
expected to be under pressure due to the very low CASA ratio
of 10.1%.
Stable asset quality:Stable asset quality:Stable asset quality:Stable asset quality:Stable asset quality: As of 2QFY2011, gross NPA ratio stood at
0.2% and net NPA ratio at 0.1% (as against 0.2% and 0.0% in
1QFY2011, respectively). Restructured advances declined by
`11cr during 2QFY2011, taking total restructured advances to
`69cr at the end of 2QFY2011, and constituted 0.2% of
advances. The provision coverage ratio stood at 74.8% as of
2QFY11 (81.0% in 1QFY11). In our opinion, the bank's present
gross NPA's are significantly lower than the sectoral average
Research Analyst - Vaibhav Agrawal/Amit Rane/Shrinivas Bhutda
Price - `354
Target Price - `373
(((((` cr)cr)cr)cr)cr) (qoq)(qoq)(qoq)(qoq)(qoq) (yoy)(yoy)(yoy)(yoy)(yoy)
NIINIINIINIINII 313313313313313 262262262262262 19.519.519.519.519.5 160160160160160 95.895.895.895.895.8
Pre-prov. profit 281 249 13.0 192 46.7
PPPPPAAAAATTTTT 176176176176176 156156156156156 12.712.712.712.712.7 112112112112112 57.857.857.857.857.8
Key Financials
NIINIINIINIINII 511511511511511 788788788788788 1,2591,2591,2591,2591,259 1,4651,4651,4651,4651,465
% chg 54.6 54.1 59.7 16.4
Net PNet PNet PNet PNet Profitrofitrofitrofitrofit 304304304304304 478478478478478 678678678678678 739739739739739
% chg 51.9 57.2 41.9 8.9
NIM (%) 2.7 2.8 2.8 2.4
P/E (x) 34.6 25.2 17.7 16.3
P/ABV (x) 6.6 3.9 3.2 2.7
RoA (%) 1.5 1.6 1.5 1.2
RoE (%) 20.6 20.3 19.9 18.2
relative to the bank's high-yield credit portfolio. Accordingly,
from a structural point of view, we believe asset quality
deterioration remains a risk for the bank.
Non-interest income below expectations:Non-interest income below expectations:Non-interest income below expectations:Non-interest income below expectations:Non-interest income below expectations: Non-interest income
declined 13.6% yoy to `131cr in 2QFY2011 (down 8.9% qoq).
Financial market income declined 57.6% yoy to `14.1cr.
However, income from third-party distribution and retail fees
grew by a robust 43.3% yoy. Revenue from transaction banking
grew by a modest 8.5% yoy. Income from financial advisory
witnessed moderate growth of 13.1% yoy.
As in the past, the inherent challenges of building a retail
franchise continue to be substantial despite management's high
pedigree. Moreover, with rising interest rates, the bank's cost of
funds is expected to rise at a faster rate due to the bank's
wholesale-based funding mix. That said, notwithstanding the
medium-term downside risks to RoA's vis-a-vis sectoral averages
as well as execution risks with respect to its retail expansion
plans, the bank's high rate of growth within the wholesale
segment is likely to drive strong earnings growth and capital
consumption in the near term (potentially leading to another
book-accretive dilution in the next 12 months). At the CMP, the
stock is trading at 2.7x FY2012E ABV. WWWWWe recommende recommende recommende recommende recommend
Accumulate on the stock, with a TAccumulate on the stock, with a TAccumulate on the stock, with a TAccumulate on the stock, with a TAccumulate on the stock, with a Target Parget Parget Parget Parget Price ofrice ofrice ofrice ofrice of `````373,373,373,373,373, at which
level the stock would trade at 2.9x FY2012E ABV.

October 23, 2010
TTTTTechnical Picks |echnical Picks |echnical Picks |echnical Picks |echnical Picks |
Consolidation expected to continue
Sensex (20166) / Nifty (6066)
Support level
Source: Falcon
Exhibit 1: Sensex Daily chartIn our previous Weekly report, in view of the "Shooting Star" on
the Weekly chart, we had mentioned that the indices are likely
to witness a Time or Price-wise correction. The week began on
a pessimistic note, traded with choppiness and witnessed a
correction up to 19823 / 5967 levels from where it bounced
back to close on a flat note. The Sensex ended with marginal
gains of 0.2%, whereas the Nifty gained 0.1% vis-à-vis the
previous week.
Pattern Formation
On the Daily chartDaily chartDaily chartDaily chartDaily chart, we are observing that 19824 - 19770
/ 5950-5932 levels are acting as a good support for the markets
(Refer Exhibit No.1).
On the WWWWWeekly charteekly charteekly charteekly charteekly chart, we reiterate our view that the high of
the "Shooting Star" 20854 / 6284 remains the resistance level
for the market going ahead. Any close above it would resume
the up trend (Refer Exhibit No.2).
Future Outlook
Broadly, the indices are likely to trade in the range of 19770 /
5932 on the downside and 20854 / 6284 on the upside in the
coming week. Any close below 5932 / 19770 levels would
mean loss of momentum on the upside and the indices may
test the Fibonacci retracement levels of 19693 - 19328 / 5925
- 5814 of the entire up-move which started from 17819 to
20854 / 5348 to 6284 levels.
At present, looking at the current price action we are of the
opinion that as long as the indices hold 19770 / 5932 levels
the undertone would remain bullish and the markets could
consolidate in the range of 19770 / 5932 to 20854 / 6284
levels.
Shooting Star
Source: Falcon
Exhibit 2: Sensex Weekly chart

October 23, 2010
TTTTTechnical Picks |echnical Picks |echnical Picks |echnical Picks |echnical Picks |
Technical Research Team
Weekly Pivot Levels For Nifty 50 Stocks
SENSEX
NIFTY
BANK NIFTY
A.C.C.
ABB LTD.
AMBUJACEM
AXISBANK
BHARAT PETRO
BHARTIARTL
BHEL
CAIRN
CIPLA
DLF
GAIL
HCL TECHNOLO
HDFC BANK
HERO HONDA
HINDALCO
HINDUNILVR
HOUS DEV FIN
ICICI BANK
IDEA
IDFC
INFOSYS TECH
ITC
JINDL STL&PO
JPASSOCIAT
KOTAK BANK
LT
MAH & MAH
MARUTI
NTPC
ONGC CORP.
PNB
POWERGRID
RANBAXY LAB.
RCOM
REL.CAPITAL
RELIANCE
RELINFRA
RPOWER
SIEMENS
STATE BANK
STEEL AUTHOR
STER
SUN PHARMA.
SUZLON
TATA POWER
TATAMOTORS
TATASTEEL
TCS
UNITECH LTD
WIPRO
SCRIPS
20,643 20,404 20,113 19,875 19,584
6,214 6,140 6,053 5,980 5,893
12,749 12,567 12,354 12,171 11,958
1,033 1,008 974 949 915
947 925 907 884 866
149 144 139 135 130
1,555 1,510 1,468 1,423 1,381
746 733 714 701 682
354 344 331 321 308
2,597 2,561 2,524 2,489 2,451
347 341 337 331 328
364 354 339 329 314
390 376 368 355 347
535 520 505 490 475
461 439 426 404 391
2,618 2,472 2,394 2,249 2,171
1,917 1,886 1,839 1,808 1,761
234 223 212 201 190
318 309 300 292 283
792 742 714 664 635
1,187 1,159 1,127 1,099 1,066
77 75 72 71 68
215 208 202 195 190
3,190 3,121 3,051 2,983 2,912
179 175 171 167 163
741 723 709 692 678
133 129 127 124 121
527 511 501 484 474
2,120 2,070 1,999 1,949 1,878
741 721 705 685 669
1,547 1,525 1,503 1,481 1,459
211 207 205 201 199
1,400 1,372 1,346 1,318 1,292
1,370 1,351 1,316 1,297 1,262
112 109 106 104 101
634 620 594 580 555
187 183 178 174 169
858 840 829 811 800
1,130 1,106 1,070 1,045 1,009
1,143 1,098 1,073 1,028 1,002
166 163 160 157 153
873 855 824 806 775
3,314 3,260 3,168 3,114 3,022
231 225 220 214 209
185 177 172 163 158
2,230 2,185 2,100 2,055 1,970
64 62 59 57 54
1,486 1,457 1,415 1,386 1,343
1,212 1,180 1,156 1,125 1,101
667 642 628 603 589
1,126 1,083 1,007 964 887
99 94 91 85 82
489 469 457 436 424
R2R2R2R2R2 R1R1R1R1R1 PIVPIVPIVPIVPIVOOOOOTTTTT S1S1S1S1S1 S2S2S2S2S2

October 23, 2010
Derivatives Review |Derivatives Review |Derivatives Review |Derivatives Review |Derivatives Review |
Pull back to 6200 is quite likely before expiry
Nifty spot has closed at 60666066606660666066 this week, against a close of 60636063606360636063 last week. The Put-Call Ratio has decreased from 1.281.281.281.281.28 to 1.201.201.201.201.20 levels
and the annualized Cost of Carry (CoC) is positive 23.7723.7723.7723.7723.77%. The Open Interest of Nifty Futures has decreased by 1.341.341.341.341.34%.
Nifty PCR has decreased from 1.28 to 1.20 points. Over the
week, most of the Call options added significant open interest
and unwinding was observed mainly in the 6200 and 6300
Put options. Market was very choppy in the week gone by and
we expect the volatility to continue till October expiry in the
range of 6000 to 6200, as the 6000 Put and 6200 Call options
have highest open interest.
Put-Call Ratio Analysis Futures Annual Volatility Analysis
Historical volatility of Nifty has increased from 20.97% to
21.30%. IV of at-the-money options has decreased from 20.00%
to 18.00%. Some liquid counters where HV has increased
significantly are JINDALSAW, PIRHEALTH, CANBK, ALBK and
UNIPHOS. Stocks where HV has decreased significantly are
SCI, TECHM, STERLINBIO, ULTRACEMCO and HINDPETRO.
The Nifty October future closed at a premium of 23.70 points
against the premium of 29.35 points last week and the
November future closed at a premium of 50.15 points. Premium
in Oct. series is high as long rollover is not very active till now.
Rollover is only 18% against 26% last month. Few stocks where
Cost-of-Carry is substantially high are SOBHA, DRREDDY,
TITAN, MRPL and EKC. Stocks where Cost-of-Carry is negative
are HEROHONDA, CANBK, YESBANK, ZEEL and LUPIN.
Total open interest of the market is `1,89,918cr against
`1,81,867cr last week and the stock futures open interest has
increased from `50,994cr to `53,794cr. Few stocks which were
positive due to long formations are JINDALSAW and
POWERGRID and stocks which were up due to short covering
are ASHOKLEY, BPCL and ZEEL. Counters where we may see a
positive move due to short covering are PANTALOONR, TRIVENI
and TATASTEEL. Thus, buy on dips strategy can be used for
these counters.
Open Interest Analysis Cost-of-Carry Analysis
Derivative Strategy
Scrip : TScrip : TScrip : TScrip : TScrip : TAAAAATTTTTASTEELASTEELASTEELASTEELASTEEL CMP :CMP :CMP :CMP :CMP : `617.50/-617.50/-617.50/-617.50/-617.50/- LLLLLot Size : 500ot Size : 500ot Size : 500ot Size : 500ot Size : 500 Expiry Date (F&O) :Expiry Date (F&O) :Expiry Date (F&O) :Expiry Date (F&O) :Expiry Date (F&O) :
28th Oct, 2010
Expected PayoffView: Mildly Bullish
`600.00
`610.00
`620.00
`630.00
`640.00
`650.00
LBEPLBEPLBEPLBEPLBEP::::: `627.00/-
Max. Risk:Max. Risk:Max. Risk:Max. Risk:Max. Risk: `````3,500.00/-3,500.00/-3,500.00/-3,500.00/-3,500.00/- Max. PMax. PMax. PMax. PMax. Profit:rofit:rofit:rofit:rofit: Unlimited
If TATASTEEL closes on or below `620 on expiry. If TATASTEEL continues to trade above BEP.
NONONONONOTETETETETE::::: Profit can be booked before expiry if TATASTEEL moves in the favorable direction.
Strategy: Long Call
Buy/SellBuy/SellBuy/SellBuy/SellBuy/Sell QtyQtyQtyQtyQty ScripScripScripScripScrip StrikeStrikeStrikeStrikeStrike SeriesSeriesSeriesSeriesSeries OptionOptionOptionOptionOption RateRateRateRateRate
PPPPPricericericericerice TTTTTypeypeypeypeype (Rs.)(Rs.)(Rs.)(Rs.)(Rs.)
Buy 500 TATASTEEL 620 Oct Call 7.00
Closing PClosing PClosing PClosing PClosing Pricericericericerice ExpectedExpectedExpectedExpectedExpected
PPPPProfit/Lrofit/Lrofit/Lrofit/Lrofit/Lossossossossoss
(`7.00)
(`7.00)
(`7.00)
`3.00
`13.00
`23.00

October 23, 2010
Mutual FMutual FMutual FMutual FMutual Fund Fund Fund Fund Fund Focus |ocus |ocus |ocus |ocus |
Exchange Traded Funds and Gold ETFS
An exchangeAn exchangeAn exchangeAn exchangeAn exchange-traded fund (ETF) is a type of fund whose investment-traded fund (ETF) is a type of fund whose investment-traded fund (ETF) is a type of fund whose investment-traded fund (ETF) is a type of fund whose investment-traded fund (ETF) is a type of fund whose investment
objective is to achieve the same return as a particular marketobjective is to achieve the same return as a particular marketobjective is to achieve the same return as a particular marketobjective is to achieve the same return as a particular marketobjective is to achieve the same return as a particular market
index. An ETF is similar to an index fund in the sense that it willindex. An ETF is similar to an index fund in the sense that it willindex. An ETF is similar to an index fund in the sense that it willindex. An ETF is similar to an index fund in the sense that it willindex. An ETF is similar to an index fund in the sense that it will
primarily invest in the securities of companies that are included inprimarily invest in the securities of companies that are included inprimarily invest in the securities of companies that are included inprimarily invest in the securities of companies that are included inprimarily invest in the securities of companies that are included in
a selected market index.a selected market index.a selected market index.a selected market index.a selected market index.
ETF Asset Classes
ETFs can be of the following underlying asset classes
Equity:Equity:Equity:Equity:Equity: ETFs investing in Equity Indices e.g. Nifty BeEs
Bonds :Bonds :Bonds :Bonds :Bonds : ETFs that invest in Debt e.g. Liquid BeEs
Commodities:Commodities:Commodities:Commodities:Commodities: ETFs that invest in Commodities e.g. Gold ETFs
Features of ETFs
Immediate exposure to an entire or specific market.
Correlation to the benchmark close to 1.
Very low total expense ratio: 0.45% on average.
No subscription/redemption fee.
No maturity date.
Equally accessible both to institutional and retail investors.
Broad range of asset classes.
Advantages of ETFs
Allows you to implement asset allocation or portfolio investment
decision as Single Investment which is,
• Easier to track.
• Small Investment amount.
Asset Classes are much simpler to track than individual stocks
since you do not have to worry about,
• Quality of management.
• Accounting frauds.
• Off Balance sheet derivative losses.
• Individual Credit Quality.
High quality and well diversified portfolio.
Generates income from frozen account.
Gold Exchange Traded Funds-ETFs
Open-ended MF schemes backed by units of physical gold.
Follow a passive investment strategy.
Buys & holds gold on behalf of investors without actively
managing it.
Aims to give returns as close as possible, post-expenses, to that
given for gold as a commodity.
Investor can buy & sell quickly at market price, making them
highly liquid assets.
Intra-day trading is possible with an ETF, but not with
open-ended mutual funds.
Current Scenario - Diversification with Gold
Hedge against inflation.
Hedge against a declining dollar: Strong Negative Correlation.
Safe haven in times of geopolitical and financial market
instability.
Commodity based on gold's supply and demand fundamentals.
Store of value.
Portfolio diversifier; gold can act as portfolio insurance.
Since there is a negative correlation between the equity markets
and gold it can act as hedge against the down fall in equity
markets.
Advantages Gold ETFs
ETFs allow investment in gold in small denominations, which
makes it easier for the retail investor to participate.
Quick and convenient dealing through demat account.
No storage and security issue for investors.
Taxation of Mutual Fund.
Can be traded on stock exchange like buying / selling a stock.
Disclaimer: Angel Broking Ltd is not responsible for any error or inaccuracy or any losses suffered on account of information contained in this report. Data is obtained from MFI Explorer. Mutual Fund
investments are subject to market risk. Please read the Scheme Information document carefully before investing.
Working of an Exchange Traded Funds
Primary Market ETF Issuer Secondary Markets
Authorised
Participants / Financial
Institutions
SellerMarket Making/
Arbitrage
Buy/Sell Cash ETF
Subscription /
Redemption
Stock Exchange
Cash ETF
Fund Buyer

October 23, 2010
Mutual FMutual FMutual FMutual FMutual Fund Fund Fund Fund Fund Focus |ocus |ocus |ocus |ocus |
Axis Gold Exchange Traded Fund (ETF) - NFO Analysis
Disclaimer: Angel Broking Ltd is not responsible for any error or inaccuracy or any losses suffered on account of information contained in this report. Data source
is from Axis Mutual Fund NFO Product Note. Mutual Fund investments are subjected to market risk. Please read the Statement of Additional Information and
Scheme Information document carefully before investing.
What is Axis Gold ETF?
Axis Gold ETF is a mutual fund scheme that lets investor buy
gold without the necessity of taking physical delivery.
It allows investor to invest in gold without the associated risks
of physical storage or of impurities.
Benefits of Axis Gold ETF
Allows investor to take advantage of Gold as an investment
opportunity.
Investor bears no risk of storage and safe-keeping of gold.
Get 99.5% purity at prevailing market prices without premium
charges (as levied by many banks/jewellers when purchasing
gold coin from them).
Axis Gold ETF is liquid i.e. it can be traded on NSE like any
other equity share.
Option to get physical gold on redemption (minimum 1000 units).
Type of Fund An Open Ended Gold Exchange Traded Fund
Bench Mark Index Domestic Price of Gold
Min Investment Rs.5000 & in multiples of Re. 1 thereafter
Authorized Participants: 1 kg gold per application and in multiples of 1 kg gold thereafter of purity level of 99.5%
Entry / Exit Loads NIL
Re - Opening Date 16th November 2010
Fund Manager Mr. Anurag Mittal
NFO Offer Price Rs 100 plus premium equal to the difference between the allotment price & the face value of Rs 100 per unit
Ongoing offer Retail investor: Units of Axis Gold ETF will be traded on NSE similar to any other equity share. Each unit will be equivalent to 1
gram of gold (post expenses, if any) and available at the prevailing market price. Large Investors & Authorized Participants may
refer to the SID for details.
Switch-In Available during NFO period
Fund Features NFO Date: - 20th Oct to 3rd Nov 2010
Why is Gold good investment opportunity?
Gold has seen steady rise in its price.
In the last 19 years, gold has grown at an annualized rate of
11% p.a. **, this is better than the traditional bank fixed deposits
rate over the same period.
Price rise of Gold has been due to sustained demand for Gold
because of:
• Global risk-aversion in recessionary times.
• Low interest rate.
• Supply constraints as mining production has dropped.
Gold protects against inflation i.e. its price usually increases at
a rate equal to or greater than inflation rates thereby protecting
investors against rise in prices.
Gold is generally a safe haven in times of uncertainty##.
Gold usually increases the most in times of economic volatility/
underperformance of stock markets.
Gold is an effective investment tool to diversify investor's
portfolio.
24.40%
16.20%
10.90%
6% 5.50% 5.20%
0.00%
5.00%
0.00%
5.00%
20.00%
25.00%
30.00%
5 years 10 years 15 years
Price of Gold WPI Inflation
**Gold protects against inflation
Ideal for Investors
Investors looking for diversification
Investment Horizon: Long Term
Risk Appetite: Medium to High
-33.10%
-44.80%
-55.10%
14.10%
24.80%
12.70%
8.20% 8.60%
23.60%
60%
50%
40%
30%
20%
10%
0%
10%
20%
30%
Asian Financial Crisis
(July 1997 - November
1998)
December Bubble
(February 2000 -
September 2001)
Global Financial Crisi
(December 2007 -
November 2008)
Stocks I-Sec Sovereign Bond Index Gold
##Gold is a safe haven in times of economic uncertainty

October 23, 2010
Currency Corner |Currency Corner |Currency Corner |Currency Corner |Currency Corner |
Currencies Weekly Performance Snapshot
Research Analyst (Commodity) - Naser Parkar
The currency segment witnessed an eventful performance in
the last week with the US Dollar Index (DX) appreciating after a
steep fall. The other major currencies comprising the Euro and
the British pound lost ground, taking cues from the movement
in the greenback. The DX gained last week on the back of
unexpected interest rate hike by China. The world's fastest
growing economy raised its one year lending rate to 5.56%
from the previous of 5.31%. Deposit rate was increased to 2.5%
from the earlier 2.25%. Investors took refuge in the dollar on
the back of this rise in interest rates by China to curb its rising
inflation. Moreover, investors also remain skeptical over the
G20 meeting which began on Friday. This factor also supported
the DX as mixed sentiments over the outcome of the meeting
drove demand for the low-yielding currency.
UK advocates further spending cuts
UK's finance minister George Osborne on Wednesday set out
the government's cost-cutting plans indicating further cuts in
public spending. Considering the poor state of the country's
economy, it is likely that Bank of England (BOE) policymakers
would also opt to inject stimulus into a faltering economy. BOE
governor Mervyn King said that the policies of major economies
are in direct conflict with each other and hence collective action
is essential to rebalance the world economy. UK's economy is
also posing a threat considering the poor state of the housing
sector. The BOE is advocating a quantitative easing program
similar to that of the US Federal Reserve to support the economy.
However, if such steps are implemented, the rising inflation
also remains a matter of concern. UK's current inflation is well
above its permissible limit of 3%.
Indian Rupee depreciates more than 1%...
The Indian Rupee slipped in the last week, declining more than
1% against the dollar. The partial convertible Rupee closed at
44.59 against the greenback on Friday as against its earlier
close of 44.1. The Rupee fell mainly on the back of rebound in
the dollar in the global markets coupled with choppy domestic
equities. The Nifty and the Sensex declined in the last week and
this factor kept the currency under check.
G20 summit struggles to find common ground..
Finance ministers from the G20 nations are finding it difficult
to agree on common grounds to prevent a currency war. US
Treasury Secretary Timothy Geithner had requested the G20
members to move towards common guidelines on exchange
rate policy and commit to specific trade caps. Geithner wanted
economies surpluses and deficits of current account, to be within
defined limits. However, this factor is not acceptable especially
amongst the emerging economies.
Fundamental and Technical Outlook
The much awaited G20 summit which began from Friday has
not been so fruitful in arriving on a common decision regarding
currency movements. Hence, the US dollar may continue to
strengthen in this week as this may lead to uncertainty in the
financial markets. Moreover, the much spoken quantitative
easing program of the US Federal Reserve is expected to be
divided over a long period. The DX which declined sharply after
the Fed's indications of monetary easing would now start to
appreciate as the impact of the stimulus would be spread over.
In the Indian Rupee, we expect a sideways movement in this
week, as on one hand capital inflows in the country would
support the Rupee. But the strength in the dollar in the global
markets coupled with month-end dollar demand by importers
will cap sharp gains.
Exhibit 3: Technical Levels
CurrencyCurrencyCurrencyCurrencyCurrency SupportSupportSupportSupportSupport ResistanceResistanceResistanceResistanceResistance
DX 76.00 79.04
Euro 1.3542 1.4250
INR 43.80 44.99
JPY 80.26 82.46
GBP 1.5426 1.5903
Source: Telequote
Exhibit 2: Spot Rupee Weekly Price Chart
Source: Telequote
Exhibit 1: Currencies Performance
CurrencyCurrencyCurrencyCurrencyCurrency 22nd Oct22nd Oct22nd Oct22nd Oct22nd Oct 16th Oct16th Oct16th Oct16th Oct16th Oct C h gC h gC h gC h gC h g %Chg%Chg%Chg%Chg%Chg
DX 77.37 77.04 0.33 0.4
Euro 1.3943 1.3969 0.0026 (0.2)
INR 44.59 44.1 0.49 1.1
JPY 81.35 81.44 (0.09) (0.1)
GBP 1.5678 1.5992 0.0314 (2.0)
Source: Telequote

October 23, 2010
Commodities Center |Commodities Center |Commodities Center |Commodities Center |Commodities Center |
Sr. Research Analyst (Commodity) - Vedika Narvekar
Guar prices had plunged more than 20% since July 2010 till
mid September, 2010, on expectations of a record output of
Guar seed due to favorable monsoon season. Monsoon has
always played a major role in determining the trend in Guar
prices. Seasonal rainfall during the monsoon season June-
September 2010 was 112% of its Long Period Average (LPA)
over Northwest India where most of the Guar crop is grown.
This has led to increased sowing and thereby raised the hopes
of better output which was estimated around 150 lakh bags
during mid September, 2010. However, the withdrawal of
monsoon started from west Rajasthan on 27th September with
a delay of nearly 4 weeks. Thus, extended rainfall over the
crop development period has led to crop losses which are to
the extend of 12-15%. This has supported prices to gain slightly
since last 2-3 weeks. Guar prices made a low of Rs. 1935
per qtl towards the end of September, bounced back from
there and are currently trading around Rs. 2130 per qtl levels.
Monsoon- A Major Price Driver:Monsoon- A Major Price Driver:Monsoon- A Major Price Driver:Monsoon- A Major Price Driver:Monsoon- A Major Price Driver: Monsoon has always
remained a major factor for any sharp movement in Guar
prices. In the current season too, monsoon was the only factor
which has led Guar prices to decline by more than 20%. Rainfall
during monsoon season (June to September) for the country
and the four broad geographical regions are as follows;
Guar
Seasonal rainfall was 112% of its LPA over Northwest India
(Guar growing region). Monthly rainfall over the country as a
whole was 84% of LPA in June, 103% of LPA in July, 106% of
LPA in August and 113% of LPA in September. Guar mostly
requires rains in July, August and September which was again
in favor (above normal) this season.
Guar- Demand Supply Scenario:Guar- Demand Supply Scenario:Guar- Demand Supply Scenario:Guar- Demand Supply Scenario:Guar- Demand Supply Scenario: Rajasthan contributes
around 72-75% in the total Guar seed production in India.
Acreage in Rajasthan rose by 7.55 percent in 2010 to 2.78
million hectares as against 2.58 million hectares last year.
Thus, production is going to increase in the coming season
due to increase in acreage and favorable monsoon season.
Factoring in the crop losses, the production is currently
estimated at 125-127 lakh bags compared to 45 lakh bags in
2009-10 and around 95-100 lakh bags in 2008-09.
Rajasthan is going to contribute almost 75% in the total output
by producing 95 lakh bags, Haryana- 25 lakh bags, Gujarat -
5 lakh bags, MP/UP- 2 lakh bags. In the current year, Guar
seed supply at 155 lakh bags is going to far exceed the demand
of around 80 lakh bags.
Guar Balance Sheet
2009-102009-102009-102009-102009-10 2010-11*2010-11*2010-11*2010-11*2010-11*
Opening Stocks 65 30
Production 45 125
Total Supply 110 155
Domestic Consumption 15 15
Exports 65 65
Total demand 80 80
Ending Stocks 30 75
Figs as per market sources
Actual RainfallActual RainfallActual RainfallActual RainfallActual Rainfall LLLLLong Pong Pong Pong Pong Perioderioderioderioderiod Actual %Actual %Actual %Actual %Actual %
(mm)(mm)(mm)(mm)(mm) Average (mm)Average (mm)Average (mm)Average (mm)Average (mm) of LPof LPof LPof LPof LPAAAAA
All India 912.8 893.2 102%
Northwest India 688.2 613 112%
Central India 1027.9 991.5 104%
South Peninsula 853.6 722.9 118%
Northeast India 1175.8 1436.2 82%
Source: IMD
Export demand in the current season may be same as the
previous year (2.2-2.3 lakh tonnes) or may be slightly lower
due to good production in Pakistan, the second largest Guar
producing and exporting country, after India. Last year, Guar
production in Pakistan was negligible; in fact, India exported
some quantity to Pakistan. Also, India was the only supplier of
Guar in the global markets in 2010. In contrast to last year,
India's share in global supply would reduce as Pakistan will
also export due to good crop this season which stands at 22-
25 lakh bags.
Guar Outlook:Guar Outlook:Guar Outlook:Guar Outlook:Guar Outlook: The fresh arrivals of early sown Guar crop
(irrigated) from Ganganagar, Hanumangarh and Haryana
have started since October 1st week. Total arrivals stands at
25-30 thousand bags at present. Despite increased arrivals
compared to last week, Guar futures may gain in the short
term (1-2 week) due to poor quality of fresh guar crop. Also,
the output which was expected to be much higher may decline
by 10-15% due to off seasonal rainfall which may damage
the crop. However, we expect that the arrivals would gain
momentum after the first week of November (i.e. after Diwali).
Also, good quality crop would arrive by then. Thus, prices are
expected to decline drastically after mid November as higher
supplies may dampen the prices. In the medium term
(November-December), Guar prices may trade in the range
of Rs. 1900-2300.
Technically, in the coming week, Guar seed December 2010
contract shall find strong support at Rs. 2080/Rs.2017 and
resistance may be seen at Rs. 2206/Rs.2300.

Weekly review 23-10-10

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