1. Market Outlook
India Research
October 15, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The key benchmark indices edged lower in choppy trading session as profit BSE Sensex -0.9% (190.2) 20,498
booking emerged after the market scaled 33-month high. The indices surged in Nifty -0.9% (56.5) 6,177
opening trade tracking firm Asian stocks but soon slipped into red due to profit MID CAP -0.3% (22.4) 8,415
booking. However, the indices held positive zone in mid-morning trade. The SMALL CAP -0.5% (53.0) 10,708
market moved between positive and negative terrain near the flat line in BSE HC -0.4% (26.9) 6,374
afternoon trade, but fresh selling dragged the market to the day's low in late BSE PSU -1.1% (117.9) 10,474
afternoon trade resulting in the Sensex and Nifty closing down by 0.9% each. BANKEX -1.1% (157.0) 14,322
BSE midcap and small-cap indices performed slightly better than the key AUTO -0.6% (65.0) 9,951
benchmark indices, closing below by 0.3% and 0.5%, respectively. Among the METAL 0.6% 97.3 17,756
front liners, Wipro, Tata Steel, Infosys, Tata Motors and Jindal Steel gained 0– OIL & GAS -1.5% (170.2) 10,847
2%, while RCOM, L&T, NTPC, M&M and Reliance Infra lost 2–3%. Among mid BSE IT 0.5% 30.1 6,279
caps, Rashtriya Chemicals, Chambal Fertilisers, GSFC, Money Matters and
Global Indices Chg (%) (Pts) (Close)
Coromandel Intntl. gained 7–13%, while Infotech Ent., IBN18 Broadcast, IFCI,
Dow Jones 0.0% (1.5) 11,095
UTV Software and CMC lost 4–8%.
NASDAQ -0.2% (5.8) 2,435
Markets Today FTSE -0.4% (20.1) 5,727
The trend deciding level for the day is 20598 / 6206 levels. If NIFTY trades Nikkei 1.9% 180.0 9,584
above this level during the first half-an-hour of trade then we may witness a
Hang Seng 1.7% 394.5 23,852
further rally up to 20754 – 21010 / 6255 - 6333 levels. However, if NIFTY
Straits Times -0.2% (7.1) 3,195
trades below 20598 / 6206 levels for the first half-an-hour of trade then it may
correct up to 20342 – 20187 / 6129 - 6080 levels. Shanghai Com 0.6% 18.3 2,880
Indices S2 S1 R1 R2
Indian ADRs Chg (%) (Pts) (Close)
SENSEX 20,187 20,342 20,754 21,010
Infosys -0.3% (0.2) $71.0
NIFTY 6,080 6,129 6,255 6,333
Wipro 3.3% 0.5 $16.8
ICICI Bank -1.7% (0.9) $51.7
News Analysis
HDFC Bank -0.7% (1.4) $187.1
Coal India – Offer for Sale
Sadbhav Engineering bags orders worth `1,411cr
Advances / Declines BSE NSE
Cement cos to hike prices again despite low demand
Advances 1,112 443
2QFY2011 Result Review – Axis Bank, Rallis, Infotech Enterprises
Declines 1,906 948
2QFY2011 Result Preview - Infosys
Unchanged 85 34
Refer detailed news analysis on the following page.
Net Inflows (October 13, 2010)
Volumes (Rs cr)
Rs cr Purch Sales Net MTD YTD
FII 6,719 3,618 3,100 14,559 102,881 BSE 6,746
MFs 421 758 (337) (2,909) (25,938) NSE 18,533
FII Derivatives (October 14, 2010)
Open
Rs cr Purch Sales Net
Interest
Index Futures 2,550 2,615 (65) 16,231
Stock Futures 1,595 2,202 (606) 44,843
Gainers / Losers
Gainers Losers
Price chg Price chg
Company Company
(Rs) (%) (Rs) (%)
Chambal Fert. 90 11.0 BPCL 723 (4.9)
Indiabulls 183 4.7 IFCI 72 (4.5)
Amtek Auto 162 4.2 Areva T&D 307 (4.1)
Sesa Goa 374 4.1 Apollo Hospitals 550 (4.0)
1
Engineers India 364 3.7 NTPC 203 (2.6)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. Market Outlook | India Research
Coal India – Offer for Sale
Coal India (CIL), a Navratna company, is the world’s largest coal producer. The company
accounts for nearly 82% of India’s total coal production. At the lower and upper price
band, the stock will trade at 5.8x and 6.7x FY2012E EV/EBITDA, respectively. We
recommend Subscribe to the issue with a DCF-based fair value of `294.
Enjoys largest reserves and production base: CIL has the world’s largest coal reserves, at
19bn tonnes, as per JORC’s guidelines. The company’s proved reserves stand high at
11bn tonnes, constituting 56.2% of its total reserves. CIL, the biggest coal producer
globally, produced 431mn tonnes of coal in FY2010.
Demand outpacing supply: We expect CIL’s coal production to grow at a 5.7% CAGR over
FY2010–15E. However, India will continue to be a net importer of coal as domestic
demand is likely to grow at a 9–10% CAGR over FY2010–15E.
Significant leeway to increase prices: CIL sells raw coal at a ~63% discount to global
prices. We expect blended realisations to increase at a 6.1% CAGR over FY2010–15E on
account of a) a 5.1% CAGR increase in raw coal’s notified price over FY2010–15E, b)
increased proportion of beneficiated coal sales (8.8% in FY2015E v/s 3.7% in FY2010),
which commands a ~120% premium over the notified coal price and c) gradual increase
in e-auction sales volumes from 11.6% in FY2010 to 12.5% in FY2012E, where realised
price is likely to be ~60% higher than the notified price.
Competitive cost structure: CIL is one of the lowest-cost coal producers in the world, with
an average blended cost of US $16/tonne. This is because CIL’s production from open
cast mining, which has significantly lower production cost (US $11/tonne), accounts for
90% of its total production cost as compared to underground mining, which has a high
production cost of US $59/tonne.
Key risks to CIL’s earnings and our estimates: 1) Regulatory hurdles causing a delay in
production ramp-up; 2) infrastructure bottlenecks; 3) amendments in the mining policy,
which require sharing of profits; and 4) ongoing environmental debate on ‘Go/No Go’
regions.
We will be releasing a detailed report shortly.
Sadbhav Engineering bags orders worth `1,411cr
Sadbhav Engineering (SEL) has bagged orders worth `1,411cr from NHAI. The orders involve
rehabilitation and upgradation to two-lane with paved shoulders and maintenance of Multai-
Chhindwara-Seoni section of NH-69A in Madhya Pradesh (including construction and
maintenance of ring road and connecting roads in Chhindwara) and Narsinghpur-Amarwara-
Saoner section of NH-26B in Maharashtra. We believe this is positive for the company. The
company’s robust order book currently stands at ~`8,000cr (4.9x FY2011E revenue).
Recently, SEL’s subsidiary, Sadbhav Infrastructure Project Ltd. (SIPL), has diluted and raised
capital worth `400cr, which is expected to ease the pressure on SEL’s balance sheet and fade
funding concerns. Hence, we maintain an Accumulate rating on the stock with an SOTP Target
Price of `1,702/share. We have assigned a P/E of 12x (15% discount to its larger peers like
IVRCL Infra and NCC) to its FY2012E earnings and valued its BOT arm at 25% discount to the
recent P/E deal.
October 15, 2010 2

3. Market Outlook | India Research
Cement cos to hike prices again despite low demand
In a surprising move, Cement companies have intimated dealers and stockists about
another `15–20 per bag hike almost across the country from Dussehra, October 17. The
proposed hike goes against the common practice of keeping prices unchanged during
Dussehra and Diwali, when construction activities typically dip. This price hike follows a
`20 per 50kg bag hike mostly in western and southern India around a fortnight back.
“This move, though is expected to be unsustainable, would at least help in sustaining the
earlier one,” said a large Jodhpur-based stockist.
In the key market of Mumbai, prices of the commodity are likely to be hiked by around
`10, pushing prices to `245 per bag in the non-trade segment and `265 in the trade
segment. Delhi, which has already seen a hike of `20 in cement prices a week ago, is set
to witness another increase of `20, dealers said. In Chennai and Hyderabad also, cement
makers have intimated stockists about a `20 hike from Sunday. Most of the cement
makers, including large players such as ACC , Ambuja Cements , UltraTech Cement ,
India Cements , Jaiprakash Associates , Dalmia Cement Bharat, Binani Cement and JK
Lakshmi Cement, have announced these hikes.
We believe this price hike is not sustainable and expect it to correct in the next few weeks.
We maintain a Buy rating on India Cements (TP `139), Madras Cements (TP `139 )and JK
Lakshmi Cements (TP `92) due to their attractive valuations. We remain Neutral on ACC,
Ambuja Cements and UltraTech Cements.
Result Review
Axis Bank
Axis Bank announced its 2QFY2011 results today. Net profit grew 38.3% yoy to `735cr,
marginally ahead of our estimate of `706cr, mainly on account of better-than-estimated
other income. Strong operating performance with stable asset quality was the key positive
from the results.
Advances increased by a moderate 1.8% sequentially (robust 36.5% yoy), while deposits
grew by a robust 35.7% yoy and 6.4% sequentially, well ahead of the industry’s growth
rate. Consequently, net interest income (NII) recorded 40.5% yoy and 6.7% sequential
growth. CASA ratio improved to 41.5% in 2QFY2011 from 40.2% in 1QFY2011. Reported
NIM at 3.68% registered a marginal decline of 3bp sequentially. Gross and net NPA ratios
of the bank were stable at 1.1% and 0.3%, respectively.
At the CMP, the stock is trading at 2.9x FY2012E ABV. We remain positive on the bank
and believe that it deserves premium valuations owing to its attractive CASA franchise,
multiple sources of sustainable fee income, strong growth outlook and A-list management.
We maintain an Accumulate recommendation on the stock with a Target Price of `1,704,
implying an upside of 9.0% from current levels.
Rallis India
Rallis India reported its 2QFY2011 results. The company reported top-line growth 14.7%
yoy to `368cr, which was 10% below our expectation of `407cr. EBITDA margins came in
at 24.3%, 190bp higher than our estimate of 22.4%. Reported PAT came in at `58.7cr, as
against our estimate of `58.4cr. Overall, the results were broadly in line with our
estimates.
At the CMP of `1,456, the stock is trading at 20x and 15x its FY2011E and FY2012E
earning estimate, respectively. Currently, we remain Neutral on the stock.
October 15, 2010 3

4. Market Outlook | India Research
Infotech Enterprises
Infotech Enterprises has announced its 2QFY2011 results. The company’s revenue came in
at `295.5cr, which was ahead of the street as well as our expectations. However, results
were disappointing on the operational front. EBITDA margins tumbled by 50bp qoq to
15.5% as against our expectation of 150bp expansion. PAT at `33cr came in below our
expectation of `36cr. EBITDA margins disappointed due to the Wellsco integration and
unanticipated escalation in salary costs to retain talent. The stock is currently under review.
We will shortly be releasing a detailed result update.
Result Preview
Infosys Technologies
Infosys Technologies is set to announce its 2QFY2011 results. We expect a stellar
performance by the company, with revenue at US $1,464.4mn, up 7.8% qoq. Revenue
growth can be attributed to strong volume growth of 8% qoq with higher offshore mix and
cross-currency positive impact of 0.5%. In rupee terms, growth will be stronger at
`6,809cr, with 9.9% qoq growth as the rupee depreciated by 2% qoq against the USD.
EBITDA margins are expected to expand by whopping 236bp on the back of strong
volume growth absorbing the impact of wage inflation in 1QFY2011, favourable cross-
currency and higher offshore mix. Thus, PAT will stand tall at `1,692cr, with 13.7% qoq
growth.
Key points to watch out for are a) any revision in USD revenue guidance, which we expect
to be scaled up from 19–21% to 22–24% on the back of improved demand as well as
favourable cross-currency; and b) management’s expectation on the nature as well as
quantum of client budgets for CY2011 due in November with any possibility of an uptick
in pricing, which can lead to re-rating of the sector. We continue to be positive on the
stock with a Neutral rating.
October 15, 2010 4

5. Market Outlook | India Research
Economic and Political News
RBI intervenes to stem unabated rise in Rupee
AP okays ordinance to regulate MFIs
Farm output to grow 7.2%: CMIE
Corporate News
Reliance Infra raises `7,000cr for Mumbai Metro project
Eros signs deal with Zee for `50cr
Glaxo to step up capacity for Elephantiasis drug production
L&T Infra plans `700cr infrastructure bond issue
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
Events for the day
Development Credit Bank Results
Infosys Results
Karnataka Bank Results
Manappuram General Results
October 15, 2010 5

6. Market Outlook | India Research
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