TCS once again beat expectations and more importantly outpaced Infosys on all parameters.

WEEK IN A NUTSHELL

WIN-dow to the week that was

Week in a Nutshell (WIN)

Week

ended

13 July

2012

Key WIN-dicators

May IIP growth recovers to 2.4%

If ever the term “Lacking direction” is to be used it is now. Month on month

NIFTY has closed up a mere 1.6%. This lack of movement though hides large

inflows seen month to date with USD1.3B of equity investments, which dwarfs

the flows into peer markets in the region. The YTD number is just as divergent

with ~USD10B of inflows into India while the closest markets have pulled in less

than half this amount. This coincides with our PM and acting FM acknowledging

actions are required to build investor confidence. Should these materialize, we

are staring at potentially record inflow numbers for the year?

DO WE HAVE A NEW BELLWETHER IN INDIAN IT?

TCS once again beat expectations

and more importantly outpaced Infosys on all parameters. While dollar revenues

contracted for Infosys, TCS continued to grow, even outstripping on the volume

front. On margins as well TCS fared better on the back of better utilization rates.

Mgmt outlook continued as divergent with TCS top brass defying any macro

impacts and seeing continued opportunities and orders while Infosys mgmt cited

low near-term visibility which has worsened in the last quarter.

PRIVATE BANKS JUSTIFY VALUATIONS

Both HDFC Bank and Indusind came in with

results that justify their premium valuations. HDFC Bank surprised on both NIM as

well fee income, while its franchise continues to build on liabilities with 18%

increase in SA YoY.

Indusind Bank

delivered impressive numbers in a stressed liquidity situation, with

continued SA deposit growth, strong corporate loan and fee income growth. The

only point of concern is on the promoter ownership which is to be reduced to 10%

from the current ~19%. With QIP around the corner, this QIP + the reduction in

promoter stake should be the last big supply in the stock, which will be easily

lapped up by the fence sitters in the stock. Please read detailed notes

MAY IIP GROWTH RECOVERS TO 2.4%

while above expectations and signaled

moderate recovery of industry, Apr data saw downward revision. Capital Goods

sector saw continued downturn and in our belief this reading does not change the

growth-inflation balance. We expect RBI to cut policy rates by 50bps in its July 31

policy announcement.

TCS: BFSI, Telecom and Retail were

the key growth verticals

CC Pricing cut of 3% QoQ was a key

negative surprise in 1QFY13

WoW - Nifty Change (-1.7%)

Some of the highlights of this edition:



TCS & Infosys Result Highlights



Dr Reddy’s and ONGC management meeting highlights



Updates from NMDC site visit

WWW – WIN Weekend Wisdom

The history of the stock markets tells us that they will surprise

us in the future

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

[W]INside this week’s edition

WIN-teresting data points ..................................................................................................................... 3

Results expected this week ........................................................................................................................................... 4

Concall Details ............................................................................................................................................................... 4

WIN-ning charts & chats ........................................................................................................................ 5

Where are the biggest companies in the world ............................................................................................................ 5

WIN-conomics ....................................................................................................................................... 6

INDIA ECONOMICS: May IIP growth recovers to 2.4%; Empty middle still holds. ........................................................ 6

INDIA ECONOMICS: IMD maintains normal monsoon forecast; Sees lower impact of delayed El Nino; ..................... 6

WIN-sights from management interaction ............................................................................................. 7

THE CORNER OFFICE: ONGC- Aspiration to double overall production by 2030; Ad-hoc subsidy a risk ...................... 7

THE CORNER OFFICE: DR Reddy's Labs - Confident of achieving revenue target of USD2.6b in FY13 .......................... 7

MOBIZ - JULY 2012 SERIES: Interaction with PTC Energy, 100% subsidiary of PTC India .............................................. 7

ASSOCIATION OF POWER PRODUCERS: - Ashok Kumar Khurana, director general...................................................... 8

BANK OF INDIA - Alok Mishra, CMD .............................................................................................................................. 8

HCL TECHNOLOGIES - Vineet Nayar, Vice Chairman and CEO ....................................................................................... 9

JSW ENERGY - NK Jain, vice-chairman ........................................................................................................................... 9

NGO NACDANYA - Vandana Shiva, Environmental activist and director .................................................................... 10

PLANNING COMMISION - Dr Pranob Sen Principal Advisor ........................................................................................ 10

SBI - A Krishna Kumar, Managing Director .................................................................................................................. 10

THEMRAX - MS Unnikrishnan, managing director....................................................................................................... 10

VAN TECH WABAG - Rajiv Mittal, MD ......................................................................................................................... 11

WIN Sector Updates ............................................................................................................................ 12

INDIAN BANKING: RBI releases suggestions received on draft guidelines for licensing of new banks. ...................... 12

HEALTHCARE: Strong guidance, favorable currency to drive re-rating; Earnings CAGR of 28% for top picks ............ 12

METALS: Karnataka conference takeaways – JSW Steel’s pain increasing; Sesa Goa to benefit ................................ 12

METALS WEEKLY: Indian steel demand up 8.8% in 1QFY13; Aluminum spot premium inch upwards ....................... 13

mPower (July 2012): Monthly round-up of power utilities ......................................................................................... 13

POWER: EXPERT SPEAK-Utilities sector in state of abeyance; Attention of top authorities is positive ...................... 14

WIN Corporate Corner ......................................................................................................................... 15

Cummins India: Annual Report update | Profitability supported by cost optimization measures ............................. 15

DIVI'S LABS: Guides for 20%+ revenue CAGR over medium term; Can surpass INR10b in PAT in FY14; Buy ............. 15

DR REDDY’S: Confident of USD2.6b FY13 topline; Focus on innovation-driven generics ........................................... 16

HDFC 1QFY13: Consistent performance; Healthy asset growth; Spreads and asset quality remain stable ............... 16

INDUSIND 1Q: In-line; Loan gr. above industry avg.; NIM moderates; Asset quality remains healthy ...................... 16

INFOSYS 1QFY13: Volumes +ve surprise, pricing decline –ve surprise ....................................................................... 17

NMDC Karnataka site: Upside to both volumes and prices assumption; Valuations attractive ................................. 18

OIL INDIA: Expect step jump in gas production in 2014; To acquire discovered/producing asset; Buy ..................... 18

STRIDES ARCOLAB: Enters Canadian injectable market through JV; No significant upside ........................................ 18

TCS 1QFY13: Above est volume offset by pricing decline; margin below est; Strong execution ................................ 19

WIN Collage......................................................................................................................................... 20

An unconventional bonanza: New sources of gas could transform the world’s energy markets ............................... 20

Nifty Valuations at a glance ................................................................................................................. 23

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

WIN-teresting data points

Global

Indices

Sensex

Nikkei

Hang Seng

Dow Jones

FTSE 100

Sectoral

Indices

Bank Nifty

CNX IT

BSE Oil

Bond

yields-India

1 Year

10 Year

10655

6027

8061

Last

Friday

7.99

8.16

10594

5714

8028

This

week

8.00

8.10

-0.57

-5.20

WoW change

(%)

0.14

-0.69

12.70

15.48

10.48

Spread Vs

US 10 yrs

7.82

6.62

Last

week

17521

9021

19801

12772

5663

Current

week

17214

8724

19093

12573

5646

WoW change

(%)

-1.75

-3.29

-3.58

-1.56

-0.29

P/E

Valuations

14.46

20.79

9.29

12.73

10.94

Inflows

FII (Rs B)

DII (Rs B)

Commodities

Oil(US$/Bbl)

Precious Metals

Gold ($/OZ)

Silver ($/OZ)

Metals

Copper(US$/MT)

Zinc(US$/MT)

Aluminum(US$/MT)

Steel (Ingot - Mum)

Currency

Rs Vs Dollar

Euro Vs Dollar

55.46

1.23

55.28

1.22

-0.32

-0.67

7535

1841

1863

31400

7574

1847

1850

31400

0.52

0.33

-0.74

0.0%

1584

1583

-0.03

1.30

MTD

73.57

-32.51

Last

week

98.2

YTD

(Calendar)

494.38

-226.86

This week

102.22

WoW change

(%)

4.09

Top Gainers

Company Name

Den Networks

SCUF

TVS Motor

Onmobile

MAGMA

CMC

BSE 500 – Key Movers

Top Losers

% Change Company Name

17.4%

First Source

16.6%

Gujarat State Fertilizers

13.2%

IVRCL Infrastructures

10.0%

Kingfisher Airlines

9.4%

8.6%

Dewan Housing

Infosys

% Change

11.6%

10.4%

10.2%

10.1%

9.5%

8.8%

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

Results expected this week

NSE Symbol

ADANIENT

ZEEL

PFC

TATAPOWER

BHEL

RECLTD

TATAGLOBAL

RPOWER

BPCL

CROMPGREAV

ITC

NHPC

SUZLON

Date

21-May-12

22-May-12

23-May-12

24-May-12

25-May-12

Concall Details

Date

Company Name

Analyst Meet

/ Con Call

Concall

Analyst Meet

Concall

Analyst Meet

Concall

Analyst Meet

Venue

Time IST

21-May-12

22-May-12

25-May-12

TORRENT PHARMACEUTICALS

State Bank of India

UCO Bank

Dalmia Bharat Enterprises

Limited

Zee Entertainment Enterprises

Limited

SKF India Ltd.

Tata Power

Shasun Pharmaceuticals

+91 22 6629 0302 / 3065 0102

+ 91 22 3065 0102 / 6629 0302

The Taj Mahal Palace, Ball Room,

Apollo Bunder, Mumbai - 01

+91 22 3065 0140 / 6629 0360

+91 22 6629 0074 / 3065 0074

Rangaswar Hall, Y.B. Chavan Centre,

Near Mantralaya, Nariman Point

+91 22 6629 0082 / 3065 0082

The Lotus, Trident, Nariman Point,

Mumbai

11.00 am

3.00 pm

3.30 pm

4.30 pm

11.00 am

4.00 pm

5.30 pm

4.00 pm

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

WIN-ning charts & chats

Where are the biggest companies in the world

WHEN RANKED by revenue America has almost twice as many companies in the biggest 500 than any other country,

according to Fortune. This is not solely down to its size; America’s ratio of companies to people is also striking. It has

one company on Fortune’s list for every 2.4m people, only a handful of European economies do better. China is

moving in on America’s spot though. In 2005 the Middle Kingdom housed only 16 of the biggest firms. This year it

has 73—more than Japan. In contrast to the American way, China's government has a hand in most of its biggest

firms. The highest ranked is Sinopec, an oil producer, which came in fifth. A look at the ratio of big firms to GDP

highlights the places where tax is low and business is easy to do. Luxembourg (not shown) does best with 34

companies per trillion dollars, followed by Switzerland and Taiwan. All 500 firms on the list racked up combined

revenue of $29trn. From this $1.6trn was profit, about the same as Australia’s GDP.

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

WIN-conomics

INDIA ECONOMICS: May IIP growth recovers to 2.4%; Empty middle still holds.



May-12 IIP growth at 2.4% was somewhat above expectations and signaled moderate recovery of industry.

However, in the same breath, Apr-12 data was revised to -0.9% from +0.1%.

Barring consumer non-durables all sub-sectors showed MoM as well as YoY improvement. Continued

performance from electricity sector outweighed the decline in mining sector.

The "empty middle" structure of industrial production continued to hold. The capital goods sector in particular

continued its downturn with -7.7% growth barring which IIP would have recorded a growth of 3.4%.

We expect some revival of investment climate in 2H based on favorable base, continued performance from the

corporate sector, lower inflation, monetary easing and rekindled hope for policy rollout.

We have placed our FY13 IIP growth estimate at 3.8% consistent with our 6.2% GDP growth estimate for the

year.

The IIP print does not alter the growth-inflation balance - that growth is way below its long-term average and

inflation has fallen from recent peaks. We therefore expect RBI to ease policy rates by 50bp in its July 31st

policy announcement.

INDIA ECONOMICS: IMD maintains normal monsoon forecast; Sees lower impact of delayed El Nino;

We hosted a concall with Dr D S Pai, Director (LRF) of IMD on the Monsoon Outlook for 2012. Key takeaways:



Significance of monsoon:

South-west monsoon is very crucial which meets nearly 70-90% of the water

requirement for agriculture. If the monsoon is good in the coming weeks and continues till August, the adverse

impact of delayed monsoon can be contained.



Advancement so far:

Monsoon is likely to advance to most parts of North-west including Delhi during the next

two days. IMD’s assessment of normal monsoon (96% of LPA) is maintained for the time being with a mid-term

assessment likely by end-July.



The correlation between El Nino and drought:

While in general El Nino causes lower rainfall there are notable

exceptions too. Also the impact of the El Nino would be less if it strikes at the later part of the year. The

combinations for other factors so far point toward normal monsoon for the current season. In the last 110 years

or so, there were 36 El Nino years, out of which around 16 was less than 90% rainfall, 14 times between 90-

100% and 6 times above 100%.



Long period history suggests June deficiency can be made up:

While it is true that large deviations have rather

been difficult to predict, long period data suggests that the deficiency in June per se do not rule out the

possibility of a normal monsoon for the season. However, as mentioned in the long range forecast (LRF) by IMD

in Jun-12, there is high probability (35%) of a ‘below normal’ rainfall too. The seasonal rainfall so far stood at

25% below normal as of July 8, 2012. More than 60% of the country received either deficient or scanty rainfall.

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

WIN-sights from management interaction

THE CORNER OFFICE: ONGC- Aspiration to double overall production by 2030; Ad-hoc subsidy a risk

We met Mr Sudhir Vasudev, the CMD of ONGC.



ONGC has chalked out a perspective plan, under which it targets to double overall production and increase

production of its overseas subsidiary, OVL, six-fold by 2030.



The company expects to increase its gas production to 100mmscmd by 2016-17, led by the development of its

deepwater fields in KG basin and Daman offshore.



Ad hoc subsidy sharing is near-term risk. Given the precarious government finances and easing of inflationary

pressure, it believes sector reforms are in the offing.



Valuation and view:



The stock is attractive: (a) >40% discount to its global peers on EV/BOE (1P basis), and (b) implied dividend yield

of ~3.5%. ONGC trades at 10.3x FY13E EPS of INR27.3. Buy with a TP of INR323.

THE CORNER OFFICE: DR Reddy's Labs - Confident of achieving revenue target of USD2.6b in FY13

We met Mr GV Prasad, CEO of Dr Reddy's Laboratories (DRRD). Key takeaways:



Confident about achieving revenue of USD2.6b in FY13, a growth of 30%.



The management has indicated that it has some products in its US pipeline, which will help it to bridge this gap.



Further, the management is confident of achieving 10-15% CAGR in US revenue from FY14 (despite the patent

cliff), led by the commercialization of its pipeline of 80 ANDAs (pending approval).



Branded formulations exports to sustain double-digit growth



India formulations business back on track. The company has taken corrective steps and expects to grow this

business at a CAGR of 15%.



Valuation and view



The stock trades at 17.8x FY13E and 16.1x FY14E core earnings. Buy with a target price of INR2,056 (20x FY14E

EPS) - 25% upside.

MOBIZ - JULY 2012 SERIES: Interaction with PTC Energy, 100% subsidiary of PTC India

PTC Energy is a 100% subsidiary of PTC India. Currently, PTC Energy is in the business coal trading with back to back

agreement with buyers, largely for tolling projects entered into by PTC India and other projects where PTC India has

direct/indirect interest.

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

Q: The tolling business, comprising the 200MW Simhapuri and 150MW Meenakshi projects, has been delayed by

12 months. We understand that you have recently commissioned the first unit of the Simhapuri project. Please

share your experience of operating the unit, cost structure, etc.

A: The Simhapuri U-I (150MW) tolling project has been commissioned in May 2012 and is operating at a PLF of

80%. The project is sourcing Indonesian coal (4,200kcal) at USD42/ton FOB. Operations have been satisfactory and

including fixed cost, the cost of generation is INR4/unit.

Q: PTC India plans to run plants on imported coal, given the fall in imported coal prices in INR terms. What is

your estimate of likely fuel cost for the Simhapuri and Meenakshi plants? What is the current realization for these

projects?

A: PTC Energy does not expect further decline in prices of imported coal, as production cash cost in Indonesia is

USD35-36/tone. Mine developers are likely to restrain expansion of new projects. For the Simhapuri project, we are

sourcing Indoensian coal (4,200kcal) at USD42/tonne FOB, and including fixed cost, the cost of generation is

INR4/unit.

Q: We understand that PTC Energy will keep only coal trading spread on its books, while the entire spark spread

(realization - fuel cost + fixed cost) will be passed on to PTC India. Is this correct?

A: PTC India is acting as a developer for the tolling projects. Thus, trading spread will accrue to PTC Energy and

spark spread will accrue to PTC India.

Q: PTC Energy imported 0.42m tons of coal in FY12. How will your coal trading business scale up to cater to your

own tolling projects and any other projects in the vicinity?

A: Scale-up of the coal trading business will depend on the commissioning schedule of tolling projects. In FY13,

Simhapuri U-I, Meenakashi U-II and an IPP project (East Coast) are expected to commission. Internally, PTC Energy is

targeting to trade 1.5-2m tons in FY13.

Q: What is the framework here? Does the company tie up quantity beforehand? Is there any benefit for other

developers to import through PTC Energy and not directly?

A: PTC Energy has tied up with a mine developer in Indonesia and is receiving coal at the Reference Index.

Sourcing of coal requires various activities starting from arranging coal, shipping and making it reach the power

plant gate. PTC India believes that delegation of this work to PTC Energy will help it to focus on the development

work of the plant.

Q: Can you share the coal trading margin for coal trading carried out by the company? What is the margin kept

for tolling projects?

A: PTC Energy’s margin for coal trading is 2-3% of the value of the coal. The tolling projects’ margin is the

difference between the realization of power and cost of generation.

ASSOCIATION OF POWER PRODUCERS: - Ashok Kumar Khurana, director general



Not on all plant basis, but some plants have got coal. There has been only a slight improvement in the coal

supply but projects, which are commissioned after 2009 are not getting coal more than 40% of their

requirement today.

the bankers have stopped disbursing. The banks are saying first show me the FSA, without the FSA, you cannot

have bank loans. Coal India says show me the PPA, I will show you the FSA.

There is complete logjam between different parts of government, ministry of coal, ministry of power, CEA, state

government and the banking fraternity.

We may end up back to 20,000 megawatt in the entire 12th plan if government continues this way.

Unless the debt is completely taken away from the balance sheet, I don't think that discoms can become viable.

So, instead of saying 50% debt restructuring, they have to work on each state basis and ask states to remove it

from their balance sheets.

So that they can atleast become breakeven in next two-three years and start generating profits

BANK OF INDIA - Alok Mishra, CMD



Obviously, the credit growth in 2011-12 was lower than 2010-11 but, fortunately for this year, between April to

now, it is marginally better than last year.

Of course in the power sector, aviation, textile, SMEs, we requested for little restructuring because we need to

save the units and we need to save the investment that is already put in.

July

2012

WIN – Week In a Nutshell

WEEK IN A NUTSHELL



Monetary action will have a limited scope. More than that, we requested for a little liquidity

HCL TECHNOLOGIES - Vineet Nayar, Vice Chairman and CEO



HCL does nothing different other than the fact that we have unlocked the imagination and energy of this

employees not by giving them more money, not by giving them more ESOPs but giving them more

opportunities, more respect, accountability of the management to the employees.

New generation of companies like salesforce.com, you cannot call it a product company, it is a combination of

product service and there is where the sweet spot of India is.

I truly believe that is the mother of all battles. So the market is looking at the opportunity from different lenses.

The overall IT spends is going to come down or remain flat and that is why the market is worried. As far as I am

concerned, I am excited because this is the first time people are open to changing hands. As I said, tough times

drive tough decisions. So people are willing to move out of the IBMs and Accentures and HPs of the world

predominantly because tough times are ahead and therefore they are looking for alternate opinion.

The question in any strategy is before the giant wakes up, can you go in and clean up the shop and go away, and

when the person wakes up, there is nothing left.

I think the opportunity is USD 45 billion and statistics have shown that it initially was only 5% of USD 45 billion.

Now at this juncture, it is 30% of USD 45 billion and I can guarantee in three-five years’ time, it should be 100%

of USD 45 billion.

So when we go in to our customer win situation and do not create a WOW (Wealth out of Waste) for the

customer and the customer says all of you are equal and now I will look at the price that is the time to exit that

business and we are ruthless about exiting a business. Right now, in total IT outsourcing, we are creating a

WoW because we have automated systems and processes.

Let me come to your questions on margins. That is an excuse. A lot of sales personnel will give their respect to

the companies that they will lose deals to HCL because of price, that is not true. No customer, even if National

Stock Exchange were to outsource its running will it outsource based on competence or will it outsource based

on price.

We believe that at 15% margin, we have taken a decision we will be able to grow faster than the competition

I am very confident of retaining this margin. I am very confident of us expanding as we go along because you

must remember we have signed 2.5 billion dollars in the last 6 months. USD 2.1 billion is in Fortune 500

companies. Once you are inside the door then you can do Tandav Nritya



JSW ENERGY - NK Jain, vice-chairman



Currently, four units are running successfully in our Barmer Project; two units are already synchronized and

ready, and the other two units would be ready in next three months. We expect the entire project to be

completed by September.

Once the project is completed by September end, we will submit our final cost details to the regulator. We

expect final tariff to be determined by the end of this financial year.

Currently, we are booking on the basis of tariff given by the regulator. However, we are not even making any

cash losses at this regulator tariff and we are able to recover most of our depreciation part. Currently, we are

unable to recover return on equity which we are confident that we will recover once the tariff is revised by the

regulator. It is only a matter of time.

For the whole FY12-13, we are completely sold out as far as Vijaynagar is concerned, and the average tariff

realisation is above Rs 4.6 per unit.

We have already lined out two projects one in Chhattisgarh where we are putting up 1320 megawatt power

plant and second in Himachal Pradesh where a 240 megawatt hydro-based power plant will come up. We will

be spending money for these two projects in this and next financial year. We are not going stop at 3140

megawatt capacity, which we will achieve in September 2012, we will quickly add 1500 more capacity.

As far as Barmer is concerned, we are expecting that refunding would be done and interest to go down by

average of 1.5% per annum, however we will pass on the benefit to the government of Rajasthan, it will not add

to our profitability.

We will reach 20 billion units generation this year. On an average if we get 40-50 paisa then that would be a

great amount.

July

2012



WIN – Week In a Nutshell

WEEK IN A NUTSHELL

NGO NACDANYA - Vandana Shiva, Environmental activist and director



Bharti has an agreement with Walmart on the wholesale cash and carry we are calling for is an investigation in

the relationship on the retail front and action to be taken if there are any violations for revocation of the

licenses.

We believe seriously that the Easyday front is merely an indirect entry of Walmart into the Indian market at a

time the FDI in retail is not allowed.

Across India as witnessed by the explosion of Easyday stores through which Walmart seeks to enter the Indian

retail market. We are concerned and ask the court to take action.

PLANNING COMMISION - Dr Pranob Sen Principal Advisor



There is one very good news which is although the capital goods sector continues to register negative growth, it

is dominated by negative growth in only one component, which is electrical machinery. If you look at non-

electrical machinery, it has grown by about 14% or 15%

The point is that it is not just a question of diesel prices. It is really a question of whether or not the fiscal

targets are going to be achieved

I have maintained this earlier and I say it again that 5.3% is probably an understatement. When the final figures

come in next year some time, it will probably be closer to 6%.

The weak currency is a reaction, it is not a cause of anything

The real question will be to what extent will Indian producers be able to pass on the price increases arising out

of a weak currency? What it looks like is that the pricing power has reduced over the last few months and,

therefore, you may not see such a large impact.

SBI - A Krishna Kumar, Managing Director



We have asked the management to do a proper valuation of the non-core assets and a time of about 15 days

has been given to them for that. Post that all options are open on the table, we are not ruling out anything

Kingfisher management is looking for some relaxation in the FDI norms.

But yes, the valuation of these non core assets would obviously not cover the entire dues of the banking system

but this is the first step.

Obviously, there will be slippages in any ongoing operation. But regarding the levels of the NPAs, I am afraid I

cannot see anything right now

there is nothing unusual about what will happen in the first quarter

there is nothing further on the textile front. But yes, there are a couple of other industries which we are keeping

a closer watch on.

till the middle of June, we did have a lot of concern on the lack of credit growth but towards the latter half of

June, there have been some visible signs of credit improving

For the full year, we are very hopeful that we will achieve our internal expectation of at least around 20-25%

THEMRAX - MS Unnikrishnan, managing director



We would do better in the current quarter. That’s all what I can say at this point of time.

On the orders that we carried forward in the previous year, the margins were under pressure, but we were very

hopeful. I am still hopeful that we should be able to retain the margins going forward.

Currently, since number of orders on finalisation table are under stress and less in numbers, one can’t be

expecting to improve the margins. Retaining the margins or within a maybe 100-200 basis points in comparison

to what we have done in the earlier year would be the right assumption.

Thermax is a net exporter. So, any rupee depreciation should be beneficial to the organization. Delta advantage

(currency vis a vis China) can be converted into an improved order booking in the current year, but should be

progressively done.

My task and my teams work is towards ensuring that we have a double digit margin in the current year towards

the end of the year also. It’s quite likely that in a quarter I may even go down by a couple of percentages. But at

the end of the year, we should be able to have a double digit profitability margin based on the orders

July

2012

WIN – Week In a Nutshell

WEEK IN A NUTSHELL



Super critical JV is without any revenues. The plant is going to get commissioned. It will be ready for

commissioning any moment. But I don’t have an order in the market nor are there any new orders getting

finalised

For the industry to recover back to the original space, you should be giving a minimum three-year period

because lethargy that we created in investment in the system, sentiments are negative

I would rather imagine that all of us should be getting prepared for an new normal where the growth rates will

have to come down to maybe a 5%. We should learn to live with that for couple of more years before it can

catch back to an 8-9%.

Payment cycles are delayed, but not to the extent that it should be a concern

VAN TECH WABAG - Rajiv Mittal, MD



In the guidance, we gave 20% growth in the order book for this financial year. Generally, we bid for at least

four-five times the order to get this kind of order book. Our Q1 has been very satisfying

Government orders constitute 70-80% of our total order book. We have 10-12% market share in water market

In private sector, we only go for order in the range of Rs 80-100 crore plus in oil and gas, steel and power sector.

We expect private sector to contribute 25-30% to our order book this year

We have an edge over local competitors in technology. Generally, we don't compromise on margins

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

WIN Sector Updates

INDIAN BANKING: RBI releases suggestions received on draft guidelines for licensing of new banks.



RBI had published the feedback on Draft Guidelines for “Licensing of New Banks in the Private.

While publishing the feedback they have not mentioned anything about the final date of release of guidelines

for the same.

The suggestions and are

Greater clarity sought on real estate construction.

Clarity as to whether entities with indirect government control through shareholding by public financial

institutions would be eligible to apply for banking licenses.

Infrastructure companies getting converted into banks, exemption from CRR, SLR, Priority Sector Lending etc

should be granted in the initial years.

minimum capital required should be INR10b instead of INR5b

Foreign shareholding should not be restricted in the new banks and be permitted upto a level of 74%. A few

business houses, NBFCs and a federation felt that restricting foreign shareholding to 49% for initial 5 years was

not a deterrent.

2 years period is a short period for listing of banks and a period of 4-5 years should be provided for the same.

bank having 25% of branches in unbanked rural centers is too onerous; Should be revised to 15%

HEALTHCARE: Strong guidance, favorable currency to drive re-rating; Earnings CAGR of 28% for top picks

We have recently upgraded ratings for Dr Reddy’s, Cadila and Glenmark to BUY while we continue to be positive

on Divi’s, Lupin, Ipca and Torrent.

Expect our basket of these 7 companies is to report 24% EBITDA CAGR and 28% PAT CAGR for FY12-14E

excluding one-off upsides (refer table below).

US, India and emerging markets will be the key growth drivers for the main generic companies. Increased

traction in outsourcing coupled with improving utilization of past capex will drive earnings growth for Divi’s.

We believe our currency assumption is conservative – USD/INR of 52.5 for FY13E and 50 for FY14E. Divi’s and

Cipla are likely to benefit from a depreciating currency, while for other companies incremental forex hedges are

likely to come in at better rates as compared to past hedges.

Many of these managements are guiding for strong growth not fully captured in consensus estimates, as the

street is in disbelief mode. However, many of these managements enjoy good credibility with strong track

record of delivery.

Our basket consists of companies at inflexion point in terms of growth and/or companies whose valuations have

corrected and become reasonable.

METALS: Karnataka conference takeaways – JSW Steel’s pain increasing; Sesa Goa to benefit



Key takeaways: Steel plants’ pain increasing; 5.5mtpa (incl. Sesa) of mine capacity may restart in 3 months

8 out of 9 mines’ Rehabilitation & Reclamation plan (RRP) by closed iron ore mines approved by ICFRE (Indian

Council of Forestry Research and Education) and recommended to CEC (Centre Empowered Committee). 3 out

of 9 mines were in Category B. These mines are expected to provide 5.5mtpa of iron ore production. Sesa Goa’s

mines in Chitradurga will have capacity of 2.2mtpa. Once the Apex Court approves the RRP based on CEC

recommendation, the mining plan will have to be approved by Indian Bureau of Mines (IBM). According to

Director of Mines (DoM), the iron ore production from these mines can start from 1st August. General view

among miners was that it will take another 3-6 months for actual production.

Nearly 25m tons of iron ore has been e-auctioned so far thus exhausting most of the inventories. Avg grade of

iron ore supplied in e-auction is continuously falling. JSW Steel’s furnaces are giving only 80% of production

despite running full blast.

Inability to source small quantity of ore in e-auction for small producers. Hence sponge iron production has

fallen to only 10% of capacity.

JSW Steel said if mining is not restarted within 2-3 months, its steel production will have to stop. If the furnaces

are stopped, there will incur expenditure of INR20b in restarting of furnaces.

Mr Santosh Hegde strongly appealed for ban on exports of iron ore and professed sustainable mining.

July

2012



WIN – Week In a Nutshell

WEEK IN A NUTSHELL

METALS WEEKLY: Indian steel demand up 8.8% in 1QFY13; Aluminum spot premium inch upwards



Indian finished steel consumption up 8.8% YoY to 18.2m tons in 1QFY13. Imports up 41.2% YoY to 2m tons,

while exports down 15.2% YoY to 1.06m tons. It is likely that the actual consumption growth was lower than JPC

reports. In the periods of imports acceleration, the consumption gets overstated because JPC is unable to adjust

inventories with traders.

Long steel prices down 1-2% WoW. Long product down ~10% from their 2012 high levels. Sponge iron prices

were flat WoW at INR22,600/t while scrap down 0.2% WoW to INR29,950/t.

Steel prices down 2.1%,1.5%, 0.8% and 0.7% WoW to their 52-week low levels in N. Americ.

63.5% Fe iron ore prices up 1%WoW to USD139/t while Richard Bay Steam coal up 5%WoW to USD88/t.

LME prices of Aluminium, Lead and Zinc increasing 3%, 3% and 1% WoW respectively while copper prices were

flat WoW. US spot premium for Aluminium up 1% WoW to USD237/t making a new yearly high.



mPower (July 2012): Monthly round-up of power utilities

Statistical Review

June 2012



Power Generated

76BUs (up 8% YoY)



PLF

58% (down 353bp YoY)



Short Term Prices

1QFY13 stood at INR3.6/unit v/s INR3.4/unit QoQ

May 2012



Capacity Addition

1.1GW for May-12, FY13 target

(Excl RES)

at 18GW



Base Deficit

May-12 stood at 7.5% (up 106bp YoY)



Peak Deficit

May-12 stood at 8.1% (down 120bp YoY)

Company / Industry analysis



Forward Curve (May-12):

ST prices at INR3.80-3.90/unit for delivery till Aug-12



CERC MMC Report (May-12):

ST volume flat YoY, bilateral category steeply down, ST price firm; UP remains

leading buyer



JSW Energy:

Favorable times ahead …earnings CAGR of 64% over FY12-14E, Buy



CESC:

Deciphering FY12 financials for subsidiaries, Spencer performance partly impacted by one-offs, Buy

News and Events



Tata Power uses cheaper coal to cut costs at Mundra project



Coal India may go for price-pooling of imported coal



Power min may seek CERC advice to bail out crisis-hit projects



Electric shock: Power hike to heat up summer in Rajasthan



R-Power drags Andhra Pradesh project customers into arbitration

Valuation and View



The power sector has seen significant valuation de-rating due to concerns over delayed capacity additions,

merchant prices, lower demand and fuel supply issues.



We are positive about companies that are relatively better positioned on these fronts. Our top picks in the

sector are

NTPC, Powergrid and JSW Energy.

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

POWER: EXPERT SPEAK-Utilities sector in state of abeyance; Attention of top authorities is positive

PMO’s focus on “fuelling” all projects; consensus on coal price pooling inevitable



Fuel supply and power distribution are two key issues affecting the Utilities sector. Improvement on these two

counts alone can revive interest/investment in the sector. Hence, PMO (Prime Minister’s office) is focusing on

(1) “fuelling” all projects in the system (to meet PLF of at least 85%), and also (2) reviving discoms.



Coal supply issue can be mitigated through imports, which would necessitate coal price pooling – a blended

price for all projects across the country. This may lead to several winners/losers, possible apprehension from

few States, etc, which would have to be overlooked for a robust sector.



Improvement in gas supply may not be as easy to sort out given EGoM’s involvement, low domestic availability

and higher cost of LNG imports. Current power tariffs are not feasible and separate peaking power tariff system

is possibly the only solution.

Restructuring of discoms will drive demand growth



The debt restructuring plan for discoms is awaiting cabinet nod. The plan is intended to ease discoms’ cash flow

commitment, given that it proposes 50% debt be taken over by States and moratorium worked out for the

balance debt. This, along with tariff hike, would mean improved cash flow, leading to higher power demand.

Developer with captive coal block to share the benefit of low cost



Developers with captive coal block would have to pass on the benefit to consumer, as more domestic

availability of coal would mean lower burden to consumer, and less reliance on imported coal. Recent views

aired by authorities suggest that developers with captive coal blocks would be asked to compulsorily participate

in competitive bidding, and if not, face cancellation of coal blocks with retrospective effect. This is however

contingent on start of new round of bidding from discoms.

OUR VIEW – Limited option with authorities; yet smooth transition unlikely



There are very limited options with authorities "given consequences on financial sector", and little space for any

bold steps other than support all the capacity that is added/being added. Radical changes like coal price pooling

could face challenges given involvement of various States (resource rich states may not agree as they might be

at disadvantage).



Also, certain class of developers (e.g. NTPC) may not be entirely in agreement. Thus, there remains limited

visibility on possible outcome, while the attention from highest authorities is comforting. We believe, in any

event, CPSUs like

NTPC

and

Powergrid

are better placed and remain positive.

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

WIN Corporate Corner

Cummins India: Annual Report update | Profitability supported by cost optimization measures



In FY12, Cummins India (KKC) curtailed its EBITDA margin decline at 200bp to 16.9%, despite slowing sales (up

3% YoY) and rising input costs.



Raw material (RM) costs rose only 3% YoY despite 16% YoY rise in pig iron prices, which forms over 50% of RM

cost. This commendable achievement is a result of increased indigenization and cost optimization measures:



RM imports have declined significantly from 29-30% of revenues in FY07-08 to 20% in FY12. Also, within RM,

component imports have declined to 69% of RM consumed (from 77% in FY08) and share of semi-finished

components have increased to 19% from 5% in FY08.



Cost optimization measures like ACE III (Accelerated Cost Efficiency) are expected to generate savings of

INR2.3b till 2014 by reducing the total cost of ownership of direct materials by 20%.



TRIMs (Total Reduction in Indirect Materials & Services) targets to reduce the direct cost of ownership in

indirect materials by 10% over 3 years.



Capex in FY12 increased to INR2.1b, and stood at 28% of the opening gross fixed asset.



A large part of the incremental capex (~65%) pertains to the India Technical centre and India Office Campus,

which will also be shared with group companies and thus KKC will earn lease income



This will likely dilute return ratios (FY12 ROE at 28%) and remains an area of concern.



Capital commitments stood at INR4.3b in FY12, up from INR550m in FY11; thus, expect a steep increase in FY13

capex.



FY12 Annual Report states that the 60-liter engine will be an INR2.6b opportunity over 5 years. This is

meaningful given that KKC's domestic engine sales in FY12 are ~INR12.6b.



We believe that going forward, there exists possibilities that some of the new products will be manufactured

/exported by Cummins Inc, while KKC retains the marketing rights in India.

Valuation and View:

20.5x FY13: NEUTRAL



KKC currently trades at 9% premium to its LPA P/E whereas the capital goods sector is at a 9% discount to its

LPA P/E.



Such rich valuations leave little room for disappointments. Maintain Neutral

DIVI'S LABS: Guides for 20%+ revenue CAGR over medium term; Can surpass INR10b in PAT in FY14; Buy

We met the management of Divi’s Labs. Key highlights:



DIVI is confident of achieving 20%+ revenue CAGR over the medium term led by both the business segments,

viz, Custom Synthesis and APIs. Key growth drivers for the company include (1) favorable environment for

CRAMS, (2) expertise in process chemistry, and (3) strong relationship with innovator due to non-compete

business model.



Management sounded confident about its 25% topline growth guidance for FY13 even on the expanded base of

FY12 driven by execution of new contracts and ramp-up in capacity utilization at SEZ. It has guided for

sustaining EBITDA margins at 37%.



It is targeting fresh capex of INR1.5-2b despite the ~INR4.5b capex undertaken in the past two years. We believe

this reflects management confidence in future growth since DIVI generally does not undertake capex without

adequate visibility of customer orders.

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL



DIVI is looking at monetizing couple of good opportunities in generic API space where it is confident of

achieving market leadership e.g. Gabapentin.

We expect FY12-14 revenue and EPS CAGR of 22%. We estimate 35% RoCE and 28% RoE for the next two years.

The stock trades at 20x FY13E and 17x FY14E earnings. Reiterate Buy, with a revised price target of INR1,200

(20x FY14E EPS), upside of 17%.

DR REDDY’S: Confident of USD2.6b FY13 topline; Focus on innovation-driven generics

We met the management of Dr Reddy’s Labs. Key highlights:



DRRD sounded confident about achieving its revenue target of USD2.6b for FY13 i.e. growth of 30% on the back

of some products in its US pipeline (undisclosed)



FY14 topline growth will be muted given the high base of FY13. However, it expects robust performance from

FY15, backed by strong product opportunities which also includes biologics.



The company expects all its major business segment including US, PSAI, emerging market formulations and India

to drive growth. Management believes that the US and PSAI businesses are on a strong growth trajectory

(mainly linked to strong launch pipeline and patent expiries in US), and hence will be key contributors to FY13

growth. This coupled with growth recovery in India formulations business and sustained growth momentum in

emerging markets (including Russia & CIS) will ensure sustained profitability for FY13.



Going forward, expect increase in R&D spend with focus on complex and difficult to manufacture generic

products.



We believe DRRD is entering FY13 with strong growth traction. Management is confident of achieving its

USD2.6b revenue target for FY13. Visibility of top line growth in FY14 would be comforting considering the

significant adverse impact of the patent cliff in the US.



DRRD stock trades at 17.6x FY13E and 15.9x FY14E core earnings. The stock price has remained almost flat for

the last 12 months, making the valuations now attractive. We maintain Buy with target price of INR2,056 (20x

FY14E), upside of 26%.

HDFC 1QFY13: Consistent performance; Healthy asset growth; Spreads and asset quality remain stable

Key highlights:



Net interest income (NII) grew 19% YoY to INR13b in line with AUM growth. Reported spreads remained stable

QoQ at 2.27%, while reported NIM declined to 4.0% from 4.4% in FY12.



Interest expenses rose sharply by 35% YoY and 15% QoQ led by higher systemic interest rates. HDFC is now

replacing the high cost bank term loans with borrowings through relatively low cost bonds and debentures.



Net loans and AUMs grew 19% YoY to INR1.48t and INR1.62t. Individual loans (including sell-downs) grew at a

healthy pace by 22% YoY, while corporate loans grew 14% YoY. Incrementally, 90% of the loan growth was

driven by individual loans. Resultantly, the share of individual loans in the overall AUM mix increased to 67.4%

from 66.5% in 4QFY12. Sanctions grew 17% YoY and disbursements 22%



%GNPAs on 90-day overdue basis increased to 0.79% from 0.74% in 4QFY12 and 0.49% on a 180-day overdue

basis from 0.44% in 4QFY12. Sequential increase in gross NPAs (up 12% QoQ) is largely seasonal in nature.



Fee income growth remained muted, up 8% YoY and 3% QoQ. Profit on sale of investments stood at INR202m

v/s INR163m YoY and INR791m QoQ.

Valuation and view:



The stock trades at Adj P/BV of 3.4x FY14E (price adjusted for value of key ventures and book value adjusted for

investment in those ventures) and Adj P/E of 11.1x FY14E. We believe these valuations are reasonable,

considering HDFC’s growth potential (FY12-14E EPS CAGR of ~20%), sound business fundamentals, and

substantially improved subsidiaries' performance (life insurance business has turned profitable and unlikely to

require further capital infusion). We maintain Buy with an SOTP target price of INR790.

INDUSIND 1Q: In-line; Loan gr. above industry avg.; NIM moderates; Asset quality remains healthy



Indusind Bank 1QFY13 PAT grew 31% YoY and 6% QoQ to INR2.4b.

NII grew 24% YoY and 4% QoQ to INR4.8b. While non-interest income was 13% above estimates, higher than

estimated provisions and opex led to in-line PAT.

July

2012

WIN – Week In a Nutshell

WEEK IN A NUTSHELL



Stressed liquidity situation and higher proportion of wholesale deposits (50%) in the B/S led to 35bp+ QoQ

increase in cost of funds resulting in margin moderation by ~7bp QoQ to 3.2%.



Fee income growth (up 44% YoY to INR2.7b) remains strong across all categories (ex-income from third party

distribution).



Forex, Trade and processing fees grew 45%+, whereas fee from investment banking stood at INR312m v/s INR

100m in 1QFY12.



SA deposits grew by a healthy +9% QoQ and 59% YoY to INR51.4b. However, performance seems to be a bit

tepid when compared to 20%+ sequential growth seen in earlier quarters.



Post deregulation of savings deposit rates in 1HFY12, share of SA in overall deposits increased by 280bp to

11.4% (11.1% in 4QFY12). Overall CASA ratio improved to 27.9% as against 27.3% a quarter ago.



Strong loan growth (+6% QoQ and 31% YoY) was driven by strong growth in high yielding CFD (+9% QoQ and

48% YoY).



Share of CFD improved further to 50.4% v/s 49.1% in 4QFY12 and 44.8% in 1QFY12.



GNPA increased 5% QoQ to INR3.65b; annualized slippage ratio stood at 1.5%; Credit cost (annualized) was

contained at just 50bp; maintained guidance of 50bp for FY13 and



Bank did not restructured any loan during the quarter and proportion of restructured loans to overall loans

stood at just 24bp.



Planning to raise capital in FY13 (10% of the outstanding equity) to shore up Tier I capital for next growth phase.



Promoters have not yet received any extension from for reducing stake to 10% by Dec 2012, which currently is

at 19.4%.

Valuation and View: 2.5x FY14EPS.



The stock trades at 12.4x and 2.5x FY14 EPS and BV. Maintain Buy with target price of INR415 (3x FY14 BV).

CASA ratio improves QoQ led by growth in SA deposits

Above industry average loan growth (%)

INFOSYS 1QFY13: Volumes +ve surprise, pricing decline –ve surprise



Infosys’ 2.8% QoQ volume growth in 1QFY13 was the only bright spot in what was a largely disappointing

quarter on most fronts – margins, pricing and revenues.

Revenue declined 1.1% QoQ to USD1,752m (v/s estimate of USD1,771m and guidance of USD1,771-1,789m).

Excluding one-time revenue reversal of USD15m, revenue was largely in line with our estimate.

Volume growth of 2.8% QoQ surprised positively (v/s estimate of 0.7% QoQ). EBIT margin declined 190bp QoQ

to 28% (and 120bp to 28.7% excluding the revenue reversal) v/s estimate of 29.7%, despite 9.7% QoQ

depreciation in INR (estimate of 8%).

Adjusting for currency, margin was 180bp lower than our est, explained by 3% CC pricing decline

Infosys changed its guidance format by specifying minimum expected full year growth vs earlier practice of

guiding in a band. ‘At least’ 5% USD revenue growth in FY13 was lower than 6% that we had expected at the

lower end. Guidance is 3pp lower than earlier, which embeds 1pp impact from cross currency and 3pp from

pricing (totaling to 4pp). This implies 1pp upgrade in volume growth outlook to ‘at least’ 9%.

Guided EPS was ‘at least’ INR166.46, v/s INR158.76-161.41 earlier, despite lower pricing and revenues, due to

assumed INR/USD of 55, v/s 50.88 earlier.

While we understand that Infosys’ flexibility on pricing could be driven by the need to hold on to ‘bread-n-

butter’ business from its key accounts, we will closely watch the pricing in 2QFY12 to gain incremental cues on

the extent of company’s aggression. We believe that: [1] Brand value enjoyed by Infosys allows it to attract

customers with even a moderate cut in price and [2] the company will be extremely selective in offering such

July

2012



WIN – Week In a Nutshell

WEEK IN A NUTSHELL

price cuts. Peers like TCS, Cognizant and HCL Tech have benefited through higher volume growth with their

strategies of competitive pricing. Infosys’ volume growth outlook indicates definite potential of spawning of a

similar growth cycle; and barring pricing is significantly cut further, it will bode well for the bottom-line too.

We revise our FY13/14 revenue growth estimates downwards by 2%/4.4%. While FY13 downward revision is

due to lower price, we have moderated our FY14 volume growth to 11.3% v/s 14.3% earlier, given the

management’s commentary of likely stress in the environment for as many as 4-8 quarters, which implies

continued stress even into FY14.

However, our EPS estimates are revised by only -2.5%/-0.3% due to revised currency assumptions (FY13 -

INR53.5 v/s INR52.5, FY14 - INR52 v/s INR50). The stock trades at 13.7x FY13E and 12.9x FY14E earnings.



NMDC Karnataka site: Upside to both volumes and prices assumption; Valuations attractive



NMDC has 2 mines namely Donimalai (DIOM) & Kumarswamy (KIOM) in Bellary with a total capacity of 14mtpa.

KIOM under development stage and the mining is currently being carried out in semi mechanized way.

Conveyors and facilities under construction and to be ready by June 2013.

Currently, the daily production is 20-25ktpd for DIOM and 10-12ktpd for KIOM. Targets total of 35ktpd from

these mines. Issues like power breakdown, shortage of plot for storing iron ore for e-auction etc have

constrained dispatches. 1QFY13 actual production from these mines is 1.9 -2m tons.

Modeled 7m tons of iron ore production from DIOM and KIOM together; We feel upside risk to volumes. NMDC,

unlike other mines, has been allowed to sell iron ore in e-auction every week instead of normal fortnightly

auction for other mines.

Another 1.2mtpa pellet plant on schedule for completion by Mar 13.

Supply situation of iron ore fines is getting tighter. Actual prices for lumps in e-auction is close of quarterly price

of INR5,600/ton, the prices for fines in e-auction were 10-15% higher than the quarterly price of INR2800/t set

by NMDC. This is likely to drive prices higher in 2QFY13.

Valuation & View:

Trades at attractive valuations – FY14 EV/EBTIDA of 4.2x and EV/ton of USD7.3

OIL INDIA: Expect step jump in gas production in 2014; To acquire discovered/producing asset; Buy



Targeting producing/discovered assets for acquisition: With net cash of INR109b, Oil India has earmarked

INR60b for acquisitions. Company is targeting to acquire small-medium sized producing/discovered assets. The

Management has also clarified that they are not pursuing RGTIL (Reliance Gas Transportation Infrastructure Ltd)

stake acquisition.



Update on key blocks: In its overseas portfolio, company expects to a) start production at Carabobo, Venezuela

(Oil stake 3.5%) by Dec-12 ~10kbpd and ramp-up to 400kbpd by 2016-17 and b) commence exploratory drilling

in Aug-2012 at onshore Block Shakthi (Oil stake 50%) in Gabon, West Africa. In the domestic portfolio,

exploratory drilling is expected to start at a) MZ-ONN-2004/1 (Oil stake 85%).



Healthy oil/gas reserve ratio; RRR consistently > 1: is favorable with oil contributing 64% of its 2P and 1P

reserves being only at 50% of 2P reserves, a large scope for increase in 1P. Further, its reserve replacement ratio

(RRR) has consistently remained above one. Planned capex for FY13 is INR33.8b.



1QFY13 subsidy burden at USD56/bbl: This translates into upstream sharing of 30% for 1QFY13. However, if flat

discount of USD56/bbl is adopted in future, then the trend will reverse as ONGC’s gross realization is higher

than Oil India;, and would be positive for ONGC.

Valuation and view:

The stock trades at 8.6x FY13E EPS of INR57.2 and has an implied dividend yield of ~4%. Our

target price ofINR565/share

STRIDES ARCOLAB: Enters Canadian injectable market through JV; No significant upside

Event

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL



Strides Arcolab’s specialty business subsidiary, Agila, has entered Canadian injectable market by setting up

marketing joint venture with Jamp Pharma. Agila will hold 70% stake in the subsidiary while the rest will be

owned by Jamp Pharma.



The JV will be launching 40 injectable products in the market over the next two years and some of these

products have already been approved by the regulator, Health Canada. The approved products will be

immediately launched in the market.



The marketing of these products will be done by the sales force of Jamp Pharma.

Impact



All the product IPs are owned and registered by STR with Jamp Pharma being just a marketing partner. There is

no initial capex requirement for this JV.



Though the company has not disclosed the revenue upside from this JV, we do not expect significant upside

over next two years till the JV starts marketing all the 40 products. Also, the management has indicated that the

overall market size of injectable segment in Canada is not very large.



In the long term, STR will benefit from the injectable drug shortages in Canada.

Valuation and view



We believe that the sale of Ascent Pharma at attractive valuation will significantly improve STR’s financials.



The stock trades at 12.7x CY12E and 12x CY13E EPS.

TCS 1QFY13: Above est volume offset by pricing decline; margin below est; Strong execution



TCS’s broad-based execution defying any concerns from the prevailing macro was the key highlight of 1QFY13

results. Revenue at USD2,728m grew 3% QoQ, in line with our estimate. While volume growth (5.3% QoQ) was

above estimate (of 4.1%), pricing declined 1.3% CC (including impact from offshore shift). Lower pricing also

drove the EBIT margin delta of 90bp (EBIT % at 27.5%, v/s estimate of 28.4%). PAT was INR32.8b, v/s estimate of

INR32.1b, explained by higher other income (INR1.7b v/s estimate of INR0.7b) and lower tax rate (22.2% v/s

estimate of 24%).

Management comments defy any likely macro impacts: While macro remains dynamic, the company continues

to see opportunities, orders in transformation and in discretionary projects. There has been no change to the

nature of the pipeline or the closure rates in the recent time. TCS’ win rates continue to go up as they always

have been.

Our USD revenue growth estimates are largely unchanged, as the uptick in volume growth is offset by factoring

in lower pricing base of 1QFY13. Our upward revision in EPS estimates (2.3% in FY13 and 8% in FY14) is driven

by revised currency assumptions of INR53.5/52 in FY13/14 v/s INR52.5/50 earlier.

While positive reaction to the results is merited, we expect the stock to be priced to perfection post this uptick.

TCS currently trades at 17.3x FY13 and 15.4x FY14E earnings. We remain Neutral, with a price target of

INR1,360, which discounts our FY14E earnings by 17x.



Factors contributing to INR revenue growth and Operating margin

BFSI, Telecom and Retail were the key growth verticals

UK and Latin America grew above company average in the quarter

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

WIN Collage

An unconventional bonanza: New sources of gas could transform the world’s energy markets

says Simon Wright—but it won’t be quick or easy

COLOURLESS, ODOURLESS, LIGHTER than air. Natural gas may not have much impact on the senses, but as a source

of heat and power it is transforming energy markets. Around 100AD Plutarch, a Graeco-Roman poet, noted the

“eternal fires” in what is now Iraq. They were probably methane gas seeping out of the ground, ignited by lightning.

Those eternal fires are now proliferating. An unexpected boom in shale gas that has taken off in America may well

spread elsewhere and will add massively to global gas supplies.

Shale gas—an “unconventional” source of methane, like coal-bed gas (in coal seams) and tight gas (trapped in rock

formations)—has rapidly transformed America’s energy outlook. At the same time discoveries of vast reserves of

conventional gas from traditional wells have pushed up known reserves around the world. Gas is the only fossil fuel

set to increase its share of energy demand in the years to come.

For a long time it was regarded as oil’s poor relation. In the late 18th century William Murdoch, a Scottish engineer,

used it to light his house, but it did not catch on until some decades later when it became popular for illuminating

homes and streets, replacing flickering candles. Commercial exploitation of gas and oil began around the same time,

yet gas remained a niche product for lighting. And despite its rapid rise in recent years, it will still lag oil as a source

of energy by 2035, according to the International Energy Agency (IEA), a rich-world energy club—and overtake coal

by then only if the new gas reserves are fully exploited.

The trouble with gas is that it is difficult and expensive to transport. That used to be true of oil too, but since the

development of supertankers in the 1960s it can be shifted relatively cheaply to find a customer in the world

market. Gas needs a ready buyer and a way of delivering it.

A priceless commodity

Because of those hefty transport costs, gas does not behave like a commodity. Only one-third of all gas is traded

across borders, compared with two-thirds of oil. Other commodities fetch roughly the same price the world over,

but gas has no global price. In America, as well as in Britain and Australia, it is traded freely and prices are set

through competition. In continental Europe traded gas markets are gaining a foothold, but most gas is delivered

through pipelines and sold on long-term contracts linked to the price of oil, for which it used to be seen as a

substitute. Gas-poor Asia relies heavily on imports of liquefied natural gas (LNG). “Stranded gas”, too far from its

markets to go down a pipe, can be turned into a liquid by cooling it to -162°C, shipped in specialist tankers and

turned back into gas at its destination. But the huge plants needed to do the job at both ends are very costly.

Since gas prices in different parts of the world are set by quite different mechanisms, they vary wildly across the

globe. In America, where shale gas is whooshing out of the ground, they recently fell to a ten-year low. In Asia they

can be ten times the American level.

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

Gas all over

Global reserves have been steadily increasing for at least 30 years. According to a report from the Massachusetts

Institute of Technology (MIT), published last year, world production has grown significantly too, rising by two-fifths

between 1990 and 2009, twice as fast as that of oil. Only half a decade ago it looked as though the world might have

only 50 or 60 years-worth of gas. Now shale and other unconventional as well as new conventional gas finds have

increased that period to 200 years or more, by some estimates.

The unconventional-gas bonanza has roughly doubled the gas resource base, a measure of the total gas in the

ground rather than what might be economically recoverable. In 2009 the IEA estimated the “long-term global

recoverable gas resource base” at 850 trillion cubic metres (tcm), against 400tcm only a year earlier. The main

reason for the rethink was shale gas and other unconventionals. Not just America but parts of Europe, China,

Argentina, Brazil, Mexico, Canada and several African countries, among others, sit atop as yet unknown quantities

of gas that could transform their energy outlook.

Better technology has helped, and so has the high oil price. The spiralling price of crude has caused oil companies to

search even harder for it. But before a test well has been drilled, it is near-impossible to be sure whether the

geological idiosyncrasies that excite oilmen will yield either oil or gas (or sometimes both, and often nothing). Of

late, big oil companies have found plenty of gas. Not only have breakthroughs in technology opened up America’s

shale beds, but advances in drilling in very deep water have dramatically changed exploration in the sea. Australia

will emerge as a gas superpower as it begins to deliver large quantities of LNG from offshore fields. And better

technology and global warming is unlocking the Arctic’s natural bounty. But there are reservations. Last year the IEA

published a report entitled, “Are We Entering a Golden Age of Gas?” The question mark reflects the constraints that

public disquiet about shale gas might put on its development. That is one reason why Fatih Birol, the IEA’s chief

economist, is far from certain that America’s shale boom can be replicated elsewhere.

In the most promising scenario, if shale development goes full steam ahead, the IEA reckons that the share of gas in

the global energy mix will rise from 21% today to 25% in 2035. That may not sound much of an increase, but over

that period total global consumption will grow spectacularly. If the obstacles can be overcome, more gas and lower

prices will mean a rise of 50% in global demand for gas between 2010 and 2035, according to the IEA.

What has made gas so exciting is not just the steep rise in supply but also the wide range of uses for it. It is a flexible

fuel, capable of heating homes, fuelling industrial boilers and providing feedstock for the petrochemicals industry,

WIN – Week In a Nutshell

July

2012

WEEK IN A NUTSHELL

where it is turned into plastics, fertiliser and other useful stuff. It is also making small but significant progress as a

fuel for lorries and buses.

Not just America but parts of Europe, China, Argentina, Brazil, Mexico, Canada and several African countries sit atop

as yet unknown quantities of gas. But the biggest advances have been in power generation. A technological

breakthrough, the combined-cycle gas turbine, a spin-off from the aviation industry, has transformed the economics

of the industry. Not only has it made it cheaper to generate electricity from gas, but the process releases up to 50%

less carbon dioxide than does coal. As governments strive to cut greenhouse-gas emissions, replacing coal with gas

will bring fairly swift results. Already the share of gas in the overall energy mix, which had remained at 16% from the

late 1960s to the 1990s, has risen to 21%.

Gas power stations are a “low-regret” option, according to Michael Stoppard of IHS CERA, a research firm. They are

relatively cheap to build, beating nuclear power hands down in terms of capital costs, and in most cases they are

also less expensive than renewables. The EU hopes that by 2050 some 97% of power generation will come from

renewables, but gas power stations are likely to be needed for decades yet to provide flexibility and security. And if

gas is cheap enough and techniques such as carbon capture and storage can be developed to make commercial

sense, gas could thrive for much longer even in a world that had radically cut carbon emissions. Except in America,

though, gas is currently expensive, and shifting it is likely to remain costly. Gas markets are regional. The stuff is

mainly delivered down pipelines that stretch across countries and even continents, but not between them. Pipelines

cost million of dollars a kilometre to build. The business model of developing a gasfield has been to find buyers and

lock them into long-term contracts to ensure that the costs of developing and delivering the gas will be paid back.

The alternative is to ship the gas in liquid form, as LNG. But projects to liquefy gas also require huge investments,

and often finding long-term buyers too.

Well oiled

Historical factors have led to another anomaly: much of the gas traded across borders is sold at prices linked to

those of crude oil. When gas was first brought to market as a commercial fuel in the 1960s, as an alternative to

home heating oil, it made sense to price it against a substitute. But there was also a more subtle reason. Oil was

used as an independent price arbiter for Dutch gas in the 1960s and then for Algerian and Norwegian gas in the

1970s because neither side could influence the supply and demand for it. The system persisted as Russian gas came

to Europe in the late 1970s. But the economics have changed, and valuing one commodity in terms of another now

seems bizarre. Britain has had competition based on supply and demand since the deregulation of the energy

industry in the 1990s. The fuel is traded at the National Balancing Point, a virtual hub. Similar arrangements are now

spreading across north-western Europe as the European Union is switching to hub-based gas trading at the virtual

Title Transfer Facility (TTF), as well as at Zeebrugge in Belgium and NetConnect Germany (NCG) and Gaspool in

Germany. The model is America’s Henry Hub in Louisiana, where nine interstate gas pipelines meet and from where

the gas is distributed to buyers, setting a benchmark for prices across America.

A more competitive market the world over would doubtless make gas cheaper by breaking the link with oil, but that

will be difficult to bring about. Gazprom, Russia’s huge state-run gas producer and supplier of 25% of Europe’s gas,

is strongly opposed to dropping oil indexation. A tussle is under way between it and the continent’s big buyers.

Some pundits say that gas must eventually become a global fungible product like oil, with regional price differences

closing as more gas is shifted in the form of LNG, draining gluts and making up shortfalls in regional production in

North America, Europe and Asia. But others reckon it will never happen.

Gas producers are naturally happy with the high prices resulting from oil indexation, arguing that without them the

economics of big gas projects would never work. But Rick Smead of Navigant, a consultancy, thinks there are good

reasons for all concerned to want competitive gas prices. He points out that they would reduce regional price

volatility and provide gas producers with a broad and flexible market instead of having to rely on a single consumer

at the end of a pipeline. That should offer an incentive to make the huge investments required. If the “shale gale”

blowing through America can be replicated worldwide, the huge surpluses it would bring could hasten the advent of

a global market. Just as the 20th century was the age of oil, the 21st could prove to be the century of gas.

WIN – Week In a Nutshell

July

2012