India Strategy: Sep-10 Results Review



Aggregate performance in line with estimates; Sensex PAT up 27% YoY

MOSL Universe (ex-RMs) 2QFY11 Sales grew 21% (est 20%), EBITDA 23% (est 23%), and

PAT 22% (est 22%). Sensex aggregate performance was also in-line, with EBITDA growth of

28% (est 26%) and PAT growth of 27% (est 26%). Excluding the 3 companies with global

businesses (Tata Motors, Tata Steel and Hindalco), Sensex PAT grew by 7% vs est of 10%.



Several large caps outperform

Outperformers:

Tata Steel, Sun Pharma, Tata Motors, BHEL, Bank of Baroda, Dr Reddy, L&T,

Hindalco, TCS and Titan Inds

Underperformers:

ABB, ACC, UltraTech, Sesa Goa, United Spirits, NTPC, Zee, Asian Paints,

Cipla, Hero Honda and DLF.

Also refer our Sep-10 Quarter Preview



Rating downgrades far exceed upgrades

Major rating downgrades are in FMCG (Britannia, Marico) and Cement (Shree, UltraTech).

Ranbaxy and HCC were other downgrades. The only upgrade is Asian Paints (Neutral to Buy).



1% upgrade in FY12E Sensex EPS; estimate CAGR of 24% over FY10-12

FY10-12: 24%

CAGR

1275

FY08-10E:

-0.2% CAGR

FY03-08:

25% CAGR

FY93-96:

45% CAGR

129

181

250

FY96-03: 1% CAGR

266

291

278

280

216

236

272

450

348

523

833 820

718

829

1065

November 2010

Sep-10 Quarter Results Review

Aggregate performance in line with estimates



Sales for MOSL Universe (ex-RMs) grew 21% (est 20%), EBITDA was up 23% (est 23%), PAT grew 22% (est 22%).

43 companies in our Universe reported PAT higher than estimate, 37 in line and 43 below estimate. On the EBITDA front, 31

companies reported above estimate, 57 in line and 35 below estimate.

B) Sector performance: Engineering, Textiles above estimates, Cement, Utilities, Media below estimates



Among large sectors, Engineering and Textiles PAT were above estimates, whereas Auto (excl Tata Motors), Banking, FMCG, IT,

Oil & Gas where in line with estimates.

Sectors where both EBITDA and PAT growth was disappointing include Cement (PAT de-growth 69% vs estimate of 58%),

Utilities (PAT growth of 1% vs estimate of 24%), and Media (9% PAT growth vs estimate of 24$)

C) Sensex performance in-line; sales up 22% (est 19%), PAT up 27% (est 26%)



10 companies reported higher than estimated PAT; 9 fell short.

Companies that surpassed estimates on all parameters – Tata Motors, BHEL, L&T, TCS, Hindalco, Tata Steel.

Companies that fell short of expectations on all parameters – Hero Honda, ACC, Cipla, DLF, NTPC.

D) Best and worst performing companies



Companies that reported above estimated earnings were: Tata Steel, Sun Pharma, Tata Motors, BHEL, Bank of Baroda, Dr

Reddy, L&T, Hindalco, TCS and Titan Inds.



Companies that reported below estimated earnings were: ABB, ACC, Ultratech, Sesa Goa, United Spirits, NTPC, Zee, Asian

Paints, CIpla, Hero Honda and DLF.

November 2010

Sep-10 Quarter Results Review

Key sectoral highlights



AUTOS:

Sector performance has been boosted single-handedly by Tata Motors, excluding which all others

are below estimate or in-line. Tata Motors earnings have been upgraded by 17%, continuing the upgrade

trend for the past several quarters. Hero Honda disappointed, leading to a 6% EPS downgrade for FY11.



BANKS:

Banking sector PAT growth was in line with estimate, but was dragged down by SBI, which reported

below expectations. All operating metrics for the sector continue to be positive – steady loan growth, improved

margins, strong CASA traction, stable asset quality. Our coverage universe loan growth was 23% YoY (4%

QoQ) vs industry growth of 19% YoY (1% QoQ).



CEMENT:

The sector had the dubious distinction of all companies (except India Cement) reporting PAT below

estimates, led by sharp decline in realizations. This has led to sharp downgrades in our FY11 and FY12 EPS

estimates for all companies except India Cement, which is likely to benefit from recovery in South India.

Shree Cement FY12 EPS is downgraded the highest at 32% followed by ACC at 19%.



ENGINEERING:

Sector performance was above estimates with only ABB reporting below estimate numbers.

We had increased sector weightage in our quarterly preview, and continue to believe that Engineering will

remain one of the better performing sectors going forward as well.



FMCG:

FMCG performance has been in-line or below estimate across companies. High inflation and rising

competitive intensity caused us to significantly reduce sector weightage in our quarterly preview. Ratings of

Britannia and Marico have been downgraded to Neutral. Asian Paints has been upgraded to Buy.

November 2010

Sep-10 Quarter Results Review

Key sectoral highlights (contd.)



INFRASTRUCTURE:

The sector reported 8% decline in aggregate PAT vs expected 28% growth.

Widespread monsoon affected execution, as did political issues in Andhra Pradesh. Only Nagarjuna

Construction reported in-line PAT performance.



IT:

Operating performance was above expectations for IT majors; TCS, Tech Mahindra and Patni beat

expectations. The quarter suggested improved demand, and signs of discretionary pick-up. Sustenance of

buoyancy is contingent on client budgets for CY11. Currency headwinds have constrained earnings upgrades.



METALS:

The performance of most domestic companies was below estimates. However, sector aggregate

PAT performance was in line due to superior performance of both overseas majors, Corus and Novelis.



OIL & GAS:

Sector performance was in-line on a low base (losses in 2QFY10 due to non-release of subsidy).

Key disappointments for the quarter include – (1) no further reforms post partial deregulation 4 months ago,

(2) no clarity on subsidy sharing, (3) no ramp-up of gas at Reliance’s KG-D6, and (4) Higher D,D&A charge

continuing at ONGC.



PHARMA:

Only Sun and Dr Reddy’s beat estimates at the EBITDA level. Lower operating performance has

led to FY12 earnings downgrades across the sector led by Dishman (-30%), Jubilant (15%), Ranbaxy, Divi’s

(both 13%).



TELECOM:

Sector PAT was above estimates with profit de-growth being less than expected. RPM pressure

has abated which is a structural positive. Revenue and EBITDA growth to rebound driven by 1) normalization

of traffic growth, 2) lower RPM decline, and 3) launch of 3G services.

November 2010

MOSL Universe: Sep-10 Quarter Performance (Rs b)

November 2010

Sensex Performance: Actual v/s Estimates

TREND IN SENSEX SALES GROWTH (%): ACTUAL V/S ESTIMATES

-3

-8

-12

-15

Estimates

Actual YoY

2QFY11 sales growth of 22%

Sectors with strong growth

were Banking, Auto, Telecom.

-3

-7

TREND IN SENSEX EBITDA GROWTH (%): ACTUAL V/S ESTIMATES

Estimates

-4

-3

Actual YoY

EBITDA growth of 28%.

8 companies surprised positively

6 disappointed.

-9

-8

-14

-9

-8

November 2010

Sensex Performance: Actual v/s Estimates

TREND IN SENSEX PAT GROWTH (%): ACTUAL V/S ESTIMATES

Estimates

Actual YoY

-6

-11

-15

-17

-20

2QFY11 PAT was in-line with

estimate. 10 Sensex companies

beat estimates, while 9 lagged.

Companies that reported

better than our estimates were

Tata Motors, BHEL, L&T, TCS,

Hindalco and Tata Steel.

TREND IN SENSEX PAT GROWTH EXCL TATA MOTORS, TATA STEEL & HINDALCO (%)

Estimates

Actuals

-1

-2

-8

1QFY10

-1

Ex the impact of 3 global

majors (Tata Motors, Tata Steel

and Hindalco), Sensex

PAT growth was just 7%. We expect

this to improve in 2HFY11.

-2

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

November 2010

Sensex Companies’ Performance

November 2010

Changes in rating

During the earnings season, the number of

stocks with downgrade in ratings were

significantly higher. FMCG and Cement saw the

most downgrades. The only upgrade was in Asian Paints.

November 2010

Sep-10 Quarter Results: The Best & The Worst (large caps)

November 2010

Sep-10 Quarter Results: The Best & The Worst

(mid caps)

November 2010

Highest Earnings Upgrade / Downgrade

November 2010

Sensex Companies’ EPS Upgrade/Downgrade

November 2010

Sensex EPS Upgrade of 1%; CAGR of 24% till FY12

EARNINGS GROWTH REVIVAL FROM FY11 AFTER FY08-10 GROWTH HOLIDAY

FY10-12: 24% CAGR

1275

FY08-10E:

-0.2% CAGR

FY03-08: 25%

CAGR

FY93-96: 45%

CAGR

129

181

250

FY96-03: 1% CAGR

266

291

278

280

216

236

272

450

348

523

833

718

820

829

1065

TREND IN FY11E SENSEX EPS REVISION

FY11 EPS

10.5

16.4

26.1

1103

1028

980

% Grow th Revision in FY11 EPS

32.1

1076

1042

1052

29.5

27.9

28.8

28.4

TREND IN FY12E SENSEX EPS REVISION

FY12 EPS

21.6

24.3

% Grow th Revision in FY12 EPS

21.3

17.9

19.7

1068

1065

1308

1295

1276

1259

1275

Mar-09

Jun 09

Sep 09

EPS growth YoY (%)

Dec 09

Mar 10

Jun 10

Sep 10

Nov 10

Dec 09

Mar 10

EPS growth YoY (%)

Jun 10

Sep 10

Nov 10

November 2010

Sep-10 Quarter Results: Deviation from Est. (Companies)

EBITDA DEVIATION (123 COMPANIES)

Below

Estim ate

28%

Above

Estim ate

25%

PAT DEVIATION (123 COMPANIES)

Below

Estim ate

35%

Above

Estim ate

35%

In Line

46%

In Line

30%



On the EBITDA front, 31 companies surpassed estimates while 35 fell short.



On the PAT front, 43 companies surpassed estimates while 43 fell short.

November 2010

Sep-10 Quarter Results: Deviation from Est. (Sectors)

EBITDA DEVIATION (SECTORS) – VARIANCE (%)

Retail

Textiles

Infra

Engg

Auto

Metals

Banking

Oil & Gas

Utilities

Telecom

FMCG

Pharma

Real Estate

Media

Cement

-50

(26)

-35

-20

-5

(11)

(0)

(2)

(3)

(4)

(5)

PAT DEVIATION (SECTORS) – VARIANCE (%)

Textiles

Retail

Auto

Telecom

Engg

Real Estate

Oil & Gas

Metals

FMCG

Pharma

Banking

Media

Utilities

Infra

Cement

-50

(12)

(19)

(25)

(27)

-25

(2)

(1)

November 2010

Comparison of Earnings Based on Growth Rates



For 2QFY11, 52% of the companies in

MOSL Universe reported earnings growth

of over 15%. This is lower than the trend

of the preceding 3 quarters where this

proportion was 60-65%.

26% of MOSL universe companies

reported negative earnings growth. This

is the lowest in the last 8 quarters.

23% of MOSL Universe companies

reported earnings growth of 0-15%. This

is the highest in the last 8 quarters.

The growth rate distribution suggests –

(1) the low-base effect has played out;

and

(2) the worst may be behind us in terms

of corporate sector growth.



November 2010

2QFY11 Results Review: Sectoral Contribution

SECTORAL CONTRIBUTION TO EBIDTA (%) – 2QFY11

Banking, 22.0

Metals, 9.9

Telecom, 6.5

IT, 6.3

Auto, 6.2

Utilities, 5.0

FMCG, 3.5

Engg, 2.5

Pharma, 2.3

Oil & Gas, 30.4

Retail, 0.1

Media, 0.7

Textiles, 0.8

Infra, 0.9

Real Estate, 1.3

Cement, 1.1

Oil & Gas (30%) and Banking

(22%) are the biggest

contributors to EBITDA for

2QFY11.

SECTORAL CONTRIBUTION TO PAT (%) – 2QFY11

IT, 8.4

Metals, 9.0

Banking, 19.8

Telecom, 3.5

Engg, 3.1

Pharma, 3.0

Auto, 6.8

Utilities, 4.2

FMCG, 4.2

Oil & Gas (34%) and Banking

(20%) are the biggest

contributors to PAT for 2QFY11.

Real Estate, 1.3

Cement, 1.0

Media, 0.7

Oil & Gas, 33.7

Retail, 0.2

Infra, 0.3

Textiles, 0.5

November 2010

Sep-10 Quarter Sector Margins: Actual v/s Estimates

November 2010

AUTO: Margins continue to decline impacted by RM cost inflation

Summary



Growth across all segments drove 2QFY11 industry volumes

by 26.5% YoY (7.1% QoQ).



RM cost increase (~60bp

units)

QoQ)

wth (%)

due to BS-III norm

4,400

60%

Industry ('000

Gro

implementation and commodity inflation was partly offset by

3,800

40%

price increases and higher operating leverage, translating into

40bp QoQ decline in EBITDA margin.

3,200

20%



PAT improved by 13.2% QoQ (~11.5% YoY).



Multiple headwinds in form of increasing cost of ownership

2,600

(price hike, hardening interest rates) and cost of operations

2,000

-20%

(fuel prices hike) might impact demand in near term. Forex

QFY08 3QFY08 1

QFY09 3QFY09

QFY1

3QFY1

and commodity price volatility could impact profitability.



Mixed bag for earnings:

FY11 EPS upgrade for Tata Motors

(+16.9%) and Bajaj Auto(+1.8%), but downgrade in Maruti

(-3.5%) and Hero Honda (-6.3%).



Top Picks:

M&M and Tata Motors.

ROBUST VOLUME GROWTH CONTINUES

Industry ('000 units)

37%

Grow th (%)

40%

32%

27%

16%

10%

4,118

4,409

MARGINS DECLINE 40BP QOQ (~290BP YOY)

MARGINS CONTINUE TO SOFTEN FROM PEAK LEVELS

EBITDA Margin (%)

RM Cost (% of sales)

3,108

3,484

3,559

3,947

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

November 2010

BANKING: Strong core operating performance



Industry:

Loan growth for banks under our coverage was significantly

higher than industry growth. Our coverage universe reported loan growth

of 23% YoY and 4% QoQ vs industry growth of 19% YoY and ~1% QoQ.

Positive surprises were ICICI (QoQ growth of 5%, 2% ex BoR) and ING

Vysya Bank (QoQ growth of 7%). Among others PNB, HDFC Bank and

Andhra Bank reported strong loan growth sequentially.

Our coverage universe reported

impressive CASA growth

of 28% YoY

and 7% QoQ. Even deposits growth improved with 6% QoQ growth vs

industry growth of ~2%. Banks have built up liquidity in the balance

sheet leading to QoQ decline in CD ratio by ~150bp.

Impressive performance on margins

led to significantly higher than

expected growth in NII (42% YoY vs our est. 34% YoY) Despite higher

slippages, sharp QoQ improvement in margins for UBoI (32bp) and SBI

(25bp) is a positive surprise. PSU banks reported 10-30bp improvement

in margins QoQ whereas private banks margins declined slightly (except

ICICI, up 10bp, a positive surprise).

Fee income growth revived

with 13% QoQ and 21% YoY growth.

SBI, BoB and BoI reported strong fee income growth. Even for private

banks, fee income growth picked up on a sequential basis.



Despite lower than expected trading profits and higher opex,

operating

profit growth was in line

with estimates as core income surprised us

positively. For our coverage universe, core operating profit grew 40%

YoY and for PSU banks it grew 48% YoY.

Asset quality largely remained stable QoQ.

However, some PSU

banks reported higher slippages due to recognition of NPA under agri.

loans and higher slippages restructured loans. Negative surprise came

from UBoI, SBI and PNB. Private banks GNPA remained stable QoQ.

1HFY11 performance on NIM front is very impressive. However, expect

margins to moderate marginally in 2HFY11. Overall, FY11 NIM is

expected to be significantly higher than FY10 NIM leading to strong core

operating income growth. Higher than guided pension provisions and

NPA recognition under CBS remain key risk factors.

Top picks:

SBI, ICICI Bank

and

Canara in

large caps.

IVB

and

Dena

in mid caps.



November 2010

BANKING: Improved margins, Strong CASA traction, Stable asset quality

Robust performance on core operating income (YoY Growth %)

Improvement in margins QoQ impressive (%)

-3

-8

-10

BoB

UBoI

Canara

SBI

PNB

HDFC Bk

Axis

BoI

ICICI Bk

Strong traction in CASA continues

CASA Growth (%)

Deposit Growth (%)

Asset Quality remains stable except for few (QoQ Growth %)

28.8

11.4

3.4

2.8

2.6

2.3

1.6

UBoI

SBI

PNB

Canara HDFC Bk ICICI Bk

BoB

Axis

BoI

November 2010

CEMENT: Disappointing; severe price decline impacts EBITDA

Summary



2QFY11 volumes were lower than estimates with 3.8%

YoY growth. Cement realizations were significantly below

estimates with Rs19/bag QoQ decline.

EBITDA/ton declined 54% QoQ (~64% YoY) to Rs446, hit

by lower realizations and negative operating leverage.

We have downgraded our FY12 EPS by 6-32%, with

Shree Cement witnessing highest downgrade of 32% and

ACC by 19%. India Cement is the only exception with 9%

upgrade due to better results & recovery in South.

Cement stocks have outperformed over last 3 months on

account of recovery in cement prices. While demand is yet

to recover, especially in South, it is imperative for prices to

sustain for further outperformance of the cement stocks.

Top Picks:

ACC, Grasim, Birla Corp and India Cement

PRICE EROSION LOWERS EBITDA/TON RS520 QOQ & RS200 YOY (RS/TON)

EBITDA

10.8%

9.2%

9.3%

7.4%

9.2%

9.4%

10.0%

6.9%

50.3 49.8

41.6

44.7

55.4 53.2 3.8%

49.0

47.9

46.1



2QFY11 INDUSTRY VOLUME GROWTH SLOWED DOWN TO 3.8%

Despatches (MT)

10.7%

7.6%

6.3%

Grow th (%)

12.2%

Realization

3,694

3,526

3,156

3,433

6.8%

41.6

38.8

40.9

46.1 44.4

November 2010

ENGINEERING: Revenues buoyant; OPMs stable

Summary



1HFY11 revenue growth of 16% reflects the improving

order execution scenario as we build in FY11sector revenue

growth of 22% with OPMs of 15.7% (up 100bp YoY) and

Adj. PAT growth of 19% YoY.

Order intake for the sector in 2QFY11 improved 14% YoY

at Rs400b. L&T order intake was up 11% YoY while BHEL

rose 68% YoY due to the base effect.

OPMs for the universe were flat YoY at 13.7% while

1HFY11 margins at 13.3% were up 100bp YoY. BHEL and

L&T margins expanded 80 and 60bp YoY in 2QFY11.

Top Picks:

BHEL, L&T, BGR, Cummins.

1HFY11 REVENUE GROWTH AT 16% Vs FY10 AT 13%

37%

31%

28%

25%

26%

20%

11%

12%

10%

11%

BHEL/L&T/CG/THERMAX ABOVE EST; ABB BELOW EST



ORDER INTAKE (RS B): 2QFY11 INTAKE UP 14% YoY

600

475

350

225

100

-25

ABB

Crompton Greaves

Siemens

BHEL

Larsen & Toubro

Thermax

10%

November 2010

FMCG: Volume growth steady; ad-spend cut to arrest margin decline

Summary



Volume growth momentum sustained in 2QFY11, but

competitive intensity increased significantly.



Our FMCG universe reported 18% sales growth and

13.2% EBITDA growth. PAT grew 15.5%.



Key inputs like Titanium Dioxide, Copra and PFAD have

seen sharp upsurge in past quarter; even sugar prices

have bottomed out. FMCG players have curtailed

ad-spend to offset gross margin pressures.



HUL’s volume grew 14% (11% in 1Q); ITC’s cigarette

volume de-growth at only 0.5% was a positive surprise.

CHANGES IN ESTIMATES AND RECOMMENDATION



Top Picks:

We prefer players with strong pricing power

in key segments.

ITC, Asian Paints, GSK Consumer

are our preferred bets.

VOLUME GROWTH MOMENTUM SUSTAINED IN 2QFY11

AD-SPEND CURTAILED TO OFFSET GROSS MARGIN PRESSURES

November 2010

IT/ITeS – Above estimate; Upgrades contingent on client budgets

Summary



Actual VS Estimate



Growth above estimate, led by TCS. Wipro lagged peers.

Resurgence in large deals and discretionary traction.

Supply side pressures continued to remain high, but signs of

attrition coming down evidenced towards the end of the quarter.

Currency impacted margins positively. Infosys and TCS above

est. Wipro margins below est on RSU and promotion impacts.

Infosys results and guidance above est; TCS led growth in

volumes and revenues, operating performance above est; HCL

margins below est on increased SGA; Wipro underperformed

peers on growth and margins.

Client budgets and currency key determinants of further upgrades

Expect US$ revenue CAGR for top-4 at 18.8-26.2% over FY10-12

and EPS CAGR of 13.2-20.1% for top-3 and 32% at HCL.

Top picks:

Infosys, HCL Tech and Mphasis.

Attrition remained high; signs of easing seen towards end of 2QFY11

TCS outperformed; Infosys, HCL above est.; Wipro inline

US$ Revenue Grow th - QoQ (%)

Infosys

TCS

Wipro

HCLT

11.7

10.2

9.0

7.7

6.8

6.3

5.8

3.9

2.9

3.8

3.1

3.4

5.2

3.1

5.1

3.5

4.8

3.2

6.4

5.7

Strong discretionary pick-up – QoQ Growth at Top-3 (%)

Discretionary Traction - Pkg Im pl and its key contributors

Europe

15.0

10.0

5.0

0.0

Mar-09

-5.0

-10.0

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Manufacturing

Package Implementation

Sep 09

Dec 09

Mar 10

Jun-10

Sep-10

November 2010

IT Guidance and Outlook: Infosys, HCL positive; Currency headwinds

Infosys outlook: Revenue guidance positive but margin

headwinds on currency



FY11 US$ revenue guidance of 24-25% positive



EBITDA margin to decline (130-140bp) due to currency

(guided at Rs44.5/US$ vs 46.45 earlier)



FY11 EPS guidance unchanged at Rs117 (top end) on

margin headwinds due to INR appreciation



Gross hiring target up at 40,000 (36,000 earlier)

Wipro outlook: Margin recovery difficult, pressure on

elevated attrition



Revenue growth guidance of 3.5%-5.5% in 3QFY11 v/s

3.4-4.4% for Infosys



May continue to under perform top-tier peers on growth

and margins



Margin recovery difficult on high attrition and currency

volatility



Risk on high attrition and low util. cushion in a high FPP

(44%) and increased contract staff scenario

TCS outlook: Strong volume growth, to sustain margins

on aggressive cost control



Strong volume growth on broad-based demand



Gross hiring target up at 50,000 (40,000 earlier)



Possible back-ended pricing increase on continued

traction in overall demand and discretionary spend



Continued cost management aggression but limited

scope on SGA and utilization

November 2010

HCL Tech outlook: Strong pipeline, Margin guidance negative,

operating cash flows to recuperate



Strength in pipeline stronger than ever before. Growth across every

geography, vertical and service line a 1

in 10 quarters



Margins headwinds on increased SGA costs



BPO revenues turned a corner but US$6-7m EBITDA losses to

continue for the next 5 quarters



Operating cash flows to recuperate (guidance of ~100% of the Net

Income on rolling quarter basis) after a blip in 1QFY11

2QFY11 revenue break-up

Note: Realization is in reported currency

Upgrade in TCS, marginal upgrades in Infosys and HCL

MEDIA: Robust ad revenue growth

Summary



YoY advertising growth was negatively impacted by higher

base as festive season has shifted to 3Q. ZEEL reported 20-

25% (like-to-like) ad revenue growth while Sun reported 19%.

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11



ZEEL incurred an EBITDA loss in the sports business of

Rs900m in 1HFY11 (vs earlier guidance of Rs550m-600m loss

for FY11). Sun TV revenue impacted by lower film revenue but

PAT in-line due to lower amortization.



Jagran and HT media reported in-line EBITDA but DCHL

results were significantly below estimates due delayed

recovery in ad volumes. Newsprint costs hurt margins but

prices likely to soften from Jan-11 as capacities impacted in

Jagran Prakashan

Deccan Chronicle

HT Media

Chile earthquake are coming back on-stream.



We expect continued traction in ad revenue momentum. DTH

remains a growth driver for subscription revenue of

broadcasters. With festive season in 3Q, the ad revenue is

expected to pick up.



Top picks:

ZEEL and DCHL

PRINT: EBITDA (RS M) ABOVE ESTIMATES

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

2QFY11: ACTUAL VS ESTIMATES

Net Sales (Rs m )

Actual

Sun TV

ZEEL

Jagran Prakashan

Deccan Chronicle

HT Media

4,248

7,116

2,769

2,367

4,455

Est

4,467

7,087

2,797

2,671

4,103

Var (%)

-5

-1

-11

3,323

1,885

908

1,179

791

EBITDA (Rs m )

Actual

Est

3,629

2,218

931

1,541

815

Var (%)

-8

-15

-2

-23

-3

YOY AD REVENUE GROWTH (%)

SunTV

ZEEL

HT Media

Jagran

-6

Deccan

TRACTION IN DTH REVENUE CONTINUES (RS M)

Sun TV

ZEEL

Jagran Prakashan

Deccan Chronicle

HT Media

November 2010

METALS: Strong volumes; Steel cos hit by falling prices, rising costs

Summary



2QFY11 PERFORMANCE SNAPSHOT

Net Sales

Rs b YoY (%)

286.5

57.8

108.1

14.8

58.6

60.8

-1

22.0

9.2

EBITDA

Rs b YoY (%)

36.7

888

9.9

-10

16.9

-29

3.5

145

7.2

15.3

11.3

3.0

Adj PAT

Rs b YoY (%)

13.1

-na-

3.3

-26

10.9

-34

2.2

4.6

10.1

9.7

3.5

110

Steel realizations for key producers declined 7-10% QoQ as steel

prices came down sharply at the start of quarter.

Steel sales volumes increased sharply due to de-stocking (QoQ

19-33%) and sharp fall in imports in 2Q.

Margins have contracted by 5-7pp QoQ on higher raw material

costs and lower steel prices as expected.

Revenues of non-ferrous companies grew 5-13% QoQ on strong

volume growth despite flattish LME; while margins declined due to

higher coal, RM and mining costs.

Mid-cap steel companies’ performance was subdued due to

shortage of iron ore, pressure from steel prices and subdued

demand during monsoon.

Top Picks:

JSW Steel, Sterlite (large caps); Adhunik, Prakash and

Godawari Power (mid-caps).

Tata Steel

JSW Steel

SAIL

Nalco

Hindalco*

Sterlite

Hind Zinc

Sesa Goa



Note:

Hindalco standalone



STEEL: EBITDA PER TON (US$/TON)

550

450

350

250

TATA

SAIL

JSW

STEEL: REALIZATIONS DECLINED QOQ (US$/TON)

1,250

TATA

SAIL

JSW

1,000

750

150

500

November 2010

OIL & GAS: GRM up QoQ; Subsidy sharing ad-hoc

Summary



Ad-hoc subsidy sharing; awaiting clarity on diesel

de-regulation and subsidy rationalization:

Post partial

de-regulation 4 months back; government is yet to

announce further policy reforms resulting in continuance

of ad-hoc subsidy sharing.



GRM up QoQ and YoY; expect to remain subdued:

Benchmark Reuters Singapore GRM at US$4.2/bbl was

up 14% QoQ and 31% YoY. Led by overcapacity, we

expect GRM to remain subdued.



Polyester shows strength, price premium to polymer

imports remains high:

Led by disruption in cotton

availability and strong demand, polyester margins

continued to improve. Domestic price premium to

imported polymers remained high at 18-22%.



RIL results lackluster:

Despite strong petchem profits,

RIL’s PAT has averaged ~Rs48b for last 3 quarters led by

no ramp-up in KG-D6 gas production and subdued

refining margins.



ONGC D,D&A disappoints:

ONGC’s D,D&A charge

once again was high due to well write-offs towards its

deep water exploration.



Cairn production reaches 125kbpd:

Rajasthan

production has ramped up rapidly and is now at 125kbpd

and on track to reach 175kbpd in 2012.



Top Pick:

GAIL

2QFY11: ACTUAL VS ESTIMATE

SINGAPORE GRM UP QoQ To $4.2/BBL IN 2QFY11

-3

-6

2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11

Singapore GRM

BPCL

RIL

IOC

HPCL

RIL Premium

November 2010

OIL & GAS: ONGC’s D,D&A strikes back; Cairn production impressive

EXCEPT 1/3

UPSTREAM SHARING; SUBSIDY SHARING REMAINS

AD-HOC

ONGC: D,D&A NEGATIVE SURPRISE AGAIN

Depletion

Depreciation

Dry Wells

Survey

Others

FY09

FY10

FY11

CAIRN PRODUCTION RAMP-UP IMPRESSIVE

RAJASTHAN OIL PRODUCTION (KBPD)

KG-D6 RAMP-UP TO REMAIN FLAT TILL FY12 (MMSCMD)

116

59.8

48.0

59.1

57.9

60.0

63.1

60.0

32.0

19.3

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

1QFY10

3QFY10

1QFY11

3QFY11E

FY12E

November 2010

PHARMA – Generics above est; CRAMS below est

Summary



Sector

– Revenue in-line except for CRAMS players. Above

estimates for Sun Pharma. US & emerging markets key

drivers for generics. EBITDA below estimate for Cipla,

Glenmark, Ranbaxy & CRAMS players. Above estimate for

Sun Pharma.



Generics

– Adj PAT above estimates led higher other

income, forex gains & lower taxes. Cipla & Ranbaxy

disappoint.



CRAMS

– Adj PAT below estimate due to muted topline

performance and adverse product mix. Dishman’s PAT

above estimate due to forex gains.



Top Picks:

Cipla, Lupin, & Divi’s Labs

KEY PLAYERS – ESTIMATE VS ACTUALS

November 2010

REAL ESTATE: Monsoon hits execution; commercial recovery steady

Summary



Monsoon, CWG impacted numbers, in line with estimates:

2QFY11 results for our RE universe were in line with our

estimate. Revenue recognition has been muted for the key

companies due to impact on execution on account of heavy

monsoon and labour issue during CWG in NCR region.

However, the realization improved for the companied having

larger revenue contribution from non-NCR and TDR projects.

Based on reported EBITDA Anant Raj and HDIL were above

estimate, DLF below estimate, while Unitech, Mahindra

Lifespaces and Phoenix Mills were in line.

Commercial recovery witnessing steady momentum:

DLF,

the best proxy for commercial RE, has achieved net leases of

1.5msf (vs. 0.9msf in1QFY11) during 2QFY11.Phoenix Mills

has also witnessed a steady response for its retail assets.

Unitech has sold ~0.94msf in commercial project during

1HFY11; A possible offer for Unitech Corporate Park to

leverage on recovery underway in the commercial offices

vertical.

Net DER for the sector increased:

While net debt has

increased for DLF (repayment of CCPS), Unitech (Rs5b

transferred from consolidation of telecom subsidiary) and Anant

Raj (sharp increase from net cash of ~Rs3.5b in 4QFY10 to net

debt of Rs3.6b) to bolster land acquisition strategy), HDIL’s net

debt has reduced sharply to 0.29x (post QIP).

Top Picks:

The average discount to NAV for our universe of

RE stocks is ~20%. Our top picks in the RE sector are Unitech

and DLF among large cap stocks and Anant Raj among mid-

cap stocks.



HDIL - higher TDR realization (Rs2,950/sf vs Rs2,500/sf estimated)

UT - Lower than expected booking of prior period charge in 1QFY11 and higher

than estimated commercial sales

Anant Raj - Revenue recognized from SPV level sale (not factored in our estimates)

1.6

0.9

0.7

0.3

0.4

0.2

0.0

0.1

0.0

0.7



DLF: UPSWING IN COMMERCIAL LEASING (DLF)



QOQ MARGIN HIT FOR NCR PLAYERS (%)

4QFY10

1QFY11

2QFY11



Anant Raj Inds

DLF

HDIL

Mahindra Life.

Phoenix Mills

Unitech

November 2010

TELECOM: RPM stable; traffic growth muted due to seasonality

Summary



Traffic growth for wireless majors (Bharti, Idea, RCom,

Vodafone) remained weak on seasonality (0-3% QoQ).

RPM declined 1-3% QoQ for Bharti/Idea/Vodafone;

RCom’s RPM increased ~0.3% QoQ to Rs0.44.

Bharti (ex -Africa), Idea & RCom posted a flat QoQ

revenue growth. RCom reported second quarter of QoQ

increase in wireless revenue and EBITDA.

At consolidated level, Bharti (full quarter consolidation

with Africa) reported revenue of Rs152.2b, EBITDA of

Rs51.2b, and net profit of Rs16.6b.

We believe de-leveraging remains the key for RCom

stock.

Wireless operators to launch 3G services in a phased

manner in 2HFY11; considering 3G roaming

arrangements for pan-India footprint.

RPM pressure has abated which is a structural positive

for the sector though near-term growth could be

impacted by MNP implementation (likely to start from

Haryana on 22-Nov-10 and to complete by 19-Jan-11).

Outlook:

Revenue and EBITDA growth to rebound

driven by 1) normalization of traffic growth, 2) lower RPM

decline, and 3) launch of 3G services. Despite recent

run-up, sector valuation attractive at 6.7-7.8x FY12

EV/EBITDA.

Top picks:

Bharti

* Idea numbers from 1QFY11 include full merger with Spice

QOQ WIRELESS TRAFFIC GROWTH (%)

Bharti

Vodaf one-India

13 14

Idea

Avg. RPM QoQ (%)

RCOM



-4

-7

3QFY10

-7

4QFY10

1QFY11

-1



2QFY11

November 2010

UTILITIES: Poor show led by monsoon; lower merchant realization

2QFY11 EARNINGS VARIATIONS

KEY DEVELOPMENTS IN 2QFY11

MERCHANT REALIZATION DOWN YOY (RS/UNIT)

November 2010

MOSL Universe: Annual Performance (Rs b)

November 2010

MOSL Universe: Valuations

November 2010

For information, please contact

Navin Agarwal, ACA, CFA

CEO - Institutional Equities

Tel: +91 22 39825450 Mobile: +91 98201 58913

Email: navin@motilaloswal.com

Bloomberg:

navin100@bloomberg.net

Rajat Rajgarhia, ACA, MBA

Director - Research

Tel: +91 22 39825441 Mobile: +91 98202 69614

Email: rajat@motilaloswal.com

Bloomberg:

rajatraj@bloomberg.net

Motilal Oswal Securities Ltd, 3rd Floor, Hoechst House, Nariman Point, Mumbai 400 021

BOARD: +91 22 39825500 DEALING: +91 22 22811800 FAX: +91 22 22885038

BLOOMBERG:

mostsales@bloomberg.net

WEBSITE:

www.motilaloswal.com

November 2010

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November 2010