Nifty lost about 1% for the week.

WEEK IN A NUTSHELL

WIN-dow to the week that was

Week in a Nutshell (WIN)

Week

ended

17 Aug

2013

Key WIN-dicators

Nifty lost about 1% for the week. What looked like a good pull back week

for the equity markets after the recent correction turned out to be a week

of extreme nervousness on the macros.

Strong economic data from the US, its jobless claims being at a near 6

year low and the strengthining USD completely spooked the pull back

here. Rumours of capital control being extended to investments did not

help the sentiments as well.

The INR touched an intra week low of 62.1/$ before closing at 61.7/$. In

fact the RBI and the government had to make specific statements negating

the fears of capital controls. Fearing further tightening – the only tool RBI

has used to defend the INR – the 10 year G sec’s yields spiked to 8.89% - up

almost 60 bps in the week, call rates at 5 year high and banks hiking base

rates.

The week also saw the government hiking import duty on gold further to

10% and RBI again banning the Gold on lease – a convenient option for

Gold imports. All this culminated into a near 5% fall in the equity markets

on Friday, taking away all the gains of the week and ending in the negative.

SBI results capped off what was a disastrous quarter of net stress addition

for the entire PSU banking sector – SBI’s (net slippages + change in

standard restructured loans) for the Q was elevated at INR 116b (1.1% of

loans) vs INR85.3b in 4QFY13 and avg Q run-rate of INR82.5b in FY13

The results season has come to an end, and the aggregates do not provide

anything to cheer about. The aggregate PAT saw a decline of 2.3% a first

since the quarter of Sep-2009. The current quarter saw more downgrades

than upgrades with FY14EPS revised upwards for 52 companies and

downwards for 81 companies. Sensex EPS for FY14 saw a downgrade of

3.5% and now stand at 1,280 (growth of 7%). FY15 Sensex EPS cut by 3%.

Some of the highlights of this edition:

1QFY13 Last week’s Result Notes

India Economics:

WPI, RBI Moves to help INR

CAP GOODs:

Tender Tracker

Nifty (-1%)

Inflationary build up at 3.1%, almost

the level of Jul-12

Britannia: Gross margins up

230bp

Measures taken by RBI has not

improved INR materially

WWW – WIN Weekend Wisdom

Even a clock that does not work is right twice a day - Polish Proverb

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

[W]INside this week’s edition

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

WIN-ning charts & chats ............................................................................................................................................. 4

Mixed fortunes - How economies have fared since their pre-recession peaks........................................................................ 4

WIN-conomics ............................................................................................................................................................ 5

ECONOMICS: RBI measures still leaves weakness in INR; revise INR at 60/USD for remaining FY14 ...................................... 5

ECONOMICS: Jul-13 WPI spikes to 5.8%; core inflation low at 2.4%; revise FY14 inflation to 5.5% ........................................ 5

WIN Corporate Corner ................................................................................................................................................ 6

BRITANNIA: Margin improvement story underway; PAT doubles; raise estimates 14%; maintain BUY ................................. 6

CIPLA 1QFY14: One off income leads to massive beat; Expect slower core earnings growth ahead....................................... 6

DALMIA BHARAT 1QFY14: Volume beat estimates; profitability hurts on lower realizations ................................................. 7

DLF 1QFY14: P&L beat est. on margins, non-core operations; Phase V launches boost presales, FCFE -ve ............................ 7

FUTURE RETAIL 2QCY13: SSSG improvement on low base; profits still elusive........................................................................ 8

GSK PHARMA 2QCY13: Below est; Supply issues/ drug policy continue to impact sales/margins .......................................... 8

HPCL 1QFY14: Inventory and Forex losses keep numbers in red .............................................................................................. 9

INDIA CEMENT 1QFY14: Oper. performance in-line with volume beat, weaker realizations ................................................. 9

IGL 1QFY14: EBITDA/PAT in line; Volume growth concerns emerge; court hearing on August 29 .......................................... 9

JPVL 1QFY14: Below est. given transmission cost arrears, lower contribution from Bina / other income ............................ 10

L&T: THE INSITES - Heavy Engg business at inflexion point; Pursuing overseas opportunities .............................................. 10

LICHF 1QFY14: Inline; NIM up 12bp YoY; loan growth remain healthy.................................................................................. 11

MARICO 1QFY14: Above estimates; margins surprise; underperformance behind; Upgrade to BUY ................................... 11

M&M: 1QFY14 Op. perf. below est; Muted auto segment outlook to offset strength in tractors ......................................... 11

NALCO 1QFY14: Below est; Disruption in coal supply affected performance; Neutral .......................................................... 12

ONGC 1QFY14: Adj. for one-off, EBITDA broadly in-line; Guides production growth in 2HFY14 ........................................... 12

ORIENT PAPER 1QFY14: Operating performance above est; volume in line; cost savings drives profits ............................... 13

PIDILITE INDUSTRIES 1QFY14: Sales below estimates; margins surprise; retain NEUTRAL ................................................... 13

SBIN 1QFY14: Below estimates; Stress addition remains high; Cut estimates 11-20%.......................................................... 13

SUNP 1QFY14: Operational performance in line with est; US continues to beat expectations ............................................. 14

TATA MOTORS: JLR Jul-13 wholesale - Above est at 35,162 units (est 28,561 units); Growth of 31% YoY............................ 15

TECH MAHINDRA 1QFY14: Above est; Broad-based growth and healthy commentary drive upgrades ............................... 15

WIN Sector Updates ................................................................................................................................................. 16

AUTOS: 2Ws dealers survey – Positive FY14 outlook for Hero and HMSI; Inventory rise for Bajaj, HMSI ............................. 16

CAPITAL GOODS: Tender tracker - Mega projects in Powergen, T&D, Railways increased tendering................................... 16

WIN Collage ............................................................................................................................................................. 17

Counting the change - Media companies took a battering from the internet. ...................................................................... 17

Nifty Valuations at a glance ...................................................................................................................................... 19

WIN – Week In a Nutshell

Aug 17

2013

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

9816

7801

8345

Last

Friday

10.05

8.14

9451

7774

8161

This

week

10.05

8.90

-3.72

-0.35

-2

WoW

change (%)

-0.03

9.26

13.91

15.01

10.55

Spread Vs US

10 yrs

9.94

6.07

Currency

Rs Vs Dollar

Euro Vs Dollar

60.86

1.34

61.71

1.33

1.39

-0.39

Last

week

18789

13606

21656

15498

6530

Current

week

18598

13650

22518

15081

6500

WoW

change (%)

-1.02

0.33

3.98

-2.69

-0.45

P/E

Valuations

16.26

25.39

11.61

13.22

15.24

Inflows

FII ($Mn)

MF ($ Mn)

Commodities

Oil(US$/Bbl)

Precious Metals

Gold ($/OZ)

Silver ($/OZ)

Metals

Copper(US$/MT)

Zinc(US$/MT)

Aluminum(US$/MT)

7165

1857

1795

7372

1969

1899

2.89

6.03

5.79

1313

1377

4.83

14.75

MTD

234

Last

week

106.52

YTD

(Calendar)

12,589

-14,965

This week

111.28

WoW change (%)

4.47

BSE 500 – Key Movers

Top Gainers

Company Name

Escorts

Essar Oil

Wockhardt

Advanta

Muthoot Finance

Dhanlaksmi Bank

Top Losers

% Change

27.4%

21.3%

20.9%

20.2%

18.8%

16.7%

Company Name

MTNL

MCX

Financial Tech

Chambal Fertilizers

Polaris

Gujarat Flourochem

% Change

18.9%

17.6%

15.2%

11.1%

10.7%

10.3%

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

WIN-ning charts & chats

Mixed fortunes - How economies have fared since their pre-recession peaks

THE prayed-for recovery in the euro area has finally come to pass. After a dismal 18 months in recession, GDP rose

by 0.3% (an annualized rate of 1.1%) in the second quarter from its level in early 2013.

The upturn was led by Germany, whose GDP grew by 0.7%. France outperformed expectations, with output up by

0.5%. The rate of decline in Italy and Spain slackened and there was a sharp rebound in Portugal, which has suffered

a deep recession. Nonetheless, the pickup still leaves GDP across the euro area 0.7% lower than a year ago.

Declines have been biggest in tiny Cyprus, where GDP is down by 5.2%, and in Greece, where it has fallen by 4.6%.

And the record of the euro-zone economy since the peak reached before the global financial crisis is even more

depressing. Output is still 3% lower; in America it is more than 4% higher.

Among the big euro-zone economies only German GDP now exceeds its pre-crisis peak, by 2%. A recent European

Central Bank survey forecast that GDP for the whole of 2013 would be 0.6% lower than in 2012, and that it would

grow by only 0.9% in 2014.

The end of the recession will give heart to European leaders but weak growth will still leave the euro area

vulnerable to social and political discontent.

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

WIN-conomics

ECONOMICS: RBI measures still leaves weakness in INR; revise INR at 60/USD for remaining FY14

RBI has taken many measures recently, the latest being the auction of INR220b cash management bills (CMB)

every Monday and measures to stem capital outflow, aiming to stem the forex volatility and prevent rapid INR

depreciation.

These measures, however, have not yielded their desired result with INR continuing to make new lows with high

volatility. The reason for RBI’s measures not yielding any result so far could be the excessive intervention in the

financial markets that has left the markets wary.

Meanwhile, short-term rates have spiked. Banks have started raising base rates and two consecutive months of

de-growth in IIP indicates further GDP downgrade may be on the cards.

INR has depreciated sharply when trade deficit improved to USD12b from an earlier run rate of near USD20b.

This is explained by a large outflow of FIIs from both debt and equity market. The correction of USD4b trade

deficit during Jun-July 2013 was overwhelmed by USD3b equity outflow and USD7b debt outflow.

In the interim, high interest rates have increased the borrowing cost for the government and put stress on the

government finance by precipitating further slowdown in the economy that affects revenue collections

adversely.

To reverse these trends, government/RBI should attempt to attract flows.

The recent government measures including attracting flows through bond issuances by PSUs, relaxations of ECB

and NRI guidelines as also measures by RBI to stem capital outflow are incrementally positive measures and

need to be backed by further measures including hike in tariff of selected items.

Of greater importance to both RBI and Government is to take suitable measures to arrest the downgrade cycle

of growth. In the absence of such measures, we expect the pressure on INR to persist.

Thus, we have revised our INR estimate to 60/USD for the remaining three quarters of the year that would take

our FY14 currency estimate closer to 59. We see INR trace back to 58 in FY15.

ECONOMICS: Jul-13 WPI spikes to 5.8%; core inflation low at 2.4%; revise FY14 inflation to 5.5%

Jul-13 inflation accelerated sharply to 5.8% from 4.9% in Jun-13 and was way above expectations (MOSL 4.8%,

consensus 5.0%) and also higher than RBI’s tolerance limit.

However, the sharp increase in inflation is largely due to emerging pressure points within WPI group, viz.,

vegetable and cereal prices within food group and the entire fuel group. Indeed, the fuel group alone explained

66bp out of the 93bp acceleration in overall WPI inflation.

On the other hand, manufacturing inflation stayed put at 2.8% (same as in Jun-13). Core inflation too remained

low at 2.4% although it somewhat increased from the low of 2.0% in Jun-13. Thus, the impact of INR

depreciation has so far been fully absorbed by the low pricing power of the corporate on weak demand

conditions.

While CPI (Rural Urban) inflation eased to 9.6% from 9.9%, we expect the benefit of bumper crop to reduce

food inflation to accrue only towards the harvest season. Meanwhile the existing pressure points in inflation

remains. This, along with the possibility of quickening the pace of fuel price deregulation and continued

pressure on INR, have led us to revise our inflation estimate to 5.5% from 4% estimated earlier.

Notwithstanding the persistent weakness signs in IIP and overall growth, the sharp increase in inflation and

continued INR depreciation may result in a formal shift of RBI policy towards a more hardening stance. A hike in

the repo rate may also be undertaken to signal this, even though it would largely be symbolic at this juncture as

all relevant market rates have already firmed up.

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

WIN Corporate Corner

BRITANNIA: Margin improvement story underway; PAT doubles; raise estimates 14%; maintain BUY

Britannia Industries 1QFY14 results were significantly ahead of our estimates. Adj PAT nearly doubled to

INR863m (est INR519m). Net Sales grew 14.9% YoY to INR14b (est INR13.8b). EBITDA grew 80% to INR1.16bn

(est INR756m) as margins expanded 300bp YoY to 8.3%.

We estimate volume growth of 6-7%, while improved product mix and price hikes accounted for the rest.

Gross margin expanded 230bp YoY to 40.3% (est 38%). Focus is on premium brands, as indeed the pricing

actions are driving this in our view. Other expenses and conversion costs declined 110bp and 90bp YoY. Thus,

despite 90bp increase in ad-spends, EBITDA margins expanded 300bp YoY to 8.3% (Est 5.5%) resulting in robust

80% YoY growth in EBITDA. This is the second consecutive quarter of top notch EBITDA performance belying

concerns of one-off strong 4QFY13. Clearly, the investments behind supply chain undertaken since FY12 are

paying off in our view.

Valuation and view: Revise earnings up ~14%

Subsidiaries have improved profitability further and are accretive to EPS. We note that Dairy subsidiary has

more than doubled profits in FY13 to INR350mn from INR150mn in FY12. Thus we incorporate them in our

valuations now, though at 50% discount to stand-alone valuations.

We are revising our estimates upwards by ~14% for FY14E and FY15E to incorporate the 1Q beat and to factor in

benefits from operating leverage. We are estimating a 27% EPS CAGR over FY13-FY15E.

The stock trades at 26.9x FY14E and 22.9x FY15E revised EPS estimates, at 10-15% discount to its FMCG peers.

Given the underlying improvement in Britannia’s fundamentals, we expect the re-rating to sustain. Retail BUY

with a TP of INR865 (SOTP: 26x standalone EPS + 13x Subs EPS) .

CIPLA 1QFY14: One off income leads to massive beat; Expect slower core earnings growth ahead

Reported revenues grew 26% YoY to INR24.6b (v/s est of INR21.9b), reported EBITDA grew 25% YoY to INR6.75b

(v/s est of INR5.1b) and reported PAT grew 18% to INR4.75b (v/s est of INR3.4b).

We note that this growth has come on a high base of 1QFY13 which included the upside from Lexapro supplies.

This surprise was driven by domestic sales which grew 18% YoY (v/s est of flat growth) and 4x growth YoY in

other operating income (v/s est of 26%). Other operating income includes one-time milestone payment from

Meda for Dymista (not quantified, but we estimate it at ~USD20-22m). Export formulations sales were in line

with estimates, while APIs sales were lower than our estimates.

Reported EBITDA margin was down mere 20bps YoY to 27.4% much higher than our estimates of 23.3% mainly

due to the licensing income, adjusted for which margins are in line with estimates.

Adjusted for one-off sales in 1QFY13 and the licensing income this quarter, we estimate core sales to have

grown 34% YoY (v/s est 25%), core EBITDA to have grown 32% YoY (v/s est of 23%) and adjusted PAT growth of

24% YoY (v/s est of 12%).

FY14E Guidance – The management has guided for 14-15% sales growth (organic) for FY14E, driven by export

formulations. Domestic formulations growth is pegged at 12-14% after considering 2-3% impact of the new drug

policy. Without giving any specific guidance on EBITDA margins, the management indicated that profitability

maybe impacted by higher R&D expenses (guided at 4-5% of sales) and higher staff costs. Tax rate is guided at

25%, while capex will be INR4b (apart from addition of INR1.5-2b from CWIP).

Post 1QFY14 earnings, we upgrade our EPS estimates for FY14E/15E by 4%. This factors benefit from Cipla

Medpro acquisition, which is partially offset by expected negative impact of DPCO 2013.

Valuations and view: Cipla has posted a healthy 18% sales growth and 300bps YoY EBITDA margin expansion in

FY13, which was significantly aided by one-off Lexapro supplies to Teva. Factors driving performance in 1QFY14

are also non-recurring in nature.

The coming quarters will be challenging for Cipla due to the impact from new pricing policy and increasing

pressure on profitability due to rising manpower, R&D and interest costs. This can be also explained by the 14-

15% organic growth guidance for FY14E, despite a 26% growth in 1Q alone. As such, we expect some

moderation in growth and profitability over the coming quarters.

We estimate core EPS of INR18.8 for FY14E (up 15% YoY) and INR21.2 for FY15E (up 13% YoY). Based on our

revised estimates, the stock trades at 21.9x FY14E and 19.4x FY15E earnings. We maintain Neutral with revised

target price of INR425 (20x FY15E EPS), 3% upside.

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

DALMIA BHARAT 1QFY14: Volume beat estimates; profitability hurts on lower realizations

1QFY14 numbers are not comparable YoY (comparable QoQ) as Dalmia has consolidated the financials of its

recently acquired north east ventures Calcom and Adhunik 3QFY13 onward. Not adjusting for the same, net

sales grew by 10% YoY (-7% QoQ) to INR7.1b (in line).

Cement volumes from core south operations de-grew 3% YoY (-6% QoQ) to 1.35MT. However the de-growth

was offset by steady scale up in north east operations, which contributed 0.26MT in 1QFY14 (v/s 0.24 MT in

4QFY13). EBITDA de-grew by 39%YoY (-23%QoQ) to INR1b (v/s est INR1.7b), while EBITDA margins declined by

2.8pp QoQ (-11.3pp YoY) to 14.2% (vs/ estimate of 24%). Blended EBITDA/ton stood at INR662 (-INR152/ton

QoQ and –INR556/ton YoY)

Key conference call takeaways:

The management has indicated that it has been able to reduce variable cost at all its plants viz a) South

operations by ~5% due to higher lignite usage in CPP and b) North East operations by ~INR500/ton due to

efficient coal procurement.

North East operations had EBITDA of ~INR700/ton in 1QFY14, despite negative EBITDA for Calcom (due to open

market clinker sourcing).

Launch of Dalmia brand in North East has been well accepted and is selling at premium of ~INR40/bag vis-à-vis

Calcom & Adhunik brand, and at par with Lafarge.

Net debt stood at ~INR30b. The capex guidance for on-going expansion was ~INR13.2b/INR5.2b in FY14/FY15.

Valuation and View

We are adjusting our estimates to factor in change in assumptions (a) YoY decline in realizations by INR3/bag in

FY14 (v/s earlier est of increase of INR8.5/bag), (b) lower volume growth of 12%YoY in FY14 (v/s earlier est of

17%), and (c) higher cost assumptions of 4.5%YoY escalations in FY14 (v/s earlier est of 2.7%YoY). This led to -

25% /-34% revisions in FY14/15 EPS estimates, and translates into downgrade in target price to INR212.

DBEL trades at attractive valuations of USD34/ton for 15mtpa of pro-rata capacity (~22mtpa capacity under

control) and 3.9x FY15EBITDA. Maintain buy with target price of INR212 (SOTP basis).

DLF 1QFY14: P&L beat est. on margins, non-core operations; Phase V launches boost presales, FCFE -ve

DLF’s 1QFY14 EBITDA stood at INR9.2b (-14%YoY, +26%QoQ,) v/s estimate of INR7.6b. Revenue was marginally

higher than estimates at INR23.1b (+5%YoY, +4%QoQ) v/s INR21.8b, while EBITDA margin expanded +7pp QoQ

(-9pp YoY) to 39.6% v/s estimate of 35%. PAT stood at INR1.8b (-38%YoY) v/s estimate of INR0.9b.

Higher than estimated EBITDA was partly driven by lower other expense. The management has mentioned

about INR1.08b of provision in its presentation – we await further clarity on the same. In addition to this, we

believe a meaningful portion of deviation (from estimates) at PAT level (total deviation of INR911m) could be

attributable to sharp improvement in operating performance in non-core business (especially Hotel). DLF has

posted net loss of only INR96m from non-core business v/s net loss of INR774m in 4QFY13 and INR3.3b in FY13.

Phase V (Gurgaon) super luxury launches Crest (0.83msf) and soft launch at Camellia have driven presales

momentum, which recorded a strong uptick in 1QFY14 at 1.81msf (INR24.3b) v/s 2msf (INR13.4b) in 4QFY13

and our estimate of INR18-20b. Crest and Camellia are estimated to have contributed 0.83msf (INR14.5b) and

0.25msf (INR5.5b) respectively, implying almost 82% of 1QFY14 presales. 1QFY14 presales stood much ahead of

our FY14 estimates of INR58b, albeit steady new launches would be key to maintain run-rate hereon.

Leasing run-rate improves QoQ at 0.39msf with 0.2msf leasing in Mall of India (Noida) @INR140/sf/month and

0.19msf of office space (largely in Cyber City) @INR54/sf/month. It targets to lease 1-1.5msf leasing in FY14

amidst challenging commercial outlook. Rental income from commercial and retail spaces improves QoQ at

INR4.35b (v/s INR4.15b in 4QFY13), while total annuity income stood at INR4.8b. We estimate rental income

from commercial and retail at INR18.5b in FY14 (v/s management guidance of INR20b of exit run-rate).

Despite sharp uptick in presales, we note that 1QFY14 core OCF/FCFE fails to improve meaningfully QoQ. A

sharp QoQ increase in other current assets (unbilled receivable) is needed clarity. Core FCFE stood at negative

INR5.8b (v/s -INR5.3b in 4QFY13, -INR17.4b in FY13b), despite controlled

capex.

INR18.6b of QIP and INR2.15b

of divestment proceeds from Wind Power resulted into net decline in garaging of INR14.9b QoQ to INR212b

(0.73x).

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

We upgrade our FY14/15 EPS by 7-11% to factor better operating profits from non-core business (hotel) and

potential cost savings after divestment of Insurance business by 2HFY14, which currently contributes INR1.3b

annual loss. We may revise our estimates / target price further post mgmt interaction and clarity on certain

aspects in concall today at 4 PM IST on 31st May, DIAL IN +022 6629 3068 . The stock trades at 0.9x FY15 BV and

18x FY15 EPS and 49% discount to NAV. Maintain Buy.

FUTURE RETAIL 2QCY13: SSSG improvement on low base; profits still elusive

Future Retail’s 2QCY13 results are below estimates. Core Retail posted PBT loss of INR100m (est INR20m).

Results are not comparable YoY due to demergers of Pantaloon format business as well as Future Lifestyle

operations. Net Sales came in at INR22.6b (est. INR24.6b), while EBITDA margins came in at 8.4% (est 8.4%).

Same store performance improved, as expected. Same store sales (SSS) growth was 10.4% for Value division

due to low base (0.4% growth in base) , 3.7% for Home division, first positive print in 7 quarters.

Like to like gross space contraction during the quarter stood at 0.37msf as it closed stores across the formats

(Big Bazaar, Food Bazaar, Home Town, eZone). Net space contraction during June’13 was 0.23m sqft.

Core Retail EBITDA expanded 6.8% QoQ to INR1.9b (Est INR2.1b), margins improved 90bp QoQ at 8.5%.

However due to 10% and 8% QoQ rise in interest costs and depreciation expenses, PBT declined 33% QoQ

despite doubling of other income and posted a loss of INR107m.

Standalone business, which now includes only Home and Electronics formats, posted a turnover of INR3.46b

(6.5% QoQ decline). EBITDA was INR270m (up 3.7% QoQ) with a 80bp QoQ operating margin expansion to 8.1%.

PBT and PAT loss stood at INR140m and INR95m respectively.

Update on demergers: Company has de-merged Future Lifestyle business and issued shares to FRL shareholders

(3:1). It has subsequently received in-principle approval from BSE & NSE for listing and is now awaiting SEBI

approval for the listing.

The benefits of recent restructuring will reflect going forward and result in improved balance sheet with lower

leverage and higher interest coverage.

Our back of the envelope SOTP works out to INR135/share (we now remove 50% direct stake in FLF from our

SOTP as it has been de-merged and value the indirect 20% holding in FLF through FRL with a 25% holding

company discount). We value core retail business at 8x EV/EBITDA and other investments (Future Logistics,

Staples etc) at book value. Stock is currently Under Review.

GSK PHARMA 2QCY13: Below est; Supply issues/ drug policy continue to impact sales/margins

2QCY13:

performance was below estimates. The company reported a de-growth of 2.3% to INR6.4b, EBITDA

decline of 42.6% to INR1.22b and adjusted PAT decline of 44% to INR950m.

Revenue growth was impacted by:

a) supply chain related issues which persisted in 1QCY13 as well and b)

ongoing implementation of the drug pricing policy. GSK expects supply constraints to be mitigated through the

second half of year.

EBITDA margin at 18.9% is at multi year low:

down 13.2% YoY (7.4% QoQ), below our est. of 27.5%. We believe

that fixed overheads despite low sales growth and impact of the drug policy have impacted operational

performance. Decline in adjusted PAT is similar to the decline in EBITDA. Reported PAT has one time income of

INR200m from the sale of property

Supply issues are likely to be sorted out in 2HCY13:

while the implementation of the drug policy is already

underway for majority of its important drugs. As a result, GLXO has refrained from providing any guidance on

sales growth and margins.

Valuation and view:

We believe CY13/CY14 do not reflect the true earnings potential of the company due to

external factors like drug price control and product supply issues faced by the company. GLXO continues to

remain one of the best plays on IPR regime in India with a focused parent which we view as a long term positive.

GLXO deserves premium valuations due to strong parentage (giving access to large product pipeline), brand-

building ability and likely positioning in post patent era. It is one of the few companies with ability to drive

reasonable growth without any major capital requirement leading to high RoCE of 40-45%. We expect CY15 to

be a normal year for GLXO where we see company returning back to the double digit growth rates. We

introduce CY15 numbers with an EPS of INR 96.1. We roll over our TP to Dec’14 and set it at INR2595 (27x CY15

earnings), an upside of 14%. We maintain our Buy rating on the stock.

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

HPCL 1QFY14: Inventory and Forex losses keep numbers in red

HPCL’s 1QFY14 EBITDA loss stood of INR6.9b was better than our estimate of loss of INR17.2b primarily due to

(a) positive impact of INR21.7b due to sharing by govt (we had assumed nil) partly negated by (a) forex loss of

INR7b, (b) adventitious inventory loss of INR4b, (c) higher staff cost to the tune of INR0.7b and (d) lower

throughput. Net loss stood at INR14.6b (v/s est loss of INR24b) as against loss of INR92.5b in 1QFY13 and

INR76.8b in 4QFY13.

Net under recovery at INR5.2b: While the upstream companies compensated HPCL INR34.9b in 1QFY14,

government provided INR18.2b; implying a net under recovery of INR5.2b for HPCL. For FY14 we model

upstream subsidy sharing at INR600b, while government would share the balance under recoveries and OMCs

sharing nil.

GRM at USD2.6/bbl in 1QFY14, shift to export parity seems difficult: 1QFY14 reported GRM stood at USD2.6/bbl

compared to USD-2.1/bbl in 1QFY13 and USD3.7/bbl in 4QFY13. While the concern on likely shift to export

parity (from trade parity) continues for refinery transfer pricing, we believe it will be difficult to change the

methodology given the unviability of many domestic refineries under export parity. Our analysis indicates the

impact of ~USD2/bbl on the GRM for simple refiners.

HPCL’s gross debt stood at ~INR300b as of Jun-13 v/s INR325b on Mar-13.

INDIA CEMENT 1QFY14: Oper. performance in-line with volume beat, weaker realizations

India Cement’s (ICEM) 1QFY14 operating performance is in-line with our estimate with EBITDA of INR1.91b (v/s

est of INR1.99b). However, MTM forex loss of ~INR270m restricted PAT to INR168m (v/s est INR384m), a de-

growth of 77% YoY (-36% QoQ). Revenues grew 3.1% YoY (+4% QoQ) to INR12.4b (vs/ est INR12b). IPL revenue

stood at INR1.1b (v/s INR1.2b in 1QFY13, and est of INR1.3b), whereas ship freight revenues were at INR154m

(v/s est INR130m).

Cement volumes grew by 11.3% YoY (-4.5% QoQ) to 2.65mt (v/s est 2.49mt), despite South India volumes

growing by ~7%. Realizations were down 6%YoY (-1% QoQ) at INR4,188/ton (v/s est INR4,221/ton). Cement (ex-

clinker) realizations down by ~INR2/bag QoQ, as sharp upswing in cement prices at AP was only from mid-May.

EBITDA de-grew 31%YoY (+14% QoQ) to INR1.91b (v/s est of INR1.99b). EBITDA margins declined to 15.4% (v/s

est 16.6%; -770bp YoY, +130bp QoQ), implying blended EBITDA/ton of INR721/ton (v/s est INR799/ton v/s

INR605/ton in 4QFY13). Pure cement EBITDA/ton was down by INR457 YoY (+INR3 QoQ) to INR572 (v/s est of

INR696), led by (1) INR276/ton YoY (-INR33/ton QoQ) decline in realizations, and (2) increase in fixed cost, while

variable cost has been large stable QoQ/YoY.

Trinetra Cement (SPV for Rajasthan plant), 61% subsidiary, reported EBITDA of INR145m in 1QFY14 (v/s

INR205m in 1QFY13 and INR302m in 4QFY13). IPL had EBITDA of INR332m (v/s INR210m in 1QFY13 v/s –

INR10m in 4QFY13) and shipping had EBITDA of INR10m (v/s INR78m in 1QFY13).

Phase I (25MW) CPP at Vishnupuram (AP) has been commissioned during the month of July-13 and is expected

to go on full stream after stabilization of operations in two months time. The Phase II (25MW) will commence

operations in September-13 end. Hence, cost savings benefits are likely to percolate in 2HFY14, which

management expects at ~INR1/unit or ~INR20m/month.

We downgrade our consol. EPS for FY14/FY15 by 40%/23%, as we factor-in for lower volume growth guidance,

weaker realization and forex loss. We assume no YoY realization improvement in FY14 (v/s earlier est of

INR3/bag), while volume growth to moderate at 5% in FY14 (v/s earlier est of 7.5%). This led to 11%/6%

downgrade in FY14/15 EBITDA estimates, while higher financial leverage led to sharp downgrade in EPS.

The stock is valued at 10.8x/4.9x FY14/FY15 EPS, 5.1x/3.7x FY14E/FY15E EBITDA and USD43/ton (at 15.1MT

capacity on pro-rata basis). We downgrade target price EV/EBITDA multiple for ICEM from 4x to 3.5x due to

above concerns (at 10-25% discount to mid-cap multiple). Maintain Neutral with target price to INR39.

IGL 1QFY14: EBITDA/PAT in line; Volume growth concerns emerge; court hearing on August 29

IGL reported in-line 1QFY14 EBITDA and PAT at INR1.9b (+7% YoY and +4% QoQ) and INR0.9b (+3% YoY and +5%

QoQ). The negative impact of (a) lower gas volumes (at 3.7 v/s est of 3.9mmscmd) and in turn revenues at

INR9b (v/s est of INR9.5b, +19% YoY and +2% QoQ) was negated by (b) lower gas cost (due to lower share of

high-cost LNG in overall purchase mix) leading to better EBITDA margins.

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1QFY14 EBITDA up 4% QoQ to INR5.7/scm: IGL’s EBITDA/scm at INR5.7/scm was better than estimates of

INR5.3/scm and INR5.6/scm in 1QFY13 and INR5.5/scm in 4QFY13. Average gas cost though lower than our est

at INR17.6/scm, was up 16% YoY and 2% QoQ. Despite marginally lower spot LNG prices during 1QFY14

(USD14.6/mmbtu v/s USD14.7/mmbtu in 4QFY13, refer chart below on Asian spot LNG prices) due to ~3% INR

depreciation during the quarter.

CNG volumes disappoint, PNG reports QoQ decline for first time since 2QFY10: CNG sales were below est. at

2.77mmscmd (v/s est of 2.94mmscmd, +4%YoY, flat QoQ). CNG volumes were lower during the quarter due to

lack of addition of new buses. PNG volumes at 0.95mmscmd were up 8% YoY and down 3% QoQ. PNG volumes

declined QoQ for the first time since 2QFY10 due to industrial slowdown and competition from alternate fuels

(fuel oil).

Realizations marginally up on QoQ basis: 1QFY14 CNG realization stood at INR40.3/kg, up 15% YoY and 3% QoQ

and PNG realization stood at INR28.2/scm, up 13% YoY and 3% QoQ. IGL had taken a price hike of INR2/kg for

CNG and INR1/scm for PNG on June 25, 2013. Full impact of the price hikes will thus be felt during 2QFY14.

Valuation and View:

We are cutting our FY14 EPS by 2% to factor in lower gas volume growth assumptions. We now model CNG and

PNG volume growth for FY14 at 7.5% and 9% respectively. We had changed our rating from Neutral to Under

Review due to lack of clarity in predicting earnings for IGL and would await the Supreme Court decision. The

next hearing has been delayed to August 29, 2013 and we believe that the verdict on this case will take some

more time. Our current estimates do not factor in any impact of earlier PNGRB order.

JPVL 1QFY14: Below est. given transmission cost arrears, lower contribution from Bina / other income

JPVL reported standalone revenues of INR7.9b, higher than our estimate of INR7.1b. EBIDTA for the quarter,

however, stood lower at INR5.9b vs our estimate of INR6.5b. Key deviation has been long term open access

(LOTA) transmission charges paid on Karcham Wangtoo project, which is higher by ~INR300m. Management

indicated that recurring charges for quarter could have been ~INR330-350m, but higher actual charge

(INR596m) is due to arrears.

For Karcham Wangtoo project, the generation for the quarter was healthy at 1.52BUs, vs est of 1.3BUs.

However, merchant realisation came at INR3.25/unit, vs estimate of INR3.50/unit, aiding to poor performance.

Higher interest cost (INR3.5b, vs est of INR3b) and lower other income at INR48m (vs est of INR200m) led to

lower PBT of INR1.3b vs estimate of INR2.6b. Higher interest cost is owing to capitalization of Unit-2 at Bina

project (CoD 7

April 2013).

For Bina power project, the State regulator has approved provisional tariff for upto 95% of fixed charge for both

units now. However, project cost considered is INR29.5b vs actual INR32.4b. Final approval of TO would recoup

under recovery. Losses from the project in the quarter stood at INR400m. However, management indicated that

there is no cash loss on the project.

Management indicated that there was no merchant sale from the Bina project either, as generating power for

30% capacity (balance is tied-up) would not be efficient, as MP DISCOMs (65% regulated + 5% variable) are not

taking full load and thus, overall PLF would have remained muted, driving heat rate poor.

Currently, we expect JPVL to report EPS of INR1.7/sh in FY14E and INR2.3/sh in FY15E. We seek further

clarification on transmission charges, K Wangtoo PPA status and timeline for Bina TO finalization and will review

our estimates post that.

L&T: THE INSITES - Heavy Engg business at inflexion point; Pursuing overseas opportunities

We interacted with Mr MV Kotwal, President (Heavy Engineering), participated in the virtual tour and visited its

workshops (Aerospace, Nuclear, Process, Machining) in Powai, Mumbai.

According to the management, there are visible signs of improvement in the business environment, which is

reflecting in order intake. Post the decline in revenues during FY10-12, it expects meaningful improvement in

FY14.

The Hydrocarbons segment is witnessing increased business opportunities globally. In India, the Defense

business is gradually opening up and there is a sense of urgency towards domestic manufacturing.

We understand that LT is aiming at achieving an exclusive position in global Process Equipment segment and at

fortifying its lead position as a private sector Defense Equipment supplier in India.

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2013

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LICHF 1QFY14: Inline; NIM up 12bp YoY; loan growth remain healthy

1QFY14:

PAT stood at INR3.1b up 36%YoY and down 2% QoQ. Strong loan growth of 22% YoY and 3% QoQ, led

to NII growth of 30% YoY and flat QoQ to INR4.54b. Seasonal deterioration in asset quality led to higher than

expected provisioning of INR171m.

Loan growth remained strong:

driven by a robust +24% YoY and 3.5% QoQ increase in individual loans. Builder

loans continued to contract for the eleventh consecutive quarterand now constitute 3% of overall loans against

3.4% in 4QFY13 and 4.6% in 1QFY13. Sequentially loans increased by INR23.2b, while borrowings by INR24.7b.

NII grew by 30% YoY and remained largely flat QoQ at ~INR4.54b; led by 12bp YoY margin expansion to 2.3%.

While the reported yields increased 10bp YoY to 10.79%, reported cost of funds remained same at 9.58%.

Disbursements grew by 7% YoY to INR51.2b led by 13.4% YoY growth in individual segment, while the

disbursements in the builder segment remained sluggish as it stood at INR 0.58b de-grew 69% QoQ and 82%

YoY.

Asset quality witnessed seasonal deterioration:

with absolute GNPA/NNPA increased 37%/112% sequentially,

% GNPA/NNPA stood 0.80%/0.52 a decline of 19/16bp sequentially. No fresh slippages in developer loan

segment; GNPAs in Developer Loans segment include three major accounts amounting to INR2.3b which slipped

in 3QFY13; these accounts are backed by adequate collaterals and action under SARFAESI Act has been initiated.

Provisioning expenses stood at INR171m as compared with provisioning write back of INR35m in 4QFY13.

Notably the Provision coverage ratio also declined to 36% Vs 59% during last quarter.

Valuation and view:

We expect RoA’s to remain healthy at ~1.5% and RoE’s at ~18% after dropping sharply in FY13.

We expect earnings growth of 20% over FY14-15E. We believe loan growth to remain healthy, and with asset quality

remaining intact in ensuring quarters and at valuation of 1x FY15 BV, it is attractively valued and largely discounts

the concerns. Buy with a target price of INR260 (1.5x FY15E BV).

MARICO 1QFY14: Above estimates; margins surprise; underperformance behind; Upgrade to BUY

Marico’s 1QFY14 results were ahead of expectations driven by higher than expected margin expansion.

Consol sales grew 11% to INR13.8b (est INR 14.1b) - domestic sales posted 7% growth (10% volume growth on a

base of 16% growth in 1Q13) while International sales expanded 15% (9% volume growth, 13% constant

currency growth). Reported PAT grew 25.4% YoY to INR 1.58b (est INR1.34b) while recurring PAT, after

adjusting for exceptional posted 24% growth to INR1.54b.

Domestic volume growth at 10% is ahead of our expectations and in line with the recent trend defying any

slowdown in its categories. Volume growth was impacted owing to LBT strike related trade shutdown in

Maharashtra.

Consolidated gross margins expanded 250bp to 51.4%, while EBITDA margin expanded 200bp YoY to 16.5% (Est

14.1%), highest ever, led by sharp 420bps margin expansion in international business to 10.9% while Domestic

business margins were up 30bps YoY to 20.1%. Thus, EBITDA posted a robust 23.5% growth to INR2.27b (est

INR 2b). Magnitude of gross margin expansion was a surprise as it came despite price cuts in Parachute and 8%

YoY increase in Copra prices. Management attributed the same to inventory positions i.e. consuming costs were

lower than replacement costs. Thus, gross margin expansion could taper in 2HFY14 in our view.

M&M: 1QFY14 Op. perf. below est; Muted auto segment outlook to offset strength in tractors

Net revenues grew 9.3% YoY (-2.8% QoQ) to INR97b led by volume growth of 7%, but restricted by lower

realizations. EBITDA margins at 14.4% were in line with estimate, however EBITDA stood lower at INR14b. Adj.

PAT grew 17% YoY to INR9.1b as lower EBITDA was offset by higher other income, lower depreciation and lower

tax rate. Volume growth of 7% during 1QFY14 was largely driven by tractors as Auto sales declined by 1.8% .

Given lack of clarity on the timing of the merger of Mahindra Trucks & Bus:

we have currently not factored

demerger in our standalone estimates (although part of consolidated estimates). However, our initial

calculations suggest no impact on FY14E EPS (due to tax benefits of INR2.4b available on accumulated losses off-

setting impact of FY14 loss), while FY15E S/A EPS could get impacted by 6%. We note that at consolidated level,

being a 100% subsidiary, the merger is marginally positive due to tax benefits available to S/A business on losses

of truck & bus business. However, we conservatively factor in INR4.4/share (post tax) EPS cut for FY15E in our

SOTP workings to include the impact of merger.

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Earnings concall highlights:

Upward revised tractor growth guidance to 10-12% from 6-8% earlier on

expectation of good monsoon; UV demand expected to remain weak in 2Q as well as the company undertakes

inventory corrections; New platform launches in UVs to come only in FY16; Commodity pressures benign, the

company took pricing action of 0.5% in 1Q for both the divisions; Capex guidance maintained at ~INR100b over

FY13-15, for next leg of capacity addition.

Cut FY14E/15E EPS by 9%/8.1% on muted auto outlook and consequent margin pressure:

We downgrade our

S/A (M&M + MVML) FY14E/15E EPS by 9%/8.1% led by cut in volume assumption (overall cut of ~6% each in

FY14/FY15) and consequent reduction in margins on operating de-leverage and higher discounting pressure for

the auto segment. We cut our Auto volume estimate for FY14/15 to -5%/10% (from +7%/12.5% earlier), but

upgrade our tractor volume growth assumption to 15%/10% for FY14E/15E (from 10.5%/8% earlier). Our

estimates are yet to formally factor in for demerger of Trucks business into standalone estimates.

Valuation & view:

Over the short term, there is no visible catalyst considering no major launches in auto

division over 18-24 months. However, normal monsoon could lead to healthy recovery in tractor volumes

(build-into our estimates). The stock trades at 12.3x/9.8x FY14E/FY15E consolidated EPS of INR71/INR89.1.

Maintain Buy with a revised TP of INR1,127 (earlier INR1,275).

NALCO 1QFY14: Below est; Disruption in coal supply affected performance; Neutral

Nalco EBITDA declined 50% QoQ to INR1.5b, lower than our estimate of INR1.9b due to disruption in coal supply

and lower Alumina sales volumes.

Adjusted PAT decreased 28% YoY to INR1.6b (down 35% QoQ) in a seasonally weak quarter. Other income

increased 27% QoQ to INR1.8b, which mitigated the affect of lower margins.

According to our calculation, the CoP (cost of production) of metal increased 14% QoQ to INR121,597

(USD2,171/t).

Power and fuel cost as a percentage of sales increased 6.2pp QoQ to 32.4% due to lower availability of linkage

coal. Coal supply from Mahanadi Coal (MCL) has been again disrupted which affected metal production. 198

pots were taken out of operations during the quarter. Currently, it is operating only ~65% of the total 460ktpa

smelter capacity.

Alumina sales declined 12% QoQ to 283kt. Aluminum production declined 14% QoQ to 85kt.

The company has partially commissioned the 46.7mw wind power plant in Rajasthan.

EPS is expected to increase 19% over FY13-15 to INR3.2/share.

However, stock looks fairly valued at FY15 PE of 8.5x. We value the stock at INR32/share based on EV/EBITDA of

4x FY15E (LME at USD2000/t). Maintain Neutral.

Valuation and View

We are building production growth of 11% CAGR in Alumina over FY13-15 on improved capacity utilization,

while Aluminium production is expected to decline at 9% CAGR due to coal supply constraint and depressed

LME prices.

EPS is expected to increase 19% over FY13-15 to INR3.2/share.

Stock trades at FY15 PE of 8.5x and EV/EBITDA of 3x. We value the stock at INR32/share based on EV/EBITDA of

4x FY15E (LME at USD2000/t). Maintain Neutral.

ONGC 1QFY14: Adj. for one-off, EBITDA broadly in-line; Guides production growth in 2HFY14

ONGC’s reported revenues at INR192b (-4% YoY, -10% QoQ) were largely in-line, while reported EBITDA at

INR84b was impacted by one-time provision of INR12b (recurring impact of INR4b) in other expenditure

towards employee retirement benefit scheme. Adjusted for this one-off item, adj. EBITDA at INR96b was

broadly in-line with estimate of INR98b. Reported 1QFY14 PAT stood at INR40b (-34% YoY, +19% QoQ).

1QFY14 gross realization stood at USD103/bbl (-6% YoY and -10% QoQ) and post the subsidy stood of USD

62.7/bbl (63.1 in 4QFY13 and 63.2 in 1QFY13), net realization stood at USD40.2/bbl (v/s USD47.9/bbl in FY13).

Absolute subsidy sharing for the quarter stood at INR 126.2b (+2% YoY and +3% QoQ).

Oil production (incl JV) for 1QFY14 stood at 6.49mmt (-1% YoY and flat QoQ) while the gas production (incl. JV)

was at 6.18bcm (-4% YoY and -1% QoQ). ONGC guides FY14/FY15 standalone production of oil at 24.1/25mmt

and gas (incl JV) at 25.1/26.2bcm. Management indicated that the ongoing IOR/EOR and redevelopment

projects (B-22, B-193, Cluster 7 series, etc) are likely to add 4-5mmtoe of crude oil and 12-13 mmscmd of gas

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2013

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production over the coming years and production guidance is adjusted for natural decline. D-1 field in Mumbai

High is currently producing ~35kbpd and is expected to ramp up to 40-50kbpd by next year

Valuation and view

We have factored in a gas price of USD 8.2/mmbtu from FY15 onwards for ONGC. Also, in-line with the

announced reforms, we have assumed a diesel price hike of INR 0.45/lt/month, and thus estimate a ~40%

reduction in under recoveries in FY15 v/s FY13 base. Similar to FY13, we have assumed INR600b sharing for

upstream in FY14/FY15.

Key things to watch are

(1) implementation of diesel reforms; (2) clarity on Sudan and Syria production for OVL,

(3) subsidy sharing and (4) visibility on production growth.

ONGC currently trades at ~40% discount to its global peers on EV/BOE (1P basis) and timely execution of diesel

reforms and passing on of benefits of gas price hike could lead to stock’s re-rating. Implied dividend yield of

FY14 dividend stands at ~4%. The stock trades at 6.8x FY15 EPS of INR41.3. Our SOTP-based target price for

ONGC stands at INR401/sh (v/s INR413 earlier).

Buy.

ORIENT PAPER 1QFY14: Operating performance above est; volume in line; cost savings drives profits

Orient Cement posted 1QFY14 operations above our estimates with EBITDA at INR714m (v/s est INR649m).

Cement volume was up 7%YoY (-7% QoQ) to 1.07MT (v/s est of 1.06MT), while realizations were stable QoQ (-

11% YoY) to INR3,484/ton (v/s est of INR3,530/ton).

Revenue de-grew 4% YoY (-7% QoQ) at INR3.7b (v/s est of INR3.7b).

EBITDA posted 31% YoY de-growth (+2% QoQ) to INR714m, translating into EBITDA margin of 19.2% (+1.6 pp

QoQ, -7.3pp YoY) v/s est of 17.3%.

EBITDA/ton stood at INR668 (+INR55 QoQ, -INR364 YoY) v/s est of INR612. Better profitability were driven by

lower than estimated variable cost with savings coming from RM and energy cost.

We are upgrading FY14 EPS estimates by 22% led by cost savings (EBITDA upgrade of 14%), and lower

depreciation and interest. However, FY15E EPS has seen downgrade of 12% impacted by lower volume growth

and pricing assumption (~INR10/bag v/s INR15/bag earlier).

The stock trades at PE of 4.8x FY15 EPS of ~INR7.6, 1.9x FY15 EV/EBITDA and USD18/ton (adj. for CWIP).

Maintain Buy with target price of INR66 (84% upside at 4x EV/EBITDA or ~USD49/ton).

PIDILITE INDUSTRIES 1QFY14: Sales below estimates; margins surprise; retain NEUTRAL

1QFY14:

standalone sales grew 11.3% to INR10.1b; EBITDA margins expanded 120bp to 22.2%, Adjusted PAT

grew 16% to INR1.54b , while reported PAT posted a strong 22% growth due to forex gains of INR77m.

Healthy gross margin expansion:

of 130bp on account of steady VAM prices (USD950-1000 range) and carry

over pricing action. Savings in other expenses got neutralized by employee costs. Consequently EBITDA grew

17.5% YoY to INR 2.24b and margins expanded 120bp to 22.2%.Interest costs declined 61% YoY resulting in

strong 21% PBT growth. However, 36% YoY decline in other income drove adjusted PAT growth lower at 16% to

INR1.54b (est 1.57b). Reported PAT came in at INR 1.62b, aided by forex gains of INR77m. Due to lower forex

gains in base quarter (INR1m), growth in reported PAT looked better at 21.7% vs. recurring PAT growth of 16%.

Continued challenges owing to weak macro environment:

hence indicated difficulty in undertaking price hikes

in this environment. INR depreciation poses risks to margins ahead. Elastomer projects, on which PIDI has spent

INR3.65b, continues to remain on hold.

Valuation & View:

At the CMP, the stock trades at 25.8x FY14E and 20.8x FY15E EPS. We had Downgraded the

rating to NEUTRAL post 4QFY13 results. Even though the stock has corrected 13% since then, we believe risks to

earnings estimates is high given the semi-cyclical nature of its business. Thus maintain Neutral with an

unchanged TP of INR285 (23x FY15E, 20% discount to Asian Paints).

SBIN 1QFY14: Below estimates; Stress addition remains high; Cut estimates 11-20%

State Bank of India’s 1QFY14 PAT declined 14% YoY to INR32.4b (15% below est. of INR38.1b). NII was in-line

with est. at INR115.1b (+3% YoY and 4% QoQ) led by stable NIMs of 3.2% QoQ. High trading gains of INR12b (v/s

exp. of INR5b) were negated by sharp rise in employee expense to INR55.4b (18% above est.). As a result, PPP

declined 8% YoY to INR75.5b (8% below est.).

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Negative surprise came from gross slippages of INR138b (highest ever quarterly addition) v/s INR58.7b in

4QFY13 and INR108.4b in 1QFY13. Annualized slippage ratio stood at 5.8%. Upgrades and recoveries were at

INR29.2b (expectation of INR35b) and bank wrote-off INR11.5b during the quarter. Hence, GNPA in absolute

terms increased 19% QoQ and in percentage terms was at 5.6%. PCR (cal) and PCR (including technical write-off)

each declined 6%+ QoQ to 51% and 61% and NNPA (%) was at 2.8% (2.1% in FY13).

For 1QFY14, fresh restructuring was of INR50b (0.5% of loans; v/s INR87.7b in 4QFY13). However, INR33b was

upgraded on account of two years of satisfactory performance and INR9.7b either slipped into NPA/or were

NPA restructured. Hence, net addition to standard restructured pool was INR7.4b and outstanding standard

restructured loan portfolio stood at INR 329.6b i.e. 3.1% of loans (stable QoQ). Pipeline of restructuring is at

INR100b (of which 30% is from iron and steel segment) i.e. 0.9% of o/s loans.

Net stress addition (net slippages + change in standard restructured loans) for the quarter was elevated at

INR116b (1.1% of loans) vs INR85.3b in 4QFY13 and avg qrty run-rate of INR82.5b in FY13.

Guidance: (1) For FY14, domestic NIM target revised down to 3.5-3.6% from 3.7%, (2) Loan growth to be driven

by higher re-financing opportunity, working capital demand and retail financing. For FY14, bank would target a

loan growth of 20%+ and deposit growth of 15-16% (3) bank expects to merge one of the associate bank in

2QFY14 and (4) additional employee provisions (due to change in actuarial assumptions of mortality rate) of

INR6b per quarter to continue in rest of FY14.

SUNP 1QFY14: Operational performance in line with est; US continues to beat expectations

Sun Pharma reported 31% revenue growth to INR34.8b (v/s est. of INR34.3b), a 26% EBITDA growth to

INR15.3b (v/s est. of INR14.9b) and 35% PBT growth to INR15.1b (v/s est. of INR14.3b). The company reported a

net loss for the quarter at INR12.1b (v/s est of INR8.71b), impacted by INR25.2b provision for Protonix

settlement payment.

Revenue growth was aided by (1) 44% YoY growth in India formulations on a low base (like to like growth of

11%) and (2) 32% YoY growth in US despite YoY decline in Taro sales, aided by stronger than expected

performance of DUSA and URL Pharma acquisitions. RoW formulations grew 23% YoY.

We estimate one-off contribution (from Doxorubicin and Comtan) at INR2b to sales, INR1.1b to EBITDA and

INR690m to PAT for the quarter.

Adjusted for the contribution of limited competition products for US, we estimate core revenue at INR32.85b

(v/s est. INR32.37b), core EBITDA at INR14.2b (v/s est. of INR13.8b) and core PAT at INR11.72b (v/s est. of

INR9.6b). Core EBITDA margins were down 180bps YoY to 43.3% (marginally above est of 42.7%) mainly

impacted by weaker than expected operational performance at Taro.

Adjusted PAT is much higher due to lower than expected tax rate on operational income (10% v/s est. 19%).

Key takeaways from concall: Sales growth guidance of 18-20% for FY14 remains unchanged. DUSA Pharma and

URL Pharma which were acquired late last year in US have performed above company expectations in 1QFY14.

Sun Pharma expects entry of atleast 3 generic companies post the conclusion of 180 day exclusivity for generic

Prandin. Loss of sales due to the new drug policy is INR450-500m (less than 2% of sales). R&D expenses are

guided to be 6-8% of sales while tax guidance stands at 15% (v/s 18-20% earlier)

Valuation & view:

We believe US will continue to be the core earnings driver for SUNP along with support from India and RoW

markets. While Taro had played a key role in shaping Sun's US performance over the last two years, Sun's own

pipeline in our view continues to grow over 20% annually. We assume flat revenue growth for Taro over the

forecast period but with over 130 ANDAs awaiting approval, Sun can sustain current growth momentum in the

US through its own pipeline of products.

We model in a revenue CAGR of 30% over FY13-FY15 for Sun’s own pipeline and believe that this estimate may

have an element of positive surprise. While India formulations will see a slowdown in FY14 impacted by the new

pricing policy, we expect growth to rebound to historical levels of 16-18% in FY15E.

We estimate core EPS to witness a CAGR of 22% over FY13-15E. The stock trades at 24.2x FY14E and 21.4x

FY15E core EPS. We value SUNP’s core business at INR588/share (25x FY15E) and Para IV pipeline including

generic Doxil and Prandin at INR12/share thus giving us a target price of INR600/share, an upside of 19% from

current levels. Strong earnings growth coupled with superior execution track record makes SUNP an attractive

investment opportunity at current levels; upgrade to Buy.

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

TATA MOTORS: JLR Jul-13 wholesale - Above est at 35,162 units (est 28,561 units); Growth of 31% YoY

JLR’s Jul-13 wholesale grew 31% YoY (+25% MoM) to 35,162 units (est 28,561), led by 76% growth in Jaguar

volumes at 7,174 units (est 6,561) and 22% growth in LR vols at 27,988 units (est 22,000).

JLR’s Jul-13 retail volumes (released earlier) grew by 21% YoY to 31,611 units, driven by 65% growth in Jaguar

volumes to 6,157 units and 14% growth in LR volumes to 25,454 units. While retails were impacted by phasing

out old RR Sport (-30% YoY), it is witnessing good traction for New Range Rover (+73% YoY) and Jaguar F-Type.

New Range Rover retails have commenced from Jul-13.

In terms of regional performance, Asia Pacific retails are up 43%, China up 36%, US up 31% and RoW up 29%,

China up 10%, RoW up 4%. However, UK was up just 8% and Europe was down -1%.

During the recent earnings call, the management sounded positive on volume growth and margin outlook led by

product actions and continued growth in emerging markets. New Range Rover Sport dispatches are likely to

commence from Aug-13, while retails would start from Sept-13. New Range Rover Sport is expected to have

better margins than the outgoing model. The stock trades at 9.7x/8x FY14/FY15 consol EPS of INR32.80/40.

Maintain Buy.

TECH MAHINDRA 1QFY14: Above est; Broad-based growth and healthy commentary drive upgrades

1QFY14 above estimate: TECHM’s 1QFY14 revenue grew 3.7% to USD724m, after excluding inter-segment

revenues post merger with Satyam. This was above our estimate of 1.7% QoQ growth. EBITDA margin of 21.1%

expanded 60bp QoQ, and was marginally above our estimate of 20.6%. PAT was INR6.86b, above our estimate

of INR5.98b, largely driven by forex gain of INR1.34b.

Broad-based growth across verticals: Organic revenue growth during the quarter was 2.6% QoQ and 2 months

revenues from Complex IT contributed additional 1.1%. Constant currency revenue growth was 4.4% QoQ, and

cross currencies were a headwind of 0.7%. Growth was broad-based across verticals with the sole exception of

BFSI, however, deal closures in the vertical suggest recovery going forward.

Wage hike deferment drives margin upgrade: Wage hikes at TECHM will be effective from January (4QFY13) as

compared to our expectation of wage hikes from 2QFY14, driving upgrade in our margin estimates. In the near

term, currency is a key tailwind to margins for the company, while reinvestment of these gains is a call that it

will take going forward.

Seeing uptick in demand environment: TECHM closed 3 large deals each with a TCV between USD50-75m, and

continues to chase 4 other large deals in the Enterprise pipeline. Outside BT, pipeline in Telecom vertical too,

continues to be healthy. The company is seeing pick up in deal flows and business volumes, with US looking

increasingly better with visible green shoots. While Europe is a cause for concern, worries of eminent slowdown

are receding. Even within Europe, trends in Nordics and Germany are very positive

Valuation and View

We expect TECHM to grow its USD revenues at a CAGR of 11.7% over FY13-15E and EPS at a CAGR of 15.5%

during this period. TECHM trades at 11.1x FY14E and 10.2x FY15E.

Broad-based growth during the quarter and sanguine outlook further alleviate concerns on sluggish pieces like

BT, which are becoming increasingly irrelevant in the overall scheme of things. Additionally, TECHM’s intention

to add inorganic revenues will help further marginalize the non-growth segments, and there exists enough

wherewithal in the form of cash and treasury stock to fund the same.

Owing to healthy growth and stable margin outlook, our target price for TECHM stands at INR1500, which

discounts our FY15E EPS by 12x. Buy.

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

WIN Sector Updates

AUTOS: 2Ws dealers survey – Positive FY14 outlook for Hero and HMSI; Inventory rise for Bajaj, HMSI

We surveyed over 120 two-wheeler dealers across regions and representing major players. Key takeaways are:

In 1QFY14, majority of Hero dealers reported higher sales YoY on strong marriage season demand, while 71% of

Bajaj and 50% of TVS dealers reported sales decline, despite new launches.

For FY14, ~61% dealers indicated positive growth outlook on expectations of good monsoon. Hero and HMSI

dealers are the most optimistic, with ~55-57% anticipating a growth of over 5% in FY14 driven by healthy

demand from rural areas and benefit of new launches.

However, ~60% of Bajaj dealers expect decline in sales in FY14, with 37% of them expecting a fall of over 5% due

to weak demand for premium motorcycles (due to poor urban sentiments and high fuel prices). Pulsar forms

~30% of Bajaj's domestic motorcycle sales.

Inventory levels have gone up over the past four months, particularly for Bajaj and HMSI, while for Hero and

TVS it has remained largely stable. Majority of Bajaj and HMSI dealers have indicated rise in inventory since

Mar-13.

Around 70% of Bajaj dealers indicated over four weeks of inventory by July 2013, despite a production loss of

20,000 units due to the Chakan strike. However, despite recent rise, HMSI's dealer inventory is comfortable

within four weeks.

Incrementally, over the past few months, TVS and HMSI are offering higher discounts/freebies largely in the

form of concessional interest rates through tie-ups with various captive financing arm/finance companies.

Competition is set to increase further but 78% of dealers are more concerned on industry slowdown.

CAPITAL GOODS: Tender tracker - Mega projects in Powergen, T&D, Railways increased tendering

Over the last 10 days, there have been a series of large-ticket sized tenders in segments like power generation,

transmission, railways, infrastructure, etc. This is a clear indication of the increased attempt by the government

to push through projects. However, funding remains the biggest challenge as several of these projects are

intended through the PPP route. Recently, the Transharbour project in Maharashtra had not received any bids

for the third time, indicating a very muted interest from project developers.

Another important trend is the attempt by the CPSUs to takeover private sector projects, facing execution /

funding / operational challenges. NHPC has invited EOI from IPPs having allocated hydro electric projects in

various states in India for formations of JV with NHPC for the implementation of the allocated hydro power

projects. Also, NTPC has recently stated that it is looking at acquisitions, particularly of private sector projects

with BHEL equipments, to augment its generating capacity.

Other important tenders pertain to: i) MP and Punjab towards strengthening the intra-state transmission and

distribution systems ii) Dedicated Freight Corridor for the SCADA systems, overhead electrifications & traction

power supply; which signals the next round of project awards post the initial contracts for civil construction iii)

water segment, which includes for both water supply and treatment.

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

WIN Collage

Counting the change - Media companies took a battering from the internet.

THIS summer a made-for-TV movie about a tornado carrying man-eating sharks was a surprise hit in America. The

preposterous plot of “Sharknado” may strike a chord with media bosses who have watched the internet ravage

their business over the past decade. Newspapers have lost readers and advertising to the internet. Book and music

shops have closed for good. Sales of DVDs and CDs have plummeted. The television industry has so far resisted big

disruption but that has not stopped doomsayers predicting a flight of advertising and viewers.

In 2008 Jeff Zucker, then the president of NBCUniversal, a big entertainment group, lamented the trend of “trading

analogue dollars for digital pennies”. But those pennies are starting to add up. And even Mr Zucker, now boss of

CNN Worldwide, a TV news channel, has changed his tune. Old media is “well, well beyond digital pennies,” he says.

What has changed his mind? The surge in smartphones, tablet computers and broadband speeds has encouraged

more people to pay for content they can carry around with them. According to eMarketer, a research firm, this year

Americans will spend more time online or using computerised media than watching television. “All-access” services,

such as Netflix (for film and TV) or Spotify (for music), which give unlimited content on mobile devices for a monthly

fee, are prompting people to spend more on digital products.

After years of wreaking havoc, the internet is helping media companies to grow. PricewaterhouseCoopers (PWC), a

professional-services firm, reckons that revenues for online media and entertainment will increase by around 13% a

year for the next five years. Even in music, which took the biggest hit from the internet, downloads are something

to sing about. For the first time in over a decade global music-industry revenues grew last year, by about 0.2%,

according to the IFPI, a trade group. Online sales just about made up for the drop in physical ones for the first time.

Subscription services, such as Spotify and Deezer, let people stream songs over the internet either for a subscription

or free with adverts. Online radio is also growing. On-demand and radio streaming services raked in about $1 billion,

15% of the industry’s revenues in America in 2012.

The fear that streaming would cannibalise downloads is seemingly misplaced. Tiny sums—ten plays bring in around

four cents for on-demand streaming and much less for radio—are adding up as more people try out the services,

and listen to their favourite songs repeatedly. Mobile-phone companies offering subscriptions with bundled music

services, like Vodafone in Britain with Spotify, will help to boost payouts. “Streaming is a good business that will

eventually become a really big business,” says Troy Carter, Lady Gaga’s manager. There is also evidence that

streaming could reduce piracy, by offering a cheap, legal and convenient way to listen to music.

Other distribution services have transformed from foe to financier. YouTube, a video site, was once the bane of

media firms for hosting copyrighted content that viewers could watch free. Recently it has tried to become an ally

to old media. YouTube and Vevo, another popular site, now pay labels a small royalty when punters watch a music

video.

Revenues from couch potatoes are also stabilising thanks to downloads, rentals and streaming services—to the

relief of Hollywood studios. Netflix and Redbox (which runs kiosks that dispense rentable films), were once scorned

for undermining DVD sales. Now those sites—and others, including Hulu and Amazon—are boosting profits at

media firms by buying the rights to stream content online.

Netflix, Hulu and Amazon are paying around $3 billion to license content, a figure that is sure to rise. Television and

film companies are selling rights to broadcast content after it debuts but before it is repeated on TV. It’s working.

Sanford C. Bernstein, a research firm, reckons online licensing was responsible for about a third of the growth in

revenues at CBS, an American media firm, in 2012.

The most obvious change in the past few years is the decline of “physical” products, such as CDs, DVDs and print

newspapers. In 2008 nearly nine-tenths of consumer cash went on them; by 2017 it will be a little over half, with

digital grabbing the rest. Electronic content has some advantages, in particular lower distribution costs. Business-to-

business media companies such as Reed Elsevier, which owns information services like LexisNexis, have done

reasonably. Firms still want legal information and scientific journals so their prices have stayed high even as delivery

has become cheaper. But other media companies have struggled. Consumers expect to pay less for electronic

products and are renting instead of buying.

WIN – Week In a Nutshell

Aug 17

2013

WEEK IN A NUTSHELL

Media firms used to make a fortune selling “bundles”. Songs are grouped into albums; newspapers are packages of

articles and advertising. The internet lets people pick what they want. Firms that can keep on bundling have done

better. Pay-TV has preserved bundling by not putting current programmes online while they air on screen.

Book publishers are also adapting. Thanks to the rise of tablets, e-book sales have climbed. Total spending on books

is not likely to rise. But the growing share of e-books—around 14% globally this year, and 30% in America, according

to PWC—means fatter profits for publishers as printing, distribution and storage costs fall. Around 40% of sales will

be e-books in three years, predicts Brian Murray, the boss of HarperCollins, a big publisher.

Firms that depended on print advertising are among the worst hit: prices for digital display ads pale in comparison

with glossy double-page spreads. Classified advertising has migrated permanently to the web. Online video adverts

fetch higher prices than static ones, so newspapers are producing videos to accommodate them.

Newspapers are also trying to peddle digital subscriptions; the

New York Times

has nearly 700,000 online

subscribers, but few others have done so well. Media businesses do best when they have at least two profitable

revenue streams, says Christopher Vollmer of Booz & Co, a consultancy. As a result newspapers are pushing into

new businesses such as marketing and conferences. American papers last year made around $3 billion, or 10% of

their total revenues, from these new activities.

Dancing for pennies

The internet is at last contributing to media-industry bottom lines. But it will not restore the newspaper or music

businesses to their previous size. The economics have changed for good. And there is still a big question. Claudio

Aspesi of Bernstein wonders whether the prices that can be charged for computerised products “can support the

underlying industries if they are not also physical businesses”.

Some media firms need to get bigger and trim costs. Penguin and Random House, two publishers, merged earlier

this year in order to compete with Amazon, which now publishes books as well as selling them. Universal Music

bought EMI, another label, last year. The rounds of sackings at media businesses are as long-running as popular

cable-TV dramas.

What will happen as the internet’s influence increases? Journalists write more articles for smaller salaries in

shrinking newsrooms. Musicians complain that streaming pays too little. But authors do better. Royalties from e-

books are about 25% of net receipts, compared with an average of around 16% in print. Careers can take off faster.

E.L. James’s bondage-buster, “Fifty Shades of Grey”, turned up online before being published on paper. Many

musicians get more exposure online than they would have had in a record shop, where space was tight, says Martin

Mills of Beggars Group, a British music company.

New technology can also provide opportunities for media firms. The value of archives is growing in the internet age:

owners can profit from older programmes that are rarely broadcast. Netflix and other online-video firms are

snapping up old films and drama series. When a musician releases a new album or goes on tour, old songs are

streamed more too, says Daniel Glass, who runs a music label.

The internet can also help firms become cleverer. Concerts have become the lifeblood of the music industry and

make up more than half of revenues. Acts used to go on tour to sell albums. Now they put out albums so they can

make their living on the road. Bands will probably get cleverer at using streaming data to decide where to perform.

Publishers are releasing books electronically to test sales before putting them in print, and to adjust prices to drive

demand. Experiments that were once impossibly expensive now cost peanuts. The trade of dollars for digital

pennies doesn’t always hurt.

WIN – Week In a Nutshell

Aug 17

2013