Market Outlook 25th July 2011

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Market Outlook

India Research Dealers Diary


The key benchmark indices pared gains soon after a firm start triggered by a new aid package for Greece. The market surged in the morning trade but again pared gains after hitting a fresh intraday high in afternoon trade. The market again hit a fresh intraday high in mid-afternoon trade. High volatility was witnessed towards the latter part of the trading session, as the key benchmark indices hit fresh intraday highs. The market breadth was strong. Firm global stocks underpinned sentiment and stocks advanced after European Union officials, on July 21, 2011, hammered out a new aid package for Greece and plan to prevent the spread of the sovereign debt crisis. The Sensex and Nifty closed with gains of 1.6% and 1.7%, respectively. The mid-cap and small-cap indices closed with gains of 1.3% and 0.8%, respectively. Among the front runners, Bharti Airtel, Reliance Communications, M&M, ICICI Bank and Tata Motors gained 24%, while DLF, Hindalco Industries and Jindal Steel lost 01%. Among mid caps, Rallis India, Gujarat State Petronet, FAG Bearings, 3M India and DB Corp. gained 610%, while Whirlpool, SKS Microfinance, India Securities, Indiabulls Real Estate and Amara Raja Batteries lost 23%. July 25, 2011
Domestic Indices BSE Sensex Nifty MID CAP SMALL CAP BSE HC BSE PSU BANKEX AUTO METAL OIL & GAS BSE IT Global Indices Dow Jones NASDAQ FTSE Nikkei Hang Seng Straits Times Shanghai Com Indian ADRs Infosys Wipro ICICI Bank HDFC Bank Chg (%) 1.6% 1.7% 1.3% 0.8% 1.2% 0.9% 2.1% 1.8% 1.1% 1.5% 1.6% Chg (%) -0.3% 0.9% 0.6% 1.2% 2.1% 1.4% 0.2% Chg (%) 1.5% 1.2% 1.8% 1.8% (Pts) 92.4 87.2 69.2 76.7 76.9 152.8 130.9 90.8 (Pts) (43.3) 24.4 35.1 121.7 457.5 44.4 4.9 (Pts) 1.0 0.2 0.8 3.1 (Close) 5,634 7,046 8,463 6,418 8,566 8,859 9,189 5,933 (Close) 12,681 2,859 5,935 10,132 22,445 3,183 2,771 (Close) $63.6 $12.5 $48.1 $180.9 286.1 18,722

270.6 12,909 161.9 14,762

Markets Today
The trend deciding level for the day is 18,668/5,641 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,80218,881/5,661-5,688 levels. However, if NIFTY trades below 18,668/5,614 levels for the first half-an-hour of trade then it may correct up to 18,58818,454/5,587-5,540 levels.
Indices SENSEX NIFTY S2 18,454 5,540 S1 18,588 5,587 R1 18,802 5,661 R2 18,881 5,688

News Analysis
Government to allow 51% FDI in organised multi-brand retail Bharti hikes pre-paid mobile tariffs HCL Tech inks `567-cr deal with UK's Mecom DRL acquires JB Chemicals prescription portfolio in Russia 1QFY2012 Result Review Axis Bank, UBI, GCPL, Colgate, Allahabad Bank, FAG Bearings, NIIT 1QFY2012 Result Preview RIL, NTPC, Sterlite, BOI, OBC
Refer detailed news analysis on the following page

Advances / Declines Advances Declines Unchanged

BSE 1,685 1,245 114

NSE 914 500 65

Volumes (` cr) BSE 3,187 11,633

Net Inflows (July 21, 2011) ` cr Purch FII MFs 1,953 696

Sales 2,125 490

Net (172) 206

MTD 6,792 452

YTD 8,104 3,577 Open Interest 11,958 34,013

NSE

FII Derivatives (July 22, 2011) ` cr Index Futures Stock Futures Gainers / Losers Gainers Company Gujarat State Pet Idea Cellular Tata Teleservices Shree Renuka Sug Mphasis Price (`) 108 85 22 74 444 chg (%) 9.7 6.8 5.8 5.6 5.3 Company Exide Inds Lanco Infra Container Corp Titan Inds GTL Losers Price (`) 150 21 1,121 222 74 chg (%) (3.3) (1.7) (1.5) (1.4) (1.4)
1

Purch 2,940 3,727

Sales 2,298 3,630

Net 641 97

Please refer to important disclosures at the end of this report

Sebi Registration No: INB 010996539

Market Outlook | India Research

Government to allow 51% FDI in organised multi-brand retail


The committee of secretaries have given an approval in principle for allowing up to 51% FDI in multi-brand retail. This move was expected for quite a while now by foreign retail majors Walmart and Carrefour. With the FDI open, the industry will be able to fund large-scale expansions, which will give it a much-needed boost. The move will bring in the required funds from all kinds of foreign investors into organised retail, which was till date hindered for funds. Once the FDI is cleared, the move would offer Indian organised retail companies the option to sell a part of their stake to foreign companies, enabling them to become debt-free. Companies such as Future Group is expecting its home and electronics segment to gain immensely if it partners with a foreign company and expects this move to help the sector to open up and grow at a faster pace going ahead. This whole move is enormously going to benefit the organised retail as a whole and, thus, we believe there can be a positive movement in all retail stocks today.

Bharti hikes pre-paid mobile tariffs


Bharti Airtel (Bharti) has hiked voice and SMS tariffs by 20% for prepaid users across several circles early signal of mobile players increasing tariffs to improve their profits. Users of Bhartis Advantage plan will have to pay 60 paise (earlier 50 paise) per minute for local and STD mobile-to-mobile calls within the Airtel network. For mobile to landline calls, the revised tariff is 90 paise (50 paise earlier) for local and STD calls. Further, SMS charges have also gone up to `1 and `1.5 for local and national SMS, respectively. Existing users will have to pay for new rates after the validity of their existing voucher ends. Users of Bhartis Freedom plan will have to shell out 1.2 paise per second on local and long-distance calls instead of 1 paise per second earlier. The new tariff structure will be effective in the Delhi, Rajasthan, Gujarat, Andhra Pradesh, Kerala and Madhya Pradesh telecom circles. These circles constitute 34% of Bhartis total subscriber base. There is no change in any other tariff plan as of now. The telecom sector may be nearing an inflection point again, as more telecom operators test consumer sensitivity by raising call tariffs, which had been beaten down to rock-bottom levels over the last couple of years amidst hyper competition. Operators might be seeking to raise tariffs as they are facing higher costs when venturing out of tele-saturated cities to Indias hinterland in search of subscribers and, though the rate hikes are happening in regional pockets now, chances are that tariffs will be raised across the country sooner than later. This kind of move will give support to falling ARPMs (ARPM of Bharti has fallen by 32.8% since the last 10 quarters) of all the telecom operators and support profitability in the quarters ahead. However, we remain Neutral on Bharti as this, currently, is a signal of suppression of price war kind of a situation in the telecom sector rather than having any near-term financial implications.

HCL Tech inks `567cr deal with UK's Mecom


HCL Tech has signed a five-year deal with UK-based publisher, Mecom, which is expected to generate `567cr business for it and will commence from 1HFY2012. This deal could be further extended by two years and cover other areas of IT. Under the deal, HCL Tech will provide Mecom with infrastructure management services and in certain cases application management services in the Netherlands, Denmark and Norway. We maintain our Buy rating on the stock with a target price of `591.

July 25, 2011

Market Outlook | India Research

DRL acquires JB Chemicals prescription portfolio in Russia


DRL announced that it has entered into an agreement with JB Chemicals & Pharmaceuticals to acquire its pharmaceutical prescription portfolio in Russia and other CIS regions. The agreement involves acquisition of 20 brands, key ones being Metrogyl and Jocet, for a consideration of US$34.85mn. DRL, which entered the Russian market in 1992, reported revenue of `10.9bn (US$244mn) as of FY2011, representing growth of 19% from Russia and other CIS markets. DRL currently has key brands such as Omez, Nise, Ketorol and Ciprolet, which are ranked No. 1 in their respective molecular segments. DRL has also entered into a supply agreement with JB Chemicals for the continued manufacturing and supply of these products associated with the acquired brands. This acquisition will help expand the companys prescription, hospital and OTC portfolio, complementing its existing strong basket of products. The brands are across key therapeutic areas and will add to the companys revenue in Russia and CIS markets. The portfolio also includes products in the hospital segment, where DRL has an established presence through a field force and network of distributors in the CIS markets. DRL also gains access to several hospital products in the pipeline, quite a few of which would be first generic to the launch. While the numbers are not available, the move is positive for the company. At the CMP, the stock trades at 17.9x FY2012E and 16.4x FY2013E earnings, respectively. We maintain Buy on the stock with a target price of `1,920.

1QFY2012 Result Review Axis Bank


For 1QFY2012, Axis Bank reported strong performance with healthy 27.0% yoy growth in its net profit at `942cr, in-line with our estimates of `943cr (which were ~5% higher than streets expectations). Healthy fee income growth and further improvement in slippage ratio were the key highlights of the result. Business growth momentum for the bank slowed during the usually lean quarter, with advances declining by 7.4% qoq (up 21.4% yoy) and deposits coming off by 3.0% qoq (up 24.5% yoy). With the widening interest rate differential in savings account and term deposit, the banks CASA deposits growth moderated to 25.6% yoy (down 4.3% qoq) leading to a decline in CASA ratio to 40.5% from 41.1% in 4QFY2011. Reported NIM compressed by 16bp qoq to 3.3% compared to a 37bp qoq decline in 4QFY2011. The slower build-up in CASA deposits, higher savings rate and drop in CD ratio added to the downward pressures on NIM. Asset quality remained healthy with annualised slippage ratio declining further to 0.8% from 1.0% in 4QFY2011 and 1.6% in 1QFY2011. Gross and net NPA ratios were also stable sequentially and the provision coverage ratio including technical write-offs was at comfortable 80.0%. The bank added 21 branches during the quarter. Tier-I CAR including 1QFY2012 profit improved to 9.8%. The stock is currently trading at 2.1x FY2013E ABV. We maintain our Buy view on the stock with a target price of `1,648.

Union Bank of India


For 1QFY2012, Union Bank of India posted a moderate performance, which were however below our as well as streets estimates, primarily due to the higher provisioning (additional `214cr as stated by the bank) done by the bank to meet the RBIs changed guidelines for provisioning norms. Consequently, net profit took a hit and declined by 22.8% yoy and 22.3% qoq to `464cr. Advances and deposits witnessed negative growth, with deposits declining by 1.6% qoq (up 16.1% yoy) and advances declining by 3.6%. CASA deposits also declined by 2.4% qoq (up 12.4% yoy), leading to a 26bp qoq and 106bp yoy decline in CASA ratio to 31.5%. The banks yield on advances increased by 28bp qoq to 9.1%, however cost of funds increased by relatively higher 62bp to 6.2%, leading to a 34bp sequential decline in reported NIM to 3.1%.
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July 25, 2011

Market Outlook | India Research


Fee income growth was muted during 1QFY2012, registering just 5.0% yoy growth compared to yoy loan growth of 16.7%. Operating expenses increased by 22.9% yoy (down 37.2% sequentially) to `908cr. For 1QFY2012, the bank made a provision of `101cr towards pension for serving employees and gratuity liabilities. The stock is trading at 1.1x FY2013E P/ABV, which is below its five-year median of 1.3x. We maintain Buy on the stock with a target price of `357, based on median level of 1.3x and implying an upside of 15.4% from current levels.

Godrej Consumer
For 1QFY2012, Godrej Consumer (GCPL) posted a mixed performance. Consolidated top-line growth was strong at 39.6% yoy to `997cr, led by recent acquisitions; domestic revenue growth stood at 21% yoy. Recurring earnings declined by 22.6% yoy to `64cr, despite strong top-line growth due to a 346bp yoy contraction in OPM. The OPM contracted due to increased staff cost, ad spends and other expenses. However, reported earnings grew strongly by 94.2% yoy due to extraordinary income of `175.2cr to `239cr. The stock is under review.

Colgate
Colgate reported a weak set of numbers for the quarter. Top-line growth stood at 15.6% yoy, 1.4% above our estimates, driven by volumes. Earnings declined by 17.7% yoy, owing to a sharp contraction in OPM and higher tax from the manufacturing plant in Baddi. Operating margin contracted by 709bp yoy on account of spike in ad spends and other expenses. At the CMP, the stock is trading at 26.3x FY2013E EPS. Hence, we retain our Reduce rating on the stock with a revised target price of `869 (`874), based on 23x FY2013E EPS, in-line with its historical valuation.

Allahabad Bank
For 1QFY2012, Allahabad Bank reported 20.4% yoy growth in its net profit to `418cr, ahead of our and streets estimates. Healthy business momentum with relatively lower compression in reported NIM and stable asset quality were the key highlights of the result. The bank managed to buck the trend of a sequential decline in advances, displayed so far by its peers. The banks advances grew healthily by 5.5% qoq and 30.4% yoy. With the widening differential between fixed deposit interest rates and savings account rate, the pace of growth in CASA deposits moderated further to 15.6% yoy from 20.7% in 4QFY2011. CASA ratio came off by ~150bp qoq to 32.0% as the bank had lower flows from government-related businesses. Considering the relatively lower share of CASA deposits base, the bank surprised positively by reporting just ~9bp sequential compression in reported NIM to 3.4% despite a 10bp qoq uptick in 4QFY2011. Faster growth in the high-yielding SME segments advances and lending rate hikes aided in increasing the overall yield on advances by 87bp qoq. Slippages for the quarter normalised, with the annualised slippage ratio declining to 0.6% from the peak levels of 4.5% in 4QFY2011 (0.7% in 1QFY2011). Overall asset quality improved in 1QFY2012 with gross and net NPAs declining by 2.6% qoq and 20.1% qoq, respectively. Provision coverage ratio, including technical write-offs, improved ~400bp qoq to comfortable 79.9%. Taking into account the banks stable CASA deposits base, healthy capital adequacy and strong advances growth, at 1.0x FY2013E ABV, the stock looks reasonably priced. The pending switchover to system-based NPA recognition for agricultural loans (~14% exposure) and small loan accounts is likely to remain a near-term overhang on the stock. Hence, we recommend Neutral on the stock.

July 25, 2011

Market Outlook | India Research

FAG Bearings 2QCY2011


For 2QCY2011, FAG Bearings (FAG) registered strong 17.1% yoy (3.1% qoq) net sales growth to `319.3cr, in-line with our expectation of `324.4cr. Revenue performance was largely in-line with growth in the automotive industry. EBITDA margin improved by healthy 120bp yoy (down marginally by 13bp qoq) to 20.3% vs. our estimates of 19.5%. This was primarily due to a ~370bp decline in costs related to purchase of traded goods at 24.7% against 28.3% of sales. As a result, operating profit jumped by 24.5% yoy (2.3% qoq) to `64.9cr. Net profit posted a strong 32.2% yoy (4.3% qoq) increase to `44.7cr. Further, a substantial jump in other income (up 77.2% yoy) helped FAG report strong earnings growth. At `1,344, the stock is trading at 13.7x and 12.3x CY2011E and CY2012E earnings, respectively. We believe the recent run-up in the stock price factors in the expected earnings growth and considering the rich valuations we maintain our Neutral view on the stock.

NIIT
For 1QFY2012, NIIT reported a decent performance, which was in-line with our expectations. The consolidated revenue came in at `321cr, up 15.5% yoy. Revenue from ILS, SLS and CLS businesses increased by 15.7%, 5.0% and 18.4% yoy to `177.8cr, `40.3cr and `163.0cr, respectively. Blended EBITDA margin declined by 75bp yoy to 10.3% due to a 162bp and 472bp yoy margin decline in ILS and SLS businesses to 9.6% and 12.2%, respectively. However, the CLS segment posted a 102bp yoy increase in its EBITDA margin to 8.9%. PAT came in at 13.1cr, up 1.1% yoy. We maintain Buy on the stock with a target price of `69.

1QFY2012 Result Preview Reliance Industries


Reliance Industries (RIL) is scheduled to announce its results. We expect the companys top line to increase by 18.2% yoy to `68,849cr during the quarter, largely on account of higher refining and petchem product prices. OPM is expected to contract by around 73bp yoy to 15.3% mainly on account of lower gas production. PAT is expected to increase by 15.7% yoy to `5,615cr. On the refining side, we expect the company to report GRM of US$11/bbl for the quarter vs. US$9/bbl in 4QFY2011. The anticipated spurt in GRMs could be attributed to higher demand for heating oil and shutdown of refineries in Japan consequent to the earthquake, resulting in a spurt in petro cracks in the Asian benchmark indices. On July 22, 2011, the Cabinet Committee on Economic Affairs (CCEA) approved RILs proposal to sell 30% stake in 21 oil and gas blocks to BP. However, CCEA has withheld permission for two blocks for the time being. RIL will retain operatorship of all the blocks. The deal was announced by RIL on February 21, 2011, that BP would pay US$7.2bn to RIL for the deal. We maintain our positive outlook on the stock and maintain our Buy recommendation with a target price of `1,189.

NTPC
NTPC is expected to announce its 1QFY2012 results. We expect the company to record a 16.6% yoy increase in its top line to `15,094cr, aided by volume growth due to the commencement of new plants. Operating profit is expected to increase by 15.1% yoy to `3,849cr. Net profit is expected to increase by 13.5% yoy to `2,091cr. We maintain an Accumulate rating on the stock with a target price of `202.
July 25, 2011 5

Market Outlook | India Research

Sterlite
Sterlite is slated to announce its 1QFY2012 results. The top-line is expected to grow by 72.2% yoy to `10,200cr mainly due to higher sales volume and realisations for its zinc business. On the operating front, EBITDA margin is expected to improve by 350bp to 28.0%. The bottom line is expected to grow by 68.6% yoy to `1,700cr. We maintain Buy on the stock with a target price of `216.

Bank of India
Bank of India is scheduled to announce its 1QFY2012 results. We expect the bank to report healthy NII growth of 24.2% yoy to `2,161cr. Non-interest income growth is expected to be rather moderate at 11.0% yoy. Overall operating income growth is expected to come in at 20.8% yoy, however a faster 29.5% yoy rise in operating expenses is expected to lead to rise in cost-to-income ratio above 42%. Higher provisions are expected to ease off net profit growth to 6.7% yoy to `773cr. At the CMP, the stock is trading at attractive valuations, in our view, of 1.1x FY2013E ABV. We maintain our Buy view on the stock with the target price of `498.

Oriental Bank of Commerce


Oriental Bank of Commerce is scheduled to announce its 1QFY2012 results. The banks NII is expected to grow by muted 4.4% qoq (flat yoy) to `1,058cr. Other income is expected to increase by 13.2% yoy (decline 19.0% qoq). Operating expenses are expected to decline by 1.1% yoy and 5.4% qoq, while pre-provision profit is expected to increase by modest 4.1% yoy. We expect the banks net profit growth to decline by 4.1% yoy (sequential increase of 4.4%) to `348cr. At the CMP, the stock is trading at 0.8x FY2013E P/ABV. We recommend an Accumulate rating on the stock with a target price of `392.

Economic and Political News


Exports from SEZs grow 23% in AprilJune 2011 Government to buy back `7,000cr fertiliser bonds India's forex reserves down US$112mn to US$314.5bn Lok Pal Bill to be placed in the next cabinet meet

Corporate News
Government okays US$7.2bn Reliance-BP deal SpiceJet promoter pledges 87% of stake Tata Sons revokes 21.6mn pledged shares of Tata Power
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

July 25, 2011

Market Outlook | India Research

Events for the day Bank of India Bank of Maharashtra Edelweiss Capital Geometric Jyoti Structures Mastek Novartis India NTPC Oriental Bank of Commerce Patni Computer RIL Sterlite Industries Zee News

Results Results Results Results Results Results Results Results Results Results Results Results Results

July 25, 2011

Market Outlook | India Research


Research Team Tel: 022-3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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July 25, 2011

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