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1

July 11, 2006 Quarterly result preview April- June 2006 quarter

Net Sales Net Profit Companies Q1FY07E Q1FY06 Chg.

% Q1FY07E Q1FY06 Chg.

% Auto Ashok Leyland 14580.3 10632.2 37.13 724.7 367 97.47 Bajaj Auto 22,730.6 16,341.0 39.1 3,135.7 2,089.0 50.11 Hero Honda 24,316.7 19,770.6 22.99 2,511.2 2,044.5 22.83 Maruti Udyog 30,765.1 26,271.3 17.1 2,729.1 2,264.0 20.5 Tata Motors 58,621.0 38,770.9 51.2 3,606.1 3,259.5 10.6 TVS Motors 9,042.2 7,350.6 23.0 297.0 249.1 19.2 Clutch Auto 396.0 294.3 34.5 40.0 23.7 68.8 NRB Bearings 702.7 591.4 18.8 84.3 77.1 9.3 Cement ACC 14,375 11,283 27.4 2,853 1,394 104.7 GACL 10,679 7,205 48.2 2,824 1,452 94.5 Grasim 18,899 15,533 21.7 2,706 2,510 7.8 Madras Cements 3,284 2,199 49.3 518 182 184.6 India Cements 4,690 3,810 23.1 591 52 1036.5 Shree Cements 3,006 1,425 110.9 794 260 205.4 UltraTech Cements 11,812 8,150 44.9 1,464 600 144.0 IT Allsec Technologies 319 183 74.3 77 40 92.8 HCL Technologies 12,098 9,276 30.4 2,075 1,620 28.1 I-Flex Solutions 5,001 2,701 85.2 908 59 1439.0 Infosys Technologies 29,065 20,716 40.3 6,975 5,319 31.1 Mphasis 2,730 2,197 24.3 350 337 3.9 Micro Tech 195 118 64.9 72 24 205.1 Patni Computer 6,135 4,730 29.7 489 621 -21.3 Satyam Computers 14,149 10,587 33.6 2,986 1,902 57.0 Subex 527 412 27.9 128 86 48.8 TCS 40,841 29,129 40.2 8,557 6,472 32.2 Wipro 31,431 22,865 37.5 6,201 4,268 45.3 Metals Hindalco 42,508 22,078 92.5 6,735 3,249 107.3 Nalco 15,363 9,787 57.0 6,147 2,806 119.1 SAIL 71,943 53,986 33.3 12,465 11,238 10.9 Tata Steel 41,739 34,645 20.5 10,189 9,241 10.3 JSW Steel 17,200 15,388 11.8 1,941 2,004 -3.1 Jindal Steel & power 7,423 6,296 17.9 1,600 1,502 6.5 Monnet Ispat 1,469 1,466 0.2 368 286 28.7 Madras Aluminium 1,238 1,031 20.1 340 97 250.5 Sesa Goa 4,969 4,385 13.3 1,769 1,582 11.8 Uttam Galva 5,775 5,285 9.3 252 216 16.7


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Net Sales Net Profit Companies Q1FY07E Q1FY06 Chg.

% Q1FY07E Q1FY06 Chg.

% Oil & gas BPCL 196,556 160,157 23.0 (4,323) (9,736) - Gujarat Gas 2,364 1,756 35.0 249 276 -10.0 Aban Loyd 1,230 1,218 1.0 229 206 11.0 Retail Pantloon Retail 5,499.0 3,697.0 48.7 200.0 108.0 85.2 Shoppers Stop 1,521.0 1,188.0 28.0 59.0 36.0 63.9 Pharma Glaxo 4345.0 4649.8 -6.6 1014.2 1053.8 -3.8 Glenmark 2131.2 1134.0 87.9 369.2 110.9 232.9 Lupin 4645.7 3521.1 31.9 515.0 431.5 19.3 Telecom BTVL 37,428.0 25,173.0 48.7 6,616.0 5,101.0 29.7 MTNL 13,155.0 12,605.0 4.4 1,622.0 1,583.0 2.5 RCoVL 32,582.0 25,400.0 28.3 4,933.0 -2,500.0 nm TTML 3,320.0 2,397.0 38.5 -1,009.0 -1,277.0 -21.0 VSNL 9,820.0 9,149.0 7.3 1,282.0 1,270.0 0.9 Textiles Abhishek Industries 2,163.3 1,545.2 40.0 140.3 112.1 25.2 Alok Industries 3,705.6 2,991.7 23.9 264.4 205.5 28.7 Ambika Cotton Mills 311.2 209.5 48.5 52.5 37.9 38.5 Bannari Amman Spinn 268.3 - - 52.1 - -

Arvind Mills 3,438.2 4,204.0 -18.2 154.7 450.9 -65.7

Celebrity Fashions 1,041.0 - - 51.1 - -

Gokaldas Exports 2,310.9 1,789.5 29.1 141.1 116.3 21.3 Mahavir Spinning 4,646.1 4,220.7 10.1 379.7 289.5 31.2 Welpun India 2,096.7 1,353.7 54.9 135.3 108.0 25.3 Others Gateway Distriparks 439.7 338.2 30.0 211.2 171.4 23.0 Murudeshwar Ceramics 550.0 431.6 27.4 49.5 54.8 -9.7 Hotel LeelaVentures 860.0 675.4 27.3 332.5 163.4 103.0 Sirpur Paper 604.6 541.4 11.7 36.6 27.5 33.1


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Contents Company Name Aban Loyd 5 ABG Shipyard 6 Abhishek Industries 7 ACC 9 Allsec Technologies 10 Alok Industries 11 Ambika Cotton Mills 12 Arvind Mills 13 Ashok Leyland 14 Bajaj Auto 15 Balrampur Chini 16 Bannari Amman Spinn. 17 Bharti Airtel 18 BPCL 19 Celebrity Fashions 20 Clutch Auto 21 Gateway Distriparks 22 Grasim 23 GACL 24 Gujarat Gas 25 GSK 26 Glenmark Pharma 27 Gokaldas Exports 28 HCL Technologies 29 Hero Honda 30 Hindalco 31 Hotel LeelaVentures 32 India Cements 33 I-Flex Solutions 34 Infosys Technologies 35 Jindal Steel and power 36 JSW Steel 37 Lupin 38 Mahavir Spinning 39 Madras Aluminium 40 Maruti Udyog 41 Madras Cements 42 Micro Tech 43 Monnet Ispat 44 Mphasis 45 MTNL 46 Murudeshwar Ceramics 47 Nalco 48 NRB Bearings 49 Pantloon Retail 50 Patni Computer 51 RCoVL 52


4

Company Name SAIL 53 Satyam Computers 54 Sesa Goa 55 Shoppers Stop 56 Shree Cements 57 Sirpur Paper 58 Shree Renuka Sugar 59 Subex 60 Tata Motors 61 Tata Steel 62 TCS 63 TTML 64 TVS Motors 65 UltraTech Cements 66 Uttam Galva 67 VSNL 68 Welpun India 69 Wipro 71


5

BUY

Rs 936.7 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg ABAN IN

Reuters ABAN.BO

Shares outstanding (mn) 37

Market cap (Rs bn) 35

Market cap (US$ mn) 748

Three-month daily avg vols 51,222

Share price performance

52-week high/low (Rs) 1450/415

-1m -3m -12m

Abs (%) 14.7 (21.8) 119.1

Rel* (%) 5.1 (14.7) 77.5

*to Nifty Financial snapshot Ye March FY05 FY06E FY07E Net sales 2,895 4,920 6,194 Change (%) -3% 70% 26% EBITDA 1,559 2,957 3,959 Change (%) 6% 90% 34% Net income 517 861 1,280 EPS (Rs) 14.0 23.4 34.7 Change (%) 8% 67% 49% P/E (x) 67 40 27 ROE (%) 23% 20% 24% ROCE (%) 11% 12% 15%

Amit Agarwal +91 22 67069927

[email protected]

Aban Loyd July 11, 2006 Awaiting the price rise

We expect muted revenue growth from Rs1,218mn in 1Q FY06 to Rs1,230mn in 1Q FY07 on the back of pre-existing contracts at historical rates. The net profit is expected to increase by 11% YoY to Rs229mn in Q1FY07E. We expect an increase in revenue growth from the rising rig hire charges and the aggressive expansion from 3Q FY08 (current contracts will start expiring and the new contracts will reflect the higher rig hire charges). However, the full impact of the aggressive expansion would be visible in FY09E. We maintain BUY.

The key investment highlights are:

We expect net sales of Rs1,230mn: We expect net sales to increase from Rs1,218mn in Q1FY06 to Rs1,230mn in Q1FY07E. The current rig rates were negotiated approximately two years ago and do not fully reflect the increase of more than 100% in the rig hire charges over the past two years. Aban Loyd hires out the rigs for approximately three years.

EBITDA core margin to remain at 58%: The EBITDA core is expected to remain flat at 58%. We expect a core EBITDA of Rs712mn in 1Q FY07E compared to Rs708mn in 1Q FY06.

Net profits will increase by 11% YoY. We expect net profit to increase from Rs206mn in Q1FY06 to Rs229mn in Q1FY07E.

We maintain BUY: We expect the rig hire charges to maintain a rising trend due to rising crude oil prices, which has resulted in higher demand for drilling rigs. Demand and supply mismatch has driven the rig rates higher by more than 250% over the past two years. Aban Loyd follows a policy of hiring rigs for a period of three years and the current rig hire charges reflect the historical rates. Therefore, current revenues of the company do not reflect the impact of the sharp increase in the international rig hire charges over the past two years. We expect the full impact of the rising rig rates on the existing rigs and the impact of the additional rigs to be felt from 2Q FY08. We continue to rate the company a BUY.

Quarterly estimates In Rs mn Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%)Revenues 1,230 1,218 1 1,202 2EBIDTA 762 748 2 724 5PAT* 229 206 11 219 4

EPS 6.2 5.6 11 5.9 4


6

BUY

Rs 252.2 Sensex: 10,684 Nifty: 3,142

Bloomberg ABGS IN

Reuters ABGS.BO



Market cap (USD mn) 287




-1m -3m -12m

Abs (%) 9.9 (33.9) na

Rel* (%) 0.9 (28.1) na

*to Nifty

Financial snapshot Rs mn Ye March FY06E FY07E FY08E

Revenue 5,500.3 6,536.8 7,023.4

Change (%) 46% 19% 7% EBIDTA 1,363.3 1,685.2 1,876.0 Change (%) 48% 24% 11% Net Profit 782.0 959.2 1,044.9 Change (%) 75% 23% 9% EPS (Rs) 15.4 18.8 20.5 P/E (x) 16 13 12 ROE (%) 19.2 19.1 17.3

Sreesankar R

+91 22 67069914

[email protected]

Gaurav Chugh

+91 22 67069916

[email protected]

ABG Shipyard Ltd. July 11, 2006 Poised for growth

ABG Shipyard (ABG) has continued to bag new orders for the range of ships they are capable pf producing. The order backlog stands at Rs22bn, sufficient to keep the existing yard busy for the next 24 months. ABG specializes in building customized vessels for the support segment like large and small bulk carriers, interceptor ships, anchor handling supply vessels, and diving support vessels. It also constructs standardized vessels like barges and tugs. The timely executions of vessels have led to clients giving repeat orders. We continue to rate the company as a BUY.


ABG Shipyard is in a fast growth phase with strong earnings growth of 23% in FY07E and 9% in FY08E.

ABG has seen a substantial increase in the order book with the current order book at Rs22bn. This order book pertains to the Surat yards orders only.

As Indian ship building industry is likely to see rapid growth we expect ABG as the largest private sector company to be one of the larger beneficiaries.

ABG seems set to derive advantages from superior technical and labour skills and is setting up a state of the art ship building facility at Dahej in Gujarat at a cost of Rs4,500mn. This includes Rs500mn to expand its existing facility at Surat.

We expect ABG to show robust earnings growth in the next two years with net earnings growing to Rs959.2mn in FY07E, a jump of 23% YoY and to Rs1044.9mn in FY08E reflecting a jump of 9% YoY.

The new facility at Dahej would be operational and the revenues would start kicking in on account of steel cutting in FY08. In our calculations we have not accounted for any revenues from the Dahej yard.

We are sticking to our yearly estimates as we believe that the quarterly results are likely to remain volatile due to the accounting policy of timing of the revenue recognition. We believe that the performance of the company is on track and we continue to recommend a BUY with a target price of Rs500.


7

BUY

Rs 21.9 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg ABIN IN

Reuters ABHP.BO


Market cap (Rs mn) 4253





-1m -3m -12m

Abs (%) 21.6 (2.2) (28.5)

Rel* (%) (29.2) (11.9) (21.4)

*to Nifty Financial snapshot Ye March FY06 FY07E FY08E Net sales 7,436.7 9087.7 11359.3 Change (%) 5.4 26.9 25.0 EBITDA 1,497.8 1881.8 2399.6 Change (%) 6.8 22.1 27.5 Net income 568.0 603.8 706.7 EPS (Rs) 2.9 3.1 3.6 Change (%) 66.7 3.1 17.0 P/E (x) 7.4 7.0 6.0 ROE (%) 15.2 11.5 11.5 ROCE (%) 8.5 8.0 8.0

Jayesh Sundar

+91 22 67069944

[email protected]

Shardul Pradhan

+91 22 67069941

[email protected]

Abhishek Industries Ltd July 11, 2006 Volume growth in towels to continue; margins expected to be lower

Abhishek has been a big beneficiary of its global scale capacities and the shrinking manufacturing base for terry towels in the US and the EU, reporting a 68% growth in revenues from this segment. We expect the buoyant volume growth in terry towels to continue during Q1FY07. We remain concerned about Abhisheks pricing flexibility, given that most of its customers consists of discount stores. The huge investments in the paper and its spinning division also remain a concern.

Despite these negatives, the stock trades at a significant discount to its fair value of 10X FY08 EPS. Hence, we continue to maintain a BUY with a price target of Rs36

The key highlights are:

Shrinking capacities in the US has benefited the large Indian terry towel manufacturers like Abhishek, having set-up global scale of capacities to cater to this market. It has been able to establish itself as a supplier to global retailers such as Wal-Mart and JC Penney and procure regular repeat orders. With Abhishek directly managing the shelf space and inventories for many of these retailers, we expect these buoyancy in orders to continue in future.

Abhisheks regular and consistent capacity additions have paid off, which is evident from the 68% y-o-y growth witnessed in the terry towel division in FY06. Addition of spindles that was completed during Q3FY06 part satisfies its yarn requirement for towel manufacturing. This would ensure higher value addition, though it would be partly offset by the rising cotton prices.

We remain concerned over Abhishek's pricing flexibility, as most of its customers are mass merchandisers and discount stores. Pricing pressures would continue though there is ample room for volumes growth.

Despite the growth in the terry towel division, the yarn and the paper division would continue to contribute around 50% of the revenues by FY08, on account of the huge expansions in these segments. The rising raw material prices would pull down operating margins in these divisions, lowering overall ROCE of the company to around 8% in FY08.

We expect the key result highlights of the April-June 2006 quarter to be:

We expect turnover to grow 40% YoY on strong order flow from mass merchandisers coupled with greater capacity to service large orders. Operating margins are expected to be lower during the quarter on account of higher cotton prices. Higher interest and depreciation costs would also result in lower PAT margins during the period.


8

We assign a target P/E of 11X FY07E EPS, lower than other garment exporters given the concerns on the pricing flexibility and the huge expansion in the paper and the yarn segment. Despite the negatives, the stock trades at 7X and 6X EPS estimates for FY07 and FY08 respectively, which is significantly lower than its fair value. Hence, we continue to maintain a BUY with a price target of Rs36

Quarterly estimates In Rs mn Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%)Revenues 2,163.3 1,545.2 40.0 2,426.6 -10.9EBIDTA 411.0 338.4 21.4 415.8 -1.1PAT* 140.3 112.1 25.2 175.1 -19.9

EPS 0.7 0.6 25.2 0.9 -19.9


9

HOLD

Rs 810.7 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg ACC IN

Reuters ACC.BO




Three-month daily avg vols 2,161,080



-1m -3m -12m

Abs (%) 7.4 (11.1) 96.5

Rel* (%) (2.2) (4.0) 54.9

*to Nifty Financial snapshot Rs mn

CY05 CY06E CY07E Net Sales 32,034.1 50,807.5 55,914.4 YoY % (17.9) 58.6 10.1 EBIDTA 5,194.4 13,785.6 14,429.0 YoY % (16.0) 165.4 4.7 EBIDTA % 16.2 27.1 25.8 Adj PAT 3,091.9 9,586.2 9,755.0 Adj EPS (Rs) 22.2 51.7 52.6 YoY % 24.0 132.5 1.8 P/E (x) 36.5 15.7 15.4 EV/EBIDTA (x)

31.2 11.6 10.8

RoE (%) 192.6 176.6 160.4 RoCE (%) 22.1 38.7 30.8

Vishal Mishra

+91 22 55069943

[email protected]

ACC July 11, 2006 Improving on efficiencies and high prices to drive growth

ACC is trading at 10.8X EV/EBIDTA based on our CY06E financials. Cement prices have increased sharply since January 2006 much above our earlier estimates. If prices sustain at current levels then profitability of cement companies is set to rise more sharply than expected.

ACC being the largest pan India cement company could deliver superior earnings growth and returns over a long time. which


We expect Holcims active involvement in the day-to-day management to improve efficiencies.

Going forward, the conversion of 1.3 million tonne Chaibasa plant from wet to dry process is further expected to reduce power and fuel costs and improve operational efficiencies.

The company has set up a 65 MW captive thermal power plant in FY06, which willwould lead to further savings on power costs.


The company is expected to show 27.2% YoY and 8.1% QoQ growth in cement volumes in Q2CY06. While volumes are expected to grow 11.4% YoY, ACCs topline growth will be further aided by the increase in cement prices across the country.

Riding on the increase in cement prices, we expect EBIDTA margins to increase significantly from 18.9% in Q2CY05 and 23.7% in Q1CY06 to 28% in Q2CY06.

While EBIDTA is expected to increase by 88.6% YoY, net profit is expected to increase by a robust 104.7% YoY on the back of a sharp rise in cement prices.

Quarterly estimates In Rs mn Q2CY06E Q2CY05 YoY (%) Q1CY06 QoQ (%)Revenues 14,357 11,283 27.2% 13,275 8.1%EBIDTA 4,024 2,133 88.6% 3,151 27.7%PAT* 2,853 1,394 104.7% 2,355 21.2%

EPS 15.5 11.2 37.6% 12.7 21.9%


10

BUY

Rs 198.9 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg ALST IN

Reuters ALLS.BO/ALLS.NS

Shares outg (mn) 12



3-m dly avg vol 11,498



-1m -3m -12m

Abs (%) 4.4 (19.9) 17.1

Rel* (%) (5.2) (12.9) (24.5)

*to Nifty Financial Snapshot Rs mn YE March FY06 FY07E FY08E Net sales 923 1,557 2,402 Change (%) 60.1 68.7 54.3 EBITDA 267 427 617 Change (%) 68.8 60.0 44.2 Net income 216 358 534 EPS (Rs) 18.0 29.9 44.5 Change (%) 36.1 65.6 48.9 P/E (x) 11.0 6.7 4.5 ROE (%) 30.0 39.0 40.9 ROCE (%) 28.3 37.6 39.0

Ashish Aggarwal +91 22 67069925

[email protected]

Allsec Technologies July 11, 2006 Growth story intact, maintain buy

Allsec has under performed the sensex in the last two months despite our estimate of a two-year (FY06-08E) earnings CAGR of 57.0%. At the current price of Rs198.9, the stock is quoting at a FY07E PER of 6.7x, the stock look an attractive BUY.


A new 1,000-seater facility became fully operational in Q4FY06 increasing the seating capacity to 1,700 seats. We expect the company to post revenues of Rs650mn in FY07E from this new facility, contributing 41.7% to the consolidated revenues in FY07E.

The EBITDA and net profit margin of 28.3% and 24.4%, respectively, in Q4FY06 is best in the industry on account of better utilization of resources.

Allsec has acquired six to seven additional clients since listing in May 2005 and has reduced dependence on Compucredit. Allsec in partnership with Sales force, an Australian BPO is jointly offering the Call Quality Monitoring (CQM) services to the clients in Australia. The client win in Australia is likely to help the company in further optimizing resources and maintain margins.

We expect the key highlights of Q1FY07E results to be:

Allsec is estimated to post revenues of Rs319mn, a sequential increase of 22.9% on account of increased utilization of its facilities.

We expect the EBITDA margins to increase 130 bps on account of increase economies of scale as the company increases contribution from its existing facilities.

We estimate Allsec to post net profit of Rs77mn in Q1FY07, a sequential increase of 22.1%.

Quarterly Estimates In Rs mn Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%)Revenues 319 183 74.3 259 22.9EBITDA 94 52 80.4 73 28.4PAT 77 40 94.9 63 22.1EPS (Rs) 6.4 3.3 94.9 5.3 22.1


11

BUY

Rs 56.3 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg ALOK IN

Reuters ALOK.BO







-1m -3m -12m

Abs (%) (19.2) (30.3) (9.2)

Rel* (%) (28.9) (23.2) (50.8)

*to Nifty Financial snapshot Ye March FY06 FY07E FY08E Net sales 14187.6 17573.1 22944.3 Change (%) 20.6 30.8 30.6 EBITDA 2961.4 3895.4 4965.8 Change (%) 23.6 55.4 27.5 Net income 1101.9 1338.6 1927.8 EPS (Rs) 7.0 7.9 11.3 Change (%) 5.1 57.4 44.0 P/E (x) 10.1 7.2 5.0 ROE (%) 15.7 15.1 18.3 ROCE (%) 8.4 8.8 10.0

Jayesh Sundar

+91 22 67069944

[email protected]

Shardul Pradhan

+91 22 67069941

[email protected]

Alok Industries Ltd July 11, 2006 New capacities to drive sales growth

Alok Industries has a wide range of home textiles, garments, and apparel fabrics. It is among India's leading apparel fabrics manufacturers and exporters with a capacity of 16,800 tpa of knitted fabric and 52.5 million meters of woven fabrics. Given the nominated vendor status with the large retailers in the US and EU markets, Alok plans to leverage on this strength to increase its capacity and service large orders.

The capacity expansion would continue to drive the turnover growth over the next two years. Currently the stock is quoting at a PER of 7.2X FY07E EPS. Given Aloks strong position in home textiles and apparel fabric, and its entry into terry towels scheduled for FY07E, we believe that 12x times FY07E earnings is a fair valuation. Hence, we maintain a BUY on the stock with a target price of Rs90.


Alok has a clear visibility to their earnings, as it is a nominated vendor of fabrics for global retailers such as JC Penney and Wal-Mart. This links its growth with the large garment exporters who supply apparels to these retailers.

Alok is leveraging on its strong relations with the garment exports and the retailers in the export markets to build up its capacity and service larger orders. The company has embarked on an Rs11bn expansion plans to increase its capacity for apparel fabric and diversify into home textiles, which would be completed in phases by FY08.

We remain concerned about the high gearing ratio at 2.5 times as on 31st March 2005. With huge capacity additions planned over the next two years, this is expected to remain high. Any delay in the implementation of the projects would impact the bottomline of the company.


We estimate a 24% YoY growth in sales and a 29% growth in profits led by the capacity additions in the knitted and woven apparel fabric capacities. While interest and depreciation are expected to put pressure on net profits, higher average realizations in its key products would insulate margins.

The stock currently trades at 7.2X our FY07E EPS estimates. We continue to maintain a BUY with a price target of Rs90

Quarterly estimates In Rs mn Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%)

Revenues 3,705.6 2,991.7 23.9 4,077.4 -9.1 EBIDTA 778.2 588.0 32.3 875.9 -11.2 PAT* 264.4 205.5 28.7 346.9 -23.8

EPS 1.6 1.5 3.2 2.2 -29.5


12

BUY

Rs 179.9 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg ACML IN

Reuters AMBK.BO







-1m -3m -12m

Abs (%) (1.1) (30.1) (28.1)

Rel* (%) (10.0) (24.2) (74.3)

*to Nifty Financial snapshot Ye March FY06 FY07E FY08E Net sales 1049.0 1296.5 1434.2 Change (%) 23.7 23.6 10.6 EBITDA 353.9 358.4 446.2 Change (%) 65.3 1.3 24.5 Net income 189.6 124.0 210.1 EPS (Rs) 32.3 20.1 34.0 Change (%) 27.5 -37.8 69.3 P/E (x) 5.6 9.0 5.3 ROE (%) 19.3 10.5 15.3 ROCE (%) 11.1 7.4 10.5

Jayesh Sundar

+91 22 67069944

[email protected]

Shardul Pradhan

+91 22 67069941

[email protected]

Ambika Cotton Mills Ltd July 11, 2006 Strong volume led growth; benefits from windmills to continue

Ambikas efficient operations and presence in the high-count yarn segment enables it to earn high return ratios as compared to its peers. The company is in the process of expanding its spinning capacity from 42,000 spindles to 1,09,000 spindles which would be completed in phases by FY08. This would continue to drive the strong volume led turnover growth for the company

Currently, the stock is trading at 9X times our FY07E estimates. Given the higher return ratios for Ambika and its strong cost structure aided by the installation of windmills, we assign a target P/E of 12X FY07E EPS estimates high than other yarn manufacturers. Hence, we continue to rate the company BUY.


Pricing flexibility for ACML is marginally higher as compared to other yarn manufacturers, being present in the higher count yarn segment, which is less fragmented. The efficiency of operations of Ambika is reflected in its return ratios, which is higher its peers in the yarn industry.

Ambika plans to expand its modest capacity of 42,000 spindles to 1,09,000 spindles by end of FY08. ACML completed expansion of 14,112 spindles for compact yarn and is further adding 10,080 spindles, which is expected to be complete in September 2006. The company has further announced a capex plan of 43,200 spindles scheduled for completion by September 2007, of which around 33,600 spindles would be used for compact spinning.

The company has an installed windmill capacity of 10.4MW in Tamil Nadu, which provides a strong cost structure through lower power costs.

We expect operating margins for Ambika to fall in FY07 and stabilize at around 30% over the next two years, on account of the firming cotton prices.


As newer spinning capacities have come into operation in March 2006, we expect turnover to grow 24% YoY. We expect the operating margins to remain high on account of the benefits from the expansion of its windmill capacity that leads to huge savings in power costs.

The stock currently trades at 9X FY07E EPS estimates. We continue to maintain a BUY on the company.


Revenues 311.2 209.5 48.5 288.9 7.7

EBIDTA 96.5 56.4 71.0 93.1 3.6 PAT 52.5 37.9 38.4 46.0 14.0

EPS 8.5 6.4 31.8 7.8 8.5


13

NOT RATED

Rs 62.8 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg ARVND IN

Reuters ARMI.BO







-1m -3m -12m

Abs (%) 13.1 (40.1) (50.5)

Rel* (%) 4.1 (34.2) (96.7)

*to Nifty Financial snapshot Ye March FY06E FY07E FY07E Net sales 15920.2 15546.1 16853.6 Change (%) -4.3 -2.3 8.4 EBITDA 4296.7 3791.2 4499.8 Change (%) 10.1 -11.8 18.7 Net income 1253.4 931.9 1687.1 EPS (Rs) 6.0 4.5 8.1 Change (%) -8.2 -25.7 81.0 P/E (x) 10.5 14.1 7.8 ROE (%) 9.5 6.7 11.1 ROCE (%) 9.4 7.8 10.5

Jayesh Sundar

+91 22 67069944

[email protected]

Arvind Mills Ltd July 11, 2006 Denim realizations expected to be lower; dip in revenues to continue Arvind stands among the large denim and apparel manufacturer catering to clients such as GAP, nautical, Levis etc. The company is going through a rough phase on account of the drop in denim fabric realizations, led by the mismatch in the fabric and garmenting capacity additions in the Asian region. We expect the mismatch to be corrected only over the next 12-18 months. The company plans to expand its garment capacity in line with the increase in sourcing of garments as against fabrics and shield it from the volatile margins in the denim fabric industry.

We expect the drop in realizations to continue in the Q1FY07, leading to an 18% drop in the topline during the period. Lower realizations and higher cotton prices are expected to result in lower operating margins. The company currently trades at 10.5X FY06 EPS of the standalone entity.


Arvind Mills stands among the large denim and apparel fabric manufacturer in the world with a global scale capacity of 120mn meters p.a. The company mainly manufactures and exports denim fabric with a strong list of clients including GAP, Levis, Nautica, Marks and Spencers etc.

Post removal of the quota system huge fabric capacities have been built up in anticipation of the surge in demand. However, there has been lag in garmenting capacities being built up in the Asian countries, which has led to huge drop in realizations of denim fabrics. The mismatch is expected to be corrected only over the next 12-18 months.

In order to be in line with the increasing trend of the retailers in the export markets to source garments directly as compared to fabrics, Arvind plans to scale up its garment capacity from 14mn pieces to 42 mn pieces by FY08.

The company has a strong domestic brand coverage with licenses for some of the major global brands such as Arrow, Levis, Wrangler etc. The company plans to merge Arvind Brands with the parent company and enter into an equity arrangement with VF corporation for its licensed brands. We believe that this would only strengthen its ties with VF corp and enable Arvind to increase its domestic portfolio of brands over the long term.

We expect the key result highlights of April-June 2006 quarter to be:

On account of 10% drop in realisations and lower volumes, we expect the topline to dip by 18%. Operating margins are also e expected to be lower at around 24.5%

The stock currently trades at 10.5X FY06 EPS of the standalone entity.

Quarterly estimates In Rs mn Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%)Revenues 3,438.2 4,204.0 -18.2 3,577.5 -3.9EBIDTA 843.1 1,149.4 -26.6 914.4 -7.8PAT* 154.7 450.9 -65.7 265.5 -41.7

EPS 0.7 2.3 -68.0 1.3 -41.7


14

BUY

Rs 36.7 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg AL.IN

Reuters ASOK.BO







-1m -3m -12m

Abs (%) (0.3) (13.2) 44.0

Rel* (%) (9.9) (6.1) 2.4

*to Nifty Financial snapshot Rs mn Ye March FY06 FY07E FY08E Net Sales 52,522 59,908 66,537 Change (%) 14.1 11.1 EBIDTA 5,447 6,405 7,790 Change (%) 17.6 21.6 Net Income 3,273 3,846 4,523 Change (%) 17.5 17.6 EPS (Rs.) 2.5 2.9 3.4 P/E(x) 14.8 12.6 10.7 P/BV (x) 2.8 2.5 2.1 ROCE (%) 22.5 24.2 24.2 ROE (%) 23.0 20.7 21.3

Mihir Jhaveri

+91 22 67069933

[email protected]

Ashok Leyland Ltd July 12, 2006 Medium and Heavy Commercial vehicle drive growth

Ashok Leyland Ltd (ALL), the second largest player in the commercial vehicle segment with a market share of 28%. In Q1FY07 the company has witnessed a volume growth of 28.1% YoY. ALL is expected to post a revenue growth of 12.6% CAGR over the next two years. The stock is currently quoting at 10.7X FY08E P/E multiple and we are recommending a Buy on the stock.


ALL has witnessed a volume growth of 28.1% YoY in Q1FY07 to 17,067 vehicles. While its commercial vehicle sales have seen a jump of 39.5% its buses have seen a decline of 16.2% during the same period. We believe with the buoyant GDP growth, increased freight movements is inevitable and thus will result in more demand for M&HCV vehicles in the next two years.

Further the ban on overloading by the Supreme Court and the expected improvement in road infrastructure due to the development of highways including the golden quadrilateral will be an added impetus to commercial vehicles sales in the next two years. We believe the M&HCV segment would grow at a CAGR of 8-9% in the next two-three years. We expect the company to post a revenue growth of 12% in the next two-year driven by higher volume sales.

We expect the company to post an EPS of Rs3.4 in FY08E. The companys focus on non-cyclical business like defence parts and exports is expected to cushion domestic business cyclicality in the next two years. At the current price the company is trading at a P/E multiple of 10.7X FY08E earnings and we recommend a Buy on the stock.


We expect net sales to increase by 37.1% to Rs14, 580mn on account of strong M&HCV sales. We have estimated a 75 bps YoY improvement in EBIDTA margins for the quarter mainly on account of increased operating efficiency.

Quarterly estimates In Rs mn

Q1FY07E Q1FY06 YoY % Q4FY06 Q0Q %

Revenues 14,580.3 10,632.2 37.1% 17,348.1 (0.2)

EBIDTA 1,330.3 890.4 49.4% 2,186.6 (0.4)

PAT 724.7 367.0 97.5% 1,355.4 (0.5)

EPS 0.5 0.3 1.0


15

BUY

Rs 2785.2 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg BJAT.BO

Reuters BJA.IN



Market cap (US$ bn) 6.1




-1m -3m -12m

Abs (%) 12.1 0.1 99.2

Rel* (%) 2.5 7.1 57.6

*to Nifty Financial snapshot Rs mn Ye March FY06 FY07E FY08E Net Sales 78,491 91,558 108,039 Change (%) 16.6 18.0 EBIDTA 15,373 18,028 22,196 Change (%) 17.3 23.1 Net Income 11,233 13,406 16,477 Change (%) 19.3 22.9 EPS (Rs.) 111.0 132.5 162.8 P/E(x) 24.7 21 17.1 P/BV (x) 5.6 4.7 3.8 ROCE (%) 28.0 28.7 29.9 ROE (%) 24.7 24.4 24.6

Mihir Jhaveri

+91 22 67069933

[email protected]

Bajaj Auto Ltd July 11, 2006 Outperforming the industry

Bajaj Auto Ltd (BAL) has continued its strong performance with new products launches across segments in the motorcycle space. The company has outperformed the industry growth and increased its market share to 31.4% in Q1FY07 from 29.9% in Q1FY06. While the industry witnessed a growth of 20-21% BAL has witnessed a volume growth of 34%. With industry expected to grow robustly, we expect BAL to continue to show strong growth that they are witnessing today. Introduction of newer models will help the company to keep pace with increased competition.

At current price, the stock quotes at 17.1X FY08E earnings. If we value the stock based on the core business it quotes at 11.6X FY08E and looks attractive. We therefore continue to rate the company a Buy.


BAL continues to witness robust growth in motorcycle sales driven by the success of newer models with 34% jump in sales in Q1 FY07E.

The company plans to launch newer motorcycles and two new ungeared scooters in FY07E. The two new models include a variant of Pulsar and a new 125cc motorbike. The ungeared scooters would be called Kristal and Blade. The Kristal brand is being launched specifically for woman.

We expect the key highlights of Q1 FY07E results to be:

The companys net sales are expected to increase by 39.1%YoY to Rs22.7bn in Q1FY07 driven by strong growth in the motorcycle and three wheeler segments. We expect the EBITDA margins to improve mainly on account of operating efficiencies despite higher raw material prices.

Quarterly estimates In Rs mn Q1FY07E Q1FY06 YoY (%) Q4FY06 Q0Q (% )Revenues 22,730.6 16,341.0 39.1 21,658.0 5.0 EBIDTA 3,850.6 2,574.0 49.6 4,249.7 (9.4)PAT 3,135.7 2,089.0 50.1 3,337.6 (6.0)

EPS 31.0 20.6 33.0


16

HOLD

Rs 110.3 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg BRCM IN

Reuters BACH.BO







-1m -3m -12m

Abs (%) (7.1) (38.7) 50.1

Rel* (%) (16.7) (31.6) 8.5

*to Nifty Financial snapshot Rs mn Ye March FY05E FY06E* FY07E Net sales 8160 8860.4 15606.2 Change (%) 16 9 76 EBITDA 2462.1 2640.7 4782.7 Change (%) 90 7 81 Net income 1250.6 1447 3294.5 EPS (Rs) 5.4 5.8 13.3 Change (%) 69 8 128 P/E (x) 34.8 20 8.7

*Company has changed the y/e to September06, however we have annualized the numbers for comparision.

Sreesankar R

+91 22 67069914

[email protected]

Ember Pereira

+91 22 67069940

[email protected]

Balrampur Chini Mills July 11, 2006 Balrampur Chini Mills (BCML) continues to be one of the efficient sugar manufacturers and is the largest integrated sugar manufacturer in eastern UP. We expect the company to produce in excess of 0.70 million tonnes of sugar in the 18 months ending September 2006E and 0.77 million tonnes of sugar in FY07E.

BCML is expected to post 8% growth in annualized EPS at Rs5.8 for the year ending September2006 and 128% at Rs13.3 in FY07E.

BCML is expected to crush 7.1 million tonnes of cane for 18 months ending September 2006E and 7.7million tonnes in FY07E.

The company is in the process of enhancing co-generation capacities from 65MW in FY06E to 112MW in FY07E thus selling approximately 220 million units of power in FY06E and 300 million units of electricity in FY07E.

We estimate the company to post revenues of Rs13,290.5mn and a PAT of Rs2,170.6mn for the 18 months ended September 2006E, and revenues of Rs15,606.2mn and PAT of Rs3,294.5mn for FY07E. The stock is trading at a PER of 8.7FY07 earnings. In our note dated April 03, 2006, we had recommended a HOLD. Since then, the stock has under performed the sensex by 31%. At the current price of Rs116.05, a PER of 20 FY06E we believe that there is value in BCML. We are changing our recommendation from a HOLD to Accumulate..


17

BUY

Rs 93.6 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg BASM.IN

Reuters BASP.BO







-1m -3m -12m

Abs (%) 35.0 (6.7) NA

Rel* (%) 25.4 0.4 NA

*to Nifty Financial snapshot Ye March FY06 FY07E FY08E Net sales 865.4 1676.6 3010.6 Change (%) 24.4 93.7 79.6 EBITDA 186.3 561.3 947.1 Change (%) 16.2 201.3 68.7 Net income 157.3 231.5 431.7 EPS (Rs) 10.0 14.7 27.4 Change (%) -43.6 47.0 86.5 P/E (x) 9.7 6.4 3.4 ROE (%) 10.3 13.3 20.1 ROCE (%) 6.6 9.8 16.0

Jayesh Sundar +91 22 67069941

[email protected]

Bannari Amman Spinning Mills July 11, 2006 Capex plans on track; Benefits to be reaped over the medium term

Efficiency of operations and a competitive cost structure has enabled Bannari to report return ratios higher than its peers. Despite its presence in the working and fixed capital intensive spinning segment the company has been able to maintain a moderate leverage. The company has planned an Rs3.5bn expansion to transform itself into a fully integrated home textile player to leverage on its strong manufacturing skills.

Bannaris turnover is expected to grow by 10% sequentially in Q1FY07, as the spinning capacities become operational in phases. Operating margins would continue to remain high at around 28%. The company is attractively valued at around 6.4x our FY07E EPS estimates of Rs14.7. Hence, we continue to maintain a BUY on the stock with a price target of Rs175.


Bannari plans to leverage on its efficient operations and its competitive cost structure by expanding its spinning capacities. Besides, the company is also forward integrating into manufacture of fabrics and value-added home textile products. The home textile division, with products consisting of bed linens, pillow covers, quilts etc would focus on the high-end apparel markets in the U.S. and the E.U.

With the completion of the expansion in FY08, the dependence on revenues from sales of yarn would drop to 44% by FY08 from 78% currently, which would lend more stability to the topline growth.

The company has already completed the expansion of its windmill capacities, which has enabled the company to significantly reduce its power costs.

The company is currently moderately geared with a debt:equity of 1X. Hence, the company can take considerable advantage of the low cost funds available under the TUF scheme. Even after the completion of the expansion, the gearing of the company would be only 1.2X in FY07.

We expect the key result highlights of April-June 2006 quarter to be:

The commissioning of the new spinning plant is expected to drive the moderate 10% sequential growth in Q1FY07.

Operating margins would continue to be high at around 28%, given the benefits from the windmill capacities, which would results in lower power costs.

We continue to keep a BUY on the stock with a price target of Rs175

Quarterly estimates Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%)

Revenues 268.3 - NA 242.8 10.5

EBIDTA 75.1 - NA 38.9 93.2 PAT* 52.1 - NA 33.6 55.0

EPS 3.3 - NA 2.1 55.1


18

BUY

Rs 389.7 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg BHARTI IN

Reuters BRTI.BO/BRTI.NS

Shares outstanding (mn) 1,873

Market cap (Rs.bn) 730

Market cap (USD.bn) 16

3-m daily avg vol 207,180



-1m -3m -12m

Abs (%) 15.8 (3.0) 51.8

Rel* (%) 6.9 2.9 4.9

*to Nifty

Financial Snapshot Rs mn YE March FY06 FY07E FY08E Net Sales 116,607 172,327 231,541 % change 45.1% 47.8% 34.4% Net Income 22,502 32,110 42,014 % change 52.8% 42.7% 30.8% EPS (Rs.) 11.9 17.0 22.3 % change 52.8% 42.7% 30.8% P/E(x) 53.1 35.7 26.4 ROE (%) 28.2% 30.1% 30.1% ROCE (%) 35.3% 39.4% 42.4%

Sheriar Irani

+91 22 67069918

[email protected]

Bharti Airtel (BAL) July 11, 2006 BAL has been achieving record subscriber additions every quarter, and this quarter is no exception. We expect net additions (GSM+fixed) to rise from 3.4 million in Q4FY06 to 3.6 million in Q1FY07E. The key drivers for this are increasing geographical coverage and falling tariffs.


Despite the increase in competition and introduction of lower denomination pre paid cards, the ARPUs have would fallen only slightly on account of increased contribution from non-voice revenues like SMS and ring tones.

The company is likely to gain from geographical expansion as it enjoys economies of scale. It is also likely to benefit from the downward trend in telecom costs. However, EBITDA margins will hover in the 37% range as Bharti continues rolling out in newer circles.

We expect the key highlights of Q1FY07E to be:

The revenues are expected to grow 9.7% sequentially (48.7% yoy) to Rs37.44bn on the back of 17% sequential growth expected in the subscriber base, largely mobile (see table below).

EBITDA margins are expected to fall from 37.5% levels to about 36.8% as we expect higher marketing spends to negate the benefits of growing economies of scale from geographical expansion into newer circles. Nevertheless, there is likely to be robust EBITDA growth of 7.7% qoq (46.4% yoy).

However, net profit growth is likely to be flat qoq (29.7% growth yoy) as we expect a sharp 12.0% qoq (55% yoy) jump in depreciation costs due to the high (USD 1.8bn) expected capex in FY07E.

Nevertheless, Bharti remains our top pick in the sector given its EPS CAGR (FY06-08) of over 35%.

Subscriber base (000s) Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%) GSM mobile 23,073 12,104 90.6% 19,579 17.8% Fixed 1,441 935 54.2% 1,347 7.0% Total 24,514 13,038 88.0% 20,926 17.1%

Quarter estimates In Rs mn Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%) Revenues 37,428 25,173 48.7 34,113 9.7 EBIDTA 13,770 9,407 46.4 12,782 7.7 PAT 6,616 5,101 29.7 6,823 -3.0 EPS (Rs) 3.53 2.72 29.7 3.64 -3.0


19

BUY

Rs 349.2 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg BPCL IN

Reuters BPCL.BO





Share price performa,nce


-1m -3m -12m

Abs (%) 8.0 (23.9) (1.4)

Rel* (%) (1.5) (16.9) (43.1)

*to Nifty Financial snapshot Ye March FY05 FY06E FY07E Net sales 589,700 723,956 718,592 Change (%) 22% 23% -1% EBITDA 21,019 11,308 (17,357) Change (%) -37% -46% -253% Net income 9,658 2,453 -24,872 EPS (Rs) 32.2 8.2 -82.9 Change (%) -43% -75% -1114% P/E (x) 10.8 42.7 na ROE (%) 15% 4% -58% ROCE (%) 20% 5% -25%

Amit Agarwal +91 22 67069927

[email protected]

BPCL July 11, 2006 High crude oil prices will maintain pressure on profits The increasing crude prices and continued cap on selling prices of gasoline, HSD, Kerosene and LPG continue to put pressure on the profitability of the company. While we expect a revenue growth of 23%YoY to Rs196,556mn, we are estimating a loss of Rs9,736mn fro Q!FY07. Going forward, while we do remain concerned of the volatility of the earnings growth due to regulatory constraints, the stock has declined sharply in the recent past (it is trading at 52% of the replacement cost). We recommend BUY with a target price of Rs428/share implying a discount of 45% to its replacement cost.


Net sales growth of 23% YoY: We expect net sales to increase from Rs160,157mn in Q1FY07 to Rs196,556mn in Q1FY06. The growth is expected to be driven by higher refinery throughput from 2.3 million tons in Q1FY07E to 2.94 million tons in Q1FY06.

But we expect loss of Rs8,280mn in core EBITDA: Increase in crude oil prices from USD55/bbl in Q1FY06 to USD62/bbl in Q1FY07E, and a cap on retail prices of petro products is expected to increase the losses in core EBITDA from Rs3,203mn in 1Q FY06 to Rs8,280mn in 1Q FY07E.

Net losses will decline to Rs9,736mn: We expect the net losses to decline from Rs4,323mn in Q 1FY06 to Rs9,736mn in 1Q FY07E.

Quarterly estimates In Rs mn

Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%)

Revenues 196,556 160,157 23 188,534 2

EBIDTA (2,377) (7,380) -210 (8,197) 332

PAT (4,323) (9,736) -126 (2,030) -154

EPS (32.45) (14.4) -126 59.6 -154


20

BUY

Rs 122 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg CELFL IN

Reuters CELF.BO







-1m -3m -12m

Abs (%) (6.6) (38.9) NA

Rel* (%) (16.3) (31.9) NA

*to Nifty Financial snapshot Ye March FY05 FY06E FY07E Net sales 1569.4 4525.9 5678.8 Change (%) 18.2 188.4 25.5 EBITDA 226.2 581.3 691.7 Change (%) 32.9 157.0 19.0 Net income 94.5 200.7 278.5 EPS (Rs) 62.9 112.4 38.8 Change (%) 5.3 11.3 15.7 P/E (x) -61.4 112.4 38.8 ROE (%) 22.9 10.8 7.8 ROCE (%) 5.8 11.0 13.3

Jayesh Sundar

+91 22 67069944

[email protected]

Shardul Pradhan

+91 22 67069941

[email protected]

Celebrity Fashions Ltd July 11, 2006 Acquisition to provide the fillip

Having already established a niche in the apparel export markets, the acquisition of the trouser unit of Ambattur Clothing Company would provide a further boost to CFLs growth over the next two years. Coupled with a strong domestic brand Indian Terrain, the company is well poised to take advantage of the growth opportunities offered by both the export and domestic markets.

We expect the company to report revenues of Rs1041mn and a bottomline of Rs51mn in Q1FY07. The company currently trades at an attractive valuation of 10.8X and 7.8X our EPS estimates of Rs11.3 and Rs15.7, for FY07E and FY08E respectively. Hence, we rate the stock a Buy with a price target of Rs220.


Celebrity has established a strong niche not only in the domestic apparel market in the premium segment but also in the export markets of US and Europe. Its strong client base includes specialty stores and premium brands such as Diesel, Marlboro, Armani, and Arrow among others.

The acquisition of the MEPZ trouser unit would provide synergies to Celebrity in FY07 and FY08. Access to a fully operational plant would enable quick scaling up of capacities, a diversified product portfolio and newer clients, which would boost the top line and bottom line growth over the next two years.

The company plans to increase its exclusive outlets to 25 by FY08 from 5 outlets currently. This would further strengthen its domestic brand Indian Terrain.


The company is likely to report a turnover of Rs1041mn and profits of Rs51mn, while the operating margins are expected to be at around 12.5%.

We maintain a BUY on the stock with a price target of Rs220.

Quarterly estimates In Rs mn Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%)Revenues 1,041.0 - - 409.3 154.3EBIDTA 130.1 - - 40.9 218.3PAT* 51.1 - - 19.1 168.2

EPS 2.9 - - 1.1 168.2


21

BUY

Rs 123.3 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg CLTO IN

Reuters CLTH.BO







-1m -3m -12m

Abs (%) 45.0 (25.3) 7.2

Rel* (%) 36.1 (19.4) (39.7)

*to Nifty Financial snapshot Rs mn Ye March FY06 FY07E FY08E Net Sales 1,496.5 2,276.5 3,045.3 Change (%) 41.8 27.7 EBIDTA 234.4 399.0 594.7 Change (%) 53.7 70.2 49.0 Net Income 126.9 245.1 400.0 Change (%) 122.5 93.1 63.2 EPS (Rs.) 7.8 15.0 24.5 P/E(x) 16.1 8.2 5.0 P/BV (x) 2.8 2.1 1.5 ROCE (%) 21.4 33.4 44.2 ROE (%) 26.6 29.2 34.4

Mihir Jhaveri

+91 22 67069933

[email protected]

Clutch Auto Ltd JULY 7, 2006 Export continues to be the focus

Clutch Auto Ltd (CAL) has shown strong performance over the last one year, and with a huge order backlog, we estimate the companys revenues to grow by 43% CaGR during FY06-FY08E. In the next two-year, the companys revenue mix is expected to change with increased focus on exports. Exports as a part of revenue are expected to increase from 25% to 46% in FY06E. Currently the stock is quoting at a PER of 5.0X FY08E and we continue to recommend a BUY on the stock.


CALs exports constitute 25% of total revenues and supplies to several countries in the world. In the export market, clutch auto caters to top rebuilders, leading supply chain distributors, heavy-duty clutch manufacturers and big aftermarket clutch distributors in the Central, South America, Canadian markets. The company is the first Indian company to enter into heavy-duty distribution network by Fleet Pride (the biggest heavy duty distributor in USA).

With buoyant growth in exports expected and FY06 showing higher than estimated sales we expect the companys top line to increase by 43% CaGR for the next two years. With a significant top line growth the companys EBITDA is expected to increase to Rs399mn and Rs594mn in FY07E and FY08E, respectively, from Rs234.4mn in FY06.

On account of buoyant top line growth we have revised our EPS estimate by 10.9% for FY08E to Rs24.5. At the current price the stock is trading at 5.0X FY08E and we continue to recommend a BUY on the stock.


We expect net sales to increase by 34.5% to Rs396mn on the back of strong exports. The companys PAT is also expected to jump by 69% to Rs40mn on account of a strong top line growth.

Quarterly estimates In Rs mn Q1FY07E Q1FY06 YoY % Q4FY06 Q0Q % Revenues 396.0 294.3 34.5 493.5 (19.8)EBIDTA 68.0 46.0 48.0 75.8 (10.3)PAT 40.0 23.7 68.8 41.0 (2.4)

EPS 2.5 1.5 2.5


22

BUY Rs 206.2 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg GDPL IN

Reuters GATE.BO

Shares outg (mn) 92



Three-month daily avg vol 226,054



-1m -3m -12m

Abs (%) 17.7 -13.8 18.2

Rel* (%) 8.1 (6.7) (23.4)

*to Nifty Financial Snapshot Rs mn YE March FY06 FY07E FY08E Net Sales 1303.4 1832 2384 Change (%) 40.5 30 EBITDA 800.6 1173 1446 Change (%) 46 22 Net Income 726.63 1015 1373 Change (%) 39.8 36

*EPS (Rs) 7.8 11 14.91

Change (%) 41 36 P/E (x) 28.0 23 16.96 ROE (%) 10.8 14.2 16.1 ROCE (%) 11.9 14.7 16.3

Sreesankar.R +91 22 67069914 [email protected]

Ember Pereira +91 22 67069940

[email protected]

Gateway Distriparks July 11, 2006 Gateway Distriparks (GDL) is a leading provider of port related logistics for international trade imports and exports. The company has a pan India presence with operations spread across cities including Navi Mumbai, Chennai, Vizag and Garhi.

Key investment highlights are:-

Gateway Distriparks Ltd has, flagged off the first full rake train in the Q1FY07, carrying containers for export, rolling out of its rail siding at Garhi Harsaru, Gurgaon.

JNPT which handles 58% of container traffic in India is setting up a third terminal that would enhance the container handling capacities. We expect GDL to increase the TEU handling volumes through expansion at its existing facility and through the inorganic route.

GDL is expected to diversify organically into supply chain market with a cold storage chain.

Containerisation is growing over 75% as the cost of handling is lower for containerized cargo against break bulk items. We believe, buoyant container traffic and improving port infrastructure will enhance the companys growth prospects.

GDL is continuing to grow with the increase in containerized traffic in the areas where GDL has the CFS.

We are yet to revise our earnings for FY07 after the starting of the container trains and we will be revising our EPS forecasts post the quarterly results.

The expected result highlights for the quarter are:

We expect the companys revenues to grow to Rs 439.7mn a sequential growth of45 % in Q1FY07E. and YOY growth of 30%

EBITDA is expected to be Rs.275 ,a rise of 30.7% YoY and 66% QoQ.

An improvement in throughput by 23% in Q1FY07.

Quarterly Estimate In Rs mn 1QFY07E 1QFY06 YoY (%) 4QFY06 QoQ (%)Net Sales 439.7 338.23 30 302.8 45EBITDA 275 210.43 30.7 165 66Net Income 211.2 171.41 23 179.7 17EPS (Rs.) 2.29 2.29 - 2.25 1.7


23

HOLD

Rs 1939.2 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg GRASIM IN

Reuters GRAS.BO



Market cap (US$ bn) 4




-1m -3m -12m

Abs (%) 8.9 (10.9) 78.3

Rel* (%) (0.6) (3.9) 36.7


FY06 FY07E FY08E Net Sales 66,556.7 73,696.7 80,768.4 YoY % 6.8 10.7 9.6 EBIDTA 14,217.9 18,352.3 19,753.7 YoY % (11.0) 29.1 7.6 EBIDTA % 21.4 24.9 24.5 Adj PAT 8,590.8 10,316.8 11,162.6 Adj EPS (Rs) 93.7 112.5 121.7 YoY % (5.0) 20.1 8.2 P/E (x) 20.7 17.2 15.9 EV/EBIDTA (x)

13.1 11.1 10.5

RoE (%) 18.5 19.2 18.0 RoCE (%) 18.0 19.2 18.7

Vishal Mishra

+91 22 55069943

[email protected]

Grasim Ltd July 11, 2006 On growth path Grasims overall earnings growth in the past few quarters has been marred by the poor performances in its VSF and sponge iron division. However, there is a slow recovery in both these divisions. In sponge iron, in particular, the outlook has changed quickly for the better due to improved steel industry outlook. Grasims cement division too is expected to perform well on the back of rising cement prices.


The contribution of the cement business in the overall business is rising - justifying higher valuations for the company. The company also has pan India presence with respectable profit margins.

Further benefits from synergies with UTCL willwould flow in over the next two-three 2-3 years.

Sponge iron division willwould benefit from higher availability of natural gas after December 2006, which willwould largely neutralize any cyclical downswing in the business. Already, the prospects for the division are looking much brighter even as the division posted a loss at the EBIT level in the previous two quarters.


The cement division is expected to register robust growth on the back of rising cement prices. Improving business scenario in the VSF and sponge iron business will further drive growth. We thus expect revenues to grow by a robust 21.7% YoY and 4.1% QoQ during Q1FY07.

At the EBIDTA level, while the cement business will register an impressive improvement on the back of rising cement prices, the same will be marginally pared by the rising gas prices for the sponge iron business. We thus expect Grasims EBIDTA margins to improve from 24.1% in Q1FY06 to 25.5% during Q1FY07.

Quarterly estimates In Rs mn Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%)Revenues 18,899 15,533 21.7% 18,151 4.1%EBIDTA 4,821 3,744 28.8% 4,065 18.6%PAT 2,706 2,510 7.8% 2,586 4.6%

EPS 29.5 27.4 7.8% 28.7 3.0%


24

HOLD

Rs 103.3 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg GAMB IN

Reuters GACM.BO







-1m -3m -12m

Abs (%) 12.7 (4.9) 65.4

Rel* (%) 3.1 2.1 23.8


FY05 FY06E FY07E Net Sales 26,057.9 33,600.2 40,388.6 YoY % 32.4 28.9 20.2 EBIDTA 7,241.3 10,376.2 14,509.3 YoY % 34.8 43.3 39.8 EBIDTA % 27.8 30.9 35.9 Adj PAT 4,682.9 6,529.6 9,104.9 Adj EPS (Rs) 3.5 4.8 6.7 YoY % (7.7) 39.4 39.4 P/E (x) 29.8 21.4 15.3 EV/EBIDTA (x)

19.0 13.0 9.2

RoE (%) 233.3 220.8 202.2 RoCE (%) 22.3 27.7 32.7

Vishal Mishra

+91 22 55069943

[email protected]

Gujarat Ambuja Cements July 11, 2006 High cement prices to drive growth GACL is GACL is one of the most profitable cement companies in the industry continues to benefit from firm cement prices. Going forward, we believe the companys will be able to maintain high earnings growth on better efficiency from lower coal prices. GACL is currently trading at 9.2X EV/EBIDTA on FY07E earnings. We expect see GACL to outperform and further upswings in cement prices could lead to further upsides.


It enjoys strategic location advantages such as being located being present in the lucrative northern region as well as near the western coast from where it is able to export cement to the Middle East.

The company is setting up a 60 MW of thermal captive power capacity , replacing the existing diesel based captive power plants. This would result additional in cost savings. , resulting into cost savings.

The value of its put option on ACIL stake is worth about Rs14.4bn post January 2008.


The companys cement sales are expected to grow by an impressive 48% growth in topline on the back of rising prices and steady growth in volumes.

On the back of rising cement prices GACLs EBIDTA margins is expected to improve from 30.8% in Q4FY05 to 37% in Q4FY06. Power expenses are expected to show some QoQ softening on decline in international coal prices.

Quarterly estimates In Rs mn Q4FY06E Q4FY05 YoY (%) Q3FY06 QoQ (%)Revenues 10,679 7,205 48.2% 9,243 15.5%EBIDTA 3,953 2,219 78.2% 3,213 23.0%PAT 2,824 1,452 94.6% 2,687 5.1%

EPS 2.1 1.1 94.1% 2.0 5.1%


25

ACCUMULATE

Rs 968.9 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg GGAS IN

Reuters GGAS.BO







-1m -3m -12m

Abs (%) (10.0) (27.6) 5.2

Rel* (%) (19.6) (20.6) (36.4)

*to Nifty Financial snapshot Ye Dec CY05 CY06E CY07E Net sales 7,468.4 9,314.8 9,695.5 Change (%) 14.4% 24.7% 4.1% EBITDA 1,758.3 1,760.4 1,922.4 Change (%) 26.5% 0.1% 9.2% Net income 973.1 951.8 1,020.1 EPS (Rs) 75.9 74.2 79.5 Change (%) 26.5% -2.2% 7.2% P/E (x) 12.8 13.1 12.2 ROE (%) 26.5% 21.5% 19.4% ROCE (%) 39.7% 28.4% 26.1%

Amit Agarwal

+91 22 67069927

[email protected]

Gujarat Gas July 11, 2006 Higher interest cost and depreciation depress earnings

We expect the Q2CY06E revenues to increase from Rs1,756mn in Q2CY05 to Rs2,434mn on the back of increase in the sales volume. However, the earnings growth is expected to be limited to 7% due to rising interest costs and depreciation expenses. We expect the stock price to be range bound and await an increase in contracted supplies of natural gas to lead to an upgrade. We maintain an Accumulate.


Net sales growth of 39% YoY: We expect net sales to increase from Rs1,756mn in Q2CY05 to Rs2,434mn in Q2CY06E. The growth is expected to be driven by a 35% increase in sales volumes from 191 mscm in Q2CY05 to 257 mscm in Q2CY06E. The increase in natural gas sales is expected to be partially offset by a decline in transmission income. We have assumed transmission income at nil.

Core EBITDA increases by 18% YoY: We expect the core EBITDA to increase by 18% YoY to Rs455mn in Q1CY05. Staff and other expenses are expected to increase by 43% YoY on the back of expansion plans which are being implemented.

Net profit to decline by 10% YoY: The net profit is expected to decline from Rs276mn in Q2CY05 to Rs249mn in Q2CY06E. The decline in profit is due to rising depreciation and interest costs.

Quarterly estimates In Rs mn Q2CY06E Q2CY05 YoY (%) Q1CY05 QoQ (%)Revenues 2,364 1,756 35 2,353 0EBIDTA* 480 414 16 487 (1)PAT 276 249 (10) 266 (6)

EPS 19 22 (10) 21 (6)*Including other income


26

BUY

Rs 1049 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg GLAX IN

Reuters GLXO.BO







-1m -3m -12m

Abs (%) 0.0 (27.7) 22.7

Rel* (%) (8.9) (21.8) (24.2)

*to Nifty Financial snapshot Rs mn Ye Dec CY05 CY06E CY07E Net sales 14853 16710 18386 Change (%) - 12.5 10.0 EBITDA 4279 5368 6343 Change (%) - 25.4 18.2 Net income 3063 3850 4606 EPS (Rs) 36.8 45.5 54.4 Change (%) - 23.6 19.6 P/E (x) 40.4 22.4 18.8 ROE (%) 32.7 30.7 33.2 ROCE (%) 27.7 28.4 30.8

Milind Bhangale +91 22 67069940

[email protected]

Glaxo India Ltd. July 11, 2006 Best Player in the New Product Patent Regime

GSK Pharma is best placed to benefit from the new patent regime led by parent support, highly productive field force and solid brand equity / market position. GSK has restructured its product mix with increasing contribution coming from high growth segments like CNS, CVS and diabetology. And this strategy is set to deliver consistent above market growth over next two years. GSK plans to launch around 3-5 new products annually for the next two years.

New patent protected drugs of parent GSK would be starting from 2007/08. We believe GSK has a portfolio of at least 4 such brands by 2010 in addition to 3 vaccines from the parent.

In 2QCY06, GSK Pharmas net sales are expected to decline by 10% to Rs4.3b, on high base of 2QCY05 which witnessed recovery of sales lost due to VAT issues in 1QCY05.

EBITDA margin is expected to decline by 82bp YoY to 33.0%, as fixed costs are absorbed on lower sales. However, higher other income (up by 23% YoY) and lower tax provisioning (at 34.6% of PBT v/s 37.1% in 2QCY05) restricted decline in PAT to 4% to Rs1014m.

Our estimates for CY07E take into account the divestment of animal healthcare division and additional marketing and promotional expenditure linked to launch of patented products in CY08E. The stock trades at 23.2x CY06E and 19.4x CY07E earnings that do not fully reflect the value created from product patent regime.

Quarterly estimates In Rs mn Q2CY06E Q2CY05 YoY(%) Q1CY06 QoQ(%)

Revenues 4345.0 4649.8 -6.6 4262.0 1.9EBIDTA 1433.7 1572.7 -8.8 1411.1 1.6PAT* 1014.2 1053.8 -3.8 1034.3 -1.9EPS 12 12.4 - 12.20 -


27

BUY

Rs 313.2 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg GNP IN

Reuters GLEN.BO



Market cap (US$ m) 804




-1m -3m -12m

Abs (%) 13.4 (2.7) 9.3

Rel* (%) 4.5 3.2 (37.6)

*to Nifty Financial snapshot Ye March FY06 FY07E FY08E Net sales 7003 10655.8 13991 Change (%) 23 52.2 31.3 EBITDA 1350.2 3256.9 4128.8 Change (%) -13.3 141.2 26.8 Net income 862.4 2520.4 3224.3 EPS (Rs) 7.3 21.2 27.2 Change (%) -18.9 190.4 28.3 P/E (x) 40.8 14 10.9 ROE (%) 22.6 40.5 34.5 ROCE (%) 11.7 25.8 26

Milind Bhangale +91 22 67069940

[email protected]

Glenmark Pharmaceuticals Ltd. July 11, 2006 Robust Financial Growth Anticipated

Glenmark, over the years, has built a global strategy to capitalize on emerging opportunities and established itself as a strong and respectable player in the domestic pharma space with a successful drug discovery program and rapid scaling up of the generics business in the United States and Latin America. The potential upside from GRC-3886, new products launches in the US, rapid scale-up in Latin America, likely acquisitions and in-licensing marketing alliances and strong drug discovery focus would be the key growth drivers going forward.

Glenmarks 1QFY07 revenues are expected to grow by 88% YoY to Rs2.1b, driven by growth in international sales, which were boosted due to sale of its 2 ANDAs and sales of 2 products of Aspen Pharma in the US. Exports business would be driven by sales of zonisamide and fluconazole in the US market and ramp up in sales from the Latin American markets. While formulation exports is expected to grow at 259% YoY, API exports is expected to grow at 109% and domestic business is expected to grow by 12% YoY.

EBITDA margins are expected to expand by 1056bp to 24.0% driven primarily by improving sales of zonisamide and fluconazole in the US market and increased contribution from the Latin American markets. Also lower tax provision at 15% of PBT due to the fully operational manufacturing facility at Baddi (Himachal Pradesh) (v/s 20.8% in 1QFY06) will boost PAT growth by 232.9% YoY to Rs369m.

We expect Glenmark to record earnings CAGR of 88% till FY08, led by reasonable top-line growth CAGR of 41%.

Valuations at 14.9x FY07E and 11.6x FY07E fully diluted EPS, does not fully factor in the value that Glenmark could add by using its strong cash chest (US$100m) for acquisitions and ramping up its overseas business as well as the contribution from outlicensing of its NCE (US$ 190mn from Forest labs and US$ 53mn from Taigen ).


Revenues 2131.2 1134.0 87.9 1663.0 28.2

EBIDTA 503.4 148.2 239.7 339.4 48.3

PAT* 369.2 110.9 232.9 250.7 47.3

EPS 3.11 0.93 - 2.11 -


28

BUY

Rs 575.9 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg GOKL IN

Reuters GEXP.BO







-1m -3m -12m

Abs (%) 9.7 (19.6) 1.7

Rel* (%) 0.1 (12.6) 40.0)

*to Nifty Financial snapshot Ye March FY06 FY07E FY08E Net sales 8844.9 10047.6 11753.9 Change (%) 23.2 13.6 17.0 EBITDA 959.9 1045.7 1242.3 Change (%) 56.8 8.9 18.8 Net income 608.8 691.4 899.0 EPS (Rs) 35.8 40.2 52.3 Change (%) 18.3 12.5 30.0 P/E (x) 14.7 14.3 11.0 ROE (%) 16.9 16.1 17.3 ROCE (%) 15.1 14.5 15.7

Jayesh Sundar

+91 22 67069944

[email protected]

Shardul Pradhan

+91 22 67069941

[email protected]

Gokaldas Exports Ltd July 11, 2006 Steady growth lead by consistent capacity additions

Gokaldas has established a niche in the outerwear segment and has long-standing relations as a regular supplier to large brands such as GAP. It plans to leverage on this strength, to diversify into other product lines such as casual trousers, denim jeans etc, where the margins are higher compared to other summer wear products. We believe that consistent addition of capacities and productivity improvements would drive the profit growth during the next two years.

The stock price has dropped sharply by since our last update, though the visibility of its earnings growth remains strong. Hence, we upgrade our rating on the stock to a BUY with a price target of Rs700.


Gokaldas has established a niche in the outerwear export segment, where it currently faces little competition and has established long-stranding relations with brands such as GAP and its allied brands. The strategy going forward is to diversify into other product segments such as casual wears, denim and bottom weights, which will payoff over the next two years.

Gokaldas enjoys strong cash accruals at around 16% of the capital employed in FY06. This gives the company an advantage of being able to scale up capacities by 10-15% every year without the requirement of any additional debt.

The company increased its capacity during FY06 from 20mn pieces p.a. to 22mn pieces per annum. It would further expand its capacity in phases to around 36mn pieces before the end of FY07. The steady growth in capacities would continue to ensure a steady volume growth over the medium term.

Gokaldas currently has around 40,000 workers on roll. In order to grow by 15% Gokaldas would be required to add around 5000-6000 workers annually, which would make it difficult to grow beyond this rate. Managing such a huge labour force could also be a problem.


We expect the turnover to grow by 30% and the bottomline to grow by 21% in Q1FY07. Operating margins are expected to remain constant at around 10%.

The stock currently trades at 14X our FY07 EPS estimates and 11X out FY08E EPS estimates. We upgrade the rating to a BUY with a price target of Rs700

Quarterly estimates Rs mn Q1FY07E Q1FY06 YoY (%) Q4FY06 QoQ (%)

Revenues 2,310.9 1,789.5 29.1 2,391.2 -3.4 EBIDTA 231.1 178.9 29.2 275.9 -16.2 PAT* 141.1 116.3 21.3 164.7 -14.4

EPS 8.2 6.8 21.3 9.6 -14.4


29

BUY

Rs 518.2 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg HCLT IN

Reuters HCLT.BO/HCLT.NS



Market cap (US$ bn) 3.6




-1m -3m -12m

Abs (%) 16.7 (12.3) 34.9

Rel* (%) 7.1 (5.3) (6.7)

*to Nifty Financial Snapshot Rs mn YE June FY05 FY06E FY07E Net sales 33,694 43,567 57,412 Change (%) 28.9 29.3 31.8 EBITDA 7,723 9,839 12,487 Change (%) 45.9 27.4 26.9 Net income* 6,101 7,490 9,568 EPS (Rs) 19.4 23.8 30.3 Change (%) (27.7) 22.7 27.7 P/E (x) 21.8 17.1 13.2 ROE (%) 19.1 22.4 25.3 ROCE (%) 19.1 22.0 25.2

* After exceptional items

Ashish Aggarwal

+91 22 67069925

[email protected]

HCL Technologies July 11, 2006 Upgrading from a Hold to a Buy We had downgraded HCL Tech from a Buy to a hold in our IT sector report dated October 10, 2005 on account of its stretched valuations. The stock has since given only a 14.1% return even though sensex has risen 26% over the same period. However at the current PER of 17.1x FY07E earnings, we believe that there is an upside and we are upgrading the stock from a Hold to a Buy with a price target of Rs 635. Our price target implies a FY07E PER of 21x and is at a 30% discount to our targeted PER of Infosys.


HCL Technologies has a strong presence in all verticals and this could help HCL Technologies win a greater pie of clients offshore budgets. The signing of more than four large deals in the last two quarters has shown its capabilities to cross sell services.

The companys strategy of focusing on large deals has started yielding results with the company signing four or five large deals (USD 100mn+). This we believe will help the company in not only improving the margins but also help them in growing at an industry rate.

The JV and M&A route historically taken by the company to grow revenues have helped the company in acquiring competencies in different domains. Its erstwhile JV with Deutsche bank is expected to have added around USD 100mn to the topline in FY05 (13% of the topline) besides helping it to enhance domain competency in the financial services space.

We expect the key highlights of Q4FY06E to be:

We expect HCL Tech to post revenues of Rs12.1bn, a sequential increase of 7.8%. The IT services and BPO business is expected to post revenues of Rs8.9bn and Rs1.7bn, a sequential increase of 7.2% and 9.6%, respectively. The infrastructure services are expected to grow at 10% sequentially to Rs1.43bn.

We expect consolidated EBITDA margins to improve by 90 bps on account of increased utilization in the BPO space and certain one time cost being not there in Q4FY06E.

Though the EBITDA of the company is expected to increase 12.4% sequentially, we expect the PAT to increase 7.6% to Rs 2.08bn on account of lower other income as we expect the company to post forex loss on account of rupee depreciating during the quarter.

Quarter estimates In Rs mn Q4FY06E Q4FY05 YoY (%) Q3FY06 QoQ (%) Revenues 12,098 9,276 30.4 11,220 7.8 EBITDA 2,807 2,111 32.9 2,498 12.4 PAT* 2,075 1,620 28.1 1,929 7.6 EPS (Rs) 6.6 5.1 28.1 6.1 7.6

* After minority interest


30

HOLD

Rs 766.8 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg HH.IN

Reuters HROH.BO







-1m -3m -12m

Abs (%) 2.0 (7.5) 29.4

Rel* (%) (7.6) (0.5) (12.3)

*to Nifty Financial snapshot Rs mn Ye March FY06 FY07E FY08E Net Sales 88,013 97,898 108,549 Change (%) - 11 11 EBIDTA 14,554 16,196 17,740 Change (%) - 11 10 Net Income 9,716 10,656 11,586 Change (%) - 9.7 8.7 EPS (Rs.) 48.7 53.4 58.0 P/E(x) 15.4 14.3 13.2 P/BV (x) 7.6 5.9 4.6 ROCE (%) 72.5 62.8 54.0 ROE (%) 56.3 46.4 39.2

Mihir Jhaveri

+91 22 67069933

[email protected]

Hero Honda Motors July 11, 2006 Hero Honda posted a volume growth of 21.1% in Q1FY07. The company however continues to lose market share in the motorcycle space due to increased competition and relatively old product basket. We have estimated the company to post a volume growth of 13% for the next two years. The companys EBITDA margins are expected to be under pressure due to increased competition coupled with higher raw material costs. The stock currently trades at a 13.2X FY08E and we continue to rate the company HOLD.


Hero Honda has sold 15,000 units of ungeared scooter Pleasure in Q1FY07. Further the company plans to launch new models in the motorcycle segment in FY07E. The company is also setting up a new plant in Rajasthan with a capacity of 400,000 units per annum and production is likely to commence in FY07E. With these additional capacities, Hero Honda will cease to suffer from capacity constraints. (Currently capacity utilization is currently close to 95%).

We have estimated a volume growth of 13% CAGR for the period FY06-FY08. New product launches will be the key for the company to regain its lost market share.


We expect net sales to increase by 23% to Rs24.3bn on account of strong volume sales. We expect the EBITDA margins to remain under pressure on account of higher raw material prices.

Quarterly Estimates In Rs mn

Q1FY07E Q1FY06 YoY % Q4FY06 Q0Q %

Revenues 24,316.7 19,770.6 23.0 22,558.8 7.8

EBIDTA 3,546.0 2,922.7 21.3 3,631.9 (2.4)

PAT 2,511.2 2,044.5 22.8 2,672.6 (6.0)

EPS 12.6 10.2 13.4


31

BUY

Rs 172 Sensex: 10,684 Nifty: 3,142

Stock data

Bloomberg HALC IN

Reuters HNDL.BO







-1m -3m -12m

Abs (%) 7.8 (10.2) 70.4

Rel* (%) (1.8) (3.2) 28.9

*to Nifty Financial snapshot Rs mn Ye March FY05 FY06 FY07E Net Sales 95,233 113,966 158,587 % ch - 19.7 39.2 EBIDTA 22765 26050 37872 % ch - 14.4 45.4 Net Income 13294 16555 23743 % ch - 24.5 43.4 EPS (Rs.) 14.3 16.8 20.5 % ch - 17.2 21.9 P/E(x) 12.0 10.2 8.4 ROE (%) 18.3 19.1 21.5

Vishal Mishra +91 22 67069943

[email protected]

Sameer Dalal +91 22 67069921

[email protected]

Hindalco Industries July 11, 2006 Copper division to start delivering profits Hindalco Industries (HIL) after a chequered performance in FY06 when the aluminium division did well and the copper division suffered on account of production losses is set to perform well with both the divisions doing well in the current year FY07. With a stronger aluminium prices in the current year, we expect the contribution from this division in FY07 to be better than that in FY06. We expect the copper division too to report a better performance on the back of higher TC/RC margin, which is currently 20 cents/pound. We believe the company is well placed to generate strong profits for the quarter and the year, coupled with the added value of its mining subsidiary ABML in Australia, we are positive on its outlook and maintain a Buy


Aluminium profitability continues on steam: LME aluminium prices reached a high during the quarter of $3,100 a ton, since then we have seen the prices retrace down to $2,400 and are now in the region of $2,500 per ton. Given the strong LME aluminium prices, and low inventory levels, with tight supply at present we do not see any significant price fall in the prices of aluminium. With HIL being a fully integrated player the company will be able to maintain its profitability going forward.

Copper division to turn profitable: The company had witnessed production constraints during most of FY06 due to plant shutdown at the various smelters, causing production shortfalls, which led to the company incurring backwardation charges. The company has resolved its problems at its plants and we believe the company will be able to increase its copper production by over 50% in the current year. With TC/RC margins expected to remain in the region of 20cents/pound the copper division will add to the overall profitability of HIL in FY07.

The expected result highlights for the quarter are:

With high LME prices of aluminum at over $2400 and copper at $7,000, and expected strong volumes in the both division we expect the companys revenue to grow y-o-y by 92.5% and q-o-q by 16.2%.

Aluminum prices prevailing higher coupled with the company concentrating further in value added products, we expect the operating margins of the division to improve by 1300bps y-o-y and 220bps q-o-q. The copper division should start generating profits with its problems behind it and we expect the operating margin to be around 5.5%. With both division expected to deliver we expect the overall operating margins of the company y-o-y to increase to 19.6% for Q1FY07E.

Quarterly estimates In Rs mn 1QFY07 E 1QFY06 % YoY 4QFY06 % QoQRevenues 42,508 22,078 92.5 36,574 16.2 EBIDTA 11,121 6,044 84.0 9,298 19.6 PAT 6,735 3,249 107.3 6,263 7.5

EPS

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