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India metals and miningBest placed in the region

Rakesh Arora, CFAMacquarie Capital Securities (India) Pvt. Ltd.

Level – 3, Mafatlal Center, Nariman PointMumbai (India) 400021

June 2011

Macquarie Research is a division of Macquarie Group Limited, an affiliate and parent company of Macquarie Capital (USA) Inc., a registered broker - dealer and member of The Financial Industry Regulatory Authority (“FINRA”). All transactions by U.S. investors involving securities discussed in this report must be effected through Macquarie Capital (USA) Inc., which assumes responsibility in the U.S. for the contents of this report.

This research report has been prepared in whole or part by foreign research analysts. These research analysts are not registered/qualified as a research analyst with FINRA, but instead have satisfied the registration/qualification requirements or other research-related standards of a foreign jurisdiction that have been recognized for these purposes by FINRA.

Please read Disclaimer on Page 44-46

Export/GDP - India is a domestic story

0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%

Singapore

HK

Malaysia

Taiw an

Phillipines

Korea

Indonesia

India

Export/GDP

Why India? Supply-constrained and low costNew supply is coming online: Although India was a net importer of steel, this can change with JSW, Tata and Essar’s new capacity coming online. India will remain a net importer of coal and power deficit at 14.5%.Demand growing – though can’t outpace supply: GDP forecast at 8.5%. Cement demand grew at 7%, and steel demand grew at 6% YTD.Lowest-cost producers: Integrated nature of companies, nearer to market and low labour cost advantage.Free – resources: The Indian government is allocating resources free of cost to whoever is willing to put up employment-generating finishing lines. 20billion t of thermal coal reserves allocated.

Source: CEIC, Macquarie Research, May 2011

GDP growth - India to have more stable growth

-4.0

0.0

4.0

8.0

12.0

16.0

2006 2007 2008 2009 2010 2011E 2012E

India China Korea Malaysia Phillipines

`

Forecast

Policy changes to empower growthChanging regulation and policies: Lots of changes proposed with upcoming new mining policy.

Streamlining the process, reducing time taken to allocate

Auction/bidding of ore bodies delineated by government agencies

Controversial change of sharing 26% of mine profits

Linking royalty rates to market prices

Haves and have nots: Most companies are facing intense competition getting resources.This has created a significant divergence in profitability of growth. Most companies have also faced issues with land acquisition, environmental clearances, etc.

Key winners here will likely be companies that already have large resources and that should gain in value once auctioning of government explored mineral deposits starts, as per the new policy.

Themes we play onRelatively safe, sound and growing domestic plays: Jindal Steel & Power, Sterlite and Gujarat NRE Coke

Turning around operations: JSW Steel

Costly and we think best avoided: Nalco Based on FY3/12 estimates.

Source: Macquarie Research, May 2011

Valuation Summary on FY3/12PER EV/EBITDA P/BV Debt/Equity ROE

Tata Steel 7.0x 6.2x 1.4x 1.2x 19%JSW Steel 7.9x 5.2x 0.9x 0.6x 11%SAIL 9.8x 7.5x 1.4x 0.2x 15%JSPL 11.2x 9.1x 3.2x 0.8x 33%

Sterlite 7.5x 3.7x 1.2x -0.2x 16%Hindustan Zinc 9.1x 5.0x 2.0x -0.7x 28%Hindalco 8.5x 6.0x 1.2x 0.8x 14%

Nalco 15.7x 9.2x 1.9x -0.4x 12%GNC 5.8x 3.8x 0.8x 0.7x 16%Coal India 18.8x 12.8x 5.7x -1.1x 31%NMDC 13.5x 8.4x 4.2x 0.3x 35%

Attractive valuations and strong balance sheets

Most of India’s metal companies have a domestic focus and strong balance sheets.

Source: Macquarie Research, May 2011. Prices as of 31 May 2011.

FY11 FY12 FY13 FY11 FY12 FY13Tata Steel Outperform 582 688 18% 6.4x 7.0x 5.3x 7.6x 6.2x 5.0xJSW Steel Outperform 965 1229 27% 12.5x 7.9x 6.4x 6.8x 5.2x 4.4xSAIL Neutral 145 150 3% 10.5x 9.8x 8.2x 8.3x 7.5x 6.0xJSPL Outperform 656 938 43% 16.3x 11.2x 9.9x 11.3x 9.1x 7.9x

FY11 FY12 FY13 FY11 FY12 FY13Sterlite Outperform 173 234 35% 12.4x 7.5x 6.2x 7.2x 3.7x 2.9xHindustan Zinc Neutral 137 136 -1% 11.8x 9.1x 8.8x 7.8x 5.0x 4.1xHindalco Outperform 198 270 36% 16.2x 8.5x 8.2x 7.4x 6.0x 5.8xNalco Underperform 92 72 -22% 84.7x 15.7x 16.4x 59.0x 9.2x 10.0x

FY11 FY12 FY13 FY11 FY12 FY13GNC Outperform 52 95 83% 11.7x 5.8x 5.0x 8.0x 3.8x 3.1xCoal India Neutral 415 382 -8% 24.1x 18.8x 16.5x 16.1x 12.8x 11.5xNMDC Outperform 270 289 7% 16.5x 13.5x 10.5x 10.4x 8.4x 5.9x

% upside PER EV/EBITDARaw material Reco Price (Rs) TP (Rs)

% upside PER EV/EBITDABase Metals Reco Price (Rs) TP (Rs)

% upside PER EV/EBITDASteel Reco Price (Rs) TP (Rs)

Commodity prices – we see continued strength

Source: Macquarie Research, May 2011

Coking coal - supply constraints

129

215

303

236 223

145

300

264

-57%

66%

41%

-13% -10% -6%

88%

-

50

100

150

200

250

300

350

F Y 09 A F Y 10A F Y 11A F Y 12E F Y 13 E F Y 14 E F Y 15E Lo ngte rm

(US$ /t)

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

C o k ing C o a l % change Y o Y

Zinc - long term positive

1,9352,187

2,3262,618

2,453

1,8741,562

2,508

24%

13%6% 8% 4%

-6%

-48%

1,000

1,300

1,600

1,900

2,200

2,500

2,800

F Y09A F Y10A F Y11A F Y12E F Y13E F Y14E F Y15E Lo ngterm

(US$/t)

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Z inc % change Yo Y

Copper – upsides even now

6,1038,139

10,924

7,165 6,8894,850

5,878

10,747

4%

33% 34%

-2%

-33%

-4%

-22%

-

2,000

4,000

6,000

8,000

10,000

12,000


(US$/t)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

C o pper % change Yo Y

Steel - just enough to meet cost

540

702798 804 777

590

830

797

-35%

30%

14%

0% 1%-3%

33%

-

100

200

300

400

500

600

700

800

900


(US$/t)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Steel H R C o il % change Yo Y

Aluminium - oversupply remains

1,8662,257

2,535 2,673 2,7832,425

2,230

2,425

-16%

21%

12%

-4%

10%

4%

-15%1,000

1,300

1,600

1,900

2,200

2,500

2,800

3,100


(US$/t)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

A luminium % change Yo Y

Fines Iron ore - supported by costs

57

129

161 153 143

6585

158-33%

125%

25%

-2% -3% -6%

80%

-

20

40

60

80

100

120

140

160

180

FY09A FY10A FY11A FY12E FY13E FY14E FY15E Longterm

(US$/t)

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Fines Iron ore % change YoY

Steel – high iron ore prices add to competitive advantage

Demand weak but seems to be stabilizing: Demand was hit by liquidity tightening but now seems to be stabilizing, albeit at a slower pace. Indian steel prices have stabilized post a decline in April and are now at a discount to import parity price.

New supply coming online: However, the Indian steel industry is likely to witness almost 10mnt of capacity addition and slower demand this year, but still should be able to operate at full capacity as gross imports stand at 7–8mnt, which can be substituted.

Raw material advantage: Most companies have captive iron ore that costs US$20–25/t against US$150–160/t CIF China. Advantage of US$180/t of steel.

Key Ideas: Jindal Steel and Power (JSP IN, Rs656, OP, TP: Rs938) and JSW Steel (JSTL IN, Rs965, OP, TP: Rs1,229). We like JSP and JSW Steel, for which our earnings estimates are well above consensus. Tata Steel is a leveraged play on the steel cycle, while SAIL lacks a positive catalyst in the near term and we think can be avoided currently.

High demand has led to increasing imports

Source: Company data, Macquarie Research, May 2011

Finished steel imports

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

19911992

19931994

1995

19961997

19981999

20002001

20022003

20042005

2006

20072008

20092010

('000 tonnes)

Capacity additions (FY11 - FY16) - Greenfield capacities in doubt

0

1

2

3

4

5

67

8

9

10

Tata

Ste

el

SA

IL

Ispa

t

JSW

Ste

el

Ess

ar

JSP

L

RIN

L

Bhu

shan

Pos

co

Mitt

al

NM

DC

Oth

ers

EA

F/IF

(mtpa)

Brownfield Greenfield

Steel capacity is not increasing fast enough, with greenfield

capacities remaining in doubt.

India will remain a net importer.

0

10

20

30

40

50

60

70

FY92

FY93

FY94

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12E

App

aren

t fin

ishe

d st

eel c

onsu

mpt

ion

(MnT

)

Average GDP growth at 7.5%, Apparent steel consumption grew at CAGR of 9.3%

Expected GDP growth at 8.5% and steel consumption growth at 2%

Indian steel – offers best selling price5% import duty – gives extra US$25–30/t in realisation and restriction on imports due to hassles inimporting hot rolled coil.

Premium due to domestic shortages – Indian steel prices at 10-15% premium, though have been at a discount lately.

Source: JPC, Macquarie Research, May 2011

This, in addition to lowest cost advantage, has helped profitability

Iron ore Iron ore Iron ore100% 100% 20%

2QFY11 3QFY11 4QFY11 2QFY11 3QFY11 4QFY11 2QFY11 3QFY11 4QFY11330 370 378 106 110 149 126 139 200

0%

Tata Steel (India) JSW SteelCaptive raw material

SAIL

EBITDA/t (US$)

Captive raw material

EBITDA/t (US$)50%

Coking coalCoking coal

EBITDA/t (US$)

Coking coal0%

Captive raw material

Import Landed Vs Domestic HRC Price

-

200

400

600

800

1,000

1,200

1,400

May

-00

Nov

-00

May

-01

Nov

-01

May

-02

Nov

-02

May

-03

Nov

-03

May

-04

Nov

-04

May

-05

Nov

-05

May

-06

Nov

-06

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

(US$/t)

HRB Landed Price (US$/t) Domestic HRC prices ex duties (US$/t)

Steel valuations – still look reasonable

Source: Bloomberg, Macquarie Research, May 2011

Tata Steel - 1 Year Fwd P/BV

-

0.5

1.0

1.5

2.0

2.5

3.0

May

-96

May

-97

May

-98

May

-99

May

-00

May

-01

May

-02

May

-03

May

-04

May

-05

May

-06

May

-07

May

-08

May

-09

May

-10

1 Yr Fwd P/BV Average PBV

Tata Steel - 1 Year Fwd PER

-2468

101214161820

May

-94

May

-95

May

-96

May

-97

May

-98

May

-99

May

-00

May

-01

May

-02

May

-03

May

-04

May

-05

May

-06

May

-07

May

-08

May

-09

May

-10

May

-11

1Yr Fwd PER Average PER

JSW Steel - 1 Year Fwd P/BV

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1 Yr Fwd P/BV Average PBV

JSW Steel - 1 Yr Fwd PER

0.0x10.0x20.0x30.0x40.0x50.0x60.0x70.0x80.0x

May

-03

May

-04

May

-05

May

-06

May

-07

May

-08

May

-09

May

-10

May

-11

SAIL - 1 Year Fwd PER

-2468

101214161820

May

-03

Nov

-03

May

-04

Nov

-04

May

-05

Nov

-05

May

-06

Nov

-06

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

1Yr Fwd PER Average PER

SAIL - 1 Year Fwd P/BV

-0.51.01.52.02.53.03.54.04.55.0

May

-03

Nov

-03

May

-04

Nov

-04

May

-05

Nov

-05

May

-06

Nov

-06

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

c

Tata Steel (TATA IN, Outperform)

Source: Bloomberg, May 2011

Key share data and performance vs Sensex Financial estimates and valuation ratios

* Book Value excluding goodwill



TATA vs Sensex

0

50

100

150

200

250

May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11Tata Steel India Sensex

FY08A FY09A FY10A FY11E FY12E FY13EProfit & LossNet sales Rsm 1,315,336 1,473,288 1,023,937 1,171,498 1,314,566 1,352,723 EBITDA Rsm 177,824 181,271 89,798 143,922 174,429 206,861 % margin % 14% 12% 9% 12% 13% 15%PAT Rsm 123,499 49,497 19,354- 89,880 81,896 107,808 EPS Rs 169.0 67.7 20.8- 91.1 83.0 109.3 Balance SheetShareholders' Equity Rsm 396,465 331,869 228,564 355,120 422,464 515,600 Total Debt Rsm 536,247 599,005 530,585 621,843 606,494 591,811 Cash Rsm 53,656 61,484 66,964 109,125 79,781 87,415 Net debt Rsm 473,097 519,755 441,316 512,719 498,827 467,209 Total assets Rsm 921,936 913,550 797,554 1,016,527 1,069,440 1,149,101 Cash flowCash from operations Rsm 134,202 156,959 104,710 14,250 78,988 135,587 Capex Rsm (84,166) (84,337) (71,495) (72,864) (52,669) (72,406) FCF Rsm 50,036 72,622 33,215 58,614- 26,319 63,181

RatiosPER x 3.4x 8.6x -28.0 6.4x 7.0x 5.3xEV/EBITDA x 5.1x 5.2x 10.9x 7.6x 6.2x 5.0xP/BV x 1.1x 1.3x 2.4x 1.6x 1.4x 1.1xBVPS* Rs 543 454 246 360 428 523 Dividend Yield % 2.7% 2.7% 1.4% 1.5% 1.7% 1.9%RoE % 31% 15% -8% 25% 19% 21%Net Debt to Equity x 1.2x 1.6x 1.9x 1.4x 1.2x 0.9x

Tata Steel TATA INRecommendation OutperformTarget price (Rs) 688Current price (Rs) 582 % upside (downside) 18%Market cap (Rsm) 541,257 Market cap (US$m) 12,028

Tata Steel – Structural story Raw material integration to increase


Plans to double its Indian capacity in next decade

Upgrade to Corus EBITDA with raw material integration India will continue to contribute significantly to earnings

Tata Steel - Raw material integration level

100%

70%

18%

34% 33% 39%46%

22% 27%

48%

21%22%17%16%14% 17%

0%

20%

40%

60%

80%

100%

120%

FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E FY2013E FY2014E

Self suff iciency in iron ore Self sufficiency in coal

Tata Steel (India) - expansions

6.8 6.8 6.8 6.8

3

3 3

3

0

2

4

6

8

10

12

14

16

18

Current JamshedpurPhase II

Orissa Phase I Orissa Phase II

(mtpa)

2012

2015

2014

43

60

77

95

-

20

40

60

80

100

120

Current EBITDA/t 10% integration 20% integration 30% integration

70% 69%

20%26% 26%

1% 3% 3%

77%

1% 2% 1%

0%

20%

40%

60%

80%

100%

120%

FY2011 FY2012E FY2013E

EBIT

DA

(% c

ontr

ibut

ion)

Tata Corus Tata Steel Thailand Natsteel

Tata Steel – Corus no longer an overhang

Source: Company Data, Macquarie Research, May 2011

Quarterly earnings have started to see an increase

… as cost pressures easeConsolidated EBITDA will move up

Corus will see an increase in earnings

Tata Steel (consolidated) - cost movement

7% 11% 10% 16% 17%11%

18% 13%15% 16%

19%

19%21%

17% 15%5%

6%4%

4% 4%6%

6%6%

6% 6%

47%36% 41% 37% 36%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY2008 FY2009 FY2010 FY2011E FY2012E

Iron ore Coal Scrap Alloys Employees Energy Freight Other

$82

$116

-$5

$43

$65

$80$91

-20

0

20

40

60

80

100

120

140

FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E

140 134

79

126

145

168178

-

2040

6080

100

120

140160

180200

FY20

08

FY20

09

FY20

10

FY20

11

FY20

12E

FY20

13E

FY20

14E

(US$/t)

$123

$175

$83

$29

-$106

-$52

$37

$94$79

$56$25

$85

-150

-100

-50

0

50

100

150

200

Q1F

Y09

Q2F

Y09

Q3F

Y09

Q4F

Y09

Q1F

Y10

Q2F

Y10

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Corus quarterly EBITDA per

ton ($ /T)

Corus – EBITDA per ton now on recovery

Quarterly earnings trend


Consolidated will also see increase

Volume expected to recoverRealizations remain stable

Standalone earnings remain strong

8.77.9

6.1 6.05.4

6.4 6.3 6.56.0 5.8 5.7

6.5

0

1

2

3

4

5

6

7

8

9

10

Q1FY09 Q3FY09 Q1FY10 Q3FY10 Q1FY11 Q3FY11

1039

872

1176

985 956889 926 942 968

1095 11461167

0

200

400

600

800

1000

1200

1400


$187

$216

$94

$51

$17$40

$120

$182$166 $172

$133

$162

0

50

100

150

200

250


LHS - EBITDA/t (US$/t)

-

100

200

300

400

500

600

700

1QFY

062Q

FY06

3QFY

064Q

FY06

1QFY

072Q

FY07

3QFY

074Q

FY07

1QFY

082Q

FY08

3QFY

084Q

FY08

1QFY

092Q

FY09

3QFY

094Q

FY09

1QFY

102Q

FY10

3QFY

104Q

FY10

1QFY

112Q

FY11

3QFY

114Q

FY11

JSW Steel (JSTL IN, Outperform)


Key share data and performance vs. Sensex Financial estimates and valuation ratios

* Book Value excluding goodwill



0

100

200

May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11

JSTL India Sensex

JSW Steel JSTL INRecommendation OutperformTarget price (Rs) 1,229 Current price (Rs) 965 % upside (downside) 27%Market cap (Rsm) 229,670 Market cap (US$m) 5,104

FY08A FY09A FY10A FY11E FY12E FY13EProfit & LossNet sales Rsm 123,455 150,314 188,969 234,581 479,238 521,813 EBITDA Rsm 33,673 29,359 40,149 47,118 80,617 98,587 % margin % 27% 20% 21% 20% 17% 19%PAT Rsm 16,589 2,453 14,814 18,377 31,387 38,746 EPS Rs 86.6 13.3 79.2 77.2 122.9 151.7 Balance SheetShareholders' Equity Rsm 80,807 80,771 94,758 198,117 281,451 316,204 Total Debt Rsm 121,362 165,502 161,730 151,730 252,427 257,783 Cash Rsm 4,715 5,093 3,030 34,664 75,072 63,780 Net debt Rsm 111,952. 156,443. 152,418. 91,352. 175,217. 191,865. Total assets Rsm 214,686 259,042 276,138 477,407 749,788 740,221 Cash flowCash from operations Rsm 32,657 47,118 33,613 53,787 82,330 21,573 Capex Rsm (52,443) (59,735) (27,537) (70,000) (79,014) (17,652) FCF Rsm 19,786- 12,617- 6,076 16,213- 3,317 3,922

RatiosPER x 11.1x 72.6x 12.2x 12.5x 7.9x 6.4xEV/EBITDA x 8.7x 11.5x 8.3x 6.8x 5.2x 4.4xP/BV x 2.2x 2.2x 1.9x 1.2x 0.9x 0.8xBVPS* Rs 432 432 507 832 1,102 1,238 Dividend Yield % 1.5% 0.1% 1.0% 1.0% 1.0% 1.0%RoE % 21% 3% 16% 9% 11% 12%Net Debt to Equity x 1.4x 1.9x 1.6x 0.5x 0.6x 0.6x

JSW Steel – a turnaround storyExpanding Indian operations, bought Ispat recently Will likely reap synergy benefits despite low raw material integration

JFE deal helped reduce leverage Costs remain a concern with lack of raw material integration


JSW Steel - Expansion drive

7 7 710 10

1 1 1

1 13

3 4

3

3

0

5

10

15

20

25

Current FY10E FY11E FY12E Long term

mtpa

Vijaynagar SISCOL Ispat West Bengal Jharkhand

Raw material integration

0%

22%

16%

11%10%

21%17%

0% 0% 0%

12%

5%

-5%

0%

5%

10%

15%

20%

25%

F Y2008 F Y2009 F Y2010 F Y2011 F Y2012 F Y2013

Iro n o re C o king co al

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

FY2010 FY2011E FY2012E FY2013E

Net debt to equity JSW Steel - cost breakup movement

11%18% 15% 15%

22% 25% 23%

38%40% 52%

45%42% 35%

30%

7%7%

6%7%

6%8%

9%8%

6%5%

4%5%

3%4%

24% 20% 17%24% 21% 25% 30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

Iron ore Coal + coke Energy Freight Employee Others



Volume growth will play in FY12

And volume of 8.4mtpa to increase in FY12We expect EBITDA of $177/t for India

Standalone earnings at $200/t mark

3.4 3.4

5.7 6.0

8.4

9.4

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

239

172158

173 177196

-

50

100

150

200

250

300

FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

JSW Steel (standalone) - quarterly EBITDA/t

-

50

100

150

200

250

300

350

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

(US$/t)

JSW (standalone) EBITDA/t (US$/t)

JSW Steel (standalone) - saleable steel

-0.20.40.60.81.01.21.41.61.82.0

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

(mt)

Steel Authority Of India (SAIL IN, Neutral)





020406080

100120140160


Sail India Sensex

SAIL SAIL INRecommendation NeutralTarget price (Rs) 150Current price (Rs) 145 % upside (downside) 3%Market cap (Rsm) 598,908 Market cap (US$m) 13,309

FY08A FY09A FY10A FY11E FY12E FY13EProfit & LossNet sales Rsm 406,719 443,463 420,056 435,867 555,038 649,762 EBITDA Rsm 118,882 92,923 103,230 77,694 91,116 119,961 % margin % 29% 21% 25% 18% 16% 18%PAT Rsm 75,968 62,531 68,465 57,014 61,120 73,353 EPS Rs 18.4 15.1 16.6 13.8 14.8 17.8 Balance SheetShareholders' Equity Rsm 232,873 283,006 337,390 376,856 418,674 470,795 Total Debt Rsm 38,876 86,665 176,379 201,621 271,379 321,379 Cash Rsm 139,331 184,863 227,185 153,037 182,580 200,158 Net debt Rsm (100,454) (98,198) (50,807) 48,584. 88,799. 121,220. Total assets Rsm 287,397 382,955 528,080 593,550 705,656 808,415 Cash flowCash from operations Rsm 123,808 93,564 87,167 57,802 190,957 132,338 Capex Rsm (28,425) (58,324) (104,254) (112,800) (181,090) (103,480) FCF Rsm 95,383 35,240 17,087- 54,998- 9,867 28,858

RatiosPER x 7.9x 9.6x 8.7x 10.5x 9.8x 8.2xEV/EBITDA x 4.2x 5.4x 5.3x 8.3x 7.5x 6.0xP/BV x 2.6x 2.1x 1.8x 1.6x 1.4x 1.3xBVPS* Rs 56 69 82 91 101 114 Dividend Yield % 2.6% 1.8% 2.3% 2.8% 3.4% 4.1%RoE % 33% 22% 20% 15% 15% 16%Net Debt to Equity x -0.4 -0.3 -0.2 0.1x 0.2x 0.3x

Changing product mix with capacity expansion …

Coking coal & employee costs will remain an overhangHowever, capacity could be delayed

52%56%

25%28%

2.1

1.3

2.2

3.3

0%

10%

20%

30%

40%

50%

60%

BSP DSP RSP BSL

Ord

ers

left

to b

e pl

aced

(%)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

mn

tons

% left to be ordered capacity increase

SAIL is changing its product mix with new capacity

SAIL product mix (FY10)

Semis20%

Rounds/bars10%

Coated products

3%CRC9%Structurals

5%

HRC23%

Plates21%

Pipes1%

Railw ay materials

8%

SAIL product mix (FY12)

Semis23.3%

Rounds/bars4.8%

Coated products10.4%

CRC15.0%

Structurals7.4%

Railway materials

22.1%

HRC16.4%

Plates0.6%

Pipes0.0%


SAIL - cost breakup movement

6% 5% 6% 5% 5% 6%

31%42%

38% 47% 49% 46%

28%24% 17% 18% 16% 15%

FY2008 FY2009 FY2010 FY2011E FY2012E FY2013EIron ore Coal + Coke Employee



Employee costs play spoilsport

And volume of 14mtpaWe expect EBITDA of $168/t for India

EBITDA much below peers

-

50

100

150

200

250

300

350

400

4QFY

06

2QFY

07

4QFY

07

2QFY

08

4QFY

08

2QFY

09

4QFY

09

2QFY

10

4QFY

10

2QFY

11

4QFY

11

(US$/t)

-

50

100

150

200

250

300

4QFY

06

2QFY

07

4QFY

07

2QFY

08

4QFY

08

2QFY

09

4QFY

09

2QFY

10

4QFY

10

2QFY

11

4QFY

11

(US$/t)

174182

125

168

188

-

20

40

60

80

100

120

140

160

180

200

FY2009 FY2010 FY2011 FY2012E FY2013E

EBITDA per ton

1112 12

14

17

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

FY2009 FY2010 FY2011 FY2012E FY2013E

(mn tons)

Jindal Steel & Power (JSP IN, Outperform)Key share data and performance vs Sensex Financial estimates and valuation ratios




-30

6090

120150

180210


JSP India Sensex

FY08A FY09A FY10A FY11E FY12E FY13EProfit & LossNet sales Rsm 54,890 108,518 112,894 131,577 170,671 202,915 EBITDA Rsm 22,101 51,657 58,821 63,702 84,659 96,862 % margin % 40% 48% 52% 48% 50% 48%PAT Rsm 12,740 30,457 35,660 37,480 54,718 61,815 EPS Rs 16.5 39.4 38.3 40.2 58.8 66.4 Balance SheetShareholders' Equity Rsm 38,247 70,243 103,944 140,012 193,318 253,721 Total Debt Rsm 69,961 81,133 86,043 139,879 246,696 332,169 Cash Rsm 6,207 6,694 1,128 32,593 90,597 177,620 Net debt Rsm 62,251. 70,914. 84,360. 106,718. 155,532. 153,982. Total assets Rsm 113,528 158,863 200,325 292,503 453,246 599,582 Cash flowCash from operations Rsm 15,958 38,787 55,747 33,828 79,461 90,944 Capex Rsm (20,426) (37,188) (65,131) (52,769) (124,988) (84,589) FCF Rsm 4,468- 1,599 9,384- 18,941- 45,526- 6,355

RatiosPER x 39.6x 16.7x 17.1x 16.3x 11.2x 9.9xEV/EBITDA x 7.4x 3.3x 11.8x 11.3x 9.1x 7.9xP/BV x 13.2x 7.2x 5.9x 4.4x 3.2x 2.4xBVPS* Rs 50 91 112 150 208 272 Dividend Yield % 0.1% 0.2% 0.2% 0.2% 0.2% 0.2%RoE % 33% 56% 41% 31% 33% 28%Net Debt to Equity x 1.6x 1.0x 0.8x 0.8x 0.8x 0.6x

Jindal Steel & Power JSP INRecommendation OutperformTarget price (Rs) 938 Current price (Rs) 656 % upside (downside) 43%Market cap (Rsm) 610,867 Market cap (US$m) 13,575

Jindal Steel & Power – Our top pick in resourcesTripling its steel capacity from current 4.5mtpa to 12mtpa by FY14E.

Five-fold increase in its merchant power capacity from current 1,000MW to 5,400MW by FY15E.

Stable high profitability of its power business even with falling merchant power rates due to declining costs.

Captive coal (nearly 2.5bn tonnes in reserves) is at the heart of competitiveness.

Unique steel-making technology that reduces use of coking coal by 50% vs the BF route.

Has a history of consistently high margins in steel business.


Net profit breakup - steel to regain prominence

2%

51%61%

48%

32%24%

98%

49%39%

52%68%

76%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08A FY09A FY10A FY11A FY12E FY13EPower Steel

JSPL

Mild Steel 4.5mt 1000 MW (250*4 MW)Finished steel 3.25mtPower 628MW

Power business – first-mover advantage

Comparative cost of power generationCaptive coal Bought out coal Imported coal

Calorific value Kcal/Kg 4,000 4,000 6,000 Cost Rs/t 600 1,200 5,000 Station heat rate Kcal/unit 2,500 2,500 2,500 Fuel cost Rs/unit 0.38 0.75 2.08

JSPL’s steel business has had consistently the highest margins

among Indian steel names, even

during the steel downturn

Jindal Power has super-normal

returns compared to comparative

firms

We estimate that abnormal

realisations will come down as

competition kicks in

Captive coal key to competitiveness




RoE of various power companies

3%

12%

62%

22% 24%20%19%

15%18% 18%

15% 15% 15% 15% 14%12% 13% 13% 14% 13%14% 15% 16%

20%16%

5% 4%

0%

10%

20%

30%

40%

50%

60%

70%

(%)

ADANI JSW LANCI NATP PWGR TPWR RPWR

Realizations to come down - but enough time to earn dough

4.67

6.33 6.22 6.17

5.12 4.844.08

4.68 4.433.97 4.14

5.69 5.364.50

3.83 3.46 3.20 3.14

-6%

-16%-15%

-10%-7%

-2%

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2QFY

09A

3QFY

09A

4QFY

09A

1QFY

10A

2QFY

10A

3QFY

10A

4QFY

10A

1QFY

11A

2QFY

11A

3QFY

11A

4QFY

11A

FY09

FY10

FY11

A

FY12

E

FY13

E

FY14

E

FY15

E

(Rs/unit)

-18%-16%-14%-12%-10%-8%-6%-4%-2%0%

Blended tarriff % change

EBITDA margins of steel companies

0%5%

10%15%20%25%30%35%40%45%50%

FY02A FY03A FY04A FY05A FY06A FY07A FY08A FY09A FY10A FY11A FY12E FY13E

(%)

Tata Steel SAIL JSW Steel JSPL (standalone)

The steel advantage


Tripling its steel capacity from current 3mtpa In line with increases in metallic's capacity

EBITDA per ton is one of the highest amongst its peers Capacity growth is higher than peers

0.0

5.0

10.0

15.0

20.0

25.0

30.0

FY2011 FY2014

Cru

de s

teel

cap

acity

(mill

ion

tons

)TATA JSW JSPL SAIL

Total sponge iron capacity

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

FY2010 FY2011E FY2012E FY2013E FY2014E FY2015E

Total steel capacity

0.0

1.0

2.0

3.0

4.0

5.0

6.0

FY2010 FY2011E FY2012E FY2013E FY2014E FY2015E

EBITDA per ton ($/ton)

309 292

429

158 161 163182139 148

297

384 382

0

100

200

300

400

500

FY2010 FY2011 FY2012

JSP JSW SAIL Tata Steel India

The steel advantage


Steel business is growing Steel margins are improving

Power business will reduce contribution Margins remain strong

3.2

4.7

6.3 6.2 6.2

5.1 4.84.1

4.7 4.44.0 4.1

0.5

2.2

3.13.5 3.6

3.0 2.92.5 2.8 2.6 2.4 2.5

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

Realisation Net Profit per unit

297

439459

440

339

11

168192

230

278

323300

329 343

-50

-

50

100

150

200

250

300

350

400

450

500

3QFY

08

4QFY

08

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

EBIT per unit

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

4QFY08 2QFY09 4QFY09 2QFY10 4QFY10 2QFY11 4QFY11-1,0002,0003,0004,0005,0006,0007,0008,000

Power - net sales (Rsm) LHS Power - PAT (Rsm) RHS

0

5,000

10,000

15,000

20,000

25,000

30,000

4QFY

08

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Steel - net sales (Rsm) LHS Steel - PAT (Rsm) RHS

Non-Ferrous – Volume, volume and volume

Aluminium – the key base metal in India: India currently has capacity of 1.5mt, and the capacity is being increased to 3mt by FY15 by players like Hindalco. The biggest concern is allocation of bauxite and coal mines, which are in the interior of India. Aluminium seems to be peaking out, and we remain cautious to the possibility of unwinding of inventory as interest rate cycle reverses. Hindalco, with 65% of earnings coming from the rolling business, remains our hedged play on aluminium.

Copper – lack of concentrate: India continues to import concentrate due to a lack of availability.

Zinc – low cost expansions: India is one of the lowest cost producers of zinc, and capacity expansion by Hindustan Zinc has increased capacity from 600kt to 850kt. We think zinc prices have corrected quite a bit and are near the marginal cost of production.

Key ideas: Sterlite (STLT IN, Rs173, OP, TP: Rs234). Our preferred play on zinc is Sterlite, which has other catalysts too.

Sterlite Industries (STLT IN, Outperform)





0

50

100

150


Sterlite India Sensex

Sterlite Industries STLT INRecommendation OutperformTarget price (Rs) 234 Current price (Rs) 173 % upside (downside) 35%Market cap (Rsm) 581,557 Market cap (US$m) 12,923

FY09A FY10A FY11E FY12E FY13E FY14EProfit & LossNet sales Rsm 212,993 245,516 302,596 439,139 558,958 573,192 EBITDA Rsm 44,537 60,180 74,784 138,757 165,772 179,115 PAT Rsm 31,921 37,907 46,755 77,602 94,406 96,273 EPS Rs 45.1 45.1 13.9 23.1 28.1 28.6

Balance SheetShareholders' Equity Rsm 256,132 370,120 410,340 470,398 547,936 622,940 Total Debt Rsm 70,143 92,600 194,100 229,600 236,600 243,600 Cash Rsm 55,048 33,378 1,241 64,274 94,459 206,968 Total assets Rsm 408,483 562,340 716,260 836,380 951,232 1,065,771

Cash flowCash from operations Rsm 58,382 41,817 147,799 202,325 263,402 201,821 Capex Rsm (53,403) (68,980) (123,544) (42,723) (40,127) (42,904) FCF Rsm 4,980. (27,163) 24,255. 159,603. 223,275. 158,917.

RatiosPER x 3.8x 3.8x 12.4x 7.5x 6.2x 6.0xEV/EBITDA x -0.0 7.7x 7.2x 3.7x 2.9x 2.1xP/BV x 0.5x 0.4x 1.4x 1.2x 1.1x 0.9xBVPS Rs 362 440 122 140 163 185 Net cash/share Rs 173 144 13 22 28 59 Dividend Yield % 2.0% 2.2% 0.6% 0.7% 0.7% 0.7%RoE % 12% 10% 11% 16% 17% 15%RoA % 11% 10% 9% 12% 13% 12%Net Debt to Equity x -0.5 -0.3 -0.1 -0.2 -0.2 -0.3

Sterlite – Increasing capacityHad planned increase in aluminium capacity … … and has delivered on increase in zinc capacity

Which will help increase profits as wellSetting up power capacity


Zinc Expansion Plans

411,000

669,000

170,000 170,000

88,000

210,000

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2007 Chanderiya II Debottlenecking Current FY11

Tonnes pa

Vedanta - Emerging aluminium giant

360 355245

408570 570

82 264

400

450 450

0

200

400

600

800

1000

1200

Current FY2009 FY2010 FY11 FY12 FY13

(Ktpa)

Sterlite Industries (Korba) Vedanta Aluminium

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

FY2011 FY2012 FY2013 FY2014

MW

11.313.3

19.1

22.9

-

5.0

10.0

15.0

20.0

25.0

2010 2011E 2012E 2013E

Rs/ share

Sterlite – power contribution expected to remain muted

Power business - tariff assumptions



FY11

Copper7%

Anglo6%

Power2% Aluminium

14%

Hindustan Zinc71%

FY2012

Copper6%

Power14%

Aluminium13%

Hindustan Zinc53%

Anglo14%

FY 2013

Copper7%Anglo

12%

Power18%

Aluminium18%

Hindustan Zinc45%

FY2010 FY2011 FY2012 FY2013 FY2014Sales on PPA basis 25% 25% 25% 25% 25%PPA tariff (Rs/ Kwh) 2.40 2.40 2.60 2.60 2.60Sales on Merchant basis 75% 75% 75% 75% 75%Merchant tariff (Rs/ Kwh) 6.00 3.70 3.50 3.50 3.00 % change -38% -5% 0% -14%Tariff for 2400 MW(Rs/Kwh) 5.10 3.38 3.28 3.28 2.90

Hindustan Zinc (HZ IN, Neutral)





0

50

100

150

200

250

Mar-09 Sep-09 Mar-10 Sep-10 Mar-11

HZ India Sensex


Balance SheetShareholders' Equity Rsm 143,576 181,240 225,318 284,321 345,428 407,895 Total Debt Rsm 87 605 605 605 605 605 Cash Rsm 191 275 40,169 100,838 164,692 229,950 Total assets Rsm 149,251 188,957 233,035 292,038 353,145 415,612

Cash flowCash from operations Rsm 27,127 40,772 65,605 85,272 88,984 90,729 Capex Rsm (34,191) (38,815) (10,000) (3,500) (3,500) (3,500) FCF Rsm (7,065) 1,958. 55,605. 81,772. 85,484. 87,229.

RatiosPER x 2.1x 1.4x 11.8x 9.1x 8.8x 8.6xEV/EBITDA x -0.4 -1.1 7.8x 5.0x 4.1x 3.3xP/BV x 0.4x 0.3x 2.6x 2.0x 1.7x 1.4xBVPS Rs 340 429 53 67 82 97 Net cash/share Rs 164 258 35 50 65 80 Dividend Yield % 2.9% 4.4% 0.7% 0.7% 0.7% 0.7%RoE % 23% 28% 26% 28% 24% 21%RoA % 23% 27% 26% 27% 23% 20%Net Debt to Equity x -0.5x -0.6x -0.7x -0.7x -0.8x -0.8x

Hindustan Zinc HZ INRecommendation NeutralTarget price (Rs) 136 Current price (Rs) 137 % upside (downside) -1%Market cap (Rsm) 578,869 Market cap (US$m) 12,864

Hindalco Industries (HNDL IN, Outperform)





0

50

100

150

200


Hindalco India Sensex

FY09A FY10A FY11E FY12E FY13E FY14EProfit & LossNet sales Rsm 662,678 607,221 712,815 839,503 841,641 862,168 EBITDA Rsm 54,682 85,643 77,520 107,318 117,915 119,891 PAT Rsm 23,068 32,992 26,325 44,474 46,146 45,194 EPS Rs 13.5 17 12.3 23.2 24.1 23.6

Balance SheetShareholders' Equity Rsm 158,536 215,446 290,232 327,981 367,403 403,630 Total Debt Rsm 283,098 239,987 276,920 325,607 368,725 358,145 Cash Rsm 21,918 21,954 25,563 7,544 3,940 16,274- Total assets Rsm 482,070 512,187 626,918 713,354 795,893 821,540

Cash flowCash from operations Rsm 45,812 49,321 57,614 85,672 105,073 109,116 Capex Rsm (26,747) (42,756) (75,083) (128,302) (124,465) (86,982) FCF Rsm 19,065. 6,564. (17,470) (42,630) (19,392) 22,135.

RatiosPER x 14.6x 11.5x 16.2x 8.5x 8.2x 8.4xEV/EBITDA x 10.2x 6.3x 7.4x 6.0x 5.8x 5.8xP/BV x 2.1x 1.8x 1.3x 1.2x 1.0x 0.9xBVPS Rs 93 113 152 171 192 211 Net cash/share Rs (128) (83) (102) (137) (161) (166) Dividend Yield % 0.7% 0.7% 0.8% 1.5% 1.5% 2.0%RoE % 15% 15% 9% 14% 13% 11%RoA % 5% 7% 5% 7% 7% 6%Net Debt to Equity x 1.4x 0.7x 0.7x 0.8x 0.8x 0.8x

Hindalco HNDL INRecommendation OutperformTarget price (Rs) 270 Current price (Rs) 198 % upside (downside) 36%Market cap (Rsm) 378,913 Market cap (US$m) 8,420

Hindalco – sizable expansion, resources in place

Novelis recovery aided by end of old price ceiling contracts and cost cutting.

Hindalco looking to triple its aluminium capacity to 1.5mtpa. Has been allocated 200mnt of bauxite and coal.

Funding issues settled, but might need some more debt to complete the capex.


Source: Company data, Macquarie Research, May 2011 Source: Company data, Macquarie Research, May 2011

Expected alumina capacity

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Current capacity Utkal Aditya

('000 tonnes)

End 2014

FY2013

Expected aluminium capacity

503,000

359,000

359,000

52000 359000

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Currentcapacity

Mahan Aditya Brownfield Jharkhand

(tonnes)

2HFY12

FY2014

4QFY122015

Novelis - Adjusted EBITDA/ tonne

$165

$290$263

$323$353

$393

$333$363

$197$230

$109

$197

$81

$179

$289$307

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

1QFY

08

2QFY

08

3QFY

08

4QFY

08

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

US$

Adjusted EBITDA / tonne (US$/t)

National Aluminium (NALCO IN, Underperform)





0

50

100

150

May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11Nalco India Sensex


Balance SheetShareholders' Equity Rsm 97,698 103,956 111,646 124,553 136,146 148,001 Total Debt Rsm - - - - - - Cash Rsm 28,690 31,437 39,982 44,709 36,944 47,777 Total assets Rsm 103,912 110,562 118,581 131,487 143,080 154,936

Cash flowCash from operations Rsm 26,204 14,636 23,257 23,649 24,658 25,569 Capex Rsm (22,111) (6,776) (5,791) (10,570) (23,700) (5,000) FCF Rsm 4,094. 7,860. 17,466. 13,079. 958. 20,569.

RatiosPER x 18.6x 29.1x 84.7x 15.7x 16.4x 15.4xEV/EBITDA x 12.3x 20.6x 59.0x 9.2x 10.0x 8.9xP/BV x 2.4x 2.3x 8.5x 1.9x 1.7x 1.6xBVPS Rs 38 40 11 48 53 57 Net cash/share Rs 11. 12. 4. 17. 14. 19. Dividend Yield % 5.4% 2.7% 3.0% 0.8% 1.1% 1.4%RoE % 13% 8% 10% 12% 11% 10%RoA % 12% 7% 9% 11% 10% 10%Net Debt to Equity x -0.3 -0.3 -0.4 -0.4 -0.3 -0.3

Nalco NACL INRecommendation UnderperformTarget price (Rs) 72 Current price (Rs) 92 % upside (downside) -22%Market cap (Rsm) 237,106 Market cap (US$m) 5,269

Nalco – looking expensive and no triggersExtremely expensive: Trading at a 20x PER on FY11E. Even on P/B, we think it is difficult to justify 2x given the single-digit return on equity.

Capacity enhancement at wrong time: Capacity increasing by 30%, when aluminium prices are near cost of production.

Future expansions are prohibitively expensive: Nalco’s future smelters and refineries are coming up at almost double the cost of its Indian competitors.


Coking coal – Lack of resources

Steel production growth to drive demand: India’s steel demand is expected to grow by more than 10% in the next few years, and the coking coal requirement will increase from 25mt currently to 45mt by FY13E.

Supply shortfall: Domestic supply is not increasing in line, resulting in a shortfall of close to 30-35mt, which will have to be sourced from imports.

Global prices to remain strong: The $300/t FOB Australia settlement represents a premium over cost support and short supply due to floods in Australia. This also is reflecting the goodwill toward coking coal and the ‘supply risk’ premium. We expect prices to remain strong as global steel production recovers.

Key Ideas: Gujarat NRE Coke (GNC IN, Rs52, OP, TP: Rs95)

Gujarat NRE Coke (GNC IN, Outperform)





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Gujarat NRE Coke GNC INRecommendation OutperformTarget price (Rs) 95 Current price (Rs) 52 % upside (downside) 83%Market cap (Rsm) 25,896 Market cap (US$m) 575

FY08A FY09A FY10A FY11E FY12E FY13EProfit & LossNet sales Rsm 8,871 15,226 14,399 18,327 29,510 34,317 EBITDA Rsm 2,051 3,871 1,126 6,219 12,870 15,141 PAT Rsm 1,392 888 169 2,437 4,932 5,687 EPS Rs 3.1 5.0 0.4 4.4 9.0 10.3

Balance SheetShareholders' Equity Rsm 16,946 16,893 17,313 23,291 31,218 37,523 Total Debt Rsm 7,843 14,882 19,571 28,296 30,028 27,454 Cash Rsm 2,401 1,236 1,629 4,543 7,241 5,888 Total assets Rsm 26,785 34,123 39,401 54,736 64,504 68,259

Cash flowCash from operations Rsm 2,470 360- 798- 1,404- 4,747 9,158 Capex Rsm (15,617) (6,215) (8,302) (10,640) (6,805) (4,378) FCF Rsm (13,147) (6,575) (9,100) (12,044) (2,058) 4,781.

RatiosPER x 16.9x 10.4x 140.1x 11.7x 5.8x 5.0xEV/EBITDA x 11.2x 9.9x 38.9x 8.0x 3.8x 3.1xP/BV x 1.0x 1.5x 1.5x 1.1x 0.8x 0.7xBVPS Rs 50 36 35 47 63 75 Net cash/share Rs (16) (29) (36) (48) (46) (43) Dividend Yield % 5.9% 2.2% 2.5% 2.0% 1.4% 1.4%RoE % 8% 5% 1% 10% 16% 15%RoA % 5% 3% 0% 6% 11% 12%Net Debt to Equity x 0.3x 0.8x 1.0x 1.0x 0.7x 0.6x

Gujarat NRE Coke – story of backward integrationIndia’s largest independent LAM coke producer: GNC is India’s largest non-captive producer of low-ash metallurgical coke with a total capacity of 1mtpa.

Backward integration: To escape the volatility of processing margins, the company acquired coking coal mines (only raw material) in NSW, Australia.

Reserves of ~650mt: The mines contain nearly 650mt of primary hard coking coal, which are still in scarcity and whose prices went up more than three times last year.


Indian Operations FY09A FY10A FY11E FY12E FY13 FY14 FY15Indian Operations

Coke capacity tonnes 1.01 1.13 1.26 1.26 1.26 2.01 2.01 Coke production volume tonnes 0.77 0.70 0.70 0.94 1.04 1.20 1.50 Coke sales volume tonnes 0.70 0.75 0.75 0.94 1.04 1.20 1.50 Coke realization US$/ tonne 329 274 394 437 393 402 367 Raw coal consumption tonnes 1.01 1.11 1.11 1.42 1.55 1.57 1.96

EBITDA Rsmn 3,431 1,724 2,799 2,755 3,281 2,922 3,839 yoy 30% -50% 62% -2% 19% -11% 31%

Australian Operations FY09 FY10 FY11 FY12 FY13 FY14 FY15ROM coking coal productionm tonnes 0.80 1.10 1.70 2.50 3.10 4.00 5.60Coking coal production m tonnes 0.56 0.77 1.19 1.75 2.17 2.80 3.92ROM coking coal realizatioUS$/ tonne 176 101 165 195 170 174 156 Mine Operating cost AUD/t 197 135 116 121 111 113 113

PAT A$mn -9 -12 63 162 168 258 298 yoy % nmf 158% 3% 54% 15%

Coal India (COAL IN, Neutral)





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FY09A FY10A FY11E FY12E FY13E FY14EProfit & LossNet sales Rsm 409,449 473,606 514,868 600,421 677,682 755,372 EBITDA Rsm 24,112 102,363 134,619 165,003 214,480 213,122 PAT Rsm 20,792 96,307 108,670 139,565 186,563 193,575 EPS Rs 3 15 17 22 30 31

Balance SheetShareholders' Equity Rsm 191,651 257,952 333,172 457,195 606,446 738,807 Total Debt Rsm 21,485 20,869 15,535 10,535 5,535 5,535 Cash Rsm 296,950 390,778 458,573 505,427 654,272 793,297 Total assets Rsm 223,984 293,770 365,243 484,265 628,516 760,877

Cash flowCash from operations Rsm 117,194 105,956 120,763 114,316 231,378 235,460 Capex Rsm (18,746) (19,804) (30,000) (46,500) (40,000) (35,000) FCF Rsm 98,447. 86,152. 90,763. 67,816. 191,378. 200,460.

RatiosPER x 126.1x 27.2x 24.1x 18.8x 14.1x 13.5xEV/EBITDA x 96.7x 21.9x 16.1x 12.8x 9.1x 8.6xP/BV x 13.7x 10.2x 7.9x 5.7x 4.3x 3.5xBVPS Rs 30 41 53 72 96 117 Net cash/share Rs 46. 61. 72. 80. 104. 126. Dividend Yield % 0.7% 0.8% 0.8% 1.1% 1.4% 1.5%RoE % 11% 37% 33% 31% 31% 26%RoA % 9% 33% 30% 29% 30% 25%Net Debt to Equity x -1.5 -1.5 -1.4 -1.1 -1.1 -1.1

Coal India COAL INRecommendation NeutralTarget price (Rs) 382 Current price (Rs) 415 % upside (downside) -8%Market cap (Rsm) 2,621,291 Market cap (US$m) 58,251

Coal India – Igniting India with CoalCoal India Limited (CIL) is the world’s largest coal company and India’s largest corporate employer, with nearly 400k employees. It has total coal resources of over 65bn tonnes. It has been producing at a CAGR of 5.5% for the past decade and is expected to fuel India with 454mt of coal in FY12.While we like the assets of Coal India, we are maintaining our Neutral rating. There could be downside risk to earnings if Coal India is not allowed to increase prices in view of rising inflation.CIL management has been very categorical in maintaining that it will increase prices only to maintain margins. The recent price increase was to prepare for the upcoming cost increase due to the upcoming 5yr wage agreement. So any expectations for a coal price hike for the next 12-15 months looks very optimistic. We are building in US$8.3/t and a 31% margin, and we are slightly lower than consensus.CIL is now holding 70mnt of inventory, which is well above the 45mnt on normalised basis. Every 10mnt increase in sales is a small 2.5% increase in profits. We seriously doubt Indian railways’ ability to provide more rakes to lift coal, as they already have to increase rakes for the increase in production projected for FY12. In a worst-case scenario, some of this coal can catch fire and could be lost, as post monsoon, moisture trapped in the coal heaps acts as catalyst for ignition when the sun heats it up.


Production and despatch numbers will continue to increase


And increase in realisations should help increase margins

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Iron Ore – Exports to recover

Reserves of 22bn tonnes. India produces close to 220m tonnes per year, and about 50% of iron ore production is exported annually from India, with China being the biggest consumer.

Exports have been weak but will recover: Exports have been low due to monsoons as well as the ban imposed by Karnataka on transport of ore for exports. However, as a resolution is reached between iron ore exporters and the government, we expect exports will recover.

Medium term: We remain positive on iron ore as we believe steel production will remain strong and demand for iron ore will see growth.

Key Idea: NMDC (NMDC IN, Rs270, OP, TP: Rs289)

NMDC (NMDC IN, Outperform)





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NMDC NMDC INRecommendation OutperformTarget price (Rs) 289 Current price (Rs) 270 % upside (downside) 7%Market cap (Rsm) 1,070,469 Market cap (US$m) 23,788

FY09A FY10A FY11A FY12E FY13E FY14EProfit & LossNet sales Rsm 75,640 62,391 113,856 132,421 173,728 191,875 EBITDA Rsm 58,372 44,298 86,631 99,393 131,795 145,354 % margin % 77% 71% 76% 75% 76% 76%PAT Rsm 43,496 34,293 65,159 79,130 101,629 110,161 EPS Rs 11 9 16 20 26 28 Balance SheetShareholders' Equity Rsm 116,277 142,724 192,626 253,229 331,062 415,429 Total Debt Rsm - - - - - - Cash Rsm 97,410 128,549 172,281 231,332 290,571 358,087 Net debt Rsm (98,118) (129,311) (173,637) (232,689) (291,928) (359,444) Total assets Rsm 116,864 143,573 193,655 254,257 332,091 416,458 Cash flowCash from operations Rsm 97,410 128,549 174,352 231,332 290,571 358,087 Capex Rsm 1,246. 2,523. 1,140. 4,332. 5,000. 20,000. FCF Rsm 98,656 131,073 175,492 235,664 295,571 378,087

RatiosPER x 24.6x 31.2x 16.5x 13.5x 10.5x 9.7xEV/EBITDA x 16.7x 21.2x 10.4x 8.4x 5.9x 4.9xP/BV x 9.2x 7.5x 5.6x 4.2x 3.2x 2.6xBVPS* Rs 29 36 49 64 84 105 Dividend Yield % 0.8% 0.6% 1.2% 1.5% 1.9% 2.1%RoE % 44% 26% 39% 35% 35% 30%Net Debt to Equity x -0.8 -0.9 -0.9 -0.9 -0.9 -0.9

Production (mt) – expected to increase by 100% in the next 5 years

Strength in iron ore prices have helped margins and earnings

The discount to global pricing limits downside


Important disclosures:

Financial definitions

All "Adjusted" data items have had the following adjustments made:

Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expenseExcluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests

EPS = adjusted net profit /efpowa*ROA = adjusted ebit / average total assetsROA Banks/Insurance = adjusted net profit /average total assetsROE = adjusted net profit / average shareholders fundsGross cashflow = adjusted net profit + depreciation*equivalent fully paid ordinary weighted average number of shares

All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Volatility index definition*This is calculated from the volatility of historic price movements.

Very high–highest risk – Stock should be expected to move up or down 60-100% in a year – investors should be aware this stock is highly speculative.

High – stock should be expected to move up or down at least 40-60% in a year – investors should be aware this stock could be speculative.

Medium – stock should be expected to move up or down at least 30-40% in a year.

Low–medium – stock should be expected to move up or down at least 25-30% in a year.

Low – stock should be expected to move up or down at least 15-25% in a year.

* Applicable to Australian/NZ stocks only

Recommendation – 12 months

Note: Quant recommendations may differ from Fundamental Analyst recommendations

Recommendation definitions

Macquarie - Australia/New Zealand

Outperform – return > 3% in excess of benchmark returnNeutral – return within 3% of benchmark return Underperform – return > 3% below benchmark return

Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe

Outperform – expected return >+10%Neutral – expected return from -10% to +10%Underperform – expected <-10%

Macquarie First South - South Africa

Outperform – return > 10% in excess of benchmark returnNeutral – return within 10% of benchmark returnUnderperform – return > 10% below benchmark return

Macquarie - Canada


Macquarie - USA


Recommendation proportions – For quarter ending 31 March 2011

13.11%35.73%51.16%

EUR

(for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)(for US coverage by MCUSA, 17.55% of stocks covered are investment banking clients)(for US coverage by MCUSA, 14.36% of stocks covered are investment banking clients)

4.66%26.43%68.91%

CA

3.89%10.45%15.28%14.86%Underperform53.09%29.85%19.00%39.49%Neutral43.02%59.70%65.72%45.65%Outperform

USARSAAsiaAU/NZ

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