Happy Diwali 2014

Dear Investor,

Greetings from PhillipCapital !!!

We wish you a very happy Diwali and a prosperous and successful year ahead. Equity markets have rallied over 25% since last Diwali, largely led by improving corporate earnings, expectations of tough reforms from the new government and reviving macroeconomic variables. The government has already initiated several confidence building measures and taken key decisions. Though volatility is expected to prevail on the global front as central banks across the globe recalibrate liquidity levels, India, with its higher growth rate and least political instability among major emerging markets, will remain in a sweet spot and continue to attract global investors. We feel that under a revived investment environment and with expectation of further policy changes and

initiatives on the fiscal front by the government, the sentiments are likely to improve further. To gain

advantage of this brighter side of equity market, we present to you our investment ideas across sectors that

you can choose to invest and hold as a portfolio for a period ranging between 9 12 months.

TOP DIWALI MUHURAT PICKS- 2014

Sr No Stock Industry CMP (Rs) Expected Target (Rs) 1 Bank of India Banking 257 320

2 Axis Bank Banking 401 470

3 Crompton Greaves Heavy Electrical Equipment 190 235 4 Exide Auto Parts & Equipment 164 220 5 Maha Seamless Const & Engg 306 430 6 Power Grid Electric Utilities 134 185

7 Reliance IND Oil & Gas 938 1160 8 Motherson Sumi Auto Parts & Equipment 374 510

9 Larsen & Toubro Const & Engg 1453 2100

10 India Cement Cement 104 145

FUNDAMENTAL RATIONALE

RATIONALE:

PSU Banks such as Bank of India (BOI) are expected to be among the beneficiaries of an improved economic and policy environment. Further with inflation consistently declining and gross domestic savings once again entering into financial savings such as deposits, we expect interest rates to decline going forward. This is expected to improve the operating performance of banks such as BOI on all fronts including credit growth, asset quality and treasury gains.

Benchmark 10-year bond yield has fallen to 8.46% and is expected to fall further due to the

softening trend in inflation, which is expected to contribute to substantial treasury gains for banks such as BOI.

In the last ten years, BOI has traded at an average P/ABV multiple of 1.1x and in the range of 0.7x to 1.4x. Currently it is trading close to its bottom average trading range in the last 10 years and at an attractive valuation of 0.5x FY2016E P/ABV, which is at a 44.4% discount to its closest peer like Bank of Baroda. Expect the valuation gap to narrow with improving fundamentals. Hence can buy Bank of India for mid to long term investment with a target price of Rs 320.

RATIONALE: Axis Bank, the third largest private sector bank in India, has been focusing on retail business in the

past few years. It has increased its branch network at a 24% CAGR from 1,035 in FY2010 to 2,421 branches as of 1QFY2015, which has aided the bank to maintain healthy growth in its low cost deposits (CASA ratio at 42% in 1QFY2015). The strong point of Axis Bank is that banks 88% of retail loans are secured. Focusing on secured retail products has also aided the bank to maintain its relatively better asset quality with a Net NPA ratio of 0.44% as of 1QFY2015, which is one of the lowest in the industry.

Axis Bank is well capitalized with a capital adequacy ratio (CAR) of 16.09% and Tier I CAR of 12.64%

as in 1QFY2015. Strong capital adequacy combined with branch expansion has positioned the bank to benefit from growth opportunities in the up-cycle and further improve its market share of advances and low cost deposits.

The bank earnings expected to grow at a CAGR of 17.2% over FY2014-16E. On the valuation front, Axis Bank is trading at 1.8x FY2016 P/ABV, ie at a 47.0% discount to HDFC Bank, which is trading at FY2016 P/BV of 3.4x. Hence can buy Axis Bank for mid to long term investment with a target price of Rs 470.

Bank of India Target: Rs 320

Axis Bank Target: Rs 470

RATIONALE:

Crompton Greaves (CG) is among the leading players in the power transmission & distribution, industrial equipment, and consumer products and solutions segments in India. The company derives more than 50% of its revenue from international operations (as of FY2014).

The company has proposed to de-merge its consumer business into a separate listed entity. In the

consumer business, CG is a market leader in the fans and pumps segments with 26% and 14% market shares, respectively. This proposed demerger would unlock value for share holders as the consumer business is expected to deliver strong growth in the near future with higher margins and better return ratios. Thus, Crompton Greaves consumer business would command a higher valuation multiple, in line with its peers in the space.

The overseas operations as in Belgium, Hungary, Canada and US have become profitable at the EBITDA level but are still showing losses at the net profit level owing to higher interest liabilities. CG's Management expects margins to improve as the new orders bagged are relatively higher margin orders.

The stock trades at an attractive valuation of 0.9x FY2016E EV/sales; offer a positive bias for the stock. Hence can buy Crompton Greaves for mid to long term investment with a target price of Rs 235.

RATIONALE:

Exide Industries is the largest battery manufacturer in India and largest supplier of batteries for motorcycles, passenger vehicles, trucks and tractors. With the estimated registered vehicles in India nearly doubling to 12.3 crore during FY03-10 (up 83%), ~9 crore batteries are likely to be sold from FY15-17E (considering three cycle replacement). Exides enviable network of >20,000 retail touch points is the major factor in maintaining the leadership position in the burgeoning replacement segment.

Exides performance has been improving in the past couple of quarters after about three years of

underperformance in financials with low utilisation levels. Going ahead, with expectation of a strong pick-up in demand from the automotive segment and higher levels of industrial activity leading to higher volumes and therefore utilisation levels, Exides operating margins are likely to improve.

With strong replacement demand likely to continue and OEM demand also likely to pick up, Exides financial performance is likely to remain on an uptrend, with top line, bottom line growth of ~17%, ~30% CAGR in FY14-17E. Consequently, RoCE and RoE are also likely to improve to ~26%, ~19%, respectively, by FY17E. Hence can buy Exide Industries for mid to long term investment with a target price of Rs 220.

Crompton Greaves Target: Rs 235

Exide IND Target: Rs 220

RATIONALE:

Maharashtra Seamless (MSL) is a leading manufacturer of seamless and ERW pipes in India. In addition to the large diameter seamless pipe plant, MSL also manufactures higher value-added products, such as drill pipes used in the oil & gas sector.

The company is likely to be a key beneficiary of the imposition of safeguard duty on import of

seamless pipe and tubes. The central government has imposed a safeguard duty on imported seamless pipes and tubes which is as follows: a) 20% duty ad valorem when imported during August 13, 2014 to August 12, 2015, b) 10% duty ad valorem when imported during August 13, 2015 to August 12, 2016 and c) 5% duty ad valorem when imported during August 13, 2016 to February 12, 2017. This move is likely to help Maharashtra Seamless in augmenting its sales realisations in the domestic market. Furthermore, the sales volume is also likely to witness healthy traction, going forward.

Going forward improvement in capacity utilisation levels and realisations is expected for Maharashtra Seamless. Maharashtra Seamless also has a strong balance sheet, healthy cash flow and net cash status, which augur well for the company. Hence can buy Maharashtra Seamless for mid to long term investment with a target price of Rs 430.

RATIONALE:

Power Grid Corporation of India Ltd , a Navratna company, is Indias largest power transmission

utility transmitting approx 50% of power generated. The company is in a regulated business which

guarantees reasonable profitability along with steady returns. Power Grid provides investors an

opportunity to participate in the nations power sector reforms as the company is the indirect

beneficiary and offers relatively defensive and stable growth. The company has reported strong

growth in capitalization in FY15 YTD at Rs85bn, more than 50% of the projects commissioned in

FY14.

The momentum to remain strong over the next two years and estimate FY15 capitalizing at

Rs202bn, 26.8% higher on a yoy basis. Power Grid has diversified into broadband and telecom

services and is also into consultancy for T&D projects. A jump in capitalization and increase in

revenues from diversified business would lead to earnings CAGR of 15.7% over the period FY1417.

With a slew of reforms being implemented for the state SEBS, any restructuring of SEBs would lead

to a rerating for the company.

Power Grid can be valued at 2x FY17 P/B. Hence can buy Power Grid Corporation for mid to long

term investment with a target price of Rs 185.

Maharashtra Seamless Target: Rs 430

Power Grid Target: Rs

185

RATIONALE:

With flat earnings profile in the past three years, RIL stock has grossly underperformed the broader indices. The gross underperformance was driven by risks to earnings as global economic slowdown impacted refining margins and petrochemical spreads. Furthermore, its E&P segment which was then (2009) expected to see significant growth in earnings contribution saw its profitability dwindle.

However, over the next three years expect RILs EBIDTA from refining and petrochemicals business to double. E&P profitability should also improve on the back of gas price hike, gradual increase in production and traction in shale gas production. Retail business turned around in FY14 and profits are expected to grow at a decent pace in years to come. Improvement in earnings profile entails a valuation rerating theme.

Currently, the stock trades at the FY17E PE multiple of 8.9x and 1.3x P/BV. In spite of the expected growth in earnings valuations are substantially below historical average. Hence can buy Reliance Industries for mid to long term investment with a target price of Rs 1190.

RATIONALE: Motherson Sumi is now a leading global auto component player with presence across 25 countries.

In the domestic market, when auto sales were declining in the past two years, Motherson weathered the storm through increasing content per car. Its acquisitions SMR and SMP have reported outstanding recovery from the strained levels seen when they were acquired. Going ahead, domestic business will see strong traction as demand recovery is seen from H2 FY15. Recovery in US and stability in Europe are expected to benefit SMR and SMP substantially which are already sitting on new orders worth 4bn.

During the past couple of years, automobile market in India saw tough times with volumes

declining across segments. With diesel price hikes behind us, interest rate not expected to increase from here on, hopes of recovery in industrial activity and a positive consumer sentiment, expect auto volumes to recover from H2 FY15 and gain further strength in FY16 and FY17. During the lull phase of auto OEMs in India, Motherson was able to protect its revenue base and profitability as it increased its market share by enrolling new customers and increasing content per car by adding new products to its profile. Going ahead too, we expect Motherson with its strong OEM relationships will post a higher than industry average top line growth.

Benefits of insourcing, strong pricing power in domestic markets, and recovery in passenger car

demand and favourable change in productmix towards premium cars will ensure that MSSLs standalone revenues will witness 18% revenue CAGR over FY1417E. SMR revenues will be driven by robust volume growth backed by new capacities. For FY1417E, we expect Motherson to report earnings CAGR of 41%. Hence can buy Motherson Sumi for mid to long term investment with a target price of Rs 510.

Reliance IND Target: Rs1190

185

Motherson Sumi Target: Rs 510

185

RATIONALE: Larsen and Toubro Ltd (LT) is India's largest Engineering & Construction (E&C) and is a proxy play to

the domestic infrastructure theme. The company is rightly placed given its strong business model, superior execution capability and exposure to diverse businesses. With the economy likely bottoming and prospects for reinvestment in infrastructure improving, we believe L&T has a multiyear growth opportunity ahead.

In a tough environment in FY14, LTs consolidated order inflow increased 23% yoy to Rs1.3tn led by

strong order inflows in the infrastructure segment. This was higher than the 1520% guidance given by the company. For FY15, the company reiterated its guidance of 20% yoy order inflow growth at the consolidated level. It has also guided for consolidated revenue growth of 15% yoy with a margin risk of 50100bps for the year. It is expected that the company would manage to meet its order guidance, but would continue to underperform on the revenue front. Execution risks, both in the domestic and international market, persist and would lead to lower growth in topline. However, with a rise in the share of domestic orders and faster clearance for stuck projects, execution expected to pick up pace from endFY15.

Expansion in margins is expected from endFY15 as the share of domestic orders increases and

execution rate picks up. Asset monetization steps taken by the company would reduce near term balance sheet stress. On a consolidated basis, lower losses in new businesses like ship building, heavy engineering and higher contribution from real estate and IT business could see an improvement in contribution from subsidiaries. Hence can buy Larsen & Toubro for mid to long term investment with a target price of Rs 2100.

RATIONALE:

India Cements is the largest cement player in south India and the fifth largest player in India, with an installed capacity of 13.1 MTPA in south India and overall total capacity of 15.6 MTPA (pan India). The company derives 85-90% of its revenue from south India. Due to excess capacity in south India and political instability in Andhra Pradesh, the demand for cement in the south region had been weak in the past couple of years. Now, with the Telangana issue being resolved and demand picking up in the region, expect overall utilization levels to improve going forward.

The pricing environment in south India continues to remain stable despite a sharp increase in the

previous quarter. As per the Management, prices are expected to increase further post monsoons, which should lead to an improvement in margins in future.

At the current market price the stock is available at trailing EV/tonne of $63, which is at a large

discount to its other midcap peers. Given the improving macroeconomic scenario, stable pricing and expected pickup in demand. Hence can buy India Cement for mid to long term investment with a target price of Rs 145.

Larsen & Toubro Target: Rs 2100

India Cement Target: Rs 145

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