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October 12, 2010 2

Market Strategy

Value Unlocking

We find substantial value unlocking potential in the two stocks we have included underthis category – Alembic and GE Shipping. We believe that de-merger of Alembic into

Alembic and Alembic Pharma is a long term positive as it unlocks value for both the

businesses and paves the way to rope in future investors. In the case of GE Shipping,the stock is trading at cheap valuations of 0.7x FY2012E BV, not capturing theimprovement in Tanker Freight rates recently. Moreover, the company intends to list its97.62% subsidiary, Greatship Ltd (GIL) by 2HFY2011E through fresh equity issuance.

We believe this will unlock potential value of the Offshore business, which globally trades at higher multiples than the Shipping business due to high earnings visibility.

Buyback / Promoters increasing stake

Empirically and intuitively, in companies where buybacks have been announced orpromoters have increased their stake, this has generally been a good lead indicator ofimprovement in earnings and hence, stock returns. Taking this as a starting point,amongst various such stocks, we have picked Lakshmi Machine Works and Surya

Roshni, where we believe the fundamentals are poised for significant improvement,which valuations still don’t reflect.

Turnaround stocks

Lastly, stocks covered under this category are those where we believe the companiesare set for a material improvement / revival in their operating margins and sustainableRoEs. For instance, in case of ICICI Bank, we believe the management’s focus onimproving CASA share and exiting unprofitable loan segments will drive a materialimprovement in the company’s sustainable RoEs from 9.7% in FY2010 to 15.5% inFY2012E, with further improvement likely in FY2013E as well. We expect this to drive asubstantial rerating of the stock.

Denso India is a subsidiary of the US $30bn global auto ancillary major, Denso Corp.,

which has strong relations with global auto majors, viz. Suzuki, Honda and Toyota.Given the company’s MNC profile and strong product range, current margins are toolow and are expected to show material improvement. We have factored in 7.3%EBITDA margins in FY2012E vs. 4.8% in FY2010, the drivers being localization,increased bargaining power and measures by Bank of Japan to curb further Yenappreciation. Moreover, the stock is available at cheap valuations of 1.1x FY2012E BV.

Invest in Alpha stocks

We remain bullish on India’s growth prospects and attractiveness for receivingcontinued foreign investments. Looking at Sensex valuations of 16.1x FY2012E EPS,valuations while not cheap, are not stretched either. Hence we maintain an overweightstance in our model portfolio on sectors such as banking, infrastructure and Cap

goods. At the same time, we recommend the top picks discussed in this note, forgenerating Alpha returns.



October 12, 2010 3

Market Strategy

Top Picks

High ROIC & Cheap relative to Sensex

Reliance Industries (CMP: Rs.1,048/ TP: Rs.1,260/ Upside: 20%) RIL’s stock price has borne the brunt of negative news flows on account of slower

ramp-up of KG Basin gas, subdued refining and petrochemical margins andconcerns over the redeployment of the cash flows. However, we believe that thecurrent price has discounted the worst case scenario and there is potential upsidefor the stock from the current levels.

We expect RIL’s profitability to register 34% CAGR over FY2010-12E driven by improvement in refining margins coupled with ramp up of oil and gas productionat the KG Basin. Moreover, increase in the share of E&P in the profit matrix will inturn reduce exposure to cyclical segments.

We expect the company's foray in the newer ventures (such as shale gas,Broadband and power) along with discovery and monetisation of its upstreamportfolio to keep it on high-growth orbit going ahead. Moreover, the same is alsolikely to resolve the concerns over the redeployment of the cash flows. On thevaluation front, the stock is relatively under-valued trading at 1.8x FY2012E P/BV.

Moreover, RIL is trading at ~33% discount to Sensex in terms of FY2012E P/BV,even though estimated RoIC for FY2012E continues to be as high as 18.0%.Hence, we maintain a Buy on RIL, with a Target Price of Rs1,260, translating intoan upside of 20% from current levels.

One-year forward Premium/Discount to Sensex P/BV

Source: Company, Angel Research

Comparison with Sensex Earnings growth (FY2010-12E CAGR) FY2012E P/BV

Company 34.0 1.8

Sensex 19.7 2.7


Key Financials Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/Sales

March (Rs cr) (%) (Rs cr) (Rs) (%) (x) (x) (x) (x)

FY2011E 234,754 17.4 22,718 69.5 15.0 15.1 2.1 9.2 1.6

FY2012E 243,596 20.0 28,530 87.2 16.4 12.0 1.8 7.2 1.4


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October 12, 2010 4

Market Strategy

United Phosphorous (CMP: Rs.182/ TP: Rs.228/ Upside: 25%)

United Phosphorus (UPL) figures among the Top-5 generic Agrichemical players inthe world, with a presence across major markets like the US, EU, Latina Americaand India.

Total off-patent market is worth US $29bn, of which a mere US $16bn is currently being catered by the generic players. Furthermore, 61% of the same is controlledby the five largest generic players including UPL. Further, given the high entry barriers by way of high investments, entry of new players is also restricted. Thus,amidst this scenario and on account of having a low cost base, we believe that UPLenjoys an edge over competition and is placed in sweet spot to leverage theupcoming opportunities in the global Generic space

Over FY2010-12E, we expect UPL to post 9% and 22% CAGR in Sales and PAT,respectively. We expect RoCE and RoE to improve from 14% and 19% in FY2010to 20% each in FY2012E.

At current valuations of 10.3x FY2012E EPS, the stock is attractively valued. OverFY2005-08, UPL traded in-line with Sensex P/E, however post global meltdownand deterioration in core business, stock has been trading at discount. Withimprovement in earning and RoEs, current P/E discount of 33% against Sensex isunwarranted, hence we maintain our Buy recommendation on the stock withTarget Price of Rs228.

Comparison with Sensex Earnings growth (FY2010-12E CAGR) FY2012E PE

United Phosphorous 18.7 10.3

Sensex 19.7 16.1

Source: Angel Research

One year forward Premium/Disc to Sensex P/E

Source: C-Line, Angel Research



FY2011E 5,830 20.3 652 14.1 19.3 12.9 2.2 7.6 1.5

FY2012E 6,406 21.3 814 17.6 19.9 10.3 1.9 6.3 1.3


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October 12, 2010 5

Market Strategy

High ROIC & Cheap relative to Peers

Blue Star (CMP: Rs.477/ TP: Rs.589/ Upside: 23%)

Blue Star operates in a high value add space, as indicated by its high RoE profileof over 40%. The company is poised for strong growth in the years to come, basedon positive business outlook across all its segments and a healthy order book ofRs1,976cr, which is 1.1x FY2010 sales of the Electro Mechanical Projects andPackaged Air Conditioning Systems (EMPPACS) segment. The acquisition of DSGupta Construction will complement the company’s service bouquet, which wouldnow have a strong presence in the plumbing and fire fighting space.

Going ahead, we expect the demand from the traditional IT and office segments toimprove, driving the growth of the company. We expect the sales to grow at aCAGR of 22.3% over FY2010-12E.

At the CMP, the stock is trading at reasonable valuations of 15.4x FY2012E EPS,

compared to a P/E of 17.2x for Voltas, even though Voltas has a high exposure tothe relatively weaker Middle East markets, while Blue Star is a domestic-focusedplayer. We believe that this is a good entry point into the stock, keeping in view itsstrong growth prospects. We have valued the stock at P/E of 19x FY2012E EPS andarrived at a target price of Rs589.

Blue Star trading at a Discount to Peers FY2012E PE FY2012E RoE (%) FY2010-2012E PAT Growth

Blue Star 15.4 40.4 18.8

Voltas 17.2 29.1 23.7

Source: Company, Angel Research; * Note: Blue Star's peers include only Voltas



FY2011E 3,061 10.5 222 24.6 40.1 19.4 7.0 13.4 1.4

FY2012E 3,778 10.7 279 31 40.4 15.4 5.6 10.7 1.1


FAG Bearing (CMP: Rs.860/ TP: Rs.1,035/ Upside: 20%)

FAG Bearing (FAG) is India’s second largest player in the Indian bearing industry

with a total market share of ~15%, and a market leader in the spherical rollerbearing segment with a market share of ~55%. FAG is a member of the SchaefflerGroup, Germany, a global leader in rolling element bearing segment and one ofthe most prominent player in the industry. We believe that the robust demand inthe auto and industrial segments will aid FAG in registering a CAGR of ~17% innet sales and ~25% in net profit over CY2009-12E.

We believe that there is likely to be a substantial uptick in the industrial segment inthe next three-four quarters driven by increase in demand from capital goodcompanies. Also auto segment is likely to grow driven by 12.3% CAGR in autosector volumes. The company has a strong customer base (Maruti, M&M, TataMotors, GM, Ford, Daimler Chrysler, etc.) in this segment.

The company’s net asset turnover remains high (over ~6x in CY2010E) due tolargely depreciated assets. Its strong business model enables it to record robustand consistent RoCE in the range of 30-33%. Cash flow generation is alsoexpected to remain healthy. On the valuation front, the stock is attractively priced



October 12, 2010 6

Market Strategy

at 10.0x CY2012E EPS vs. the peer average of 11.7x CY2012E EPS. We rollover toCY2012E and recommend a Buy on the stock, with a Target Price of Rs1,035,valuing the stock at 12x CY2012E earnings.

Relative valuationsCY2012E P/E 5-year average P/E CY2012E P/E Peer average

FAG Bearings 10.0 9.7 11.7

Source: Bloomberg, Company, Angel Research

Peer valuations Company CMP (Rs) Mcap (Rs cr) EPS (Rs) RoE (%) P/E (x) P/BV (x) EV/EBITDA (x)

FAG 860 1,429 53.7 19.3 16.0 3.1 9.3SKF 587 3,097 29.2 21.6 20.1 4.3 12.0Timken 164 1,046 6.9 13.2 24.0 3.2 17.3NRB 54 264 6.6 16.9 8.3 1.4 5.1

Source: Company, Angel Research; Note: Valuation on TTM basis

Key Financials

Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/Sales


CY2010E 1,049 18.3 118 70.9 22.9 12.1 2.5 6.3 1.1

CY2011E 1,185 18.0 128 76.7 20.4 11.2 2.1 5.4 1.0

CY2012E 1,326 17.4 143 86.3 19.2 10.0 1.8 4.7 0.8


Mphasis (CMP: Rs.660/ TP: Rs.872/ Upside: 32%)

The company steered the pricing headwind from HP’s renegotiation exercise very prudently by making up the cuts in application services with higher price points inInfrastructure services. The major pricing review overhang is done and, goingforward, management expects a stable pricing arrangement with HP given that the50% of rate card pricing will remain fixed and 50% will be market driven

Management is focused on enhancing the company’s growth trajectory in theNon-HP business going forward. This initiative coupled with the effective rate cardimplementation, which has witnessed cost optimisation, would see improvedoperational performance for Mphasis going ahead.

Mphasis has strong cash position of Rs1,487cr as on July 2010, which would help

it to go for acquisitions of strategic fit in the size of US $50mn–$100mn annualrevenue run rate.

Considering the company’s parentage of one of the largest IT companies globally (HP-EDS), driving rapid growth and bringing it closer to Top Tier status, we expectMphasis to be rerated from the FY2012E P/E of 10.8x that it is currently trading at.

We value the stock at 14.3x FY2012E EPS of Rs60.9 (at 35% discount to Infosys’target PE of 22x and in line with target multiple for HCL Tech) and maintain ourBuy rating on the stock with a Target Price of Rs872.

Relative valuations

FY2012E P/E 5-year average P/E Avg FY2012E P/Efor Tier 1 cos.

Mphasis 10.8 11.6 18.3




October 12, 2010 7

Market Strategy

Peer valuations FY2012E FY2012E FY2012E FY2010-FY12E FY2012E FY2012E

P/BV(x) P/E(x) EV/EBITDA EPS CAGR(%) ROCE(%) ROE(%)Infosys 5.2 21.4 13.8 14.5 25.4 24.2TCS 6.1 20.1 13.4 15.6 41.5 33.8

Wipro 4.1 18.0 11.4 16.6 17.6 24.4HCL Tech 3.3 13.8 7.8 33.2 17.1 23.8Mphasis 2.4 10.8 6.0 8.4 43.6 24.1


Key Financials Y/E Op Inc. NIM PAT EPS ABV ROA ROE P/E P/ABV

March (Rs cr) (%) (Rs cr) (Rs) (Rs) (%) (%) (x) (x)

FY2011E 6,083 25.4 1,237 58.9 30.5 11.2 3.1 7.2 1.8

FY2012E 7,101 24.2 1,279 60.9 24.1 10.8 2.4 6.0 1.4


Value Stocks

Anant Raj Industries (CMP: Rs.149/ TP: Rs.178/ Upside: 19%)

There had been various litigation surrounding Huaz khas project resulting in delay of launch which has been sorted out. The management has indicated that theproject is back on track and would be launched soon after Diwali. The saidproperty is of 0.27mn sq ft and going rates in vicinity is in range ofRs25,000-30,000/sq. ft. We expect this project to contribute Rs400cr of profit overFY2011-13E i.e 30% of our profit estimates.

We believe, the Indian Office sector is in the recovery phase of the property cycle. We have begun to see an improvement in the absorption of new supply in 1H2010 in most key metros. Recent trends in the top seven cities of India indicate thatabsorption levels have improved significantly (vis-à-vis prior years), and in a fewcases they have exceeded the new supply by 1.5x. NCR, Pune and Chennai haveshown the maximum improvement. Anant Raj Industries (ARIL) has already constructed some 3mn sq. ft. of ready leasable assets in the NCR region. Thecompany currently has two projects (retail mall of 0.75mn sq. ft. in Delhi and ITPark of 1.1mn sq. ft. in Manesar), which we believe will start generating rentalincome from FY2011E itself. Further, ARIL has five operational hotels, most ofwhich are located in Delhi.

ARIL remains our top pick in the real estate sector, given a strong balance sheet,inexpensive valuations (trades at 1.2x FY2011E P/BV) and generatingapproximately 54% of its GAV from Office and Retail sectors which are witnessingstrong traction. The stock is trading at a discount of 29% to our one year forwardNAV of Rs209. Hence we maintain a Buy on stock with a Target Price of Rs178(15% discount to our one-year forward NAV).



October 12, 2010 8

Market Strategy

ARIL’s Valuation summary 1 Yr forward NAV (Rs per share)

Commercial 128Hospitality 52Residential 46Other 11

Total 237

Add: Net Cash Less: Present value of taxes (38)

NAV/share (Rs) 209

Target Price (Rs) 15% discount to NAV 178 Source: Company, Angel Research

Key Financials

Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/SalesMarch (Rs cr) (%) (Rs cr) (Rs) (%) (x) (x) (x) (x)

FY2011E 491 52.7 209 6.6 5.6 22.4 1.2 16.4 8.6

FY2012E 995 58.2 434 13.8 10.6 10.8 1.1 8.2 4.8


Electrosteel Castings (CMP: Rs47/ TP: Rs.72/ Upside: 54%)

Electrosteel’s (ECL) backward integration initiatives through coking coal mine atParbatpur (Jharkhand), which is already operational, is expected to result in

expansion of EBITDA margin by 329bp over FY2010-12E. The company is also awaiting final environmental clearance for its iron ore mine at

Kodolibad (Jharkhand), which will further lower costs, but has not been factored inour estimates.

ECL is venturing into steel-making through its associate Electrosteel Steels, which issetting up a 2.2mn tonne steel plant expected to begin progressive commissioningfrom October 2010E. The plant is expected to be fully commissioned by June2011E.

Currently, the stock trades at 0.8x FY2011E and 0.7x FY2012E P/BV. On a P/Ebasis, the stock trades at 7.2x FY2011E and 6.9x FY2012E earnings. We maintaina Buy on the stock, valuing the Core business at 8x FY2012E FDEPS and itsinvestments in the Steel business at 1x Book Value.

SOTP Valuation(Rs)

FY2012E EPS 6.7

Multiple (x) 8

Value Per share 53

Steel business 19

Target Price 72 Source: Company, Angel Research



October 12, 2010 9

Market Strategy



FY2011E 1,706 26.2 246 6.5 14.2 7.2 0.8 5.5 1.5

FY2012E 1,818 28.0 254 6.7 13.1 6.9 0.7 4.9 1.4 Source: Company, Angel Research

Finolex Cables (CMP: Rs.59/ TP: Rs.85/ Upside: 45%)

Finolex Cables is poised for strong growth over the next few years, owing to entry in the verticals of High Tension (HT) and Extra High Voltage (EHV) Cables andmarket share expansion in the existing Low Tension (LT) Cables segment.

The rapid ramp up of production at the Roorkee plant has already starteddelivering results. The company has further increased the capacity at this plant by 50%. The proximity to the growing North Indian markets and tax benefits from this

plant are expected to boost the turnaround of the company. Company’s derivatives losses are expected to decline going ahead. By FY2012E,

these losses are estimated to decline to Rs 24cr from Rs76cr in FY2010.

We believe attractive valuations of 6.3x FY2012E EPS and 1.1x FY2012E BV provides a good entry point for investors. We have valued the stock at 9x FY2012EEPS which result into target price of Rs85. Moreover, the company has a holding inFinolex Industries, which has a book value of Rs152cr but a market value ofRs483cr. This is not captured in our target price, providing further upside potential.

Market Value of investment in Finolex IndustriesFY12 Net Worth

(Rs cr)Market Cap

(Rs cr) P/BV Book Value ofInvestment (Rs cr)

Market Value ofInvestment (Rs cr)

827 896 1.1 152 483




FY2011E 2,050 10.1 91 5.9 13.4 9.9 1.3 4.4 0.4

FY2012E 2,458 10.2 143 9.3 18.5 6.3 1.1 3.7 0.4


Value Unlocking

Alembic (CMP: Rs.62/ TP: Rs.74/ Upside: 19%)

Alembic has announced de-merger of its Pharma business (comprises its domesticformulation, international generic and API businesses) into a separate company named Alembic Pharma.

With this, Alembic plans to insulate its relatively high-margin Pharma businessfrom the loss-making Pen-G business (API facility at Vadodara). Alembic also plansto develop its 70 acre land asset going forward.

We believe that de-merger of the company into two - Alembic and AlembicPharma - is a long term positive as it unlocks value for both the businesses andpaves the way to rope in future investors. We recommend Buy on the stock valuing

Alembic on a SOTP basis with a Target Price of Rs74 implying an upside of 19%from current levels.



October 12, 2010 10

Market Strategy

SOTP Valuation Rs

Alembic Pharma (PE 10x FY2012E EPS) 47 Alembic's 30% stake in Alembic Pharma (20% holding company discount) 11

Alembic API business (EV/Sales @ 0.6x FY2012E Sales) 5Land bank (70 acre @ Rs2.2cr per acre) 11Per Share Value 74

Source: Company; Angel Research



FY2011E 1,266 12.4 74.8 5.6 18.9 11.1 1.9 7.7 0.9

FY2012E 1,393 12.0 84.8 6.4 18.5 9.8 1.7 7.0 0.8Note: Alembic estimates currently includes the demerged pharma business

GE Shipping (CMP: Rs.324/ TP: Rs.396/ Upside: 22%) As per Clarksons, 13% and 14% of the existing fleet of crude and product tankers

will be added in CY2010E respectively. However, accelerated phase out of singlehull tankers, which account for 12% of the existing global tanker fleet, will relievesupply-side pressures and keep the freight rates at current sustainable levels overthe medium term. GE Shipping (Gesco) will be a key beneficiary of higher tankerfreight rates as it derives around 46% of its consolidated revenues from the TankerSegment.

The company intends to list its 97.62% subsidiary, Greatship Ltd (GIL) by 2HFY2011E through fresh equity issuance. We believe this will unlock potentialvalue of the Offshore business, which globally trades at higher multiples than theShipping business due to high earnings visibility. We have valued Gesco's Offshorebusiness at 5.0x FY2012E EV/EBIDTA which is at a discount to Great Offshore(5.6x FY2012E EV/EBITDA) and fetches Rs107/share.

We value Gesco on SOTP basis, with its Shipping business contributingRs289/share (15% discount to NAV) and its Offshore business contributingRs107/share (5.0x FY2012E EV/EBIDTA). Based on our Target Price of Rs396, theimplied EV/EBITDA, P/BV, P/E multiple works out to 6.2x, 0.9x, and 5.9xrespectively, on FY2012E basis. Thus, on account of trading at a significantdiscount to its global peers, we recommend a Buy on stock .

Valuation summary Particulars Value ( Rs cr)

Shipping segment

Tanker segment 3,212

Bulk segment 567

NAV- discounted @ 15% 3,779

Offshore segment

Offshore FY2012E EBIDTA 561

EV (at EV/EBIDTA of 5.0x) 2,778

Less debt (5,300)

Add Cash

Add Advances

Total 6,077

Value per share 396 Source: Company, Angel Research



October 12, 2010 11

Market Strategy

Key Financials



FY2011E 2,985 37.7 686 45.0 11.5 7.2 0.8 7.4 2.8

FY2012E 3,833 40.2 1,028 67.5 15.5 4.8 0.7 5.5 2.2 Source: Company, Angel Research

Buyback / Promoters increasing stake

Lakshmi Machine Works (CMP: Rs.2,490/ TP: Rs.2,819/ Upside: 13%)

Lakshmi Machine Works (LMW) is the market leader in textile machinery space inIndia, the world’s second largest market, giving it strong competitive advantages.The company has a strong service network, with service centres in each textile hubof the country, again a strong advantage over its European peers. LMW also hasthe advantage of having a huge client base of about 1300 out of the total universeof 1600 players. LMW has proved its technological prowess by developing itsproducts using in-house research and development for the past 15 years.

LMW has a strong order book of Rs3,300cr, with the current quoted delivery timeof 8-10 months. We have assumed 60% of the order book to be executed inFY2011E. As per our estimates, the company has seen strong order inflows in1QFY2011 of about Rs600cr, which is more than 90% of the total order inflow inthe entire FY2010. Going ahead, we believe that the deferment of orders wouldreduce, as yarn demand outlook is strong and spinning players are operating athigh utilization levels of around 95%.

Moreover, the promoters have announced a buyback of shares at a maximumprice of Rs2,045/share, giving a limited downside to the stock price.

We believe reasonable valuations of 13.4x FY2012E EPS provides a good entry point for investors. We have valued the stock at 15x FY2012E EPS which result intotarget price of Rs2,819.

Share buy-back detailsPrice for buyback Date of announcement Buyback amount (Rs cr) Market Cap (Rs cr)

Rs 2,045 /share 28-Jul-10 230 (Max.) 3,079 Source: Company, Angel Research



FY2011E 1,883 14.3 158 127.9 16.2 19.5 3.0 8.4 1.2

FY2012E 2,487 14.8 230 186.1 20.5 13.4 2.6 5.5 0.8




October 12, 2010 12

Market Strategy

Surya Roshni (CMP: Rs.113/ TP: Rs.143/ Upside: 25%)

Surya Roshni has completed a large capacity expansion program across allproducts in the lighting and steel division. The new capacities are expected tocontribute to strong top-line growth of 23.8% CAGR over FY2010-12E.

The contribution of the high-margin lighting division to sales is expected toincrease from 29.5% to 33.6% over FY2010-12E. This asset-light nature of theexpanded capacity would marginally improve the RoE of the company from 19.7%to 20.4% over FY2010-12E, despite the reduction in the D/E ratio of the company from 2.5x to 1.3x over the same period.

The promoters have subscribed to two rounds of warrants, one of which hasalready been partially converted. We expect the outstanding warrants also to beconverted into equity, thereby increasing the promoters’ stake to 55.0% by FY2012E from 29.1% currently. The promoters would infuse Rs133cr into thecompany through these warrant conversions.

We believe attractive valuations of 5.7x FY2012E EPS provides a good entry pointfor investors. We have valued the stock at 6.6x FY2012E EPS which result intotarget price of Rs143.

Preferential allotment planDate ofWarrantallocation

Warrant ConversionPrice (Rs/share)

Expected Yearof conversion

Amountinvested(Rs cr)

% increase inpromoter stake

14-Dec-09 59 FY2011 37.8 62.2

12-Jul-10 83 FY2012 94.9 40.6 Source: Company, Angel Research

Key Financials



FY2011E 2,293 7.2 60 13.6 19.5 8.3 1.4 6.3 0.4

FY2012E 2,751 7.5 87 19.9 20.4 5.7 1.0 5.4 0.4


Turnaround Stocks

Denso India (CMP: Rs.103/ TP: Rs.136/ Upside: 32%)

Denso is a subsidiary of Denso Corp., a US $30bn enterprise, which has strongrelations with global auto majors, viz. Suzuki, Honda and Toyota. Besides strongrelations with global majors, Denso Corp. provides strong financial backing andtechnological knowledge to Denso, which will help the company to expandcapacity as well as add new products to its portfolio in the future to cater to thegrowing domestic demand.

With the huge spurt in demand for automobiles, OEMs have witnessed asupply-side constraint from auto ancillary companies. This has resulted in a

considerable increase in the bargaining power of these companies. Denso on theback of its strong balance sheet is likely to be a preferred supplier going forward.



October 12, 2010 13

Market Strategy

On the back of strong growth witnessed by the OEMs, we expect Denso to witnessa 17% CAGR in sales over FY2010-12E. Given the company’s MNC profile andstrong product range, current margins are too low and are expected to showmaterial improvement. We have factored in 7.3% EBITDA margins in FY2012E vs.

4.8% in FY2010, the drivers being localization, increased bargaining power andmeasures by Bank of Japan to curb further Yen appreciation. Consequently, thecompany’s net profit is expected to increase at a 49% CAGR over FY2010–12E.Denso has traded at a five-year average of 9x one-year forward earnings.Currently, the stock is trading at 6.8x FY2012E EPS and we value the company at9x FY2012E EPS. We recommend a Buy rating on Denso with a Target Price ofRs136, implying an upside of 32%.

Improving EBITDA margins to result in higher RoEsParticulars FY06 FY07 FY08 FY09 FY10 FY11 FY12Sales (Rs cr) 361 421 466 531 736 884 1016PAT (Rs cr) 21.0 27.7 27.8 18.1 18.9 21.2 42.1

Operating Margin (%) 11.8 11.6 9.8 6.1 4.8 4.8 7.3ROE (%) 16.9 18.4 16.2 9.6 9.4 9.9 17.5




FY2011E 884 4.8 21.2 7.6 9.9 13.6 1.3 6.4 0.3

FY2012E 1,016 7.3 42.1 15.1 17.5 6.8 1.1 3.3 0.2


ICICI Bank (CMP: Rs.1,127/ TP: Rs.1,350/ Upside: 20%)

The Bank is well-positioned to gain CASA market share on the back of substantialbranch expansion from 955 in 3QFY2008 to 2,016 in 1QFY2011 as well as creditmarket share on the back of strong Capital Adequacy at 20.2% (Tier-I at 14.0%).

Net Interest Margins of the Bank are expected to sustain on the back of increase inCASA ratio to 42.1% in 1QFY2011 from 29% in FY2009.

On the back of an improving economic environment, NPA losses are expected tostart declining. The Bank has also done lower restructuring of loans than PSUBanks (7.1% of Net Worth v/s 40%+ for most PSU Banks). As a result, we expectNPA provisions /Assets to decline sharply to 0.5% by FY2012E (from 1.2% inFY2010)

We expect the bank to deliver strong earnings CAGR of 31.0% over FY2010-12Eand a ROE of 15.5% by FY2012E vs. 9.7% in FY2010. The stock is trading atattractive valuations of 2.3x FY2012E P/ABV on a standalone basis. Hence, wemaintain a Buy on the stock with a Target Price of Rs1,350 valuing the core bankat 2.9x FY2012E P/ABV and assigning a value of Rs254 for its subsidiaries.



October 12, 2010 14

Market Strategy

Depressed risk-adjusted NIMs to improve going forwardParticulars FY06 FY07 FY08 FY09 FY10 FY11E FY12E

Net Op Inc (Rs cr) 9,224 13,599 17,081 16,875 15,591 16,673 20,992

PAT (Rs cr) 2,540 3,110 4,158 3,423 4,024 5,028 6,906

Risk-adj NIMs* (%) 1.2 1.1 1.2 1.1 1.0 1.5 1.8

ROA (%) 1.1 0.9 0.8 0.9 1.0 1.2 1.4

ROE (%) 14.8 13.4 10.3 9.2 9.7 11.7 15.5

*Risk-adjusted NIMs=(NIMs - provisioning expenses) as % of assets

Key Financials Y/E Op Inc. NIM PAT EPS ABV ROA ROE P/E P/ABV

March (Rs cr) (%) (Rs cr) (Rs) (Rs) (%) (%) (x) (x)

FY2011E 16,673 2.4 5,028 45.1 487 1.2 11.7 25.0 2.4

FY2012E 20,992 2.5 6,906 61.9 520 1.4 15.5 18.2 2.3




October 12, 2010 15

Market Strategy

Angel Model Portfolio

Sector Company CMP (Rs) Target Price (Rs)BSE 100

Weightage (%)Angel

Weightage (%) Stance

Auto & Ancillaries 6.2 8.0 OverweightMaruti Suzuki 1,497 1,640 0.9 3.0 Overweight

Fag Bearings 860 1,035 0.0 3.0 Overweight

Denso 103 136 0.0 2.0 Overweight

BFSI 25.6 26.0 Equalweight

SBI 3,245 3,556 3.9 5.0 Overweight

Axis Bank 1,571 1,703 1.8 6.0 Overweight

ICICI Bank 1,127 1,350 5.5 11.0 Overweight

HDFC Bank 2,403 2,514 3.9 4.0 Equalweight

Cement 1.4 0.0 Underweight

FMCG 7.9 3.0 Underweight

ITC 172 177 4.3 3.0 Underweight

Hotels 0.3 3.0 Overweight

Taj GVK 166 240 0.0 3.0 OverweightInfrastructure & CapGoods 11.6 15.0 Overweight

Bluestar 477 589 0.0 4.0 Overweight

L&T 2,042 2,026 4.9 5.0 Equalweight

LMW 2,490 2,819 0.0 3.0 OverweightNagarjunaConstruction 152 201 0.0 3.0 Overweight

Media 0.4 3.0 Overweight

Jagran Prakashan 142 154 0.0 3.0 Overweight

Metals 8.4 6.0 Underweight

Electrosteel Castings 47 72 0.0 3.0 Overweight

Tata Sponge 385 462 0.0 3.0 Overweight

Oil & Gas 14.8 10.0 Underweight

Reliance Industries 1,048 1,260 8.2 10.0 Overweight

Pharma 3.6 6.0 Overweight

Cipla 337 360 0.8 3.0 Overweight

Aurobindo Pharma 1,107 1,378 0.0 3.0 Overweight

Power 4.0 0.0 Underweight

Real Estate 1.5 3.0 Overweight

Anant Raj Industries 149 178 0.0 3.0 Overweight

Software 10.6 11.0 Overweight

TCS 942 1,032 2.4 3.0 Equalweight

Tech Mahindra 766 942 0.0 3.0 Overweight

Mphasis 660 872 0.0 5.0 Overweight

Telecom 3.2 0.0 Underweight

Others 0.8 6.0 Overweight

United Phosporus 182 228 0.0 3.0 Overweight

Finolex Cables 59 85 0.0 3.0 Overweight



October 12, 2010

Research Team Tel: 022 - 4040 3800 E-mail: [email protected] Website: www.angeltrade.com

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Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to -15%) Sell (< -15%)



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Tel: (022) 3952 4568 / 4040 3800

Research Team

Fundamental:

Sarabjit Kour Nangra VP-Research, Pharmaceutical [email protected] Vaibhav Agrawal VP-Research, Banking [email protected] Vaishali Jajoo Automobile [email protected] Kanani Infrastructure, Real Estate [email protected]

Anand Shah FMCG, Media [email protected] Pareek Oil & Gas [email protected] Dalmia Pharmaceutical [email protected] Sankhe Cement, Power [email protected] Desai Real Estate, Logistics, Shipping [email protected] Bariya Fertiliser, Mid-cap [email protected]

Viraj Nadkarni Retail, Hotels, Mid-cap [email protected] Jain Metals & Mining [email protected]

Amit Rane Banking [email protected] Perinchery Capital Goods [email protected] Anand IT, Telecom [email protected] Sharda Mid-cap [email protected] Lillaney Mid-cap [email protected] Mody Mid-cap [email protected]

Amit Vora Research Associate (Oil & Gas) [email protected] V Srinivasan Research Associate (Cement, Power) [email protected] Salot Research Associate (Logistics, Shipping) [email protected] Kapur Research Associate (FMCG, Media) [email protected] Jain Research Associate (Metals & Mining) [email protected] Kothari Research Associate (Automobile) [email protected] Bhutda Research Associate (Banking) [email protected] P.V.S Research Associate (FMCG, Media) [email protected] Thaker Research Associate (Capital Goods) [email protected] Arora Research Associate (Infra, Real Estate) [email protected]

Technicals: Shardul Kulkarni Sr. Technical Analyst [email protected] Vasudeo Technical Analyst [email protected]:Siddarth Bhamre Head - Derivatives [email protected] Agarwal Derivative Analyst [email protected]

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Abhimanyu Sofat AVP - Institutional Sales [email protected] Jalan Sr. Manager [email protected] Modi Sr. Manager [email protected] Jangir Sr. Manager [email protected] Iyer Sr. Manager [email protected] Harsora Sr. Dealer [email protected] Chavan Dealer [email protected] Tisani Dealer [email protected]

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