090512 India Daily

INDIA DAILY

®

India Daily Summary - May 12, 2009

EQUITY MARKETS

May 12, 2009

Change, % India

11-May 1-day

1-mo

3-mo

Sensex

11,683

(1.6)

8.1

23.4

3,555

(1.8)

6.4

22.9

6.1

Nifty

Contents

Global/Regional indices Dow Jones

8,419

(1.8)

4.1

New Release

FTSE

4,436

(0.6)

11.3

5.6

Nikkie

9,316

(1.4)

3.9

20.9

17,138

0.3

15.0

29.6

1,403

(0.9)

5.0

18.9

Sintex Industries: 4QFY09—Strong margins drive PAT above expectation; reiterate BUY

Hang Seng KOSPI Value traded - India

Updates

Moving avg, Rs bn 11-May

Cairn India: An update on pertinent contemporary issues Suzlon Energy: Settles FCCB restructuring, deferral of payment to Martifer may be the next near-term catalyst; retain ADD

1-mo

3-mo

Cash (NSE+BSE)

179.4

209.4

151.8

Derivatives (NSE)

458.1

629.7

330

Deri. open interest

720.4

787

576

Telecom: Mobile Number Portability (MNP) could be a reality as early as end CY2009 Forex/money market Change, basis points 11-May

1-day

1-mo

3-mo

49.5

2

(36)

73

6.3

5

(40)

36

11-May

1-day

1-mo

3-mo

Gold (US$/OZ)

913.8

0.0

3.6

(3.5)

Silver (US$/OZ)

13.9

(0.2)

12.5

2.9

Crude (US$/BBL)

56.8

0.4

5.4

28.0

Rs/US$ 10yr govt bond, %

Commodity market Change, %

News Roundup 











Telecom operators, such as Tata Teleservices, Vofafone, Idea Cellular, are expected to issue multi-year BPO contracts totalling nearly Rs 500 crore in the next couple of months. (ET) Software giant Microsoft will lay off about 55 employees in India, which is 1% of its Indian staff, as slowdown hits the sector, affecting business and profitability.(Live Mint) Embattled insurer American International Group (AIG) is selling its Japanese headquarters to Nippon Life Insurance Co. for $1.2 billion in cash.(Live Mint)

Net investment (US$mn) 8-May

MTD

CYTD

FIIs

252

436

457

MFs

(14)

69

(53)

Top movers -3mo basis Change, % Best performers

11-May

1-day

1-mo

3-mo

Jsw Steel Limited

424

3.7

22.1

88.4

Diageo Plc’s talks to buy a stake in India’s United Spirits Ltd have not progressed as the two sides have been unable to agree on details, a senior Diageo executive said. (Live Mint)

Jaiprakash Associate

136

(4.6)

19.0

85.8

Sterlite Industries In

486

(0.9)

22.8

80.9

Bajaj Finserv Ltd

242

(1.3)

27.9

72.3

Bharat Forge Limite

137

(3.0)

13.0

68.1

With the national identity card for Indian citizens waiting in the wings, a combined UK-India research project has been undertaken in the area of information security and identity management.(BL)

Worst performers Housing Developme

167

(3.9)

40.2

94.1

Ranbaxy Laboratori

172

(3.5)

(9.0)

(19.0)

Hindustan Petroleum

248

0.9

(5.4)

(18.0)

Bharat Petroleum C

354

(1.1)

(7.8)

(13.0)

Hindustan Unilever L

227

(2.5)

(2.5)

(12.2)

Lupin, a generic drug maker, has settled all patent litigation with US drug maker Wyeth for Effexor XR capsules, the US firm’s branded antidepressant.(BS)



Mirroring the unprecedented red ink flowing from America’s deep recession, the deficit for the current budget year will rise by $89 billion to $1.84 trillion about four times the record set just last year. (ET)



PepsiCo Inc.’s proposed buyout of its two biggest bottlers took a new turn Monday when the soft drink maker sued one of the companies over the way it rejected the deal and approved shareholder rights measures.(BS) Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, BL = Business Line.

Kotak Institutional Equities Research

Kotak Institutional Equities Research [email protected] Mumbai: +91-22-6634-1100

1

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL, AT http://www.kotaksecurities.com.

India Daily Summary - May 12, 2009

Sintex Industries: 4QFY09—Strong margins drive PAT above expectation; reiterate BUY

Diversified SNTX.BO, Rs155 Rating

BUY

Sector coverage view

-

Target Price (Rs)

175

52W High -Low (Rs)

441-72

Market Cap (Rs bn)

21.2

Financials March y/e

2009

2010E

2011E

Sales (Rs bn)

31.4

34.2

37.6

3.3

3.4

3.7

EPS (Rs)

23.8

24.8

27.3

EPS gth

21.9

4.1

10.2

P/E (x)

6.5

6.3

5.7

EV/EBITDA (x)

4.9

4.5

3.7

Div yield (%)

0.7

0.7

0.8

Net Profit (Rs bn)

Shareholding, March 2009 % of Over/(under) Pattern Portfolio weight

Augustya Somani : [email protected], +91-22-6634-1328

•

4QFY09 PAT at Rs1.1 bn above expectation

•

Limited impact of slowdown and improving demand scenario support earning estimates

•

Revise target price to Rs175 for higher multiples, maintain BUY

Sintex reported strong 4QFY09 results with PAT of Rs1.1 bn (up 21% yoy) versus our estimate of Rs0.8 bn. Revenues were in line with our estimates at Rs8.5 bn (down 8% yoy). Lower other expenses, change in depreciation policy of subsidiaries and lower taxes were the key reasons for PAT being above our estimates. Revenues declined mainly on account of reduction in material costs which are in most cases a pass through. There has been limited impact of global economic slowdown on the demand for Sintex’s products with both plastics and textile segments maintaining their volumes. We increase our FY2010E and FY2011E EPS estimates to Rs24.8 and Rs27.3 from Rs22.5 and Rs25.4, respectively. Our increased estimated are mainly on account of higher margins in the plastics segment and lower taxes. We increase our SOTP-based target price to Rs175 (from Rs125) as we increase our target multiples based upon the current valuations of the comparable companies.

Promoters

29.1

-

-

FIIs

36.7

0.1

0.1

Lower other expenses drive 4QFY09 PAT above expectations

MFs

18.3

0.3

0.2

Sintex reported 4QFY09 PAT of Rs1.1 bn (up21% yoy), much above our estimate of Rs0.8 bn. Revenues at Rs8.5 bn (down 8% yoy) were in line with our estimate. Higher PAT was mainly on account of lower other expenses at Rs1 bn versus average quarterly expense of Rs1.6 bn in the first nine months of FY2009. Key highlights of the results were:

UTI

-

-

(0.1)

LIC

-

-

(0.1)

• Building material revenues below estimate. Building material segment reported revenues of Rs3.4 bn versus our estimate of Rs3.8 bn mainly due to lower revenues in the domestic pre-fab business. • Custom molding revenues higher than estimate. Custom molding segment reported revenues of Rs3.8 bn against our estimated Rs3.6 bn .Higher revenues at Nief (Euro27 mn versus estimated Euro24 mn) resulted in higher-than-estimated revenues. • Plastics margins much above estimate due to reversal of expense provisioning. The plastics segment reported EBIT margins of 17.8% in 4QFY09 versus our estimate of 13.5%. The main increase in margin was mainly on account of lower other expenses in the quarter. As explained by the management, higher provisioning was done in the earlier quarters based on estimated expenditure and in the last quarter it was adjusted based on actual expenses. This is reflected in the lower other expenses of Rs1 bn in the quarter versus and average expense of Rs1.6 bn in the previous quarters. • Textile remains stable. The textile segment reported better than expected revenues at Rs1 bn (9% above estimate). EBIT margins were in line with expectation at 19.5%. • Change in depreciation for subsidiaries. During the quarter the company changed the depreciation method for overseas subsidiaries to straight line method as per the parent’s accounting policy from WDV method resulting in lower depreciation charge of Rs110 mn for the quarter. • Lower taxes boost PAT. The effective tax rate of 17.7% during the quarter was much below our estimate of 24% and the average tax rate of 21.4% in 9MFY09 which resulted in PAT being above our estimate.

2

Kotak Institutional Equities Research

India Daily Summary - May 12, 2009

• New orders in the monolithic segment. Sintex won monolithic orders amounting to Rs2 bn from the state governments of Maharashtra and Tamil Nadu taking its total unexecuted order book to Rs14 bn. We highlight that this is the first order from the Maharashtra government, thus opening opportunities for further orders from this state. Subsidiary performance overview • Wausaukee—Wausaukee reported revenues of US$8.5 mn versus US$13 mn in 3QFY09. EBITDA margin in 4QFY09 were near break-even. Management has indicated that slow down in demand mainly from the wind mill industry has led to the sharp decline in Wausaukee revenues. We estimate revenues of US$30 mn and EBITDA margin of 1.5% in FY2010E. • Nief—Nief maintained revenues at Euro27 mn with EBITDA margins of 11% in 4QFY09. Management has guided for flat to marginal increase in revenues in FY2010E. We build in a 5% revenue decline and margins at 11.5% in FY2010E. • Bright—Bright reported revenues of Rs350 mn (Rs270 mn in 3QFY09) mainly on account of a revival in the automobile production. We believe with the domestic automobile industry maintaining its production volumes and opportunities for production outsourcing for international OEMs, Bright is fairly placed to maintain its revenues and margins. We estimate revenues to grow by 10% to Rs1.4 bn and margins of 15% in FY2010E. • Zeppelin—Zeppelin reported strong revenues of Rs460 mn and margins of 23% in 4QFY09 mainly led by strong performance in its telecom service subsidiary—Digvijay. We estimate Zepplin’s consolidated revenues to grow to Rs1.4 bn in FY2010E (from Rs1.1 bn in FY2009) and margins at 18.6%. Revising estimates for higher margins in the plastics segment We increase our FY2010E and FY2011E EPS estimates to Rs24.8 and Rs27.3 from Rs22.5 and Rs25.4, respectively. Key changes to assumptions are: • Higher plastics margins. We increase our plastics segment margin to 16.3% and 16.5% for FY2010E and FY2011E, respectively, from 15.7% and 16.2% earlier. Our margin estimates are increased mainly on account of strong performance in 4QFY09 and benefits flowing from lower material prices. • Lower tax rates. We reduce our tax rate assumption for FY2010E and FY2011E to 21% and 22% from 22.5% and 23.5%, respectively. • Exchange rate assumptions. We revise our FY2010E and FY2011E average Re/US$ exchange rate assumptions to Rs50.75 and Rs50.5 from Rs53.25 and Rs53 earlier. Raise target price to Rs175, maintain BUY We revise our SOTP-based target price to Rs175 (from Rs125) mainly on account of revised target multiples. We revise our multiples for increase in the EV/EBITDA multiples of comparable companies that we use to value the various segments. We value the pre-fab segment at 4.5X (3.5X), monolithic at 4.5X (4X), custom molding at 4X (3X) and textiles at 5X (4.5X). Comparable construction companies are currently valued at 5.9X FY2010E EBITDA (versus 4.5X at our previous valuation). Textiles and auto component comparable valuations have also increased to 6.7X and 5.9X from 5.7X and 4.4X at our previous valuation date. We believe the stock—currently trading at 6.2X and 4X FY2010E EPS and EBITDA, respectively—has upside potential from both (1) higher valuations and (2) positive earnings surprises.

Kotak Institutional Equities Research

3

India Daily Summary - May 12, 2009

Exhibit 1: Interim results of Sintex (consolidated) , March fiscal year-ends (Rs mn)

Net sales Total expenditure Raw material cost Stock adjustment Employee expenses Other expenses EBITDA OPM (%) Other income Depreciation Interest Pretax profits Extraordinaries Reported PBT Tax Net income Minority interest Reported PAT Segmental Revenues (including other income) Textiles Plastics Un allocated Total EBIT (including other income) Textiles Plastics Un allocated Total EBIT margin (%) Textiles Plastics Un allocated Total

4QFY09 8,530 (6,847) (4,461) (165) (1,168) (1,054) 1,683 19.7 131 (211) (205) 1,399 — 1,399 (248) 1,151 (11) 1,140

4QFY09E 4QFY08 3QFY09 8,590 9,285 8,202 (7,205) (7,840) (6,929) — (5,431) (4,282) — 1 (3) — (924) (1,101) — (1,486) (1,544) 1,385 1,445 1,273 16.1 15.6 15.5 220 314 252 (311) (291) (315) (255) (226) (152) 1,068 1,316 954 — — — 1,068 1,316 954 (266) (371) (237) 802 946 717 (8) 0 (9) 794 946 708

(% chg.) 4QFY09E 4QFY08 3QFY09 (0.7) (8.1) 4.0 (5.0) (12.7) (1.2) — (17.9) 4.2 — NM NM — 26.4 6.1 — (29.1) (31.7) 21.5 16.5 32.2 (40.4) (32.3) (9.4) 30.9

(58.1) (27.5) 35.0 6.3

(47.8) (33.2) (19.7) 46.6

30.9 (6.9) 43.5 30.9 43.6

6.3 (33.1) 21.7 NM 20.6

46.6 4.6 60.5 22.9 61.0

Full year 2009 2008 (%chg) 31,356 22,977 36.5 (26,139) (18,915) 38.2 (16,520) (13,216) 25.0 369 215 71.3 (4,142) (2,091) 98.1 (5,845) (3,824) 52.8 5,217 4,062 28.5 16.6 17.7 846 366 131.1 (1,144) (765) 49.5 (820) (643) 27.4 4,100 3,019 35.8 — — 4,100 3,019 35.8 (826) (698) 18.4 3,274 2,322 41.0 (23) (19) 3,251 2,303 41.2

1,049 7,457 155 8,661

957 7,635 220 8,812

962 8,476 159 9,598

945 7,254 252 8,451

9.6 (2.3) (29.5) (1.7)

9.0 (12.0) (2.5) (9.8)

11.0 2.8 (38.3) 2.5

3,710 27,621 870 32,202

3,483 19,496 365 23,343

6.5 41.7 138.5 38.0

204 1,324 76 1,604

187 1,027 80 1,294

203 1,179 86 1,468

196 771 242 1,209

9.2 28.9 (5.6) 23.9

0.4 12.3 (11.5) 9.3

4.1 71.7 (68.7) 32.6

664 3,812 443 4,919

668 2,804 191 3,663

(0.5) 35.9 132.3 34.3

19.5 17.8 48.8 18.5

19.5 13.5 36.5 14.7

21.1 13.9 53.8 15.3

20.7 10.6 96.3 14.3

— — — —

— — — —

— — — —

17.9 13.8 50.9 15.3

19.2 14.4 52.2 15.7

Source: Company data, Kotak Institutional Equities

Exhibit 2: Sintex industries, SOTP-based valuation, 2010E basis, March fiscal year-ends (Rs mn)

Pre-fabricated structures Monolithic Custom moulding and composites Textiles Unallocated Enterprise value Less: Net debt (1) Market capitalizaton Target price (Rs)

EBITDA (Rs mn) 1,779 1,266 1,859 1,134 (407) 5,631

Multiple (X) 4.5 4.5 4.0 5.0 4.4 4.4

(Rs mn) 8,005 5,696 7,436 5,672 (1,791) 25,018 1,467 23,551

EV (US$ mn) 163 116 152 116 (37) 511 30 481

(Rs/share) 59 42 54 42 (13) 183 11 173 175

Note: (1) Net debt is adjusted for Rs2.5 bn of marketable investments. Source: Company data, Kotak Institutional Equities estimates

4

Kotak Institutional Equities Research

India Daily Summary - May 12, 2009

Exhibit 3: Comparable valuations for construction companies

Company Consolidated Construction Company IVRCL Infrastructure Larsen & Toubro standalone Nagarjuna Construction Company Punj Lloyd Ltd. Sadbhav Engineering Average Note: (1) For (2) For (3) For (4) For (5) For

2009E 7.0 9.0 19.7 7.8 12.2 5.6 10.2

P/E (X) 2010E 5.1 7.7 18.3 6.5 7.1 4.5 8.2

2011E 4.3 6.7 17.8 5.9 6.7 2.8 7.4

2009E 5.0 6.6 15.5 5.8 8.0 4.4 7.5

EV/EBITDA (X) 2010E 3.6 5.2 13.0 5.0 5.0 3.8 5.9

2011E 3.1 4.3 12.5 4.5 4.4 3.1 5.3

2009E 0.3 0.6 1.6 0.5 0.5 0.5 0.7

EV/SALES (X) 2010E 0.3 0.5 1.4 0.5 0.5 0.4 0.6

2011E 0.3 0.4 1.2 0.4 0.5 0.4 0.5

IVRCL we have adjusted value of IVR Prime (Rs11/share) and other BOT projects for a total adjustment of Rs32/share L&T we have deducted about Rs140/share based on 20% discount to our total valuation of Rs175/share for the value of subsdiaries/associates/JVs/investments Nagarjuna - we have adjusted Rs21/share comprised of book value of infrastructural investments and 30% discount to book value of real estate investments Punj Lloyd & CCCL estimates are based on consolidated estimates as they do not have any BOT projects Sadbhav Engineering we have deducted Rs150 per share based on 30% discount to Rs216/share value of BOT projects

Source: Bloomberg, Kotak Institutional Equities estimates

Exhibit 4: Comparative valuation of textile and auto component companies 11-May-09 Company Price (local) Gokaldas 69.8 Raymond 92.8 Vardhman 72.3 Textiles average Amtek Auto 108.1 Bharat Forge 140.9 Rico Auto 13.0 Auto component average

Currency INR INR INR

Year-end Mar Mar Mar

Mkt Cap. (US$ mn) 49 115 85

INR INR INR

Mar Mar Mar

309 636 33

EV/EBITDA (X) LFY FY1 FY2 4.3 4.0 3.9 7.6 8.9 6.1 5.6 7.0 6.6 5.9 6.7 5.6 3.8 4.3 3.7 5.2 7.5 7.1 4.5 6.2 4.8 4.5 5.9 5.4

LFY 5.0 (2.5) 2.4 1.7 3.4 10.5 7.0 7.0

PER (X) FY1 FY2 2.7 2.7 9.9 8.7 5.6 5.9 6.1 5.8 6.1 4.9 16.1 16.1 35.5 10.0 11.1 10.5

EV/Sales (X) LFY FY1 FY2 0.5 0.4 0.4 0.7 0.6 0.5 1.0 1.1 1.1 0.7 0.7 0.7 0.8 0.8 0.7 1.0 1.0 1.0 0.6 0.5 0.5 0.9 0.9 0.8

Source: Bloomberg

Exhibit 5: Comparative valuation of global plastic companies Company Filtrona Georgia Gulf Myers Industries Plastic Omnium Polyone Quadrant Schulman (A.) Spartech Average

11-May-09 Price (local) 1.2 1.2 10.2 8.8 3.5 93.5 15.3 4.8

Currency GBP USD USD EUR USD CHF USD USD

Year-end Dec Dec Dec Dec Dec Dec Aug Oct

Mkt Cap. (US$ mn) 163 41 360 122 322 232 399 145

EV/EBITDA (X) LFY FY1 FY2 5.0 5.6 5.6 7.7 9.8 7.5 7.0 NA NA 2.9 4.0 3.4 8.4 4.3 NA 5.0 12.2 8.2 4.2 9.4 6.0 5.6 5.2 4.7 5.7 7.2 5.9

LFY 6.9 NM (7.8) (2.5) (1.2) 22.5 22.9 (0.7) 5.7

PER (X) FY1 8.5 NM 17.6 NM NA NM 65.1 27.1 29.6

FY2 7.9 NM 13.5 NM 9.8 29.3 22.7 9.5 15.4

EV/Sales (X) LFY FY1 0.8 0.9 0.5 0.4 0.6 0.7 0.3 0.3 0.2 0.3 0.5 0.6 0.2 0.3 0.3 0.4 0.4 0.5

FY2 0.9 0.4 0.7 0.3 0.3 0.6 0.3 0.3 0.5

Source: Bloomberg

Kotak Institutional Equities Research

5

India Daily Summary - May 12, 2009

Exhibit 6: Sintex, change in estimates, March fiscal year-ends, (Rs mn) Revised estimates 2010E 2011E Revenue 34,247 37,601 EBITDA 5,631 6,242 EBITDA margin (%) 16.4 16.6 Adjusted net profit 3,383 3,728 Diluted EPS (Rs) 24.8 27.3

Old estimates 2010E 2011E 34,228 37,431 5,425 6,097 15.8 16.3 3,070 3,465 22.5 25.4

Change (%) 2010E 2011E 0.1 0.5 3.8 2.4 — — 10.2 7.6 10.2 7.6

Source: Kotak Institutional Equities estimates

Exhibit 7: Plastics will be the key revenue driver Sintex, revenue and margin estimates, March fiscal year-ends, 2007-12E (Rs mn)

Revenues Plastics Building products [A] Monolithic Standalone prefab business Zeppelin (consolidated) Water Tanks Custom molding [B] Standalone Wasaukee Nief Plastics Bright AutoPlast Others [C] Total plastics [A+B+C] Textiles Collection RMG Others Total textiles Total revenues EBITDA margin (%) Plastics Building products [A] Monolithic Standalone prefab business Zeppelin (consolidated) Water Tanks Custom molding [B] Standalone Wasaukee Nief Plastics Bright AutoPlast Others [C] Total plastics [A+B+C] Textiles Collection RMG Others Total textiles Total consolidated

2007

2008

2009E

2010E

2011E

2012E

6,080 — 4,283 475 1,322 2,442 2,442 — — — — 8,522

10,270 2,100 5,497 1,273 1,400 9,033 3,828 1,016 3,785 404 191 19,494

12,780 4,520 5,740 1,108 1,411 14,174 3,439 2,049 7,420 1,266 691 27,645

16,151 7,232 6,036 1,415 1,467 13,407 3,342 1,528 7,145 1,393 701 30,260

18,198 8,317 6,799 1,556 1,526 14,311 3,768 1,642 7,369 1,532 737 33,245

20,163 9,149 7,714 1,713 1,587 15,740 4,297 1,799 7,958 1,685 773 36,677

786 2,170 224 3,180 11,702

930 2,300 253 3,483 22,977

991 2,447 273 3,711 31,356

1,067 2,634 287 3,987 34,247

1,165 2,876 315 4,356 37,601

1,212 2,992 347 4,551 41,228

15.9 — 19.2 13.2 6.0 19.2 19.2 — — — — 17.1

18.1 15.5 23.1 14.1 6.1 15.3 23.9 6.5 9.3 13.0 2.1 16.7

19.6 18.0 24.4 18.0 6.0 14.4 24.7 5.0 12.0 15.2 3.0 16.5

18.9 17.5 23.6 18.6 6.0 13.9 23.6 1.5 11.8 15.0 3.0 16.3

18.9 17.5 23.8 17.9 6.0 14.1 23.5 2.5 11.8 14.5 3.0 16.5

19.0 17.5 23.9 17.0 6.0 14.3 23.7 3.0 11.8 14.5 3.0 16.7

32.8 27.9 21.9 28.6 19.4

32.1 26.5 22.0 28.4 17.7

33.6 27.7 23.0 28.9 16.6

33.5 27.0 23.0 28.5 16.4

33.0 27.0 23.0 28.3 16.6

32.5 27.0 22.5 28.1 16.7

Source: Company, Kotak Institutional Equities estimates

6

Kotak Institutional Equities Research

India Daily Summary - May 12, 2009

Exhibit 8: Profit model, balance sheet, cash model (consolidated) for Sintex, March fiscal year-ends, 2007-2012E (Rs mn)

Profit model Revenues EBITDA Depreciation Interest expense Finance income Other income Reported PBT Tax Deferred taxation Profit after tax Minority interest Adjusted PAT Diluted earnings per share (Rs) Balance sheet Total equity Total borrowings Current liabilities Total liabilities and equity Cash Other current assets Goodwill Tangible fixed assets Investments Total assets Free cash flow Operating cash flow, excl. working capital Working capital changes Capital expenditure Investment changes Other income Free cash flow Ratios (%) EBITDA margin Debt/equity Net debt/equity RoAE RoACE RoACE (excl. cash)

2007

2008

2009E

2010E

2011E

2012E

11,702 2,276 (420) (415) 106 115 1,662 (216) (111) 1,335 (7) 1,328 12.2

22,977 4,061 (765) (643) 140 226 3,020 (442) (256) 2,322 (19) 2,303 19.5

31,356 5,217 (1,144) (820) 637 209 4,100 (751) (75) 3,274 (23) 3,251 23.8

34,247 5,631 (1,345) (744) 624 170 4,337 (842) (87) 3,408 (25) 3,383 24.8

37,601 6,242 (1,474) (623) 576 120 4,842 (1,037) (48) 3,756 (28) 3,728 27.3

41,228 6,871 (1,572) (517) 625 120 5,528 (1,266) (83) 4,179 (30) 4,149 30.4

7,232 6,932 3,031 17,194 3,901 4,511 86 6,812 1,886 17,194

16,449 19,466 10,046 45,961 13,713 12,575 1,845 14,577 3,252 45,961

19,611 19,016 10,283 48,910 14,590 12,886 1,845 16,596 2,993 48,910

22,897 17,123 10,883 50,902 13,156 15,481 1,845 17,428 2,993 50,902

26,482 15,611 11,363 53,456 13,967 16,998 1,845 17,653 2,993 53,456

30,515 14,141 12,067 56,723 15,467 18,637 1,845 17,781 2,993 56,723

1,638 3,047 (695) (3,383) (2,409) (9,902) 8 32 105 159 (1,354) (10,047)

3,658 (89) (3,163) (462) 846 790

4,045 (2,004) (2,176) — 794 660

4,583 (1,044) (1,700) — 696 2,535

5,089 (943) (1,700) — 745 3,192

16.6 97.0 9.8 16.6 10.5 16.3

16.4 74.8 6.4 14.8 10.1 14.9

16.6 58.9 (3.2) 14.1 10.3 15.0

16.7 46.3 (12.5) 13.6 10.5 15.5

19.4 95.6 16.2 18.3 13.2 21.0

17.7 118.3 15.4 14.0 11.2 18.8

Source: Company data, Kotak Institutional Equities estimates

Kotak Institutional Equities Research

7

India Daily Summary - May 12, 2009

Cairn India: An update on pertinent contemporary issues

Energy CAIR.BO, Rs206 Rating

BUY

Sector coverage view

Neutral

Target Price (Rs)

225

52W High -Low (Rs)

343 - 88

Market Cap (Rs bn)

391.3

Financials December y/e

2008

2009E

Sales (Rs bn)

23.5

32.7

93.3

6.3

8.4

54.0

EPS (Rs)

4.2

4.4

28.5

EPS gth

-

5.4

559.5 7.3

Net Profit (Rs bn)

P/E (x)

49.1

46.6

EV/EBITDA (x)

29.1

21.2

Div yield (%)

-

-

Perf-3m

Perf-6m

3.6

29.0

49.3

Gundeep Singh : [email protected], +91-22-6634-1286 Tarun Lakhotia : [email protected], +91-22-6634-1188

•

Ministry reiterates Cairn's liability to pay cess; negative for earnings and valuations if confirmed

•

Pricing and uptake still unresolved; however, we do not see them as long-term issues

•

Stock price is discounting US$66/bbl in perpetuity leaving limited scope for strong performance in the near term

2010E

6.0 14.5

Pricing performance Perf-1m

Sanjeev Prasad : [email protected], +91-22-6634-1229

Perf-1y (31.6)

We see the government's stance on Cairn being liable to pay cess for its portion of production from Rajasthan block as another short-term negative for the stock apart from (1) ongoing confusion on pricing and off-take of crude and (2) likely weakness in crude prices. The stock price is already discounting US$66/bbl in perpetuity which leaves limited scope for strong outperformance in the near term. Thus, we find the risk-reward balance less favorable now, given (1) unresolved issues (highlighted above), (2) likely soft crude prices in the near term due to weak global demand and high global inventories and (3) strengthening of rupee. We maintain a BUY rating on the stock with a 12-month DCFbased target price of Rs225 (Exhibit 1). Key downside risks stem from lower-than expected crude prices and unfavorable resolution (versus expectation) of the above-mentioned issues.

Shareholding, March 2009 % of Over/(under) Pattern Portfolio weight Promoters FIIs

64.7 8.8

-

-

0.8

(0.6) (0.6)

MFs

1.7

0.7

UTI

-

-

(1.3)

LIC

2.0

0.6

(0.7)

Valuation looks full in light of overhang of unresolved issues. We compute that Cairn’s stock price is currently discounting US$66/bbl in perpetuity, which is high, in our view. We would suggest that investors look at the stock at around Rs165-170 level, where the stock price will discount crude price of US$55-56/bbl in perpetuity, which is more reasonable (Exhibit 2). The risk-reward balance looks unfavorable given the overhang of issues relating to (1) cess, (2) pricing and (3) uptake of crude from Cairn’s Rajasthan block. However, we continue to be positive on the long-term prospects and performance of the stock given (1) likely rebound in crude prices from 4QCY09E, (2) possible upgrade to crude oil reserves and (3) earlier-than-expected start of production. We maintain a BUY rating on the stock with a 12-month DCF-based target price of Rs225. We note that our rating is relative to the market and we expect the stock to outperform the market over the next 12 months; Cairn’s stock offers more potential upside to its 12-month fair valuations versus the market’s potential return over the same period. We discuss the key issues which might have a negative impact on earnings and valuations. 1. Cess—Government maintains its stance on Cairn’s liability to pay cess in proportion to its participating interest. We see increased risks to earnings and valuation arising from likely liability of Cairn to pay cess in proportion to its participating interest in its Rajasthan block. As per media reports, the petroleum secretary has stated that Cairn India is liable to pay cess on its share of crude oil production from the RJ-ON90/1 oilfield, reiterating the government’s stance that all the contractors are bound to pay cess in the ratio of their participating interests as per the Oil Industry Development Act, 1974. This stance of the ministry has also been vetted by the ministry of law and justice. We currently assume that Cairn will not bear any cess on the portion of crude oil (70%) produced by it from the Rajasthan block. Our 12-month fair value of the stock comes to Rs218 if we assume that Cairn will have to bear cess at Rs927/ton and it drops to Rs199 if we assume cess at Rs2,575/ton (Exhibit 3).

8

Kotak Institutional Equities Research

India Daily Summary - May 12, 2009

2. Uptake of crude—off-takers for entire quantity not finalized as yet; however uptake not an issue in a crude-short country. We do not see the uptake of crude as a long-term issue in a crude-short country; however, this might act as an overhang on the stock till the off-takers for the entire quantity of crude are finalized. The petroleum ministry has so far allocated 0.7 mn tons to HPCL, MRPL and IOCL for FY2010E and 2.4 mn tons for FY2011E. However, this is well short of the estimated production of 2.9 mn tons for FY2010E and 6.4 mn tons for FY2011E. The ministry has directed HPCL, MRPL and IOCL to indicate the maximum quantity that they can use. It is also exploring the possibility of increasing the allocation of crude from Mumbai High to enable blending with Rajasthan crude. 3. Pricing of crude—might be concluded soon; non-finalization not likely to delay production. As per press reports, the ministry of petroleum & natural gas has asked MRPL, IOCL and HPCL to conclude price negotiations within a fortnight so that production can start. However, we do not see the non-resolution of this issue as a cause of any delay in the commencement of production as Cairn and the off-takers can negotiate a final price even after the production of crude begins. We currently model a US$8/bbl discount for Cairn’s Rajasthan crude to Dated Brent to reflect the somewhat inferior quality of Cairn’s crude versus Brent crude. This seems reasonable in light of the sharp contraction in light-heavy differential; the discount between Dated Brent and Arab Heavy has declined sharply in the recent months (US$1.1/bbl in April 2009) versus US$9.5/bbl in CY2008. However, as per earlier media reports, IOCL and MRPL have expressed willingness to buy the crude at significantly higher discount.

We value Cairn India stock at Rs225 EV and equity value of Cairn (US$ mn)

RJ-ON-90/1 CB-OS-2 Ravva Upside potential (KG-DWN-98/2) Total Net debt Equity value Equity shares (mn) Equity value per share (Rs/share)

Now 8,592 74 347 100 9,114 (722) 9,836 1,897 214

+ 1-year 9,971 53 302 112 10,438 652 9,786 1,897 225

+ 2-years 10,143 31 223 125 10,522 1,222 9,300 1,897 257

Source: Kotak Institutional Equities estimates

Kotak Institutional Equities Research

9

India Daily Summary - May 12, 2009

Crude price discounted at various levels of stock price of Cairn Stock price (Rs/share) 225 210 200 190 180 165 160 150

Crude price discounted (US$/bbl) 71 67 65 63 60 55 54 52

Note: (1) Crude price discounted from CY2009E in perpetuity. (2) Long-term exchange rate assumption (CY2012E onwards) is Rs50/US$. (3) Exchange-rate assumtions for CY2009-11E are Rs52.4/US$, Rs53.1/US$ and Rs51.7/US$. Source: Kotak Instituional Equities estimates

Cairn's fair valuation has moderate leverage to crude prices Enterprise value sensitivity of Cairn to key variables (US$ bn) Sensitivity of current valuation

Sensitivity of +1-year valuation

Enterprise value

Equity value

Change from base case

Enterprise value

Equity value

Change from base case

(US$ bn)

(Rs/share)

(%)

(US$ bn)

(Rs/share)

(%)

22 13 4

278 257 236 225 196 174 153 130

(13) (23) (32) (42)

225 218 199

(3) (12)

Average crude prices (2013 and beyond) Dated Brent price (US$100/bbl) Dated Brent price (US$90/bbl) Dated Brent price (US$80/bbl) Dated Brent price (US$75/bbl) Dated Brent price (US$60/bbl) Dated Brent price (US$50/bbl) Dated Brent price (US$40/bbl) Dated Brent price (US$30/bbl)

10.7 9.9 9.0 8.6 7.4 6.5 5.7 4.8

262 243 224 214 189 169 150 129

(12) (21) (30) (40)

12.2 11.3 10.4 10.0 8.7 7.8 6.9 5.9

Cess, royalty Royalty (Rs0/ton), Cess (Rs0/ton) Royalty (Rs0/ton), Cess (Rs927/ton) Royalty (Rs0/ton), Cess (Rs2,575/ton)

8.6 8.3 7.5

214 208 191

(3) (11)

10.0 9.7 8.9

24 14 5

Source: Kotak Institutional Equities estimates

10

Kotak Institutional Equities Research

India Daily Summary - May 12, 2009

Profit model, balance sheet, cash model of Cairn 2006-2013E, calendar year-ends (Rs mn)

Profit model (Rs mn) Net sales EBITDA Other income Interest Depreciation Pretax profits Extraordinary items Tax Deferred taxation Net profits Earnings per share (Rs) Balance sheet (Rs mn) Total equity Deferred tax liability Total borrowings Currrent liabilities Total liabilities and equity Cash Current assets Total fixed assets Net producing properties Investments Goodwill Deferred expenditure Total assets Free cash flow (Rs mn) Operating cash flow, excl. working capital Working capital changes Capital expenditure Investments/Goodwill Other income Free cash flow Key assumptions Gross production ('000 boe/d) Net production ('000 boe/d) Dated Brent (US$/bbl) Discount of Rajasthan crude to Dated Brent (US$/bbl)

2006

2007

2008E

2009E

2010E

2011E

2012E

2013E

18,417 5,332 1,100 (201) (497) 5,734 — (1,580) (22) 4,132 2.3

16,561 6,705 1,324 (27) (4,589) 3,413 (2,120) (740) (764) (212) (0.1)

23,480 8,334 4,068 (43) (3,312) 9,047 1,522 (584) (2,119) 7,867 4.2

32,688 18,619 1,191 (973) (6,244) 12,594 — (2,702) (1,501) 8,390 4.4

93,349 76,003 392 (4,396) (7,908) 64,090 — (8,776) (1,347) 53,967 28.5

164,092 128,230 251 (5,596) (11,047) 111,837 — (14,002) (681) 97,154 51.2

173,579 118,095 180 (2,796) (11,351) 104,128 — (12,938) (161) 91,029 48.0

171,559 102,896 792 (148) (11,246) 92,293 — (11,299) 170 81,164 42.8

292,804 4,258 5,122 39,716 341,900 61,348 6,470 17,609 2,354 4 254,115 — 341,900

294,358 4,916 3,124 8,372 310,771 1,504 19,029 25,157 4,390 7,129 253,193 370 310,771

328,419 7,035 24,366 18,936 378,756 54,230 2,252 56,536 5,047 7,129 253,193 370 378,756

336,809 8,537 42,411 1,892 389,649 13,999 3,135 79,570 32,254 7,129 253,193 370 389,649

324,206 9,884 72,411 2,414 408,915 8,435 8,951 30,647 100,190 7,129 253,193 370 408,915

365,885 10,564 57,411 5,211 439,072 5,921 15,735 27,752 128,972 7,129 253,193 370 439,072

404,936 10,725 7,411 8,173 431,245 4,411 16,645 24,751 124,746 7,129 253,193 370 431,245

439,755 10,555 — 10,164 460,474 40,956 16,451 21,814 120,562 7,129 253,193 370 460,474

3,188 34,256 (5,619) (252,717) 1,100 (219,792)

6,387 (908) (11,739) (53,863) 1,298 (58,824)

8,018 27,341 (34,136) — 4,068 5,291

11,822 (17,927) (53,363) — 1,191 (58,276)

60,681 (5,295) (24,772) — 392 31,006

107,181 (3,986) (35,484) — 251 67,962

100,910 2,052 (2,675) — 180 100,468

89,998 2,185 (2,675) — 792 90,300

91.0 25.1 65.3 2.1

75.4 19.4 70.3 5.3

69.7 18.2 102.6 14.7

93.0 38.3 52.3 8.0

160.8 88.6 62.5 8.0

235.7 143.3 68.8 8.0

234.8 144.8 73.8 8.0

225.2 140.3 75.0 8.0

Source: Kotak Institutional Equities estimates

Kotak Institutional Equities Research

11

India Daily Summary - May 12, 2009

Suzlon Energy: Settles FCCB restructuring, deferral of payment to Martifer may be the next near-term catalyst; retain ADD

Industrials SUZL.BO, Rs75 Rating

ADD

Sector coverage view

Attractive

Target Price (Rs)

90

52W High -Low (Rs)

321 - 33

Market Cap (Rs bn)

117.7

Financials March y/e Sales (Rs bn) Net Profit (Rs bn)

2009

2010E

2011E

185.7

195.2

230.9

10.9

11.2

17.8

7.0

7.1

11.4

EPS (Rs) EPS gth

6.0

2.3

59.7

10.8

10.5

6.6

EV/EBITDA (x)

8.5

7.7

6.1

Div yield (%)

0.7

0.7

1.3

P/E (x)

Pricing performance Perf-1m

Perf-3m

Perf-6m

Perf-1y

30.6

65.1

31.8

31.8

% of Over/(under) Pattern Portfolio weight FIIs

65.8 8.7

Supriya Subramanian : [email protected], +91-22-6634-1383

•

FCCB restructuring lead to net liability value reduction of US$71 mn and additional dilution of 1.2%

•

Potential breach of covenants for remaining FCCB bonds may have to be managed

•

Deferral of payment to Martifer may be another near-term catalyst; reiterate ADD

Suzlon has finalized the FCCB restructuring transaction where in total liability value has been reduced by US$71 mn, adjusted for cash paid out in the buyback leg. This gain may be booked as part of the net worth in the 1QFY10E. Additional dilution with this transaction versus the base case dilution as per original terms is about 1.2% of current equity (18 mn shares). There may be a technical breach of FCCB bonds that have not participated in the transaction and that may have to be managed separately. We highlight that the deferral of Martifer payment may be the next catalyst as it would help buy time and imply that Suzlon may not need to sell assets and/or dilute equity on unfavorable terms. We make marginal changes to earnings estimates and reiterate ADD. Highlight that stock would be driven by near-term news flows on debt and Martifer payment settlement and post that based on order inflows and reduction in working capital levels. Suzlon finalizes restructuring transaction for FCCBs; liability value reduces by US$71 mn

Shareholding, March 2009

Promoters

Lokesh Garg : [email protected], +91-22-6634-1496

-

-

0.1

(0.1)

MFs

3.9

0.3

0.0

UTI

-

-

(0.2)

LIC

-

-

(0.2)

Suzlon has finalized restructuring transaction for FCCBs where in Suzlon has (a) issued bonds with a face value of US$56.4 mn in exchange for bonds with a face value of US$94 mn, (b) bought back bonds with face value of US$73 mn by paying cash of US$40 mn and (c) paid incentive fees of US$11.8 mn to bondholders for relaxing covenants on the June 2007 tranche. Bonds with principal value of US$121 mn of October 2007 have not accented to change in covenants etc and have thus remained as they were originally issued. Total liability value has reduced by US$71 mn, adjusted for cash paid out in the buyback leg of the transaction. This gain may be booked as part of the net worth in 1QFY10. Dilution resulting from this transaction from the base case is 1.2% We have assumed full conversion of the newly issued bonds leading to issue of about 18 mn additional shares versus original base case. Essentially 37 mn shares would be issued on conversion of newly issued bonds. However, that is adjusted for (a) about 10.3 mn shares that would have been issued in the conversion of original FCCB bonds as well for the same principal amount of bonds and (b) 8.1 mn shares that would not need ot be issued because of buyback (Exhibits 1-4). Potential breach of covenants for remaining FCCB bonds may be marginal and manageable Suzlon may be in technical default for the remaining bonds holders (US$121 mn) of the October 2007 tranche, who have not agreed to the restructuring exercise. Suzlon may be forced to make accelerated repayments in a worst-case scenario. However, the pressure may be limited by (a) the fact that the amount under question for such an eventuality has been substantially reduced and (b) covenants for October 2007 tranche are already more relaxed versus June 2007 tranche and thus Suzlon may miss the covenants only marginally.

12

Kotak Institutional Equities Research

India Daily Summary - May 12, 2009

Deferral of payment to Martifer may be another near-term catalyst We believe that deferral of payment of Euro175 mn to Martifer (due in May 2009), may be another near-term catalyst. Deferral would imply that Suzlon would not need to sell assets and/or dilute equity on unfavorable terms. Deferral may allow Suzlon to make the payment through (a) internal cash generation from reduction in working capital, (b) operational EBITDA during the year and (c) raising additional debt which may not be available in the current near-term. Similar consent for revised terms may be obtained with the acquisition of facility lenders We also highlight that Suzlon may achieve similar consent with the lenders of acquisition facility (outstanding about Euro500 mn) with the payment of slightly higher spread over the Euribor index. However, the higher spread is likely to be more than mitigated by sharp decline in six month Euribor itself, to which this facility is indexed. Marginally revise earnings estimates for FY2010; reiterate ADD We have marginally revised our earnings estimates to Rs6.7 (from Rs7.1) for FY2010E and have maintained our earnings estimate of Rs11.4 for FY2011E. Earnings estimates have changed led by dilution as well as payment of incentive fees to bondholders. We maintain ADD rating with a target price of Rs90/share (Exhibit 5). We highlight that in the near term, the stock could react to settlement of debt and Martifer payment concerns and thus may have near-term upside and/or remain volatile. Post the settlement of near-term concerns, we expect the stock price to be driven by achieving efficiencies on working capital utilization and pick up in order inflows. Key risks include (1) a global slowdown in the demand environment which is a headwind for Suzlon, (2) blade cracking problem may not be completely settled as yet and (3) weak outlook for Indian markets which still accounts for sizeable chunk of total business for Suzlon. Key upside risks arise from (1) lifting of overhang related to payment to Martifer and debt repayments in the May-June period, (2) stronger-than-expected order inflows, (3) sharp recovery in global demand environment, (4) strong platform in terms of breadth and depth of manufacturing, marketing and R&D capabilities.

Kotak Institutional Equities Research

13

India Daily Summary - May 12, 2009

Exhibit 1. Transaction leads to 1.2% additional dilution versus the dilution as per original terms Dilution in Suzlon shareholding on conversion of new and old bonds Shares outstanding at March 31, 2008 (mn)

1,498

Dilution due to new bonds New bonds issued (US$ mn) # of shares to be issued @ conversion price of Rs76.75 (mn) Total number of shares after conversion (mn) Dilution (%)

56 37 1,535 2.5

Adjustment for original dilution for same bonds as per old terms Bonds settled (US$ mn) No of shares converted (mn shares) Dilution (%)

94.0 10.3 0.7

Adjustment for buyback Bonds bought back (US$ mn) Originally envisaged dilution on bonds bought back (mn) Diution avoided by buyback (%)

73 8 0.5

Net new shares likely to be issued (mn) Additional dilution versus base case (%)

18 1.2

Full dilution of all the bonds as per old terms June 2007 - bonds (US$ mn) # of shares to be issued @ conversion price of Rs360 (mn) December 2007 - bonds (US$ mn) # of shares to be issued @ conversion price of Rs372 (mn) Total number of shares after conversion (mn) Dilution (%)

300 34 200 21 1,554 3.7

Source: Company, BSE, Kotak Institutional Equities estimates

Exhibit 2. Details of incentive options offered by Suzlon to its bond holders

Option 1

Option 2

Option 3 Option 4

Option type Decription - Consenting bond holders would receive new bonds - New bonds received at an exchange ratio of 60% New bonds - to the extent of the exhnage limit Terms of the new bonds: - Conversion price of 125% of weighted avg. price of shares for 10 day period ending April 24, 2009 - Coupon rate of 7.5% - YTM of 20% calculated semi-annually - Consenting bond holders to receive cash consideration for existing bonds - to the extent of the cash consideration limit Buyback - Consenting bond holders to receive an incentive fee - incentive fee wold be upto 10% of face value of existing bonds Incentive fee - to the extent of the incentive fee limit limit - No incentive scheme opted for - current rules/ conditions remain Default

Limit (USD mn)

Nominal value (USD mn)

147

245

40

72.7

15

Source: Company

14

Kotak Institutional Equities Research

India Daily Summary - May 12, 2009

Exhibit 3. Details of the two FCCBs raised by Suzlon

FCCB issue Jun-07 Oct-07

Amount raised (USD mn) 300 200

Period 5 years and 1 day 5 years and 1 day

Conversion price (Rs) 360 372

YTM (%) Maturity date 7.6 Jun-12 7.6 Oct-12

Source: Company, Kotak Institutional Equities

Exhibit 4. Debt covenants of the December 2007 FCCB issue are more lax than the June 2007 issue Debt covenants of the two FCCBs issued by Suzlon June 2007 December 2007 USD300 mn bonds USD200 mn bonds Current status Net borrowing: Consol. Tangible net worth <= 1:1 <= 1.5:1 1.12 EBITDA: Debt service >= 1.33:1 >= 1.33:1 3.37 Net borrowings: EBITDA Apr-08 to Mar-09 <= 4:1 <= 4:1 3.90 Apr-09 to Mar-10 <= 3:1 <= 4:1 NA After Mar-10 <= 2:1 <= 3:1 NA Source: Company

Exhibit 5. We arrive at a target price of Rs90/share based on our EV/EBITDA analysis of Suzlon Estimation of target price of Suzlon Energy Assuming conv. of new bonds and buyback Earlier Target FY2010E EV/EBITDA (X) Hansen Transmissions FY2010E EBITDA (Euro mn) Entreprise value (Euro mn) Net debt ( Euro mn) Market capitalisation (Euro mn) Suzlon's stake in Hansen (%) Contribution of Hansen to Suzlon MCap (Rs mn) REpower FY2010E EBITDA (Euro mn) EV (Euro mn) Net debt (Euro mn) Market capitalisation (Euro mn) Suzlon's stake in REpower (%) Contribution of REpower to Suzlon MCap (Rs mn) Suzlon wind business FY2010E EBITDA (Rs mn) EV of wind business (Rs mn) Net debt as on Mar' 2010 (Rs mn) Market cap. of Suzlon wind business (Rs mn) Market cap. contribution of Hansen and Repower (Rs mn) Market cap. including Hansen and Repower (Rs mn) No. of shares (mn) Suzlon target price (Rs)

8.0

8.0

143 1,141 92 1,049 62 43,897

143 1,141 92 1,049 62 43,897

92 738 35 703 90 42,920

92 738 35 703 90 42,920

18,845 150,764 93,036 57,727 86,818 144,545 1,497 96.6

18,845 150,764 86,686 64,077 86,818 150,895 1,572 96.0

Source: Company, Kotak Institutional Equities estimates

Kotak Institutional Equities Research

15

India Daily Summary - May 12, 2009

Telecom Sector coverage view

Cautious

Mobile Number Portability (MNP) could be a reality as early as endCY2009 Kawaljeet Saluja : [email protected], +91-22-6634-1243

Price, Rs Company Bharti Rcom MTNL

Rating 11-May Target ADD 749 775 SELL

219

180

SELL

71

50

Tata Communi

REDUCE

539

400

Idea Cellular

REDUCE

58

55

Rohit Chordia : [email protected], +91-22-6634-1397

•

MNP could be a reality by end-September 2009 if DoT directives are complied with

•

MNP may work in India even if not successful globally

•

Implications for wireless operators—increased competition in the post-paid segment and increased customer retention costs

The Department of Telecommunication (DoT) has notified the telecom and MNP licensees with instructions regarding provisioning of MNP. The key highlight of the notification is the directive to the MNP service licensees (or database administrators Syniverse and MNP Interconnection Telecom solutions India) to implement phase-I of MNP by September 20, 2009 with the phase-II (which completes pan-India implementation) deadline being March 20, 2010. Press reports also indicate broad benchmarks for porting fees (
16

Kotak Institutional Equities Research

India Daily Summary - May 12, 2009

Implications for the Indian wireless operators India is different from other wireless markets in that long-term service contracts and handset subsidies are virtually non-existent. The only other country which is similar to India is Finland, where the regulator does not allow handset bundling. After the introduction of MNP, the churn rate in Finland increased by >10 pps within a short timeframe. ARPU for Telia Sonera, the largest operator in Finland, declined 16% within four quarters of the launch of MNP. Exhibit 3 discusses the Finland case in detail. We expect the impact on Indian players in the following ways: • Post-paid segment (largely corporate subs) could see a dogfight once MNP is implemented. Tariff competition and aggressive subscriber acquisition tactics within the pre-paid segment seen over the past few months could very well turn out to be a mere precursor to a more intense market share fight for post-paid subs once Mobile Number Portability (MNP) is implemented. We highlight that post-paid is a highly profitable (and more sticky) segment—our analysis suggests that the 7-8% post-paid subs in the Indian market account for 20-25% of revenues and an even higher share of EBITDA. We believe that the new operators can (and likely will) utilize an optimal price/ service (given their empty network) combination to try and churn the high-usage, highvalue post-paid segment. The only roadblock to aggressive competition in this segment has been the implementation of MNP, which appears likely to be removed by endSeptember 2009. • Sales and marketing spend will go up. We believe MNP will lead to higher sales expenses to acquire and retain customers. In addition, operators may be forced to invest in networks and improve their quality of service. Further, telecom operators may enter into long-term service contracts by bundling or providing handset subsidies to subscribers. We note that India is a very price-sensitive market and subscribers would have no qualms about changing their service providers for cheaper services as long as they can retain their numbers. Even without MNP, churn is quite high in India (prepaid and postpaid monthly churn for Bharti was 3.2% and 2.5%, respectively, in 4QFY09), which demonstrates either (1) dissatisfaction with incumbent service providers and/or (2) propensity to change operators based on relative pricing. We maintain our Cautious coverage view on the sector. Exhibit 4 gives our valuation summary for Indian wireless stocks.

Kotak Institutional Equities Research

17

India Daily Summary - May 12, 2009

A circles contributed 57% to the industry's gross wireless revenues in the March 2009 quarter Gross revenue matrix for Indian wireless operators

GR - March 2009 quarter GR market share Circle-wise AGR (Rs mn) Metro + Circle A Calcutta Delhi Mumbai Andhra Pradesh Gujarat Karnataka Maharashtra Tamil Nadu + Chennai Circle B Haryana Kerala Madhya Pradesh Punjab Rajasthan Uttar Pradesh (east) Uttar Pradesh (west) West Bengal and A&N islands Circle C Assam Bihar Himachal Pradesh North East Orissa J&K

Bharti 88,960 32.8%

Reliance 31,323 11.5%

BSNL 29,311 10.8%

VOD 55,008 20.3%

IDEA 31,834 11.7%

TTSL 21,359 7.9%

Aircel 8,946 3.3%

2,273 8,887 4,332 8,870 3,107 10,403 4,855 8,232

1,243 2,720 3,090 2,308 1,316 1,812 1,833 2,161

588

2,412 591 4,030 2,658 1,191 5,859

798 3,181 2,785 2,391 913 1,405 2,107 1,139

137 3

2,221 1,327 1,515 2,692 2,740

2,295 5,411 6,249 3,030 6,097 3,202 3,905 5,086

1,165 2,468 3,581 4,205 5,584 4,229 1,952 2,189

533 1,613 2,314 582 1,027 1,679 1,226 1,045

861 1,876 1,963 1,470 1,823 2,331 1,257 1,100

1,467 2,486 93 1,800 2,936 4,733 2,798 2,775

1,355 5,338 867 902 2,348 1,822

744 2,363 407 265 1,043 2

948 1,259 383 696 1,124 1,137

71 269 23 52 233

1,134 3,449 3,189 1,967 794 1,228 2,920

312 102

MTNL 2,220 0.8%

1,215 1,005

BPL 1,734 0.6%

Shyam 306 0.1%

HFCL 395 0.1%

Total 271,396 100%

7,334 23,828 19,786 22,852 15,418 19,526 21,252 25,041

1,734

2

5,684

617 715 510 748 822 614 885 365

276

5,776 12,613 11,650 11,167 13,292 14,812 11,037 7,750

34 863 91 10 335 33

1,008 389 31 647 293 470

4,158 10,792 1,903 2,571 5,376 3,463

6 395 306

Source: COAI, AUSPI, Compiled by Kotak Institutional Equities

MNP cost of porting and maximum time to port in various countries

Country Austria Belgium Croatia Cyprus Denmark Estonia Finland Hungary Ireland Italy Lithuania Netherlands Norway Portugal Slovenia Switzerland UK

Cost of porting (Euros) 19.0 — — — — — — — — 10.0 — 9.1 10.8 40.0 10.0 — 43.6

Maximum time to port (working days) 3 2 5 14 NA 7 5 14 <1 5 28 60 7 20 5 5 9

Note: (a) NA: Not available. Source: EEC report on 'Implementation of MNP in CEPT countries', 2005.

18

Kotak Institutional Equities Research

India Daily Summary - May 12, 2009

Introduction of MNP saw a sharp increase in churn and substantial pricing pressure for the Finnish telecom operators MNP case study: Finland Dec-03 4,749

# of subscribers # of mobile number portings Portings as % of subs base Blended churn, leading operator (%) Blended ARPU, leading operator (US$/sub/month) MOU, leading operator (min/sub/month) RPM, leading operator (US cents) EBITDA margin of the leading operator (%)

Mar-04 4,789 381 8.0

20 46 164 28.2 35.3

37 47 236 20.0 38.4

Jun-04 4,829 300 6.2

Sep-04 4,891 211 4.3

Dec-04 4,950 321 6.5

31 48 249 19.1 38.8

22 47 258 18.4 40.5

26 44 267 16.4 33.0

Mar-05 5,066 564 11.3 34 40 265 15.0 33.3

Jun-05 5,128 366 7.2

Sep-05 5,209 319 6.2

Dec-05 5,292 215 4.1

29 38 285 13.3 27.8

25 37 278 13.1 35.0

18 35 281 12.6 29.5

Increased churn led to severe pricing competition resulting in a sharp decline in Note: revenue per minute (RPM) of the leading operator, Teliasonera (1) MNP was launched in Finland in July 2003. (2) Handset subsidy on 2G handsets is banned in Finland. 3G handset subsidies have been allowed since April 2006. (3) Finland is among the few countries in the world where handset bundling is not allowed/popular. This reflected in the high number of ports in Finland compared to other countries. Source: NUMPAC 2006, Telegeography, Kotak Institutional Equities.

Indian telecom companies valuation analysis, March fiscal year-ends, 2008-2011E

Bharti Idea MTNL RCOM TCOM

Bharti Idea MTNL RCOM TCOM

Price (Rs) 11-May-09 749 58 71 219 539 KS rating ADD REDUCE SELL SELL REDUCE

Target price (Rs) 775 55 50 180 400

2008 21.2 14.6 10.0 8.3 49.2

P/E (X) 2009 2010E 16.8 14.3 19.8 19.8 18.0 17.5 7.9 10.8 39.7 38.5

2011E 12.5 17.9 15.7 10.4 35.6

2008 12.9 10.6 1.5 8.5 25.3

EV/EBITDA (X) 2009 2010E 9.8 8.4 7.6 7.1 6.0 5.5 7.6 7.3 19.3 17.3

2011E 7.2 6.0 4.2 5.7 15.9

Market cap. (US$ bn) 28.4 3.6 0.9 9.0 3.1

2008 270 67 47 191 33

Revenues (Rs bn) 2009 2010E 370 433 101 136 42 45 229 278 38 42

2011E 501 176 48 343 46

2008 113 23 7 82 6

EBITDA (Rs bn) 2009 2010E 152 175 28 36 2 3 93 104 8 9

2011E 196 44 5 131 10

2008 66 10 4 56 3

Net Income (Rs bn) 2009 2010E 84 97 9 9 2 2 59 43 4 4

2011E 111 10 2 45 4

2008 35.3 3.9 7.1 26.5 10.9

EPS (Rs) 2009 2010E 44.6 52.2 2.9 2.9 4.0 4.1 27.7 20.3 13.6 14.0

2011E 59.8 3.2 4.6 21.1 15.2

Bharti Idea MTNL RCOM TCOM Source: Bloomberg, Kotak Institutional Equities estimates

Kotak Institutional Equities Research

19

20

REDUCE REDUCE ADD REDUCE SELL Cautious

ADD BUY ADD ADD REDUCE BUY BUY BUY SELL ADD ADD ADD ADD BUY BUY ADD BUY ADD ADD ADD BUY BUY REDUCE ADD BUY BUY Attractive

REDUCE REDUCE REDUCE ADD BUY ADD Cautious

REDUCE ADD ADD ADD REDUCE ADD ADD ADD BUY Attractive

ADD BUY BUY ADD ADD Attractive

61 620 330 235 216 230 171 142 1,711 1,147 523 86 86 97 60 342 378 203 126 156 522 115 246 46 1,258 158

591 75 1,730 110 811 559

915 465 804 142 227 188 65 1,752 711

138 163 78 122 397

Rating

681 1,222 503 834 257

11-May-09 Price (Rs)

5,105 22,036 17,892 37,951 4,957 87,941

87,767 63,209 33,792 36,755 495,065 708,310 4,692 168,906 43,968 1,642,463

111,112 113,721 158,637 31,132 28,265 70,002 512,870

29,537 222,712 120,770 123,616 88,642 33,034 29,247 8,987 486,737 482,605 582,489 110,986 26,813 41,645 32,824 16,587 32,163 19,441 31,656 179,511 164,635 98,567 51,820 5,309 798,957 79,783 3,899,072

98,529 244,023 133,435 241,055 143,171 860,214

103 445 361 766 100 1,775

1,772 1,276 682 742 9,994 14,299 95 3,410 888 33,158

2,243 2,296 3,203 628 571 1,413 10,354

596 4,496 2,438 2,496 1,789 667 590 181 9,826 9,743 11,759 2,241 541 841 663 335 649 392 639 3,624 3,324 1,990 1,046 107 16,129 1,611 78,713

1,989 4,926 2,694 4,866 2,890 17,366

Mkt cap. (Rs mn) (US$ mn)

37 135 229 311 13

96 136 42 258 2,179 3,769 73 96 62

188 1,522 92 282 35 125

485 359 366 526 410 143 171 63 284 421 1,113 1,294 311 430 545 48 85 96 251 1,148 315 859 211 116 635 505

145 200 265 289 556

(mn)

O/S shares

19.7 14.4 7.3 9.6 43.8

35.7 20.4 44.8 6.8 9.2 8.7 7.2 58.6 60.1

56.3 7.2 225.7 22.7 174.7 78.0

13.5 50.6 60.9 57.2 50.5 62.2 32.0 4.5 80.2 55.4 33.8 5.8 5.0 28.1 24.3 82.8 62.5 22.4 36.1 13.0 90.7 15.2 28.6 7.7 143.6 34.2

50.5 64.2 21.6 42.2 18.5

27.2 16.9 8.8 16.5 54.3

44.3 23.3 56.1 8.7 10.2 9.8 10.6 70.5 67.7

55.2 6.8 188.5 19.8 91.6 70.5

11.1 55.8 54.9 45.6 38.6 51.5 34.0 28.8 93.4 64.1 32.7 7.0 5.8 26.1 16.6 72.2 68.8 27.5 27.3 16.5 90.7 17.7 27.0 6.9 121.1 29.6

62.0 83.8 34.7 58.3 19.0

31.9 19.4 9.7 17.6 88.0

51.1 25.7 63.6 9.8 11.6 11.2 13.0 82.4 75.8

42.2 5.4 192.6 17.5 86.2 49.3

12.6 64.5 58.5 55.1 41.4 55.3 39.3 NA 109.1 75.0 38.5 8.0 6.5 30.0 22.2 92.8 80.3 30.0 34.6 19.3 99.7 20.0 27.7 8.2 139.2 35.5

65.6 91.2 39.1 63.4 24.0

EPS (Rs) 2009E 2010E 2011E

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Company Automobiles Bajaj Auto Hero Honda Mahindra & Mahindra Maruti Suzuki Tata Motors Automobiles Banks/Financial Institutions Andhra Bank Axis Bank Bank of Baroda Bank of India Canara Bank Corporation Bank Federal Bank Future Capital Holdings HDFC HDFC Bank ICICI Bank IDFC India Infoline Indian Bank Indian Overseas Bank J&K Bank LIC Housing Finance Mahindra & Mahindra Financial Oriental Bank of Commerce PFC Punjab National Bank Rural Electrification Corp. Shriram Transport SREI State Bank of India Union Bank Banks/Financial Institutions Cement ACC Ambuja Cements Grasim Industries India Cements Shree Cement UltraTech Cement Cement Consumer products Asian Paints Colgate-Palmolive (India) GlaxoSmithkline Consumer (a) Godrej Consumer Products Hindustan Unilever ITC Jyothy Laboratories Nestle India (a) Tata Tea Consumer products Constructions Consolidated Construction Co. IVRCL Nagarjuna Construction Co. Punj Lloyd Sadbhav Engineering Construction 22.9 30.5 60.6 38.1 2.6 29.6

5.9 8.8 12.8 8.6 26.3 11.9

(18.1) (7.3) 2.5 (4.0) 8.2 (4.1)

(9.2) 19.4 15.8 (3.9) 12.9 4.6 10.2 31.0 10.9 9.0

(12.2) (5.0) (20.7) n/a 93.7 (4.1) (6.8)

38.0 17.1 19.7 72.6 23.8 41.5

24.3 14.4 25.2 27.8 11.5 12.8 47.3 20.4 12.7 14.6

(1.9) (4.7) (16.5) (12.8) (47.6) (9.7) (14.5)

17.5 14.8 10.0 6.6 62.2 13.2

15.2 10.1 13.5 12.8 13.6 14.5 22.1 16.8 11.9 14.2

(23.6) (20.5) 2.2 (11.2) (5.9) (30.0) (13.8)

14.0 (17.9) 13.6 56.9 10.3 15.6 55.1 (9.8) 6.5 40.7 (20.2) 20.7 32.4 (23.6) 7.1 21.4 (17.3) 7.4 (6.9) 6.4 15.6 (198.6) 546.1 (100.0) (6.5) 16.5 16.7 20.4 15.7 17.1 (15.4) (3.1) 17.6 2.3 21.0 13.3 (10.0) 15.5 12.3 24.7 (7.2) 15.1 10.3 (31.9) 33.8 11.5 (12.7) 28.4 37.3 10.0 16.8 7.5 22.9 8.7 51.4 (24.5) 26.7 14.3 26.7 17.6 39.6 (0.0) 10.0 38.8 16.8 13.0 49.0 (5.6) 2.6 (32.8) (10.1) 18.6 34.8 (15.7) 14.9 24.5 (13.5) 19.9 27.0 (4.9) 14.9

(3.4) 32.4 (43.2) (29.5) (62.8) (25.2)

EPS growth (%) 2009E 2010E 2011E

Kotak Institutional Equities: Valuation Summary of Key Indian Companies

7.0 11.3 10.6 12.7 9.0 11.0

25.7 22.8 17.9 21.0 24.8 21.7 9.0 29.9 11.8 22.7

10.5 10.4 7.7 4.9 4.6 7.2 7.9

4.5 12.3 5.4 4.1 4.3 3.7 5.3 31.9 21.3 20.7 15.5 14.8 17.1 3.4 2.5 4.1 6.1 9.1 3.5 12.0 5.8 7.6 8.6 5.9 8.8 4.6 9.2

13.5 19.0 23.3 19.7 13.9 17.9

2009E

5.1 9.6 8.9 7.4 7.3 7.8

20.6 19.9 14.3 16.4 22.2 19.2 6.1 24.8 10.5 19.8

10.7 10.9 9.2 5.6 8.9 7.9 9.2

5.5 11.1 6.0 5.2 5.6 4.5 5.0 4.9 18.3 17.9 16.0 12.2 14.8 3.7 3.6 4.7 5.5 7.4 4.6 9.5 5.8 6.5 9.1 6.6 10.4 5.3 9.7

11.0 14.6 14.5 14.3 13.5 13.8

4.3 8.4 8.1 6.9 4.5 6.9

17.9 18.1 12.6 14.6 19.6 16.8 5.0 21.3 9.4 17.4

14.0 13.7 9.0 6.3 9.4 11.3 10.7

4.8 9.6 5.6 4.3 5.2 4.2 4.3 NA 15.7 15.3 13.6 10.8 13.2 3.2 2.7 3.7 4.7 6.8 3.7 8.1 5.2 5.7 8.9 5.6 9.0 4.5 8.4

10.4 13.4 12.9 13.2 10.7 12.3

PER (X) 2010E 2011E

— — — — — — — — — — — — — — — — — — — — — — — — — — — 5.3 5.7 4.7 3.8 3.6 4.5 4.7 11.9 16.5 7.9 13.4 16.9 11.9 3.6 16.2 5.1 13.0 3.6 6.1 5.9 5.0 5.0 5.3

5.1 5.5 4.6 3.7 3.3 4.8 4.7 15.3 19.8 9.8 18.4 19.7 13.4 5.3 19.0 6.4 15.1 5.0 7.6 6.9 8.0 5.9 7.3

6.2 8.3 9.3 7.0 7.9 7.7

— — — — — — — — — — — — — — — — — — — — — — — — — — —

7.7 10.9 15.9 10.8 11.1 11.0

3.1 5.0 5.3 4.4 3.9 4.6

10.2 14.4 6.9 11.1 14.9 10.4 2.5 14.0 4.4 11.4

6.1 6.9 4.4 4.0 3.7 5.5 5.1

— — — — — — — — — — — — — — — — — — — — — — — — — — —

6.3 7.1 8.1 5.8 6.8 6.8

EV/EBITDA (X) 2009E 2010E 2011E

1.0 1.2 1.1 1.3 1.4 1.2

7.9 37.5 4.4 5.6 32.0 5.0 1.2 35.7 0.9 6.8

2.1 1.9 1.5 0.8 2.4 1.6 1.6

0.9 2.4 1.2 1.2 1.1 0.7 0.7 1.2 3.7 3.2 1.2 1.8 2.1 0.8 0.6 0.7 1.4 1.4 0.5 1.6 1.4 1.4 2.5 0.5 1.6 0.9 1.6

5.0 6.2 2.8 2.5 1.0 2.5

5.7 47.2 3.3 4.1 27.4 3.9 0.9 24.3 0.8 5.4 0.7 1.0 0.9 0.9 1.0 0.9

0.9 1.1 1.0 1.1 1.2 1.0

1.7 1.5 1.2 0.7 1.7 1.2 1.3

0.9 1.8 1.0 1.1 0.9 0.5 0.6 NA 2.9 2.5 1.1 1.4 1.7 0.7 0.4 0.7 0.9 1.1 0.7 1.3 1.1 1.1 1.8 0.4 1.4 0.7 1.3

3.2 3.8 1.9 1.9 0.9 1.9

6.7 41.5 3.8 4.8 29.7 4.4 1.0 29.3 0.9 6.1

1.9 1.7 1.3 0.7 1.9 1.4 1.4

0.9 2.1 1.1 1.2 1.0 0.6 0.6 1.0 3.3 2.8 1.1 1.6 1.9 0.7 0.5 0.7 1.1 1.2 0.6 1.5 1.3 1.2 2.1 0.5 1.7 0.8 1.5

3.9 4.8 2.2 2.1 1.0 2.1

Price/BV (X) 2009E 2010E 2011E

2.0 0.5 1.7 0.4 1.3 0.8

1.9 3.9 1.9 2.8 3.8 2.0 3.6 2.4 2.4 2.7

2.8 0.5 2.0 0.6 1.5 1.1

2.2 4.5 2.6 2.8 4.3 2.1 4.5 2.9 2.7 3.0

4.0 2.5 1.9 1.9 1.3 1.5 2.4

4.6 1.7 2.5 2.0 3.7 4.6 3.7 — 1.9 1.1 1.8 1.4 3.9 4.0 6.2 4.4 4.0 3.4 4.3 3.2 3.5 4.9 3.3 6.1 2.4 2.8 2.3

7.4 1.6 2.7 2.5 3.7 5.5 3.5 — 1.8 0.9 2.1 1.2 3.1 4.4 8.7 5.1 3.6 2.7 5.7 1.7 3.5 4.2 3.4 5.0 2.3 3.2 2.3 4.0 4.0 1.9 1.9 1.3 1.5 2.7

2.9 1.8 1.9 0.6 — 1.3

2.9 1.6 1.8 0.4 1.2

3.3 0.5 2.6 0.7 1.8 1.2

2.5 5.0 3.7 2.8 4.8 2.4 5.4 3.4 3.1 3.4

4.0 2.9 2.0 2.9 1.3 1.5 2.6

5.2 2.0 2.6 2.4 4.6 4.9 4.3 — 2.2 1.3 1.8 1.5 4.7 4.6 6.8 5.7 4.7 3.7 5.5 2.8 3.8 5.6 3.4 7.0 2.5 3.4 2.6

2.9 1.8 1.9 0.6 — 1.3

Dividend yield (%) 2009E 2010E 2011E

15.0 11.5 10.3 10.8 15.9 10.9

34.2 157.8 26.8 42.7 134.3 25.4 13.0 126.7 10.3 30.0

24.7 19.7 20.7 15.7 65.7 31.2 20.7

19.0 19.2 18.7 29.6 18.3 19.6 13.2 3.8 18.2 16.9 7.8 12.9 11.7 22.7 24.7 16.5 — 15.4 14.8 13.8 21.5 19.6 28.8 14.0 17.1 27.2 16.8

40.8 36.6 12.2 13.3 9.1 14.1

18.1 12.0 11.3 16.4 16.8 13.5

36.2 198.4 28.5 42.7 139.0 25.2 16.5 129.6 10.8 30.6

21.3 16.6 14.9 14.7 24.0 22.3 15.5

14.0 18.2 14.9 19.2 12.4 14.3 12.7 21.4 18.7 16.7 7.2 14.1 13.5 17.9 14.5 12.9 — 16.9 10.2 15.8 18.6 19.9 23.6 11.5 12.7 19.5 15.1

39.7 37.4 16.9 16.1 7.3 15.6

18.3 12.3 11.4 15.1 21.7 13.4

35.1 245.6 28.0 33.1 146.1 18.8 124.8 11.3 31.0

15.1 12.0 13.6 11.7 18.9 13.4 12.1

14.4 18.3 14.2 19.5 12.2 13.8 13.2 NA 19.2 17.3 8.0 14.2 14.6 17.8 17.0 14.9 — 16.3 11.8 16.7 18.0 19.6 20.9 13.0 13.3 19.9 15.7

33.4 31.9 15.8 15.1 15.2

RoE (%) 2009E 2010E 2011E

190 215 120 135 550

800 490 900 160 235 200 127 1,800 940

625 70 1,500 130 950 625

75 700 370 310 220 310 280 440 1,730 1,150 475 85 90 165 110 480 390 240 150 160 650 125 215 50 1,600 220

615 1,000 450 780 195

(Rs)

37.5 32.1 53.6 10.6 38.7

(12.6) 5.4 12.0 12.4 3.5 6.4 96.4 2.7 32.2

5.7 (6.3) (13.3) 17.7 17.1 11.8

23.2 12.8 12.0 31.9 1.8 34.6 63.7 209.5 1.1 0.3 (9.2) (0.9) 4.5 70.3 82.6 40.3 3.1 18.1 18.7 2.3 24.5 8.9 (12.4) 9.5 27.2 39.3

(9.7) (18.2) (10.5) (6.5) (24.2)

(%)

Target price Upside

ADVT3mo

0.1 9.9 2.4 21.0 0.1

1.5 1.7

0.6 1.9 0.3 0.5 22.4 19.5

10.5 3.8 9.7 3.6 0.4 1.0

0.7 54.2 8.8 13.4 4.3 0.6 1.4 0.9 69.0 47.9 181.2 18.1 5.2 2.2 2.6 0.3 5.8 0.1 2.8 3.8 20.5 1.8 1.3 2.1 99.6 4.7

2.0 15.7 13.5 25.7 27.9

(US$ mn)

India Daily Summary - May 12, 2009

Kotak Institutional Equities Research

Kotak Institutional Equities Research

ADD

REDUCE BUY BUY REDUCE ADD ADD Neutral

ADD SELL BUY SELL BUY BUY ADD BUY Attractive

BUY ADD BUY BUY BUY BUY BUY BUY BUY REDUCE BUY Attractive

REDUCE REDUCE ADD BUY BUY REDUCE REDUCE SELL Cautious

36 66 54 205 131 32

67 247 1,564 424 561 138 486 271

151 218 120 927 559 175 140 776 252 172 1,293

228 167 140 177 116 68 111 48

REDUCE REDUCE REDUCE REDUCE ADD SELL BUY REDUCE ADD Cautious

466 183 969 1,607 163 964 175 325 75

101

SELL BUY BUY SELL REDUCE SELL REDUCE ADD ADD REDUCE NR Neutral

BUY

354 206 329 261 46 248 423 880 56 1,862 115

11-May-09 78.1

388,864 45,952 36,159 7,423 16,795 14,449 8,081 98,232 615,955

30,110 169,683 9,764 59,828 94,560 46,498 24,011 68,718 52,741 73,606 267,843 897,362

117,075 159,177 240,796 79,393 237,019 108,678 344,364 222,472 1,508,973

33,738 15,484 16,308 80,747 56,819 7,768 210,864

33,452

98,686 13,183 77,492 786,561 59,588 575,099 12,360 109,493 117,678 1,850,141

116,180 391,283 40,653 330,882 25,691 84,108 499,088 1,881,579 41,625 2,555,977 517,950 6,485,016

7,850 928 730 150 339 292 163 1,983 12,435

608 3,426 197 1,208 1,909 939 485 1,387 1,065 1,486 5,407 18,116

2,363 3,213 4,861 1,603 4,785 2,194 6,952 4,491 30,463

681 313 329 1,630 1,147 157 4,257

675

1,992 266 1,564 15,879 1,203 11,610 250 2,210 2,376 37,350

2,345 7,899 821 6,680 519 1,698 10,075 37,985 840 51,599 10,456 130,918

Mkt cap. (Rs mn) (US$ mn)

1,705 275 258 42 145 213 73 2,044

200 777 81 65 169 266 171 89 209 427 207

1,753 644 154 187 423 787 708 822

946 234 301 394 434 240

332

212 72 80 490 367 597 71 337 1,567

328 1,897 124 1,268 563 339 1,179 2,139 750 1,373 4,500

(mn)

O/S shares

29.3 30.6 3.0 10.2 5.4 6.8 15.9 6.4

4.7 9.9 11.4 65.2 26.2 15.8 16.5 50.8 17.3 (8.1) 86.8

7.7 19.7 179.7 13.1 64.6 24.8 49.2 123.9

(7.3) 2.9 2.9 9.3 8.1 1.9

5.6

25.8 15.3 101.9 59.8 14.2 48.2 35.9 14.2 7.0

16.0 19.8 3.9 10.8 7.3 7.0 11.9 3.9

13.6 13.9 24.8 75.1 39.9 18.2 18.6 65.3 22.4 (5.7) 85.7

2.4 10.3 171.6 24.1 62.9 20.8 41.0 55.5

(4.1) 4.1 4.1 11.1 9.0 2.1

10.4

24.9 20.7 111.1 89.0 15.7 51.6 33.0 19.8 7.1

0.0 42.0 4.2 4.4 21.3 25.5 23.3 19.7 1.9 2.5 (10.5) 30.2 24.3 46.8 102.6 94.6 6.9 7.7 103.4 127.7 — 8.3

17.4 24.8 10.2 15.4 8.9 7.4 14.7 3.4

19.4 15.5 28.0 91.1 45.8 22.5 21.8 73.6 28.2 5.1 94.0

8.2 16.3 195.4 53.5 80.9 24.6 50.5 87.0

(3.2) 7.0 6.0 12.8 10.7 2.5

10.8

29.6 24.3 119.0 105.5 17.9 54.6 39.6 21.1 11.4

51.5 28.5 26.6 20.7 3.7 3.0 49.6 125.5 9.0 175.7 13.8

EPS (Rs) 2009E 2010E 2011E

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Company Energy Bharat Petroleum Cairn india Castrol India (a) GAIL (India) GSPL Hindustan Petroleum Indian Oil Corporation Oil & Natural Gas Corporation Petronet LNG Reliance Industries Reliance Petroleum Energy Industrials ABB BGR Energy Systems Bharat Electronics Bharat Heavy Electricals Crompton Greaves Larsen & Toubro Maharashtra Seamless Siemens Suzlon Energy Industrials Infrastructure IRB Infrastructure Media DishTV HT Media Jagran Prakashan Sun TV Network Zee Entertainment Enterprises Zee News Media Metals Hindalco Industries National Aluminium Co. Jindal Steel and Power JSW Steel Hindustan Zinc Sesa Goa Sterlite Industries Tata Steel Metals Pharmaceutical Biocon Cipla Dishman Pharma & chemicals Divi's Laboratories Dr Reddy's Laboratories Glenmark Pharmaceuticals Jubilant Organosys Lupin Piramal Healthcare Ranbaxy Laboratories Sun Pharmaceuticals Pharmaceuticals Property DLF Housing Development & Infrastruct Indiabulls Real Estate Mahindra Life Space Developer Phoenix Mills Puravankara Projects Sobha Unitech Property (36.6) (40.1) (81.6) (39.2) 70.0 (39.8) (50.0) (38.4) (38.6)

(22.6) 72.8 49.2 15.8 18.4 18.8 51.6

3.9

18.7 17.5 7.1 18.5 13.9 5.9 20.3 6.4 59.7 17.5

(45.2) 8.4 (35.3) 25.1 29.5 161.2 5.3 42.5 34.7 23.4 2.8 6.9 (24.8) 23.5 (39.0) (12.9) (37.9) 11.3

42.8 11.9 13.0 21.3 14.8 23.6 17 12.7 26.0 NA 9.7 24.1

(69.2) 248.7 (47.8) 58.3 (4.5) 13.9 83.3 121.8 (2.6) 28.7 (16.1) 18.6 (16.7) 23.4 (55.2) 56.7 (35.6) 41.7

(44.4) 39.3 41.4 19.2 11.5 11.1 62.2

85.5

(3.6) 35.4 9.0 48.9 10.8 7.0 (8.1) 39.7 2.3 20.8

(80.0) 192.2 9.5 40.6 (22.7) 118.0 22.5 15.2 0.6 52.1 (38.7) 14.7 (26.2) 12.6 2.0 28.7 (2.7) 29.8 (134.7) NA 16.3 (1.3) (21.0) 28.7

(44.4) (22.2) 117.2 (84.7) (38.0) 30.8 (23.6) 63.6 5.4

n/a (32.4) (11.9) 11.8 (8.7) 20.4 (18.4)

63.5

11.3 26.1 (0.0) 2.3 27.0 27.1 22.2 (22.2) 6.0 9.7

(99.9) ##### NA (3,628) 5 543.2 20.8 19.5 4.3 14.2 (15.6) 5.1 4.4 30.5 52.6 (131.5) (386.8) (90.0) (60.3) 92.1 6.1 10.7 (7.8) 32.7 — 10.8 17.6 (1.5) 23.5 37.7 n/a n/a n/a (6.3) 26.5 37.4

EPS growth (%) 2009E 2010E 2011E

Kotak Institutional Equities: Valuation Summary of Key Indian Companies

7.8 5.4 46.3 17.3 21.5 10.0 7.0 7.6 8.4

32.3 22.1 10.6 14.2 21.3 11.0 8.5 15.3 14.6 (21.3) 14.9 18.9

8.7 12.5 8.7 32.3 8.7 5.6 9.9 2.2 6.1

(4.9) 22.6 18.9 22.1 16.2 17.4 48.2

18.0

18.0 12.0 9.5 26.9 11.5 20.0 4.9 22.9 10.8 19.3

#### 49 15.4 11.2 24.3 (23.5) 17.4 8.6 8.0 18.0 n/a 14.5

2009E

9.3

15.7 7.5 8.1 15.2 9.1 17.6 4.4 15.4 6.6 13.6

6.9 7.3 12.4 12.6 12.2 82.3 8.5 7.0 6.2 10.6 8.4 8.3

14.2 8.4 35.8 16.4 16.0 9.7 9.3 12.4 13.6

11.1 15.7 4.8 12.3 14.0 9.6 7.5 11.9 11.3 NA 15.1 14.7

28.3 24.0 9.1 17.6 8.9 6.6 11.9 4.9 9.5

13.1 6.7 13.7 11.5 13.0 9.1 7.5 14.2 12.2

7.8 14.0 4.3 10.2 12.2 7.8 6.4 10.5 8.9 33.7 13.8 11.9

8.1 15.2 8.0 7.9 6.9 5.6 9.6 3.1 6.7

(8.7) (11.3) 16.2 9.4 13.4 9.0 18.5 16.0 14.5 12.2 15.7 13.2 29.7 19.6

9.7

18.7 8.8 8.7 18.1 10.3 18.7 5.3 16.4 10.5 16.0

NA 47 12.9 13.3 18.6 8.2 9.0 9.3 7.2 14.6 n/a 11.5

PER (X) 2010E 2011E

6.1 11.4 4.8 8.9 6.6 6.5 6.9 10.0 7.7 536.6 10.8 9.5 12.4 9.8 20.5 14.4 12.1 13.4 11.5 10.9 11.9

8.8 8.6 (46) 25.8 23.8 16.3 8.3 9.9 9.4

7.8 7.8 5.9 8.2 4.3 3.3 6.2 4.3 5.6

13.5 15.9 8.6 11.0 9.0 7.6 11.0 13.2 11.0 (107.5) 11.6 12.7

5.6 6.1 6.0 8.2 4.9 3.1 5.6 3.3 4.7

(21.8) (131.6) 10.1 7.1 10.4 7.3 11.8 10.3 11.5 10.3 9.3 7.9 15.7 11.6

6.1

10.4 5.8 2.9 9.7 5.9 11.1 3.2 8.8 7.7 9.1

10.5 6.8 3.4 14.0 6.7 12.3 3.2 10.3 8.5 10.8 10.8

4.4 21.2 7.4 7.4 5.6 4.6 4.5 3.1 5.4 6.7 n/a 5.4

7.4 29.1 8.6 6.1 8.6 6.8 8.2 3.2 6.8 10.7 n/a 7.1

10.6 8.0 4.4 6.9 9.7 10.9 10.4 11.2 10.1

4.3 10.0 4.2 6.9 5.6 5.5 5.0 8.6 6.2 14.1 9.3 7.6

6.6 5.1 4.8 6.4 2.6 2.1 4.6 3.3 4.3

42.3 4.9 5.0 8.9 8.6 7.0 9.0

5.6

8.3 5.0 2.5 8.1 5.2 10.7 2.5 8.3 6.1 7.9

3.9 6.0 7.0 7.9 4.7 NA 4.0 2.4 4.7 5.0 7.0 4.2

EV/EBITDA (X) 2009E 2010E 2011E

1.6 1.1 0.5 0.8 1.1 1.1 0.7 2.1 1.4

2.0 4.0 1.5 4.8 1.9 2.1 1.9 3.4 4.0 1.5 3.9 2.9

0.3 1.5 3.3 0.8 1.6 2.4 1.3 0.5 1.0

(5.2) 1.7 2.8 4.7 1.7 3.2 3.5

1.8

4.7 2.3 2.0 6.1 3.4 3.6 0.9 4.8 1.2 3.6

0.9 1.2 9.1 2.0 1.9 0.7 1.0 1.6 1.8 2.2 3.8 1.7

1.5 1.0 0.5 0.8 1.1 1.0 0.7 1.4 1.2

1.7 3.3 1.2 3.6 1.7 1.7 1.5 2.8 3.1 1.3 3.2 2.4

0.3 1.4 2.4 0.7 1.4 1.8 1.2 0.5 0.9

(16.6) 1.6 2.6 4.3 1.6 2.7 3.0

1.5

3.9 1.9 1.7 4.9 2.7 3.0 0.8 4.1 1.0 3.0

0.8 1.1 8.2 1.9 1.7 0.7 1.0 1.5 1.5 1.9 3.2 1.6

1.3 0.9 0.5 0.8 1.0 0.9 0.7 1.3 1.1

1.5 2.8 0.9 2.7 1.5 1.4 1.3 2.3 2.4 1.3 2.6 2.1

0.3 1.3 1.9 0.6 1.1 1.4 1.1 0.4 0.8

(6.7) 1.5 2.3 4.1 1.5 2.4 2.9

1.2

3.2 1.6 1.5 3.9 2.1 2.6 0.7 3.4 0.9 2.6

0.8 1.2 7.6 1.7 1.8 NA 0.9 1.3 1.2 1.7 2.4 1.5

Price/BV (X) 2009E 2010E 2011E

1.3 3.0 0.0 2.2 0.9 — 3.6 — 1.2

0.0 1.1 0.0 0.1 0.7 0.0 0.9 1.2 1.7 5.9 0.9 1.3

— 1.4 — 0.2 0.7 2.5 — 4.8 1.2

— 0.6 2.6 2.0 1.7 1.2 1.5

—

0.5 1.3 2.6 1.0 1.1 1.0 3.1 0.9 0.7 1.0

— — 4.6 2.8 1.1 — — 3.9 2.7 0.8 — 1.6

1.3 3.6 0.0 2.2 0.9 3.0 3.6 — 1.3

0.1 1.4 0.0 0.1 0.7 0.0 0.9 1.5 1.8 6.6 1.0 1.4

— 0.8 0.5 1.2 0.9 2.5 — 4.8 1.3

— 1.2 3.7 2.9 2.0 1.2 2.1

—

0.6 1.8 2.6 1.2 1.1 1.1 2.8 2.0 0.7 1.2

5.3 — 5.5 2.6 1.5 4.8 4.3 4.1 2.7 0.9 1.7 2.3

1.8 4.8 0.0 2.2 1.3 3.0 3.6 — 1.6

0.1 1.6 0.0 0.2 0.7 0.1 1.2 1.7 1.8 7.3 1.0 1.6

— 0.8 0.6 1.2 0.9 2.5 — 4.8 1.3

— 3.7 5.0 3.9 2.3 1.9 2.9

—

0.7 2.2 2.6 1.4 1.3 1.3 4.1 1.3 1.3 1.4

6.5 14.5 6.1 2.6 8.2 — 4.7 5.5 3.6 1.1 1.7 3.7

Dividend yield (%) 2009E 2010E 2011E

22.5 21.2 1.3 4.8 5.3 11.5 11.0 25.1 16.3

6.2 19.1 15.1 40.3 9.4 21.9 18.6 27.4 26.3 (8.8) 31.1 15.2

10.3 12.7 48.4 11.0 20.1 52.8 14.3 36.8 16.1

86.1 7.7 15.5 23.5 11.6 20.0 7.2

10.6

29.2 21.3 22.4 24.7 34.1 20.6 20.3 23.3 11.3 18.9

0.0 2.5 61.2 18.3 8.2 (2.9) 6.2 19.3 24.0 15.1 0.6 12.0

10.6 12.1 1.5 4.9 6.8 10.8 7.8 13.4 9.1

16.9 23.0 27.1 33.3 13.0 19.8 22.6 26.0 31.4 (4.7) 24.3 16.3

5.2 6.2 31.0 4.3 16.5 31.3 10.7 15.7 9.6

91.1 10.2 20.4 25.1 11.9 19.0 10.0

16.8

22.6 23.9 20.9 30.0 28.9 17.6 16.0 27.1 10.4 19.0

10.2 2.5 66.5 13.8 9.8 7.6 10.3 15.8 21.8 15.9 25.1 13.7

10.6 13.9 3.9 6.7 7.9 10.7 9.1 9.4 9.4

20.9 21.8 24.3 30.3 13.2 20.2 21.7 24.0 30.8 4.1 21.9 17.4

6.7 9.2 26.5 8.3 17.9 28.8 11.8 21.3 12.1

NA 16.3 27.3 26.7 13.2 19.5 14.6

14.5

22.1 23.2 19.2 28.5 26.0 15.8 16.8 24.2 14.6 18.8

11.6 15.9 63.7 13.3 14.4 — 10.2 18.8 20.9 19.2 33.0 17.5

RoE (%) 2009E 2010E 2011E

190 120 180 410 210 55 90 32

235 260 280 1,450 700 390 250 1,100 340 150 1,800

55 135 1,400 340 610 150 490 280

22 100 80 200 135 40

110

450 165 1,025 1,475 210 650 225 310 90

425 225 390 240 45 300 525 900 57 1,650 —

(Rs)

(16.7) (28.1) 28.3 132.3 81.1 (18.8) (18.8) (33.4)

56.1 19.1 133.2 56.4 25.2 123.0 78.3 41.8 34.7 (13.0) 39.2

(17.7) (45.4) (10.5) (19.9) 8.7 8.7 0.8 3.5

(38.3) 51.3 47.7 (2.4) 3.0 23.5

9.3

(3.4) (9.9) 5.8 (8.2) 29.2 (32.6) 28.4 (4.5) 19.8

19.9 9.1 18.6 (8.0) (1.4) 20.9 24.1 2.3 2.7 (11.4) —

(%)

Target price Upside

ADVT3mo

83.5 53.8 33.0 0.7 0.2 0.3 0.5 69.6

0.9 7.1 0.3 4.4 4.2 5.4 0.5 2.2 2.2 13.9 17.2

12.1 2.2 24.1 22.9 3.6 18.9 34.7 73.7

5.3 0.1 0.1 0.9 7.2 0.4

3.9

6.5 1.1 1.0 53.3 5.1 65.9 0.6 6.2 49.2

5.2 18.3 0.3 10.7 2.5 5.7 2.6 35.0 2.8 200.0 21.9

(US$ mn)

India Daily Summary - May 12, 2009

21

22 752 752

1,987 17,586 997 293 428 145 12,155 913 10,318 44,915

28,693 3,606 909 9,144 3,101 45,453

2,137 2,137

633 983 31,302 3,488 6,201 4,065 46,672

354 289 3,840 307 85 427 866 414 1,119 7,702 523,211 392,293 351,476

37,260 37,260

98,447 871,131 49,391 14,526 21,200 7,170 602,090 45,204 511,115 2,224,863

1,421,312 178,627 45,014 452,949 153,615 2,251,517

105,843 105,843

31,346 48,706 1,550,560 172,781 307,144 201,361 2,311,898

17,537 14,340 190,239 15,200 4,214 21,164 42,895 20,529 55,417 381,534 25,917,237 19,432,220 17,410,378

Mkt cap. (Rs mn) (US$ mn)

38.0 17.1 10.7 58.8 2.5 90.2

71.4

52.2 2.9 4.1 20.3 14.0

12.5 104.1 32.6 44.0 23.5 13.3 51.3 38.0 27.0

50.1

87.8 148.2 (1.0) 10.3 6.6 7.9 64.3 47.8 24.3 43.7 23.8 24.8 25.5 23.4 20.8 21.6 10.7 13.5

31.2 14.6 8.8 64.1 1.0 65.2

64.4

44.6 2.9 4.0 27.7 13.6

16.2 102.4 14.2 13.2 26.8 13.1 52.9 70.4 25.7

45.9

277.7 10.3 11.8 41.7 37.8 27.3 27.5 16.6 18.0

42.1 24.9 12.0 62.9 3.1 101.5

83.3

59.8 3.2 4.6 21.1 15.2

16.7 116.1 27.9 50.7 26.1 12.1 55.9 37.2 29.4

56.9

EPS (Rs) 2009E 2010E 2011E

Source: Company, Bloomberg, Kotak Institutional Equities estimates

38 61 1,403 55 44 136 235 189 462

125 222 8,245 226 2,397 223

130

1,899 3,104 630 2,064 285

695 574 208 41 129 99 979 129 1,462

44

(mn)

O/S shares

Note: (1) For banks we have used adjusted book values. (2) 2008 means calendar year 2007, similarly for 2009 and 2010 for these particular companies. (3) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector.

11-May-09 Company 35.7 REDUCE Retail Titan Industries 839 REDUCE Retail Neutral Technology HCL Technologies 142 REDUCE Infosys Technologies 1,518 BUY Mphasis BFL 237 REDUCE Mindtree 353 BUY Patni Computer Systems 165 REDUCE Polaris Software Lab 73 SELL TCS 615 REDUCE Tech Mahindra 350 ADD Wipro 350 ADD Technology Cautious Telecom Bharti Airtel 749 ADD IDEA 58 REDUCE MTNL 71 SELL Reliance Communications 219 SELL Tata Communications 539 REDUCE Telecom Cautious Transportation Container Corporation 814 ADD Transportation Cautious Utilities CESC 251 BUY Lanco Infratech 219 BUY NTPC 188 REDUCE Reliance Infrastructure 763 BUY Reliance Power 128 REDUCE Tata Power 905 BUY Utilities Attractive Others Aban Offshore 463 REDUCE Havells India 237 REDUCE Jaiprakash Associates 136 ADD Jindal Saw 277 BUY PSL 97 BUY Sintex 155 BUY Tata Chemicals 182 ADD Welspun Gujarat Stahl Rohren 109 REDUCE United Phosphorus 120 BUY Others KS universe (b) KS universe (b) ex-Energy KS universe (d) ex-Energy & ex-Commodities 9.2 9.2

10.8 10.8

17.0 (0.1) 2.6 (26.6) 3.2 (0.5)

21 (104) 34 (1) 15 22 (36) 1 28 14.9 3.4 6.4 7.4

68.8 NA 20.0 (25.6) 79.6 4.1 (8.3) 4.1 25.7 10.9 3.4 (3.1) 3.8

12.3 21.8 (1.3) 16.6 (5.2) 20.8 70.5 (8.2) — 140.3 104.6 38.4 11.2 21.8

11.6 11.6

26.4 (26.5) (44.3) 4.7 24.0 11.5

5.8 (22.6) 29.6 1.6 15.7 129.8 (50.5) 232.5 (19.3) (12.4) 76.0 1.7 3.1 (2.9) 19.3 (46.0) 15.8 4.7 15.0 (0.5)

30.8 30.8

87.4 — 49.6 (12.8) (13.4) 10.2 17.6 (23.5) 33.9 29.6 22.0 16.4 14.6

10.8 45.7 12.7 6.9 25.3 12.5 13.5

16.6 16.6

14.6 10.9 11.8 3.9 8.2 11.3

33.4 11.5 (14.4) 15.1 11.1 (8.9) 8.8 (2.1) 9.1 9.1

13.7 13.7

EPS growth (%) 2009E 2010E 2011E

Kotak Institutional Equities: Valuation Summary of Key Indian Companies

5.3 NA 20.7 4.3 4.0 6.5 7.2 5.2 11.2 10.2 13 12.2 13.6

8.0 15.0 21.3 11.9 125.6 13.9 20.7

12.6 12.6

16.8 19.8 18.0 7.9 39.7 14.0

8.8 14.8 16.7 26.7 6.2 5.5 11.6 5.0 13.6 12.5

18.3 18.3

2009E

3.1 23.1 17.2 5.8 2.2 6.3 7.8 5.0 8.9 9.2 12.3 12.6 13.1

6.6 12.8 17.6 13.0 52.3 10.0 17.0

11.4 11.4

14.3 19.8 17.5 10.8 38.5 14.0

11.3 14.6 7.3 8.0 7.0 5.4 12.0 9.2 13.0 12.5

16.8 16.8

1.7 23.1 11.5 6.6 2.6 5.7 6.6 6.6 6.7 7.1 10.1 10.8 11.4

6.0 8.8 15.6 12.1 41.7 8.9 15.0

9.8 9.8

12.5 17.9 15.7 10.4 35.6 12.6

8.5 13.1 8.5 7.0 6.3 6.0 11.0 9.4 11.9 11.5

14.7 14.7

PER (X) 2010E 2011E

8.4 7.1 4.4 7.2 15.3 8.1 7.4 7.4 5.4 16.8 13.1 13.4 — 9.3 14.3 6.3 8.4 11.1 3.1 4.2 4.5 4.2 4.0 5.7 6.7 7.5 8.7 9.7

8.8 8.8 4.5 22.2 14.4 12.6 — 9.8 14.4 8.1 9.7 13.4 3.2 4.9 4.9 4.9 4.7 7.8 7.7 8.4 9.0 10.9

4.8 10.2 5.0 4.7 1.0 1.9 8.1 6.4 8.9 8.1

5.0 10.5 12.6 4.7 1.5 1.6 8.1 3.2 9.9 8.5 9.8 7.7 6.0 7.5 16.8 9.1

10.2 10.2

11.8 11.8

4.9 8.3 10.4 2.8 3.6 3.7 3.6 4.2 4.2 6.2 6.3 7.6 8.5

5.9 9.3 12.5 10.6 — 8.7 13.2

6.1 6.1

7.2 6.0 3.0 5.6 14.2 6.7

4.6 8.4 4.5 3.9 0.8 2.0 7.0 6.0 7.4 7.0

8.7 8.7

EV/EBITDA (X) 2009E 2010E 2011E

1.3 2.0 3.2 0.5 0.5 1.1 0.9 1.0 1.8 1.6 2.0 2.1 2.3

0.9 2.2 2.6 1.0 2.2 1.9 2.2

2.8 2.8

4.5 1.3 0.4 1.3 2.2 2.3

1.6 4.8 3.4 2.6 0.8 0.9 3.8 2.0 3.4 3.5

6.5 6.5

0.9 1.9 2.8 0.4 0.4 0.9 0.8 0.8 1.6 1.4 1.8 1.9 2.1

0.8 1.9 2.4 1.0 2.1 1.6 2.0

2.4 2.4

3.4 1.2 0.4 1.2 2.2 2.0

1.4 3.9 2.5 2.0 0.7 0.8 3.2 1.7 2.8 2.9

5.0 5.0

0.6 1.9 2.3 0.4 0.4 0.8 0.8 0.7 1.3 1.2 1.6 1.6 1.8

0.7 1.5 2.2 0.9 2.0 1.4 1.8

2.0 2.0

2.7 1.1 0.4 1.0 2.1 1.7

1.4 3.2 2.0 1.5 0.6 0.7 2.8 1.5 2.4 2.5

4.0 4.0

Price/BV (X) 2009E 2010E 2011E

0.9 1.4 0.0 1.8 8.3 0.7 4.4 1.7 1.0 1.0 1.6 1.6 1.6

1.8 — 1.9 0.9 — 1.2 1.4

1.7 1.7

0.5 — 8.4 0.4 0.9 0.6

8.5 1.5 1.7 0.5 1.1 3.8 2.3 1.1 1.1 1.9

1.2 1.2

1.1 1.7 0.0 1.4 8.3 0.7 4.4 1.3 1.3 1.0 1.9 1.8 1.8

2.2 — 2.1 1.1 — 1.3 1.6

2.0 2.0

0.8 — 8.4 — 1.2 0.8

8.5 1.7 1.9 — 2.8 2.8 2.5 1.7 2.2 2.3

1.3 1.3

1.1 2.1 0.0 1.4 8.3 0.8 4.4 1.4 1.7 1.1 2.4 2.0 2.1

2.4 — 2.4 1.2 — 1.5 1.8

2.3 2.3

1.1 — 8.4 — 1.4 0.9

8.5 1.9 2.1 1.4 3.2 2.8 3.6 2.0 2.4 2.8

1.4 1.4

Dividend yield (%) 2009E 2010E 2011E

33.7 (0.9) 16.8 10.8 10.6 16.6 17.2 19.9 18.1 15.6 15.5 16.9 16.9

11.4 16.2 12.9 6.3 1.8 15.0 10.6

24.0 22.1

31.4 10.4 1.6 18.6 5.4 16.3

18.3 36.7 22.8 5.5 16.2 18.1 36.9 52.8 26.9 28.1

38.9 35.3

36.9 8.5 17.1 7.4 14.2 14.8 13.3 17.8 18.2 15.1 14.4 14.7 15.7

12.2 15.8 14.4 7.0 4.2 17.5 11.8

22.5 20.8

27.0 6.4 1.6 11.7 5.2 14.0

13.0 29.3 39.5 20.4 10.0 15.9 29.1 20.3 23.7 23.2

33.6 29.7

41.2 8.5 21.8 6.2 12.4 14.1 14.0 11.7 20.5 16.7 15.8 15.2 16.0

11.9 19.0 15.0 9.0 5.0 17.0 12.3

22.2 20.5

23.8 6.8 1.9 10.9 5.5 13.6

16.8 26.8 26.0 18.4 10.3 12.9 26.8 17.0 21.7 21.9

29.9 26.8

RoE (%) 2009E 2010E 2011E

300 120 140 300 145 175 190 100 140

385 265 180 970 120 1,000

850

775 55 50 180 400

110 1,500 190 400 150 50 510 360 325

850

(Rs)

ADVT3mo

0.9 9.1 27.6 105.3 16.1 11.6

0.9

69.1 8.1 1.3 49.7 2.9

4.5 52.7 2.1 4.1 1.1 2.3 23.7 13.7 10.9

3.7

(US$ mn)

(35.2) 31.3 (49.4) 1.9 3.3 60.4 8.3 1.5 49.9 0.2 12.9 #VALUE! 4.2 2.3 (8.0) 10.5 16.7 1.8

53.4 20.9 (4.3) 27.1 (6.4) 10.5

4.4

3.5 (4.4) (30.0) (18.0) (25.8)

(22.3) (1.2) (19.8) 13.3 (9.1) (31.2) (17.1) 2.8 (7.0)

1.3

(%)

Target price Upside

India Daily Summary - May 12, 2009

Kotak Institutional Equities Research

India Daily Summary - May 12, 2009

"Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Nitin Bhasin, Sanjeev Prasad, Lokesh Garg, Kawaljeet Saluja."

Kotak Institutional Equities Research coverage universe Distribution of ratings/investment banking relationships Percentage of companies covered by Kotak Institutional Equities, within the specified category.

70% 60%

Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment banking services within the previous 12 months.

50% 40%

39.7%

30%

26.0%

24.7%

20% 9.6% 10% 2.8%

3.5%

0.7%

0.7%

ADD

REDUCE

SELL

0% BUY

* The above categories are defined as follows: Buy = We expect this stock to outperform the BSE Sensex by 10% over the next 12 months; Add = We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months; Reduce = We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months; Sell = We expect this stock to underperform the BSE Sensex by more then 10% over the next 12 months. These ratings are used illustratively to comply with applicable regulations. As of 31/03/2009 Kotak Institutional Equities Investment Research had investment ratings on 146 equity securities.

Source: Kotak Institutional Equities

As of March 31, 2009

Ratings and other definitions/identifiers Rating system Definitions of ratings BUY. We expect this stock to outperform the BSE Sensex by 10% over the next 12 months. ADD. We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months. REDUCE: We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months. SELL: We expect this stock to underperform the BSE Sensexby more than 10% over the next 12 months. Our target price are also on 12-month horizon basis.

Other definitions Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive (A), Neutral (N), Cautious (C).

Other ratings/identifiers NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. CS = Coverage Suspended. Kotak Securities has suspended coverage of this company. NC = Not Covered. Kotak Securities does not cover this company. RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA = Not Available or Not Applicable. The information is not available for display or is not applicable. NM = Not Meaningful. The information is not meaningful and is therefore excluded.

Kotak Institutional Equities Research

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India Daily Summary - May 12, 2009

Corporate Office Kotak Securities Ltd. Bakhtawar, 1st Floor 229, Nariman Point Mumbai 400 021, India Tel: +91-22-6634-1100

Overseas Offices Kotak Mahindra (UK) Ltd. 6th Floor, Portsoken House 155-157 The Minories London EC 3N 1 LS Tel: +44-20-7977-6900 / 6940

Kotak Mahindra Inc. 50 Main Street, Suite No.310 Westchester Financial Centre White Plains, New York 10606 Tel: +1-914-997-6120

Copyright 2009 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved. Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment. Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have “long” or “short” positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. For the purpose of calculating whether Kotak Securities Limited and its affiliates holds beneficially owns or controls, including the right to vote for directors, 1% of more of the equity shares of the subject issuer of a research report, the holdings does not include accounts managed by Kotak Mahindra Mutual Fund.Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition , investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions. This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be deemed to mean and include Kotak Mahindra Inc.

Kotak Securities Ltd. 24 Bakhtawar, 1st floor, 229 Nariman Point, Mumbai 400 021, India.

Kotak Institutional Research Tel: +91-22-6634-1100 Fax:Equities +91-22-2288-6453