India Daily, September 5, 2011

INDIA DAILY

September 5, 2011 India 2-Sep 1-day1-mo 3-mo Sensex 16,821 0.9 (2.8) (8.5)

Nifty 5,040 0.8 (3.3) (8.6)

Contents Global/Regional indices Daily Alerts Dow Jones 11,240 (2.2) (1.8) (7.5) Nasdaq Composite 2,480 (2.6) (2.1) (9.2)

Change in Reco FTSE 5,292 (2.3) 0.9 (9.6) GAIL (India): Upgrade to BUY Nikkie 8,804 (1.6) (5.3) (7.3) Company Hang Seng 19,805 (2.0) (5.4) (13.7) KOSPI 1,816 (2.8) (6.6) (14.1) JSW Steel: Impact on production likely Value traded – India

Sector Cash (NSE+BSE) 150 137 134 Property: Sticking with quality Derivatives (NSE) 832 958 726 Strategy Deri. open interest 1,150 1,113 1,183

Strategy: Emerging market ETFs see very large outflows amidst global concerns

Forex/money market Change, basis points 2-Sep 1-day 1-mo 3-mo Rs/US$ 45.8 (1) 105 103 10yr govt bond, % 8.4 3 (7) 8 Net investment (US$mn) 30-Aug MTD CYTD FIIs 147 - (93) MFs 58 - (282)

Top movers -3mo basis Change, % Best performers 2-Sep 1-day 1-mo 3-mo IDEA IN Equity 100.3 0.3 4.5 42.6 BJAUT IN Equity 1628.1 3.5 16.4 18.3 MM IN Equity 765.1 3.7 17.1 14.5 BPCL IN Equity 682.6 1.2 (2.8) 9.9 NEST IN Equity 4492.2 2.3 6.0 9.7 Worst performers EDSL IN Equity 197.1 (3.5) (34.8) (56.3) IVRC IN Equity 35.8 2.1 (28.7) (48.5) CRG IN Equity 150.3 (0.1) (4.8) (42.4) HDIL IN Equity 105.7 3.5 (14.8) (34.7) ESOIL IN Equity 87.7 (0.8) (13.9) (31.6)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

BUY GAIL (India) (GAIL)

Energy SEPTEMBER 5, 2011 CHANGE IN RECO. Coverage view: Neutral

Upgrade to BUY. We upgrade GAIL stock to BUY from ADD noting 35% potential Price (Rs): 415 upside to our SOTP-based target price of `560 (FY2013E basis). We see the recent Target price (Rs): 560 correction in GAIL’s stock price as a good entry point to buy the stock given a favorable BSE-30: 16,821 risk-reward balance. Our trough-case valuation of `487 based on FY2012E estimates reflects no value creation from new gas pipelines, ruling out concerns on a ramp-up in gas supply. We have updated our earnings model for the FY2011 annual report.

Company data and valuation summary GAIL (India) Stock data Forecasts/Valuations 2011 2012E 2013E 52-week range (Rs) (high,low)538-407 EPS (Rs) 28.2 34.3 36.0 QUICK NUMBERS Market Cap. (Rs bn) 520.8 EPS growth (%) 13.8 21.8 4.9 Shareholding pattern (%) P/E (X) 14.6 12.0 11.4 • 129 mcm/d of gas Promoters 57.3 Sales (Rs bn) 324.6 400.6 455.0 FIIs 13.7 Net profits (Rs bn) 35.7 43.5 45.6 volumes in FY2013E MFs 4.1 EBITDA (Rs bn) 59.9 72.0 81.7 Price performance (%) 1M 3M 12M EV/EBITDA (X) 8.4 8.2 7.4 • 35% potential Absolute (11.0) (7.3) (10.6) ROE (%) 17.5 18.4 16.5 upside from current Rel. to BSE-30 (2.8) 1.3 (3.3) Div. Yield (%) 1.8 2.2 2.4 levels

Our estimates of ramp-up in gas transmission volumes for GAIL are achievable • 17% potential We believe the current valuation of GAIL reflects the market’s concerns about a ramp-up of upside in the domestic gas supply in India and diversion of gas away from GAIL’s petrochemical plant. We think trough-case the latter is unlikely and we factor the former in our assumptions of gas transmission volume for scenario GAIL at 120 mcm/d (+2 mcm/d) in FY2012E, 129 mcm/d (+9 mcm/d) in FY2013E and 145 mcm/d in FY2014E (+16 mcm/d). We highlight that LNG imports from new terminals at Kochi and Dabhol will contribute incremental gas volumes of 5 mcm/d in FY2013E and 8 mcm/d in FY2014E. We expect the residual increase in our gas volume estimates can be achieved by (1) contribution from ONGC’s marginal fields and (2) gradual increase in RIL’s gas production from current low levels.

17% potential upside to trough-case assuming no value creation from new pipelines We compute a trough-case valuation of `487/share (see Exhibit 1), based on (1) 6X annualized 1QFY12 reported EBIT for gas and LPG transmission segments, (2) 5X FY2012E EBITDA for LPG production business assuming 39% subsidy burden on upstream companies, (3) 6X FY2012E EBITDA of `12.8 bn (lower than reported EBITDA of `13.6 bn in FY2011) for petrochemical segment and (4) capital WIP of `59 bn at end-FY2011 book value ignoring any value creation from new gas pipelines.

Upgrade to BUY on attractive risk-reward balance We upgrade the stock to BUY from our ADD rating previously noting 35% potential upside to our SOTP-based fair valuation of `560. We use 12-month forward DCF valuation to value GAIL’s gas transportation segment and FY2013E EBITDA to value GAIL’s other segments (LPG transportation, LPG production and petrochemicals). Our net debt computation includes adjustment for (1) payment of `13.2 bn under protest on account of income tax demand and (2) liability of `7.2 bn on account of gas pool money.

Reduced FY2012-14E earnings moderately We have revised our FY2012E, FY2013E and FY2014E EPS to `34.3, `36 and `41 from `36.6, `39.2 and `45.3 previously to reflect (1) lower gas transmission volumes in FY2013-14E, (2) FY2011 annual report and (3) other minor changes. We assume that the upstream companies will bear 39% of the gross under-recoveries in FY2012-14E.

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

GAIL (India) Energy

Our trough-case valuation for GAIL is `487/share Trough-case valuation for GAIL, FY2012E basis (`/share)

EV (Rs bn) Valuation base (Rs bn) Multiples (X) Replacement/ EBITDA Value Market value EBITDA EV/RC EV/EBITDA market value basis (Rs/share) 1. Valuation of extant businesses Natural gas/LPG transportation (a) 44.4 6.0 267 210 LPG production (b) 16.8 5.0 84 66 Petrochemicals (c) 12.8 6.0 77 60 Value of extant businesses (A) 337 2. Valuation of investments ONGC shares (@Rs264/share) 54 1.0 54 43 Others (@cmp or book value) 51 1.0 51 40 Value of investments (B) 83 3. Valuation of E&P segment Estimated value of Myanmar gas 14 1.0 14 11 Estimated value of Cambay (CB-ONN-2001/1) oil 6 1.0 6 4 Value of E&P segment (C) 15 Enterprise value (A) + (B) + (C) 435 Capital WIP (book value) 59 1.0 59 46 Net debt/(cash) (d) (4) (5) Fair value excluding potential value from new gas pipelines 487

Notes: (a) Based on 1QFY12 reported EBIT for gas transmission segment. (b) Based on LPG production and estimated subsidy burden for FY2012E. (c) Based on FY2012E EBITDA for petrochemical segment. (d) Adjusted net debt as on March 31, 2011.

Source: Kotak Institutional Equities estimates

Other details from the annual report

` Brahmaputra Cracker and Polymer Limited (BCPL). GAIL’s FY2011 annual report highlights the cost and time over-runs in the BCPL project. The project cost has increased to `92.9 bn versus `54.6 bn estimated in August 2005. The revised target of start of commercial production is December 2013 versus January 2012 previously. However, we do not rule out further slippages in the project. The management has highlighted several reasons for the delay in the project, which include heavy and prolonged monsoons, poor response from bidders, labor problems and delay in award of process technology licensors. BCPL is setting up a 280,000 tpa polymer plant (PP, HDPE, LLDPE) and GAIL has a 70% stake in the project.

` Sharp decline in gas pool contribution reflects increase in APM gas price. We note GAIL’s expenditure towards the gas pool account has declined to `4.3 bn in FY2011 versus `9.7 bn in FY2010 which reflects the increase in APM gas prices implemented in May 2010.

` Sharp decline in E&P expenses. We highlight the sharp decline in GAIL’s E&P related expenses to `1.4 bn in FY2011 versus `3.5 bn in FY2010 reflecting (1) lower survey expenses at `0.8 bn versus `1.3 bn in FY2010 and (2) lower write-offs from dry wells at `0.5 bn versus `2.1 bn in the previous year.

` Increase in gas pipeline infrastructure. The company has commissioned 761 kms of new pipelines in FY2011 including, (1) Vijaipur-Dadri pipeline (498 kms), (2) Sultanpur- Neemrana pipeline (175 km) and (3) Focus Energy pipeline (88 kms). GAIL now operates 8,644 kms of gas pipelines in India with a transmission capacity of 170 mcm/d. The management has guided to commissioning of (1) Dahej-Vijaipur pipeline Phase-II (610 kms), (2) Bawana-Nangal pipeline (501 kms), (3) two compressors at Jhabua and Vijaipur and (4) two compressors at Kailaras and Chainsa, by end-CY2011.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Energy GAIL (India)

Key assumptions behind our earnings model

Exhibit 2 gives our key assumptions for GAIL. We discuss the same in detail below.

` Gas transportation volumes. We estimate GAIL’s gas transportation volumes for FY2012-14E at 120 mcm/d, 129 mcm/d and 145 mcm/d versus 118 mcm/d in FY2011. The ramp-up in gas supply reflects (1) higher LNG imports at extant terminals and commissioning of two new LNG terminals (PLNG’s Kochi terminal in FY2013E and RGPPL’s Dabhol terminal in FY2012E), (2) higher gas supply from RIL’s KG D-6 field and (3) contribution from ONGC’s marginal fields.

` Subsidy amount. We model a subsidy amount for FY2012E, FY2013E and FY2014E at `21.6 bn, `15.7 bn and `12.1 bn. We assume that the government-owned upstream companies will bear 39% of the gross under-recoveries in FY2012-14E. We assume GAIL’s share at 5.5% among the upstream companies for FY2012E. For FY2013E and FY2014E we model GAIL’s share at 6.5% and 7%, respectively. We assume GAIL’s share will increase as the proportion of diesel in overall under-recoveries will likely decline over the next two years driven by lower global crude oil prices.

` Crude oil and LPG price assumptions. We assume crude oil (Dated Brent) prices for FY2012E, FY2013E and FY2014E at US$110/bbl, US$100/bbl and US$95/bbl.

` Rupee-dollar exchange rate. We assume exchange rate for FY2012E, FY2013E and FY2014E to `44.75/US$, `45.63/US$ and `45/US$.

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH GAIL (India) Energy

We model moderate increase in gas volumes in FY2012-14E Key assumptions behind GAIL model, March fiscal year-ends, 2007-2014E

2007 2008 2009 2010 2011 2012E 2013E 2014E Volumes Natural gas transportation, gross (mcm/day) HBJ pipeline 3232323232323232 Dahej-Vijaypur-GREP upgradation 61220 Dadri-Bawana-Nangal (transmitted and sold) 12355 Dadri-Bawana-Nangal (transmitted) 12710 Chainsa-Jhajjar-Hissar (transmitted and sold) 2233 Chainsa-Jhajjar-Hissar (transmitted) 13815 Other pipelines (transmitted) 16 16 16 16 Other pipelines 3940394939373535 Regassified LNG Dahej-Vijaipur pipeline (transmitted and sold) 6 9 9 15 13 13 10 6 Dahej-Vijaipur pipeline (transmitted) 4 6 6 10 13 13 15 19 Dahej-Uran pipeline (transmitted and sold) 69126643 Dahej-Uran pipeline (transmitted) 6689 Panvel-Dabhol pipeline (transmitted and sold) 4683333 Panvel-Dabhol pipeline (transmitted) 5555 Dabhol-Bangalore pipeline 26 Kochi-Bangalore/Mangalore pipeline 37 Elimination of double-counted volumes (a) (3) (15) (18) (21) (20) (26) (39) (49) Total gas transmission 77 82 83 107 118 120 129 145 Total gas sales 83 86 90 101 LPG (000 tons) Sold 1,037 1,039 1,092 1,101 1,073 1,100 1,100 1,100 Transported 2,490 2,754 2,744 3,160 3,337 3,350 3,350 3,350 Petrochemicals (000 tons) Polyethylene Domestic sales 337 381 423 410 420 415 450 480 Exports 10 10 —————— Total petrochemicals 347 391 423 410 420 415 450 480 Prices Natural gas (Rs/cubic meter) Natural gas ceiling price 4.21 4.21 4.59 5.75 7.55 7.71 7.71 7.71 Regassified LNG including transportation 6.93 6.44 7.05 12.28 13.88 16.93 21.26 23.99 Transmission plus marketing charges HBJ pipeline, Dahej-Vijaipur pipeline (from FY2007) 0.99 0.96 1.05 1.08 1.26 1.26 1.26 1.26 Dahej-Vijaypur-GREP upgradation 1.95 1.95 1.95 1.95 1.95 Dadri-Bawana-Nangal 0.77 0.77 0.77 0.77 0.77 Chainsa-Jhajjar-Hissar 0.51 0.51 0.51 0.51 0.51 Dahej-Vijaipur, Dahej-Uran, Panvel-Dabhol pipeline 0.99 1.03 1.04 1.26 1.26 1.19 1.19 1.19 Dabhol-Bangalore pipeline 2.10 2.10 Kochi-Bangalore/Mangalore pipeline 1.50 1.50 Other pipelines 0.40 0.42 0.44 0.44 0.46 0.46 0.46 0.46 LPG LPG (US$/ton) 531 702 685 612 749 970 885 843 Transmission charges (Rs/ton) Jamnagar-Loni 1,522 1,522 1,522 1,522 1,522 1,522 1,522 1,522 Vizag-Secunderabad 1,450 1,450 1,450 1,450 1,450 1,450 1,450 1,450 Other assumptions Polyethylene, HDPE (US$/ton) 1,315 1,500 1,360 1,340 1,415 1,450 1,400 1,375 Import tariff, Polyethylene 5% 5% 5% 5% 5% 5% 5% 5% Import tariff, LPG 0%0%0%0%0%0%0%0% Exchange rate (Rs/US$) 45.3 40.3 45.8 47.4 45.6 44.8 45.6 45.0 Subsidy losses 14,880 13,137 17,812 13,267 21,112 21,643 15,692 12,121

Note: (a) Gas transported through the HVJ or DV pipeline and then to smaller pipelines.

Source: Company, Kotak Institutional Equities estimates

SOTP-based target price of `560

Exhibit 3 shows our SOTP valuation model for GAIL based on FY2013E estimates. We discuss key highlights of our SOTP-based valuation model below.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Energy GAIL (India)

We value GAIL stock at `560 per share Sum-of-the-parts valuation of GAIL, FY2013E basis (` bn)

EV (Rs bn) Valuation base (Rs bn) Multiples (X) EBITDA EV Other EBITDA Other EV/EBITDA Other basis (Rs/share) Natural gas transportation HVJ pipeline 61 61 48 DV pipeline 47 47 37 DUPD pipeline 33 33 26 DBN pipeline 39 39 31 CGJH pipeline 17 17 14 DV GREP pipeline 200 200 158 DB pipeline 34 34 26 KBM pipeline 24 24 19 Short distance pipelines 5.7 6.0 34 27 Total natural gas transportation 387 Other businesses LPG transportation 3.7 6.0 22 18 LPG production 17.4 5.0 87 68 Petrochemicals 13.4 6.0 80 63 Oil and gas upstream 19 1.0 19 15 Total other business segments 165 Investments ONGC shares 78 0.8 63 49 Others 46 0.8 37 29 Investments 125 0.8 100 79 Total 224 630 Net debt/(cash) 86 86 68 Implied value of share (Rs/share) 562

Source: Kotak Institutional Equities estimates

` Gas transportation segment. We value GAIL’s gas transportation segment at `387/share broken down between `139/share for extant pipelines and `248/share for new gas pipelines (Dadri-Bawana-Nangal, Chainsa-Gurgaon-Jajjhar-Hissar, DV GREP, Dabhol-Bangalore and Kochi-Bangalore/Mangalore). We have assumed income tax exemption on new pipelines for the first few years as per Section 35 AD of the Indian Income Tax Act, 1961, which allows for deduction of capital expenditure against the income of a new gas transportation pipeline.

` LPG production segment. We value the segment at `68/share based on 5X FY2013E EBITDA. We concede that it is difficult to value the LPG segment since the segment’s profits and profitability can vary significantly depending on (1) crude oil prices; input (natural gas) prices are largely fixed and (2) the amount of subsidy burden.

` Petrochemical segment. We value the petrochemical segment at `63/share based on 6X FY2013E EBITDA. Our FY2013E EBITDA estimate of `13.4 bn is lower versus `13.6 bn in FY2011.

` Investments. We value the investments at `79/share assuming a 20% holding company discount to the computed fair value. We value investment in (1) ONGC at our FY2013E- based fair value of `380/share, (2) Petronet LNG at our 12-month forward target price of `125/share and (3) other quoted investments at the current market prices.

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH GAIL (India) Energy

GAIL (India) Ltd: Profit model, balance sheet, cash model of GAIL, March fiscal year-ends, 2007-2014E (` mn)

2007 2008 2009 2010 2011 2012E 2013E 2014E Profit model (Rs mn) Net sales 160,472 180,082 237,760 249,964 324,586 400,613 454,975 533,310 EBITDA 30,649 39,275 40,647 46,688 54,718 67,395 77,292 88,316 Other income 5,450 5,564 7,966 5,411 5,186 4,623 4,386 4,521 Interest (1,071) (796) (870) (700) (829) (2,438) (3,901) (5,744) Depreciation (5,754) (5,710) (5,599) (5,618) (6,503) (7,917) (12,415) (14,429) Pretax profits 29,274 38,333 42,144 45,781 52,572 61,663 65,362 72,664 Tax (7,941) (12,525) (13,941) (13,750) (14,352) (13,211) (12,013) (14,129) Deferred taxation (190) (10) (62) (636) (2,437) (4,950) (7,717) (6,519) Net profits 24,619 26,015 28,037 31,398 35,611 43,502 45,633 52,016 Earnings per share (Rs) 19.4 20.5 22.1 24.8 28.1 34.3 36.0 41.0

Balance sheet (Rs mn) Total equity 113,929 130,049 147,696 167,990 192,533 222,767 253,657 288,719 Deferred taxation liability 13,187 13,197 13,259 13,896 16,332 21,283 29,000 35,518 Total borrowings 13,379 12,659 12,001 14,804 23,100 96,900 110,700 54,500 Current liabilities 45,512 60,604 81,548 103,784 88,149 80,648 86,068 94,371 Total liabilities and equity 186,007 216,509 254,505 300,473 320,115 421,598 479,425 473,109 Cash 26,604 44,730 34,562 41,715 21,314 5,028 5,123 5,817 Other current assets 50,851 59,370 87,804 95,412 90,148 105,981 114,249 117,923 Total fixed assets 93,913 97,500 114,767 142,616 182,827 284,763 334,228 323,544 Investments 14,638 14,909 17,373 20,730 25,825 25,825 25,825 25,825 Total assets 186,007 216,509 254,505 300,473 320,115 421,598 479,425 473,109

Free cash flow (Rs mn) Operating cash flow, excl. working capital 23,920 33,692 30,456 33,480 42,110 48,896 55,604 66,597 Working capital changes (10,151) (388) (5,573) 12,454 (12,420) (23,333) (2,848) 4,630 Capital expenditure (20,449) (12,419) (25,535) (35,702) (46,322) (107,003) (56,105) (1,900) Investments (205) (270) (2,464) (3,358) (5,095) — — — Other income 3,884 4,042 5,243 4,705 4,090 4,623 4,386 4,521 Free cash flow (3,002) 24,658 2,127 11,580 (17,637) (76,817) 1,037 73,848

Ratios (%) Debt/equity 10.5 8.8 7.5 8.1 11.1 39.7 39.2 16.8 Net debt/equity (10.4) (22.4) (14.0) (14.8) 0.9 37.6 37.4 15.0 ROAE (%) 20.5 19.2 18.4 18.3 18.2 19.2 17.3 17.1 ROACE (%) 16.1 17.8 17.5 17.2 16.9 15.8 13.2 14.5

Key assumptions Gas transmission volumes (mcm/d) 77 82 83 107 118 120 129 145 Petrochemical sales volumes (000 tons) 347 391 423 410 420 415 450 480 LPG sales volumes (000 tons) 1,037 1,039 1,092 1,101 1,073 1,100 1,100 1,100 LPG transmission volumes (000 tons) 2,490 2,754 2,744 3,160 3,337 3,350 3,350 3,350 Subsidy losses (Rs mn) 14,880 13,137 17,812 13,267 21,112 21,643 15,692 12,121

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7

REDUCE JSW Steel (JSTL)

Metals & Mining SEPTEMBER 05, 2011 UPDATE Coverage view: Attractive Impact on production likely. The Supreme Court has provided for monthly release of 1.5 mn tonnes of iron ore via the e-auction route after the CEC works out the sale and Price (Rs): 723 transportation modalities within the next 7-10 days. JSW’s iron ore sourcing will likely Target price (Rs): 660 reduce in the interim and the company may take a hit on production. Iron ore sourcing BSE-30: 16,821 costs will also increase once e-auction starts. We retain our REDUCE rating with an unchanged target price of Rs660. We have made marginal changes to our estimates.

Company data and valuation summary JSW Steel Stock data Forecasts/Valuations 2011 2012E 2013E 52-week range (Rs) (high,low)1,400-593 EPS (Rs) 78.6 70.2 107.5 Market Cap. (Rs bn) 163.4 EPS growth (%) (2.2) (10.7) 53.1 Shareholding pattern (%) P/E (X) 9.2 10.3 6.7 Promoters 37.7 Sales (Rs bn) 239.0 315.3 364.8 FIIs 25.5 Net profits (Rs bn) 17.5 15.9 24.3 MFs 0.6 EBITDA (Rs bn) 46.6 52.1 64.9 Price performance (%) 1M 3M 12M EV/EBITDA (X) 6.1 6.0 5.1 Absolute 7.5 (24.0) (38.7) ROE (%) 13.6 9.3 12.9 Rel. to BSE-30 16.3 (16.4) (34.5) Div. Yield (%) 1.7 1.7 1.7

Sale of iron ore inventory via e-auction route @1.5 mn tonnes per month

The Supreme Court will allow sale of iron ore inventory lying at the mines in Karnataka once the CEC and Attorney General submit a detailed report within the next 7-10 days on the modalities of sale. Our understanding of the development is as follows:

` After evaluating the requirements of all steel and associate steel industries, the Supreme Court has allowed for 1.5 mn tonnes p.m. of iron ore to be released from the stockpile of inventory.

` This will be sold via the e-auction route conducted by the MSTC with the base price dependant on the current pricing mechanism followed by NMDC. Given the shortage of iron ore, competitive bidding with lead to increase in iron ore prices. Sale of iron ore inventory is not mandatory for the miner.

` Only end-user industries can participate in this e-auction. Pellet producers are allowed to participate provided they eventually sell the pellets in the domestic market. Moreover, no iron

ore can be purchased through this route for the purpose of stocking.

Further cost pressures, possible further slowdown in production

JSW had only 7 days of iron ore inventory when the mining ban was extended to the Chitradurga and Tumkur region a week ago. JSW’s production will be impacted since the e-auction of iron ore stockpile in Karnataka may take at least 10-15 days. JSW was sourcing 35-40% of its daily iron requirements from the Chitradurga and Tumkur region. JSW may struggle to operate at its previously stated 80% capacity utilization level (8.5 mn tonnes of production target will not be achieved).

In addition, iron ore sourcing costs will also increase from the management-guided levels of Rs3,200/tonne. One positive for the company is that the inventory lying unsold is made up majorly of fines (70% fines) which could be utilized by only a few steelmakers besides JSW. We broadly retain our estimates. We had already built in a potential impact on production though iron ore sourcing costs may be higher than our estimates. A US$5/tonne increase in iron ore costs impacts our FY2012E EBITDA and EPS estimates by 3.8% and 8.2%, respectively.

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

JSW Steel Metals & Mining

Continued uncertainty drives our cautious view; REDUCE with a TP of Rs660

JSW currently trades at valuations of 6X FY2012E EBITDA, expensive in light of unresolved mining issues in Karnataka, high leverage, firm iron ore and coking coal prices and likely overcapacity in the domestic market. REDUCE with a TP of Rs660.

Exhibit 1: JSW Steel, Change in estimates, March fiscal year-ends, 2012E-14E (Rs mn)

Revised estimates Old estimates % change 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E Net sales 315,308 364,777 369,969 318,026 367,453 369,969 (0.9) (0.7) — EBITDA 52,144 64,856 68,503 53,821 66,110 69,566 (3.1) (1.9) (1.5) PAT 15,866 24,291 26,402 17,079 25,254 27,251 (7.1) (3.8) (3.1) EPS 70.2 107.5 116.8 75.6 111.7 120.6 (7.1) (3.8) (3.1)

Saleable steel volumes ('000 tonnes) 7,300 8,731 9,456 7,381 8,813 9,456 (1.1) (0.9) — HRC price (US$/tonne) 792 770 738 792 770 738 — — — Iron ore cost (US$/tonne) 70 64 62 69 64 61 1.3 0.1 0.5 EBITDA/tonne (US$/tonne) 147 152 150 150 154 152 (2.3) (1.1) (1.6)

Source: Kotak Institutional Equities estimates

Exhibit 2: JSW Steel, Impact on EPS and EBITDA due to increase in iron ore prices (%)

Iron ore price increases impact % change FY2012E Base case 10% 20% 30% 10% 20% 30% Net sales (Rs mn) 315,308 315,308 315,308 315,308 — — — EBITDA (Rs mn) 52,144 49,663 47,182 44,701 (4.8) (9.5) (14.3) PAT (Rs mn) 15,866 14,129 12,393 10,656 (10.9) (21.9) (32.8) EPS (Rs/share) 70.2 62.5 54.8 47.2 (10.9) (21.9) (32.8)

Iron ore prices (Rs/tonne) 3,150 3,328 3,506 3,684 5.6 11.3 16.9

Iron ore price increases impact % change FY2013E Base case 10% 20% 30% 10% 20% 30% Net sales (Rs mn) 364,777 364,777 364,777 364,777 — — — EBITDA (Rs mn) 64,856 59,991 55,125 50,260 (7.5) (15.0) (22.5) PAT (Rs mn) 24,291 20,885 17,479 14,073 (14.0) (28.0) (42.1) EPS (Rs/share) 107.5 92.4 77.3 62.3 (14.0) (28.0) (42.1)

Iron ore prices (Rs/tonne) 2,917 3,185 3,452 3,720 9.2 18.3 27.5

Note: 1. We have assumed here that the hike in prices does not get passed through

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Metals & Mining JSW Steel

Exhibit 3: JSW Steel, Valuation details, March fiscal-year end, 2013E basis (Rs mn)

EBITDA Multiple Value (Rs mn) (X) (Rs mn) (Rs/share) Consolidated EBITDA 63,804 5.6 358,581 1,587 Net debt 215,782 955 Arrived market capitalization 142,799 632 Value of stake in Ispat 6,576 29 Target price (Rs) 660

Source: Kotak Institutional Equities estimates

Exhibit 4: JSW Steel consolidated leverage details, March fiscal year-ends, FY2012-14E (X)

2012E 2013E 2014E EBITDA (Rs mn) 52,144 64,856 68,503 Shareholders funds 177,594 198,319 221,155 Net debt 196,576 215,782 222,313 Net debt/ EBITDA (X) 3.8 3.3 3.2 Net debt/ Equity (X) 1.1 1.1 1.0

Source: Kotak Institutional Equities estimates

Exhibit 5: JSW Steel, Key assumptions, March fiscal year-ends, 2009-14E (Rs mn)

2009 2010 2011 2012E 2013E 2014E Crude steel capacity ('000 tonnes) 4,800 7,800 7,800 11,000 11,000 11,000 Saleable steel volumes ('000 tonnes) 3,421 5,705 6,099 7,300 8,731 9,456 HRC price (US$/tonne) 831 647 744 792 770 738 Average realizations, net (US$/ tonne) 892 695 833 897 854 811 EBITDA (US$/tonne) 181 163 165 147 152 150 Re/US$ rate 45.8 45.9 45.6 44.8 45.6 45.0

Source: Company, Kotak Institutional Equities estimates

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH JSW Steel Metals & Mining

Exhibit 6: JSW Steel (consolidated), Profit model, balance sheet and cash flow model, March fiscal year-ends, 2009-14E (Rs mn)

2009 2010 2011 2012E 2013E 2014E Profit model (Rs mn) Net sales 159,348 190,738 239,002 315,308 364,777 369,969 EBITDA 29,818 41,873 46,627 52,144 64,856 68,503 Other income 2,717 4,194 2,840 372 405 440 Interest (11,556) (11,080) (9,454) (10,921) (11,435) (12,811) Depreciaiton (9,878) (12,987) (15,597) (17,838) (20,591) (22,173) Profit before tax 11,101 22,000 24,417 23,757 33,235 33,959 Extra-ordinary items (7,948) — — — — — Current tax 63 (2,286) (3,855) (3,532) (7,001) (7,643) Deferred tax (789) (4,182) (3,968) (2,474) (1,841) (1,354) Net profit 2,427 15,533 16,594 17,752 24,392 24,962 Minority interest 205 332 239 (716) (722) (843) Share of earnings from associates 117 111 707 (1,170) 621 2,283 PAT 2,749 15,976 17,540 15,866 24,291 26,402 Adjusted PAT 10,856 15,976 17,540 15,866 24,291 26,402 Earnings per share (Rs) 13.8 80.4 78.6 70.2 107.5 116.8 Balance sheet (Rs mn) Equity 78,040 92,572 165,293 177,594 198,319 221,155 Deferred tax liability 12,768 16,848 20,494 22,968 24,809 26,163 Total Borrowings 165,502 161,730 164,744 202,137 229,088 254,004 Current liabilities 82,628 80,727 106,014 99,019 99,136 83,946 Minority interest 2,732 2,187 2,358 3,074 3,797 4,640 Total liabilities 341,670 354,063 458,903 504,793 555,150 589,908 Net fixed assets 278,943 284,090 323,183 361,851 389,392 407,480 Goodwill on consolidation 7,831 8,992 10,932 10,932 10,932 10,932 Investments 3,966 6,282 29,138 27,969 28,589 30,873 Cash 5,093 3,030 20,480 5,562 13,306 31,691 Other current assets 45,836 51,669 75,169 98,480 112,931 108,933 Total assets 341,670 354,063 458,903 504,793 555,150 589,908 Free cash flow (Rs mn) Operating cash flow excl. working capital 19,143 38,323 41,439 38,064 46,825 48,489 Working capital changes 26,781 (4,710) (13,137) (30,305) (14,334) (11,193) Capital expenditure (57,279) (27,245) (52,994) (56,505) (48,132) (40,261) Free cash flow (11,355) 6,368 (24,691) (48,747) (15,641) (2,965) Ratios Debt/equity (X) 2.1 1.7 1.0 1.1 1.2 1.1 Net debt/equity (X) 2.1 1.7 0.9 1.1 1.1 1.0 RoAE (%) 3.5 18.7 13.6 9.3 12.9 12.6 RoACE (%) 9.1 10.9 9.5 8.7 9.3 8.6

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11

CAUTIOUS Property

India SEPTEMBER 02, 2011 UPDATE BSE-30: 16,677

Sticking with quality. We see a possible reversal of the interest rate trajectory in 1QFY13E aiding demand revival for the sector, for now though, launches and absorption continue to remain weak – declining 42% and 22% in June 2011 versus average of past 12-months. While keep our target prices unchanged, we are upgrading DLF, HDIL and MLIFE to BUY (from ADD earlier) noting the 30-42% upside available in these stocks. Our top picks are (1) Sobha (BUY, TP Rs370) – Bengaluru residential, (2) Oberoi (BUY, TP Rs315) – visible NAV and net cash and (3) Phoenix (BUY, TP Rs300) – three mall openings in FY2012E are potential triggers.

QUICK NUMBERS Signs of weakness continue but not bottomed out as yet

We see definite signs of weakness (1) launches in June 2011 were 42% lower than average of the • Residential launches previous 12 months average and there are no indicators of any significant upturn after that, (2) decline 42% yoy sales were down 22% in June 2011 and (3) there is anecdotal evidence that developers are • Sales decline 22% focusing on “affordability” once again through marginal discounts, easier payment terms or lower yoy specs (size or quality of amenities). However, we do not find enough evidence to believe that this is the bottom as (1) inventory levels have not moved up significantly, (2) developers have not yet • Loans to housing stopped launching new projects (without meaningful price reductions) or evaluating land-buying sector rises 15% yoy proposals and (3) loans to the housing sector are still growing 15% yoy.

Demand upturn is contingent on interest rate trajectory and price declines

We believe that demand upturn versus the abatement of cost pressures or even debt reduction (through asset sales) is the real turning point for the sector. However, we do not expect a near- term respite in the interest rate trajectory (repo rate hiked by an aggressive 50 bps in July 2011 and we expect another 25 bps in Sept. 2011) though we expect it to reverse from 1QFY13E. We expect the reversal to be gradual, depending on inflation at that point in time. On pricing declines driving affordability, we would await evidence of developers willing to do so before turning positive on the demand trajectory.

Stock prices have corrected to reflect the cycle turn and company specific issues

Sector index (BSE Real Estate index) is down 47% over the past 12 months, significantly underperforming the broader benchmark BSE Sensex by 41% over this period and individual stocks are down in a range of 12-87%. This has been led by (1) a tightening interest rate regime (RBI has raised interest rates 11 times since March 2010) which has impacted demand, debt costs as well as sentiment, (2) other macro issues (land row in NOIDA, CCI penalty versus DLF, changes in Mumbai regulations) and also (3) company specific issues (Unitech).

Stick to quality – Sobha, Oberoi and Phoenix Mills are our top picks

Our coverage universe is now trading below FY2012E book value (at 0.9X FY2012E P/BV) and we upgrade three stocks in the sector (DLF, HDIL, MLIFE) to BUY from ADD given the 30-42% upside to our target NAVs for these stocks and upgrade PVKP to ADD (from REDUCE earlier) with a 18% upside. Oberoi, Phoenix and Sobha remain our top picks as we believe they are relatively insulated (Oberoi – net cash, Phoenix – retail, Sobha – Bengaluru residential) and have potential upside triggers (Oberoi – NAV accretive land purchases, Phoenix – three mall openings in FY2012E and Sobha – launch of large projects in Bengaluru and Gurgaon).

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Property India

Launches and absorption decline in June 2011 versus past 12-months average

New launches declined by 42% versus the past 12-month average to 13 mn sq. ft in June 2011 (lowest since March 2010) contributed by NOIDA (-68%), Mumbai (-43%) and Gurgaon (-60%) while Bengaluru registered a rise of 20%. Mumbai had been hit by a lack of approvals which would also partly explain the downtick there.

Launches decline in June 2011 versus past 12-months average New launches, Bengaluru, Gurgaon, Mumbai and NOIDA, July 2007 – June 2011 (mn sq. ft)

30 Bengaluru Gurgaon Mumbai Noida

7 7 7 7 7 8 8 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 1 1 0 -0 -0 -0 0 0 -0 0 -0 -0 -0 0 -0 -0 -0 1 -1 -1 -10 -1 -1 -11 -1 -11 g v c- r- r n- g v r- r g-09 p-09 v r- r-1 l-10 g-10 t v r r Jul- e an-08 a p u Jul-08 ct-08 an-09 a Jul-09 u an-10 a p Ju u c a p Au Sep Oct-07No D J Feb-0 M A May-08J Au Sep O No Dec-08J Feb-0 M Ap May-09Jun A Se Oct-09No Dec-09J Feb-10M A May-10Jun A Sep O No Dec-10Jan Feb-11M A May-11Jun

Source: Propequity, Kotak Institutional Equities

Total absorption declined by 22% (lowest since December 2009) with Bengaluru, Mumbai, Gurgaon and NOIDA registering declines of 7%, 24%, 27% and 27%, respectively.

Absorption also decline in June 2011 versus past 12-months average Absorption, Bengaluru, Gurgaon, Mumbai and NOIDA, July 2007 – June 2011 (mn sq. ft)

25 Bengaluru Gurgaon Mumbai Noida

0 Jul-07 Jul-08 Jul-09 Jul-10 Jan-08 Jan-09 Jan-10 Jan-11 Sep-07 Sep-08 Sep-09 Sep-10 Nov-07 Nov-08 Nov-09 Nov-10 Mar-08 Mar-09 Mar-10 Mar-11 May-08 May-09 May-10 May-11

Source: Propequity, Kotak Institutional Equities

Region-wise, Bengaluru remains steady, NOIDA the weakest

Bengaluru saw a 20% increase in launches and the least decline in absorption at 7% whereas Gurgaon, Mumbai and NOIDA experienced declines in both launches and absorption. Among our covered companies, Sobha Developers launched Sobha City (0.85 mn sq. ft) in 1QFY12 while Puravankara launched additional area in Wellworth City (0.8 mn sq. ft) under its Provident brand.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 India Property

NOIDA registered a 68% decline in launches and a 27% decline in absorption versus a past- 12-month average led by the farmer’s agitation there, increasing investment and/or purchase risk significantly. Mumbai was also impacted by an uncertain regulatory environment (car park FSI, extra FSI in suburbs) and a slower pace of approvals, which led to launches declining by 43% and absorption declining by 24%. From our covered companies, HDIL launched Phase 2 at Whispering Towers in Mulund (W) (0.8 mn sq. ft) in 1QFY12 and MLIFE launched Royal Ivy in Kanjurmarg (0.25 mn sq. ft).

NOIDA impacted by the land row Mumbai impacted by regulatory uncertainty, affordability Launches, absorption and inventory months, NOIDA, June 2010 – Launches, absorption and inventory months, Mumbai, June 2010 – June 2011 (mn sq. ft, months) June 2011 (mn sq. ft, months)

New launch (mn sq. ft, LHS) Total absorption (mn sq. ft, LHS) New launch (mn sq. ft, LHS) Total absorption (mn sq. ft, LHS) 18 10 10 Inventory months (months, RHS) Max. absorption (since July 2007, LHS) 18 Inventory months (months, RHS) Max. absorption (since July 2007, LHS) 16 9 9 Min. absorption (since July 2007, LHS) 16 Min. absorption (since July 2007, RHS) 8 14 8 14 7 7 12 12 6 6 10 10 5 5 8 8 4 4 6 6 3 3 2 4 4 2 1 2 2 1 0 0 0 0 Jul-10 Jan-11 Jun-10 Jun-11 Oct-10 Feb-11 Apr-11 Sep-10 Dec-10 Nov-10 Mar-11 Aug-10 May-11 Jul-10 Jan-11 Jun-10 Jun-11 Oct-10 Feb-11 Apr-11 Sep-10 Dec-10 Nov-10 Mar-11 Aug-10 May-11

Source: Propequity, Kotak Institutional Equities Source: Propequity, Kotak Institutional Equities

Gurgaon – inventory months remain steady Bengaluru is steadier while developers remain bullish Launches, absorption and inventory months, Gurgaon, June 2010 – Launches, absorption and inventory months, Bengaluru, June 2010 – June 2011 (mn sq. ft, months) June 2011 (mn sq. ft, months)

New launch (mn sq. ft, LHS) Total absorption (mn sq. ft, LHS) New launch (mn sq. ft, LHS) Total absorption (mn sq. ft, LHS) 17 12 10 17 Inventory months (months, RHS) Max. absorption (since July 2007, LHS) Inventory months (months, RHS) Max. absorption (since July 2007, LHS) 9 15 Min. absorption (since July 2007, RHS) Min. absorption (since July 2007, RHS) 16 10 8 13 7 16 11 8 6 9 5 15 6 4 7 15 3 5 4 2 14 3 1 2 0 14 1 -1 0 Jul-10 Jan-11 Jun-10 Jun-11 Oct-10 Feb-11 Apr-11 Sep-10 Dec-10 Nov-10 Mar-11 Aug-10 May-11 Jul-10 Jan-11 Jun-11 Jun-10 Oct-10 Feb-11 Apr-11 Sep-10 Dec-10 Nov-10 Mar-11 Aug-10 May-11

Source: Propequity, Kotak Institutional Equities Source: Propequity, Kotak Institutional Equities

But inventory months are not indicating a bottom

Unsold Inventory months (measured as current inventory / past 12M absorption) remain at half of their highs in the previous down-cycle except for Bengaluru where developers have been a lot more confident of launching inventory given demand.

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Property India

Inventory levels remain significantly below peak 12-month rolling inventory, June 2008 – June 2011 (months)

Bengaluru Gurgaon Mumbai Noida Total

- Jun-08 Jun-09 Jun-10 Jun-11 Oct-08 Oct-09 Oct-10 Feb-09 Feb-10 Feb-11 Apr-09 Apr-10 Apr-11 Dec-08 Dec-09 Dec-10 Aug-08 Aug-09 Aug-10

Source: Propequity, Kotak Institutional Equities

And housing loans outstanding are up 15% yoy

Outstanding loans to the housing sector increased 15% yoy in July 2011 indicating no weakness in the sector. Yoy loan growth to the housing sector was in the range of 15%- 17% in March-June 2011 only marginally below the growth rate of 17% in August 2007.

Housing loans outstanding up 15% yoy Housing loan data, Aug 2006 – July 2011 (Rs bn)

Housing loan outstanding (Rs bn) 4,000

3,000

2,000

1,000

0 Jul-11 Jul-10 Jan-11 Jan-10 Jun-11 Jun-10 Oct-06 Feb-11 Feb-10 Feb-08 Feb-09 Apr-11 Apr-10 Sep-10 Dec-10 Dec-07 Dec-08 Dec-06 Dec-09 Nov-10 Nov-07 Nov-06 Nov-09 Mar-11 Mar-07 Mar-10 Mar-08 Mar-09 Aug-06 Aug-07 Aug-08 Aug-09 May-11 May-07 May-10 May-08 May-09

Source: RBI, Kotak Institutional Equities

BSE Realty has reacted negatively to policy rate hikes in this cycle

BSE Realty index has moved down, partly in response to RBI’s interest rate hikes (interest rates 11 times since March 2010). Our economist is expecting RBI to further increase policy rates by 25 bps during its Sept 16, 2011 meeting and expects the interest rate cycle to reverse from 1QFY13E. This reversal is likely to be gradual depending on inflation at that point.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 India Property

BSE realty has reacted negatively to policy rate hikes Plot of BSE Realty and Sensex indexed to 100 versus RBI policy rates

Sensex (LHS) BSE Real (LHS) REALTY vs. SENSEX Reverse Repo (RHS) Repo (RHS 200 10 180 9 160 8 140 7 120 6 100 5 80 4 60 3 40 2 20 1 0 0 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jan-08 Jan-09 Jan-10 Jan-11 Sep-07 Sep-08 Sep-09 Sep-10 Nov-07 Nov-08 Nov-09 Nov-10 Mar-08 Mar-09 Mar-10 Mar-11 May-08 May-09 May-10 May-11

Source: RBI, Bloomberg, Kotak Institutional Equities

BSE Realty index has underperformed BSE SENSEX by 41% Absolute and relative price performance of real estate stocks (%)

Absolute Relative 1M 3M 6M 12M 1M 3M 6M 12M Property Ackruti City 6.3 (1.8) (6.1) (62.6) 13.8 7.2 (0.5) (56.2) Brigade 0.7 (16.5) (29.5) (50.2) 8.2 (7.4) (23.9) (43.8) DB Realty (20.2) (20.0) (49.4) (87.0) (12.6) (10.9) (43.7) DLF (8.8) (12.1) (6.4) (33.3) (1.2) (3.0) (0.8) (27.0) Godrej Properties (8.0) 1.4 12.6 (13.1) (0.4) 10.5 18.3 (6.7) HDIL (23.4) (34.5) (36.6) (59.3) (15.8) (25.4) (31.0) (52.9) Indiabulls (14.8) (30.5) (25.7) (54.0) (7.3) (21.4) (20.0) (47.6) Jaypee Infratech (13.3) (25.6) (34.5) (51.4) (5.8) (16.5) (28.8) (45.0) Mahindra Lifespaces (7.4) (13.5) (8.3) (30.7) 0.1 (4.4) (2.7) (24.3) Oberoi Realty (6.2) (6.6) (3.8) 1.4 2.5 1.8 Orbit Corp. (2.8) (19.6) (27.1) (70.4) 4.7 (10.5) (21.5) (64.0) Phoenix Mills 1.9 16.6 21.3 (12.0) 9.5 25.6 26.9 (5.6) Prestige Estates Projects (26.6) (34.1) (20.0) (19.1) (25.0) (14.4) 6.4 Puravankara (7.0) (29.1) (35.8) (39.6) 0.6 (20.0) (30.2) (33.2) Sobha developers (14.1) (10.7) (14.6) (34.9) (6.5) (1.6) (8.9) (28.5) Sunteck Realty (15.6) (20.8) (29.8) (61.8) (8.0) (11.8) (24.1) (55.4) Unitech (13.0) (22.6) (23.3) (65.9) (5.4) (13.5) (17.7) (59.5) BSE Realty (13.3) (18.7) (10.7) (46.9) (5.8) (9.7) (5.1) (40.5) Benchmark (SENSEX) (7.6) (9.1) (5.6) (6.4)

Source: Bloomberg, Kotak Institutional Equities

Valuation led upgrades - DLF, HDIL, MLIFE to BUY (from ADD) and PVKP to ADD (from REDUCE)

DLF, HDIL, MLIFE trade in the 0.4-1.3X FY2012E book value and offer 30%-42% upside to our March 2013E NAV based target and we upgrade them to BUYs and PVKP to ADD.

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Property India

We upgrade DLF, HDIL and MLIFE to BUY and PVKP to ADD Rating changes of realty companies in KIE universe based on March 2013 based target prices

Current price Target price Upside P/B (FY2012E) ROAE (FY2012E) Company New rating Old rating (Rs) (Rs) (%) (X) (%) DLF BUY ADD 208 270 30 1.3 7.5 HDIL BUY ADD 106 150 42 0.4 12.3 MLIFE BUY ADD 322 450 40 1.0 16.3 Puravankara ADD REDUCE 68 80 18 0.8 11.7

Note: (a) MLIFE P/B (FY2012E) and ROAE (FY2012E) are on consolidated numbers

Source: Company, Kotak Institutional Equities estimates

DLF (Rs208, BUY, 30% potential upside)

We believe outlook for DLF rests on two key parameters – (1) faster / more launches and (2) debt reduction over FY2012E. While faster / quicker launches are a function of the market and all indicators point to a subdued one, debt reduction is reliant on “non-core” asset sales where 2QFY12E is a make or break quarter. We are upgrading the stock to BUY (from ADD earlier) noting the 30% potential upside with target price of Rs270 /share at-par with our March 2013-NAV with a WACC rate of 15% and a cap rate of 11%.

DLF is trading significantly below its average P/BV of 2.7 Our estimate of DLF’s NAV is Rs270/share 1-yr rolling forward P/BV, DLF, 5 July 2007- 1 Sept. 2011 NAV-based valuation, DLF, March fiscal year-ends (Rs bn)

P/BV (X) Average March '13 based NAV 10 Valuation of land reserves 639 9 Residential 285 8 7 Retail 165 6 Commercial (sold) 117 5

4 Commercial (leased) 86 3 Add: 22 Hotel sites 25 2 Add: Construction JV 9 1

- Add: Investments in power business 15 Less: Net debt as on March 31, 2013 (222) 7/5/2007 9/5/2007 1/5/2008 3/5/2008 5/5/2008 7/5/2008 9/5/2008 1/5/2009 3/5/2009 5/5/2009 7/5/2009 9/5/2009 1/5/2010 3/5/2010 5/5/2010 7/5/2010 9/5/2010 1/5/2011 3/5/2011 5/5/2011 7/5/2011 11/5/2007 11/5/2008 11/5/2009 11/5/2010 Less: Land cost to be paid (1) NAV (Rs bn) 466 NAV/share (Rs) 272 Source: Company, Kotak Institutional Equities estimates Total no. of shares including ESOPs of 17 mn shares (mn) 1,716 Target price/share (Rs) 270

Source: Company, Kotak Institutional Equities estimates

HDIL (Rs106, BUY, 42% upside)

HDIL’s stock is down 59% over past 12 months and it is now trading at 0.4X FY2012E book value with FY2012E RoE of 12% and manageable D/E of 0.4x. HDIL’s equity raising from FY2007 to date is Rs98/share i.e. 93% of current market cap. However, uncertainty in the MIAL project, aggressive project investments and regulatory risks remain concerns. We find triggers absent but it trades below book and we are upgrading the stock to BUY (from ADD earlier) with a target price of Rs150/share at par with our March 2013E NAV.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 India Property

HDIL is trading significantly below its average P/BV of 1.5X Our estimate of HDIL’s NAV is Rs149/share 1-yr rolling forward P/BV, HDIL, 24 July 2007- 1 Sept. 2011 NAV-based valuation, HDIL, March fiscal year-ends (Rs bn)

P/BV (X) Average March '13 based NAV 8 Valuation (Rs bn) 99 7 Residential projects 60.6 6 Commercial/retail projects 23.9 5 Slum rehabilitation projects 14.9 4 Net debt as of 31st March 2013 (42.3) 3 Add: Mumbai slum rehabilitation project 8.4 2 NAV (Rs bn) 66 1 Total no of shares 441 - NAV/share 149 Target price 150 7/24/2007 9/24/2007 1/24/2008 3/24/2008 5/24/2008 7/24/2008 9/24/2008 1/24/2009 3/24/2009 5/24/2009 7/24/2009 9/24/2009 1/24/2010 3/24/2010 5/24/2010 7/24/2010 9/24/2010 1/24/2011 3/24/2011 5/24/2011 7/24/2011

11/24/2007 11/24/2008 11/24/2009 11/24/2010

Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates

MLIFE (Rs322, BUY, 40% upside)

Noting the 40% upside to our target price (Rs450/share), we are upgrading the stock to a BUY. We retain our March 2013E NAV estimate of Rs449 based on (1) WACC of 16% for the stand-alone development business, (2) DCF-based value for the almost fully leased out Chennai world city and (3) Jaipur MWC at 1X P/BV.

We see possible upsides from Jaipur SEZ as we value Jaipur SEZ at 1X P/B and would assign full DCF-based value as and when we see (1) clarity on DTC and absorption happening post that and (2) at least a couple of residential launches in the SEZ. Our target price of Rs450 comprises Rs167/share for the World City business.

MLIFE continues is trading below its average P/BV since October Our estimate of MLIFE’s NAV is Rs449/share 2010 NAV-based valuation, HDIL, March fiscal year-ends (Rs bn) 1-yr rolling forward P/BV, MLIFE, 1 April 2007- 1 Sept. 2011 Valuation of business Multiple Value contribution Rolling 1yr fwd P/BV Average March '13 based NAV (Rs bn) (%) (Rs bn) (Rs/share) 5 SEZs 4 MWC Chennai 5.5 100 5.5 135

4 MWC Jaipur 1.3 100 1.3 32

3 Total 6.8 167 Mahindra Lifespace standalone 3 Residential property 6.9 100 6.9 168 2 Commercial property 1.6 100 1.6 38 2 Total 8.4 206 1 FY2013E Net Cash 2.4 100 2.4 60 1 FY2013E Investments 0.6 100 0.6 16 - NAV valuation (Rs bn) 18.3 Equity valuation (Rs/share) 449 4/1/2007 6/1/2007 8/1/2007 2/1/2008 4/1/2008 6/1/2008 8/1/2008 2/1/2009 4/1/2009 6/1/2009 8/1/2009 2/1/2010 4/1/2010 6/1/2010 8/1/2010 2/1/2011 4/1/2011 6/1/2011 8/1/2011 10/1/2007 12/1/2007 10/1/2008 12/1/2008 10/1/2009 12/1/2009 10/1/2010 12/1/2010

Source: Company, Kotak Institutional Equities estimates

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Property India

PVKP (Rs68, ADD, 18% upside)

Stock has corrected 29% in the past three months, underperformed the BSE Realty Index by 20% and is now trading at 0.9XFY11 BV and 0.8XFY12E BV. Though volumes and pricing remain on track for PVKP (it sold 0.7 mn sq. ft in 1QFY12), our concerns relate to (1) debt increase (six consecutive quarter of increase) and (2) margin pressure (adjusted EBITDA margin was down 1717 bps in1QFY12) which could potentially have a more adverse impact on PVKP’s valuation given its affordable housing focus.

PVKP is trading at 0.8X P/BV versus average of 2.2X Our estimate of PVKP’s NAV is Rs77/share 1-yr rolling forward P/BV, PVKP, 30 Aug. 2007- 1 Sept. 2011 NAV-based valuation, HDIL, March fiscal year-ends (Rs bn)

P/BV Average March '13 based NAV 9 Valuation (Rs bn) 20.3 8 Residential 20.2 7

6 Commercial 0.1 5 Land value 7.7 4 Less: Net debt (11.5) 3 2 NAV 16.5 1 NAV/share 77.1 - Total no. of shares 213.4 Target price @ par to NAV 80.0 8/30/2007 2/29/2008 4/30/2008 6/30/2008 8/30/2008 2/28/2009 4/30/2009 6/30/2009 8/30/2009 2/28/2010 4/30/2010 6/30/2010 8/30/2010 2/28/2011 4/30/2011 6/30/2011 8/30/2011

10/30/2007 12/30/2007 10/30/2008 12/30/2008 10/30/2009 12/30/2009 10/30/2010 12/30/2010

Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates

Our top picks –Sobha Developers, Phoenix Mills and Oberoi Realty

We continue to recommend a selective approach as (1) funding is still constrained and our discussion with companies and other sector participants leads us to believe that raising equity at the entity level remains a near-impossible task while raising debt has also become more difficult and effective borrowing costs have increased, (2) impact on developers and consequently prices could be felt with a lag (coming festive season in 3QFY12E could be critical) and (3) company specific risks continue to remain high. Our top three picks are (1) Oberoi (BUY, TP Rs315, + 41% potential upside), (2) Phoenix (BUY, TP Rs300, + 40% upside) and Sobha (BUY, TP Rs370, +65% upside).

Valuation comparison of KIE covered companies Comparative valuation, KIE covered companies, March fiscal year-ends (Rs mn)

Target Market Upside/ price cap. EV PriceP/B (X) P/E (X) NAV (downside) 12-m performance Company name Rating (Rs) (US$ mn) (US$ mn) (Rs) 2011 2012E 2013E 2011 2012E 2013E (Rs/share) (%) (%) DLF BUY 270 7,760 12,691 207.9 1.4 1.3 1.2 22.9 17.4 13.2 272 29.9 (33) Housing Development & Infrastructure BUY 150 1,024 1,915 105.7 0.5 0.4 0.4 5.3 3.7 3.1 149 41.9 (59) Indiabulls Real Estate RS 710 993 81.1 0.3 0.3 0.3 20.4 9.5 5.3 (54) Mahindra Life Space Developer BUY 450 287 264 322.5 1.3 1.2 1.0 12.9 10.5 8.6 449 39.6 (31) Oberoi Realty BUY 315 1,612 1,307 224.5 2.2 1.9 1.6 14.3 11.2 8.0 313 40.3 (14) Phoenix Mills BUY 300 691 698 219 2.0 1.9 1.8 34.6 29.5 20.5 305 37.0 (12) Puravankara Projects BUY 80 316 546 68 0.9 0.8 0.8 12.3 7.5 6.2 77 17.8 (40) Sobha Developers BUY 370 480 744 224.9 1.2 1.1 1.0 11.9 10.9 8.3 370 64.5 (35) Unitech RS 1,530 2,705 26.85 0.6 0.6 0.5 11.6 10.3 9.8 (66)

Note: Oberoi 12-months performance is since listing on October 19, 2010

Source: Bloomberg, Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 India Property

Sobha Developers (BUY, TP Rs370, 65% upside)

While Sobha has corrected in line with the sector over the past month (14% versus 15%for BSE Realty index), we believe this is an attractive entry point as (1) Sobha is trading at 1.2X/1.1X FY2011/12E book value with RoE of 10% in FY2012E and (2) All of Sobha’s current EV is accounted by (1) PV of expected net cash flows from current projects + (2) book value of land + (3) value of the contracting business. We find minimal value being ascribed to either (1) development beyond current ongoing projects or (2) brand and Sobha operating as a going concern. Our target price is Rs370/share based on March 2013 NAV assuming a WACC of 15%. Key triggers include meeting their sales target of 3-3.5 mn sq. ft in FY2012E and further evidence of a steady Bengaluru market.

Recent correction provides a good entry point Residual value calculation, Sobha

Value (Rs mn) Comments Current market price (Rs) 225 Outstanding shares (mn) 98 Total market cap (Rs mn) 22,064 Debt (Rs mn) 12,966 Net debt at end-1QFY12 Enterprise value (Rs mn) [A] 35,030 Valuation (Rs mn) Based on 1QFY12 data, assuming 15% cost of capital, inflow (1) Ongoing projects 8,623 over three years starting one year later (2) Contractual business 4,507 At 10xFY2012E earnings assuming 10% net margin (3) Land valued at book value 22,591 Based on 1QFY12 company presentation Total value (Rs mn) [B] 35,721

Residual value [A-B] (690)

Source: Company, Kotak Institutional Equities estimates

Sobha has Rs15.1 bn cash flow available from ongoing and completed projects Cash flow from ongoing and completed projects, as of June 30, 2011 (Rs mn)

Ongoing Completed Description Unit projects projects Total super built-up area mn sq. ft 7.98 5.73 Sobha's share of saleable area mn sq. ft 7.21 5.51 Total area sold till June 30, 2011 mn sq. ft 3.41 5.32 Unsold area mn sq. ft 3.8 0.19 Construction cost to be spent Rs mn 13,757 588 Receivables outstanding + balance to be billed and collected on sold units Rs mn 7,890 909 Sales value of unsold stock Rs mn 19,857 796 Cash flow available Rs mn 13,989 1,116 Total cash flow available from real estate projects Rs mn 15,106

Source: Company, Kotak Institutional Equities

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH Property India

Our estimate of Sobha’s NAV is Rs 370/share NAV-based valuation, Sobha Developers, March fiscal year-ends (Rs bn)

March '13 based NAV Growth rate in selling prices 0% 3% 5% 10% Gross valuation (Rs bn) 12.8 29.3 42.1 81.6 Less: Land cost to be paid (0) (0) (0) (0) Less: Net debt (12) (12) (11) (10) Add: Contractual business 5.9 5.9 5.9 5.9 NAV 6 23 36 77 Total no. of shares (mn) 98 NAV/share 370 Target price @0% discount to NAV 370

Source: Company, Kotak Institutional Equities estimates

Phoenix Mills (BUY, TP Rs300, 40% upside)

We believe potential triggers are (1) reducing execution risk and revenue visibility as the three malls get operational over the next two quarters and (2) potential residential launches (Bangalore and Chennai over FY2012) of at least 0.5 mn sq. ft. The company has soft- launched some residential properties in its Chennai market city and the initial response has been encouraging. Peaking debt levels, continued strong performance of HSP and Palladium and healthy uptake of residential and commercial sale properties are the other key positives.

Footfalls grew 53% in HSP and Palladium (FY2011/FY2010) Footfalls in HSP and Palladium, April 2009 – March 2011

1,600 Footfall in ('000s) - HSP and Palladium 1,400 1,200 1,000 800 600 400 200 - Jul-09 Jul-10 Jan-10 Jan-11 Jun-09 Jun-10 Oct-09 Oct-10 Feb-10 Feb-11 Apr-09 Apr-10 Sep-09 Sep-10 Dec-09 Dec-10 Nov-09 Nov-10 Mar-10 Mar-11 Aug-09 Aug-10 May-09 May-10

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 India Property

Three properties launched by PHNX for sale till date For sale properties launched, as on end-1QFY12

Area Sold (end-1QFY12) Expected revenue For sale properties (mn sq. ft) (%) (Rs mn) Kurla Market City - Ph 1 Commercial 0.25 70 2,350 Pune Market City Commercial and Retail 0.26 70 1,500 Chennai, Velachery - Ph 1 Residential 0.25 25 1,750 Total 5,600

Source: Company, Kotak Institutional Equities estimates

Our estimate of Phoenix Mills’ NAV is Rs 305 /share NAV-based valuation, Phoenix Mills, March fiscal year-ends (Rs bn)

March '13 based NAV Growth rate in selling prices 0% 3% 5% 10% Valuation (Rs bn) 26.7 27.8 29.4 30.2 Add: (Net debt)/Net cash as on March 31,2013 0.3 0.3 0.3 0.3 Other investments 14.4 14.4 14.4 14.4 NAV (Rs bn) 41.4 42.4 44.1 44.9 Total no. of shares (mn) 144.8 NAV/share (Rs) 305 Target price @ NAV (Rs) 300

Source: Company, Kotak Institutional Equities estimates

Oberoi Realty (BUY, TP Rs315, 41% upside)

We find Oberoi relatively better placed in this environment as (1) Oberoi is the only debt-free developer operating in the lucrative Mumbai region and could actually take advantage of declining land prices by adding to its land bank, (2) NAV realization is relatively more frontloaded than peers, and (3) RoE in the mid-20s is again higher than peers.

Amongst Mumbai-centric peers, Oberoi had the highest ROE in FY2010 and FY2011 and is the only debt-free company in our coverage universe.

Oberoi is debt free BER had the highest ROE among peer groups in FY2010-11 D/E comparison chart, FY2011 March fiscal year-ends (%) ROE comparison chart, FY2010 – FY2011, March fiscal year-ends (%)

120 30 ROE (FY2010) ROE (FY2011)

25 100

20 80 15 60 10 40 5

20 0 DB Realty Godrej Properties HDIL IBREL Oberoi Realty Sunteck 0 -5 DB Realty Godrej Properties HDIL IBREL Oberoi Realty Sunteck

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Property India

Oberoi’s NAV is frontloaded with around 75% of NAV coming in by 2015E from (1) its rental asset portfolio, (2) execution of current ongoing projects (Goregaon, JVLR) and (3) launch of their Worli and Mulund projects.

75% of Oberoi’s NAV will be realizable by 2015E Oberoi, March fiscal year-ends (Rs bn)

120

100

- FY2013 FY2014 FY2015 FY2016 FY2017 FY2018

Source: Company, Kotak Institutional Equities estimates

Our estimate of Oberoi’s NAV is Rs313/share NAV-based valuation, Oberoi, March fiscal year-ends (Rs bn)

March '13 based NAV Growth rate in selling prices per annum 0% 3% 5% 10% Gross real estate valuation (Rs bn) 70 77 82 96 Residential projects 34 39 43 54 Retail/commercial projects 33 34 35 38 Social projects 3 4 4 4 Hospitality project 5 5 5 5 Add: Net cash 16 16 16 16 Add: Centaur advance 0 0 0 0 Add: Stake sale in JV 0 0 0 0 NAV (Rs bn) 91 98 103 117 Total no. of shares (mn) 330 NAV/share (Rs) 313 Discount to NAV (%) — Target price/share (Rs) 315

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 Strategy.dot

INDIA Strategy

Foreign fund-flow tracker SEPTEMBER 05, 2011 UPDATE BSE-30: 16,821

Emerging market ETFs see very large outflows amidst global concerns. Our foreign fund-flow tracker offers a comprehensive view of market flow activity in India and among its emerging market peers. Using a top-down approach, we analyze country flows and the underlying factors which affect them such as fund flows and country allocations for different fund types.

QUICK NUMBERS • India and Brazil witnessed the Country flows – India and Brazil witness the largest outflows in the last six months largest outflows in Amidst global concerns over sovereign debt, net asset allocations fell 8-14% across our emerging the past six months market universe on the back of severe market corrections as well as redemptions. Within the EPFR • Indian allocations universe, India and Brazil saw outflows of more than US$2.4 bn in the past six months. In the past for Asia ex-Japan four weeks alone, Indian outflows amount to ~2% of the estimated net asset allocations (based on EPFR’s universe of funds) while Taiwan and Russia saw outflows of US$1.8 bn and US$1.9 bn, funds down to respectively. 10.5%

Country allocations – Indian allocations for Asia ex-Japan funds down to 10.5% • Eight out of the 10 highest outflows in Allocations to India fell in July even though the broader market valuations were at their cheapest our EM universe levels since May ’09. On a 12-month basis, India allocations were down ~1.5%. Within the Asia were by ETFs ex-Japan universe of funds, most of the prominent geographies saw allocations fall in July. Considering that cash balances rose only 0.1% mom (up from 2.7% to 2.8%), this could possibly imply a move to smaller geographies. On a 3-month basis, only allocations to China remained steady.

Fund flows – Eight of the 10 highest outflows in our EM universe were by ETFs

Within EPFR’s EM universe of ~1,300 funds, eight out the 10 highest outflows in the past month were seen by exchange-traded funds. iShares MSCI Emerging Markets Index Fund topped the list with outflows of US$1.3 bn followed by Fubon MSCI Taiwan ETF, iShares MSCI Hong Kong Index and db x-trackers MSCI Emerging Market TRN Index ETF. AUMs shrunk further for Lyxor ETF Russia (DJ RusIndex Titans 10) falling 28% mom. Within India, the top-10 largest funds in our Indian universe saw outflows in excess of US$628 mn. On a proportional basis, large India-dedicated ETFs like WisdomTree India Earnings Fund and Lyxor ETF MSCI India saw outflows equivalent to 5-6% of their total fund size in the month.

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. 25 25 India India DailySummary - September 5,2011 Kotak Institutional Equities: Valuation summary of key Indian companies

O/S Target 2-Sep-11 Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) price Upside ADVT-3mo Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E2013E 2011E 2012E 2013E (Rs) (%) (US$ mn) Automobiles Ashok Leyland 25 SELL 67,182 1,467 2,661 2.4 2.1 2.4 68.1 (11.9) 12.8 10.6 12.1 10.7 7.4 7.8 7.1 1.5 1.4 1.3 4.0 4.0 4.0 21.8 17.4 18.2 26 3.0 4.6 Bajaj Auto 1,628 SELL 471,172 10,290 289 90.4 102.5 113.5 43.9 13.5 10.7 18.0 15.9 14.3 13.7 12.4 11.5 9.5 7.2 5.6 2.5 2.5 2.5 84.9 51.6 43.7 1,590 (2.3) 13.3 Bharat Forge 285 ADD 67,678 1,478 237 12.5 16.4 20.3 1,402.1 30.8 23.5 22.7 17.4 14.1 10.6 8.6 7.3 3.0 2.6 2.2 1.2 — — 8.2 14.1 15.2 320 12.2 3.1 Exide Industries 147 REDUCE 124,865 2,727 850 7.5 8.1 10.0 18.0 9.2 22.9 19.7 18.1 14.7 14.2 13.1 10.8 4.6 3.8 3.1 1.0 0.9 0.9 25.5 22.9 23.2 160 8.9 5.7 Hero Honda 2,073 SELL 413,928 9,040 200 99.3 111.3 128.2 (11.1) 12.1 15.1 20.9 18.6 16.2 14.8 13.8 11.2 8.9 9.1 8.7 5.1 3.4 3.4 56.5 63.6 60.2 1,795 (13.4) 19.1 Mahindra & Mahindra 765 ADD 469,771 10,259 614 41.7 46.8 50.4 22.7 12.1 7.7 18.3 16.4 15.2 14.1 12.0 10.9 4.4 3.6 3.1 1.5 1.2 1.2 27.3 24.4 22.0 830 8.5 29.1 Maruti Suzuki 1,079 BUY 311,709 6,807 289 79.2 79.9 100.3 (8.4) 0.9 25.5 13.6 13.5 10.8 8.3 7.9 5.9 2.2 1.9 1.7 0.7 0.7 0.7 17.6 15.4 16.7 1,475 36.7 11.6 Tata Motors 755 ADD 501,909 10,961 665 136.0 115.5 119.6 737.9 (15.0) 3.6 5.6 6.5 6.3 4.3 4.9 4.6 2.6 1.9 1.5 2.5 1.9 1.9 66.1 34.2 27.3 885 17.3 58.6 Automobiles Cautious 2,428,214 53,029 88.4 (1.8) 10.5 12.1 12.3 11.2 8.1 8.2 7.3 3.8 3.2 2.6 2.4 1.9 1.9 31.7 25.7 23.6 Banks/Financial Institutions Andhra Bank 133 BUY 74,144 1,619 560 22.6 24.2 27.5 5.0 6.9 13.5 5.9 5.5 4.8 ———1.1 1.0 0.9 4.2 4.4 5.0 23.2 19.4 19.2 190 43.4 2.0 Axis Bank 1,080 BUY 443,554 9,687 411 82.5 98.9 119.7 33.0 19.8 21.1 13.1 10.9 9.0 ———2.3 2.0 1.7 1.3 1.6 1.9 19.3 19.7 20.3 1,700 57.3 47.6 Bank of Baroda 729 BUY 286,298 6,252 393 108.0 109.5 129.1 29.1 1.4 17.9 6.7 6.7 5.6 ———1.5 1.3 1.1 2.6 2.7 3.1 25.9 20.4 20.5 1,250 71.5 7.4 Bank of India 313 ADD 171,088 3,736 547 45.5 54.0 70.7 37.4 18.7 30.9 6.9 5.8 4.4 ———1.1 0.9 0.8 2.6 3.1 4.0 17.3 17.2 19.5 470 50.3 6.8 Canara Bank 421 ADD 186,680 4,077 443 90.9 86.3 108.7 23.3 (5.0) 25.9 4.6 4.9 3.9 ———1.0 0.9 0.7 2.6 2.8 2.8 23.2 17.7 19.0 600 42.4 8.2 Corporation Bank 442 ADD 65,533 1,431 148 95.4 93.4 114.1 16.3 (2.1) 22.2 4.6 4.7 3.9 ———0.9 0.8 0.7 4.5 4.4 5.4 21.9 18.1 19.2 630 42.4 0.9 Federal Bank 367 BUY 62,689 1,369 171 34.3 44.5 56.2 26.3 29.8 26.1 10.7 8.2 6.5 ———1.3 1.1 1.0 2.3 3.0 3.8 12.0 14.2 16.0 500 36.4 5.0 HDFC 661 REDUCE 969,548 21,174 1,467 24.1 27.8 31.9 22.4 15.6 14.6 27.4 23.7 20.7 ———5.6 4.9 3.8 1.4 1.6 1.9 21.7 22.1 21.5 730 10.4 39.7 HDFC Bank 473 ADD 1,099,794 24,018 2,326 16.9 21.9 27.6 31.0 29.5 26.5 28.0 21.6 17.1 ———4.3 3.8 3.2 0.7 0.9 1.1 16.7 18.6 20.2 560 18.4 35.7 ICICI Bank 887 BUY 1,021,837 22,316 1,152 44.7 58.0 63.1 23.9 29.7 8.8 19.8 15.3 14.1 ———1.9 1.7 1.6 1.6 2.0 2.1 9.7 11.7 11.8 1,100 24.0 81.1 IDFC 110 BUY 165,879 3,623 1,509 8.8 9.9 12.0 4.6 12.8 21.6 12.5 11.1 9.1 ———1.6 1.3 1.2 2.0 1.8 2.2 14.7 13.1 13.9 150 36.4 26.6 India Infoline 75 SELL 24,370 532 327 7.4 4.8 6.5 (9.3) (34.5) 33.8 10.1 15.4 11.5 ———1.5 1.2 1.1 4.1 1.3 1.9 12.9 8.7 10.3 70 (6.1) 1.6 Indian Bank 207 BUY 89,048 1,945 430 38.8 42.0 50.9 10.5 8.2 21.2 5.3 4.9 4.1 ———1.1 1.0 0.8 3.6 3.8 4.6 22.3 20.4 21.0 300 44.8 1.8 Indian Overseas Bank 109 BUY 67,413 1,472 619 17.3 21.1 30.8 33.6 22.0 45.4 6.3 5.2 3.5 ———0.8 0.7 0.6 4.6 3.9 4.3 12.7 13.3 17.0 190 74.4 1.6 IndusInd Bank 251 BUY 117,167 2,559 466 12.4 15.2 18.2 45.2 22.6 19.9 20.3 16.6 13.8 ———3.2 2.8 2.5 0.8 1.0 1.2 20.8 17.7 17.9 325 29.3 3.9 J&K Bank 796 ADD 38,609 843 48 126.9 141.8 152.8 20.1 11.8 7.7 6.3 5.6 5.2 ———1.1 1.0 0.9 3.3 3.6 3.9 19.0 18.4 17.3 950 19.3 0.7 LIC Housing Finance 216 ADD 102,732 2,244 475 20.5 22.9 27.5 47.2 11.4 20.4 10.5 9.5 7.9 ———2.6 2.2 1.8 2.0 2.3 2.7 25.8 23.7 23.9 260 20.2 23.7 Mahindra & Mahindra Financial 638 BUY 65,375 1,428 102 45.2 56.4 69.2 26.1 24.8 22.7 14.1 11.3 9.2 ———2.7 2.3 2.0 1.6 1.9 2.4 22.0 21.4 22.3 825 29.3 1.4 Muthoot Finance 186 BUY 69,120 1,509 371 15.7 19.0 24.5 108.4 20.5 29.0 11.8 9.8 7.6 ———5.2 2.4 1.8 — — — 51.5 33.0 26.8 220 18.2 — Oriental Bank of Commerce 303 BUY 88,287 1,928 292 51.5 55.6 65.4 13.7 8.0 17.6 5.9 5.4 4.6 ———0.9 0.8 0.7 3.4 3.7 4.4 15.5 13.9 14.7 430 42.1 3.9 PFC 147 BUY 194,558 4,249 1,320 22.8 23.4 28.3 11.1 2.4 21.3 6.5 6.3 5.2 ———1.3 1.0 0.8 2.7 3.2 3.8 18.4 17.0 16.7 225 52.6 17.0 Punjab National Bank 910 BUY 288,315 6,296 317 140.0 163.0 201.5 13.0 16.5 23.6 6.5 5.6 4.5 ———1.4 1.2 1.0 2.4 3.7 4.5 24.4 23.5 24.2 1,500 64.8 6.4 Reliance Capital 408 REDUCE 100,335 2,191 246 9.3 16.5 24.8 (25.3) 77.0 50.4 43.8 24.7 16.5 ———1.4 1.4 1.3 0.9 1.6 2.4 3.3 5.7 8.3 470 15.3 19.9 Rural Electrification Corp. 171 BUY 168,844 3,687 987 26.0 29.0 32.5 28.1 11.5 12.3 6.6 5.9 5.3 ———1.3 1.2 1.0 4.4 4.9 5.5 21.5 20.8 20.4 240 40.4 12.7 Shriram Transport 675 REDUCE 150,553 3,288 223 55.1 65.6 75.3 40.8 19.0 14.8 12.2 10.3 9.0 ———3.1 2.6 2.2 1.0 1.9 2.2 28.1 26.8 25.2 700 3.7 9.6 SKS Microfinance 208 SELL 15,324 335 74 15.7 (39.1) 3.9 (41.8) (349.4) (109.9) 13.3 (5.3) 53.7 ———0.9 1.0 1.0 — — — 8.3 (17.4) 1.9 350 68.2 9.5 State Bank of India 1,993 BUY 1,265,839 27,644 635 130.2 195.6 256.1 (9.9) 50.3 30.9 15.3 10.2 7.8 ———1.9 1.7 1.4 1.7 1.8 1.9 12.6 17.8 20.0 2,750 38.0 107.9 Union Bank 236 BUY 123,480 2,697 524 39.5 50.2 60.4 (3.9) 27.1 20.5 6.0 4.7 3.9 ———1.1 0.9 0.8 4.0 5.0 6.0 20.9 21.9 22.5 425 80.5 4.7 Yes Bank 279 BUY 96,733 2,113 347 21.5 26.2 32.3 43.2 22.1 23.3 13.0 10.6 8.6 ———2.5 2.1 1.7 0.9 1.1 1.3 21.7 21.7 22.2 420 50.7 16.8 Banks/Financial Institutions Attractive 7,613,144 166,262 20.1 19.8 23.0 12.4 10.4 8.4 ——— 2.0 1.7 1.5 1.8 2.1 2.4 16.0 16.6 17.5 Cement ACC 1,015 REDUCE 190,745 4,166 188 55.6 60.1 72.7 (33.2) 8.2 20.9 18.3 16.9 14.0 11.1 9.4 7.3 2.8 2.5 2.2 3.5 2.3 2.3 17.5 17.3 18.1 980 (3.5) 5.3 Ambuja Cements 136 SELL 206,510 4,510 1,522 7.9 7.8 9.8 (1.5) (0.5) 25.5 17.2 17.3 13.8 10.4 9.5 7.3 2.6 2.4 2.2 1.5 1.6 1.8 16.6 14.8 16.9 135 (0.5) 5.8 Grasim Industries 2,165 BUY 198,521 4,335 92 233.3 259.5 289.3 (22.5) 11.2 11.5 9.3 8.3 7.5 6.0 5.1 4.3 1.4 1.2 1.1 1.6 1.6 1.6 15.8 15.3 15.0 2,900 34.0 3.4 India Cements 67 ADD 20,535 448 307 1.9 8.3 9.2 (81.2) 339.0 10.4 35.4 8.1 7.3 13.7 5.5 4.9 0.5 0.5 0.4 2.4 4.8 4.8 1.4 6.2 6.5 82 22.7 1.3 Shree Cement 1,675 REDUCE 58,335 1,274 35 57.2 83.1 132.9 (72.5) 45.5 59.8 29.3 20.1 12.6 6.5 6.1 4.2 3.0 2.8 2.4 0.6 0.6 0.6 10.7 14.5 20.7 1,730 3.3 1.1 UltraTech Cement 1,100 BUY 301,458 6,583 274 44.9 73.1 85.9 (49.2) 63.0 17.5 24.5 15.0 12.8 12.0 8.0 6.6 2.4 2.1 1.8 0.5 0.5 0.5 16.7 17.3 17.3 1,220 10.9 3.5 KOTAK INSTITUTIONAL EQUITIES RESEARCH Cement Neutral 976,104 21,317 (23.5) 23.6 18.8 16.6 13.5 11.3 8.9 7.0 5.7 2.0 1.8 1.6 1.6 1.4 1.4 12.3 13.5 14.2

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of key Indian companies India Daily Summary - September 5, 2011 Daily 5, India Summary- September

JubilantDaily India Summary -September Foodworks 1,003 SELL 65,629 1,433 65 11.2 16.6 24.1 99.6 48.6 45.1 89.5 60.3 41.6 54.7 33.5 23.5 34.2 21.8 14.3 ———46.6 44.2 41.6 750 (25.2) 30.8 Jyothy Laboratories 174 ADD 14,006 306 81 10.5 9.4 11.8 (5.0) (10.1) 25.2 16.6 18.4 14.7 13.9 12.6 10.4 2.1 2.0 1.8 3.4 2.7 3.4 12.3 11.1 12.9 220 26.7 0.5 Marico 149 ADD 91,306 1,994 612 4.2 5.4 7.1 10.9 27.3 32.6 35.4 27.8 21.0 23.6 19.0 14.5 9.7 7.6 5.9 0.5 0.6 0.8 32.8 31.3 32.2 185 23.9 1.3 Nestle India (a) 4,492 SELL 433,119 9,459 96 86.8 103.6 123.2 16.7 19.3 18.9 51.7 43.4 36.5 34.4 28.2 23.3 50.6 36.8 27.8 1.1 1.3 1.6 116.5 98.3 86.8 3,500 (22.1) 2.3 Tata Global Beverages 93 ADD 57,326 1,252 618 4.0 6.0 7.1 (34.6) 52.6 17.6 23.4 15.3 13.1 9.1 7.7 6.5 1.1 1.1 1.1 2.2 3.3 3.9 6.5 9.6 10.8 120 29.4 5.1 Titan Industries 211 ADD 187,234 4,089 888 4.9 7.4 8.8 71.7 51.5 17.8 42.9 28.3 24.0 31.3 19.7 16.1 17.2 12.2 9.3 0.6 1.1 1.4 47.8 50.5 44.0 240 13.8 30.7 United Spirits 893 ADD 112,155 2,449 126 29.5 39.2 50.6 8.3 32.8 29.0 30.2 22.8 17.6 15.7 12.0 10.3 2.6 2.3 2.1 0.4 0.3 0.4 9.1 10.7 12.5 1,100 23.2 5.7 Consumer products Cautious 4,089,043 89,300 16.3 21.8 17.1 34.2 28.0 23.9 23.8 19.3 16.2 10.5 8.9 7.7 1.7 1.7 2.1 30.8 31.8 32.0 Constructions IVRCL 36 BUY 9,546 208 267 5.9 5.7 6.6 (25.2) (4.1) 15.6 6.0 6.3 5.5 5.6 5.4 5.3 0.5 0.4 0.4 1.1 1.1 1.1 8.2 7.3 7.9 75 109.8 5.2 Nagarjuna Construction Co. 57 BUY 14,587 319 257 6.4 5.9 7.7 (29.7) (7.8) 30.8 8.9 9.7 7.4 7.8 7.4 6.9 0.6 0.6 0.6 3.5 3.5 3.5 7.1 6.3 7.8 100 75.9 1.3 Punj Lloyd 60 REDUCE 20,443 446 340 (1.5) 5.5 7.4 (56.6) (467.8) 34.9 (40.5) 11.0 8.2 13.1 5.8 5.1 0.7 0.7 0.6 (0.1) 0.8 1.1 (1.7) 6.1 7.7 65 8.0 10.9 Sadbhav Engineering 133 BUY 19,883 434 150 8.0 9.8 10.9 55.1 23.5 10.4 16.6 13.5 12.2 10.2 8.5 7.5 3.1 2.6 2.1 0.5 0.5 0.5 18.6 19.0 17.5 180 35.8 0.3 Construction Attractive 64,458 1,408 (0.3) 62.7 23.6 16.5 10.1 8.2 8.8 6.4 5.9 0.8 0.8 0.7 1.1 1.4 1.4 4.9 7.5 8.6 Energy Aban Offshore 381 BUY 16,588 362 44 116.2 95.3 107.2 9.0 (18.0) 12.4 3.3 4.0 3.6 6.7 6.7 6.3 0.8 0.7 0.6 0.9 1.0 1.2 29.2 19.4 18.0 700 83.6 9.7 Bharat Petroleum 683 ADD 246,769 5,389 362 45.7 58.9 58.9 (20.7) 28.9 0.1 14.9 11.6 11.6 10.3 7.0 6.9 1.6 1.5 1.4 2.1 2.8 2.8 10.8 12.8 11.8 800 17.2 8.3 Cairn india 285 REDUCE 541,951 11,836 1,902 33.3 45.8 49.7 501.1 37.4 8.6 8.6 6.2 5.7 6.2 4.5 3.5 1.3 1.2 1.1 — 1.8 5.3 16.9 19.8 19.2 295 3.5 14.0 Castrol India (a) 519 SELL 128,252 2,801 247 19.8 21.9 22.3 28.5 10.8 1.6 26.2 23.6 23.3 16.8 15.8 15.4 24.8 22.6 21.5 2.9 3.3 3.5 100.2 100.2 94.7 425 (18.1) 2.0 GAIL (India) 415 BUY 526,356 11,495 1,268 28.2 34.3 36.0 13.8 21.8 4.9 14.7 12.1 11.5 9.3 8.9 7.9 2.5 2.2 1.9 1.8 2.2 2.4 17.5 18.4 16.5 560 35.0 9.5 GSPL 103 REDUCE 58,059 1,268 563 9.0 8.5 8.4 23.1 (6.1) (0.1) 11.5 12.2 12.2 7.3 7.1 6.9 2.6 2.1 1.9 1.0 1.6 2.5 25.5 19.1 16.4 92 (10.9) 5.3 Hindustan Petroleum 380 ADD 128,790 2,813 339 45.7 26.3 39.3 (11.4) (42.4) 49.5 8.3 14.4 9.7 3.3 4.0 3.2 0.8 0.8 0.7 3.7 2.1 3.2 10.1 5.3 7.4 460 21.1 8.5 Indian Oil Corporation 319 ADD 774,516 16,915 2,428 31.8 33.1 35.7 (35.4) 4.4 7.6 10.0 9.6 8.9 8.0 7.0 5.9 1.3 1.2 1.1 3.0 3.2 3.4 12.9 12.5 12.4 420 31.7 4.7 Oil India 1,299 BUY 312,441 6,823 240 120.0 171.7 190.1 4.2 43.1 10.7 10.8 7.6 6.8 5.4 3.0 2.4 1.8 1.6 1.4 2.9 4.2 4.6 16.2 20.1 19.4 1,750 34.7 1.8 Oil & Natural Gas Corporation 264 BUY 2,257,801 49,308 8,556 24.7 37.2 40.8 7.4 50.8 9.7 10.7 7.1 6.5 4.0 3.0 2.4 1.5 1.3 1.2 3.3 4.5 5.3 14.3 19.1 18.3 380 44.0 26.6 Petronet LNG 178 SELL 133,425 2,914 750 8.1 11.5 11.4 50.3 41.3 (0.7) 21.9 15.5 15.6 12.5 10.1 10.2 4.4 3.6 3.0 1.1 1.7 1.7 20.9 24.6 20.2 125 (29.7) 10.8 Reliance Industries 805 BUY 2,401,046 52,436 2,981 62.0 67.4 74.9 24.8 8.8 11.0 13.0 11.9 10.8 7.1 6.4 5.4 1.5 1.3 1.2 1.0 1.1 1.2 13.0 12.7 12.6 1,045 29.7 87.5 Energy Neutral 7,525,994 164,359 11.8 25.6 9.5 11.2 8.9 8.1 6.1 4.9 4.1 1.5 1.4 1.2 2.1 2.7 3.3 13.8 15.4 15.1 Industrials ABB 859 SELL 181,987 3,974 212 3.0 21.1 27.3 (82.2) 606.1 29.6 287.8 40.8 31.4 210.1 27.6 20.6 7.5 6.5 5.5 0.2 0.4 0.4 2.6 17.1 19.1 700 (18.5) 1.6 BGR Energy Systems 321 REDUCE 23,165 506 72 44.8 41.1 41.7 60.0 (8.3) 1.5 7.2 7.8 7.7 4.7 5.0 4.3 2.4 2.0 1.6 2.8 2.6 2.6 39.0 27.8 23.2 410 27.7 4.3 Bharat Electronics 1,592 ADD 127,352 2,781 80 102.9 120.8 133.9 7.0 17.4 10.8 15.5 13.2 11.9 9.3 6.8 5.8 2.5 2.2 1.9 1.6 1.6 1.6 17.2 17.7 17.2 1,850 16.2 1.5 Bharat Heavy Electricals 1,738 REDUCE 850,810 18,581 490 122.8 134.8 145.4 39.7 9.8 7.9 14.2 12.9 12.0 9.3 8.5 7.5 4.2 3.4 2.8 1.5 1.7 1.8 33.3 29.2 25.6 2,000 15.1 32.5 Crompton Greaves 150 BUY 96,385 2,105 642 14.3 10.6 13.5 11.5 (25.8) 26.7 10.5 14.1 11.2 6.8 7.8 5.9 2.9 2.5 2.1 1.6 1.1 1.2 31.7 19.1 20.5 210 39.8 17.7 Larsen & Toubro 1,609 REDUCE 979,822 21,398 609 67.7 79.6 98.2 18.1 17.5 23.4 23.8 20.2 16.4 16.5 12.5 10.7 3.7 3.1 2.6 0.9 0.9 0.9 17.0 16.6 17.2 1,800 11.8 59.4 Maharashtra Seamless 365 BUY 25,761 563 71 46.1 41.6 46.7 19.3 (9.7) 12.3 7.9 8.8 7.8 4.2 4.3 3.5 1.0 0.9 0.9 2.3 2.3 2.6 13.3 11.1 11.5 460 25.9 0.1 Siemens 870 SELL 293,380 6,407 337 22.4 28.9 32.5 39.5 28.8 12.3 38.8 30.1 26.8 22.9 19.3 16.8 9.0 7.4 6.1 0.6 0.7 0.7 25.2 26.9 24.8 830 (4.6) 3.3 Suzlon Energy 38 REDUCE 66,243 1,447 1,746 (5.4) 0.7 2.6 (14.7) (112.5) 290.1 (7.1) 56.6 14.5 25.8 8.3 6.8 1.0 1.0 0.9 0.5 0.5 0.5 (14.0) 1.7 6.6 40 5.4 20.5 Tecpro Systems 248 ADD 12,525 274 50 27.0 29.4 32.7 24.2 8.9 11.4 9.2 8.4 7.6 5.7 5.8 5.1 1.9 1.6 1.4 — — — 26.8 20.5 19.6 300 20.9 0.3 Thermax 489 REDUCE 58,217 1,271 119 31.6 33.0 35.1 44.3 4.4 6.3 15.4 14.8 13.9 10.3 9.3 8.6 4.4 3.7 3.1 1.8 2.0 2.1 31.5 27.2 24.3 550 12.6 1.8 Voltas 121 BUY 39,987 873 331 9.8 9.7 10.5 (14.3) (1.1) 8.8 12.4 12.5 11.5 7.5 7.2 6.0 2.9 2.5 2.1 1.7 2.5 (0.0) 26.1 21.6 19.9 150 24.1 3.8 Industrials Cautious 2,755,635 60,180 26.2 21.5 16.4 20.8 17.1 14.7 13.3 10.7 9.2 3.7 3.1 2.7 1.1 1.2 1.2 17.8 18.2 18.1 Infrastructure Container Corporation 944 ADD 122,675 2,679 130 63.5 70.0 77.9 4.9 10.3 11.2 14.9 13.5 12.1 9.7 8.5 7.4 2.4 2.1 1.9 1.6 1.7 1.9 17.6 16.9 16.6 1,150 21.8 0.7 GMR Infrastructure 27 RS 99,570 2,174 3,667 (0.0) (0.4) 0.5 (102.0) 3,980.8 (243.5) (3,132.3) (76.8) 53.5 12.7 10.9 8.8 0.9 0.9 0.9 — — — (0.0) (2.0) 2.8 — — 2.4 Gujarat Pipavav Port 67 ADD 28,463 622 424 (1.2) 1.2 2.6 (65.8) (201.6) 115.2 (55.9) 55.0 25.6 28.7 16.9 11.4 3.9 3.6 3.2 — — — (9.1) 9.4 13.6 78 16.1 0.6 GVK Power & Infrastructure 17 RS 26,768 585 1,579 1.0 1.0 0.3 (0.6) 1.6 (73.4) 17.3 17.0 63.9 18.0 16.6 19.6 0.8 0.8 0.8 — 1.8 2.1 4.7 4.6 1.2 — — 3.5 IRB Infrastructure 151 ADD 50,270 1,098 332 13.1 11.7 13.4 12.9 (10.4) 14.0 11.6 12.9 11.3 7.5 7.2 6.3 1.8 1.4 1.2 — — — 17.6 12.4 11.5 220 45.5 6.6 Mundra Port and SEZ 158 BUY 317,748 6,939 2,017 4.6 6.8 10.5 36.3 50.3 53.2 34.6 23.0 15.0 27.8 18.7 13.3 7.3 5.8 4.5 — — — 23.2 28.0 33.5 175 11.1 5.7 Infrastructure Cautious 645,494 14,097 11.2 21.1 41.7 28.3 23.4 16.5 15.3 12.5 10.2 2.4 2.2 2.0 0.3 0.4 0.4 8.4 9.3 11.8

Source: Company, Bloomberg, Kotak Institutional Equities estimates 26

27 27 India India DailySummary - September 5,2011 Kotak Institutional Equities: Valuation summary of key Indian companies

O/S Target 2-Sep-11 Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X)Dividend yield (%) RoE (%) price Upside ADVT-3mo Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E (Rs) (%) (US$ mn) Media DB Corp 235 BUY 42,988 939 183 14.1 14.2 17.1 32.7 0.6 20.3 16.6 16.5 13.7 10.8 9.7 8.1 5.2 4.5 4.1 1.7 2.6 4.3 35.0 29.1 31.0 350 49.2 0.8 DishTV 81 ADD 86,189 1,882 1,062 (1.8) 0.0 1.3 (27.5) (101.9) 3,944.0 (45.3) 2,450.0 60.6 40.0 18.4 12.4 41.0 40.3 24.2 — — — (62.3) 1.7 49.9 100 23.2 8.7 Eros International 217 BUY 21,041 460 97 11.8 15.8 19.9 19.0 34.0 25.9 18.4 13.7 10.9 12.8 9.7 7.0 3.1 2.5 2.0 — — — 24.9 20.2 20.5 250 15.2 2.1 Hindustan Media Ventures 149 BUY 10,963 239 73 7.3 9.0 12.1 198.7 22.8 35.0 20.4 16.6 12.3 10.0 8.7 6.3 2.7 2.3 2.0 — — 2.0 22.3 15.1 17.7 220 47.3 0.2 HT Media 150 ADD 35,180 768 235 7.7 8.9 11.0 26.3 15.3 23.6 19.4 16.8 13.6 9.2 7.8 6.0 2.5 2.3 2.2 1.3 2.7 4.0 15.0 14.4 16.6 190 26.9 0.5 Jagran Prakashan 109 BUY 34,334 750 316 6.8 7.0 8.4 17.2 1.7 20.5 15.9 15.6 12.9 9.5 8.9 7.3 4.9 4.5 4.0 3.1 3.7 4.6 31.5 30.0 32.7 160 47.4 0.5 Sun TV Network 304 ADD 119,603 2,612 394 19.6 21.6 25.4 48.6 10.0 17.9 15.5 14.1 11.9 9.2 8.2 7.0 4.9 4.4 4.0 2.9 4.0 5.3 36.6 34.7 36.6 440 45.0 27.5 Zee Entertainment Enterprises 118 BUY 115,594 2,524 978 5.8 6.2 7.7 10.0 6.4 23.3 20.2 19.0 15.4 13.5 12.4 9.8 2.7 2.6 2.5 1.1 1.1 1.3 14.2 14.3 16.9 160 35.4 6.6 Media Neutral 465,892 10,175 50.5 20.4 27.1 23.7 19.7 15.5 12.6 10.6 8.4 4.3 3.9 3.6 1.5 2.0 2.8 18.1 20.0 23.1 Metals & Mining Coal India 388 BUY 2,451,697 53,542 6,316 17.3 25.5 29.4 13.6 47.6 15.1 22.4 15.2 13.2 13.5 9.6 8.1 7.0 5.4 4.3 1.3 2.0 2.3 35.1 40.3 36.4 470 21.1 33.7 Hindalco Industries 155 ADD 296,139 6,467 1,915 12.8 18.3 17.6 (36.0) 43.3 (4.0) 12.1 8.4 8.8 6.4 6.1 6.5 1.0 0.9 0.8 1.0 1.0 1.0 9.7 11.4 10.0 175 13.2 28.8 Hindustan Zinc 132 BUY 559,179 12,212 4,225 11.6 13.1 14.7 21.8 12.7 11.8 11.4 10.1 9.0 7.5 5.7 4.3 2.5 2.0 1.7 0.8 0.8 0.8 24.3 22.2 20.4 160 20.9 3.0 Jindal Steel and Power 526 REDUCE 491,395 10,731 934 40.2 45.2 55.2 5.1 12.4 22.2 13.1 11.6 9.5 9.8 9.2 7.8 3.5 2.7 2.1 0.3 0.3 0.3 30.8 26.3 25.0 650 23.6 18.2 JSW Steel 723 REDUCE 163,387 3,568 226 78.6 70.2 107.5 (2.2) (10.7) 53.1 9.2 10.3 6.7 6.1 6.0 5.1 1.0 0.9 0.8 1.7 1.7 1.7 13.6 9.3 12.9 660 (8.7) 32.2 National Aluminium Co. 65 SELL 168,423 3,678 2,577 4.1 5.0 4.8 36.3 20.5 (4.1) 15.8 13.1 13.6 7.4 5.8 5.6 1.5 1.4 1.3 2.3 2.3 2.3 9.9 11.1 10.0 65 (0.5) 0.5 Sesa Goa 232 REDUCE 207,973 4,542 895 47.0 40.1 41.6 59.8 (14.6) 3.7 5.0 5.8 5.6 4.1 4.3 3.5 1.6 1.3 1.0 1.7 1.7 1.8 36.8 22.1 17.9 230 (1.1) 15.9 Sterlite Industries 134 BUY 450,737 9,844 3,361 15.2 17.0 19.0 26.2 12.0 11.5 8.8 7.9 7.1 5.5 4.2 3.5 1.1 1.0 0.9 0.8 0.8 0.8 13.0 13.0 12.8 185 38.0 17.2 Tata Steel 490 BUY 476,088 10,397 971 75.3 68.7 76.9 (2,258.1) (8.8) 12.0 6.5 7.1 6.4 6.0 6.3 5.3 1.3 1.1 0.9 2.4 1.6 1.6 24.7 15.5 15.7 625 27.5 49.6 Metals & Mining Attractive 5,265,017 114,982 39.1 16.5 13.0 12.7 10.9 9.7 7.9 6.9 5.9 2.4 2.0 1.7 1.3 1.5 1.6 19.0 18.6 17.9 Pharmaceutical Apollo Hospitals 524 BUY 72,788 1,590 139 13.2 17.8 21.4 21.0 34.5 19.9 39.6 29.4 24.5 18.0 13.7 11.3 3.8 2.9 2.5 — — — 9.8 10.7 10.5 565 7.8 1.1 Biocon 335 BUY 67,070 1,465 200 18.4 19.4 21.4 23.9 5.6 10.3 18.2 17.3 15.7 10.5 10.0 9.0 3.2 2.9 2.6 — — — 19.4 17.9 17.4 445 32.7 3.5 Cipla 280 REDUCE 224,657 4,906 803 12.3 14.5 16.5 (10.0) 17.5 13.7 22.7 19.3 17.0 19.6 14.0 11.5 3.4 3.0 2.6 1.0 1.1 1.3 15.4 16.0 — 325 16.2 8.8 Cadila Healthcare 829 ADD 169,829 3,709 205 34.7 39.6 48.4 40.6 14.0 22.3 23.9 20.9 17.1 20.6 17.1 13.1 7.8 6.1 4.8 0.8 1.0 1.2 37.5 32.7 31.3 1,065 28.4 2.7 Dishman Pharma & chemicals 67 SELL 5,462 119 81 9.8 8.0 9.4 (31.8) (18.7) 17.2 6.8 8.4 7.2 8.5 6.4 5.7 0.6 0.6 0.5 — — — 9.6 7.2 7.9 95 41.5 0.3 Divi's Laboratories 731 BUY 96,993 2,118 133 32.4 36.7 45.0 25.7 13.5 22.4 22.6 19.9 16.3 18.6 14.3 11.7 5.4 4.6 3.9 — — — 25.9 25.0 26.2 880 20.4 3.3 GlaxoSmithkline Pharmaceuticals (a) 2,131 REDUCE 180,468 3,941 85 68.3 78.2 88.6 15.5 14.6 13.3 31.2 27.2 24.0 20.8 18.4 15.8 9.2 8.5 7.8 1.9 2.3 2.7 30.9 32.6 33.9 2,220 4.2 1.5 Glenmark Pharmaceuticals 323 ADD 87,466 1,910 270 17.0 26.2 23.5 33.6 54.5 (10.3) 19.1 12.3 13.8 21.1 14.1 12.1 4.3 3.2 2.7 — — — 20.6 29.8 21.2 395 22.1 4.8 Jubilant Life Sciences 195 REDUCE 31,000 677 159 14.4 16.5 22.7 (45.6) 14.5 37.6 13.5 11.8 8.6 10.9 8.7 7.4 1.4 1.3 1.1 1.0 1.0 1.5 12.3 11.7 14.2 225 15.6 1.1 Lupin 468 ADD 209,664 4,579 448 19.2 20.1 24.6 25.6 4.4 22.5 24.3 23.3 19.0 20.4 18.0 13.8 6.3 5.2 4.2 0.6 0.7 1.0 29.5 24.7 24.9 500 6.9 10.0 Ranbaxy Laboratories 480 SELL 202,882 4,431 423 40.6 16.9 20.8 475.0 (58.3) 22.7 11.8 28.3 23.1 14.5 24.5 19.1 3.6 3.1 2.8 — — — 34.5 11.9 12.8 435 (9.3) 7.6 Sun Pharmaceuticals 506 ADD 523,962 11,443 1,036 17.5 20.4 24.4 34.4 16.3 19.6 28.9 24.8 20.7 24.6 19.9 15.9 5.1 4.3 3.6 0.7 0.8 1.0 21.0 20.4 20.7 560 10.7 10.4 Pharmaceuticals Cautious 2,204,606 48,146 26.0 7.1 2.8 23.7 22.2 21.6 18.0 14.9 14.2 3.7 3.2 3.0 0.7 0.8 0.8 15.5 14.3 13.9 Property DLF 208 ADD 356,374 7,783 1,715 9.1 11.9 15.7 (14.5) 31.3 31.8 22.9 17.4 13.2 15.5 12.3 9.3 1.4 1.3 1.2 1.0 1.2 1.4 5.4 7.5 9.2 270 29.9 37.2 Housing Development & Infrastructure 106 ADD 47,037 1,027 445 19.8 28.7 34.3 24.0 44.8 19.7 5.3 3.7 3.1 5.3 3.7 3.2 0.5 0.4 0.4 — 0.9 1.4 10.0 12.3 12.7 150 41.9 20.9 Indiabulls Real Estate 81 RS 32,622 712 402 4.0 8.5 15.4 (1,095.5) 114.1 81.5 20.4 9.5 5.3 14.1 11.4 5.0 0.3 0.3 0.3 — 0.6 0.9 1.4 2.9 5.0 — — 8.7 Mahindra Life Space Developer 322 ADD 13,159 287 41 24.9 30.8 37.5 30.2 23.7 21.6 12.9 10.5 8.6 9.9 7.1 5.3 1.3 1.2 1.0 1.6 1.4 1.6 10.4 11.6 12.7 450 39.6 0.4 Oberoi Realty 225 BUY 74,161 1,620 330 15.7 20.0 28.0 14.8 27.6 39.7 14.3 11.2 8.0 10.4 7.2 4.5 2.2 1.9 1.6 0.4 0.7 1.1 19.9 18.2 21.3 315 40.0 0.3 Phoenix Mills 222 BUY 32,112 701 145 6.3 7.4 10.7 53.0 17.2 44.1 35.0 29.9 20.8 25.9 21.6 16.2 2.0 1.9 1.8 0.8 0.9 0.9 5.8 6.6 8.9 300 35.3 0.3 Puravankara Projects 68 REDUCE 14,609 319 213 5.5 9.0 10.9 (18.9) 62.8 21.5 12.4 7.6 6.3 17.4 9.5 8.0 1.0 0.9 0.8 1.5 2.2 2.9 8.0 12.0 13.1 80 16.9 0.1 Sobha Developers 225 BUY 22,055 482 98 18.8 20.6 27.2 33.8 9.2 32.2 11.9 10.9 8.3 10.8 9.7 6.9 1.2 1.1 1.0 1.3 1.6 1.8 10.2 10.3 12.4 370 64.5 0.9 Unitech 27 RS 70,248 1,534 2,616 2.3 2.6 2.7 (23.4) 12.8 4.9 11.6 10.3 9.8 13.4 10.9 8.9 0.6 0.6 0.5 — 0.7 1.1 5.4 5.7 5.4 — — 17.8 Property Cautious 692,903 15,132 5.3 44.3 29.6 16.2 11.2 8.7 13.0 9.3 7.0 1.0 0.9 0.8 0.8 1.1 1.4 6.1 8.1 9.5

Source: Company, Bloomberg, Kotak Institutional Equities estimates KOTAK INSTITUTIONAL EQUITIES RESEARCH

KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of key Indian companies India Daily Summary - September 5, 2011 Daily 5, India Summary- September

InfosysDaily India Summary -September Technologies 2,319 BUY 1,331,221 29,072 574 119.7 134.3 160.3 10.5 12.1 19.4 19.4 17.3 14.5 12.9 11.4 9.3 5.1 4.3 3.6 2.6 1.8 2.1 28.0 27.1 27.2 2,900 25.0 76.9 Mahindra Satyam 66 REDUCE 77,381 1,690 1,176 4.2 6.7 7.0 68.9 58.4 4.7 15.7 9.9 9.4 11.0 5.6 4.3 4.5 3.1 2.3 — — — 27.6 37.1 28.2 70 6.4 12.4 Mindtree 345 ADD 14,195 310 41 24.7 35.2 37.2 (52.7) 42.4 5.8 14.0 9.8 9.3 7.8 6.0 4.8 1.8 1.6 1.4 0.7 1.0 3.2 14.4 17.2 16.1 375 8.7 2.3 Mphasis BFL 359 SELL 75,670 1,653 211 51.8 38.6 30.0 18.8 (25.5) (22.2) 6.9 9.3 12.0 5.9 7.0 7.6 2.3 1.9 1.7 1.1 1.3 1.4 38.6 22.3 14.8 300 (16.5) 3.8 Patni Computer Systems 289 ADD 38,448 840 133 42.6 25.9 27.2 16.5 (39.3) 5.2 6.8 11.2 10.6 3.6 3.9 2.7 1.2 1.1 1.0 22.9 1.8 1.9 18.4 8.2 10.2 300 3.9 1.7 Polaris Software Lab 124 SELL 12,398 271 100 19.3 18.8 19.0 25.7 (2.6) 0.7 6.4 6.6 6.6 3.4 2.6 2.2 1.2 1.0 0.9 3.0 3.1 3.3 20.2 16.8 14.8 130 4.5 2.2 TCS 1,022 BUY 2,000,454 43,688 1,957 44.5 52.8 61.1 26.8 18.6 15.6 23.0 19.4 16.7 17.3 14.2 11.8 7.9 6.5 5.4 1.7 2.1 2.4 37.8 36.9 35.2 1,160 13.5 45.7 Tech Mahindra 635 REDUCE 80,054 1,748 126 48.8 72.1 75.5 (25.2) 47.8 4.7 13.0 8.8 8.4 8.9 9.0 7.9 2.4 2.1 1.8 0.6 0.6 1.6 20.5 26.0 23.8 600 (5.6) 3.6 Wipro 334 ADD 820,495 17,919 2,454 21.6 22.4 24.5 14.5 3.9 9.1 15.5 14.9 13.7 11.3 10.1 8.8 3.4 2.9 2.5 1.3 1.4 1.6 24.3 21.1 19.7 370 10.7 11.4 Technology Attractive 4,752,097 103,780 17.1 13.1 13.0 18.5 16.3 14.5 13.2 11.3 9.6 4.9 4.1 3.4 2.0 1.8 2.1 26.2 24.9 23.8 Telecom Bharti Airtel 409 ADD 1,551,699 33,887 3,798 15.9 18.2 28.0 (32.6) 14.5 53.7 25.7 22.4 14.6 10.8 8.4 6.4 3.2 2.8 2.3 — — — 13.3 13.3 17.4 460 12.6 50.5 IDEA 100 ADD 331,156 7,232 3,303 2.7 2.7 5.1 (0.5) (1.4) 89.2 36.8 37.4 19.7 11.6 8.8 6.7 2.7 2.5 2.2 — — — 7.6 7.0 12.0 115 14.7 18.9 MTNL 36 SELL 22,586 493 630 (10.4) (9.1) (8.4) (33.7) (11.9) (8.1) (3.5) (3.9) (4.3) 0.5 0.7 0.9 0.2 0.2 0.2 — — — (6.1) (5.7) (5.5) 35 (2.4) 0.8 Reliance Communications 85 SELL 180,624 3,945 2,133 6.3 2.6 5.2 (71.1) (59.4) 103.2 13.4 33.1 16.3 6.2 6.7 5.7 0.4 0.4 0.4 — — — 3.2 1.3 2.7 80 (5.5) 18.6 Tata Communications 204 REDUCE 58,040 1,268 285 15.2 15.7 15.9 8.2 3.5 1.5 13.4 13.0 12.8 6.2 5.9 5.6 0.8 0.8 0.8 3.7 4.2 4.4 5.5 5.5 5.4 205 0.7 1.6 Telecom Cautious 2,144,105 46,825 (42.4) 2.1 62.3 26.6 26.1 16.1 9.8 8.2 6.3 1.8 1.7 1.5 0.1 0.1 0.1 6.8 6.5 9.5 Utilities Adani Power 89 REDUCE 212,755 4,646 2,393 2.4 11.0 15.0 200.7 368.5 35.8 37.7 8.1 5.9 36.9 7.7 5.0 3.4 2.2 1.6 — — — 8.5 33.5 31.8 100 12.5 3.8 CESC 298 BUY 37,181 812 125 37.7 42.5 51.3 9.1 12.7 20.8 7.9 7.0 5.8 5.6 6.0 5.7 0.8 0.7 0.6 1.6 1.8 2.0 10.5 10.7 11.5 440 47.8 2.2 JSW Energy 54 REDUCE 89,052 1,945 1,640 5.1 4.8 4.7 12.9 (6.2) (1.8) 10.6 11.3 11.5 11.7 7.8 6.1 1.6 1.4 1.2 (1.8) — — 16.1 13.0 11.3 60 10.5 1.7 Lanco Infratech 17 BUY 37,235 813 2,223 2.0 3.0 3.4 (5.8) 47.2 16.6 8.3 5.7 4.9 8.5 7.9 7.4 0.9 0.8 0.7 — — — 12.2 15.0 14.6 45 168.7 9.3 NHPC 24 BUY 295,218 6,447 12,301 1.3 1.8 2.1 (27.2) 36.0 16.3 17.8 13.1 11.2 13.1 9.9 8.0 1.1 1.0 1.0 1.7 2.0 2.4 6.3 8.0 8.8 30 25.0 2.4 NTPC 166 REDUCE 1,372,045 29,964 8,245 11.0 11.9 12.7 5.3 7.4 6.8 15.1 14.0 13.1 12.5 11.6 10.8 2.0 1.8 1.7 2.3 2.1 2.3 13.7 13.5 13.3 200 20.2 10.1 Reliance Infrastructure 452 BUY 119,760 2,615 265 58.0 64.1 76.3 (6.5) 10.5 19.0 7.8 7.0 5.9 7.7 4.0 2.9 0.5 0.5 0.5 2.1 2.3 2.5 6.4 11.2 12.2 920 103.7 16.6 Reliance Power 84 SELL 236,889 5,173 2,805 2.7 2.9 2.9 (5.0) 7.6 (0.5) 31.2 29.0 29.1 165.5 70.7 14.8 1.5 1.4 1.3 — — — 4.9 4.9 4.7 88 4.2 6.0 Tata Power 1,020 BUY 251,820 5,499 247 76.5 75.9 87.6 21.5 (0.7) 15.4 13.3 13.4 11.6 10.6 8.8 8.2 1.7 1.6 1.4 1.4 1.5 1.7 13.8 12.3 12.9 1,350 32.3 7.3 Utilities Cautious 2,651,956 57,916 5.1 22.1 13.3 15.4 12.6 11.1 14.0 10.3 8.5 1.5 1.4 1.3 1.6 1.6 1.7 10.1 11.2 11.5 Others Carborundum Universal 299 BUY 27,910 610 93 18.3 18.9 21.0 67.7 3.7 10.6 16.3 15.8 14.2 11.8 10.0 8.8 3.3 2.8 2.4 1.3 1.3 1.5 20.7 18.4 17.8 290 (2.9) 0.2 Havells India 334 REDUCE 41,675 910 125 24.5 25.8 28.8 334.1 5.1 11.5 13.6 12.9 11.6 9.2 8.5 7.3 5.9 4.2 3.1 0.7 0.8 0.9 53.9 37.6 30.9 370 10.8 4.3 Jaiprakash Associates 62 BUY 131,946 2,882 2,126 6.0 6.3 7.2 230.2 3.9 15.6 10.3 9.9 8.6 11.3 9.8 9.4 1.2 1.1 1.0 — — — 13.3 11.7 12.3 115 85.3 19.8 Jet Airways 282 BUY 24,319 531 86 (10.1) (43.4) 16.9 (91.0) 331 (139.0) (28.0) (6.5) 16.7 9.5 10.0 7.1 1.5 1.9 1.7 — — — (5.0) (11.7) 10.9 650 130.7 11.9 SpiceJet 24 BUY 9,773 213 403 2.2 2.1 4.3 (12.4) (4.3) 101.0 10.9 11.4 5.7 9.4 13.4 7.6 3.2 2.5 1.7 — — — (466) 24.8 36.2 65 168.0 3.2 Tata Chemicals 335 REDUCE 85,331 1,864 255 26.2 32.9 38.8 (0.7) 25.4 17.9 12.8 10.2 8.6 7.7 5.4 4.6 1.6 1.4 1.2 3.0 3.6 4.5 16.9 18.6 19.5 385 14.9 2.7 United Phosphorus 146 BUY 67,608 1,476 462 12.3 15.9 19.8 3.9 28.8 24.3 11.9 9.2 7.4 7.2 5.0 4.2 1.8 1.6 1.3 1.4 2.0 2.4 18.0 18.5 19.8 220 50.3 4.0 Others 388,562 8,486 232.5 10.1 38.5 13.7 12.5 9.0 9.9 8.4 7.5 1.7 1.5 1.3 1.1 1.3 1.6 12.0 12.0 14.5 KS universe (b) 44,728,571 976,820 18.1 18.3 16.3 15.2 12.9 11.1 9.9 8.2 7.0 2.3 2.1 1.8 1.6 1.7 2.0 15.4 16.0 16.3 KS universe (b) ex-Energy 37,202,577 812,461 20.1 16.1 18.5 16.4 14.1 11.9 11.6 9.7 8.2 2.6 2.3 2.0 1.5 1.5 1.7 15.9 16.2 16.7 KS universe (d) ex-Energy & ex-Commodities 30,961,456 676,162 18.6 15.8 19.7 17.3 14.9 12.5 12.9 10.8 9.0 2.7 2.4 2.1 1.5 1.6 1.8 15.5 15.8 16.6

Notes: (a) For banks we have used adjusted book values. (b) 2010 means calendar year 2009, similarly for 2011 and 2012 for these particular companies. (c) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector. (d) Rupee-US Dollar exchange rate (Rs/US$)= 45.79

Source: Company, Bloomberg, Kotak Institutional Equities estimates 28

Disclosures

Kotak Institutional Equities Research coverage universe Distribution of ratings/investment banking relationships Percentage of companies covered by Kotak Institutional Equities, 70% within the specified category.

60% Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment 50% banking services within the previous 12 months.

40% * The above categories are defined as follows: Buy = We expect 34.3% this stock to outperform the BSE Sensex by 10% over the next 12 30% 27.1% 27.1% 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 20% months; Sell = We expect this stock to underperform the BSE 11.4% Sensex by more then 10% over the next 12 months. These ratings 10% are used illustratively to comply with applicable regulations. As of 4.8% 3.6% 1.8% 30/06/2011 Kotak Institutional Equities Investment Research had 0.0% investment ratings on 166 equity securities. 0% BUY ADD REDUCE SELL

Source: Kotak Institutional Equities As of June 30, 2011

Ratings and other definitions/identifiers

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 Sensex by 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, Neutral, Cautious.

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 30

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