INDIA DAILY

October 3, 2011 India 30-Sep 1-day1-mo 3-mo Sensex 16,454 (1.5) (2.2) (12.3)

Nifty 4,943 (1.4) (1.9) (12.2)

Contents Global/Regional indices Daily Alerts Dow Jones 10,913 (2.2) (2.9) (13.3) Nasdaq Composite 2,415 (2.6) (2.6) (14.2)

Company FTSE 5,128 (1.3) (3.1) (14.4) Coal India: Mining Bill moves ahead Nikkie 8,541 (1.8) (4.6) (13.4) Hindalco Industries: Hindalco plant visit takeaways: Good execution Hang Seng 16,971 (3.5) (16.0) (24.2) KOSPI 1,770 0.0 (5.3) (16.8) Sun TV Network: A tale of two markets Value traded – India

Sector Cash (NSE+BSE) 137 137 137 Automobiles: Festive season off to a strong start: Derivatives (NSE) 939 1,088 1,816 Property: REIFBS 2011 conference key takeaways Deri. open interest 1,470 1,072 1,606

Technology: 2QFY12E preview - expect a robust quarter; demand commentary critical Economy Forex/money market Change, basis points Economy: 1QFY12 BoP: CAD widens back to 3% 30-Sep 1-day 1-mo 3-mo Rs/US$ 49.0 1 298 455 10yr govt bond, % 8.5 6 18 14 Net investment (US$mn) News Round-up 28-Sep MTD CYTD ` RIL (RIL IN) - BP plan to start drilling in the satellite fields of D1 and D3 in KG basin to FIIs 51 - (86) augment production may face a hurdle as the government is averse to giving MFs (32) - (282)

clearance for the same. (FNLE-Mon) Top movers -3mo basis ` Cairn India (CAIR IN) has struck natural gas reserves in the first well it drilled in the Change, % offshore Mannar basin of Sri Lanka. (BSTD-Mon) Best performers 30-Sep 1-day 1-mo 3-mo IDEA IN Equity 98.5 0.5 (1.7) 24.9 ` Coal India (COAL IN) might invest up to USD 8.16 bn in the 12th Plan period ending UTCEM IN Equity 1141.6 0.4 3.8 22.0 2017 towards development of mines for augmenting production. (BSTD-Mon) MM IN Equity 804.8 (1.1) 5.2 16.5 ` The foreign debt of telecom operators such as Bharti Airtel (BHARTI IN) and Reliance ACEM IN Equity 148.9 1.2 9.8 15.0 ACC IN Equity 1098.6 0.8 8.2 15.0 Communication (RCOM IN) might weigh even more as the rupee depreciates. (BSTD- Worst performers Mon) IVRC IN Equity 35.2 (3.8) (1.7) (50.6) ` In a clear victory to the management at Maruti Suzuki India Ltd (MSIL IN), the workers RCAPT IN Equity 315.2 (12.3) (22.7) (45.9) on protest at the Manesar facility accepted the terms put forwarded by the company CRG IN Equity 152.5 (0.0) 1.5 (42.4) HDIL IN Equity 98.0 (4.1) (7.3) (40.5) bringing an end to 33 days of labor unrest at the factory. (BSTD-Sun) EDSL IN Equity 238.4 1.5 21.0 (39.9) ` Maruti Suzuki (MSIL IN) to raise output of Swift by 40%, co. to shift entire production to Manesar factory as labor unrest ends. (ECNT) ` JSW Cement is set to commence production from its Nandyal plant in Andhra Pradesh from next month. (BSTD-Sun) ` The festival season seems to have brought some respite to car makers, with the country's 10 leading manufacturers together posting 0.93% decline, selling 203,678 units last month as compared to 205,591 units sold during the corresponding period last year. (BSTD-Sun) ` UTI Mutual Fund has successfully raised around USD 1bn through its India dedicated debt fund from overseas investors. (ECNT) ` NMDC Ltd (NMDC IN), which had recently struck a deal to buy 50% in Australia's Legacy Iron Ore, will acquire five more mines abroad. (BSTD-Sat)

Source: ECNT= Economic Times, BSTD = Business Standard, FNLE = Financial Express, THBL = Business Line.

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ADD Coal India (COAL)

Metals & Mining SEPTEMBER 30, 2011 UPDATE Coverage view: Cautious

Mining Bill moves ahead. The Union Cabinet has approved the Mines and Minerals Price (Rs): 333 (Development and Regulation) Bill (MMDR Bill), 2011 that aims to introduce a better Target price (Rs): 454 legislative environment for attracting investment and technology into the mining sector. BSE-30: 16,454 The contentious 26% profit sharing for coal mining leases remains, though we see the earnings impact curtailed to 10-12% of FY2013E earnings that could be further offset by a reduction extant social overhead and/or price increase (2-5%) to absorb the impact of profit sharing. We maintain ADD rating and target price of Rs454/share.

Company data and valuation summary Coal India Stock data Forecasts/Valuations 2011 2012E 2013E 52-week range (Rs) (high,low)422-245 EPS (Rs) 17.3 24.1 29.3 Market Cap. (Rs bn) 2,104.6 EPS growth (%) 13.6 39.1 21.9 Shareholding pattern (%) P/E (X) 19.3 13.8 11.4 Promoters 90.0 Sales (Rs bn) 550.9 661.9 716.3 FIIs 6.4 Net profits (Rs bn) 109.3 152.0 185.4 MFs 1.1 EBITDA (Rs bn) 153.1 200.9 222.9 Price performance (%) 1M 3M 12M EV/EBITDA (X) 10.8 7.7 6.4 Absolute (11.3) (15.2) 0.0 ROE (%) 35.1 38.2 36.7 Rel. to BSE-30 (10.1) (2.9) 0.0 Div. Yield (%) 1.2 2.2 2.6

Mining tax to be levied on previous year’s profits, likely to impact earnings by ~12%

The draft bill as approved by the Cabinet maintains the proposal of sharing 26% of mining profits of the preceding year to be contributed to the District Mineral Foundation. The levy of mining tax on the preceding year’s profits increases the likelihood of it being construed as a tax deductible expense, akin to royalty and cess. We note that the full EPS impact of a mining tax will reduce to just 13% for FY2013E EPS, assuming tax deductibility of the contribution (refer Exhibit 1 for impact analysis under different scenarios) even without considering a corresponding price increase to offset the impact such contributions.

Timelines – unlikely to be implemented before mid-FY2013E at best

The Bill has been approved by the Cabinet and is proposed to be tabled in the Parliament in the winter session. Post this, there would be comments from the standing committee. Findings and comments of the standing committee may or may not be accepted by the Government. In our view, the implementation of the bill is unlikely before mid-FY2013E. We also note that the implementation timelines of the bill could correspond with the end of the wage negotiation process which would allow CIL to absorb the entire impact with a single price hike.

Trimming of CSR expense and pricing power could offset potential impact

CIL incurred Rs22.3 bn (20% of PAT) under Social Overhead expenses in FY2011, which included a combination of employee as well as local community welfare expenses. Even if CIL does not have the liberty of doing away entirely with its CSR commitments —a 25% reduction in social overhead expenses (along with tax deductibility allowed) could reduce the impact of the mining tax to 10% of FY2013E EPS. Further, imposition of the mining tax strengthens the case for a judicious price increase in FY2013E. The mining bill, if passed in its current form (even if applicable by FY2013E), will strengthen CIL’s case to increase prices for the power sector, which has not seen a price increase since October 2009. A price increase of ~3.5% (assuming tax deductibility) will suffice to compensate the incidence of the mining tax.

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

Coal India Metals & Mining

Our current estimates build a modest 3% yoy increase in prices in FY2013E, primarily from a favorable sales mix and better realizations for market-driven coal realizations. The CIL management has already stated its intent of compensating any incidence of the mining bill through a price hike. This is aligned with CIL’s pricing policy of maintaining margins by taking price increases to offset any incremental cost incidence.

Full impact of mining tax still implies a 20% upside from CMP, reiterate ADD

We note that the worst case impact of a mining tax (with CIL being taxed the entire 26% of preceding year’s PAT and tax deductibility) would reduce our fair value estimate of CIL to Rs402/share (20% above the CMP). Further, as discussed above, the eventual impact could be further muted owing to mix of offsetting levers available. We maintain our ADD rating and target price of Rs454/share. Our target price is based on 13X FY2013E EPS adjusted for overburden removal and interest income and implies an EV/EBITDA of 9X on FY2013E EBITDA (adjusted for overburden removal). CIL currently trades at 8X FY2013E EPS (adjusted) and 6X FY2013E EBITDA (adjusted).

Key excerpts from the draft Mines and Mineral (Development and Regulation) Bill, 2011

We highlight below some key excerpts of the draft MMDR Bill relevant to profit sharing for coal miners.

` Profit sharing percentage at 26% of preceding year’s PAT – Chapter VIII, Clause 42.2 (b) states – “in case of coal and lignite, an amount equal to twenty-six per cent. of the profit to be called as profit sharing percentage (after deduction of tax paid) of the immediately preceding financial year from mining related operations in respect of the lease”.

` The clause further provides that – “in respect of coal minerals the Central Government may, after taking into consideration the report and recommendations of the National Mining Regulatory Authority, by notification, revise the profit sharing percentage, or specify such other method as may be prescribed for calculation of amount to be paid to the District Mineral Foundation”.

Exhibit 1: A price increase of 3.5% will suffice to compensate for the entire impact of the mining tax EPS and valuation impact under different scenarios

FY2013E EPS Impact Fair value Impact (Rs/share) (%) (Rs/share) (%) Case I - Current proposal of 26% tax on previous year mining profit [A] Worst case - 26% proft sharing without tax benefit 24.0 (18.1) 382 (15.9) [B] 26% proft sharing with tax benefit 25.5 (13.0) 402 (11.5) Case II - Reduction in CSR expense [C] 25% reduction in social overhead expenses 26.44 (9.9) 414 (8.8) [D] 50% reduction in social overhead expenses 27.34 (6.8) 426 (6.2) Case III - Price hikes without CSR reduction [E] 2.5% price hike in FY2013E 28.09 (4.3) 436 (4.0) [F] 3.7% price hike in FY2013E 29.32 (0.1) 453 (0.2)

Note: 1) Impact on EPS and fair value are calculated based on our current estimate of Rs29.35/share and Rs454/share 2) Case II and III assume that mining tax is a tax-deductible expense

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Metals & Mining Coal India

Exhibit 2: Our target price is based on 13X FY2013E adjusted-EPS Computation of CIL's target price

EBITDA (Rs bn) 213 OBR (Rs bn) 32 Adjusted EBITDA (Rs bn) 246 Interest income (Rs bn) 57 PAT (Rs bn) 185 Adjusted PAT (Rs bn) 168 EPS (Rs/share) 29 Adjusted EPS (Rs/share) 27 P/E on FY2013E adjusted PAT (X) 13.0 Value of coal business (Rs bn) 2,180 Cash (Rs bn) 689 Market Cap (Rs bn) 2,870 Target price 454

Notes. (1) Adjusted EBITDA is calculated after removing the effect OBR adjustment. (2) Adjusted PAT is calculating after removing the effect of OBR adjustment and interest income net of taxes.

Source: Kotak Institutional Equities, Kotak Institutional Equities estimates

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Coal India Metals & Mining

Exhibit 3: Profit model, balance sheet, cash model of CIL, March fiscal year ends, 2009-2015E (Rs mn)

2009 2010 2011 2012E 2013E 2014E 2015E Profit model Net sales 387,888 446,153 502,336 620,018 667,970 727,331 784,674 Coal issued for other purpose 20,220 20,690 23,826 30,326 33,336 36,116 38,977 Transport and loading recovery 14,698 12,260 12,182 12,825 13,420 14,054 14,619 Total income 424,142 485,774 550,877 661,866 716,328 779,175 839,239 EBITDA 39,309 114,735 146,973 191,152 213,158 244,144 271,197 Interest income 28,447 26,940 29,660 32,074 57,113 75,192 97,064 Other Income (ex transport, interest) 8,051 13,209 6,121 9,775 9,775 9,775 9,775 Interest expense (1,789) (1,560) (791) (846) (734) (677) (660) Depreciation (16,909) (13,138) (16,729) (18,402) (20,333) (21,838) (23,043) Pretax profits 57,110 140,186 165,234 213,753 258,978 306,596 354,333 Tax (36,336) (43,996) (55,959) (61,732) (73,594) (89,218) (106,086) Net income 20,774 96,190 109,275 152,021 185,384 217,378 248,247 Extraordinary items 13 35 (602) — — — — Reported profit 20,787 96,224 108,674 152,021 185,384 217,378 248,247 Earnings per share (Rs) 3 15 17 24 29 34 39 Balance sheet Paid-up common stock 63,164 63,164 63,164 63,164 63,164 63,164 63,164 Total shareholders' equity 191,651 257,952 333,172 425,905 538,989 671,590 823,020 Minority interest 19 236 326 326 326 326 326 Total borrowings 21,485 20,869 15,536 13,536 11,615 11,007 10,607 Shifting and rehab fund 12,238 14,774 16,214 19,967 24,604 30,259 36,889 Total liabilities and equity 225,393 293,831 365,247 459,734 575,534 713,181 870,842 Net fixed assets 110,212 120,354 128,429 155,809 172,899 179,988 176,020 Capital work-in progress 19,195 22,107 22,181 26,716 27,592 24,073 20,546 Investments 15,052 12,823 10,637 10,637 10,637 10,637 10,637 Cash 296,950 390,778 458,623 558,241 689,306 860,316 1,065,529 Current assets (excl. cash) 174,009 152,466 185,337 219,099 234,819 254,192 272,430 Current liabilities and provisions 399,293 414,316 448,725 519,807 569,249 625,512 684,132 Deferred tax asset 9,268 9,604 8,732 9,038 9,529 9,486 9,812 Misc. expenditure — 15 34 — — — — Total assets 225,393 293,831 365,248 459,734 575,534 713,181 870,842 Free cash flow Operating cash flow, excl. working capital 39,616 106,073 125,299 170,117 205,227 239,259 270,964 Working capital changes 77,708 22,856 1,538 37,320 33,722 36,890 40,382 Capital expenditure (18,758) (19,804) (17,832) (50,317) (38,299) (25,408) (15,547) Free cash flow 98,567 109,125 109,005 157,120 200,649 250,741 295,799 Ratios Net debt/equity (%) (143.7) (143.4) (133.0) (127.9) (125.7) (126.5) (128.2) Return on equity (%) 11 43 37 40 38 36 33 Book value per share (Rs) 30 41 53 67 85 106 130 ROCE (%) 11 43 36 40 39 36 34

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

ADD Hindalco Industries (HNDL)

Metals & Mining OCTOBER 03, 2011 UPDATE Coverage view: Cautious

Hindalco plant visit takeaways: Good execution. Key takeaways from a well Price (Rs): 131 organized plant visit are (1) Hindalco is focused on optimizing product mix and Target price (Rs): 175 productivity improvement (10K tonnes increase in production in FY2012E likely) and BSE-30: 16,454 driving cost control at Renukoot operations and (2) Mahan greenfield smelter accompanied by CPP while impressive on technology and scale faces risks of moderate delays in commissioning and lacks visibility on coal sourcing. We maintain our ADD rating on inexpensive valuations. Our fair value of Rs175 will reduce to Rs145 at spot aluminium price (vs US$2,450/ tonne in our model )

Company data and valuation summary Hindalco Industries Stock data Forecasts/Valuations 2011 2012E 2013E 52-week range (Rs) (high,low)253-125 EPS (Rs) 12.8 18.3 17.6 Market Cap. (Rs bn) 251.7 EPS growth (%) (36.0) 43.3 (4.0) Shareholding pattern (%) P/E (X) 10.3 7.2 7.5 Promoters 32.1 Sales (Rs bn) 720.8 827.3 876.2 FIIs 40.1 Net profits (Rs bn) 24.5 35.1 33.7 MFs 2.3 EBITDA (Rs bn) 80.0 93.0 95.6 Price performance (%) 1M 3M 12M EV/EBITDA (X) 5.8 5.7 6.0 Absolute (15.0) (29.7) (35.7) ROE (%) 9.7 11.4 10.0 Rel. to BSE-30 (13.1) (19.8) (20.1) Div. Yield (%) 1.1 1.1 1.1

Productivity improvement and cost optimization the focus of Renukoot operations Hindalco operates 345ktpa smelter, 700 ktpa alumina refinery and 742MW CPP at Renukoot’s integrated facility. Hindalco highlighted (1) increase in production of Renukoot smelter by 10K to 420K for FY2012E; (2) increase in production of value-added products; and (3) cost reduction initiatives such as reduction in AUX consumption to 9% from 9.6% in power plant, reduction in station heat rate to 2,600 from 2,660 as some of the ongoing initiatives. Some of these initiatives will improve realizations and protect contribution despite increasing coal costs. Hindalco has also adopted an optimum bauxite sourcing strategy by ensuring a balance between extraction from own mines and third party purchase (70:30 mix currently). Hindalco indicates that cost of purchased bauxite is lower with Madhya Pradesh as the primary source of third party bauxite. The purchase cost of bauxite may increase in future with Sterlite attempting to source bauxite from the market though Hindalco indicates that it is protected by long-term contracts with miners. Mahan Smelter—impressive but runs risk delay with no clarity on raw material sourcing

Hindalco has used AP30 smelting technology for Mahan aluminium smelter with pots current of 360kA and high current efficiency of 94.5%. Hindalco is setting up 2 pot rooms with 180 pots in each line. Benefits of new smelter are high productivity, automation and low conversion costs. Hindalco intends to start 40 pots by FY2012E, 180 by July 2012 and 360 by Jan 2013. Aluminium production target is 5K, 204K and 350K for FY2012E, FY2013E and FY2014E, respectively. Hindalco expects the first unit of 6X150 MW CPP to start generation by December 2011 with the commissioning of subsequent units at one month intervals. While Hindalco has made good progress, on the ground visit indicates that some of the targets may be aggressive.

However clarity on raw material sourcing mix is still limited. The company has pinned hopes on tapering coal linkage for CPP, but the fall back option is either e-auctions or imports. Import may not be feasible with the closest port Dhamra 900 kms away from smelter. Sourcing of alumina will also be a challenge (current surplus of 150K) if Utkal’s commissioning is delayed. We estimate COP of US$2100/ tonne on a steady state if Utkal does not come onstream and coal sourcing in 100% on e-auction basis; the company may be barely EBITDA positive in such a case.

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Hindalco Industries Metals & Mining

Further details on Mahan Aluminium Smelter and Mahan CPP

Mahan Aluminium Smelter

` Hindalco expects to start one pot a day and start 40 pots by end-December 2011. This will increase to 180 pots by July 2012

` Hindalco is setting up two cast house facilities—1st cast house will have ingot/ Sow capacity of 360K tonnes. Hindalco expects 2nd cast house to be commissioned after 20 months and will have wire rod making capacity of 80 ktpa and billet casting of 50 ktpa

` Hindalco has already received 140 pot shells and expects the balance in due course

` Mahan smelter compares favorably on all parameters including current (360kA), current efficiency (94.5%) DC power consumption (13,300 units) and labor requirement

` Hindalco expects cost of production at Mahan to be ~US$1750-1800/ tonne on a steady state basis after assuming 60% coal for power plant from tapering linkage.

Mahan Captive Power Plant

` Hindalco is setting up 900 MW (6X150 MW) captive power plant that will feed Mahan Aluminium smelting operations

` Hindalco expects hydro testing of the 1st unit to start in October 2011 and synchronization and commissioning in December 2011. The company expects commissioning of all units of CPP by June 2012, a tad aggressive target, in our view

` Hindalco indicates that it has received BTG equipment for the first three units ` Hindalco has made substantial progress in balance of parts (BOP). Coal handling is almost ready. Ash handling plant may take ~2 months. The company expects cooling tower to be ready by November. Demineralization plant is also completed

` Hindalco has set up railway siding for transportation of coal, alumina and other raw materials. The nearest railhead is located at Bargawan at a distance of about 2 kms from the plant.

` AUX consumption for this plant will likely be 10% and station heat rate of 2,300

` Hindalco is pinning its hopes on coal block and tapering coal linkage for its CPP. In the initial phase the company may buy coal from e-auction; Hindalco indicates that NCL produces 60 mtpa of coal of which 6mtpa may be sold by CIL through e-auction route. Note that Hindalco’s coal requirement in FY2013E may be 2mn tonnes and 3.6 mn tonnes in FY2014E

` Hindalco has entered into a PPA with MPSEB at Rs2.52/ unit. Hindalco has excess power of 200 MW which it intends to sell. In has set up 125MVA evacuation line for selling excess power

Further details from Renukoot smelter and alumina and Renusagar power plant visit

` Hindalco has applied to MOEF to increase aluminium smelting capacity to 475 ktpa. Hindalco plans to increase FY2012E production from Renukoot smelter by 10K to 420K tonnes in FY2012E. Hindalco also intends to increase production of value added products. Hindalco has 2,139 pots and 11 lines operational in Renukoot

` Renukoot smelter is sourcing alumina from Belgaum smelter due to a shortfall at its alumina refinery

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Metals & Mining Hindalco Industries

` Hindalco has operative bauxite mines and tactically uses third party purchases. Hindalco has operative mines in Chattisgarh, Jharkhand, Maharashtra and Orissa. In addition the company purchases bauxite from miners in Madhya Pradhesh. Current mix of captive: external market purchase is 70:30. Hindalco believes that the cost of purchase of bauxite is not materially different from captive sourcing. Benefits of the captive mine are offset by high labor cost.

` Hindalco has applied for mining leases in Jharkhand, Chattisgarh and MP. Hindalco expects to increase bauxite mine reserve to 25-45 years from current 15 years of alumina production

` Cost of production of alumina (including depreciation and transfer pricing of power and caustic soda) is US$330/ tonne. Key cost components are bauxite accounting for 30% of overall cost, energy 30% and caustic soda cost of 17% with the balance being depreciation and O&M

` Silica content in bauxite sourced for Renukoot alumina refinery is at 3.7%. This leads to higher caustic soda consumption. A 0.01% change in silica leads to 2.7 liter change in caustic soda cost. As compared to Renukoot, bauxite quality in Orissa for Utkal Alumina is gibssite and has low silica content. This results in energy costs and savings in caustic soda consumption.

` Cost of power/ unit from Renusagar power plant (790 MW) is Rs2.2/ unit (including depreciation). Cash cost will be ~Rs2/ unit in our view. Renusagar power plant sources linkage coal from Krishanshila coal mine after Jhingurda mine was exhausted. Krishnashila mine is ~8kms from the Renusagar power plant. Hindalco is in the process of constructing a piped conveyor belt to transport coal to the power plant

` Current cost of production of aluminium at Renukoot is ~US$1850/ tonne

Maintain ADD rating; TP of Rs175

We like Hindalco’s core business for low volatility and cost- competitiveness. However investors may have to contend with two key negatives (1) likely delay in commissioning of greenfield projects and potential escalation in project costs and (2) high though manageable leverage. On the positive side, downside to aluminium prices is low and the stock builds in significant correction to commodity prices. Our fair value of Rs175will reduce to Rs146 at spot aluminium price versus US$2,400/ tonne assumed in our model.

Sensitivity on earnings and target price to change in aluminium prices

FY2012E FY2013E Base case Spot Base (-) 5% Base (-) 15% Base case Spot Base (-) 5% Base (-) 15% Aluminium (US$/ tonne) 2,400 2,186 2,280 2,040 2,400 2,186 2,280 2,040 EBITDA (Rs mn) 93,007 89,902 90,976 86,912 88,484 88,484 91,612 83,627 EV/EBITDA (X) - ex capital CWIP (at CMP) 3.7 3.7 4.1 4.4 4.3 4.5 4.8 5.4 EPS (Rs/ share) 18.3 17.0 17.5 15.8 14.6 14.6 15.9 12.6 P/E (X) 7.2 7.7 7.5 8.3 9.0 9.0 8.3 10.4 Target price 150 148 159 130

Note: 1. Spot prices are as on 29th Sep, 2011

Source: Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Hindalco Industries Metals & Mining

Hindalco Industries, key assumptions, March fiscal-year ends, FY2009-2014E (Rs mn)

2009 2010 2011 2012E 2013E 2014E Aluminium Hindalco Aluminium price (US$/tonne) 2,234 1,868 2,257 2,400 2,400 2,450 Metal sales volume (tonnes) 521,069 555,066 534,400 561,660 669,410 825,300 Blended realization (Rs/tonne) 127,384 110,516 128,533 139,296 138,463 139,394 Cost/tonne (US$/tonne) 1,983 1,710 2,106 2,468 2,476 2,387 EBITDA/tonne (US$/tonne) 937 722 846 775 667 799 Aluminium EBITDA (Rs mn) 22,428 19,045 20,622 19,477 20,359 29,660 Alumina price (US$/tonne) 278 300 330 372 396 404 Alumina sales volume (tonnes) 238,350 241,095 309,566 335,675 156,697 349,352 Alumina EBITDA (Rs mn) 3,237 3,198 4,130 2,876 1,612 3,620 Alumina EBITDA (US$/ tonne) 296 279 293 191 226 230 Novelis Average realization (US$/tonne) 3,458 3,039 3,415 3,680 3,705 3,788 Conversion premium (US$/tonne) 1,224 1,171 1,158 1,280 1,305 1,338 Shipments ('000 tonnes) 2,943 2,854 3,097 3,236 3,382 3,450 EBITDA/tonne (US$/tonne) 192 380 302 363 365 378 EBITDA (US$ mn) 566 1,085 935 1,174 1,233 1,306 EBITDA (Rs mn) 25,997 51,538 42,636 52,539 56,263 58,753 Copper Price (US$/tonne) 5,885 6,112 8,300 8,800 8,360 8,360 Copper cathode volumes (tonnes) 153,236 185,213 207,640 202,786 208,370 213,370 Copper rods volumes (tonnes) 146,323 146,164 142,167 145,742 150,114 150,114 EBITDA (Rs mn) 5,476 8,256 7,753 10,385 10,330 10,060

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Metals & Mining Hindalco Industries

Hindalco (standalone), Profit model, balance sheet and cash flow model, March fiscal year-ends, 2009-2014E (Rs mn)

2009 2010 2011 2012E 2013E 2014E Profit model (Rs mn) Net sales 182,197 195,363 238,592 270,920 281,207 308,350 EBITDA 30,359 29,499 31,854 31,968 31,493 42,492 Other income 6,367 2,599 3,168 3,759 3,847 4,182 Interest (3,369) (2,780) (2,200) (966) (3,205) (11,574) Depreciation (6,453) (6,672) (6,875) (7,362) (8,246) (11,099) Profit before tax 26,903 22,646 25,947 27,398 23,889 24,001 Extraordinaries 1,508 1,132 108 — — — Taxes (6,109) (4,621) (4,687) (6,027) (5,256) (6,000) Reported net income 22,303 19,156 21,369 21,370 18,634 18,000 Adjusted net income 20,794 18,025 21,261 21,370 18,634 18,000 Fully diluted EPS (Rs) 13.1 10.0 11.2 11.2 9.7 9.4

Balance sheet (Rs mn) Equity 237,583 279,110 297,001 315,346 330,955 345,931 Deferred tax liability 14,107 13,664 12,875 13,095 14,836 16,756 Total Borrowings 83,243 63,569 72,715 147,715 222,715 262,715 Current liabilities 26,721 60,134 76,979 80,442 79,661 79,803 Total liabilities 361,653 416,477 459,570 556,598 648,168 705,205 Net fixed assets 78,869 77,348 75,843 71,481 178,461 276,950 Capital work in progress 13,896 37,028 94,641 178,152 155,864 98,204 Goodwill — — — — — — Investments 191,489 214,808 182,468 182,468 182,468 182,468 Cash 8,437 1,402 2,334 2,439 5,275 13,627 Other current assets 68,962 85,891 104,284 122,058 126,100 133,956 Miscellaneous expenditure — — — — — — Total assets 361,653 416,477 459,569 556,598 648,168 705,205

Free cash flow (Rs mn) Operating cash flow excl. working capital 19,360 18,846 18,397 12,637 8,944 16,054 Working capital changes 3,777 (8,090) (1,913) (13,998) (4,823) (7,714) Capital expenditure (113,736) (34,353) (59,977) (73,954) (77,108) (41,145) Free cash flow (90,598) (23,596) (43,494) (75,315) (72,987) (32,805)

Ratios EBITDA margin (%) 16.7 15.1 13.4 11.8 11.2 13.8 EBIT margin (%) 13.1 11.7 10.5 9.1 8.3 10.2 Debt/equity (X) 0.4 0.2 0.2 0.5 0.7 0.8 Net debt/equity (X) 0.1 0.0 0.1 0.3 0.5 0.6 Net debt/EBITDA (X) 1.1 0.2 0.7 3.0 5.4 4.7 RoAE (%) 10.1 7.0 7.4 7.0 5.8 5.3 RoACE (%) 5.7 5.0 5.4 4.2 3.4 4.1

Source: Company, Kotak Institutional Equities

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Hindalco Industries Metals & Mining

Hindalco (consolidated), Profit model, balance sheet and cash flow model, March fiscal year-ends, 2009-2014E (Rs mn)

2009 2010 2011 2012E 2013E 2014E Profit model (Rs mn) Net sales 656,252 607,221 720,779 827,324 876,185 919,285 EBITDA 53,584 97,458 80,017 93,007 95,604 108,836 Other income 6,878 3,227 4,309 5,039 5,349 6,125 Interest (12,323) (11,041) (18,393) (15,403) (17,892) (26,082) Depreciation (30,378) (27,836) (27,500) (28,669) (30,787) (33,903) Profit before tax 17,761 61,808 38,432 53,974 52,274 54,975 Extraordinaries (22,319) 1,030 100 — — — Taxes 8,046 (19,319) (9,739) (14,285) (14,180) (16,206) Profit after tax 3,488 43,519 28,793 39,690 38,094 38,770 Minority interest 1,718 (4,237) (3,659) (4,058) (3,856) (3,752) Share in profit/(loss) of associates (353) (27) (571) (571) (571) (571) Reported net income 4,853 39,255 24,564 35,061 33,666 34,446 Adjusted net income 19,791 38,225 24,463 35,061 33,666 34,446 Fully diluted EPS (Rs) 11.6 20.0 12.8 18.3 17.6 18.0

Balance sheet (Rs mn) Equity 158,536 215,446 290,233 322,270 352,912 384,334 Deferred tax liability 27,571 39,382 37,596 37,816 39,557 41,477 Total Borrowings 283,098 239,987 276,920 351,512 430,594 468,553 Current liabilities 162,602 180,166 216,840 220,834 224,237 228,199 Minority interest 12,866 17,372 22,169 26,227 30,083 33,836 Total liabilities 644,672 692,353 843,758 958,659 1,077,383 1,156,398 Net fixed assets 275,249 290,006 234,640 259,929 353,632 443,283 Capital work in progress 29,495 58,008 131,308 178,152 155,864 98,204 Goodwill 42,908 — 89,414 89,414 89,414 89,414 Investments 104,308 112,455 108,549 107,978 107,407 106,836 Cash 21,918 21,954 25,563 41,739 78,746 115,298 Other current assets 170,791 209,930 254,285 281,445 292,319 303,362 Miscellaneous expenditure 4 — — — — — Total assets 644,672 692,353 843,758 958,658 1,077,382 1,156,397

Free cash flow (Rs mn) Operating cash flow excl. working (7,156) 39,333 44,082 63,540 65,272 68,468 Working capital changes 29,309 (5,984) (7,031) (23,167) (7,471) (7,080) Capital expenditure (28,898) (41,708) (77,171) (100,804) (102,201) (65,895) Free cash flow (6,744) (8,359) (40,120) (60,431) (44,400) (4,507)

Ratios EBITDA margin (%) 8.2 16.0 11.1 11.2 10.9 11.8 EBIT margin (%) 3.5 11.5 7.3 7.8 7.4 8.2 Debt/equity (X) 1.8 1.1 1.0 1.1 1.2 1.2 Net debt/equity (X) 1.4 0.7 0.7 0.8 0.8 0.8 Net debt/EBITDA (X) 4.1 1.6 2.4 2.7 3.1 2.7 RoAE (%) 11.9 20.4 9.7 11.4 10.0 9.3 RoACE (%) 5.4 10.4 7.7 7.4 6.4 6.6

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11

BUY Sun TV Network (SUNTV)

Media SEPTEMBER 30, 2011 UPDATE Coverage view: Neutral

A tale of two markets. The reaction of Sun TV stock to adverse news-flow continues. Price (Rs): 232 The Tamil C&S TV segment will be impacted by (1) launch of Arasu cable network and Target price (Rs): 440 (2) 30% E-tax on DTH services in TN state. However, the stock price seems to have BSE-30: 16,454 overreacted to these (and other) concerns given non-Tamil-C&S-TV business valuation of ~Rs260/share; the current stock price implies closure of Sun’s Tamil C&S TV business, unlikely in our view. We retain our BUY rating with FY2013E TP of Rs440 (unchanged) given ~13X FY2013E stress-case earnings. Sun TV’s robust free cash flows will be critical given current headwinds; nonetheless, high-beta, long-term trade.

Company data and valuation summary Sun TV Network

Stock data Forecasts/Valuations 2011 2012E 2013E 52-week range (Rs) (high,low)557-230 EPS (Rs) 19.5 21.0 25.1 Market Cap. (Rs bn) 91.5 EPS growth (%) 48.1 7.7 19.2 Shareholding pattern (%) P/E (X) 11.9 11.0 9.3 Promoters 77.0 Sales (Rs bn) 20.1 21.5 25.0 FIIs 13.5 Net profits (Rs bn) 7.7 8.3 9.9 MFs 2.0 EBITDA (Rs bn) 12.6 13.7 16.1 Price performance (%) 1M 3M 12M EV/EBITDA (X) 6.8 6.0 4.9 Absolute (23.5) (35.3) (56.2) ROE (%) 36.5 33.4 34.8 Rel. to BSE-30 (21.8) (26.2) (45.5) Div. Yield (%) 3.8 4.3 6.0

A tale of two markets 1: Value of non-Tamil-C&S-TV businesses In the milieu of adverse news-flow over the Sun’s Tamil C&S TV business, the stock price seems to have overreacted to these (and other) concerns given non-Tamil-C&S TV business segment valuation of ~Rs260/share: (1) leadership position in Andhra/Telugu market, (2) leadership position in Karnataka/Kannada market, (3) runners-up position in Kerala/Malayalam market, (4) likely runners-up FM radio network (RedFM/SAFM/KalFM) and (5) stabilizing position of Sun Pictures. Risks also exist in these markets but are in the nature of competitive rather than political risks; additionally, Sun Pictures operations have stabilized in 2QFY11. A tale of two markets 2: Key concerns on Tamil C&S TV business The fundamentals of Sun’s Tamil C&S TV business have certainly been impacted by the recent actions of the TN government (1) launch of Arasu Cable Network at subsidized ARPU (Rs70/month) and (2) imposition of 30% E-tax on DTH services in the state. Arasu Cable has signed up LCOs for its service across the state (from Sun Group’s Sumangli Cable) and the latter action may drive the price-sensitive consumer to Arasu Cable from DTH, impacting Sun’s cable and DTH subscription revenues. However, the current stock price implies closure of Sun’s Tamil C&S TV business, unlikely in our view. We are not in a position to verify the reported allegations against Sun TV in (1) 2G telecom inquiry and (2) BSNL telephone lines issue; please see our note “Sun down, but not quite” dated June 03, 2011 for clarifications offered by the company. Retain BUY with TP of Rs440 (unchanged): FY2011 annual report analysis

Our rating on Sun TV stock changed to BUY (ADD previously) with the shift to absolute-upside ratings system in KIE. We reiterate our view with FY2013E-based TP of Rs440 (unchanged). Our stress-case valuation of Sun TV stock is ~Rs360/share (assuming significant impact on Sun’s Tamil

C&S revenues). We fine-tune our FY2012E-13E EPS estimates to Rs21 (Rs21.6 previously) and Rs25.1 (Rs25.4) adjusting for FY2011 annual report. Key takeaways: (1) robust free cash flow of

Rs6.7 bn given (2) Rs2 bn capex (likely

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

Sun TV Network Media

A tale of two markets: non-Tamil-C&S-TV assets ignored

Exhibit 1 presents our valuation of the non-Tamil-C&S TV businesses of Sun TV, which have been ignored in the milieu of adverse news-flow pertaining to (1) actions of Tamil Nadu government impacting Tamil C&S TV business and (2) issues arising from political links of company/promoters in the state. The non-Tamil-C&S-TV businesses have created certain entry barriers and advantages (large South Indian movie library with ancillary rights that benefit FM radio and group company Sun Direct as well) but these are market-related (first- mover advantage in South Indian C&S TV market). We highlight that unlike Tamil Nadu, C&S distribution is a largely open market in the remaining three South Indian states. Risks exist but are in the nature of markets rather than politics; therefore, we find it prudent to ascribe a valuation multiple similar to Zee. The lack of breath (Zee’s has more number of channels across more genres) is negated by their stronger positioning.

Breakdown of Sun TV financials, FY2013E (Rs bn)

Tamil C&S Non-Tamil C&S Sun TV total Advertising 7.4 7.4 14.7 Subscription 3.2 4.8 8.0 --Cable 0.9 1.7 2.5 --DTH 1.8 2.7 4.5 --Overseas 0.5 0.5 1.0 FM Radio 1.4 1.4 Sun Pictures 0.9 0.9 Revenues 10.5 14.5 25.0 Rev share (%) 42 58 100 Expenditure (3.5) (7.5) (11.0) EBIT 7.0 7.0 14.0 EBIT share (%) 50 50 100 Margin (%) 67 48 56 EPS (Rs/share) 12.5 12.5 25.1 P/E (X; equivalent to Zee) 21 Non-Tamil-C&S valuation 261

Source: Kotak Institutional Equities estimates

` C&S TV. Exhibit 2-4 presents the long-term and short-term ratings performance of Sun TV channels and key competition in the 3 non-Tamil South Indian C&S TV markets. Sun TV holds leadership position in the large Andhra/Telugu and Karnataka/Kannada market and runners-up position in Kerala/Malayalam market. These are lucrative advertising markets given high per-capita consumption (versus all-India average) and local advertiser base (notably Kerala; unlike Hindi C&S TV that is largely dependent on national advertisers). We briefly discuss the key potential risks in these markets.

ƒ Competitive pressures. The competitive intensity in these markets has gone up over time with the emergence of local players (Asia net, Mao TV) and entry of national players (Star – through buyout of Asia net, Zee) in the fray. Sun TV has managed to hold on to its leadership position but market shares have eroded over the long term; we expect the trends to continue. The focus/turnaround in Sun’s Kerala/Malayalam operations can be a driver in current scenario, in our view.

ƒ Management churn and cost pressures. Sun TV will be increasingly dependent on its professional management given the (likely) preoccupation of the promoter group in negotiating the various political and legal issues. Sun TV recently lost its head of Andhra/Telugu business, Mr. Sanjay Reddy, who returned to Zee as its head of South C&S business. Sun TV will need to showcase its bench strength even as competition may put pressure on content and talent costs.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Media Sun TV Network

Market share of key Telugu GE channels, CY2006-11E (%) 24-hour Grips of key Telugu GE channels (%)

2006 2007 2008 2009 2010 2011E 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 chg (%) Eenadu TV 19 18 17 16 16 16 Eenadu TV 353 380 366 357 381 8 Gemini Movies 22 19 18 16 17 13 Gemini Movies 386 367 329 298 271 (30) Gemini TV 38 36 32 31 35 34 Gemini TV 799 853 794 758 743 (7) Maa Movies - - - - - 5 Maa Movies - - 70 124 126 Maa Telugu 10 13 16 17 16 16 Maa Telugu 343 336 301 387 426 24 Siti Telugu 5 3 3 2 - - Zee Telugu 311 346 344 326 339 9 Zee Telugu 4 7 13 16 15 15 Total 2,192 2,281 2,204 2,250 2,287 4 Others 2 2 2 1 1 1 HH-Index 2,454 2,274 2,057 2,057 2,246 2,070 Source: TAM Media Research, Kotak Institutional Equities Source: TAM Media Research, Kotak Institutional Equities

Market share of key Kannada GE channels, CY2006-11E (%) 24-hour Grips of key Kannada GE channels (%)

2006 2007 2008 2009 2010 2011E 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 chg (%) ETV Kannada 29 22 16 15 14 13 ETV Kannada 214 205 209 212 214 (0) Kasturi - 2 8 6 7 6 Kasturi 93 111 100 91 99 7 Suvarna - 3 6 13 17 17 Suvarna 291 314 266 250 311 7 Udaya Movies 19 20 18 19 16 13 Udaya Movies 239 228 230 215 201 (16) Udaya TV 44 46 37 33 34 35 Udaya TV 535 534 537 582 609 14 Zee Kannada 3 5 12 12 11 14 Zee Kannada 157 174 222 221 258 64 Others 5 3 2 2 2 1 Total 1,529 1,566 1,564 1,571 1,691 11 HH-Index 3,189 3,041 2,197 2,034 2,042 2,113

Source: TAM Media Research, Kotak Institutional Equities Source: TAM Media Research, Kotak Institutional Equities

Market share of key Malay GE channels, CY2006-11E (%) 24-hour Grips of key Malayalam GE channels (%)

2006 2007 2008 2009 2010 2011E 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 chg (%) Amrita TV 4 5 4 4 4 6 Amrita TV 99 110 125 112 118 19 Asianet 31 36 37 41 41 43 Asianet 907 916 872 903 954 5 Asianet Plus 8 10 9 11 10 10 Asianet Plus 241 233 222 198 201 (17) Kairali 7 6 7 6 7 8 Kairali 143 195 183 146 143 0 Kiran TV 7 7 8 9 9 6 Kiran TV 213 193 107 139 144 (32) Surya TV 37 31 31 26 25 23 Surya TV 569 558 451 500 480 (16) Others 6 5 5 4 4 5 Total 2,171 2,204 1,959 1,998 2,040 (6) HH-Index 2,561 2,495 2,543 2,585 2,547 2,638

Source: TAM Media Research, Kotak Institutional Equities Source: TAM Media Research, Kotak Institutional Equities

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Sun TV Network Media

` FM radio segment. Sun TV holds stakes in three FM ratio entities: (1) ~49% stake in Red FM (stations in 3 metro markets), (2) ~98% stake in Kale FM (radio stations across South India), (4) ~59% stake in South Asia FM (radio stations across rest of India) besides (4) a couple of stations in the parent company. Sun TV rebranded its entire network of FM radio stations as Red FM some time back, to provide one identity at the firm and advertiser level to the radio network. Sun’s FM radio network is likely to the runners-up in India behind Radio Mir chi (equivalent to Big FM). Sun TV’s FM radio business achieved EBITDA breakeven in FY2011, after under-performing for quite some time (Exhibit 5). The changing regulatory environment for the FM radio business has been instrumental with reduction in content cost (notably in case of SAFM).

Sun TV consolidated - standalone EBITDA, FY2007-11 (Rs bn)

0.4

0.2 0.2 - (0.0) (0.2) (0.2) (0.2) (0.3) (0.4) 2007 2008 2009 2010 2011

Source: Company data, Kotak Institutional Equities

` Sun Pictures. Sun Pictures is the emerging film production and distribution business of Sun TV, contributing ~3% to revenue and ~1% to EBIT (excluding Endhiraan). There has been considerable adverse news-flow (non-fundamental and non-material) on account of Sun Pictures and, Mr. Hansraj Saxena, who recently resigned in the wake of multiple legal cases against his stint as COO of Sun Pictures. Sun Pictures has been recast and again started distributing movies (Exhibit 6; see highlighted).

Movies produced and distributed by Sun Pictures

Year Film Director Cast 2008 Kadhalil Vizhunthen P. V. Prasad Nakul, Sunaina 2008 Thenavattu V. V. Kadhir Jeeva, Poonam Bajwa 2008 Dindigul Sarathy Sivashanmugam Karunas, Karthika 2009 Padikathavan Suraj Dhanush, Tamannaah Bhatia 2009 Outlander Howard McCain James Caviezel, Sophia Myles 2009 Thee Kicha Sundar C, Ragini, Namitha 2009 Ayan K. V. Anand Suriya, Tamannaah Bhatia 2009 Maasilamani R. N. R. Manohar Nakul, Sunaina 2009 Ninaithale Inikkum Kumaravelan Prithviraj, Sakthi Vasu, Priyamani 2009 Kanden Kadhalai R. Kannan Bharath, Tamannaah Bhatia 2009 Vettaikaaran Babu Sivan Vijay, Anushka Shetty 2010 Theeradha Vilaiyattu Pillai Thiru Vishal Krishna, Sarah-Jane Dias 2010 Sura S. P. Rajkumar Vijay, Tamannaah Bhatia, Vadivelu 2010 Singam Hari Suriya, Anushka Shetty 2010 Thillalangadi M. Raja Jayam Ravi, Shaam, Tamannaah Bhatia 2010 Enthiran S. Shankar Rajinikanth, Aishwarya Rai 2011 Aadukalam Vetrimaran Dhanush, Taapsee Pannu 2011 Mappillai Suraj Dhanush, Hansika Motwani 2011 Engeyum Kaadhal Prabhu Deva Jayam Ravi, Hansika Motwani 2011 Mankatha Venkat Prabhu Ajith Kumar, Arjun Sarja 2011 Vedi Prabhu Deva Vishal Krishna, Sameera Reddy

Source: Wikipedia, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Media Sun TV Network

A tale of two markets: concerns on Tamil C&S TV segment

Exhibit 7 presents our stress-case valuation of Sun TV, including the Tamil C&S segment, resulting from the actions of the Tamil Nadu government. We assume: (1) 20% impact on advertising revenues (versus base case), (2) 80% impact on cable revenues, (3) 50% impact on DTH revenues and (4) 20% impact on valuation given the overhang of political and legal concerns surrounding the promoters/company. We discuss the rationale behind our assumptions; unlike Sun Pictures, there is potential for fundamental and material impact on Sun’s Tamil C&S segment and hence our conservative stance. However, we also highlight the potential 60% upside to our stress-case valuation of ~Rs360/share; the current stock price implies closure of Sun’s Tamil C&S TV business, unlikely in our view.

Stress case valuation of Sun TV, FY2013E (Rs/share)

Tamil C&S Non-Tamil C&S Total (Rs bn) Comments Advertising 5.9 7.4 13.3 20% impact on base case Subscription 1.6 4.8 6.4 --Cable 0.2 1.7 1.8 80% impact on base case --DTH 0.9 2.7 3.6 50% impact on base case --Overseas 0.5 0.5 1.0 FM Radio 1.4 1.4 Sun Pictures 0.9 0.9 Revenues 7.5 14.5 22.0 Rev share (%) 34 66 100 Expenditure (4.2) (7.5) (11.7) 20% impact on base case EBIT 3.2 7.0 10.2 EBIT share (%) 32 68 100 Margin (%) 43 48 47 Normalized EBIT margins EPS (Rs/share) 5.8 12.5 18.3 P/E (X) 17 21 19 20% impact on base case Valuation 96 261 357

Source: Kotak Institutional Equities estimates

We begin by providing a brief chronological summary of the actions of the Tamil Nadu government and its potential/real impact on Sun TV.

` The Tamil Nadu government launched Arasu Cable in analog mode from a few districts, likely pulling out LCOs from Sumangli Cable (Sun Group) and other MSOs. Arasu Cable offered 90 channels (all FTAs – Free to Air channels – initially) at wholesale ARPU of Rs20/month and retail/consumer ARPU of Rs70/month. Sun TV channel ratings declined ~25% in the week of the Arasu cable launch.

` The consumer started to shift to DTH platforms given the lack of popular pay-TV channels (Sun TV, Star-Vijay TV, Sports channels et al). LCOs started to complain about the lack of pay-TV channels on Arasu Cable and subscriber shift.

` The Tamil Nadu government imposed 30% Entertainment-tax (E-tax) on DTH services in the state. Additionally, Arasu Cable started negotiations with pay-TV channels for carriage, resulting in some pay channels (Star-Vijay TV, Sports channels) being made available on the platform. The wholesale and retail ARPU was left unchanged, implying that Arasu Cable was willing to subsidize the cable offering.

` Sun TV and few other pay-TV channels are still not carried by Arasu Cable. However, Sun TV channel ratings started to recover and stabilized at levels just ~10% below pre-Arasu- launch levels. Various media reports indicate that LCOs have been pirating Sun TV channel signals under pressure from consumers.

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Sun TV Network Media

Impact analysis

` Advertising revenues. We discussed the impact on Sun TV ratings and potential impact on advertising rates/revenues on account of the launch of Arasu Cable with media agencies. The general consensus was that advertising rates are determined principally by the ratings performance and thus, ratings decline for a period of 3-4 weeks may result in rate renegotiations. However, this is conditional on few things.

ƒ Significant ratings decline in Sun TV channel. Exhibit 8 presents the advertising rates for Sun TV Tamil channel and Gemini TV (Telugu channel); the data pertains to 4QFY11, prior to rate hikes by Sun TV in 1QFY12. Media agencies noted that Sun TV is cheaper versus Gemini TV on CPRP basis; therefore, the fall in Sun TV ratings needs to be significant for renegotiations.

Ad rates and all-India TRP ratings of Sun TV channels, 4QFY11

Sun TV Gemini TV Time-slot Rate (Rs) TRP (%) CPRP Rate (Rs) TRP (%) CPRP 7.00-7.30PM 22,000 0.6 34,161 21,000 0.5 46,667 7.30-8.00PM 31,000 1.4 22,111 16,000 0.5 34,433 8.00-8.30PM 42,000 1.8 23,613 36,000 0.5 73,270 8.30-9.00PM 45,000 1.8 24,926 28,000 1.0 28,321 9.00-9.30PM 45,000 1.9 24,237 14,000 0.6 21,561 9.30-10.00PM 39,000 1.6 23,655 17,000 0.6 30,612 10.00-10.30PM 22,000 1.0 23,029 5,000 0.1 33,482 10.30-11.00PM 19,000 0.4 53,672 5,000 0.2 32,328 Average 28,676 37,584

Source: Industry data, Kotak Institutional Equities

ƒ Additionally, there is no substitute competition channel available to them currently given Star-Vijay TV, the closest competition, also has ~15% of the ratings of Sun TV (Exhibit 9). Thus, some viable competition needs to emerge in the Tamil Nadu C&S market for rationalization in advertising rates.

24-hour GRPs of key Tamil GE channels (%)

Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Jaya TV 77 91 95 103 108 100 111 116 116 100 101 115 123 KTV 437 432 464 446 410 417 350 417 419 414 397 399 370 Kalaignar TV 211 241 275 218 255 224 192 187 162 162 174 212 202 Raj TV 56 51 57 77 75 77 79 77 69 73 92 98 104 Sun TV 1,599 1,573 1,528 1,710 1,753 1,635 1,440 1,490 1,457 1,569 1,460 1,482 1,348 Vijay TV 148 153 167 166 161 155 140 144 167 165 180 210 243 Total 2,528 2,543 2,584 2,720 2,763 2,607 2,312 2,431 2,390 2,482 2,405 2,517 2,389

Source: TAM Media Research, Kotak Institutional Equities

We assume ~20% potential impact on advertising revenues of Sun TV Tamil channels from ~40% potential impact on ratings. Sun TV’s strong fiction content and large movie library implies consumers will not completely abandon the channel in favor of alternatives, already seen from the consumer shift to DTH from cable.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 Media Sun TV Network

` Cable subscription revenues. The launch of Arasu cable has resulted in shift of LCOs from Sumangli Cable and other MSOs. Sun TV is currently not carried on Arasu Cable and it is unclear what will be effective cable subscription revenues of Sun TV from Arasu Cable eventually. We assume potential ~80% impact on Sun TV’s Tamil cable revenues given LCOs may well stop paying Sun TV on political considerations.

ƒ The experience of the launch of Arasu Cable in 2009 under the previous regime (due to dispute between Sun TV and DMK) is instrumental in this regard. Sun TV’s overall cable revenues declined to Rs1.3 bn in FY2009 from Rs2.2 bn in FY2010 (Exhibit 10); Sun TV’s dependence on Tamil market has reduced since the Kerala/Malayalam channels have turned pay during this period.

Sun TV cable subscription revenues, 1QFY08-1QFY10 (Rs mn)

700 589 548 600 525 517 466 500 390 371 354 360 400 330 350 260 300

200

100

- 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10

Source: Company data, Kotak Institutional Equities

` DTH subscription revenues. The impact on Sun’s Tamil DTH revenues is extremely difficult to model given the various permutations and combinations: (1) launch of Arasu Cable network resulted in subscriber shift to DTH given lack of pay channels but (2) Arasu Cable has included some pay channels in its bouquet now and (3) imposition of 30% E-tax on DTH services, when implemented, will result in churn back to cable. We base our ~50% potential impact on Sun’s DTH revenues on (1) price-sensitive consumers moving back to cable from DTH and (2) Sun TV sharing some part of the sharp increase in E-tax through reduced effective per-subscriber realization.

` Cost pressures. The content/movie cost for Sun TV in the Tamil market may increase in the long run with rising competition. Additionally, Sun’s overheads may also increase on account of higher write-offs/provisions for bad debts. Sun’s talent cost may also increase as key employees with have other avenues available. We assume ~20% potential impact on Sun’s Tamil market cost structure in the stress case.

` Valuation discount. We assume a 20% valuation discount to Zee in the near-term (FY2013E-basis valuation) on account of heightened uncertainty given the various political and legal issues surrounding the company/promoters and continued adverse news-flow (irrespective of fundamental and material implications).

FY2011 annual report analysis

Exhibit 12 presents the analysis of Sun’s FY2011 annual report.

` Sun TV reported robust free cash flows of Rs6.7 bn in FY2011 led by (1) strong operating cash flows in the core C&S TV broadcasting segment as well as (2) robust cash flow contribution from high-budget movie Endhiran.

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Sun TV Network Media

ƒ Sun TV’s capital expenditure in the past few years has been very high (Rs2 bn in FY2011) led by construction of owned studios and offices. With the completion of the capex plan on this account, the capex in future years would be ~Rs1 bn led by plant and machinery required in core business.

ƒ The one-off free cash flows in FY2011 relate to the success of high-budget movie Endhiran. A significant part of the investment in the movie pertains to FY2010 but the revenues and cash flows were realized in FY2011.

` Sun TV reported strong end-FY2011 balance sheet with net cash of Rs6.85 bn (cash and equivalents of Rs6 bn + investments of Rs0.85 bn).

` Sun TV has paid out a dividend of Rs4.0 bn (including tax; Rs8.75/share) in FY2011, implying a dividend yield of 3.8%.

` Sun TV reports a stable working capital profile in FY2011 with (1) 77 debtor days (82 days previously) and (2) 45 creditor days (42 days).

` The high levels of liabilities are due to (1) unpaid final dividend and (2) bonus payments to directors/promoters (post FY2011 AGM).

` The remuneration of Sun TV directors/promoters remained high at 10% of PBT. However, we are concerned by low remuneration to other employees (Exhibit 11), and talent cost inflation impacting Sun TV is likely in the future.

Sun TV's other employee costs, FY2011

(Rs mn) Total employee costs 1,919 Director remuneration 1,288 Other employee costs 631 Number of employees (#) 2,100 Average remuneration (Rs/month) 25,048

Source: Company data, Kotak Institutional Equities

` There is evidence of rising cost inflation for Sun TV with pay channel service charges (commission to Sun18 Media Service South) increasing to Rs301 mn in FY2011 from Rs111 mn in FY2010 and legal and professional expenses increasing to Rs102 mn from Rs37 mn. The cost inflation is yet to catch up with content/movies.

` Sun TV’s bad debt provisions/write-offs reduced to Rs206 mn in FY2011 from Rs283 mn in FY2010. However, there has been considerable volatility in the same (Rs494 mn in FY2009, when the issues with Arasu cable first cropped up); the provisions/write-offs are likely to increase in FY2012E and beyond.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 Media Sun TV Network

Annual report analysis of SUNTV, March fiscal year-ends, 2009-11 (Rs mn)

2009 2010 2011 Comments Income statement Advertising 7,031 9,230 11,239 Including broadcast fee, which is in the nature of advertising revenues Subscription 2,692 3,976 5,780 Including international subscription revenues Other operating 671 1,323 3,115 Mega-budget movie Endhiran in FY2011 Total revenues 10,394 14,528 20,135 Direct operating (1,114) (1,227) (1,373) Employees (1,155) (1,340) (1,919) Overheads (754) (1,053) (1,063) D&A expenses (2,205) (3,209) (4,805) Including film amortization expenses related to C&S TV and Sun Pictures Total expenses (5,228) (6,829) (9,161) EBIT 5,166 7,700 10,974 Key variable for Sun TV since significant D&A expenses Interest (net) 368 300 465 Extraordinaries 163 — — Taxation (2,295) (2,991) (3,831) Reported PAT 3,402 5,009 7,608 Minority interest 281 190 90 Adjusted PAT 3,520 5,199 7,698 EPS (Rs/share) 9.1 13.2 19.5

Balance sheet Total equity 17,016 18,856 22,537 Deferred tax 261 339 410 Minority interest 385 1,249 1,249 Total debt 716 1 1 Sundry creditors 496 384 630 Other liabilities 1,846 4,223 3,841 High due to dividend and promoter ex.-gratia payments Current liabilities 2,343 4,607 4,472 Total liabilities 20,720 25,052 28,669 Cash equivalents 3,654 4,367 6,030 Inventory 1 27 14 Sundry debtors 2,449 3,292 4,300 Other assets 3,092 2,960 3,476 Current assets 9,197 10,646 13,821 Net fixed assets 5,125 5,710 8,446 Capital WIP 1,572 3,149 205 Endhiran release and complete construction of owned offices Investments 1,805 2,280 2,717 Intangible assets 3,021 3,268 3,481 Largely includes film rights related to C&S TV and Sun Pictures Total assets 20,720 25,052 28,669

Cash flow statement Pre-tax profits 5,693 8,000 11,439 D&A expenses 2,205 3,209 4,805 Mega-budget movie Endhiran in FY2011 Interest (net) (260) (291) (378) Extraordinaries (157) 256 196 Tax paid (2,017) (2,811) (3,625) Working capital changes 413 (892) (965) Operating cash flow 5,876 7,471 11,472 Capital expenditure (4,291) (3,120) (2,002) Aircraft purchase in FY2009, owned offices in FY2010-11 Intangible rights (2,794) (2,706) (2,808) Mega-budget movie Endhiran across FY2010-11 Sale of assets 2,168 6 2 Aircraft sale in FY2009 Free cash flow 959 1,652 6,664 FCF (Rs/share) 2.4 4.2 16.9

Source: Company data, Kotak Institutional Equities

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH Sun TV Network Media

Inexpensive valuations in the stress case

Sun TV valuations have crashed down to ~40% discount versus Zee (itself trading at ~20% discount to average historical valuations) in case of normal earnings. Even assuming a stress- case scenario in the Tamil market (assuming the impact of the actions of the Tamil Nadu government on Sun TV), Sun TV stock is valued at ~13X FY2013E earnings with a high free cash flow to earnings conversion factor going ahead (limited capital expenditure required); Sun TV stock is trading at ~14X FY2011 free cash flows.

Given the non-Tamil-C&S-TV segment valuation at ~Rs260/share (largely unaffected by concerns of political/legal nature), the current stock price of ~Rs230/share implies closure or shut-down of the Tamil C&S TV business, unlikely in our view (first-mover advantage in this segment implies content relationships and large movie library). Retain BUY with unchanged FY2013E TP of Rs440 (stress case value of ~Rs360/share); nonetheless, it remains a high- beta long-term trade. We expect near-term visibility to be clouded by news-flow related to CBI inquiry into 2G telecom issue and Sun’s involvement.

Summary financials and valuations of Zee and Sun TV, March fiscal year-ends

Financials (Rs bn) Valuations (X) 2010 2011 2012E 2013E 2010 2011 2012E 2013E Zee consolidated Revenues 22.0 29.5 29.4 34.4 EBITDA 6.1 7.6 8.2 10.3 16.7 13.5 12.5 9.9 EPS (Rs/share) 5.9 5.8 6.2 7.7 20.1 20.3 18.9 15.3 Sports business Revenues 3.2 4.4 2.6 3.2 EBITDA (0.6) (2.1) (1.1) (0.8) R-GECs business Revenues 1.1 5.3 5.8 6.8 EBITDA 0.3 1.8 1.8 2.3 Hindi-rest business Revenues 17.8 19.8 21.0 24.3 EBITDA 6.4 7.9 7.5 8.8 Zee core business Revenues 18.8 25.1 26.8 31.2 EBITDA 6.7 9.7 9.3 11.1 15.3 10.6 11.0 9.3 EPS (Rs/share) 6.4 7.4 7.1 8.2 18.3 15.9 16.6 14.3 Sun TV consolidated Revenues 14.5 20.1 21.5 25.0 EBIT 7.7 11.0 12.0 14.0 11.0 7.7 7.1 6.0 EPS (Rs/share) 13.2 19.5 21.0 25.1 17.6 11.9 11.0 9.3 Sun TV stress-case Revenues 14.5 20.1 21.0 22.0 EBIT 7.7 11.0 10.6 10.2 11.0 7.7 8.0 8.3 EPS (Rs/share) 13.2 19.5 18.9 18.3 17.6 11.9 12.3 12.7

Notes: (a) Zee's FY2010 financials include only one quarter (4QFY10) of R-GEC financials.

Source: Company data, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 Media Sun TV Network

Consolidated financial summary of Sun TV Network, March fiscal year-ends, 2008-14E (Rs mn)

2008 2009 2010 2011 2012E 2013E 2014E Profit model (Rs mn) Net sales 8,699 10,394 14,528 20,135 21,463 25,035 28,852 EBIT 4,736 5,166 7,700 10,974 12,005 14,031 15,992 Other income 556 505 350 487 391 828 1,054 Interest (expense)/income (159) (138) (49) (23) (7) (7) (7) Pretax profits 5,133 5,534 8,000 11,439 12,390 14,852 17,039 Tax-cash (1,947) (2,045) (2,912) (3,760) (4,077) (4,911) (5,646) Tax-deferred (67) (250) (78) (71) (32) (16) (8) Minority interest 148 281 190 90 11 (41) (79) Net profits after minority interests 3,267 3,578 5,199 7,698 8,292 9,884 11,307 Earnings per share (Rs) 8.3 9.1 13.2 19.5 21.0 25.1 28.7

Balance sheet (Rs mn) Total equity 14,485 17,016 18,856 22,537 26,238 29,695 32,738 Deferred Tax 11 261 339 410 442 457 465 Total borrowings 695 716 1 1 — — — Currrent liabilities 2,516 2,343 4,607 4,472 2,704 3,060 3,473 Total capital 18,311 20,720 25,052 28,669 30,622 34,492 38,034 Cash 4,297 3,654 4,367 6,030 8,794 11,910 14,429 Current assets 4,542 5,543 6,279 7,791 9,329 10,801 12,428 Total fixed assets 5,048 6,697 8,859 8,651 8,045 7,522 7,112 Intangible assets 2,620 3,021 3,268 3,481 1,737 1,542 1,348 Total assets 18,311 20,720 25,052 28,669 30,622 34,492 38,034

Free cash flow (Rs mn) Operating cash flow, excl. working capital 4,393 5,620 8,107 12,240 11,667 13,344 15,247 Working capital (1,235) 413 (892) (965) (3,306) (1,116) (1,214) Capital expenditure (1,811) (4,291) (3,120) (2,002) (500) (500) (550) Investments (3,837) (627) (3,166) (4,335) (889) (3,007) (3,747) Other income 523 484 361 420 391 828 1,054 Free cash flow (698) 1,116 1,396 6,468 6,972 8,722 9,736

Ratios (%) Debt/equity 4.8 4.2 ————— Net debt/equity (24.9) (17.3) (23.2) (26.8) (33.5) (40.1) (44.1) RoAE 25 23 29 37 33 35 36 RoACE 24 23 28 37 34 35 36

Source: Company data, Kotak Institutional Equities estimates

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH

CAUTIOUS Automobiles

India OCTOBER 1, 2011 UPDATE BSE-30: 16,454

Festive season off to a strong start: Auto volumes for September 2011 bettered our expectations for all manufacturers. Passenger car volumes remained subdued in September while two wheeler and commercial vehicle volumes remained buoyant. Maruti Suzuki volumes are expected to decline in 2HFY12E due to a strong base effect while two wheeler and commercial vehicle volume growth is also likely to moderate, in our view. We advise investors to remain selective in the sector.

Scooters and export volumes boosted TVS Motor volumes

TVS Motors reported 17% yoy growth in volumes in Sep 2011. Scooter and export volumes increased by 30% and 35% yoy, respectively, which masked the low single digit growth in the domestic motorcycle segment for TVS Motors. Suzuki Motorcycles (+29% yoy), Honda Motorcycles (+44% yoy) and Yamaha (35% yoy) also reported a strong growth in volumes in September. Hero Motocorp and Bajaj Auto have not reported numbers thus far but we expect strong volume growth from them as well.

Maruti reported a 17% yoy decline in domestic volumes

Maruti Suzuki reported a 17% yoy decline in domestic volumes while export volumes were also impacted by the strike at the Manesar plant. We estimate Maruti lost close to 18,000-20,000 units in production volumes in September 2011 due to the strike at the Manesar plant. The strike has ended as workers have agreed to sign the “good conduct bond” and production is expected to normalize in the next two days. Passenger car industry volumes are expected to report flat volume growth in September, in our view, after a 10% yoy decline in volumes in August 2011 boosted by a strong show from Hyundai, Toyota, Volkswagen and recovery in volumes of Tata Motors.

Mahindra and Tata Motors surprise on the upside

Mahindra and Mahindra posted 31% yoy growth in volumes, boosted by strong growth of Maxximo + Gio (+42% yoy) and tractor volumes (+41% yoy). Passenger UVs (including pick ups) volume growth moderated to 7% yoy due to a strong base effect. We expect M&M’s volume growth to moderate in 2HFY12E due to the base effect.

Tata Motors also beat expectations (+23% yoy growth) in September 2011 driven by strong growth in LCV and utility vehicle volumes. Domestic MHCV volumes reported a 9% yoy growth while domestic LCV volumes (+47% yoy) continued to post strong numbers. Passenger vehicle volumes grew by 10% yoy boosted by 60% yoy growth in utility vehicle volumes and 64% yoy growth in Indica volumes (aided by launch of the new Indica Vista). Nano volumes continue to remain a drag, posting a 47% yoy decline in September 2011. Indigo volumes also declined by

11% yoy.

We expect a 5% decline in Maruti Suzuki volumes in 2HFY12E due to strong base effect, while we expect M&M and Tata Motors to report 11% and 6% yoy growth in volumes in 2HFY12E.

We maintain our positive view on M&M, Tata Motors and Maruti Suzuki

We believe passenger car volume growth is likely to remain muted over 2HFY12E while we expect two wheeler and commercial vehicle volume growth to moderate as well in 2HFY12E. We expect raw material costs to decline in 2HFY12E which is likely to boost operating margins for auto companies. We maintain our positive view on M&M, Tata Motors and Maruti Suzuki due to attractive valuations.

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

India Automobiles

Strong growth in scooter and export volumes masked low growth in domestic motorcycle segment TVS Motor Sep-11 wholesale volumes, units

Sep-11 Sep-10 Aug-11 YoY chg (%) MoM chg (%) FY12 YTD FY11 YTD YoY chg (%) Domestic 64,875 62,016 51,247 4.6 26.6 412,391 389,643 5.8 Exports 25,973 19,365 26,479 34.1 (1.9) 147,739 112,504 31.3 Total Motorycles 90,848 81,381 77,726 11.6 16.9 560,130 502,147 11.5 Scooters 55,879 43,086 52,253 29.7 6.9 168,623 127,059 32.7 Mopeds 68,963 60,316 60,205 14.3 14.5 388,520 341,833 13.7 Total 2 wheeler volumes 215,690 184,783 190,184 16.7 13.4 1,117,273 971,039 15.1 3 wheeler 3,679 3,222 4,693 14.2 (21.6) 23,086 17,755 30.0 Total Volumes 219,369 188,005 194,877 16.7 12.6 1,140,359 988,794 15.3

Source: Company

Volumes impacted by strike at Manesar plant Maruti Suzuki Sep-11 wholesale volumes, units

Sep-11 yoy chg (%) mom chg (%) FY12 YTD yoy chg (%) M800, Alto, A-Star, Wagonr 37,324 (23.5) (0.5) 234,900 (7.2) Swift, Estillo, Ritz 19,722 (9.3) 22.9 100,515 (21.8) Dzire 9,411 9.9 19.8 45,383 (9.9) SX4 196 (90.0) (89.6) 9,909 (0.5) Kizashi 14 75.0 171 Gypsy and Vitara 412 54.9 (68.1) 3,846 1.0 Omni and Eeco 11,737 (15.1) (6.1) 78,365 4.3 Total Domestic 78,816 (17.2) 2.2 473,089 (9.2) Exports 6,749 (47.5) (53.0) 60,744 (20.2)

Total Volumes 85,565 (20.8) (6.4) 533,833 (10.6)

Source: Company

LCV and Tractor volumes surprise again Mahindra and Mahindra Sep-11 wholesale volumes, units

Sep-11 yoy chg (%) mom chg (%) FY12 YTD yoy chg (%) Passenger Uvs (including pick ups) 17,747 7.3 27.2 91,790 16.2 Maxximo + Gio 13,149 42.1 4.7 70,510 50.5 MNAL 968 (9.4) (14.7) 6,199 4.6 3-wheelers 7,302 21.6 14.2 33,149 15.6 Exports (Auto sector) 3,001 128.9 55.7 12,956 86.1 Verito 1,700 70.0 (0.6) 8,847 64.8 Auto division 44,137 25.5 17.1 223,451 29.4 Tractors (Dom + Exp) 24,673 41.1 54.2 101,543 23.5 Total 68,810 30.7 28.2 324,994 27.5

Source: Company

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Automobiles India

LCVs continue to post strong growth while passenger car volumes recovers a bit Tata Motors Sep-11 wholesale volumes, units

Sep-11 yoy chg (%) mom chg (%) FY12 YTD yoy chg (%) MHCVs 19,955 8.2 12.8 103,639 7.0 LCVs 31,092 46.0 6.2 165,216 28.1 Total CVs 51,047 28.5 8.7 268,855 19.1 UVs 5,728 67.7 67.6 22,922 17.4 Cars 22,011 2.3 60.6 107,373 (20.3) Total PV 27,739 11.2 62.0 130,295 (15.6) Total Sales 78,786 21.8 23.0 399,150 5.0

Source: Company

M&M numbers are likely to exceed to our expectations for FY2012E Residual volume growth required to achieve our FY2012E estimates, March fiscal year-ends, units

Apr-Sep11 FY2012E Oct-Mar11 Oct-Mar10 yoy chg (%) Maruti 533,833 1,173,461 639,628 674,027 (5.1) M&M 309,948 670,283 360,335 325,982 10.5 Tata Motors 399,150 848,502 449,352 423,209 6.2

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25

CAUTIOUS Property

India OCTOBER 03, 2011 UPDATE BSE-30: 16,454

REIFBS 2011 conference key takeaways. This year’s REIFBS conference invited eminent personalities representing various stakeholders to give their views on key issues pertaining to the sector. Key takeaways include (1) robust sales continue in Tier 2 and Tier 3 cities, (2) importance of ticket size along with per sq. ft rate in purchase decisions, (3) investors’ view policy and regulation as short-term and inconsistent and (4) regulatory risk increases real estate costs and developers risks leading them to demand a higher share of returns versus financial investors.

Home buyer’s perspective – Tier 2 and 3 cities continue to witness robust demand

Panel discussions indicated that the slowdown in sales is a metro city phenomenon and Tier 2 and

Tier 3 cities are seeing robust demand primarily because prices are perceived to be in an affordable range. Customers in metros are probably deferring purchases due to media reports of an imminent price correction. Credibility of developers and total ticket size versus only per sq. ft. rate are gaining importance as purchase criteria.

Developer’s perspective – cost of a project is way above its explicit land and construction cost

A few developers still treat customer advances as capital and even divert it from one project to other in some cases to buy land. Developers believe that as they spend a lot of time and effort in getting project approvals and also face significant uncertainty, the real costs are higher and believe they deserve a higher share of the returns versus financial investors. Developers were also of the view that reducing prices in existing projects is difficult as existing investors / buyers will not like that and hence reduce prices in new projects or negotiate one-to-one.

Investor’s perspective – policy is short term and inconsistent

Foreign investors feel that policy and regulation is both short term and inconsistent which makes it difficult to evaluate all risks while investing. India lacks a market for REITs and RMFs which can both attract capital and make it easier for investors to exit projects. Many people in Tier 2/3 cities want to invest in metros and some funds have been able to pool their capital. A lot of investor money came in during 2007, which is still locked in several projects due to inadequate exit routes. Investors are also seeking “equity-like” returns with “debt-like” risks, a clear sign that balance of power has shifted to capital providers versus developers.

Retail properties – revenue share is becoming the norm but success still to be determined

More and more mall owners are pushing for revenue sharing arrangements but some articulated a fear of lack of honesty among retailers while disclosing their revenues. Though some owners constantly monitor all transactions, some retailers feel that this is unnecessary interference since no retailer will put their brand and reputation at risk in order to save a bit of money.

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

Property India

Remain selective – Sobha, Oberoi and Phoenix Mills are our top picks

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. Oberoi, Phoenix and Sobha are our top picks as we believe they are relatively insulated (Oberoi – net cash, Phoenix – retail, Sobha – Bengaluru residential) and have potential upside (Oberoi – NAV accretive land purchases, Phoenix – three mall openings in FY2012E and Sobha – launch of large projects in Bengaluru and Gurgaon)

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27 India Property

Day 1 Session1: Indian real estate market – a peek beyond the next turn Panelists: Pradeep Jain (Parsvnath Developers), Jai Mawani (Price Waterhouse Coopers), Rahul Anand (Portman Holdings), Dharmesh Jain (Nirmal Lifestyle), D. R. Dogra (CARE Ratings), Anita Arjundas (Mahindra Lifespace Developers), Firdose Vandrevala (Hirco Developments), JC Sharma (Shobha Developers), Ramesh Jogani (INDIAREIT Fund Advisors), Ashutosh Limaye (Jones Lang LaSalle).

` India has seen 12 interest rate hikes in this cycle to date but real estate prices are largely resilient. Main concern of foreign investors include (1) a perceived or real lack of transparency and (2) need to partner with local players as they cannot aggregate land themselves. Demand exists at particular price points and we need to wait and see who blinks first on prices - the developer or consumers.

` Apart from cyclical factors, the next growth triggers could potentially be – (1) FDI in retail which will benefit other real estate too, (2) investment in Tier 2/3 cities where market continues to be vibrant, (3) investment in building social infrastructure (schools, colleges and hospitals) and (4) development along the Delhi-Mumbai corridor.

Session 2: What will trigger the next wave of demand in real estate?

Panelists: Sandeep Kotak (Kotak Mahindra Bank), Jonathan Yap (Ascendas Property Fund Trustee), Boman Irani (Rustomjee), Santosh Naik (Disha Direct), Pranay Vakil (Knight Frank India), Sandeep Runwal (Runwal Group), Mayur Shah (Marathon Group), Getambar Anand (ATS Infrastructure), Jaxay Shah (Savvy Infra).

` There is no slowdown in sales across India as a whole where average prices are in the range of Rs3,500-5,500/sq. ft. The next wave in real estate will be in Tier 2 and Tier 3 cities but the key challenge is that mortgage financiers are unwilling to finance purchases given the lack of proper income documentation. Nevertheless, people borrow from money lenders and buy property; the panel was of the view that banks could rethink on this policy as default rates are very low.

` In Tier 1 cities, demand is subdued as (1) interest rate hikes have raised monthly installments and also lowered purchasing power, (2) there is skepticism on the ability of developers to deliver, (3) with the media highlighting an imminent price correction, buyers continue to wait, (4) rupee depreciation has also made it expensive for NRIs to buy property in India and (5) a falling stock market has potentially negatively impacted demand.

Session 3: Social Infrastructure in India

Panelists: Rajgopal Nogja (Lavasa Corporation), Anandjit Sunderaj (KARVY Realty), Pankaj Kapoor (Liases Foras Real Estate Rating and Research), Parkash Challa (SSPDL), Saumyajit Roy (Jones Lang Lasalle).

` Developers are willing to give land free to people who want to setup social infrastructure in their townships as this increases value of their residential and commercial properties.

Session 4: Will the industry become organized with best financial practices or will it remain rocky and unpredictable for investors?

Panelists: Ashok Kumar (Cresa Partners), Anil Kumar Pandit (Mumbai International Airport), Punit Saxena (UTI Technology and Infrastructure Services), Akash Deep Jyoti (CRISIL), Amit Bhagat (ASK Property Investment Advisors), Thirumal Govindraj (CB Richard Ellis).

` Developers treat customer advances as capital and divert it from one project to other and in even to purchase land. In some countries, these advances are put in escrow accounts to avoid such diversions. Diversion for land purchases creates an asset liability mismatch as advances are short term in nature and land is a long term investment..

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH Property India

` During boom time, developers were not worried about customer satisfaction and accountability but with the current slowdown these things are becoming increasingly important.

` One key dynamic in funding real estate is a tussle between the developer and the fund over who brings more to the table. Though the fund provides capital, the developer has to juggle so many loopholes in order to sanction a project he often feels that he deserves a bigger share in the profits.

Session 5: Slowdown in sales and poor financing environment – What is keeping developers ticking?

Panelists: Sunny Bijlani (Supreme Universal), Kaustuv Roy (Cushman and Wakefield), Vijay Mirchandani (Mirchandani Group), Kruti Jain (Kumar Urban Development), Dipesh Bhagtani (Jaycee Homes).

` Though sales have slowed down in metros, Tier 2/3 cities continue to be robust.

` Demand remains healthy for almost-complete and ready to move in properties.

` Quoted prices are theoretical and a 10-15% discount while negotiating is often seen to move sales.

Session 6: Is there a case for total overhaul of the regulatory framework?

Panelists: Paras Gundecha (Gundecha Group), Deepak Garodia (Dosti Group), Pankaj Bajaj (Eldeco Infrastructure and Properties), Brijesh Bhanote (The 3C company), Shrikant P. Paranjape (Paranjape Schemes), Rohit Gera (Gera Developers).

` In Pune, the government has allowed small developments without any approvals given that the architect does his proper checks.

` Regulation has to be brought in to streamline the approval process and to bring in continuity of policy. People should be accountable to the builders’ community as well who invest in projects and are exposed to policy changes such as what happened with SEZ tax exemptions.

Session 7: Exit avenues in commercial real estate

Panelists: Anurag Mehrotra (Beekman Helix India Consulting), Ruchir Sinha (Nishith Desai Associates), Apurva Muthalia (IL&FS), Ranjit Naiknavare (Naiknavare Developers), Mitesh Agarwal (NV India Real Estate Fund), Sunil Rokale (ASK Property Investment Advisors).

` LRD is one way to exit commercial projects but India lacks other vehicles such as REITs (Real Estate Investment Trusts) and RMFs (Real Estate Mutual Funds).

` Commercial assets have a 5-10 year investment cycle and in the long term can give better returns than residential properties but they lock up capital for a long time. So commercial projects need constant source of organized capital.

DAY 2 Session 1: Have real estate funds moved to the other extreme? Panelists: Peter Mitchell (APREA), Ritesh Vohra (IIML Asset Advisors), N. Sridhar (DB Realty), Sandeep Menon (SARE Group), Vikas Chimakurthy (Kotak Realty Fund).

` Contrary to the boom period in 2007, the power balance has shifted from the developer to the fund managers. Funds are now looking at equity type of investment with debt type returns where both upside as well as downside are capped. Funds are securing returns through coupon payments and minimum return guarantees.

` This is tough market to raise funds and investors who had invested in the boom time still have their capital locked in projects. Issues with corporate governance, regulatory uncertainty, scams and graft are making potential investors skeptical.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 India Property

` Many international funds have emerging market allocations which mean that the sector will still get some capital though not as much as it can potentially attract. Real estate in many other countries is considered an asset class in itself along with equities and fixed income instruments.

Session 2: Alternate asset classes that can weather the current slowdown

Panelists: Uttam Dave (Interglobe Hotels), Navneet Bali (Duet India Hotels), Rajiv Sharma (Intercontinental Hotels), Sanjay Sethi (Berggruen Hotels), Keshav Baljee (Royal Orchid Hotels), Param Kannampilly (Concept Hospitality), Amit Nagpal (Hyatt).

` Within real estate, hotels, hospitals, schools and hostels can be considered as alternate asset classes. They often weather recession better than the residential and commercial segment.

` Hotels are very capital intensive which crease huge entry barriers. These are very long term investments as theoretically the life of a hotel could be as much as 100 years. Though India is undersupplied, micro markets in metros are oversupplied.

` Hotels are inflation-proof investments. India is oversupplied in luxury segment while a shortage exits in the budget and mid income hotel segments. Due to this skew in supply, Indian hotels are considered to be among the costliest in the world on a per capita income basis.

` Schools can also give high returns but it is difficult for people to attract investments in this. Demand for hostels are also going up as more and more people come to cities to study.

Session 3: Managing project risks

Panelists: Dr. P. S. Rana (IIUDC), Rajesh Muthreja (HUL), Mahesh Mudda (NCCL), Prakash Ingle (J. P. Morgan Asset Management Global Real Estate), Priyakant Amin (Convention Hotels), Bimal Desai (DSP Design Associates), Ajay Malhan (Jones Lang LaSalle).

` Real estate is not a perfect market as the there is disproportionate risk distribution among different stakeholders. Biggest risk is discretionary powers with government agencies.

Session 4: Catching the pulse of retail real estate

Panelists: Amit Jatia (Hard Castle Restaurants), Timothy Eynon (Omesa Universal), Pattabhi Rama Rao (Cookie Man), J. P. Biswas (Sheth Developers), Rahul Vira (Gili India).

` Many malls are now insisting on revenue sharing versus a fixed lease rate though a mall owner often is not sure of whether the retailer is being totally upfront about his collections.

Session 5: Sustainable green buildings

Panelists: Gurmit Singh Arora (Rajco Metal Industries), Priya Vakil (Educated Environments), Syed Mohammad Beary (Beary’s Group), Karan Grover (Karan Grover and Associates), M. Selvaraju (LEAD Consultancy and Engineering Services), Prashant Khandelwal (Mayuresh Group).

` Green buildings are cost effective over its lifecycle though initial cost is higher compared with conventional buildings. They have lower operational expenses through consuming lesser electricity and saving water. Some studies put the payback period of the extra investment at less than three years depending on the type of building constructed (type of LEAD certification).

` The key to drive this is to focus on the potential savings as many still think green buildings as costly and take more time to construct.

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH Property India

` About 29% of electricity consumption in India is by buildings and so, from a policy level, it makes sense to give a boost to this segment to reduce energy costs. Boost can be give through tax incentive or through giving higher FSI. A lot of energy can be saved through passive strategies such as proper orientation of building, location of courtyard etc.

Session 6: Capital flows: Deciphering the real market sentiment

Panelists: Sorabh Jain (Sun-Apollo Real Estate Advisors), Shashi Kumar (Birla Sunlife AMC), Bobby Parikh (BMR Advisors), Pankaj Jaju (Enam Securities), Harvesp Mehta (Motilal Oswal Private Equity), Darshan Gangolly (Sunteck Realty), Nikunj Sanghvi (Veena Developers).

` Huge pent up demand exists in the market and people are now concerned more about the credibility of the developer ticket size and less about per-square-feet rate and. Customer aspirations are changing and they want better quality, access to amenities and proper infrastructure.

` People in Tier 2 cities such as Lucknow and Kanpur also want to invest in Mumbai market to benefit from potential appreciation here but they don’t have enough capital individually to buy high-end apartments. Some funds have been able to raise money there at smaller investment sizes to invest in metro cities. General consensus is that there are huge potential gains in real estate investments.

` Customers should do proper due diligence before buying a house. Some easy ways are (1) check for all banks are willing to lend since the quality of the banks can give confidence in the projects and (2) check if any PE has invested as the PE will ensure that the project gets completed without funding issues. Also, often, some banks give better lending rates for buying houses in certain projects and this can be considered as a proxy for projects quality.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31

ATTRACTIVE Technology

India SEPTEMBER 30, 2011 UPDATE BSE-30: 16,454

2QFY12E preview – expect a robust quarter; demand commentary critical. We expect the Sep 2011 quarter to be a strong quarter on volume growth for all Tier-Is (barring Wipro) with TCS and Cognizant once again leading the pack. Among Tier-IIs, we see MindTree leading on revenue growth and Hexaware on margin expansion. Rupee volatility and differing wage hike cycles will induce wide variability in net income performance across companies. We remain positive on the sector and would be buyers in TCS, Infosys, and MindTree going into the results. Expect Re-led EPS upgrades.

Revenue growth – expect robust volume growth to sustain; cross-currency movements adverse

We expect robust sequential volume growth (4-7%) for most players in the industry barring Wipro among the Tier-Is and Mphasis/ Tech Mahindra among the Tier-II names. We see TCS and Cognizant once again leading the Tier-I pack on volume growth with Infosys and HCLT also reporting robust numbers. Wipro is likely to lag, though on expected lines. Among Tier-IIs, we expect MindTree and Satyam to lead the pack. Adverse cross-currency movements will hit reported US$ revenue growth by 50-80 bps across companies. Overall, we expect 3.5-6% US$ revenue growth across Tier-I names and 0.5-6.5% growth across Tier-IIs.

Margins – Rupee to aid; wage hike cycles to drive variability across companies

We expect strong sequential margin expansion across companies with zero or partial wage hike pressure during the quarter. Margin expansion would primarily be led by benefits from sharp Re depreciation during the quarter (3-4% across companies, difference being on account of cash- flow hedging for some companies and also different average spot computation methodologies). Among the Tier-I names, we expect Infosys and TCS to report strong margin expansion – we build in 140 bps and 90 bps qoq improvement, respectively. HCLT faces wage hike headwinds and so does Wipro (2-month impact). We also note that Wipro benefits only marginally from Re depreciation on account of its cash-flow hedges at lower levels. We build in 140 bps qoq decline in Wipro’s global IT margins and 120 bps decline for HCLT.

Hedging gains/ losses to have major bearing on net income performance

Sharp movement in the Rupee versus US$ and other currencies, more so on end-period levels, will drive meaningful forex gains or losses depending on quantum (under-hedged/ over-hedged), composition (plain vanilla forwards or options or exotic contracts), and timing of maturity of hedges. Hedging actions during the quarter also have a meaningful impact given the sharp intra- quarter movement in currencies. We note that forex gains or losses are particularly difficult to forecast given the above-mentioned complexities and lack of details. That said, TCS has indicated

Rs2 bn of forex losses at the other income level. We expect Infosys and HCLT to report forex gains, while Wipro could report forex loss, though on account of its (under-hedged) Yen debt exposure.

Infosys guidance – expect cut in US$ revenue growth guidance, but a raise in Re EPS guidance

Exhibit 1 depicts our estimate of likely revision in Infosys’ FY2012E guidance. We expect Infosys to lower its US$ revenue growth guidance to 17%-18% from the current 18-20%, despite likely meeting the upper-end of its Sep 2011 revenue guidance. Cut will be driven by (1) adverse cross- currency movements, and (2) additional caution built into 2HFY12E revenue guidance. Nonetheless, EBITDA margin and Re EPS guidance are likely to see an uptick, driven by changed Re/US$ assumption. We expect Infosys to revise its FY2012E EPS guidance to Rs136 at the upper-end from the current Rs130, an increase of a little under 5%.

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

Technology India

Key factors to watch out for – volume growth – quantum and composition, demand commentary, hiring trends, hedging status

Factors that we would watch closely in the Sep 2011 quarter earnings report and management commentaries –

` Quantum and composition of volume growth – as discussed earlier, we expect robust sequential volume growth for the sector. Marginal outperformance is likely to be ignored by the market; however, any underperformance versus expectations would likely be punished, given the increased caution on demand outlook. We will also watch out for the composition of volume growth, especially in discretionary spend areas and Europe.

` Demand commentary – likely the most critical factor going into the earnings. We expect managements to add a dose of caution to what should be an otherwise confident demand outlook.

` Hiring trends and initial campus hiring numbers.

` Change in outstanding hedges versus end-June 2011 levels (depicted in Exhibit 2).

Exhibit 1: Infosys - likely revision in guidance for FY2012E

Current FY2012E guidance Likely revision - FY2012E FY2011 Lower-end Upper-end Lower-end Upper-end Revenues (US$ mn) 6,042 7,130 7,250 7,069 7,129 Revenue growth (%) 18.0 20.0 17.0 18.0 Re/US$ rate 45.5 44.6 44.6 46.5 46.5 Revenues (Rs mn) 275,010 317,770 323,110 328,702 331,512 EBITDA margin (%) 32.6 30.1 30.1 30.6 30.6 EBITDA (Rs mn) 89,640 95,649 97,256 100,583 101,443 Depreciation (8,130) (9,200) (9,400) (9,200) (9,400) EBIT (Rs mn) 81,510 86,449 87,856 91,383 92,043 Other income (Rs mn) 12,110 15,755 15,847 16,199 16,223 PBT (Rs mn) 93,620 102,204 103,703 107,582 108,266 Tax rate (%) 26.6 28.0 28.0 28.0 28.0 Provision for tax (Rs mn) (24,900) (28,617) (29,037) (30,123) (30,314) PAT (Rs mn) 68,720 73,587 74,666 77,459 77,951 EPS (Rs/share) 119.7 128.2 130.1 134.9 135.8 EPS growth (%) 7.1 8.7 12.7 13.4

Source: Kotak Institutional Equities estimates

Exhibit 2: Currency hedges of the top Indian IT companies over the past few quarters (US$ mn)

Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 TCS 2,000 1,750 1,880 1,471 1,800 1,360 1,496 1,900 2,300 HCL Tech 813 725 645 468 362 297 256 265 390 Wipro 1,600 1,400 1,800 1,333 1,297 1,500 1,500 1,600 1,700 Infosys 598 699 610 510 700 500 585 599 745

Source: Companies, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 33 India Technology

Exhibit 3: Revenue and EPS guidance for various Indian IT companies for Sep 2011 quarter

Actuals Guidance (lower-end or single point) Guidance (upper-end) Jun-11 Sep-11 qoq (%) yoy (%) Sep-11 qoq (%) yoy (%) Infosys Revenues (US$ mn) 1,671 1,730 3.5 15.6 1,755 5.0 17.3 Revenues (Rs bn) 74.9 77.0 2.9 10.8 78.1 4.3 12.4 EPS (Rs) 30.1 29.6 (1.7) (2.5) 30.2 0.0 (0.9) EPADS (US$) 0.67 0.67 (0.5) 3.1 0.68 1.0 4.6 Re/US$ rate 44.8 44.5 44.5 Wipro Revenues IT services (US$ mn) (a) 1,408 1,436 2.0 12.8 1,464 4.0 15.0 Hexaware Revenues (US$ mn) 74.8 78.0 4.3 27.7 79.0 5.6 29.3

Source: Companies, Kotak Institutional Equities

Exhibit 4: Movement of Rupee and major non-USD invoicing currencies versus the US$

Mar-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 INR - USD Average 49.80 46.66 45.92 45.63 46.48 44.88 45.26 44.71 45.77 Period-end (a) 50.74 46.53 44.95 46.45 44.97 44.71 44.59 44.61 48.91 GBP - USD Average 1.44 1.63 1.56 1.49 1.55 1.55 1.60 1.63 1.61 Period-end 1.43 1.62 1.52 1.50 1.57 1.56 1.60 1.61 1.57 EUR - USD Average 1.31 1.48 1.38 1.27 1.29 1.33 1.37 1.44 1.41 Period-end 1.33 1.43 1.35 1.23 1.36 1.34 1.42 1.45 1.36 AUD - USD Average 0.67 0.91 0.90 0.88 0.90 1.02 1.01 1.06 1.05 Period-end 0.69 0.90 0.92 0.85 0.97 1.02 1.03 1.07 0.99

Source: Bloomberg, Kotak Institutional Equities

34 KOTAK INSTITUTIONAL EQUITIES RESEARCH Technology India

Exhibit 5: Results preview for the quarter ending Sep 2011 (Rs mn)

Key financials Sep-10 Jun-11 Sep-11 %qoq %yoy Comments/What to look for TCS: Results (October 17th ) Revenues (US$ mn) 2,004 2,412 2,558 6.0 27.6 • Expect 6% qoq growth in US$ revenues on the back of ~7% volume growth. We build in a modest decline in pricing and around 70 bps adverse cross-currency movement impact. Revenues 92,864 107,970 118,502 9.8 27.6 • We build in an EBITDA margin improvement of 90 bps qoq driven by Rupee depreciation and absorption of wage hikes. Operating profit 27,894 30,309 34,350 13.3 23.1 • We build in forex loss of Rs2 bn for the quarter. Adjusted net profit 21,065 23,802 24,765 4.0 17.6 • Expect investor focus on (1) commentary on demand outlook, specially in light of the recent macro newsflow (2) pricing scenario, and (3) feedback on recent visa-related newsflow. EBITDA margin (%) 30.0 28.1 29.0 Wipro: Results (October 31st) Total revenues 77,305 85,640 90,339 5.5 16.9 • We expect 3.6% qoq growth in US$ revenues to US$1,458 mn versus company's guidance of US$1,436-1,464 mn. This includes (1) ~2% growth kicker from full-quarter consolidation of SAIC O&G acquisition, and (2) ~80 bps negative cross-currency impact. Global IT revenues (US$ mn) 1,273 1,408 1,458 3.6 14.5 • Expect a qoq margin decline of 140 bps in the IT services business on full quarter impact of wage hikes. Global IT revenues 57,471 64,046 67,251 5.0 17.0 • Expect Wipro to guide for a 2-4% sequential revenue growth (constant currency) for the Dec 2011 quarter). Operating profit 14,033 14,952 15,047 0.6 7.2 • Expect investor focus on (1) progress on impact of recent organization structure changes, (2) commentary on demand scenario, especially in the company's top European BFSI clients and (3) commentary on supply side and protectionism related issues. Adj. net profit 12,849 13,349 13,139 (1.6) 2.3 Total OPM (%) 18.2 17.5 16.7 Global IT - OPM (%) (b) 24.8 25.1 23.7 Infosys Technologies: Results (October 12th) Revenues (US$ mn) 1,495 1,672 1,753 4.9 17.3 • Expect 4.9% qoq US$ revenue growth versus the company's guidance of 5% at the upper-end. We build in volume-led constant currency growth of 5.5% qoq and 60 bps pressure from adverse cross-currency movement. Revenues 69,470 74,850 81,267 8.6 17.0 • Expect sequential margin improvement of 140 bps, primarily led by Rupee depreciation benefits. Operating profit 23,150 21,750 24,746 13.8 6.9 • We build in Rs700 mn of forex gains for the quarter versus a gain of Rs500 mn in the previous quarter. Adjusted net profit 17,370 17,210 19,679 14.3 13.3 • We expect Infosys to revise down its FY2012E revenue growth guidance to 17-18% from the current 18-20%. Expect EPS guidance to be raised upwards to Rs136 at the upper-end versus the current Rs130/share. Operating profit margin (%) 33.3 29.1 30.5 • Expect investor focus on (1) volume growth (2) update on organization restructuring, (3) update on the visa issue, (4) hiring and attrition trends, and (5) pricing trends. HCL Technologies: Results (October 18th) Revenues (US$ mn) 804 963 1,013 5.3 26.1 • Expect 5.3% sequential growth in US$ terms, building in nearly 70 bps of cross-currency pressure. Revenues 36,116 43,035 49,457 14.9 36.9 • Expect growth to be led equally by application services and IMS. Expect BPO to have another muted quarter, in line with the company's guidance Operating profit 5,634 7,754 8,295 7.0 47.2 • We build in an OPM decline of 120 bps qoq on account of wage hikes during the quarter. Impact would be partially mitigated on account of Re depreciation. Adjusted net profit 2,983 4,916 5,341 8.6 79.0 • We build in forex gains of US$3 mn for the quarter versus gains of US$1.2 mn in the previous quarter. EBITDA margin (%) 15.6 18.0 16.8 Tech Mahindra: Results (November 2nd week) Revenues (US$ mn) 328 290 299 3.1 (8.9) • Expect services revenue growth of 3.1% qoq in US$ terms with 120 bps of cross-currency pressure. Revenues 15,339 12,925 13,721 6.2 (10.6) • Expect margin decline of 150 bps qoq on account of wage hikes during the quarter. Impact partially mitigated by Re depreciation Operating profit 2,818 2,418 2,358 (2.5) (16.3) • We build in forex gains of Rs500 mn versus Rs400 mn in the previous quarter. Adjusted net profit 1,874 2,767 2,652 (4.2) 41.5 • Expect investor focus on developments in the BT account. TM had indicated that BT was to rebid a substantial portion of its IT outsourcing work.

Operating profit margin (%) 18.4 18.7 17.2

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 35 India Technology

Exhibit 5 (contd): Results preview for the quarter ending Sep 2011 (Rs mn)

Key financials Sep-10 Jun-11 Sep-11 %qoq %yoy Comments/What to look for Mphasis BFL (November 3rd week) Revenues (US$ mn) 290 287 289 0.6 (0.5) • We build in 0.6% growth in US$ revenues for the quarter. We expect HP channel revenues to be flat qoq. Revenues 13,454 12,936 13,658 5.6 1.5 • Expect 140 bps qoq decline in operating margins on account of non- recurrence of certain one-off reversals in the previous quarter Operating profit 3,207 2,517 2,477 (1.6) (22.8) • Investor focus would remain on (1) pricing review with HP (2) steps to grow non-HP channel revenues. Adjusted net profit 2,840 1,948 1,909 (2.0) (32.8) Operating profit margin (%) 23.8 19.5 18.1 Mahindra Satyam (November 2nd week) Revenues (US$ mn) 272 320 336 5.0 23.5 • We build in 5% qoq US$ revenue growth with around 80 bps of cross- currency pressure built in. Revenues 12,424 14,339 15,557 8.5 25.2 • Expect a modest margin uptick of 70 bps qoq, driven by Re benefits. We note the company has deferred wage revisions further and that hiring has been below guidance. Operating profit 735 2,100 2,380 13.3 223.8 • Sequential net income growth suffers on account of lower other income qoq. Pre-exceptional net profit 317 2,252 1,905 (15.4) 501.1 Expect investor focus on (1) revenue traction (2) margin trajectory and (3) commentary on potential merger with Tech M. Operating profit margin (%) 5.9 14.6 15.3 Patni Computer Systems: Results (October 18th) Revenues (US$ mn) 178.8 183.8 189.5 3.1 6.0 • We build in revenues of US$189.5 mn for the Sep 2011 quarter, a growth of 3% qoq. Revenues 7,967 8,203 8,751 6.7 9.8 • Build in an OPM expansion of 240 bps qoq primarily led by (1) Re depreciation, and (2) reduction in integration-related expenses. Operating profit 1,437 792 638 (19.5) (55.6) • We factor in forex loss of US$2 mn for the quarter versus gains of US$7 mn in the last quarter. Adjusted net profit 1,281 887 607 (31.5) (52.6) EBIT Margin (ex-forex) (%) 15.3 5.9 8.3 Polaris Software Lab: Results (October 3rd week) Revenues (US$ mn) 83.6 100.7 104.9 4.2 25.5 • Expect 4.2% qoq growth in US$ revenues, primarily volume-led. Revenues 3,883 4,502 4,856 7.9 25.0 • Expect 80 bps qoq improvement in OPM on account of weaker Rupee. Operating profit 606 579 664 14.6 9.5 • Client acquisition pace and account mining remain the key; company needs to make its Intellect wins count by mining these accounts. Adjusted net profit 479 426 495 16.2 3.2 Expect investor focus on demand traction and margin outlook for FY2012E.

Operating profit margin (%) 15.6 12.9 13.7 Hexaware Technologies: Results (October 20th) Revenues (US$ mn) 61.1 74.8 78.3 4.6 28.2 • Build in revenues of US$78.3 mn, within the company's guidance range. Implies a qoq growth rate of 4.6%. Revenues 2,817 3,341 3,636 8.8 29.1 • Expect sequential margin expansion of 100 bps. Impact of onsite wage hikes to be mitigated by Re depreciation benefits. Operating profit 240 510 592 16.1 146.7 • We build in forex gains of Rs35 mn versus a gain of Rs163 mn in the previous quarter. Adjusted net profit 168 602 542 (10.0) 222.4 Operating profit margin (%) 8.5 15.3 16.3 MindTree Consulting: Results (October 17th) Revenues (US$ mn) 82.4 92.5 98.4 6.4 19.5 • We build in a robust 6.4% qoq revenue growth for MT, driven primarily by volume growth with some cross-currency headwinds. Revenues 3,844 4,131 4,527 9.6 17.8 • Expect EBITDA margins to expand 110 bps qoq driven by Re depreciation benefits; positive effect mitigated to some extent on account of partial wage hikes during the quarter (25% of employees). Operating profit 447 460 552 20.0 23.4 • We build in forex gain of Rs70 mn for the quarter versus a gain of Rs90 mn in 1QFY12. Adjusted net profit 232 345 382 10.7 64.4 • Expect investor focus on (1) pricing and discretionary spend trends; esp in the R&D segment, and (2) hiring/attrition metrics. Operating profit margin (%) 11.6 11.1 12.2 Note: (a) Result date yet to be announced for some companies; tentative date indicated based on past pattern for each company.

Source: Kotak Institutional Equities estimates

36 KOTAK INSTITUTIONAL EQUITIES RESEARCH Technology India

Valuation summary

30-Sep-11 Mkt cap. EPS (Rs) PER (X) EV/EBITDA (X) EV/Sales (X) Company Price (Rs) Rating (Rs m) (US$ m) 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E HCL Technologies 408 SELL 287,852 5,879 22.9 29.5 32.8 17.9 13.9 12.5 10.8 8.4 7.4 1.8 1.4 1.2 Hexaware Technologies 83 ADD 24,161 493 3.0 7.5 7.3 28.2 11.1 11.5 21.2 9.7 8.2 1.9 1.4 1.2 Infosys Technologies 2,534 BUY 1,454,401 29,702 119.7 134.3 160.3 21.2 18.9 15.8 14.3 12.7 10.4 4.7 3.9 3.2 Mindtree 350 ADD 14,404 294 24.7 35.2 37.2 14.2 10.0 9.4 7.9 6.1 4.9 0.9 0.8 0.6 Mphasis BFL 344 SELL 72,436 1,479 51.8 38.6 30.0 6.6 8.9 11.5 5.6 6.7 7.2 1.4 1.3 1.1 Patni Computer Systems 289 ADD 38,475 786 42.6 25.9 27.2 6.8 11.2 10.6 3.6 3.9 2.7 0.7 0.6 0.4 Polaris Software Lab 132 REDUCE 13,150 269 19.3 18.8 19.0 6.8 7.0 7.0 3.8 2.9 2.5 0.5 0.4 0.3 Mahindra Satyam 70 SELL 82,555 1,686 4.2 6.7 7.0 16.7 10.6 10.1 12.2 6.2 4.8 1.1 0.9 0.7 TCS 1,037 ADD 2,030,204 41,461 44.5 52.8 61.1 23.3 19.6 17.0 17.6 14.4 12.0 5.3 4.2 3.4 Tech Mahindra 574 SELL 72,343 1,477 48.8 72.1 75.5 11.8 8.0 7.6 8.2 8.1 7.1 1.6 1.4 1.2 Wipro 341 ADD 836,078 17,075 21.6 22.4 24.5 15.8 15.2 13.9 11.5 10.3 9.0 2.5 2.1 1.8 Technology Attractive 4,926,059 100,601 19.2 16.9 15.0 13.8 11.8 10.0 3.4 2.8 2.3

KS universe (b) 43,553,171 889,452 14.8 12.6 10.9 9.6 8.1 6.9 1.5 1.2 1.1

Target O/S shares EPS growth (%) Net Profit (Rs mn) EBITDA (Rs mn) Sales (Rs mn) Company Price (mn) 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E HCL Technologies 375 705 30.4 28.9 11.3 16,214 20,824 23,305 26,270 32,473 34,813 158,551 196,644 225,154 Hexaware Technologies 80 290 (36.8) 154.4 (3.4) 1,073 2,182 2,107 938 2,045 2,357 10,546 13,662 16,013 Infosys Technologies 2,900 574 10.5 12.1 19.4 68,720 77,065 92,029 89,640 98,468 115,081 275,010 322,047 376,496 Mindtree 375 41 (52.7) 42.4 5.8 1,017 1,447 1,532 1,777 2,182 2,626 15,091 17,655 20,664 Mphasis BFL 300 211 18.8 (25.5) (22.2) 10,908 8,124 6,319 12,649 9,713 8,595 50,365 51,026 56,854 Patni Computer Systems 300 133 16.5 (39.3) 5.2 5,675 3,445 3,623 6,165 4,894 6,023 31,696 34,092 37,821 Polaris Software Lab 130 100 25.7 (2.6) 0.7 1,926 1,876 1,890 2,139 2,454 2,530 15,863 19,258 21,598 Mahindra Satyam 70 1,176 68.9 58.4 4.7 4,938 7,824 8,195 4,551 8,448 9,750 51,450 61,285 71,362 TCS 1,160 1,957 26.8 18.6 15.6 87,165 103,366 119,511 111,985 134,741 157,719 373,246 464,928 553,214 Tech Mahindra 600 126 (25.2) 47.8 4.7 6,388 9,450 9,888 10,033 9,383 10,228 51,402 54,348 60,889 Wipro 370 2,454 14.5 3.9 9.1 52,974 55,053 60,073 67,434 72,635 78,989 310,986 356,271 405,688 Technology 17.1 13.1 13.0 256,996 290,657 328,472 333,580 377,436 428,711 1,344,207 1,591,216 1,845,754

KS universe (b) 18.1 17.0 16.2

Notes (a) HCL Technologies is June fiscal year-ending (b) Patni Computers Systems and Hexaware Technologies are December year-ending.

Source: Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 37

Economy.dot INDIA Economy

Balance of Payments SEPTEMBER 30, 2011 UPDATE BSE-30: 16,454 1QFY12 BoP: CAD widens back to 3%. India’s CAD widened to US$14.2 bn (3.1% of GDP) from US$5.4 bn in 4QFY11. However, with capital flows rising sharply, the overall BoP recorded a healthy US$5.4 bn surplus as against US$2 bn in 4QFY11 and US$3.7 bn in 1QFY11. We look for a modest surplus of US$4.5 bn in BoP in FY2012E under assumption for oil at US$110 a barrel. The BoP remains on a knife-edge, especially with the global risks of a sharp deterioration rising and with the CAD/GDP ratio moving back to a 3% zone in 1QFY12. Separately, the RBI published the BoP data as per the standard presentation suggested by the IMFs BoP manual (6th edition), which gives more details of India’s transactions with the rest of the world.

CAD worsens despite the stupendous export growth QUICK NUMBERS India’s current account deteriorated sharply in 1QFY12, reversing the marked improvement seen in the current account balances over the previous two quarters. CAD widened to US$14.2 bn or • CAD widens to 3.1% of GDP from US$5.4 bn in 4QFY11 (1.1% of GDP) and US$12.1 bn in 1QFY11 (3.2% of US$14.2 bn in GDP). This deterioration came despite a 45.7% yoy growth in exports, as imports grew by an 1QFY12 or 3.1% of equally strong 33.2%. As is generally seen, imports under the BoP at US$116.1 bn were higher GDP than that suggested by the DGCI&S data by US$5.5 bn, reflecting possibly defence related payments. Under the new BoP format, the RBI distinguished between non-monetary gold trade • Capital flows rise to and goods. India imported US$10.2 bn worth of gold in 1QFY12, a jump of 58.7% yoy. Overall, US$20.9 bn on trade deficit widened to US$35.5 bn in 1QFY12 from US$ 29.9 bn in 4QFY11. Invisible receipts at higher banking US$21.3 bn also declined from the previous quarter (US$24.5 bn), further worsening the CAD. capital and FDI Net services receipts were lower (travel, transportation and software services) while investment flows income fell further owing to the low interest rate regime prevailing globally. Remittances were largely stable possibly as the crisis in the Middle East encouraged money transfers from these • BoP surplus at regions. US$5.4 bn, highest in 7 quarters Capital account flows pick up, helping a modest surplus on BoP

Capital flows, after having surprised on the lower side over the previous two quarters, recovered sharply in 1QFY12. Total capital flows amounted to US$20.9 bn as against a mere US$8.2 bn in 4QFY11. While all the major heads under capital account saw higher inflows in 1QFY12 in comparison to 4QFY11, the greatest increase was seen in banking capital (US$12.7bn versus (-) US$0.8bn) and FDIs (US$ 7.2 bn versus US$0.6 bn in 4QFY11). The swing in the banking capital was due to a combination of banks drawing down their foreign currency assets head abroad as well as increasing their overseas borrowing. External commercial borrowings stood at US$2.9 bn (US$2.4 bn in 4QFY11) while short term credit was US$3.1 bn (versus US$2.7 bn in 4QFY11). Overall, the BoP surplus rose to the highest in seven quarters at US$5.4 bn in 1QFY12.

BoP to record a modest surplus in FY2012E; risks from deterioration in global conditions

We have been highlighting the delicate balance in India’s BoP position in FY2012E and today’s data reinforces this view. On the current account side, we expect export growth to taper off as global demand weakens and the positive impact of the DEPB scheme fades. Imports, on the other hand, might not come off sharply as there could be still some resilience for commodity prices in general from sliding sharply with continuing monetary accommodation from the developed economies. Moderation in net service receipts, owing to weak global demand and negative investment income due to the low global interest rate regime, will see the CAD at close to US$61.0 bn (3.1% of GDP) in FY2012E as against US$44.3 bn in FY2011 (2.6% of GDP). On the capital account, while 1QFY12 flows were healthy, there are risks to portfolio flows as well as short-term credit if the global environment deteriorates sharply. We thus expect overall BoP in FY2012E at US$4.5 bn sharply lower than US$13.1 bn in FY2011.

For Private Circulation Only. Economy

RBI presents new BoP format in line with IMF guidelines

The RBI published the BoP data as per the standard presentation suggested by the IMFs BoP manual (6th edition), which gives more details of India’s transactions with the ROW. While there has been a reclassification of items between the old and the new format, the broad aggregate dynamics of the current account and the capital account (as defined under the old format) remain unchanged. As historical numbers in the new BoP format are not available, we present our FY2012E BoP forecasts as per the old format and would update forecasts to the new format once more information is available related to the new format.

Please find a comparison of the old and new BoP format below.

This section lists out the major changes in the various accounts of BoP to provide a link between the earlier and new formats.

Current Account

` Services have been presented in the new format under the 12 sub-heads with minor reclassification of the heads.

` Income and private transfers have been classified under the heads of ‘primary income’ and ‘secondary income’, respectively. ’Primary income‘ includes compensation of employees and investment income from the old format. ’Secondary income‘ in the new format includes only the private transfers portion, while official transfers is included as part of rechristened capital account.

Capital Account

` Existing capital account (under old format) has been bifurcated under two heads as ‘capital account’ and ‘financial account’ in the new format. Accordingly, the rechristened capital account in the new format includes only official transfer part of current account and purchase/sale of intangible assets like patents, copyrights, trademarks etc., portion of capital account of the old format.

Financial Account

` The ‘financial account’ in the new format is actually the significant portion of the capital account as under the old format.

` Purchase/sale of intangible assets like patents, copyrights, trademarks, etc., portion of capital account of the old format is now excluded and is part of the new ‘capital account’.

` The key change is the inclusion of reserve assets, which was an item below the line in the old format.

` Funds raised by Indian corporate houses through ADRs/ GDRs which was part of portfolio investment in the old format has been classified under ‘other investments’.

` Banking capital has been classified into three parts. (1) NRI deposits has been named as ‘currency and deposits’ of ‘deposit taking corporations, except the central bank’; (2) movements in Nostro/Vostro balances have been classified as ‘loans to deposit taking corporations’; (3) ‘Others’ of banking capital in the old format has been included as currency and deposits of central banks.

` External assistance to/by India has been reclassified as loans to/by General Government.

` External Commercial Borrowings to/by India have been reclassified as loans to/by other sectors.

KOTAK ECONOMIC RESEARCH 39 India Economy

Exhibit 1: Surplus on BoP improves in 1QFY12, but a worsening current account to lower FY2012E surplus India’s quarterly balance of payments, March fiscal year-ends, 2009-2012E, (US$ bn)

2009 2010 2011 2012E 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 Current account (27.9) (38.4) (44.3) (61.0) (12.1) (16.8) (10.0) (5.4) (14.2) GDP 1,214 1,381 1,727 1,973 384 389 464 491 461 CAD/GDP (%) (2.3) (2.8) (2.6) (3.1) (3.2) (4.3) (2.2) (1.1) (3.1) Trade balance (119.5) (118.4) (130.6) (160.0) (31.9) (37.3) (31.5) (29.9) (35.5) Trade balance/GDP (%) (9.8) (8.6) (7.6) (8.1) (8.3) (9.6) (6.8) (6.1) (7.7) - Exports 189 182 250 319 55 52 66 77 80.6 - Imports 309 301 381 479 87 89 97 107 116.1 o/w Oil imports 94 87 101 148 26 22 24 29 31 o/w Non-oil imports 215 213 280 331 62 67 74 78 86 Invisibles (net) 92 80 86 99 19.8 20 21 24.5 21.3 - Services 54 36 48 57 9.6 12 12 14.5 12.1 o/w Software 44 48 57 65 12.5 13 15 16.7 14.2 o/w Non-software 10.2 (12.5) (9.1) (8.0) (3.0) (0.9) (3.1) (2.2) (2.1) - Transfers 45 52 53 55 13.0 13 14 13.8 13.6 - Other invisibles (7.1) (8.0) (15) (13.0) (2.9) (4.2) (4.0) (3.9) (4.3) Capital account 6.8 53.4 59.8 68.5 16.8 21.4 13.4 8.2 20.9 % of GDP 0.6 3.9 3.5 3.6 4.4 5.5 2.9 1.7 4.5 Foreign investment 5.8 51.2 37.4 29.5 7.6 22.2 6.9 0.8 9.7 - FDI 19.8 18.8 7.1 20.0 2.9 3.0 0.6 0.6 7.2 - FII (15.0) 29.0 28.2 8.0 3.5 18.7 6.1 (0.0) 2.3 - ADRs/GDRs 1.2 3.3 2.0 1.5 1.1 0.5 0.2 0.2 0.3 Banking capital (3.2) 2.1 5.0 16.0 4.0 (3.2) 4.9 (0.8) 12.7 - NRI deposits 4.3 2.9 3.2 3.0 1.1 1.0 0.2 0.9 1.2 Short-term credit (2.0) 7.6 11.0 13.0 4.3 2.6 1.3 2.7 3.1 ECBs 7.9 2.8 11.9 15.0 2.2 3.4 3.8 2.4 2.9 External assistance 2.4 2.9 4.9 3.0 2.5 0.6 1.2 0.8 0.4 Other capital account items (4.1) (13.1) (10.4) (8.0) (3.8) (4.3) (4.8) 2.4 (7.8) E&O 1.1 (1.6) (2.4) (3.0) (0.9) (1.3) 0.6 (0.8) (1.3) Overall balance (20.1) 13.4 13.1 4.5 3.7 3.3 4.0 2.0 5.4 memo items: Average exchange rate (US$/Rs) 45.99 47.41 45.57 46.30 45.68 46.51 44.85 45.25 44.74 Average Indian crude (US$/bbl) 84.0 70.0 85.1 110.0 78.3 74.9 85.3 102.0 112.7

Source: RBI, Kotak Economic Research

40 KOTAK ECONOMIC RESEARCH Economy

Exhibit 2: Net FDI inflows rise sharply as FDI inflows more than double India’s quarterly FDI flows, March fiscal year-ends, 2QFY07-4QFY11, (US$ bn)

20 Gross FDI inflows Gross FDI outflows Net FDI flows 18 16 14 12 10 8 6 4 2 0 Jun-11 Jun-10 Jun-09 Jun-08 Jun-07 Sep-10 Sep-09 Sep-08 Sep-07 Sep-06 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Mar-11 Mar-10 Mar-09 Mar-08 Mar-07

Source: CEIC, Kotak Economic Research

Exhibit 3: The new BoP format reclassifies the old capital account as the ‘financial account’; current account remains largely unchanged India’s Balance of Payments as per the IMF guidelines (US$ bn)

1QFY12 1QFY11 4QFY11 A. Current account (i+ii+iii+iv) (14.1) (12.0) (5.4) i. Goods (Merchandise trade) (35.4) (32.3) (29.7) ii. Services 11.9 10.0 14.4 iii. Primary Income (Income) (4.3) (2.9) (3.9) iv. Secondary Income (Transfers) 13.7 13.1 13.8 B. Capital account (Official transfers) (0.3) (0.1) 0.0 C. Financial Account (v+vi+vii+viii) 15.7 13.0 6.2 v. Direct Investment (net) 7.2 2.9 0.6 vi. Portfolio Investment 2.3 3.5 0.0 vii. Other Investment 11.7 10.3 7.7 - Other equity (ADRs/GDRs) 0.3 1.1 0.2 - Currency and deposits (NRIs) 1.2 1.1 2.0 - Loans (External assistance, ECBs, Banking capital) 14.8 7.6 0.4 - Trade credit and advances (ST trade credit) 3.1 4.3 2.7 - Other accounts receivable/payable (Other capital account) (7.7) (3.8) 2.3 viii. Reserve assets (5.4) (3.7) (2.0) D. Errors and Omissions (1.3) (0.9) (0.8)

Source: RBI, Kotak Economic Research

KOTAK ECONOMIC RESEARCH 41

KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of key Indian companies India DailyIndia Summary-October 2011 3,

O/S Target 30-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) Automobiles Apollo Tyres 55 BUY 27,851 569 504 8.7 7.8 9.7 (26.1) (11.3) 24.8 6.3 7.1 5.7 5.2 4.5 4.0 1.0 0.9 0.8 0.9 0.8 1.0 20.1 15.1 16.2 85 53.8 4.4 Ashok Leyland 26 SELL 69,444 1,418 2,661 2.4 2.1 2.4 68.1 (11.9) 12.8 11.0 12.5 11.1 7.6 8.0 7.2 1.5 1.5 1.4 3.8 3.8 3.8 21.8 17.4 18.2 26 (0.4) 4.1 Bajaj Auto 1,536 SELL 444,504 9,075 289 90.4 103.3 113.0 43.9 14.3 9.4 17.0 14.9 13.6 12.9 11.7 11.0 9.0 6.8 5.2 2.6 2.6 2.6 84.9 51.9 43.4 1,585 3.2 14.2 Bharat Forge 268 ADD 63,632 1,299 237 12.5 16.0 20.2 1,402.1 27.9 25.8 21.4 16.7 13.3 10.1 8.3 6.9 2.8 2.4 2.1 1.3 — — 8.2 14.0 15.1 320 19.3 2.8 Exide Industries 130 SELL 110,160 2,249 850 7.5 6.8 7.9 18.0 (8.9) 17.0 17.4 19.1 16.3 12.5 13.6 11.8 4.0 3.5 2.9 1.2 1.0 1.0 25.5 19.4 19.5 120 (7.4) 6.4 Hero Honda 1,942 SELL 387,767 7,917 200 99.3 111.1 128.2 (11.1) 11.8 15.4 19.5 17.5 15.1 12.8 12.8 10.4 8.3 8.5 8.1 5.4 3.6 3.6 56.5 63.5 60.3 1,800 (7.3) 22.1 Mahindra & Mahindra 805 ADD 494,117 10,088 614 41.7 46.9 52.2 22.7 12.5 11.2 19.3 17.1 15.4 14.8 12.5 11.0 4.6 3.8 3.2 1.4 1.2 1.2 27.3 24.5 22.6 900 11.8 32.4 Maruti Suzuki 1,083 ADD 312,879 6,388 289 79.2 66.0 90.3 (8.4) (16.7) 36.8 13.7 16.4 12.0 8.3 9.4 6.4 2.2 2.0 1.7 0.7 0.7 0.7 17.6 12.9 15.5 1,240 14.5 12.2 India Daily India Summary -October Tata Motors 156 ADD 518,866 10,593 3,325 27.2 23.1 23.9 737.9 (15.0) 3.6 5.7 6.8 6.5 4.4 5.0 4.7 2.7 2.0 1.6 2.5 1.8 1.8 66.1 34.2 27.3 180 15.3 53.3 Automobiles Cautious 2,429,220 49,596 82.8 (4.4) 11.7 11.9 12.4 11.1 7.9 8.1 7.2 3.7 3.1 2.6 2.4 1.9 2.0 31.1 24.7 23.0 Banks/Financial Institutions Andhra Bank 124 BUY 69,248 1,414 560 22.6 24.2 27.5 5.0 6.9 13.5 5.5 5.1 4.5 — — — 1.1 0.9 0.8 4.4 4.8 5.4 23.2 19.4 19.2 190 53.5 1.8 Axis Bank 1,019 BUY 418,305 8,540 411 82.5 98.9 119.7 33.0 19.8 21.1 12.3 10.3 8.5 — — — 2.2 1.9 1.6 1.4 1.6 2.0 19.3 19.7 20.3 1,700 66.8 50.2 Bajaj Finserv 524 ADD 75,870 1,549 145 78.2 62.7 61.4 102.3 (19.8) (2.1) 6.7 8.4 8.5 — — — 2.2 1.6 1.3 2.4 2.4 2.4 37.2 21.8 16.4 650 24.0 3.0 Bank of Baroda 762 BUY 299,437 6,113 393 108.0 109.5 129.1 29.1 1.4 17.9 7.1 7.0 5.9 — — — 1.5 1.3 1.1 2.5 2.6 3.0 25.9 20.4 20.5 1,250 64.0 7.2 Bank of India 315 BUY 172,511 3,522 547 45.5 54.0 70.7 37.4 18.7 30.9 6.9 5.8 4.5 — — — 1.1 0.9 0.8 2.6 3.1 4.0 17.3 17.2 19.5 470 49.1 6.0 Canara Bank 444 BUY 196,714 4,016 443 90.9 86.3 108.7 23.3 (5.0) 25.9 4.9 5.1 4.1 — — — 1.1 0.9 0.8 2.5 2.7 2.7 23.2 17.7 19.0 600 35.1 7.6 Corporation Bank 422 BUY 62,474 1,276 148 95.4 93.4 114.1 16.3 (2.1) 22.2 4.4 4.5 3.7 — — — 0.9 0.8 0.7 4.7 4.6 5.7 21.9 18.1 19.2 630 49.4 0.7 Federal Bank 368 BUY 62,980 1,286 171 34.3 44.5 56.2 26.3 29.8 26.1 10.7 8.3 6.6 — — — 1.3 1.1 1.0 2.3 3.0 3.8 12.0 14.2 16.0 500 35.8 3.5 HDFC 641 REDUCE 940,136 19,194 1,467 24.1 27.8 31.9 22.4 15.6 14.6 26.6 23.0 20.1 — — — 5.4 4.8 3.7 1.4 1.6 1.9 21.7 22.1 21.5 730 13.9 36.6 HDFC Bank 468 ADD 1,087,814 22,209 2,326 16.9 21.9 27.6 31.0 29.5 26.5 27.7 21.4 16.9 — — — 4.3 3.7 3.2 0.7 0.9 1.2 16.7 18.6 20.2 560 19.7 35.8 ICICI Bank 875 BUY 1,008,303 20,586 1,152 44.7 58.0 63.1 23.9 29.7 8.8 19.6 15.1 13.9 — — — 1.8 1.7 1.6 1.6 2.0 2.2 9.7 11.7 11.8 1,100 25.7 77.1 IDFC 111 BUY 167,161 3,413 1,509 8.8 9.9 12.0 4.6 12.8 21.6 12.6 11.2 9.2 — — — 1.6 1.3 1.2 1.9 1.8 2.2 14.7 13.1 13.9 150 35.4 21.8 India Infoline 70 SELL 22,899 468 327 7.4 4.8 6.5 (9.3) (34.5) 33.8 9.5 14.5 10.8 — — — 1.4 1.2 1.1 4.4 1.4 2.0 12.9 8.7 10.3 70 (0.1) 1.1 Indian Bank 214 BUY 91,842 1,875 430 38.8 42.0 50.9 10.5 8.2 21.2 5.5 5.1 4.2 — — — 1.2 1.0 0.8 3.5 3.7 4.5 22.3 20.4 21.0 300 40.4 1.7 Indian Overseas Bank 93 BUY 57,296 1,170 619 17.3 21.1 30.8 33.6 22.0 45.4 5.3 4.4 3.0 — — — 0.7 0.6 0.5 5.4 4.6 5.0 12.7 13.3 17.0 190 105.2 1.7 IndusInd Bank 262 BUY 122,200 2,495 466 12.4 15.2 18.2 45.2 22.6 19.9 21.2 17.3 14.4 — — — 3.3 2.9 2.6 0.8 0.9 1.1 20.8 17.7 17.9 325 23.9 3.6 J&K Bank 802 ADD 38,905 794 48 126.9 141.8 152.8 20.1 11.8 7.7 6.3 5.7 5.3 — — — 1.1 1.0 0.9 3.2 3.6 3.9 19.0 18.4 17.3 950 18.4 0.6 LIC Housing Finance 212 ADD 100,476 2,051 475 20.5 22.9 27.5 47.2 11.4 20.4 10.3 9.3 7.7 — — — 2.6 2.2 1.8 2.1 2.3 2.8 25.8 23.7 23.9 260 22.9 20.8 Mahindra & Mahindra Financial 659 BUY 67,521 1,379 102 45.2 56.4 69.2 26.1 24.8 22.7 14.6 11.7 9.5 — — — 2.7 2.4 2.0 1.5 1.9 2.3 22.0 21.4 22.3 825 25.2 1.1 Muthoot Finance 164 BUY 60,949 1,244 371 15.7 21.6 26.7 108.4 37.1 23.7 10.4 7.6 6.1 — — — 4.6 2.0 1.5 — — — 51.5 36.7 28.1 230 40.2 — Oriental Bank of Commerce 292 BUY 85,238 1,740 292 51.5 55.6 65.4 13.7 8.0 17.6 5.7 5.3 4.5 — — — 0.8 0.7 0.7 3.6 3.8 4.5 15.5 13.9 14.7 430 47.2 3.9 PFC 150 BUY 197,990 4,042 1,320 22.8 23.4 28.3 11.1 2.4 21.3 6.6 6.4 5.3 — — — 1.3 1.0 0.9 2.6 3.1 3.8 18.4 17.0 16.7 225 50.0 15.2 Punjab National Bank 953 BUY 301,922 6,164 317 140.0 163.0 201.5 13.0 16.5 23.6 6.8 5.8 4.7 — — — 1.5 1.3 1.0 2.3 3.5 4.3 24.4 23.5 24.2 1,500 57.4 7.1 Reliance Capital 315 REDUCE 77,577 1,584 246 9.3 16.5 24.8 (25.3) 77.0 50.4 33.9 19.1 12.7 — — — 1.1 1.1 1.0 1.2 2.1 3.1 3.3 5.7 8.3 470 49.1 25.2 Rural Electrification Corp. 174 BUY 171,707 3,506 987 26.0 29.0 32.5 28.1 11.5 12.3 6.7 6.0 5.3 — — — 1.3 1.2 1.0 4.3 4.8 5.4 21.5 20.8 20.4 240 38.0 11.3 Shriram Transport 612 REDUCE 136,651 2,790 223 55.1 65.6 75.3 40.8 19.0 14.8 11.1 9.3 8.1 — — — 2.8 2.4 2.0 1.1 2.1 2.5 28.1 26.8 25.2 700 14.3 7.7 SKS Microfinance 246 RS 18,123 370 74 15.7 (39.1) 3.9 (41.8) (349.4) (109.9) 15.7 (6.3) 63.5 — — — 1.0 1.2 1.1 — — — 8.3 (17.4) 1.9 — — 8.9 State Bank of India 1,911 BUY 1,213,515 24,776 635 130.2 195.6 256.1 (9.9) 50.3 30.9 14.7 9.8 7.5 — — — 1.9 1.6 1.4 1.8 1.9 2.0 12.6 17.8 20.0 2,750 43.9 116.2 Union Bank 245 BUY 128,304 2,620 524 39.5 50.2 60.4 (3.9) 27.1 20.5 6.2 4.9 4.0 — — — 1.2 1.0 0.8 3.8 4.8 5.8 20.9 21.9 22.5 425 73.7 5.0 Yes Bank 273 BUY 94,615 1,932 347 21.5 26.2 32.3 43.2 22.1 23.3 12.7 10.4 8.4 — — — 2.5 2.1 1.7 0.9 1.1 1.4 21.7 21.7 22.2 420 54.1 16.1 Banks/Financial Institutions Attractive 7,548,684 154,118 20.1 20.0 22.9 12.3 10.3 8.4 ——— 2.0 1.7 1.5 1.8 2.1 2.4 16.0 16.6 17.5 Cement ACC 1,099 SELL 206,396 4,214 188 55.6 60.1 72.7 (33.2) 8.2 20.9 19.8 18.3 15.1 12.1 10.2 8.0 3.0 2.7 2.4 3.2 2.1 2.1 17.5 17.3 18.1 980 (10.8) 6.6 Ambuja Cements 149 SELL 226,682 4,628 1,522 7.9 7.8 9.8 (1.5) (0.5) 25.5 18.9 19.0 15.1 11.5 10.5 8.1 2.9 2.6 2.4 1.4 1.5 1.6 16.6 14.8 16.9 135 (9.3) 6.2 Grasim Industries 2,342 BUY 214,790 4,385 92 232.0 254.6 277.2 (22.9) 9.7 8.9 10.1 9.2 8.4 6.2 4.8 4.3 1.5 1.3 1.1 0.8 1.5 1.5 15.7 15.0 14.4 2,900 23.8 3.7 India Cements 73 ADD 22,286 455 307 1.9 8.3 9.2 (81.2) 339.0 10.4 38.4 8.7 7.9 14.2 5.7 5.1 0.5 0.5 0.5 2.2 4.4 4.4 1.4 6.2 6.5 82 13.0 1.6 Shree Cement 1,848 REDUCE 64,372 1,314 35 57.2 83.1 132.9 (72.5) 45.5 59.8 32.3 22.2 13.9 7.2 6.8 4.7 3.4 3.1 2.7 0.6 0.6 0.6 10.7 14.5 20.7 1,730 (6.4) 1.1 UltraTech Cement 1,142 ADD 312,844 6,387 274 44.9 73.1 85.9 (49.2) 63.0 17.5 25.4 15.6 13.3 12.4 8.3 6.9 2.5 2.2 1.9 0.4 0.5 0.5 16.7 17.3 17.3 1,220 6.9 3.9 Cement Neutral 1,047,369 21,384 (23.7) 23.0 18.0 17.9 14.5 12.3 9.4 7.3 6.0 2.2 2.0 1.7 1.3 1.3 1.3 12.2 13.4 14.1

Source: Company, Bloomberg, Kotak Institutional Equities estimates 42

43 43 India Daily Summary - OctoberSummary 2011 Daily- 3, India Kotak Institutional Equities: Valuation summary of key Indian companies

O/S Target 30-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) Consumer products Asian Paints 3,158 SELL 302,871 6,184 96 80.8 94.6 111.4 13.0 17.1 17.7 39.1 33.4 28.3 26.1 21.2 17.4 14.8 11.4 9.2 1.0 0.9 1.1 43.9 40.0 36.8 2,900 (8.2) 5.0 Colgate-Palmolive (India) 983 SELL 133,647 2,729 136 29.6 34.1 38.8 (4.9) 15.0 14.1 33.2 28.9 25.3 28.9 25.2 21.1 34.8 35.4 28.3 2.2 3.0 2.8 113.4 121.6 124.2 900 (8.4) 1.9 Dabur India 103 SELL 179,259 3,660 1,740 3.3 3.7 4.4 12.8 14.1 18.8 31.5 27.6 23.3 25.4 20.9 17.6 13.7 10.6 8.3 1.1 1.3 1.5 51.2 43.8 40.6 110 6.8 2.9 GlaxoSmithkline Consumer (a) 2,367 ADD 99,529 2,032 42 71.3 83.2 104.0 28.8 16.7 25.0 33.2 28.4 22.8 23.8 20.5 17.2 10.7 9.1 7.6 2.1 1.6 2.0 32.2 33.5 35.5 2,900 22.5 1.0 Godrej Consumer Products 401 ADD 129,598 2,646 324 14.9 18.4 22.7 31.3 23.4 23.8 26.9 21.8 17.6 23.0 16.0 12.2 7.5 5.3 4.3 1.3 0.8 0.8 35.9 28.7 27.0 510 27.3 2.4 Hindustan Unilever 341 ADD 735,504 15,016 2,159 9.9 11.3 13.3 4.8 14.1 17.7 34.5 30.2 25.7 29.3 25.6 21.0 27.9 24.2 20.9 2.2 2.8 3.2 66.3 85.9 87.5 370 8.6 19.3 ITC 198 ADD 1,520,773 31,049 7,681 6.4 8.0 9.1 20.7 24.9 13.1 30.9 24.7 21.9 20.5 16.7 14.5 9.1 7.8 6.8 2.3 1.9 2.3 33.2 35.5 34.4 230 16.2 34.0 Jubilant Foodworks 793 SELL 51,890 1,059 65 11.2 16.6 24.1 99.6 48.6 45.1 70.8 47.7 32.9 43.2 26.4 18.4 27.1 17.3 11.3 — — — 46.6 44.2 41.6 750 (5.4) 30.2 Jyothy Laboratories 155 ADD 12,466 255 81 10.5 9.4 11.8 (5.0) (10.1) 25.2 14.8 16.4 13.1 12.0 10.7 8.8 1.9 1.8 1.6 3.8 3.0 3.8 12.3 11.1 12.9 220 42.3 0.4 Marico 144 ADD 87,973 1,796 612 4.2 5.4 7.1 10.9 27.3 32.6 34.1 26.8 20.2 22.8 18.3 13.9 9.4 7.3 5.7 0.5 0.7 0.9 32.8 31.3 32.2 185 28.6 1.4 Nestle India (a) 4,252 SELL 409,969 8,370 96 86.8 103.6 123.2 16.7 19.3 18.9 49.0 41.0 34.5 32.6 26.7 22.0 47.9 34.8 26.3 1.1 1.4 1.7 116.5 98.3 86.8 3,500 (17.7) 2.3 Tata Global Beverages 86 ADD 53,059 1,083 618 4.0 6.0 7.1 (34.6) 52.6 17.6 21.7 14.2 12.1 8.4 7.1 5.9 1.1 1.0 1.0 2.3 3.6 4.2 6.5 9.6 10.8 120 39.9 4.5 Titan Industries 209 ADD 185,503 3,787 888 4.9 7.4 8.8 71.7 51.5 17.8 42.5 28.1 23.8 31.0 19.5 16.0 17.1 12.1 9.2 0.6 1.1 1.4 47.8 50.5 44.0 240 14.9 19.0 United Spirits 796 ADD 99,941 2,040 126 29.5 39.2 50.6 8.3 32.8 29.0 26.9 20.3 15.7 14.6 11.2 9.6 2.3 2.1 1.9 0.4 0.3 0.5 9.1 10.7 12.5 1,100 38.2 4.9 Consumer products Neutral 4,001,982 81,706 16.3 21.8 17.2 33.4 27.4 23.4 23.3 18.9 15.9 10.3 8.7 7.5 1.8 1.8 2.1 30.8 31.9 32.0 Constructions IVRCL 35 BUY 9,385 192 267 5.9 5.7 6.6 (25.2) (4.1) 15.6 5.9 6.2 5.4 5.6 5.4 5.2 0.5 0.4 0.4 1.1 1.1 1.1 8.2 7.3 7.9 75 113.4 5.1 Nagarjuna Construction Co. 60 BUY 15,485 316 257 6.4 5.9 7.7 (29.7) (7.8) 30.8 9.5 10.3 7.9 8.0 7.5 7.0 0.7 0.6 0.6 3.3 3.3 3.3 7.1 6.3 7.8 100 65.7 1.4 Punj Lloyd 54 REDUCE 18,372 375 340 (1.5) 5.5 7.4 (56.6) (467.8) 34.9 (36.4) 9.9 7.3 12.6 5.6 4.9 0.6 0.6 0.5 (0.1) 0.9 1.2 (1.7) 6.1 7.7 65 20.1 6.9 Sadbhav Engineering 132 BUY 19,784 404 150 7.8 10.8 11.9 51.0 38.9 10.6 17.0 12.2 11.1 10.1 8.1 7.4 3.1 2.5 2.1 0.5 0.5 0.5 18.1 20.4 18.6 180 36.4 0.2 Construction Attractive 63,025 1,287 (1.1) 67.6 23.4 16.3 9.7 7.9 8.7 6.3 5.8 0.8 0.7 0.7 1.1 1.4 1.5 4.8 7.6 8.7 Energy Aban Offshore 353 BUY 15,353 313 44 134.2 99.1 102.6 25.9 (26.1) 3.5 2.6 3.6 3.4 6.4 6.7 6.3 0.7 0.7 0.6 1.0 1.1 1.3 33.3 21.9 17.9 670 89.9 8.5 Bharat Petroleum 648 ADD 234,206 4,782 362 38.9 54.0 55.1 (32.5) 38.9 1.9 16.7 12.0 11.8 10.7 7.5 7.2 1.6 1.4 1.3 2.2 2.7 2.8 9.2 11.8 11.2 780 20.4 6.4 Cairn india 273 REDUCE 518,272 10,581 1,902 33.3 45.8 49.7 501.1 37.4 8.6 8.2 6.0 5.5 5.9 4.3 3.3 1.3 1.1 1.0 — 1.8 5.5 16.9 19.8 19.2 295 8.3 13.2 Castrol India (a) 477 SELL 118,039 2,410 247 19.8 21.9 22.3 28.5 10.8 1.6 24.1 21.8 21.4 15.4 14.5 14.1 22.9 20.8 19.8 3.1 3.6 3.8 100.2 100.2 94.7 425 (11.0) 1.8 GAIL (India) 411 BUY 520,774 10,632 1,268 28.2 34.3 36.0 13.8 21.8 4.9 14.6 12.0 11.4 9.2 8.8 7.9 2.5 2.1 1.8 1.8 2.2 2.4 17.5 18.4 16.5 560 36.4 10.0 GSPL 106 SELL 59,381 1,212 563 8.9 8.5 8.4 21.7 (4.0) (1.2) 11.9 12.4 12.5 7.5 7.2 7.1 2.6 2.2 1.9 0.9 1.6 2.4 25.2 19.3 16.4 92 (12.8) 5.2 Hindustan Petroleum 367 ADD 124,264 2,537 339 40.8 20.3 33.9 (20.8) (50.4) 67.3 9.0 18.1 10.8 4.0 4.9 3.5 0.8 0.8 0.7 3.8 1.7 2.9 9.0 4.1 6.5 430 17.3 6.9 Indian Oil Corporation 311 BUY 756,185 15,439 2,428 32.4 28.4 32.1 (34.0) (12.5) 12.9 9.6 11.0 9.7 8.9 7.8 6.8 1.3 1.2 1.1 3.1 2.8 3.1 13.3 10.8 11.3 385 23.6 3.9 Oil India 1,349 BUY 324,451 6,624 240 120.0 171.7 190.1 4.2 43.1 10.7 11.2 7.9 7.1 5.8 3.2 2.6 1.9 1.7 1.4 2.8 4.1 4.4 16.2 20.1 19.4 1,750 29.7 1.8 Oil & Natural Gas Corporation 266 BUY 2,276,623 46,481 8,556 24.7 37.2 40.8 7.4 50.8 9.7 10.8 7.2 6.5 4.1 3.0 2.4 1.5 1.3 1.2 3.3 4.5 5.3 14.3 19.1 18.3 380 42.8 26.9 Petronet LNG 160 SELL 119,925 2,448 750 8.1 11.5 11.4 50.3 41.3 (0.7) 19.7 14.0 14.1 11.4 9.2 9.4 4.0 3.3 2.7 1.3 1.9 1.9 20.9 24.6 20.2 125 (21.8) 11.5 Reliance Industries 808 BUY 2,409,691 49,197 2,981 62.0 69.2 71.1 24.8 11.7 2.7 13.0 11.7 11.4 7.1 6.3 5.7 1.5 1.3 1.2 1.0 1.1 1.2 13.0 13.1 12.0 1,000 23.7 91.2 Energy Attractive 7,477,165 152,658 11.6 24.4 7.8 11.1 9.0 8.3 6.2 5.0 4.3 1.5 1.4 1.2 2.1 2.7 3.3 13.8 15.2 14.7 Industrials ABB 693 SELL 146,895 2,999 212 3.0 21.1 27.3 (82.2) 606.1 29.6 232.3 32.9 25.4 168.2 22.1 16.5 6.1 5.3 4.5 0.3 0.5 0.5 2.6 17.1 19.1 700 1.0 1.8 BGR Energy Systems 322 Reduce 23,205 474 72 44.8 40.4 39.0 60.0 (9.7) (3.5) 7.2 8.0 8.2 4.9 4.4 4.1 2.4 2.0 1.7 3.1 2.5 2.4 39.0 27.4 21.9 400 24.4 5.1 Bharat Electronics 1,534 ADD 122,728 2,506 80 107.3 121.7 135.5 11.6 13.5 11.3 14.3 12.6 11.3 6.4 5.3 3.8 2.4 2.1 1.8 1.4 1.6 1.6 18.2 17.6 17.1 1,875 22.2 1.3 Bharat Heavy Electricals 1,640 REDUCE 802,641 16,387 490 122.8 126.6 137.4 39.7 3.0 8.5 13.3 13.0 11.9 8.9 8.2 7.4 4.0 3.2 2.7 1.9 1.6 1.8 33.3 27.6 24.6 1,800 9.8 31.6 Crompton Greaves 153 BUY 97,829 1,997 642 14.3 10.6 13.5 11.5 (25.8) 26.7 10.6 14.3 11.3 6.9 8.0 6.0 3.0 2.5 2.1 1.6 1.1 1.2 31.7 19.1 20.5 210 37.7 17.2 Larsen & Toubro 1,358 REDUCE 826,575 16,876 609 67.7 79.2 91.7 18.1 16.9 15.9 20.1 17.1 14.8 14.5 11.1 10.0 3.1 2.6 2.2 1.1 1.0 1.0 17.0 16.5 16.2 1,625 19.7 63.9 Maharashtra Seamless 353 BUY 24,901 508 71 46.1 41.6 46.7 19.3 (9.7) 12.3 7.7 8.5 7.6 4.0 4.1 3.3 1.0 0.9 0.8 2.3 2.4 2.6 13.3 11.1 11.5 460 30.3 0.1 Siemens 838 SELL 282,456 5,767 337 22.4 28.9 32.5 39.5 28.8 12.3 37.3 29.0 25.8 22.0 18.5 16.1 8.7 7.1 5.8 0.6 0.7 0.8 25.2 26.9 24.8 830 (0.9) 3.1 Suzlon Energy 36 SELL 63,625 1,299 1,746 (6.0) 1.8 3.2 (4.6) (129.2) 80.6 (6.1) 20.7 11.5 19.5 7.3 6.3 0.9 0.9 0.9 — 0.5 0.5 (15.8) 4.4 7.7 40 9.7 18.8 Tecpro Systems 224 ADD 11,309 231 50 27.0 29.4 32.7 24.2 8.9 11.4 8.3 7.6 6.8 5.3 5.5 4.8 1.7 1.4 1.2 — — — 26.8 20.5 19.6 300 33.9 0.2 Thermax 442 REDUCE 52,706 1,076 119 31.6 33.0 35.1 44.3 4.4 6.3 14.0 13.4 12.6 9.1 8.2 7.6 4.0 3.3 2.8 2.0 2.2 2.3 31.5 27.2 24.3 550 24.3 1.9 Voltas 111 ADD 36,762 751 331 9.8 9.7 10.5 (14.3) (1.1) 8.8 11.4 11.5 10.6 6.7 6.4 5.3 2.7 2.3 1.9 1.8 2.7 (0.0) 26.1 21.6 19.9 150 35.0 3.7 Industrials Cautious 2,491,631 50,870 25.5 20.4 13.8 18.9 15.7 13.8 12.0 9.8 8.7 3.4 2.8 2.4 1.3 1.3 1.3 17.7 18.0 17.5

KOTAK INSTITUTIONAL EQUITIES RESEARCH Infrastructure Container Corporation 969 ADD 125,977 2,572 130 67.6 70.0 77.7 11.7 3.6 11.0 14.3 13.8 12.5 10.3 8.9 7.8 2.5 2.2 2.0 1.6 1.7 1.8 18.9 17.1 16.8 1,150 18.7 0.8 GMR Infrastructure 27 RS 99,203 2,025 3,667 (0.0) (0.4) 0.5 (102.0) 3,980.8 (243.5) (3,120.8) (76.5) 53.3 12.6 10.9 8.8 0.9 0.9 0.9 — — — (0.0) (2.0) 2.8 — — 2.5 Gujarat Pipavav Port 65 BUY 27,680 565 424 (1.2) 1.2 2.6 (65.8) (201.6) 115.2 (54.4) 53.5 24.9 28.0 16.5 11.1 3.8 3.5 3.1 — — — (9.1) 9.4 13.6 78 19.4 0.6 GVK Power & Infrastructure 16 RS 24,952 509 1,579 1.0 1.0 0.3 (0.6) 1.6 (73.4) 16.1 15.8 59.5 17.7 16.3 19.2 0.7 0.7 0.7 — 1.9 2.2 4.7 4.6 1.2 — — 3.3 IRB Infrastructure 163 ADD 54,159 1,106 332 13.6 11.3 11.0 17.4 (16.9) (2.6) 12.0 14.4 14.8 8.0 8.1 7.0 2.1 1.6 1.3 0.9 — — 19.3 12.6 9.6 185 13.5 6.3 Mundra Port and SEZ 164 ADD 331,568 6,769 2,017 4.6 6.8 10.5 36.3 50.3 53.2 36.1 24.0 15.7 28.8 19.5 13.9 7.6 6.0 4.7 — — — 23.2 28.0 33.5 175 6.5 5.9 Infrastructure Cautious 663,537 13,547 14.7 16.8 39.5 28.2 24.2 17.3 15.9 12.9 10.5 2.5 2.2 2.0 0.4 0.4 0.4 8.7 9.2 11.6

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of key Indian companies India DailyIndia Summary-October 2011 3,

O/S Target 30-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 205 BUY 37,563 767 183 14.1 13.0 15.5 32.7 (8.1) 19.9 14.5 15.8 13.2 9.4 9.3 7.7 4.5 4.0 3.6 2.0 2.9 3.9 35.0 26.9 28.6 330 61.0 0.8 DishTV 77 ADD 82,047 1,675 1,062 (1.8) 0.0 1.3 (27.5) (101.9) 3,944.0 (43.2) 2,332.3 57.7 38.3 17.6 11.8 39.0 38.4 23.0 — — — (62.3) 1.7 49.9 100 29.4 7.0 Eros International 241 ADD 23,396 478 97 11.8 15.8 19.9 19.0 34.0 25.9 20.5 15.3 12.1 14.3 10.8 7.8 3.5 2.8 2.2 — — — 24.9 20.2 20.5 250 3.6 2.7 Hindustan Media Ventures 130 BUY 9,539 195 73 7.3 9.0 12.1 198.7 22.8 35.0 17.8 14.5 10.7 8.5 7.4 5.3 2.4 2.0 1.8 — — 2.3 22.3 15.1 17.7 220 69.2 0.1 HT Media 148 ADD 34,745 709 235 7.7 8.9 11.0 26.3 15.3 23.6 19.2 16.6 13.5 9.1 7.6 5.9 2.5 2.3 2.2 1.4 2.7 4.1 15.0 14.4 16.6 190 28.5 0.5 Jagran Prakashan 109 BUY 34,487 704 316 6.8 6.7 8.0 16.7 (1.3) 19.0 16.0 16.2 13.6 9.5 9.3 7.8 4.9 4.4 4.0 3.2 3.2 4.6 32.8 28.6 30.9 160 46.7 0.4 Sun TV Network 232 BUY 91,486 1,868 394 19.6 21.6 25.4 48.6 10.0 17.9 11.8 10.8 9.1 6.9 6.1 5.2 3.8 3.4 3.1 3.8 5.2 6.9 36.6 34.7 36.6 440 89.5 8.7 Zee Entertainment Enterprises 118 BUY 115,007 2,348 978 5.8 6.2 7.7 10.0 6.4 23.3 20.1 18.9 15.3 13.4 12.3 9.8 2.7 2.6 2.5 1.1 1.1 1.3 14.2 14.3 16.9 160 36.1 5.7 India Daily India Summary -October Media Neutral 428,271 8,744 51.2 18.3 27.0 21.7 18.3 14.4 11.5 9.8 7.8 3.9 3.6 3.3 1.7 2.1 2.9 18.2 19.7 22.8 Metals & Mining Coal India 333 ADD 2,104,613 42,969 6,316 17.3 24.1 29.3 13.6 39.1 21.9 19.3 13.8 11.4 11.2 8.1 6.6 6.0 4.7 3.7 1.2 2.2 2.6 35.1 38.2 36.7 454 36.3 32.9 Hindalco Industries 131 ADD 251,714 5,139 1,915 12.8 18.3 17.6 (36.0) 43.3 (4.0) 10.3 7.2 7.5 5.8 5.7 6.0 0.9 0.8 0.7 1.1 1.1 1.1 9.7 11.4 10.0 175 33.1 26.9 Hindustan Zinc 119 BUY 501,930 10,248 4,225 11.6 13.1 14.7 21.8 12.7 11.8 10.2 9.0 8.1 6.4 4.8 3.5 2.2 1.8 1.5 0.8 0.8 0.8 24.3 22.2 20.4 160 34.7 2.9 Jindal Steel and Power 506 REDUCE 472,756 9,652 934 40.2 43.5 52.9 5.1 8.2 21.6 12.6 11.6 9.6 9.5 8.8 7.5 3.4 2.6 2.1 0.3 0.3 0.3 30.9 25.5 24.4 595 17.6 21.5 JSW Steel 592 SELL 133,792 2,732 226 78.6 70.2 107.5 (2.2) (10.7) 53.1 7.5 8.4 5.5 6.0 6.4 5.4 0.8 0.8 0.7 2.0 2.1 2.1 13.6 9.3 12.9 660 11.5 36.9 National Aluminium Co. 62 SELL 159,273 3,252 2,577 4.1 5.0 4.8 36.3 20.5 (4.1) 14.9 12.4 12.9 6.8 5.4 5.1 1.4 1.3 1.2 2.4 2.4 2.4 9.9 11.1 10.0 65 5.2 0.5 Sesa Goa 201 SELL 179,432 3,663 895 47.0 40.1 41.6 59.8 (14.6) 3.7 4.3 5.0 4.8 3.5 3.7 2.9 1.4 1.1 0.9 2.0 2.0 2.0 36.8 22.1 17.9 230 14.7 17.5 Sterlite Industries 114 BUY 382,168 7,803 3,361 15.2 17.0 19.0 26.2 12.0 11.5 7.5 6.7 6.0 4.7 3.5 3.0 0.9 0.8 0.7 1.0 1.0 1.0 13.0 13.0 12.8 185 62.7 17.5 Tata Steel 415 BUY 403,475 8,238 971 75.3 68.7 76.9 (2,258.1) (8.8) 12.0 5.5 6.0 5.4 5.6 5.8 4.9 1.1 0.9 0.8 2.9 1.9 1.9 24.7 15.5 15.7 625 50.5 49.1 Metals & Mining Attractive 4,589,153 93,694 39.1 13.9 15.1 11.1 9.7 8.5 7.0 6.1 5.2 2.1 1.8 1.5 1.3 1.7 1.9 19.0 18.2 17.8 Pharmaceutical Apollo Hospitals 520 ADD 72,253 1,475 139 13.2 17.8 21.4 21.0 34.5 19.9 39.3 29.2 24.3 17.9 13.6 11.2 3.8 2.8 2.5 — — — 9.8 10.7 10.5 650 25.0 1.0 Biocon 338 BUY 67,510 1,378 200 18.4 19.4 21.4 23.9 5.6 10.3 18.4 17.4 15.8 10.5 10.1 9.1 3.3 2.9 2.6 — — — 19.4 17.9 17.4 445 31.8 2.9 Cipla 281 REDUCE 225,902 4,612 803 12.3 14.5 16.5 (10.0) 17.5 13.7 22.8 19.4 17.1 19.8 14.1 11.6 3.4 3.0 2.7 1.0 1.1 1.2 15.4 16.0 16.5 310 10.2 7.9 Cadila Healthcare 759 REDUCE 155,404 3,173 205 34.7 38.2 45.1 40.6 10.0 18.1 21.9 19.9 16.8 19.0 16.2 12.7 7.2 5.6 4.5 0.8 1.0 1.2 37.5 31.7 29.6 900 18.6 2.5 Dishman Pharma & chemicals 58 REDUCE 4,689 96 81 9.8 8.0 8.7 (31.8) (18.3) 8.0 5.9 7.2 6.6 8.0 6.0 5.5 0.5 0.5 0.5 — — — 9.6 7.2 7.3 70 21.4 0.2 Divi's Laboratories 736 ADD 97,584 1,992 133 32.4 36.7 45.0 25.7 13.5 22.4 22.7 20.0 16.4 18.8 14.4 11.8 5.4 4.6 4.0 — — — 25.9 25.0 26.2 830 12.8 2.6 GlaxoSmithkline Pharmaceuticals (a) 2,091 REDUCE 177,114 3,616 85 68.3 78.2 88.6 15.5 14.6 13.3 30.6 26.7 23.6 20.3 18.0 15.5 9.1 8.4 7.7 1.9 2.4 2.7 30.9 32.6 33.9 2,220 6.2 1.4 Glenmark Pharmaceuticals 323 ADD 87,345 1,783 270 17.0 26.2 23.5 33.6 54.5 (10.3) 19.0 12.3 13.7 21.1 14.1 12.0 4.3 3.2 2.7 — — — 20.6 29.8 21.2 395 22.3 4.2 Jubilant Life Sciences 200 REDUCE 31,900 651 159 14.4 16.5 22.7 (45.6) 14.5 37.6 13.9 12.1 8.8 11.1 8.9 7.5 1.4 1.3 1.2 1.0 1.0 1.5 12.3 11.7 14.2 205 2.4 1.1 Lupin 474 ADD 212,600 4,341 448 19.2 20.6 26.3 25.6 7.2 27.5 24.6 23.0 18.0 20.6 17.8 13.2 6.4 5.2 4.2 0.6 0.7 0.9 29.5 25.3 26.2 530 11.7 9.7 Ranbaxy Laboratories 514 SELL 217,416 4,439 423 40.6 16.9 20.8 475.0 (58.3) 22.7 12.7 30.3 24.7 15.5 26.3 20.5 3.9 3.4 3.0 — — — 34.5 11.9 12.8 435 (15.3) 7.6 Sun Pharmaceuticals 463 ADD 478,965 9,779 1,036 17.5 20.4 24.3 34.4 16.3 19.2 26.4 22.7 19.0 22.3 17.9 14.5 4.6 3.9 3.3 0.8 0.9 1.1 21.0 20.2 20.7 560 21.1 11.1 Pharmaceuticals Cautious 2,155,346 44,005 30.2 3.2 3.4 22.4 21.7 21.0 17.0 14.5 13.8 3.6 3.1 2.9 0.7 0.8 0.8 16.0 14.2 13.9 Property DLF 219 BUY 375,320 7,663 1,715 9.1 11.9 15.7 (14.5) 31.3 31.8 24.1 18.4 13.9 16.0 12.7 9.6 1.4 1.3 1.3 0.9 1.1 1.4 5.4 7.5 9.2 270 23.3 37.3 Housing Development & Infrastructure 98 BUY 43,588 890 445 19.8 28.7 34.3 24.0 44.8 19.7 4.9 3.4 2.9 5.1 3.6 3.1 0.5 0.4 0.3 — 1.0 1.5 10.0 12.3 12.7 150 53.1 20.6 Indiabulls Real Estate 73 RS 29,424 601 402 4.0 8.5 15.4 (1,095.5) 114.1 81.5 18.4 8.6 4.7 13.1 10.5 4.6 0.2 0.2 0.2 — 0.7 1.0 1.4 2.9 5.0 — — 8.7 Mahindra Life Space Developer 298 BUY 12,159 248 41 24.9 30.8 37.5 30.2 23.7 21.6 11.9 9.7 7.9 9.1 6.5 4.8 1.2 1.1 1.0 1.7 1.5 1.7 10.4 11.6 12.7 450 51.0 0.2 Oberoi Realty 232 BUY 76,336 1,559 330 15.7 20.0 28.0 14.8 27.6 39.7 14.7 11.6 8.3 10.8 7.5 4.6 2.3 2.0 1.6 0.4 0.6 1.1 19.9 18.2 21.3 315 36.0 0.3 Phoenix Mills 216 BUY 31,250 638 145 6.3 7.4 10.7 53.0 17.2 44.1 34.1 29.1 20.2 25.2 21.0 15.8 2.0 1.9 1.7 0.8 0.9 0.9 5.8 6.6 8.9 300 39.0 0.2 Puravankara Projects 66 ADD 14,054 287 213 5.5 9.0 10.9 (18.9) 62.8 21.5 11.9 7.3 6.0 17.0 9.3 7.9 0.9 0.8 0.8 1.5 2.3 3.0 8.0 12.0 13.1 80 21.5 0.0 Sobha Developers 217 BUY 21,285 435 98 18.8 20.6 27.2 33.8 9.2 32.2 11.5 10.6 8.0 10.6 9.5 6.7 1.1 1.0 0.9 1.4 1.6 1.8 10.2 10.3 12.4 370 70.5 0.8 Unitech 26 RS 68,547 1,399 2,616 2.3 2.6 2.7 (23.4) 12.8 4.9 11.3 10.0 9.5 13.3 10.8 8.8 0.6 0.5 0.5 — 0.8 1.1 5.4 5.7 5.4 — — 17.5 Property Cautious 705,886 14,412 5.3 44.3 29.6 16.5 11.4 8.8 13.2 9.4 7.1 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 44

45 45 India Daily Summary - OctoberSummary 2011 Daily- 3, India Kotak Institutional Equities: Valuation summary of key Indian companies

O/S Target 30-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) Sugar Bajaj Hindustan 39 REDUCE 8,851 181 228 1.9 3.7 1.6 (28.7) 90.5 (57.3) 20.1 10.5 24.7 16.9 5.6 5.4 0.3 0.3 0.3 1.5 1.5 1.5 1.7 2.7 1.1 60 54.8 1.9 Balrampur Chini Mills 46 BUY 11,384 232 247 6.7 4.0 7.7 111.0 (40.5) 94.0 6.9 11.6 6.0 10.5 8.3 5.5 0.8 0.7 0.7 1.7 1.6 1.6 11.6 6.5 11.9 80 73.5 1.7 Shree Renuka Sugars 55 BUY 36,938 754 670 10.5 6.4 5.0 214.7 (39.4) (21.0) 5.3 8.7 11.0 8.2 6.4 5.3 1.5 1.3 1.2 1.8 1.8 1.8 34.4 16.1 11.4 75 36.1 9.4 Sugar Cautious 57,172 1,167 122.4 (24.7) (7.4) 7.1 9.4 10.1 10.4 6.4 5.3 0.8 0.8 0.7 1.7 1.7 1.7 11.6 8.1 7.0 Technology HCL Technologies 409 SELL 288,451 5,889 705 22.9 29.5 32.8 30.4 28.9 11.3 17.9 13.9 12.5 10.9 8.4 7.5 3.4 2.9 2.5 1.8 2.0 2.0 21.0 22.6 21.7 375 (8.3) 10.2 Hexaware Technologies 84 ADD 24,248 495 290 3.0 7.5 7.3 (36.8) 154.4 (3.4) 28.3 11.1 11.5 21.3 9.7 8.2 2.5 2.2 2.1 1.8 3.6 3.9 9.3 21.3 18.6 80 (4.2) 3.5 Infosys Technologies 2,533 BUY 1,453,971 29,685 574 119.7 134.3 160.3 10.5 12.1 19.4 21.2 18.9 15.8 14.3 12.7 10.4 5.6 4.7 4.0 2.4 1.7 2.0 28.0 27.1 27.2 2,900 14.5 79.1 Mahindra Satyam 70 SELL 82,790 1,690 1,176 4.2 6.7 7.0 68.9 58.4 4.7 16.8 10.6 10.1 12.2 6.2 4.8 4.8 3.3 2.5 — — — 27.6 37.1 28.2 70 (0.6) 10.7 Mindtree 348 ADD 14,324 292 41 24.7 35.2 37.2 (52.7) 42.4 5.8 14.1 9.9 9.4 7.8 6.1 4.8 1.8 1.6 1.4 0.7 1.0 3.2 14.4 17.2 16.1 375 7.7 2.2 Mphasis BFL 344 SELL 72,436 1,479 211 51.8 38.6 30.0 18.8 (25.5) (22.2) 6.6 8.9 11.5 5.6 6.7 7.2 2.2 1.8 1.6 1.2 1.3 1.5 38.6 22.3 14.8 300 (12.7) 3.6 Patni Computer Systems 289 ADD 38,475 786 133 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 22.8 1.8 1.9 18.4 8.2 10.2 300 3.9 1.3 Polaris Software Lab 133 REDUCE 13,215 270 100 19.3 18.8 19.0 25.7 (2.6) 0.7 6.9 7.0 7.0 3.8 2.9 2.5 1.3 1.1 1.0 2.8 2.9 3.1 20.2 16.8 14.8 130 (1.9) 2.2 TCS 1,037 ADD 2,030,204 41,450 1,957 44.5 52.8 61.1 26.8 18.6 15.6 23.3 19.6 17.0 17.6 14.4 12.0 8.0 6.6 5.5 1.7 2.0 2.4 37.8 36.9 35.2 1,160 11.8 46.0 Tech Mahindra 574 SELL 72,343 1,477 126 48.8 72.1 75.5 (25.2) 47.8 4.7 11.8 8.0 7.6 8.2 8.1 7.1 2.2 1.9 1.6 0.7 0.7 1.7 20.5 26.0 23.8 600 4.5 3.7 Wipro 341 ADD 836,323 17,075 2,454 21.6 22.4 24.5 14.5 3.9 9.1 15.8 15.2 13.9 11.5 10.3 9.0 3.5 3.0 2.5 1.3 1.4 1.6 24.3 21.1 19.7 370 8.6 12.1 Technology Attractive 4,926,780 100,588 17.1 13.1 13.0 19.2 17.0 15.0 13.8 11.8 10.0 5.0 4.2 3.6 2.0 1.8 2.0 26.2 24.9 23.8 Telecom Bharti Airtel 378 ADD 1,435,493 29,308 3,798 15.9 18.2 28.0 (32.6) 14.5 53.7 23.7 20.7 13.5 10.2 7.9 6.0 2.9 2.6 2.2 — — — 13.3 13.3 17.4 460 21.7 47.0 IDEA 99 ADD 325,375 6,643 3,303 2.7 2.7 5.1 (0.5) (1.4) 89.2 36.2 36.7 19.4 11.4 8.7 6.6 2.6 2.5 2.2 — — — 7.6 7.0 12.0 115 16.8 18.4 MTNL 32 SELL 19,908 406 630 (10.4) (9.1) (8.4) (33.7) (11.9) (8.1) (3.0) (3.5) (3.8) 0.9 1.2 1.5 0.2 0.2 0.2 — — — (6.1) (5.7) (5.5) 35 10.8 0.8 Reliance Communications 72 SELL 153,008 3,124 2,133 6.3 2.6 5.2 (71.1) (59.4) 103.2 11.4 28.0 13.8 5.8 6.3 5.4 0.4 0.4 0.4 — — — 3.2 1.3 2.7 80 11.5 19.0 Tata Communications 186 REDUCE 53,110 1,084 285 15.2 15.7 15.9 8.2 3.5 1.5 12.3 11.9 11.7 5.7 5.4 5.1 0.7 0.7 0.7 4.0 4.6 4.8 5.5 5.5 5.4 205 10.0 1.3 Telecom Cautious 1,986,894 40,565 (42.4) 2.1 62.3 24.7 24.2 14.9 9.3 7.7 6.0 1.7 1.6 1.4 0.1 0.1 0.1 6.8 6.5 9.5 Utilities Adani Power 85 REDUCE 204,379 4,173 2,393 2.4 11.0 15.0 200.7 368.5 35.8 36.3 7.7 5.7 36.3 7.6 4.9 3.3 2.2 1.6 — — — 8.5 33.5 31.8 100 17.1 3.5 CESC 278 BUY 34,682 708 125 37.7 42.5 51.3 9.1 12.7 20.8 7.4 6.5 5.4 5.4 5.8 5.5 0.7 0.7 0.6 1.8 1.9 2.2 10.5 10.7 11.5 440 58.5 2.0 JSW Energy 55 REDUCE 89,380 1,825 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 10.1 1.8 Lanco Infratech 16 BUY 35,012 715 2,223 2.0 3.0 3.4 (5.8) 47.2 16.6 7.8 5.3 4.6 8.3 7.8 7.3 0.9 0.7 0.6 — — — 12.2 15.0 14.6 45 185.7 7.1 NHPC 24 ADD 289,067 5,902 12,301 1.3 1.8 2.1 (27.2) 36.0 16.3 17.4 12.8 11.0 12.9 9.8 7.8 1.1 1.0 0.9 1.8 2.1 2.5 6.3 8.0 8.8 30 27.7 2.2 NTPC 168 REDUCE 1,382,352 28,223 8,245 11.0 11.2 12.0 5.3 1.4 6.8 15.2 15.0 14.0 12.6 12.2 11.4 2.0 1.8 1.7 2.3 2.0 2.1 13.7 12.8 12.6 180 7.4 9.9 Reliance Infrastructure 373 BUY 99,046 2,022 265 58.0 64.1 76.3 (6.5) 10.5 19.0 6.4 5.8 4.9 6.2 3.3 2.3 0.4 0.4 0.4 2.5 2.8 3.0 6.4 11.2 12.2 920 146.4 15.0 Reliance Power 77 SELL 215,290 4,395 2,805 2.7 2.9 2.9 (5.0) 7.6 (0.5) 28.3 26.3 26.4 157.1 67.3 14.2 1.3 1.3 1.2 — — — 4.9 4.9 4.7 88 14.7 6.4 Tata Power 100 BUY 246,464 5,032 2,468 7.6 8.5 9.2 21.5 10.7 8.8 13.1 11.8 10.8 10.5 8.3 8.6 1.7 2.0 2.6 14.0 15.0 17.0 13.8 15.5 20.8 135 35.2 8.9 Utilities Cautious 2,595,673 52,995 5.1 20.2 12.8 15.1 12.5 11.1 13.8 10.3 8.6 1.5 1.4 1.3 2.8 2.9 3.2 10.1 11.3 11.8 Others Carborundum Universal 297 SELL 27,761 567 93 18.3 18.9 21.0 67.7 3.7 10.6 16.3 15.7 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 (2.4) 0.1 Havells India 365 REDUCE 45,599 931 125 24.5 25.8 28.8 334.1 5.1 11.5 14.9 14.2 12.7 9.9 9.1 7.9 6.4 4.6 3.4 0.7 0.8 0.8 53.9 37.6 30.9 370 1.2 2.9 Jaiprakash Associates 73 BUY 154,699 3,158 2,126 6.0 6.3 7.2 230.2 3.9 15.6 12.1 11.6 10.1 11.8 10.2 9.8 1.4 1.3 1.2 — — — 13.3 11.7 12.3 115 58.1 24.6 Jet Airways 235 BUY 20,292 414 86 (10.1) (69.1) 7.0 (91.0) 588 (110.1) (23.4) (3.4) 33.7 9.6 11.6 7.4 1.3 2.0 1.9 — — — (5.0) - - 500 112.7 10.5 SpiceJet 21 BUY 9,379 191 441 2.5 (3.0) 3.3 (1.8) (220.2) (210.4) 8.5 (7.1) 6.4 12.4 (17.1) 9.2 2.9 3.0 2.0 — — — (961) (41.6) 37.7 50 135.3 2.3 Tata Chemicals 316 REDUCE 80,541 1,644 255 26.2 32.9 38.8 (0.7) 25.4 17.9 12.0 9.6 8.2 7.4 5.2 4.4 1.5 1.3 1.1 3.2 3.8 4.7 16.9 18.6 19.5 365 15.5 2.7 United Phosphorus 138 BUY 63,590 1,298 462 12.3 15.9 19.8 3.9 28.8 24.3 11.2 8.7 7.0 6.8 4.7 4.0 1.7 1.5 1.3 1.5 2.2 2.5 18.0 18.5 19.8 220 59.8 3.9 Others 401,861 8,205 233.8 (5.8) 57.1 14.2 15.0 9.6 10.1 8.9 7.7 1.7 1.6 1.4 1.0 1.3 1.5 12.1 10.4 14.4 KS universe (b) 43,569,650 889,540 18.1 17.0 16.2 14.8 12.6 10.9 9.6 8.1 6.9 2.3 2.0 1.8 1.7 1.8 2.1 15.4 15.8 16.2 KS universe (b) ex-Energy 36,092,485 736,882 20.2 14.8 18.9 15.9 13.8 11.6 11.2 9.4 8.0 2.5 2.2 1.9 1.6 1.7 1.9 16.0 16.0 16.7 KS universe (d) ex-Energy & ex-Commodities 30,455,963 621,804 18.7 14.7 19.8 16.9 14.7 12.3 12.6 10.6 8.9 2.6 2.3 2.0 1.7 1.7 1.9 15.6 15.7 16.6

Notes:

KOTAK INSTITUTIONAL EQUITIES RESEARCH (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$)= 48.98 Source: Company, Bloomberg, Kotak Institutional Equities estimates

Disclosures

Kotak Institutional Equities Research coverage universe (IMP: Our ratings definitions have changed as of September 6, 2011) 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 20% next 12 months; Sell = We expect this stock to underperform the 11.4% BSE Sensex by more then 10% over the next 12 months. These 10% ratings are used illustratively to comply with applicable 4.8% 3.6% 1.8% regulations. As of 30/06/2011 Kotak Institutional Equities 0.0% 0% Investment Research had investment ratings on 166 equity securities. 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 deliver more than 17.5% returns over the next 12 months.

ADD. We expect this stock to deliver 7.5-17.5% returns over the next 12 months.

REDUCE. We expect this stock to deliver 0-7.5% returns over the next 12 months.

SELL. We expect this stock to deliver less than 0% returns over the next 12 months.

Our target prices are also on a 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.

47 KOTAK INSTITUTIONAL EQUITIES RESEARCH

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