INDIA DAILY

November 4, 2011 India 3-Nov 1-day1-mo 3-mo Sensex 17,482 0.1 10.2 (1.2)

Nifty 5,266 0.1 10.3 (1.2)

Contents Global/Regional indices Daily Alerts Dow Jones 12,044 1.8 11.4 5.8 Nasdaq Composite 2,698 2.2 12.2 5.5 Results FTSE 5,546 1.1 12.2 2.8 Sun TV Network: Average quarter in a challenging environment Nikkie 8,752 1.3 2.4 (9.2) Ashok Leyland: Operating leverage benefits lead to expansion in margins Hang Seng 19,789 2.8 21.8 (9.6) KOSPI 1,918 2.6 12.4 (5.0) Jubilant Foodworks: Early warning signals visible Value traded – India

Sector Cash (NSE+BSE) 121 124 133 Technology: 2QFY12 earnings review—on balance, positive Derivatives (NSE) 1,039 811 1,040 Telecom: Regulations—a new day, a new document, nothing definitive yet Deri. open interest 1,192 997 1,172

News Round-up Forex/money market Change, basis points ` TRAI rings in telecom M&A game-changer. Operators with 35% combined market or 3-Nov 1-day 1-mo 3-mo revenue share can merge, case-wise approval possible of joint share up to 60%; new Rs/US$ 49.1 0 (26) 460 ground rules on spectrum. Theoretically, it would be possible in the Delhi circle for 10yr govt bond, % 8.9 2 38 49 Airtel to merge with Aircel or Idea Cellular; for an Airtel-Vodafone merger, the ball Net investment (US$mn) would be in the government's court. (BSTD) 2-Nov MTD CYTD FIIs 39 - 359 ` The government is likely to raise the FDI limit in single brand retail to 74% from 51%, MFs (10) - (282) even as it has plans of increasing the limit to 100% in a phased manner. (BSTD) Top movers -3mo basis ` Oil companies have decided to increase petrol prices by INR 1.82 a litre with effect Change, % from Thursday midnight. (BSTD) Best performers 3-Nov 1-day 1-mo 3-mo ` The manufacturing PMI numbers out earlier this week may have ignited MM IN Equity 839.7 (0.1) 8.1 23.6 ACEM IN Equity 157.1 0.4 5.5 23.5 macroeconomic hopes but worrisome services PMI and food inflation data brought ACC IN Equity 1210.3 2.1 10.0 23.2 the gloom back today. Food inflation rose to a near nine-month high of 12.21% for JPA IN Equity 78.3 2.1 14.2 23.1 the week ended October 22. (BSTD) BJAUT IN Equity 1727.9 0.5 15.7 21.7 ` Average coal stocks at India's thermal power plants have dipped below "critical" Worst performers ADE IN Equity 463.0 (0.1) (4.1) (29.6) level, or are enough to last less than a week, against the norm of 22 days, mounting SUEL IN Equity 36.5 (0.4) 2.4 (29.6) pressure on electricity generating cos. as they cannot afford to build stocks with WLCO IN Equity 104.7 1.7 (0.9) (29.2) imports because of low tariffs. (ECNT) RCAPT IN Equity 373.6 2.0 15.6 (27.7) IVRC IN Equity 38.6 (0.1) 10.1 (26.5) ` RBI has notified the lowering of lock-in period for foreign institutional investments in

bond & debentures issued by infrastructure non-banking finance cos. The lock-in period has been lowered from three years to one year, while the investment limit continues to be USD 25bn. (ECNT)

` L&T's (LT IN) subsidiary L&T (Oman) has secured orders worth USD 178.57 mn. (THBL)

` Maruti Suzuki (MSIL IN) to step up investment in Haryana, INR 34 bn worth of investment lined up. The third assembly line expected to be up and running by 2013.(FNLE)

` Foreign holdings in listed media cos. such as Reliance Mediaworks (RMW IN) & Den networks (DEN IN) have halved between June & Sept. due to lack of visibility on new releases & business outlook that's been floundering due to series of flops. (ECNT)

` Sesa Goa (SESA IN) will acquire all the stake in Goa Energy from Videocon Industries and other shareholders for USD 11 mn. (BSTD)

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

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

BUY Sun TV Network (SUNTV)

Media NOVEMBER 04, 2011 RESULT Coverage view: Neutral

Average quarter in a challenging environment. Sun TV reported 2QFY12 EBIT of Price (Rs): 274 Rs2.48 bn (+3% yoy), marginally below expectations, led by multiple pressure points Target price (Rs): 400 notably (1) weak advertising environment, (2) Arasu Cable (cable subscription declined BSE-30: 17,482 qoq) and (3) Supreme Court judgment (DTH subscription declined qoq). The news flow remains adverse given CBI inquiry into (1) 2G scam and (2) BSNL telecom lines issue, reflected in valuation of 11.5X FY2013E EPS (>20% discount to Zee). Retain BUY with FY2013E FV of Rs400 (Rs440 previously); stress case FV of Rs350 (Rs360 previously) is likely a better metric given the uncertainty (rising debtor levels are a red flag in 1HFY12) supported by Rs6.25/share interim dividend (~4.6% 1HFY12 annualized yield).

Company data and valuation summary Sun TV Network Stock data Forecasts/Valuations 2011 2012E 2013E 52-week range (Rs) (high,low)557-214 EPS (Rs) 19.5 20.0 23.8 Market Cap. (Rs bn) 107.9 EPS growth (%) 48.1 2.5 18.9 Shareholding pattern (%) P/E (X) 14.0 13.7 11.5 Promoters 77.0 Sales (Rs bn) 20.1 20.6 24.1 FIIs 13.5 Net profits (Rs bn) 7.7 7.9 9.4 MFs 2.0 EBITDA (Rs bn) 12.6 13.1 15.3 Price performance (%) 1M 3M 12M EV/EBITDA (X) 8.1 7.6 6.4 Absolute 21.6 (10.7) (47.5) ROE (%) 36.5 32.1 33.8 Rel. to BSE-30 12.4 (8.3) (38.6) Div. Yield (%) 3.2 3.7 5.1

2QFY12 results analysis: multiple pressure points on the revenue line ` Sun TV reported 2QFY12 EBIT (our preferred earnings metric for Sun TV given majority of content costs are booked in the amortization line) of Rs2.48 bn, marginally below Rs2.55 bn expectation primarily led by weak revenue growth. (1) Weak advertising environment, (2) impact of Arasu Cable on cable subscription revenues and (3) impact of Supreme Court ruling on DTH subscription revenues pressured 2QFY12 revenues. ` 2QFY12 advertising revenues of Rs2.35 bn (+2% yoy) and advertising revenues (including slot sales) of Rs2.74 bn (+1% yoy) were weak notably in light of 5-15% increase in advertising rates across the network at start-FY2012E. Sun TV noted robust flagship GE channel advertising negated by weak niche channel advertising in 1HFY12; we believe weak ratings in non-GE channels (notably movie channels) also pressured advertising revenues.

Stress case FV of Rs350 more relevant given potential pressure points Retain BUY with FY2013E fair value of Rs400 (Rs440 previously) adjusted for (1) reduced ad growth in FY2012E to 9% (12% previously), (2) reduced TN cable subscription revenues by 50%, (3) higher debtors days (90 versus 75) in our DCF-model and WACC (14% versus 13.5%). We believe our stress-case valuation methodology (Rs350 versus Rs360 previously) is a more relevant valuation approach since it captures (1) non-Tamil-C&S TV business segments not impacted by political risks and (2) potential adverse impact on Tamil business (a) TRP ratings, (b) Arasu Cable, (c) entertainment tax on DTH as well as (d) competitive cost pressures. The pressure of transition from dominant to oligopoly market/player is clearly visible. However, the recovery in advertising spends is likely around the corner, given the commentary by listed FMCG companies (~40% contribution in C&S TV ad spends); 3QFY12E will likely still suffer on account of high base but competitive and growth pressures will likely result in renewed growth in ad spends by 4QFY11E. Sun TV has managed to maintain market share in flagship channels in competitive non-Tamil markets though fragmentation is inevitable in the long run. The ability of the company to manage the competitive pressures is critical.

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

Interim results of Sun TV Network (SUNTV), March fiscal year-ends (Rs mn)

(% chg) 2QFY12 2QFY12E 2QFY11 1QFY12 2QFY12E 2QFY11 1QFY12 FY2011 FY2010 (% chg) Total revenues 4,513 4,650 4,248 4,540 (3) 6 (1) 20,135 14,528 39 Ad revenues (incl. slot sales) 2,740 2,800 2,700 2,700 (2) 1 1 12,148 9,808 24 Subscription revenues 1,440 1,450 1,400 1,600 (1) 3 (10) 5,720 3,960 44 Others (incl. movies) 333 400 148 240 (17) 125 39 2,267 760 198 Total expenditure (2,034) (2,100) (1,833) (1,942) (3) 11 5 (9,137) (6,829) 34 Cost of revenues (225) (275) (250) (242) (18) (10) (7) (1,349) (1,227) 10 Employee costs (414) (450) (407) (440) (8) 2 (6) (1,919) (1,340) 43 SG&A expenses (219) (275) (268) (199) (20) (18) 10 (1,063) (1,053) 1 D&A expenses (1,176) (1,100) (908) (1,061) 7 30 11 (4,805) (3,209) 50 EBIT 2,478 2,550 2,415 2,598 (3) 3 (5) 10,998 7,700 43 OPM (%) 54.9 54.8 56.9 57.2 54.6 53.0 Other income 186 150 93 173 24 101 8 487 350 39 Interest expense (8) - (3) (2) 153 230 (23) (49) (54) PBT 2,657 2,700 2,505 2,769 (2) 6 (4) 11,463 8,000 43 Extraordinaries — — — — — — Tax provision (856) (900) (830) (892) (5) 3 (4) (3,831) (2,991) 28 Minority interest — — — — 90 190 (53) Reported PAT 1,801 1,800 1,674 1,876 0 8 (4) 7,722 5,199 49 Adjusted PAT 1,801 1,800 1,674 1,876 0 8 (4) 7,722 5,199 49 Tax rate (%) 32.2 33.3 33.1 32.2 33.4 37.4

Notes: (a) Sun's quarterly financial data is standalone and yearly financial data is consolidated for FM radio subsidiaries.

Source: Company data, Kotak Institutional Equities estimates

` Cable subscription revenues at Rs470 mn declined 13% yoy and 16% qoq but largely on expected lines led by the shift of local cable operators (LCO) to Arasu Cable in Tamil Nadu state in September. The negative variance of Rs90 mn on qoq basis can increase in coming quarters as the impact becomes more widespread.

` DTH subscription revenues at Rs790 mn (+13% yoy) declined 6% qoq due to Supreme Court ruling capping channel/bouquet rates on DTH at 42% of cable rates (versus 50% previously), which resulted in ~9% decline in effective realizations in 2QFY12. However, we have also seen very limited traction in paid subscriber base.

` 2QFY12 Sun Pictures revenues of Rs330 mn (+125% yoy) included (1) Mankatha (big budget) and (2) Vedi (small budget). However, Sun Pictures did not contribute to financials, reporting an operating loss of Rs30 mn.

` 2QFY12 operating expenditure was largely in line with expectations with reduced direct costs and overhead expenses negated by 30% yoy increase in D&A expenses (Sun Pictures cost as well as cost of telecast rights).

` However, 18% yoy decline in overhead expenses (includes provisions for bad debts) is a concern notably in light of sharp increase in debtor levels (Rs5 bn at end-1HFY12 versus Rs3.9 bn at end-FY2011); however, ~100 debtor days (based on normalized 1HFY12 revenues) remain below peer levels (Zee at ~110 days).

` Sun TV reported 2QFY12 PAT at Rs1.8 bn, in line with our expectations, led by robust 101% increase in other income (the benefit of robust balance sheet in a rising interest rate environment). Sun TV also announced 2QFY12 interim dividend of Rs3.75 (1HFY12 interim dividend of Rs6.25 implying 4.6% annualized yield).

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Media Sun TV Network

Trends in Sun's advertising (including slot sales) revenue growth, March fiscal year-ends (%)

60 52

50 43 38 40 29 30 30 24 20 17 20 14

10 4 5 3 1 - 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12

Source: Company data, Kotak Institutional Equities

Trends in Sun's subscription (including international) revenue growth, March fiscal year-ends (%)

80 71 56 57 60 47 44 46 35 40 24 19 20 11 3 3 3 - 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 (20)

(40)

Source: Company data, Kotak Institutional Equities

Trends in Sun's DTH subscriber base and effective realization, March fiscal year-ends (%)

10 50 40 40 37 37 8 36 36 35 40 29 27 28 26 27 27 6 30

4 20

2 10 2.33.34.44.85.15.66.06.36.66.76.97.17.3 - - 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12

Source: Company data, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Sun TV Network Media

Stress-case fair value of Rs350 relevant (contd.)

Breakdown of Sun TV financials, FY2013E (Rs bn)

Tamil C&S Non-Tamil C&S Sun TV total Advertising 7.1 7.1 14.3 Subscription 2.7 4.8 7.5 --Cable 0.4 1.5 1.9 --DTH 1.8 2.8 4.6 --Overseas 0.5 0.5 1.0 FM Radio 1.4 1.4 Sun Pictures 0.9 0.9 Revenues 9.9 14.2 24.1 Rev share (%) 41 59 100 Expenditure (3.3) (7.6) (10.9) EBIT 6.6 6.6 13.2 EBIT share (%) 50 50 100 Margin (%) 67 46 55 EPS (Rs/share) 11.9 11.9 23.8 P/E (X; equivalent to Zee) 21 Non-Tamil-C&S valuation 247

Source: Kotak Institutional Equities estimates

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

Tamil C&S Non-Tamil C&S Total (Rs bn) Comments Advertising 5.7 7.1 12.8 20% impact on base case Subscription 1.6 4.8 6.4 --Cable 0.2 1.5 1.7 50% impact on base case --DTH 0.9 2.8 3.7 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 7.3 14.2 21.5 Rev share (%) 34 66 100 Expenditure (3.9) (7.6) (11.5) 20% impact on base case EBIT 3.4 6.6 10.0 EBIT share (%) 34 66 100 Margin (%) 46 46 46 Normalized EBIT margins EPS (Rs/share) 6.1 11.9 18.0 P/E (X) 17 21 19 20% impact on base case Valuation 102 247 349

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Media Sun TV Network

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 17.7 14.3 13.3 10.5 EPS (Rs/share) 5.9 5.8 6.2 7.7 21.1 21.3 19.9 16.1 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 16.2 11.2 11.7 9.8 EPS (Rs/share) 6.4 7.4 7.1 8.2 19.3 16.7 17.5 15.0 Sun TV consolidated Revenues 14.5 20.1 20.6 24.1 EBIT 7.7 11.0 11.2 13.2 13.1 9.2 9.0 7.7 EPS (Rs/share) 13.2 19.5 20.0 23.8 20.8 14.0 13.7 11.5 Sun TV stress-case Revenues 14.5 20.1 20.8 21.5 EBIT 7.7 11.0 10.5 10.0 13.2 9.2 9.7 10.2 EPS (Rs/share) 13.2 19.5 18.8 18.0 20.8 14.0 14.6 15.2

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

Source: Company data, Kotak Institutional Equities estimates

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

Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Jaya TV 91 95 103 108 100 111 116 116 100 101 115 119 118 KTV 432 464 446 410 417 350 417 419 414 397 399 352 340 Kalaignar TV 241 275 218 255 224 192 187 162 162 174 212 190 234 Raj TV 51 57 77 75 77 79 77 69 73 92 98 101 93 Sun TV 1,573 1,528 1,710 1,753 1,635 1,440 1,490 1,457 1,569 1,460 1,482 1,342 1,423 Vijay TV 153 167 166 161 155 140 144 167 165 180 210 236 278 Total 2,543 2,584 2,720 2,763 2,607 2,312 2,431 2,390 2,482 2,405 2,517 2,340 2,486

Source: TAM Media Research, Kotak Institutional Equities

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

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 chg (%) 2006 2007 2008 2009 2010 2011E Jaya TV 97 102 111 112 115 18 Jaya TV 7 6 5 4 4 4 KTV 442 404 417 389 328 (26) KTV 21 20 18 17 17 15 Kalaignar TV 238 218 171 194 216 (9) Kalaignar TV - 4 12 10 9 8 Raj TV 61 76 73 97 92 50 Raj TV 4 3 2 2 2 3 Sun TV 1,595 1,608 1,504 1,433 1,402 (12) Sun TV 59 56 52 55 57 57 Vijay TV 162 150 158 209 265 63 Vijay TV 6 8 6 6 6 7 Total 2,595 2,558 2,434 2,434 2,417 (7) Others 3 3 5 5 5 6 Share (%) 61 63 62 59 58 HH-Index 4,058 3,621 3,201 3,448 3,695 3,563

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

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Sun TV Network Media

Trends in advertising spends of listed FMCG players (Rs mn)

Growth (%) 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 Advertising and marketing HUL 7,512 6,465 7,433 6,233 6,330 34 13 17 (1) (16) Dabur India 1,117 947 1,090 748 929 14 11 (4) (15) (17) Glaxo India 749 1,077 898 1,026 1,000 — 33 5 4 34 Colgate India 694 789 1,206 804 988 19 (4) 60 (4) 42 Marico India 584 547 592 413 727 7 (10) 10 (21) 24 GCPL 482 230 312 400 656 68 3 39 42 36 Total 10,656 9,825 11,219 9,224 9,974 26 12 17 (3) (6) Overhead expenditure Nestle India 3,420 4,079 4,277 4,201 4,092 31 28 18 24 20 Asian Paints 2,652 2,961 3,343 3,348 3,277 22 8 37 20 24 TGB Limited 1,194 1,254 1,310 1,287 1,194 30 6 4 15 - Total 7,266 8,294 8,930 8,836 8,563 27 17 22 21 18

Notes: (a) For lack of quarterly data on advertising and marketing, we have provided ovehead expenditure data including A&P spends.

Source: Companies data, Kotak Institutional Equities

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

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 chg (%) 2006 2007 2008 2009 2010 2011E Eenadu TV 380 366 357 381 366 (4) Eenadu TV 19 18 17 16 16 16 Gemini Movies 367 329 298 271 195 (47) Gemini Movies 22 19 18 16 17 12 Gemini TV 853 794 758 743 669 (22) Gemini TV 38 36 32 31 35 33 Maa Movies - 70 124 126 111 Maa Movies - - - - - 5 Maa Telugu 336 301 387 426 383 14 Maa Telugu 10 13 16 17 16 17 Zee Telugu 346 344 326 339 312 (10) Siti Telugu 5 3 3 2 - - Total 2,281 2,204 2,250 2,287 2,036 (11) Zee Telugu 4 7 13 16 15 15 Share (%) 37 36 34 32 33 Others 2 2 2 1 1 2 HH-Index 2,454 2,274 2,057 2,057 2,246 2,055 Source: TAM Media Research, Kotak Institutional Equities Source: TAM Media Research, Kotak Institutional Equities

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

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 chg (%) 2006 2007 2008 2009 2010 2011E ETV Kannada 205 209 212 214 199 (0) ETV Kannada 29 22 16 15 14 13 Kasturi 111 100 91 99 92 7 Kasturi - 2 8 6 7 6 Suvarna 314 266 250 311 307 7 Suvarna - 3 6 13 17 17 Udaya Movies 228 230 215 201 182 (16) Udaya Movies 19 20 18 19 16 13 Udaya TV 534 537 582 609 581 14 Udaya TV 44 46 37 33 34 35 Zee Kannada 174 222 221 258 236 64 Zee Kannada 3 5 12 12 11 14 Total 1,566 1,564 1,571 1,691 1,597 11 Others 5 3 2 2 2 1 Share (%) 34 34 37 36 36 HH-Index 3,189 3,041 2,197 2,034 2,042 2,131

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Media Sun TV Network

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

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 chg (%) 2006 2007 2008 2009 2010 2011E Amrita TV 110 125 112 118 100 (9) Amrita TV 4 5 4 4 4 6 Asianet 916 872 903 954 852 (7) Asianet 31 36 37 41 41 44 Asianet Plus 233 222 198 201 159 (32) Asianet Plus 8 10 9 11 10 10 Kairali 195 183 146 143 104 (46) Kairali 7 6 7 6 7 7 Kiran TV 193 107 139 144 127 (34) Kiran TV 7 7 8 9 9 6 Surya TV 558 451 500 480 463 (17) Surya TV 37 31 31 26 25 23 Total 2,204 1,959 1,998 2,040 1,805 (18) Others 6 5 5 4 4 5 Share (%) 25 23 25 24 26 HH-Index 2,561 2,495 2,543 2,585 2,547 2,678

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

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 20,608 24,056 27,894 EBIT 4,736 5,166 7,700 10,974 11,227 13,170 15,157 Other income 556 505 350 487 568 940 1,114 Interest (expense)/income (159) (138) (49) (23) (7) (7) (7) Pretax profits 5,133 5,534 8,000 11,439 11,789 14,103 16,264 Tax-cash (1,947) (2,045) (2,912) (3,760) (3,877) (4,662) (5,389) 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 7,891 9,384 10,789 Earnings per share (Rs) 8.3 9.1 13.2 19.5 20.0 23.8 27.4

Balance sheet (Rs mn) Total equity 14,485 17,016 18,856 22,537 25,837 28,794 31,319 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 2,697 3,053 3,466 Total capital 18,311 20,720 25,052 28,669 30,214 33,584 36,609 Cash 4,297 3,654 4,367 6,030 7,779 10,288 12,124 Current assets 4,542 5,543 6,279 7,791 9,936 11,515 13,308 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 30,214 33,584 36,609

Free cash flow (Rs mn) Operating cash flow, excl. working capital 4,393 5,620 8,107 12,240 11,089 12,732 14,669 Working capital (1,235) 413 (892) (965) (3,920) (1,223) (1,380) 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 523 484 361 420 568 940 1,114 Free cash flow (698) 1,116 1,396 6,468 5,780 8,002 8,993

Ratios (%) Debt/equity 4.8 4.2 ————— Net debt/equity (24.9) (17.3) (23.2) (26.8) (30.1) (35.7) (38.7) RoAE 25 23 29 37 32 34 35 RoACE 24 23 28 37 33 34 36

Source: Company data, Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH

SELL Ashok Leyland (AL)

Automobiles NOVEMBER 03, 2011 RESULT Coverage view: Cautious

Operating leverage benefits lead to expansion in margins. Net profit of Rs1.54 bn Price (Rs): 27 (-8% yoy, 94% qoq) was 37% above our estimates due to better-than-expected Target price (Rs): 26 realization and lower-than-expected staff costs. EBITDA margins (10.7%) increased by BSE-30: 17,482 130 bps sequentially boosted by operating leverage benefits while gross margins declined by 150 bps qoq. We maintain our SELL rating on the stock as we believe headwinds to volume growth remain in 2HFY12E due to lower industrial production.

Company data and valuation summary Ashok Leyland Stock data Forecasts/Valuations 2011 2012E 2013E 52-week range (Rs) (high,low)41-23 EPS (Rs) 2.4 2.1 2.4 Market Cap. (Rs bn) 72.2 EPS growth (%) 68.1 (11.9) 12.8 Shareholding pattern (%) P/E (X) 11.4 13.0 11.5 Promoters 51.0 Sales (Rs bn) 111.2 127.9 142.9 FIIs 14.6 Net profits (Rs bn) 6.3 5.6 6.3 MFs 4.2 EBITDA (Rs bn) 12.0 12.5 14.2 Price performance (%) 1M 3M 12M EV/EBITDA (X) 8.0 8.3 7.5 Absolute 6.9 7.3 (27.9) ROE (%) 21.8 17.4 18.2 Rel. to BSE-30 (1.2) 10.1 (15.6) Div. Yield (%) 3.7 3.7 3.7

Operating leverage benefits boost 2QFY12 operating margins

Net sales in 2QFY12 of Rs30.94 bn (+14% yoy, 24% qoq) were 4% above our expectations driven by higher defence kit and spare parts revenues. Gross margins declined by 150 bps qoq due to adverse product mix and higher raw material costs during the quarter. Staff costs as a % of sales declined by 190 bps qoq due to operating leverage benefits while other expenses as % of sales also declined by 90 bps qoq. Higher other income and lower tax rate led to a 37% beat on our profit estimates. Interest expenses rose sharply qoq due to higher working capital requirements.

` Company’s volumes have declined by 6% yoy in April-October 2011 period and we believe volumes are likely to grow in low single digits in 2HFY12E. We see downside risks to our volume estimates for FY2012E.

` Company has a finished goods inventory of 8,600 units at end of September (declined from 10,000 vehicles in June 2011) which has not corrected much despite a tepid volume growth.

` Company had taken a 0.8% price increase in June 2011 and has taken a further price increase of ~0.8% in November 2011. We believe price increase is unlikely to benefit the company as tepid volume growth will result in higher discounts which will offset the impact of price increase.

` Company expects raw material costs to remain static in 2HFY12E. Company indicated that it produced 8,000 units from Pantnagar in 2QFY12 versus 5,900 units in 1QFY12 which also aided improvement in EBITDA margins.

We maintain our SELL rating on the stock

We maintain our SELL rating on the stock as we forecast a muted volume growth for the company over the next two years. We expect volumes to remain under pressure in 2HFY12E as industrial production is slowing down which would lead to lower freight availability in the economy and thus impact volume growth. We will review our earnings estimates post concall on Friday.

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

Automobiles Ashok Leyland

Adjusted profit was 37% above our estimates Ashok Leyland 2QFY12 result summary, March fiscal year-ends (Rs mn)

% change 2QFY12 2QFY12E 2QFY11 1QFY12 Kotak est yoy qoq Volumes (units) 24,408 24,408 24,590 19,277 - (0.7) 26.6 Net realisations 1,267,851 1,223,656 1,103,701 1,294,551 3.6 14.9 (2.1) Net sales 30,946 29,867 27,140 24,955 3.6 14.0 24.0 Inc/dec in stock 1,629 - 925 (2,377) Raw materials 21,128 21,700 20,894 20,358 4.9 4.3 26.6 Staff costs 2,515 2,847 2,115 2,497 (11.7) 18.9 0.7 Other expenses 2,362 2,423 1,993 2,125 (2.5) 18.5 11.1 Total expenses 27,634 26,970 24,077 22,603 2.5 14.8 22.3 EBITDA 3,312 2,897 3,063 2,352 14.3 8.1 40.8 Other income 103 45 50 41 129.5 106.5 150.8 Interest expense 627 637 395 533 (1.6) 58.7 17.5 Depreciation expense 859 865 641 847 (0.7) 34.1 1.5 Profit before tax before exceptional 1,929 1,440 2,077 1,013 33.9 (7.1) 90.4 Exceptional income - - - 95 Profit before tax 1,929 1,440 2,077 1,107 33.9 (7.1) 74.2 Tax expense 388 317 405 245 22.4 (4.3) 58.4 Profit after tax 1,541 1,123 1,672 863 37.2 (7.8) 78.6 Adj PAT 1,541 1,123 1,672 796 37.2 (7.8) 93.5 Raw material cost as % of net sales 73.5 72.7 73.6 72.1 Staff cost as % of net sales 8.1 9.5 7.8 10.0 Other expenses as % of net sales 7.6 8.1 7.3 8.5 EBITDA margin (%) 10.7 9.7 11.3 9.4 No of shares 2,661 2,661 2,661 2,661 EPS 0.6 0.4 0.6 0.3 Tax rate (%) 20.1 22.0 19.5 22.1

Source: Company, Kotak Institutional Equities estimates

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Ashok Leyland Automobiles

We expect muted volume growth in FY2012E Volume assumptions, March fiscal year-ends, 2009-14E (units)

2009 2010 2011 2012E 2013E 2014E Buses 16,038 16,405 22,967 23,426 25,300 28,337 Trucks 31,067 40,728 60,277 62,689 67,704 77,859 LCV 514 814 570 615 677 778 Domestic volumes 47,619 57,947 83,814 86,730 93,681 106,974 Buses 3,696 2,076 4,152 4,360 4,796 5,275 Trucks 2,280 3,617 6,149 7,071 8,132 9,352 LCV 836 286 86 73 77 80 Export volumes 6,812 5,979 10,387 11,504 13,004 14,707 Buses 19,734 18,481 27,119 27,786 30,096 33,612 Trucks 33,347 44,345 66,426 69,760 75,836 87,211 LCV 1,350 1,100 656 688 753 859 Total volumes 54,431 63,926 94,201 98,234 106,685 121,681 Growth (% yoy) Buses (8.7) 2.3 40.0 2.0 8.0 12.0 Trucks (46.3) 31.1 48.0 4.0 8.0 15.0 LCV (16.4) 58.4 (30.0) 8.0 10.0 15.0 Domestic volumes (37.4) 21.7 44.6 3.5 8.0 14.2 Buses (21.2) (43.8) 100.0 5.0 10.0 10.0 Trucks (4.6) 58.6 70.0 15.0 15.0 15.0 LCV 301.9 (65.8) (70.0) (15.0) 5.0 5.0 Export volumes (6.5) (12.2) 73.7 10.8 13.0 13.1 Buses (11.3) (6.3) 46.7 2.5 8.3 11.7 Trucks (44.6) 33.0 49.8 5.0 8.7 15.0 LCV 64.0 (18.5) (40.4) 5.0 9.5 14.0 Total volumes (34.7) 17.4 47.4 4.3 8.6 14.1

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Automobiles Ashok Leyland

We expect net profit to decline by 11% yoy in FY2012E Profit and loss, balance sheet and cash flow model, March fiscal year-ends, 2009-14E (Rs mn)

2009 2010 2011 2012E 2013E 2014E Profit model Volumes 54,431 63,926 94,201 98,234 106,685 121,681 Net sales 59,811 72,447 111,177 127,904 142,859 165,483 EBITDA 4,694 7,628 12,176 12,645 14,320 17,761 Other income 496 189 153 158 163 168 Interest (1,187) (811) (1,637) (2,317) (2,881) (2,749) Depreciation (1,784) (2,041) (2,674) (3,356) (3,556) (3,711) Profit before tax 2,087 5,448 8,018 7,130 8,046 11,470 Current tax (60) (1,299) (1,112) (1,834) (2,080) (4,099) Deferred tax (125) 88 (594) 265 309 1,002 Net profit 1,903 4,237 6,313 5,562 6,276 8,373 Earnings per share (Rs) 0.8 1.4 2.4 2.1 2.4 3.1 Balance sheet Equity 34,777 36,563 39,630 42,079 45,241 50,501 Deferred tax liability 2,634 4,611 5,338 5,073 4,763 3,761 Total Borrowings 19,581 22,039 25,683 33,482 35,482 34,482 Current liabilities 21,369 29,608 35,283 40,124 43,468 48,865 Total liabilities 78,363 92,820 105,933 120,757 128,954 137,609 Net fixed assets 43,974 48,110 49,918 52,561 54,505 55,294 Investments 2,636 3,262 12,300 17,300 19,300 20,300 Cash 881 5,189 1,795 1,203 894 418 Other current assets 30,775 36,208 41,877 49,649 54,213 61,554 Miscellaneous expenditure 97 52 43 43 43 43 Total assets 78,363 92,820 105,933 120,757 128,954 137,609 Free cash flow Operating cash flow excl. working capital 3,875 6,563 10,828 10,811 12,241 13,662 Operating cash flow incl. working capital (5,256) 10,902 5,914 7,881 11,021 11,717 Capital expenditure (7,579) (6,844) (3,501) (6,000) (5,500) (4,500) Investments (171) 47 (9,038) (5,000) (2,000) (1,000) Free cash flow (13,006) 4,105 (6,625) (3,119) 3,521 6,217 Ratios EBITDA margin (%) 7.8 10.5 11.0 9.9 10.0 10.7 PAT margin (%) 3.2 5.8 5.7 4.3 4.4 5.1 Debt/equity (X) 0.5 0.5 0.6 0.7 0.7 0.6 Net debt/equity (X) 0.5 0.4 0.3 0.3 0.3 0.3 Book Value (Rs/share) 8.9 10.2 11.6 12.5 13.5 15.1 RoAE (%) 8.1 16.7 21.8 17.4 18.2 22.0 RoACE (%) 6.7 8.1 11.5 9.9 10.4 12.0

Source: Company, Kotak Institutional Equities estimates

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH

SELL Jubilant Foodworks (JUBI)

Consumer products NOVEMBER 03, 2011 RESULT Coverage view: Neutral Early warning signals visible. While JUBI reported 47% sales growth, same-store Price (Rs): 814 growth (SSG) of 27% was below estimates. Most important, the SSG volumes are Target price (Rs): 750 <20%, in our view (possibly due to ~10% price increase yoy for an already expensive product—average price of a pizza is ~Rs200 and average bill value is >Rs300, in our BSE-30: 17,465 view). It is likely deviating from its policy of limiting price increases to ~6% p.a. as it looks to protect gross margins (GM). Despite price hikes, GM declined 160 bps yoy.

Growth in rent in line with sales growth likely indicates slower-than-expected ramp-up of newer stores, in our view. JUBI is planning to increase marketing spends to address any potential impact of demand slowdown. SELL. Our DCF-based TP remains Rs750.

Company data and valuation summary Jubilant Foodworks Stock data Forecasts/Valuations 2011 2012E 2013E 52-week range (Rs) (high,low)1,022-461 EPS (Rs) 11.2 16.1 23.6 Market Cap. (Rs bn) 53.3 EPS growth (%) 99.6 43.8 46.5 Shareholding pattern (%) P/E (X) 72.7 50.5 34.5 Promoters 58.9 Sales (Rs bn) 6.8 10.2 13.8 FIIs 33.4 Net profits (Rs bn) 0.7 1.1 1.5 MFs 1.8 EBITDA (Rs bn) 1.2 1.9 2.7 Price performance (%) 1M 3M 12M EV/EBITDA (X) 43.9 27.4 19.0 Absolute 8.1 (2.2) 48.4 ROE (%) 46.6 43.2 41.3 Rel. to BSE-30 (0.1) 0.4 73.8 Div. Yield (%) 0.0 0.0 0.0

Base effect + food inflation = lower sales growth and gross margin

Jubilant Foodworks reported net sales of Rs2,403 mn (+47%, KIE estimate Rs2,560 mn), EBITDA of Rs436 mn (+47%, KIE estimate Rs489 mn) and PAT of Rs246 mn (+33%, KIE estimate Rs282 mn).

` Sales growth of 47% is driven by 27% same-store growth (SSG) of which pricing growth is ~10%. In FY2011 and 1QFY12, SSG was 37%, significantly higher than the average of the six years prior to that of 20%. 27% SSG this quarter is on the back of 44% SSG in 2QFY11. Most important, the SSG volumes are <20%, in our view (possibly due to ~10% price increase yoy for an already expensive product—average price of a pizza is ~Rs200 and average bill value is >Rs300, in our view). It is likely deviating from its policy of limiting price increases to ~6% p.a. as it looks to protect gross margins (GM).

` Despite price hikes, GM declined 162 bps to 73.6% due to higher raw material cost (inflationary milk price - cheese is an important ingredient for the company’s key products). This is the lowest gross margin reported by the company in the past 12 quarters. Staff cost and rent cost were flat as % of sales on yoy basis. Benefits of operating leverage were seen in other expenditure (138 bps) which helped the company maintain flat EBITDA margin at 18%. Growth in rent in line with sales growth likely indicates slower-than-budgeted ramp-up of newer stores, in our view.

` As of September 30, 2011, the company had investments of Rs480 mn across fixed deposits, liquid mutual funds and Rs68 mn towards wholly owned subsidiary (Jubilant Foodworks Lanka Pvt. Ltd). Higher other income of Rs15 mn is likely on account of income from its liquid investments as well as interest income from the inter-corporate debt (ICD) of Rs300 mn given in September 2010. According to the company, the ICD will be repaid in 3QFY12E. The entity to which the loan has been granted has not been disclosed by the company.

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

Consumer products Jubilant Foodworks

` JUBI is treating the expenses incurred (Rs9 mn or ~4% of 2QFY12 PAT) to ‘operationalise’ Dunkin Donuts as an ‘exceptional’ item. The expenses include staff costs of Rs3.9 mn, other expenditure of Rs5 mn and depreciation of Rs0.4 mn. As these expenses are in the nature of normal incubation expense for any new venture within an organization, in our view this does not necessarily need to be treated as exceptional item.

` 19 new Domino’s stores were opened in 2QFY12 and total number of stores as of September 30, 2011 was 411. The company plans to open 80 new stores in FY2012E – it has launched 33 new stores in 1HFY12 and has signed an additional 29 stores for opening this fiscal. Number of employees as of September 30, 2011 was 13,539 (an increase of 2,850 employees yoy).

Key takeaways from the concall with the management

` The management highlighted that there are early signs of slowdown in discretionary spending categories. This was manifested in Titan and Asian Paints results and is in line with our note dated August 30, 2011 where we had highlighted that impact of food inflation on consumer demand is underestimated and consumer demand is not parabolic. In order to tackle such slowdown, JUBI plans to increase its market development activities and adspends in 2HFY12E.

` The company is planning another price hike of ~3% in November 2011. It has already taken price hike of 2.5% in November 2010, 5% in April 2011 and 3% in mid-August 2011. The company typically takes ~6% price hike annually and in our view, gross margin pressure has likely forced it to take series of price hikes this year.

Our view: It is surprising that even with very healthy margins of ~18% and operating in a highly competitive and growing market, the company chose to risk volume growth by implementing price increases to recover input cost inflation (in an environment of likely decline in consumer confidence).

` The company has set up its operations in Sri Lanka and plans to open 25-30 Domino’s stores in the next 5 years.

` JUBI is in the process of relocating two commissaries (in the West and East) and setting up a new commissary in Chandigarh for Domino’s operations. A commissary for Dunkin Donuts is also being set up.

` Inventory has increased to Rs192 mn as of September 30, 2011 from Rs100 mn as of September 30, 2010 primarily because the company has stocked up raw material for the peak season. In our view, this may likely help it manage gross margin in this quarter

` Loans and advances as on September 30, 2011 includes ICD of Rs300 mn and an amount recoverable from a business partner amounting to ~Rs100 mn

Retain SELL

We like JUBI’s business model, have strong conviction in the management and see huge growth opportunities for the company driven by changing demographic and socio-economic factors. We are positive on the tie-up with Dunkin Donuts from a long-term perspective as it addresses the cyclicality in Dominos business model (pizza business is cyclical due to high average bill value, in our view). Despite the strong near-term earnings forecast and favorable view, we find it difficult to justify the current valuation of the company (PE of 34X FY2013E).

We have cut our FY2012E and FY2013E earnings estimates by ~3% as we adjust for the earnings miss in the 2QFY12. Our EPS estimates for FY2012E and FY2013E are Rs16.1 and Rs23.6, respectively. We continue to value JUBI on DCF with a target price of Rs750. Maintain SELL. Upside risk is better-than-expected sales growth.

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Jubilant Foodworks Consumer products

Interim results of Jubilant Foodworks, March fiscal year-ends (Rs mn)

(% chg) 2QFY12 2QFY12E 2QFY11 1QFY12 2QFY12E 2QFY11 1QFY12 Net sales 2,403 2,560 1,633 2,169 (6) 47 11 Total expenditure (1,968) (2,072) (1,337) (1,755) 47 12 Material cost (635) (663) (405) (552) 57 15 Staff cost (475) (505) (325) (421) 46 13 Rent (185) (189) (127) (164) 46 13 Other expenditure (673) (715) (480) (618) 40 9 EBITDA 436 489 296 413 (11) 47 5 OPM (%) 18.1 19.1 18.2 19.1 Other income 15 14 3 13 328 14 Interest - - (1) - Depreciation (93) (91) (69) (87) 34 7 Pretax profits 357 411 229 339 (13) 56 5 Tax (111) (130) (45) (108) Net income 246 282 184 232 (13) 33 6 Extraordinary item (9) Reported PAT 237 282 184 232 Income tax rate (%) 31.1 31.5 19.7 31.7

Cost as a % of sales Material cost 26.4 25.9 24.8 25.5 Staff cost 19.8 19.7 19.9 19.4 Rent 7.7 7.4 7.8 7.5 Other expenditure 28.0 27.9 29.4 28.5

Source: Company, Kotak Institutional Equities estimates

Base effect leads to lower same-store growth in 2QFY12 Same store growth (%)

50 44 45 38 37 37 40 35 33 35 30 27 23.1 25 20 20 13.6 13.2 15 10 6 5 1.8 0 CAGR FY2009 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 2005-09

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Consumer products Jubilant Foodworks

Inflation in cheese prices likely hurting gross margins Quarterly gross margins (%)

76 75.7 75.5 75.3 75.3 75 75.0 75.0 74.8 74.7 74.4 74.5

74 73.9 73.6

73

72 Jun-11 Jun-10 Jun-09 Sep-11 Sep-10 Sep-09 Dec-10 Dec-09 Dec-08 Mar-11 Mar-10 Mar-09

Source: Company, Kotak Institutional Equities

New store additions will require higher employee base No of employees (#)

16,000 13,539 14,000 12,462 12,593 11,514 12,000 10,689 10,000 8,300 8,600 8,000

6,000

4,000

2,000

- 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12

Source: Company, Kotak Institutional Equities

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Jubilant Foodworks Consumer products

Limited scope for operating leverage in employee cost Sales and employee cost growth (%)

Growth in employee cost (%) Growth in sales (%)

80 75 70 65 60 55 50 45 40 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12

Source: Kotak Institutional Equities

Operating leverage in rent and other expenditure aided EBITDA margin expansion Quarterly EBITDA margin (%)

20 19 19.1 18.5 18 18.2 18.1 17.3 17 17.0 16.6 16 15.6 15.6 15 14.9 14 14.2 13 12 11 11.2 10 Jun-09 Jun-10 Jun-11 Sep-09 Sep-10 Sep-11 Dec-08 Dec-09 Dec-10 Mar-09 Mar-10 Mar-11

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 Consumer products Jubilant Foodworks

Profit model, balance sheet, cash model of Jubilant Foodworks Ltd, March fiscal year-ends, 2008-2014E (Rs mn)

2008 2009 2010 2011 2012E 2013E 2014E Profit model Net sales 2,112 2,806 4,239 6,781 10,175 13,810 18,146 EBITDA 259 336 658 1,199 1,901 2,676 3,553 Other income 5 4 312212325 Interest (expense)/income (58) (89) (82) 7 26 69 117 Depreciation (119) (169) (243) (293) (365) (451) (491) Pretax profits 87 81 335 924 1,582 2,318 3,204 Tax (7) (8) (1) (204) (526) (770) (1,064) Net income 80 73 334 720 1,057 1,548 2,140 Earnings per share (Rs) 1.4 1.3 5.6 11.2 16.1 23.6 32.6 Balance sheet Paid-up common stock 582 582 636 645 645 645 645 Total shareholder's equity (415) (342) 538 1,272 2,328 3,877 6,016 Total borrowings 517824860000 Total liabilities and equity 683 1,064 1,260 1,917 2,974 4,522 6,662 Net fixed assets 726 1,065 1,403 1,801 2,257 2,550 2,849 Capital work-in-progress 60 87 25 36 46 58 70 Investments 0 0 0 216 481 481 481 Cash 22 30 70 89 555 1,929 3,915 Net current assets (128) (121) (239) (257) (396) (528) (685) Deferred tax asset - - - 31 31 31 31 Total assets 680 1,062 1,259 1,916 2,974 4,522 6,662 Free cash flow Operating cash flow, excl. working capital 204 243 573 1,013 1,422 1,999 2,631 Working capital changes 49 (7) 119 18 139 131 157 Capital expenditure (422) (536) (519) (703) (830) (757) (801) Free cash flow (169) (300) 173 328 731 1,373 1,986 Ratios Sales growth (%) 52.3 32.9 51.1 59.9 50.1 35.7 31.4 EBITDA margin (%) 12.3 12.0 15.5 17.7 18.7 19.4 19.6 EPS growth (%) 31.5 (9.1) 347.1 99.6 43.8 46.5 38.2

Source: Kotak Institutional Equities estimates

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ATTRACTIVE Technology

India NOVEMBER 03, 2011 UPDATE BSE-30: 17,482

2QFY12 earnings review – on balance, positive. Sep 2011 was a robust, albeit not spectacular, quarter for the Indian IT services players. Positives – (1) 3-8% qoq c/c organic rev growth for Tier-Is; some mid-caps did better, (2) margins, aided partially by currency, held up well across names, barring Wipro, (3) string hiring trends, and (4) buoyant management commentary on demand pipeline and pricing. Negatives – (1) tepid Dec quarter rev growth guidance from Cognizant, and (2) poor FCF generation, especially for Wipro and HCLT. We remain constructive. Infosys/TCS top picks.

Demand – holding well, no red flags

Adverse macro-led concerns on demand linger on even as micro indicators, including the lead ones, have not thrown a reason to worry thus far. Sep 2011 quarter revenue growth across companies was robust and more importantly, broad-based – no signs of slowdown in any of the purported ‘trouble areas’ (BFSI, Europe, etc.). Quarter’s net hiring numbers as well as initial campus recruitment figures (for FY2013E joinees) remain reflective of a healthy demand environment and not a weak (or weakening) one. Also, mid-sized companies, who have historically been the first ones to get hit at the onset of a material downtick in demand, reported fairly strong revenue growth as well as hiring numbers. In fact, some mid-sized names (notably MindTree and Hexaware) outperformed their larger peers on 2QFY12 sequential revenue growth. Management commentaries waved no red flags either.

Macro developments – we keep an eye but do not see a reason to be overly pessimistic…

…overly pessimistic on offshore IT services demand, i.e. We reiterate our view that the correlation chain linking global macro to corporate IT spends to IT outsourcing to IT offshoring is not particularly strong (in a normal growth, slowdown or recession scenario – Lehman was different) – in fact, it gets weaker at every link. IT offshoring growth story is about market share gains within existing IT spends. It does not depend as much on growth in overall IT services spend. Of course, strong IT services spend growth is good for offshore players – it provides that additional discretionary spend kicker. However, accelerated offshore push on ‘keep-the-lights-on’ IT spends in a tough ‘no IT spend growth or reduced IT spend’ environment can potentially make up for the lack of ‘higher discretionary spend or increasing IT spend’ growth kicker.

It is also important to look at the emerging demand dynamics from the lens of revised growth expectations. Stock prices, that were building in a low-20s US$ revenue growth for the Tier-I pack around 3 months back, now demand a much lower 13-15% yoy growth. What we saw in the Sep 2011 quarter has increased risks to the upside than to the downside on these estimates. We remain positive. Our top picks – INFO, TCS among Tier-Is, and MTCL, PATNI among Tier-IIs. Other key metrics from Sep 2011 quarter earnings reports

` Margins – largely in-line for Tier-Is, with the exception of Wipro, which disappointed. Most mid- caps surprised on the upside, driven by currency tailwinds as well as better-than-expected volume growth.

` Growth metrics – another quarter of broad-based growth across verticals, geographies, and service lines. BFSI continued to be robust and Europe did not throw any negative surprise.

` Guidance – Infosys surprised the Street with strong 2HFY12 guidance (see Exhibit 2), Wipro’s was in-line, while Cognizant’s Dec 2011 quarter guidance was subdued.

` WC management and FCF generation were weak for Wipro, HCLT as well as TCS.

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

India Technology

Exhibit 1: Sep 2011 quarter performance versus KIE estimates

vs KIE estimates Revenues EBITDA margin Net Income Infosys Inline Beat Miss TCS Miss Inline Miss Wipro Inline Miss Inline HCL Tech Miss Inline Miss Patni Inline Beat Beat Polaris Beat Miss Beat Mindtree Beat Beat Beat Hexaware Inline Beat Beat

Note: (1) Revenue and net income beat/miss implies revenues/net income more/less than estimates by 1% or more.

Source: Companies, Kotak Institutional Equities estimates

Exhibit 2: Revenue and EPS guidance for various Indian IT companies for Dec 2011 quarter

Guidance Guidance Guidance Guidance Actuals (lower-end or single point) (upper-end) (lower-end) (upper-end) Sep-11 Dec-11 qoq (%) yoy (%) Dec-11 qoq yoy (%) FY2012 yoy (%) FY2012 yoy (%) Infosys Revenues (US$ mn) 1,746 1,802 3.2 13.7 1,840 5.4 16.1 7,080 17.1 7,200 19.1 Revenues (Rs bn) 81.0 88.3 9.0 24.2 90.1 11.3 26.8 335.0 21.8 340.9 24.0 EPS (Rs) 33.2 38.5 16.0 24.2 39.2 18.1 26.4 143.0 19.7 145.3 21.6 Re/US$ rate 46.4 49.0 49.0 49.0 49.0 Wipro Revenues IT services 1,473 1,500 1.9 11.6 1,530 3.9 13.8 (US$ mn) (a) Hexaware Revenues (US$ mn) 78.8 82.0 4.1 23.1 82.5 4.7 23.9

Note: (a) Global IT services

Source: Companies, Kotak Institutional Equities

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH Technology India

Exhibit 3: Sep 2011 quarter financial performance of key companies under our coverage

Sep-11 qoq (%) yoy (%) Sep-11E versus est. (%) Infosys Revenues (US$ mn) 1,746 4.5 16.8 1,753 (0.4) Revenues (Rs mn) 80,990 8.2 16.6 81,267 (0.3) EBITDA (Rs mn) 25,140 15.6 8.6 24,746 1.6 Net income (Rs mn) 19,060 10.7 9.7 19,679 (3.1) EBITDA margin (%) 31.0 30.5 59 bps TCS Revenues (US$ mn) 2,525 4.7 26.0 2,558 (1.3) Revenues (Rs mn) 116,335 7.7 25.3 118,502 (1.8) EBITDA (Rs mn) 33,829 11.6 21.8 34,350 (1.5) Net income (Rs mn) 24,390 2.5 14.7 24,765 (1.5) EBITDA margin (%) 29.1 29.0 9 bps Wipro Revenues (US$ mn) - Global IT Services 1,473 4.6 15.7 1,458 1.0 Revenues (Rs mn) - Wipro Limited 90,945 6.2 17.6 90,339 0.7 EBIT (Rs mn) - Wipro Limited 14,878 (0.5) 6.0 15,047 (1.1) Net income (Rs mn) 12,900 (2.9) 0.7 13,083 (1.4) Global IT EBIT margin (%) 20.0 20.7 -72 bps HCLT Revenues (US$ mn) 1,002 4.1 24.7 1,013 (1.1) Reveneus (Rs mn) 48,907 13.6 35.4 49,457 (1.1) EBITDA (Rs mn) 8,179 5.5 45.2 8,295 (1.4) Net income (Rs mn) 5,046 2.5 69.1 5,346 (5.6) EBITDA margin (%) 16.7 16.8 -5 bps Polaris Revenues (US$ mn) 111 10.6 33.2 105 6.2 Revenues (Rs mn) 5,097 13.2 31.3 4,856 5.0 EBITDA (Rs mn) 622 7.4 2.5 664 (6.3) Net income (Rs mn) 539 26.7 12.5 495 9.0 EBITDA margin (%) 12.2 13.7 -147 bps MindTree Revenues (US$ mn) 101 9.5 23.0 98 2.9 Revenues (Rs mn) 4,567 10.6 18.8 4,527 0.9 EBITDA (Rs mn) 588 27.8 31.4 552 6.5 Net income (Rs mn) 543 57.4 133.6 382 42.2 EBITDA margin (%) 12.9 12.2 68 bps Hexaware Revenues (US$ mn) 79 5.3 29.0 78 0.7 Revenues (Rs mn) 3,660 9.5 29.9 3,636 0.7 EBITDA (Rs mn) 686 34.5 185.8 592 15.9 Net income (Rs mn) 646 7.3 284.5 542 19.3 EBITDA margin (%) 18.7 16.3 246 bps Patni Revenues (US$ mn) 191 3.9 6.8 189 0.8 Revenues (Rs mn) 8,842 7.8 11.0 8,751 1.0 EBITDA (Rs mn) - ex forex 1,553 65.5 3.2 1,267 22.6 Net income (Rs mn) 788 (11.2) (38.5) 607 29.7 EBITDA margin (%) 17.6 18.4 -88 bps

Source: Companies, , Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 India Technology

Exhibit 4: US$ revenue growth of the IT companies under coverage

Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Revenues (US$ mn) TCS 1,538 1,635 1,686 1,794 2,004 2,144 2,244 2,412 2,525 Infosys 1,154 1,232 1,296 1,358 1,496 1,585 1,602 1,671 1,746 Wipro IT 1,065 1,127 1,166 1,204 1,273 1,344 1,400 1,408 1,473 HCL Tech 630 652 685 738 804 864 915 963 1,002 Patni 167 170 172 168 179 183 190 184 191 Hexaware 54 54 49 55 61 67 70 75 79 Polaris 70 73 76 79 84 89 97 101 111 Mindtree 65 70 74 77 82 85 86 93 101 Total 4,744 5,013 5,205 5,472 5,982 6,361 6,605 6,905 7,228 Sequential quarter change (%) TCS 3.8 6.3 3.1 6.4 11.7 7.0 4.7 7.5 4.7 Infosys 2.9 6.8 5.2 4.8 10.2 5.9 1.1 4.3 4.5 Wipro IT 3.2 5.8 3.5 3.2 5.7 5.6 4.2 0.5 4.6 HCL Tech 3.8 3.4 5.1 7.6 9.0 7.5 5.9 5.2 4.1 Patni 3.3 1.8 1.3 (2.8) 6.7 2.4 4.0 (3.4) 3.9 Hexaware 1.7 (0.9) (10.0) 13.1 11.2 9.0 5.7 6.2 5.3 Polaris 5.0 3.7 5.3 3.3 5.9 6.6 8.5 4.1 10.6 Mindtree 5.1 7.9 5.7 3.4 7.0 3.5 1.2 7.2 9.5 Total 3.4 5.7 3.8 5.1 9.3 6.3 3.8 4.5 4.7 YoY growth (%) Total (1.1) 8.1 15.8 19.3 26.1 26.9 26.9 26.2 20.8

Source: Companies, Kotak Institutional Equities

Exhibit 5: Vertical-wise split of revenue (US$ mn) Broad-based growth across verticals

2QFY12Growth (%) 2QFY12 Growth (%) Revenue % of revenues qoq yoy Revenues % of revenues qoq yoy Infosys HCL Tech BFSI 616 35.3 4.2 16.4 Financial services 252 25.1 0.5 24.2 Manufacturing 353 20.2 4.0 24.7 Manufacturing 291 29.0 7.8 32.9 Telecom 182 10.4 2.5 (8.7) Telecom 85 8.5 (2.8) (3.7) Retailing 272 15.6 1.2 26.4 Retail & CPG 85 8.5 12.0 24.7 Others, of which 323 18.5 9.8 20.0 MP&E 68 6.8 (0.3) 22.9 Utilities 100 5.7 4.5 5.6 Life sciences 76 7.6 0.1 12.8 Logistics & Transportation 30 1.7 (1.3) 10.2 E&U, public sector 80 8.0 0.3 46.7 Others 194 11.1 14.8 30.9 Others 66 6.6 20.5 37.2 Total 1,746 100.0 4.5 16.7 Total 1,003 100.0 4.1 24.7 Wipro TCS Global Media & Telecom 231 15.7 (2.2) 7.5 BFSI 1,098 43.5 5.2 24.6 Finance Solutions 399 27.1 6.2 16.5 Manufacturing 197 7.8 7.4 32.8 Manufacturing & hi-tech 280 19 0.9 5.2 Telecom 270 10.7 (4.3) 5.3 Health, LS and services 144 9.8 0.5 4.0 Healthcare 134 5.3 6.7 30.9 Retail & transportation 216 14.7 2.5 9.7 Retail & Distribution 306 12.1 9.2 39.9 Energy & Utilities 202 13.7 23.6 78.1 Transportation 96 3.8 7.5 49.6 Total 1,473 100.0 4.6 15.7 Energy & Utilities 109 4.3 18.5 26.0 Mindtree Others 316 12.5 (0.1) 28.0 Manufacturing 15.6 15.5 11.7 35.3 Total 2,525 100.0 4.7 26.0 Banking and financial 21.7 21.5 9.0 45.4 Hexaware T&T 10.9 10.8 3.8 5.4 BFSI 27 34.4 10.2 25.0 PES 36.3 35.9 8.3 2.4 Travel & transportation 18 23.2 (0.6) 21.2 Others 16.4 16.3 12.3 62.0 Emerging segments 33 42.4 5.1 37.4 Total 101 100.0 9.5 23.0 Total 79 100.0 5.3 29.0

Source: Companies, Kotak Institutional Equities

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Technology India

Exhibit 6: Geographical split of revenues (US$ mn) Europe revenues under slight pressure

2QFY12Growth (%) 2QFY12 Growth (%) Revenues % of revenues qoq yoy Revenues % of revenues qoq yoy Infosys HCL Tech North America 1,140 65.3 6.3 15.8 America 559 55.8 6.8 20.0 Europe 358 20.5 0.6 9.8 Europe 267 26.6 2.2 24.0 India 38 2.2 (11.6) 22.3 Rest of the world 176 17.6 (1.0) 43.9 Rest of the world 210 12.0 5.4 36.0 Total 1,002 100.0 4.1 24.7 Total 1,746 100.0 4.5 16.7 Polaris Wipro US/North America 51 45.4 7.4 27.7 North America 761 51.7 2.1 7.0 Europe 25 22.4 (0.7) 22.1 Europe 424 28.8 5.3 25.7 India, APAC & MEA 36 32.2 25.9 52.0 Japan 19 1.3 23.6 0.3 Total 111 100.0 12.8 33.2 Rest of the world 268 18.2 10.1 30.8 Mindtree - India 137 9.3 8.1 20.9 North America 59 58.4 6.1 13.8 Total 1,473 100.0 4.6 15.7 Europe 26 25.7 23.5 75.6 TCS India 8 7.9 0.6 14.3 North America 1,348 53.4 5.7 25.3 APAC 8 8.0 5.6 (5.4) Europe 646 25.6 6.3 32.2 Total 101 100.0 9.5 23.0 India 210 8.3 (6.6) 5.6 Hexaware Others 321 12.7 5.5 33.3 North America 51 64.7 2.7 24.6 Total 2,525 100.0 4.7 26.0 Europe 22 28.4 10.0 32.3 Rest of the world 5 6.9 13.6 68.0 Total 79 100.0 5.3 29.0

Source: Companies, Kotak Institutional Equities

Exhibit 7: Service line split of revenue (US$ mn)

2QFY12 Growth (%) 2QFY12 Growth (%) Revenues % of revenues qoq yoy Revenues % of revenues qoq yoy Infosys TCS Application development 299 17.1 11.0 27.9 ADM 1,129 44.7 1.3 20.3 Application maintenance 377 21.6 1.2 7.3 Business Intelligence 119 4.7 0.4 5.7 Business Process Mgmt 94 5.4 4.5 12.5 Enterprise solutions 280 11.1 7.6 35.8 Consulting & PI 431 24.7 2.4 11.7 Assurance services 192 7.6 9.0 45.1 Infrastructure Mgmt 101 5.8 2.7 9.2 Engineering services 121 4.8 9.2 23.4 Product Engineering 59 3.4 11.0 58.7 Infrastructure services 242 9.6 5.8 28.7 System Integration 105 6.0 (0.5) 22.9 Global consulting 66 2.6 23.7 56.0 Testing Services 143 8.2 14.2 25.9 BPO 275 10.9 4.7 26.0 Others 63 3.6 14.0 27.3 Asset leverage solutions 101 4.0 16.3 48.2 Products 73 4.2 (8.6) 16.7 Total revenues 2,525 100.0 4.7 26.0 Total revenues 1,746 100.0 4.5 16.7 Wipro HCL Tech Tech. Infra practices 325 22.1 6.5 21.2 Engg and R&D services 186 18.6 8.8 24.0 Analytics & Info mgmt 97 6.6 7.9 31.6 Infrastructure Services 247 24.6 4.5 37.5 BAS 449 30.5 5.0 16.5 Custom applications 325 32.4 6.0 29.1 BPO 130 8.8 (1.0) 3.9 Enterprise application 198 19.8 (1.4) 13.8 Product engg. & mobility 124 8.4 5.9 11.7 BPO services 46 4.6 (2.3) (4.4) ADM 348 23.6 3.3 12.4 Total revenues 1,002 100.0 4.1 24.7 Total revenues 1,473 100.0 4.6 15.7 Mindtree Hexaware Development 40 39.7 8.7 (2.9) ADM 32 40.5 8.8 17.9 Maintenance 25 24.7 6.9 49.7 EAS 24 30.5 2.7 33.4 Consulting & IP licensing 5 4.6 26.0 82.5 Testing / BTO 7 9.2 3.1 62.6 Ind testing 18 18.2 8.9 27.2 BPO 4 5.7 5.3 11.4 Infrastructure mgmt 10 9.7 11.8 102.2 Others 4 4.5 5.3 48.9 Total revenues 101 100.0 9.5 23.0 Total revenues 79 100.0 5.3 29.0

Source: Companies, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 India Technology

Exhibit 8: Certain mid-caps have outperformed larger peers in operating margin performance

2QFY11 1QFY12 2QFY12 qoq (bps) yoy (bps) TCS 29.9 28.1 29.1 101 bps -83 bps Infosys 33.3 29.1 31.1 201 bps -226 bps Wipro - IT services 24.8 25.1 23.2 -197 bps -168 bps HCL Tech 15.6 18.0 16.7 -130 bps 112 bps Mindtree 11.6 11.1 12.9 174 bps 124 bps Polaris 15.6 12.9 12.2 -67 bps -342 bps Hexaware 8.5 15.3 18.7 348 bps 1022 bps

Source: Companies, Kotak Institutional Equities

Exhibit 9: Strong net hiring trends indicate confidence in volumes

Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Infosys (945) 1,548 4,429 3,914 1,026 7,646 5,311 3,041 2,740 8,262 Wipro (b) 441 (360) 4,855 5,955 4,224 2,975 3,591 2,894 4,105 5,240 TCS (2,119) 320 7,692 10,775 3,271 10,717 12,497 11,700 3,576 12,580 HCL Tech 190 227 1,245 2,441 6,428 5,661 2,049 1,153 3,626 3,474 Cognizant 400 3,900 10,400 7,100 3,200 6,900 8,400 7,200 7,100 12,000 Patni (760) (173) 388 (36) 934 1,663 1,086 97 633 (519) Mindtree (c) 1,602 (243) 677 170 715 572 87 (124) 30 1,003 Hexaware (255) (35) 131 167 727 277 203 153 755 745 Polaris (46) (387) 519 188 207 959 172 124 455 471 Persistent (128) 224 213 144 249 370 179 900 260 280 Total (1,620) 5,021 30,549 30,818 20,981 37,740 33,575 27,138 23,280 43,536

Source: Companies, Kotak Institutional Equities

Exhibit 10: Attrition has trended down this quarter

Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 TCS (a) 10.7 10.8 11.5 11.8 13.1 14.1 14.1 14.4 14.8 12.5 TCS (f) 7.8 8.1 10.4 10.2 13.1 15.6 10.0 16.1 17.1 14.9 Infosys (b) 11.1 10.9 11.6 13.4 15.8 17.1 17.5 17.0 15.8 15.6 Infosys (f) 17.2 17.3 15.9 19.3 27.4 22.3 18.4 18.2 21.7 20.6 Wipro (c) 10.3 13.6 14.3 17.6 24.4 24.9 23.9 23.4 25.2 22.4 Patni (d) 13.2 11.3 13.8 17.7 21.5 25.9 25.2 24.6 22.9 22.0 Hexaware 16.9 19.5 19.4 19.5 22.6 19.9 19.6 19.6 18.0 14.7 Mindtree 11.4 9.7 10.7 14.1 17.8 21.9 24.2 25.1 25.6 21.7 HCL Tech (e) 13.0 12.8 12.8 13.9 15.7 16.7 17.2 17.0 16.5 15.9 HCL Tech (f) 23.7 30.1 31.1 33.0 33.6 36.4 35.5 35.0 31.6 29.6

Notes: (a) LTM attrition including BPO (b) Standalone attrition numbers for last twelve months, ex BPO/subsidiaries (c) Wipro Technologies only, quarterly annualized attrition, includes involuntary attrition (d) Attrition is LTM and ex-BPO (e) For IT services only, excludes involuntary attrition (f) Quarterly annualized attrition computed (includes BPO)

Source: Companies, Kotak Institutional Equities

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Technology India

Exhibit 11: Receivable days have gone up significantly this quarter

Quarter ended Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Tata Consultancy Services 93 91 85 82 87 82 83 85 89 94 Infosys Technologies 71 67 65 66 71 68 67 73 75 77 Wipro Technologies (a) 84 81 86 87 91 93 95 93 102 107 HCL Technologies 84 90 82 84 80 80 77 73 71 78 Cognizant Technology Solutions 75 74 74 76 77 81 71 74 75 73 Polaris Software Lab 47 47 41 43 45 44 44 45 52 57 Hexaware Technologies 57 57 56 62 53 63 59 63 55 57

(a) Wipro Technologies' receivables for consolidated entity

Source: Companies, Kotak Institutional Equities

Exhibit 12: Stronger 2H versus 1H has been a rare event for Infosys

1H CQGR (%) 2H CQGR (%)

30.0

25.0

20.0

15.0

10.0

5.0

-

(5.0)

(10.0) FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12*

Note: FY12* reflects the upper-end of Infosys' guidance

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25

NEUTRAL Telecom

India NOVEMBER 03, 2011 UPDATE BSE-30: 17,482

Regulations – a new day, a new document, nothing definitive yet. The TRAI has released its response to the DOT’s observations on its May 2010/ February 2011 recommendations. TRAI has reiterated most of its earlier recommendations, suggested fresh guidelines on some, and also commented on some new issues. TRAI’s recommendations in this response letter are a mixed bag for the industry, in totality. We see no reason to change our stance on the sector either way and will prefer waiting for the final word on these issues. Remain positive on GSM incumbents Bharti and Idea.

TRAI’s response to DOT’s observations – key highlights

We summarize TRAI’s positioning on key regulatory issues from its response to DOT’s observations on its earlier recommendations below and also note our view on the potential impact on the sector, if this fresh positioning is accepted by the DOT.

` Definition of initial, contracted, excess, and prescribed spectrum. TRAI has reiterated its definitions – for GSM, initial or start-up spectrum is defined as 4.4 MHz, contracted as 6.2 MHz, excess as any spectrum holding beyond 6.2 MHz, and prescribed as 10 MHz in Delhi/Mumbai and 8 MHz in others. For CDMA, initial, contracted and prescribed are defined as 2.5, 5, and 5 (6.25 in Delhi and Mumbai), respectively. Excess here would be above 5 MHz. Spectrum beyond the prescribed limit to be taken back on renewal or post a consolidation event. Our take – prescribed limit would mean large incumbents would have to return spectrum in some of their large circles on license renewal – negative for incumbents.

` Spectrum pricing. TRAI has stuck to its February 2011 pricing recommendations – Rs17.7 bn pan-India per MHz for 20 years for up to 6.2 MHz of GSM and Rs45.7 bn for excess beyond 6.2. Spectrum in 900 MHz band and CDMA spectrum to be charged at 1.5X this amount. Operators holding excess spectrum to be charged on a retrospective basis and operators to be charged for 2G spectrum based on new pricing norms upon renewal. Also, future non-auctioned spectrum allocations (beyond the contracted 2G spectrum) to be charged using these norms. Our take – negative for the sector as a whole, tad more so for incumbents.

` Spectrum refarming. TRAI continues to be in favor of spectrum refarming. However, final

recommendations will be issued post a separate consultation process. Also, the scope of this consultation process would be wider – to include spectrum in other efficient bands (like the 700 MHz one) as well. Interestingly, TRAI has mentioned that in case 900 MHz spectrum is not refarmed, operators holding 900 MHz spectrum will not be allowed to participate in the 700 MHz auction. Our take – single-biggest negative for incumbents, if accepted, as challengers do not get hit.

` Uniform license fees. TRAI has reiterated its view of bringing IP-I and ISP licensees under the

license fee regime and taking all licensees to a uniform 6% (of AGR) license fees over the next 4 years. We note that the wireless players currently pay 10% of AGR in metro/A, 8% in B, and

6% in C circles. Bringing the IP-I towercos under uniform licensing regime would increase the financial burden on players having captive towers and/or holding stake in towercos. TRAI has also asserted that tower rentals will not be allowed as deductible for computation of wireless AGR. Our take – positive for GSM incumbents, negative for RCOM. We are also surprised with TRAI’s assertion on non-deductibility of tower rentals post bringing towercos under licensing regime – this would amount to double taxation, clearly.

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

Telecom India

` Incentive for meeting roll-out obligations. TRAI has recommended material reduction (0.5-4% of AGR) in the USO component of license fees for operators meeting sub-urban and rural rollout obligations. Our take – a massive positive for incumbents, if accepted.

` M&A regulations. A completely fresh set of guidelines on this issue –

ƒ Relaxed market share (AGR/subs) ceiling norms – automatic approval if the merged entity’s AGR and VLR market share is less than 35%, case-specific approval between 35% and 60%, transaction not allowed at >60%,

ƒ A new spectrum holding market share norm – the combined entity cannot hold more than 25% of allotted spectrum in any service area,

ƒ Spectrum of the merged entity cannot be greater than the prescribed limit (10 MHz GSM spectrum in Delhi/Mumbai, 8 MHz in other circles); spectrum over prescribed limit to be surrendered within one year of the permission to consolidate; TRAI/DOT to define the band of the spectrum to be surrendered,

ƒ Spectrum price to be paid for excess spectrum (>6.2 MHz GSM) post merger – to be computed based on spectrum pricing norms recommended by TRAI with a deduction allowed for initial entry fees paid,

ƒ A spectrum transfer charge of 5% to be paid on the difference between the transaction price and the regulatory price of spectrum,

ƒ Recurring spectrum usage charge to be based on combined spectrum – essentially, a move to a higher usage charge slab, and

ƒ In case of varying license validities of merging licenses, a combined service license to be issued with validity equal to the longer of the two merging licenses but two separate wireless operating licenses to be issued. On the spectrum with lower validity, a spectrum renewal fee to be paid upon license expiry (for the number of years difference between the longer validity license and the lower one to make spectrum also co-terminus).

We note that ‘spectrum’ referred above pertains only to the 2G spectrum holdings of merging operators. Our take – even as the relaxation in market share ceiling norms are conducive, other norms, if accepted, will essentially increase the cost of an acquisition or a merger substantially. We would rule out any meaningful M&A in the sector in that case, for all practical purposes. We are surprised that the authority has recommended such strict norms on spectrum holding limit, spectrum pricing, and spectrum charge while also making favorable statements supporting the need for consolidation in the industry – “...fragmentation of spectrum, a valuable but finite resource, was not desirable in the Telecom industry where size is increasingly becoming an advantage in the delivery of telecommunication services to people… it has been noticed that over the last two years, the Telecom industry is undergoing a certain stress. The Authority therefore feels that there is scope to liberalise the measures towards consolidation of spectrum.”

` Spectrum sharing. Sharing to be allowed between any two operators (this is a change from the earlier stance of allowing spectrum sharing between operators holding start-up spectrum only). However, spectrum holding of sharing operators would be seen at a combined level. This has two implications –

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27 India Telecom

ƒ Excess spectrum charge would have to be paid on a proportionate basis by the two sharing operators for shared spectrum > 6.2 MHz (partial spectrum sharing will not be permitted), and

ƒ Both operators will have to move to a higher spectrum usage charge slab. Sharing to be allowed for a period of five years, with a possible extension for another five at the discretion of the DOT.

Our take – sharing with such financial implications may not make much sense; operators may choose to continue with the current intra-circle roaming arrangements and look to meet minimum roll out obligations over the allotted timeframe.

` 3G intra-service roaming agreements – TRAI indicates that it has examined this issue in a separate exercise and has communicated its views to the DOT. Our take – this is a contentious issue that has been in the news flow recently. We see this issue dragging on between the operators and the DOT/TRAI.

` Exit policy (for players who intend to shut shop) – TRAI to initiate a new consultation process on this issue. Our take – immaterial to the industry structure; will free up some spectrum which may aid some of the challengers (RCOM, TTSL, Aircel) get the additional 1.8 MHz spectrum beyond 4.4, but that’s it.

Bottom line – outside substantial revisions to M&A norms and re-introduction of incentives for meeting rollout obligations, this response letter does not change the status quo in terms of TRAI’s and DOT’s stance on various issues. DOT had expected fresh views from TRAI on spectrum pricing, but the TRAI has clearly refused to give one. Decision on spectrum refarming will have to wait for TRAI’s consultation process. Roaming issue was not touched in the new document. Final word on these issues could take some time, in our view; regulatory uncertainty is likely to persist. Nevertheless, we present the impact of various recommendations on the listed players in Exhibits 1-6. We note that we present two separate cases for all companies – one assuming refarming of 900 MHz spectrum and other without. This is because impact of spectrum renewal payments would be different in the two cases.

Exhibit 1: Bharti - impact of various potential regulatory positives and negatives (Rs/share) - without refarming

Per share impact Negatives One time excess spectrum charge (13) Charges on spectrum renewal (NPV of the impact) (32) Change in roaming regulations (28) Spectrum refarming — 5 paise reduction in termination charges (22) Total negatives (94)

Positives Reduction in license fees 20 Lower USO fee from meeting rural rollout obligations 35 Total positives 56

Net impact (Rs/share) (39)

Source: Kotak Institutional Equities estimates

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH Telecom India

Exhibit 2: Bharti - impact of various potential regulatory positives and negatives (Rs/share) - with refarming

Per share impact Negatives One time excess spectrum charge (13) Charges on spectrum renewal (NPV of the impact) (25) Change in roaming regulations (28) Spectrum refarming (32) 5 paise reduction in termination charges (22) Total negatives (119)

Positives Reduction in license fees 20 Lower USO fee from meeting rural rollout obligations 35 Total positives 56

Net impact (Rs/share) (64)

Source: Kotak Institutional Equities estimates

Exhibit 3: Idea - impact of various potential regulatory positives and negatives (Rs/share) - without refarming

Per share impact Negatives One time excess spectrum charge (6) Charges on spectrum renewal (NPV of the impact) (32) Change in roaming regulations (11) Spectrum refarming — 5 paise reduction in termination charges (12) Total negatives (60)

Positives Reduction in license fees 12 Lower USO fee from meeting rural rollout obligations 16 Total positives 29

Net impact (Rs/share) (32)

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 India Telecom

Exhibit 4: Idea - impact of various potential regulatory positives and negatives (Rs/share) - with refarming

Per share impact Negatives One time excess spectrum charge (6) Charges on spectrum renewal (NPV of the impact) (24) Change in roaming regulations (11) Spectrum refarming (21) 5 paise reduction in termination charges (12) Total negatives (73)

Positives Reduction in license fees 12 Lower USO fee from meeting rural rollout obligations 16 Total positives 29

Net impact (Rs/share) (44)

Source: Kotak Institutional Equities estimates

Exhibit 5: RCOM - impact of various potential regulatory positives and negatives (Rs/share) - without refarming

Per share impact Negatives One time excess spectrum charge (1) Charges on CDMA spectrum renewal (NPV of the impact) (22) Charges on GSM spectrum renewal (NPV of the impact) (23) Change in roaming regulations (10) Spectrum refarming — 5 paise reduction in termination charges (12) Total negatives (68)

Positives Reduction in license fees 3 Lower USO fee from meeting rural rollout obligations 14 Total positives 17

Net impact (Rs/share) (51)

Source: Kotak Institutional Equities estimates

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH Telecom India

Exhibit 6: RCOM - impact of various potential regulatory positives and negatives (Rs/share) - with refarming

Per share impact Negatives One time excess spectrum charge (1) Charges on CDMA spectrum renewal (NPV of the impact) (22) Charges on GSM spectrum renewal (NPV of the impact) (20) Change in roaming regulations (10) Spectrum refarming (2) 5 paise reduction in termination charges (12) Total negatives (67)

Positives Reduction in license fees 3 Lower USO fee from meeting rural rollout obligations 14 Total positives 17

Net impact (Rs/share) (50)

Source: Kotak Institutional Equities estimates

Exhibit 7: Indian telecom companies valuation analysis, March fiscal year-ends, 2009-2013E

` Price (Rs) Target price P/E (X) EV/EBITDA (X) 3-Nov-11 (Rs) 2009 2010 2011 2012E 2013E 2009 2010 2011 2012E 2013E Bharti 393 460 17.6 16.6 24.7 21.6 14.0 10.3 9.4 10.5 8.2 6.2 Idea 97 115 33.4 35.4 35.6 36.1 19.1 12.6 11.3 11.2 8.5 6.4 MTNL 31 35 12.7 (1.9) (2.9) (3.3) (3.6) (17.0) 1.9 1.0 (0.2) (1.1) RCOM 83 80 2.8 3.7 12.8 31.5 15.5 6.4 6.5 6.2 6.7 5.7 TCOM 186 180 107.4 (6.5) (7.5) (6.5) (5.5) 8.3 12.2 10.6 9.2 9.2

KS Market cap. Revenues (Rs bn) EBITDA (Rs bn) rating (US$ bn) 2009 2010 2011 2012E 2013E 2009 2010 2011 2012E 2013E Bharti ADD 30.4 370 418 595 725 842 152 168 200 254 321 Idea ADD 6.5 101 124 155 196 242 28 34 38 52 68 MTNL SELL 0.4 45 37 38 40 42 2 (9) (7) (5) (4) RCOM SELL 3.6 223 215 224 224 250 86 72 84 74 84 TCOM REDUCE 1.1 100 110 119 143 151 13 10 12 15 15

Net Income (Rs bn) EPS (Rs/share) 2009 2010 2011 2012E 2013E 2009 2010 2011 2012E 2013E Bharti 84 90 60 69 106 22.3 23.6 15.9 18.2 28.0 Idea 9 9 9 9 17 2.90 2.73 2.72 2.68 5.08 MTNL 1 (10) (7) (6) (5) 2.4 (15.6) (10.4) (9.1) (8.4) RCOM 60 47 13 5 11 29.3 22.6 6.5 2.6 5.4 TCOM 0 (8) (7) (8) (10) 1.7 (28.6) (24.9) (28.8) (34.0)

Source: Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31

KOTAK INSTITUTIONAL EQUITIES RESEARCH September 2011: Results calendar India DailyIndia Summary-November 2011 4,

Mon Tue Wed Thu Fri Sat Sun 31-Oct 1-Nov 2-Nov 3-Nov 4-Nov 5-Nov 6-Nov Bank of Baroda ACC Allahabad Bank Ashok Leyland Apollo Hospital Enterprises Carborudum Universal Bata India Aditya Birla Nuvo Andhra Bank Jubilant foodworks Bharti Airtel City Union Bank BPCL Ambuja Cements Hindustan Motors Manappuram Finance Glaxosmithkline Consumers India Infoline Canara Bank Bajaj Electricals Karur Vysya Bank Prestige Estates Glaxosmithkline Pharmaceuticals Motherson Sumi Castrol India Central Bank of India L&T Finance Holding SAIL Marico MTNL Century Textiles Divi's Laboratories Onmobile Global SunTV Network ONGC 7-Nov 8-Nov 9-Nov 10-Nov 11-Nov 12-Nov 13-Nov Future Capital Holding Aban Offshore Ansal Properties & Infra AIA Engineering Adani Power Bharati Shipyard Career Point Systems IndiaDaily Summary -November Gujarat NRE Coke ABB Apollo Tyres Cadila Healthcare Anant Raj Industries Coal India Sun Pharma Jain Irrigation Aurobindo Pharma Bharat Forge CEAT Dishman Pharma DB Realty Madras Cement Bank of India Bhushan Steel Cummins Educomp Solutions IVRCL Orbit Corporation Bosch CESC DLF Eros International National Aluminium Co. Parsvnath Developers Firstsource Solutions Glenmark Pharmaceuticals GVK Power & Infra Gammon Infra REC Punj Llyod Godrej Industries GMR Infra Hindalco Industries GE Shipping Religare Enterprises SKS Microfinance IDFC IOCL Hindustan Copper Hathway Cable S Kumar Nationwide United Spirits Reliance Infrastructure JSW Energy IRB Infrastructure Developers HDIL Shipping Corp of India Reliance Power Jyothy Laboratories JSW Ispat Steel Jet Airways Keynote Corporate Services Pantaloon Retail Jindal Saw Lupin Ramky Infra JK Cement Moser Baer Shree Cements Lanco Infratech Omaxe Tata Steel MOIL Power Finance Corp Tecpro Systems Mundra Port & SEZ PTC India VA Tech Wabag Nitesh Estates Radico Khaitan Puravankara Projects Ranbaxy Laboratories REI Agro Shriram Transport Reliance Capital State Bank of India Shree Renuka Sugar Tata Communications Tata Chemicals Voltas 14-Nov 15-Nov 20-Nov Adani Enterprises Ashoka Buildcon Aventis Pharma Balrampur Chini Mills BGR Energy Systems GSPL India Cements JSW Steel Kingfisher Airlines LIC Housing Finance Mahindra & Mahindra Money Matters Financial Services Oil India Phoenix Mills Tata Motors Tata Power

Source: BSE, NSE, Kotak Institutional Equities 32

33 33 India Daily Summary DailySummary India - November 4,2011 Kotak Institutional Equities: Valuation summary of key Indian companies

O/S Target 3-Nov-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 27,927 568 504 8.7 7.5 9.7 (26.1) (13.7) 28.5 6.3 7.3 5.7 5.2 4.6 4.0 1.0 0.9 0.8 0.9 0.8 1.0 20.1 14.7 16.3 85 53.4 3.5 Ashok Leyland 27 SELL 72,238 1,470 2,661 2.4 2.1 2.4 68.1 (11.9) 12.8 11.4 13.0 11.5 7.9 8.2 7.4 1.6 1.5 1.4 3.7 3.7 3.7 21.8 17.4 18.2 26 (4.2) 3.3 Bajaj Auto 1,728 SELL 500,054 10,175 289 90.4 109.2 119.0 43.9 20.8 9.0 19.1 15.8 14.5 14.6 12.3 11.3 10.1 7.4 5.7 2.3 2.3 2.3 84.9 54.1 44.2 1,665 (3.6) 16.5 Bharat Forge 291 ADD 69,078 1,406 237 12.5 16.0 20.2 1,402.1 27.9 25.8 23.2 18.1 14.4 10.8 8.9 7.5 3.1 2.6 2.2 1.2 — — 8.2 14.0 15.1 320 9.9 2.1 Exide Industries 124 SELL 105,528 2,147 850 7.5 4.5 6.1 18.0 (39.5) 35.6 16.7 27.5 20.3 12.0 18.4 14.0 3.8 3.5 3.1 1.2 1.0 1.0 25.5 13.4 16.3 100 (19.5) 6.9 Hero Motocorp 2,071 SELL 413,639 8,417 200 99.3 120.5 135.4 (11.1) 21.3 12.4 20.9 17.2 15.3 13.8 12.4 10.5 8.9 7.6 6.4 5.1 3.4 3.4 56.5 67.0 60.0 1,900 (8.3) 25.2 Mahindra & Mahindra 840 ADD 515,576 10,491 614 41.7 46.9 52.2 22.7 12.5 11.2 20.1 17.9 16.1 15.4 13.0 11.5 4.8 4.0 3.3 1.4 1.1 1.1 27.3 24.5 22.6 900 7.2 34.2 Maruti Suzuki 1,130 ADD 326,313 6,640 289 79.2 60.3 90.5 (8.4) (23.9) 50.1 14.3 18.7 12.5 8.8 11.9 7.1 2.3 2.1 1.8 0.7 0.7 0.7 17.6 11.8 15.7 1,240 9.8 16.5 Tata Motors 189 ADD 627,428 12,767 3,325 27.2 23.1 23.9 737.9 (15.0) 3.6 6.9 8.2 7.9 5.0 5.7 5.4 3.2 2.4 1.9 2.0 1.5 1.5 66.1 34.2 27.3 180 (4.6) 63.0 Automobiles Cautious 2,657,778 54,080 82.8 (4.5) 12.6 13.0 13.6 12.1 8.6 8.8 7.8 4.0 3.3 2.8 2.2 1.8 1.8 31.1 24.5 22.8 Banks/Financial Institutions Andhra Bank 119 BUY 66,478 1,353 560 22.6 24.0 25.1 5.0 6.0 4.5 5.2 5.0 4.7 — — — 1.0 0.9 0.8 4.6 4.9 5.1 23.2 19.3 17.6 170 43.1 1.7 Axis Bank 1,116 BUY 473,487 9,634 424 82.5 96.1 111.8 33.0 16.4 16.3 13.5 11.6 10.0 ———2.5 2.1 1.8 1.2 1.5 1.7 19.3 19.8 19.6 1,500 34.4 56.4 Bajaj Finserv 541 ADD 78,337 1,594 145 78.2 62.7 61.4 102.3 (19.8) (2.1) 6.9 8.6 8.8 — — — 2.2 1.6 1.3 2.3 2.3 2.3 37.2 21.8 16.4 650 20.0 2.8 Bank of Baroda 822 BUY 322,868 6,570 393 108.0 110.1 127.0 29.1 1.9 15.4 7.6 7.5 6.5 — — — 1.7 1.4 1.2 2.3 2.4 2.7 25.9 20.5 20.2 1,100 33.8 8.0 Bank of India 334 BUY 182,963 3,723 547 45.5 54.0 70.7 37.4 18.7 30.9 7.4 6.2 4.7 — — — 1.1 1.0 0.9 2.4 2.9 3.8 17.3 17.2 19.5 470 40.6 4.6 Canara Bank 488 BUY 216,029 4,396 443 90.9 80.9 101.5 23.3 (10.9) 25.4 5.4 6.0 4.8 — — — 1.2 1.0 0.9 2.3 2.5 2.5 23.2 16.7 18.1 550 12.8 7.1 Corporation Bank 430 BUY 63,689 1,296 148 95.4 95.9 109.2 16.3 0.6 13.9 4.5 4.5 3.9 — — — 0.9 0.8 0.7 4.7 4.7 5.3 21.9 18.5 18.3 600 39.6 0.7 Federal Bank 414 BUY 70,822 1,441 171 34.3 43.1 55.1 26.3 25.7 27.7 12.1 9.6 7.5 — — — 1.4 1.3 1.1 2.1 2.6 3.3 12.0 13.7 15.8 500 20.8 3.1 HDFC 683 REDUCE 1,002,553 20,400 1,467 24.1 27.8 31.6 22.4 15.4 13.7 28.4 24.6 21.6 ———5.8 5.1 3.9 1.3 1.5 1.8 21.7 22.1 21.3 725 6.1 39.1 HDFC Bank 482 ADD 1,120,845 22,807 2,326 16.9 22.0 28.1 31.0 30.2 27.8 28.5 21.9 17.2 ———4.4 3.8 3.3 0.7 0.9 1.1 16.7 18.7 20.5 560 16.2 38.0 ICICI Bank 878 BUY 1,011,356 20,579 1,152 44.7 56.9 60.0 23.9 27.2 5.4 19.6 15.4 14.6 ———1.8 1.7 1.6 1.6 1.9 2.0 9.7 11.5 11.2 1,100 25.3 83.6 IDFC 129 BUY 194,996 3,968 1,509 8.8 9.9 12.0 4.6 12.8 21.6 14.7 13.1 10.7 ———1.9 1.6 1.4 1.7 1.6 1.9 14.7 13.1 13.9 150 16.1 17.9 India Infoline 70 SELL 22,818 464 327 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 0.3 0.9 Indian Bank 217 BUY 93,217 1,897 430 38.8 40.9 48.3 10.5 5.5 18.1 5.6 5.3 4.5 — — — 1.2 1.0 0.9 3.5 3.5 4.2 22.3 19.9 20.1 300 38.3 1.3 Indian Overseas Bank 101 BUY 62,463 1,271 619 17.3 20.1 29.1 33.6 15.8 45.1 5.8 5.0 3.5 — — — 0.8 0.7 0.6 4.9 4.2 4.6 12.7 12.7 16.3 160 58.5 1.5 IndusInd Bank 277 BUY 129,212 2,629 466 12.4 15.6 18.2 45.2 26.1 16.6 22.4 17.8 15.2 ———3.5 3.1 2.7 0.7 0.9 1.1 20.8 18.1 17.8 325 17.2 3.6 J&K Bank 814 ADD 39,473 803 48 126.9 149.9 160.5 20.1 18.1 7.1 6.4 5.4 5.1 — — — 1.1 1.0 0.9 3.2 3.8 4.0 19.0 19.4 18.0 950 16.7 0.6 LIC Housing Finance 236 ADD 112,183 2,283 475 20.5 22.9 27.5 47.2 11.4 20.4 11.5 10.3 8.6 — — — 2.9 2.4 2.0 1.9 2.1 2.5 25.8 23.7 23.9 260 10.1 18.2 Mahindra & Mahindra Financial 660 BUY 67,664 1,377 102 45.2 55.7 70.7 26.1 23.2 26.9 14.6 11.9 9.3 — — — 2.7 2.4 2.1 1.5 1.9 2.4 22.0 21.1 22.8 825 24.9 1.1 Muthoot Finance 176 BUY 65,443 1,332 371 15.7 21.6 26.7 108.4 37.1 23.7 11.2 8.2 6.6 — — — 4.9 2.2 1.6 — — — 51.5 36.7 28.1 230 30.5 — Oriental Bank of Commerce 297 BUY 86,755 1,765 292 51.5 48.0 59.5 13.7 (6.9) 23.9 5.8 6.2 5.0 — — — 0.8 0.8 0.7 3.5 3.3 4.0 15.5 12.1 13.6 430 44.6 3.5 PFC 165 BUY 217,723 4,430 1,320 22.8 23.4 28.3 11.1 2.4 21.3 7.2 7.1 5.8 — — — 1.4 1.1 0.9 2.4 2.8 3.4 18.4 17.0 16.7 225 36.4 10.5 Punjab National Bank 988 BUY 312,947 6,368 317 140.0 157.0 181.8 13.0 12.2 15.8 7.1 6.3 5.4 — — — 1.6 1.3 1.1 2.2 3.2 3.8 24.4 22.7 22.1 1,350 36.7 8.6 Reliance Capital 374 REDUCE 91,953 1,871 246 9.3 16.5 24.8 (25.3) 77.0 50.4 40.1 22.7 15.1 ———1.3 1.3 1.2 1.0 1.8 2.7 3.3 5.7 8.3 470 25.8 30.1 Rural Electrification Corp. 194 BUY 191,702 3,901 987 26.0 29.0 32.5 28.1 11.5 12.3 7.5 6.7 6.0 — — — 1.5 1.3 1.1 3.9 4.3 4.8 21.5 20.8 20.4 240 23.6 8.8 Shriram Transport 592 REDUCE 132,110 2,688 223 55.1 65.6 75.3 40.8 19.0 14.8 10.7 9.0 7.9 — — — 2.7 2.3 1.9 1.1 2.2 2.5 28.1 26.8 25.2 700 18.2 6.5 SKS Microfinance 209 RS 15,387 313 74 15.7 (39.1) 3.9 (41.8) (349.4) (109.9) 13.3 (5.3) 53.9 ———0.9 1.0 1.0 — — — 8.3 (17.4) 1.9 — — 2.3 State Bank of India 1,935 BUY 1,228,564 24,999 635 130.2 195.6 256.1 (9.9) 50.3 30.9 14.9 9.9 7.6 — — — 1.9 1.6 1.4 1.8 1.9 2.0 12.6 17.8 20.0 2,750 42.1 137.8 Union Bank 230 BUY 120,492 2,452 524 39.5 43.0 56.1 (3.9) 9.0 30.3 5.8 5.3 4.1 — — — 1.1 0.9 0.8 3.5 3.8 4.9 20.9 19.0 21.2 340 48.0 5.2 Yes Bank 310 BUY 107,598 2,189 347 20.9 26.2 31.9 39.6 25.3 21.5 14.8 11.8 9.7 — — — 2.8 2.4 1.9 0.8 1.0 1.2 21.1 21.8 21.9 420 35.5 17.8 Banks/Financial Institutions Attractive 7,902,126 160,792 20.0 18.1 21.7 12.9 10.9 9.0 ——— 2.1 1.8 1.5 1.7 1.9 2.2 16.0 16.4 17.2 Cement ACC 1,210 SELL 227,391 4,627 188 55.6 57.3 69.0 (33.2) 3.1 20.4 21.8 21.1 17.6 13.5 12.2 9.4 3.3 3.0 2.7 2.9 1.9 1.9 17.5 16.5 17.4 980 (19.0) 7.3 Ambuja Cements 157 SELL 239,089 4,865 1,522 7.9 7.9 9.8 (1.5) (0.2) 24.8 19.9 20.0 16.0 12.2 11.2 8.7 3.0 2.8 2.5 1.3 1.4 1.5 16.6 14.8 16.8 135 (14.0) 7.1 Grasim Industries 2,504 BUY 229,708 4,674 92 232.0 254.4 271.5 (22.9) 9.7 6.7 10.8 9.8 9.2 6.5 5.1 4.4 1.6 1.4 1.2 0.8 1.4 1.4 15.7 15.0 14.1 2,900 15.8 3.6 India Cements 80 ADD 24,620 501 307 1.9 8.3 9.2 (81.2) 339.0 10.4 42.4 9.7 8.7 14.9 6.0 5.4 0.6 0.5 0.5 2.0 4.0 4.0 1.4 6.2 6.5 82 2.3 1.8 Shree Cement 1,903 REDUCE 66,286 1,349 35 57.2 83.1 132.9 (72.5) 45.5 59.8 33.3 22.9 14.3 7.4 7.0 4.9 3.5 3.2 2.8 0.6 0.6 0.6 10.7 14.5 20.7 1,730 (9.1) 0.8 KOTAK INSTITUTIONAL EQUITIES RESEARCH UltraTech Cement 1,148 ADD 314,612 6,402 274 44.9 75.7 89.7 (49.2) 68.7 18.5 25.6 15.2 12.8 12.5 8.1 6.7 2.5 2.2 1.9 0.4 0.5 0.5 16.7 17.8 17.9 1,220 6.3 3.9 Cement Neutral 1,101,707 22,417 (23.7) 23.3 17.4 18.8 15.2 13.0 9.9 7.7 6.3 2.3 2.1 1.8 1.3 1.3 1.3 12.2 13.5 14.0

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of key Indian companies India DailyIndia Summary-November 2011 4,

O/S Target 3-Nov-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 3,160 SELL 303,063 6,167 96 80.8 97.0 111.8 13.0 20.1 15.2 39.1 32.6 28.3 26.1 22.3 17.6 14.8 11.3 9.1 1.0 0.9 1.1 43.9 40.8 36.6 2,900 (8.2) 4.2 Colgate-Palmolive (India) 1,050 SELL 142,779 2,905 136 29.6 32.5 39.1 (4.9) 9.9 20.3 35.5 32.3 26.8 30.9 27.7 22.4 37.2 37.8 30.1 2.1 2.7 2.6 113.4 116.1 124.9 900 (14.3) 1.7 Dabur India 100 SELL 174,038 3,541 1,740 3.3 3.7 4.4 12.8 12.7 20.6 30.6 27.2 22.5 24.7 20.5 17.1 13.3 10.3 8.1 1.2 1.3 1.6 51.2 43.3 40.8 110 10.0 2.8 GlaxoSmithkline Consumer (a) 2,380 ADD 100,098 2,037 42 71.3 83.2 104.0 28.8 16.7 25.0 33.4 28.6 22.9 24.0 20.7 17.3 10.7 9.1 7.7 2.1 1.6 1.9 32.2 33.5 35.5 2,900 21.8 1.2 Godrej Consumer Products 423 ADD 137,024 2,788 324 14.9 17.6 22.5 31.3 18.6 27.6 28.5 24.0 18.8 24.2 18.4 13.9 7.9 5.8 4.7 1.2 0.8 0.8 35.9 28.6 29.1 510 20.4 2.2 Hindustan Unilever 382 ADD 825,445 16,796 2,159 9.9 11.8 14.2 4.8 19.7 19.7 38.7 32.3 27.0 33.1 26.5 21.1 31.3 27.0 23.1 2.0 2.6 3.1 66.3 89.8 92.4 420 9.9 22.2

IndiaDaily Summary -November ITC 210 ADD 1,614,478 32,851 7,681 6.4 7.9 9.0 20.7 22.5 14.1 32.8 26.8 23.5 21.8 18.2 15.8 #REF! #REF! #REF! 2.1 1.8 2.1 33.2 34.9 34.3 230 9.4 34.2 Jubilant Foodworks 814 SELL 53,402 1,087 66 11.2 16.1 23.6 99.6 43.8 46.5 72.7 50.5 34.5 44.5 27.8 19.2 27.9 18.0 11.8 ———46.6 43.2 41.3 750 (7.9) 31.3 Jyothy Laboratories 135 ADD 10,865 221 81 10.5 9.4 11.8 (5.0) (10.1) 25.2 12.9 14.3 11.4 10.0 8.7 7.1 1.6 1.5 1.4 4.3 3.5 4.3 12.3 11.1 12.9 220 63.3 0.4 Marico 150 ADD 92,187 1,876 615 3.9 5.1 6.7 (12.8) 31.2 32.0 38.6 29.4 22.3 23.8 20.6 15.5 9.8 7.7 6.0 0.4 0.5 0.6 30.3 29.8 30.5 175 16.8 1.1 Nestle India (a) 4,410 SELL 425,179 8,652 96 86.8 103.6 123.2 16.7 19.3 18.9 50.8 42.6 35.8 33.8 27.7 22.8 49.7 36.1 27.3 1.1 1.4 1.6 116.5 98.3 86.8 3,500 (20.6) 1.9 Tata Global Beverages 91 ADD 56,089 1,141 618 4.0 5.6 6.6 (34.6) 42.6 16.8 22.9 16.1 13.8 8.9 9.1 7.2 1.1 1.1 1.1 2.2 3.1 3.7 6.5 8.9 10.0 110 21.3 3.7 Titan Industries 215 ADD 191,096 3,888 888 4.8 6.8 8.3 69.1 40.4 22.0 44.5 31.7 26.0 32.5 22.0 17.5 17.6 13.0 10.0 0.6 1.0 1.4 47.1 47.2 43.5 240 11.5 17.3 United Spirits 810 ADD 101,668 2,069 126 29.5 39.2 50.6 8.3 32.8 29.0 27.4 20.6 16.0 14.7 11.3 9.7 2.3 2.1 1.9 0.4 0.3 0.5 9.1 10.7 12.5 1,100 35.9 5.3 Consumer products Neutral 4,227,411 86,019 #REF! #REF! #REF! #REF! #REF! #REF! 24.7 20.3 16.8 #REF! #REF! #REF! 1.7 1.7 2.0 #REF! #REF! #REF! Constructions IVRCL 39 BUY 10,307 210 267 5.9 5.7 6.6 (25.2) (4.1) 15.6 6.5 6.8 5.9 5.8 5.6 5.4 0.5 0.5 0.4 1.0 1.0 1.0 8.2 7.3 7.9 75 94.3 5.4 Nagarjuna Construction Co. 53 BUY 13,522 275 257 6.4 5.9 7.7 (29.7) (7.8) 30.8 8.3 9.0 6.9 7.6 7.2 6.7 0.6 0.6 0.5 3.8 3.8 3.8 7.1 6.3 7.8 100 89.8 1.3 Punj Lloyd 56 REDUCE 19,136 389 340 (1.5) 5.5 7.4 (56.6) (467.8) 34.9 (37.9) 10.3 7.6 12.7 5.7 5.0 0.6 0.6 0.6 (0.1) 0.9 1.1 (1.7) 6.1 7.7 65 15.4 5.0 Sadbhav Engineering 133 BUY 19,896 405 150 7.8 10.8 11.9 51.0 38.9 10.6 17.1 12.3 11.1 10.2 8.2 7.4 3.1 2.5 2.1 0.5 0.5 0.5 18.1 20.4 18.6 180 35.6 0.3 Construction Attractive 62,860 1,279 (1.1) 67.6 23.4 16.2 9.7 7.8 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 432 BUY 18,811 383 44 134.2 99.1 102.6 25.9 (26.1) 3.5 3.2 4.4 4.2 6.6 6.9 6.5 0.9 0.9 0.7 0.8 0.9 1.0 33.3 21.9 17.9 670 55.0 7.4 Bharat Petroleum 631 ADD 227,951 4,638 362 38.9 33.0 49.5 (32.5) (15.2) 49.9 16.2 19.1 12.7 10.5 10.1 8.0 1.5 1.4 1.3 2.2 1.7 2.6 9.2 7.3 10.4 720 14.2 6.0 Cairn india 300 REDUCE 571,431 11,627 1,902 33.3 40.4 49.3 501.1 21.2 22.2 9.0 7.4 6.1 6.6 4.7 3.9 1.4 1.2 1.1 — 1.7 5.0 16.9 17.7 19.5 295 (1.8) 12.1 Castrol India (a) 476 SELL 117,606 2,393 247 19.8 19.7 21.6 28.5 (0.6) 9.9 24.0 24.2 22.0 15.4 16.5 14.7 22.8 21.2 19.7 3.2 3.3 3.6 100.2 91.0 93.0 410 (13.8) 0.8 GAIL (India) 428 BUY 542,592 11,041 1,268 28.2 31.8 33.8 13.8 12.8 6.5 15.2 13.5 12.6 9.6 9.6 8.6 2.6 2.3 2.0 1.8 2.0 2.2 17.5 17.1 15.8 535 25.1 9.1 GSPL 102 SELL 57,440 1,169 563 8.9 8.5 8.4 21.7 (4.0) (1.2) 11.5 12.0 12.1 7.3 7.0 6.9 2.5 2.1 1.9 1.0 1.7 2.5 25.2 19.3 16.4 92 (9.9) 3.3 Hindustan Petroleum 340 ADD 115,416 2,348 339 40.8 14.0 28.7 (20.8) (65.8) 105.7 8.3 24.4 11.9 3.8 5.4 4.0 0.7 0.7 0.7 4.1 1.3 2.6 9.0 2.8 5.6 385 13.1 6.9 Indian Oil Corporation 300 BUY 728,871 14,831 2,428 32.4 28.4 32.1 (34.0) (12.5) 12.9 9.3 10.6 9.4 8.7 7.6 6.6 1.2 1.2 1.1 3.2 2.9 3.3 13.3 10.8 11.3 385 28.2 4.0 Oil India 1,298 BUY 312,176 6,352 240 120.0 171.7 190.1 4.2 43.1 10.7 10.8 7.6 6.8 5.4 3.0 2.4 1.8 1.6 1.4 2.9 4.2 4.6 16.2 20.1 19.4 1,750 34.8 1.8 Oil & Natural Gas Corporation 278 BUY 2,378,006 48,388 8,556 24.7 37.2 40.8 7.4 50.8 9.7 11.3 7.5 6.8 4.3 3.2 2.6 1.6 1.4 1.2 3.1 4.3 5.0 14.3 19.1 18.3 380 36.7 24.9 Petronet LNG 166 SELL 124,650 2,536 750 8.1 13.3 12.8 50.3 64.1 (3.5) 20.5 12.5 12.9 11.8 8.5 8.9 4.1 3.3 2.7 1.2 1.8 1.8 20.9 28.1 21.9 135 (18.8) 9.4 Reliance Industries 886 ADD 2,640,868 53,736 2,981 62.0 70.3 71.1 24.8 13.5 1.1 14.3 12.6 12.5 7.7 6.5 6.2 1.6 1.4 1.3 0.9 1.0 1.1 13.0 13.3 12.0 1,000 12.9 90.1 Energy Attractive 7,835,818 159,443 11.6 23.7 7.7 11.7 9.4 8.8 6.5 5.2 4.5 1.6 1.4 1.3 2.0 2.5 3.1 13.8 15.2 14.7 Industrials ABB 673 SELL 142,583 2,901 212 3.0 17.1 26.4 (82.2) 473.2 54.5 225.5 39.3 25.5 163.0 26.4 16.3 5.9 5.3 4.5 0.3 0.5 0.5 2.6 14.1 19.0 660 (1.9) 1.7 BGR Energy Systems 337 REDUCE 24,295 494 72 44.8 40.4 39.0 60.0 (9.7) (3.5) 7.5 8.3 8.6 5.1 4.6 4.3 2.6 2.1 1.7 3.0 2.4 2.3 39.0 27.4 21.9 400 18.8 4.8 Bharat Electronics 1,551 ADD 124,092 2,525 80 107.3 127.2 134.5 11.6 18.6 5.7 14.5 12.2 11.5 6.5 6.0 4.6 2.4 2.1 1.8 1.4 1.6 1.6 18.2 18.3 16.9 1,850 19.3 0.9 Bharat Heavy Electricals 329 REDUCE 805,750 16,395 2,448 24.6 25.3 27.5 39.7 3.0 8.5 13.4 13.0 12.0 8.9 8.2 7.5 4.0 3.2 2.7 1.9 1.6 1.8 33.3 27.6 24.6 360 9.4 24.9 Crompton Greaves 142 ADD 91,157 1,855 642 14.3 9.3 11.2 11.5 (34.8) 20.1 9.9 15.2 12.7 6.4 9.2 7.4 2.8 2.4 2.1 1.7 1.0 1.1 31.7 17.0 17.7 160 12.6 8.7 Larsen & Toubro 1,380 REDUCE 840,365 17,100 609 67.7 78.3 87.5 18.1 15.6 11.8 20.4 17.6 15.8 14.7 11.4 10.4 3.2 2.6 2.3 1.1 1.0 1.0 17.0 16.3 15.5 1,425 3.2 72.3 Maharashtra Seamless 336 BUY 23,663 481 71 46.1 41.6 46.7 19.3 (9.7) 12.3 7.3 8.1 7.2 3.8 3.8 3.0 0.9 0.9 0.8 2.5 2.5 2.8 13.3 11.1 11.5 460 37.1 0.3 Siemens 856 SELL 288,474 5,870 337 22.4 28.9 32.5 39.5 28.8 12.3 38.1 29.6 26.4 22.5 19.0 16.5 8.9 7.2 6.0 0.6 0.7 0.8 25.2 26.9 24.8 830 (3.0) 2.6 Suzlon Energy 36 REDUCE 63,625 1,295 1,746 (6.0) 1.9 3.8 (4.6) (132.4) 96.6 (6.1) 18.7 9.5 19.5 7.1 6.0 0.9 0.9 0.8 — 0.5 0.5 (15.8) 4.9 9.2 40 9.7 15.1 Tecpro Systems 221 ADD 11,137 227 50 27.0 29.4 32.7 24.2 8.9 11.4 8.2 7.5 6.7 5.3 5.4 4.8 1.7 1.4 1.2 — — — 26.8 20.5 19.6 300 36.0 0.1 Thermax 494 ADD 58,902 1,199 119 31.6 33.9 33.7 44.3 7.2 (0.7) 15.6 14.6 14.7 10.4 9.6 9.3 4.5 3.7 3.2 1.8 1.9 1.9 31.5 27.8 23.2 515 4.2 1.5 Voltas 100 BUY 33,140 674 331 9.8 8.8 9.5 (14.3) (9.9) 7.5 10.2 11.4 10.6 5.9 6.2 5.2 2.4 2.1 1.8 2.0 2.7 (0.0) 26.1 19.8 18.3 135 34.7 3.0 Industrials Cautious 2,507,182 51,016 25.5 19.1 12.6 19.0 16.0 14.2 12.1 10.1 8.9 3.4 2.8 2.4 1.3 1.2 1.3 17.7 17.8 17.3 Infrastructure Container Corporation 975 ADD 126,724 2,579 130 67.6 71.7 77.9 11.7 6.1 8.7 14.4 13.6 12.5 10.4 9.1 7.9 2.5 2.2 2.0 1.6 1.7 1.8 18.9 17.5 16.8 1,150 18.0 1.0 GMR Infrastructure 26 RS 95,719 1,948 3,667 (0.0) (0.4) 0.5 (102.0) 3,980.8 (243.5) (3,011.2) (73.8) 51.4 12.4 10.7 8.6 0.9 0.9 0.9 — — — (0.0) (2.0) 2.8 — — 2.7 Gujarat Pipavav Port 70 REDUCE 29,649 603 424 (1.2) 1.2 2.6 (65.8) (195.8) 129.7 (58.3) 60.8 26.5 29.7 19.8 13.1 4.0 3.8 3.3 — — — (9.1) 8.9 13.7 75 7.1 0.7 GVK Power & Infrastructure 13 RS 21,161 431 1,579 1.0 1.0 0.3 (0.6) 1.6 (73.4) 13.7 13.4 50.5 17.0 15.6 18.5 0.6 0.6 0.6 — 2.2 2.6 4.7 4.6 1.2 — — 3.5 IRB Infrastructure 166 BUY 55,123 1,122 332 13.6 12.1 15.7 30.4 (10.7) 29.1 12.2 13.7 10.6 8.1 8.3 6.3 2.2 1.6 1.3 0.9 — — 19.3 13.4 13.4 200 20.6 6.8 Mundra Port and SEZ 162 ADD 327,230 6,658 2,017 4.6 6.8 10.5 36.3 50.3 53.2 35.6 23.7 15.5 28.5 19.2 13.7 7.5 5.9 4.6 — — — 23.2 28.0 33.5 175 7.9 5.2 Infrastructure Cautious 655,607 13,340 16.9 18.8 42.9 27.9 23.5 16.4 15.7 12.9 10.3 2.4 2.2 2.0 0.4 0.4 0.4 8.7 9.4 12.1

Source: Company, Bloomberg, Kotak Institutional Equities estimates 34

35 35 India Daily Summary DailySummary India - November 4,2011 Kotak Institutional Equities: Valuation summary of key Indian companies

O/S Target 3-Nov-11 Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X)Dividend Price/BV (X)yield (%) price Upside RoE (%) ADVT-3mo Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E2013E 2012E 2011E 2013E 2012E 2011E 2013E 2012E (Rs) (%) (US$ mn) Media DB Corp 219 BUY 40,138 817 183 14.1 11.6 14.2 32.7 (18.0) 22.9 15.5 18.9 15.4 10.1 11.1 9.1 4.8 4.4 4.0 1.8 2.7 3.7 35.0 24.4 27.2 320 46.1 0.7

DishTV 76 ADD 80,879 1,646 1,062 (1.7) 0.3 1.2 (32.4) (119.5) 282.3 (45.6) 234.6 61.4 37.7 16.6 11.9 36.3 31.4 20.8 — — — (56.9) 14.3 40.8 95 24.8 6.0

Eros International 250 ADD 24,191 492 11.8 97 15.8 19.9 19.0 34.0 25.9 21.2 15.8 12.6 14.8 11.2 8.1 3.6 2.9 2.3 — — — 24.9 20.2 20.5 270 8.2 2.6

Hindustan Media Ventures 133 BUY 9,794 199 73 7.3 10.1 12.2 198.0 39.0 20.6 18.3 13.1 10.9 8.7 7.4 5.6 2.6 2.2 1.9 0.7 0.7 1.5 23.3 17.9 18.4 220 64.9 0.1

HT Media 142 ADD 33,370 679 235 7.6 8.5 10.4 24.8 11.7 22.2 18.6 16.7 13.6 8.7 7.5 5.8 2.4 2.2 2.1 1.4 2.8 4.2 14.9 13.8 15.9 190 33.8 0.2

Jagran Prakashan 108 BUY 34,187 696 316 6.8 6.7 8.0 16.7 (1.4) 18.7 15.9 16.1 13.6 9.5 9.3 7.8 4.9 4.4 4.0 3.2 3.2 4.6 32.8 28.5 30.8 160 48.0 0.2

Sun TV Network 274 BUY 107,899 2,196 394 19.5 20.0 23.8 48.1 2.5 18.9 14.0 13.7 11.5 8.4 8.0 6.8 4.5 3.9 3.5 3.2 3.7 5.1 36.5 32.1 33.8 400 46.1 6.0

Zee Entertainment Enterprises 124 BUY 121,073 2,464 978 5.8 6.2 7.7 10.0 6.4 23.3 21.2 19.9 16.1 14.2 13.1 10.4 2.9 2.8 2.6 1.1 1.1 1.3 14.2 14.3 16.9 160 29.3 3.8

Media Neutral 451,531 9,188 15.1 51.8 25.2 22.7 19.8 15.8 12.3 10.7 8.6 4.2 3.8 3.5 1.6 1.9 2.6 18.3 19.2 21.9

Metals & Mining Coal India 326 ADD 2,056,924 41,854 6,316 17.3 24.1 29.3 13.6 39.1 21.9 18.8 13.5 11.1 10.9 7.9 6.4 5.9 4.6 3.6 1.2 2.2 2.7 35.1 38.2 36.7 454 39.4 36.4

Hindalco Industries 136 ADD 259,948 5,289 1,915 12.8 18.3 17.6 (36.0) 43.3 (4.0) 10.6 7.4 7.7 5.9 5.8 6.1 0.9 0.8 0.7 1.1 1.1 1.1 9.7 11.4 10.0 175 28.9 29.1

Hindustan Zinc 123 ADD 518,408 10,549 4,225 11.6 12.6 13.8 21.8 8.0 9.4 10.5 9.8 8.9 6.7 5.7 4.3 2.3 1.9 1.7 0.8 2.0 2.0 24.3 21.7 20.2 140 14.1 2.6

Jindal Steel and Power 565 REDUCE 527,412 10,732 934 40.2 41.5 47.9 5.1 3.3 15.5 14.0 13.6 11.8 10.4 9.6 8.7 3.7 3.0 2.4 0.3 0.3 0.3 30.9 24.5 22.6 565 0.1 25.9

JSW Steel 668 SELL 151,002 3,073 226 78.6 43.9 92.2 (2.2) (44.2) 110.1 8.5 15.2 7.2 6.4 7.3 6.2 0.9 0.9 0.8 1.8 1.5 1.5 13.6 8.9 11.5 560 (16.2) 35.7

National Aluminium Co. 63 SELL 161,464 3,285 2,577 4.1 5.0 4.8 36.3 20.5 (4.1) 15.1 12.5 13.1 7.0 5.5 5.3 1.4 1.3 1.3 2.4 2.4 2.4 9.9 11.1 10.0 65 3.8 0.4

Sesa Goa 211 REDUCE 188,692 3,839 895 47.0 39.3 39.4 59.8 (16.4) 0.2 4.5 5.4 5.4 3.7 4.3 3.5 1.5 1.2 0.9 1.9 1.9 1.9 36.8 19.5 17.6 215 1.9 16.1

Sterlite Industries 121 BUY 406,537 8,272 3,361 15.2 12.9 13.9 26.2 (14.6) 7.6 8.0 9.3 8.7 5.0 4.3 3.5 1.0 0.9 0.8 0.9 1.1 1.1 13.0 10.0 9.9 165 36.4 19.0

Tata Steel 462 BUY 448,500 9,126 971 75.3 68.7 76.9 (2,258.1) (8.8) 12.0 6.1 6.7 6.0 5.9 6.1 5.2 1.3 1.0 0.9 2.6 1.7 1.7 24.7 15.5 15.7 625 35.4 51.9

Metals & Mining Attractive 4,718,886 96,020 9.4 39.1 13.0 11.4 10.4 9.2 7.2 6.5 5.6 2.2 1.8 1.6 1.2 1.7 2.0 19.0 17.7 17.2

Pharmaceutical

Apollo Hospitals 533 ADD 74,038 1,507 139 13.2 17.8 21.4 21.0 34.5 19.9 40.3 29.9 25.0 18.3 13.9 11.5 3.8 2.9 2.6 — — — 9.8 10.7 10.5 650 22.0 1.5

Biocon 348 BUY 69,660 1,417 200 18.4 19.4 21.4 23.9 5.6 10.3 19.0 17.9 16.3 10.9 10.4 9.2 3.4 3.1 2.7 — — — 19.4 17.9 17.4 445 27.8 2.0

Cipla 291 REDUCE 233,690 4,755 803 12.3 15.0 16.5 (10.0) 21.8 9.8 23.6 19.4 17.7 20.4 14.1 12.0 3.5 3.1 2.7 1.0 1.0 1.2 15.4 16.6 16.4 310 6.5 8.2

Cadila Healthcare 758 REDUCE 155,220 3,158 205 34.7 38.2 45.1 40.6 9.9 18.2 21.8 19.9 16.8 18.9 16.2 12.7 7.1 5.6 4.5 0.8 1.0 1.2 37.5 31.7 29.6 900 18.7 1.7

Dishman Pharma & chemicals 50 REDUCE 4,087 83 81 9.8 8.0 8.7 (31.8) (18.3) 8.0 5.1 6.3 5.8 7.6 5.7 5.2 0.5 0.4 0.4 — — — 9.6 7.2 7.3 70 39.3 0.1

Divi's Laboratories 770 ADD 102,154 2,079 133 32.4 36.5 45.3 25.7 12.9 23.9 23.8 21.1 17.0 19.7 15.5 12.2 5.7 4.9 4.1 — — — 25.9 24.9 26.4 845 9.7 2.1

Dr Reddy's Laboratories 1,640 REDUCE 278,794 5,673 170 64.9 82.8 98.9 932.5 27.5 19.4 25.3 19.8 16.6 17.7 13.3 11.0 6.1 4.8 3.9 0.7 0.8 0.8 24.8 27.1 25.8 1,660 1.2 10.4

GlaxoSmithkline Pharmaceuticals (a) 2,086 REDUCE 176,686 3,595 68.3 85 78.2 88.6 15.5 14.6 13.3 30.6 26.7 23.5 20.3 18.0 15.5 9.1 8.3 7.7 1.9 2.4 2.7 30.9 32.6 33.9 2,220 6.4 1.4

Glenmark Pharmaceuticals 307 ADD 83,098 1,691 270 17.0 26.2 23.5 33.6 54.5 (10.3) 18.1 11.7 13.1 20.3 13.5 11.5 4.1 3.1 2.5 — — — 20.6 29.8 21.2 395 28.6 3.5

Jubilant Life Sciences 213 REDUCE 33,859 689 159 14.4 19.3 26.4 (45.6) 34.0 36.8 14.7 11.0 8.0 11.4 7.7 7.3 1.5 1.4 1.2 0.9 0.9 1.4 12.3 17.7 16.0 210 (1.2) 0.7

Lupin 475 ADD 212,734 4,329 448 19.2 22.3 26.3 25.6 15.9 18.0 24.7 21.3 18.0 20.7 17.8 13.2 6.4 5.1 4.1 0.6 0.7 0.9 29.5 27.5 25.7 530 11.7 8.5

Ranbaxy Laboratories 514 SELL 217,543 4,427 423 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 (15.4) 6.8

Sun Pharmaceuticals 504 ADD 521,684 10,615 1,036 17.5 20.1 24.3 34.4 14.8 20.8 28.7 25.0 20.7 24.5 19.6 16.0 5.0 4.3 3.6 0.7 0.8 1.0 21.0 20.2 20.7 560 11.2 11.3

Pharmaceuticals Cautious 2,163,248 44,018 8.5 43.1 15.8 22.7 20.9 18.0 18.2 14.9 12.2 3.6 3.1 2.7 0.7 0.8 1.0 16.0 14.8 14.8

Property DLF 246 BUY 421,185 8,570 1,715 9.1 11.9 15.7 (14.5) 31.3 31.8 27.1 20.6 15.6 17.3 13.6 10.3 1.6 1.5 1.4 0.8 1.0 1.2 5.4 7.5 9.2 270 9.9 34.2 Housing Development & Infrastructure 98 BUY 43,722 890 445 19.8 28.7 34.3 24.0 44.8 19.7 5.0 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 52.7 19.3

Indiabulls Real Estate 75 RS 30,088 612 402 4.0 8.5 15.4 (1,095.5) 114.1 81.5 18.8 8.8 4.8 13.3 10.7 4.7 0.3 0.2 0.2 — 0.7 0.9 1.4 2.9 5.0 — — 8.0 Mahindra Life Space Developer 305 BUY 12,428 253 24.9 41 30.8 37.5 30.2 23.7 21.6 12.2 9.9 8.1 9.3 6.7 4.9 1.2 1.1 1.0 1.6 1.5 1.6 10.4 11.6 12.7 450 47.8 0.1 KOTAK INSTITUTIONAL EQUITIES RESEARCH Oberoi Realty 231 BUY 76,287 1,552 330 15.7 17.2 27.4 14.8 9.7 59.3 14.7 13.4 8.4 10.8 9.4 5.1 2.3 2.0 1.6 0.4 0.6 1.1 19.9 15.8 21.4 310 34.0 0.3 Phoenix Mills 202 BUY 29,324 597 145 6.3 7.4 10.7 53.0 17.2 44.1 32.0 27.3 18.9 23.7 19.8 14.8 1.8 1.8 1.6 0.9 1.0 1.0 5.8 6.6 8.9 300 48.2 0.1 Puravankara Projects 79 ADD 16,839 343 213 5.5 9.0 10.9 (18.9) 62.8 21.5 14.3 8.8 7.2 18.9 10.4 8.7 1.1 1.0 0.9 1.3 1.9 2.5 8.0 12.0 13.1 80 1.4 0.0 Sobha Developers 241 BUY 23,673 482 18.8 98 20.6 27.2 33.8 9.2 32.2 12.8 11.7 8.9 11.3 10.2 7.2 1.3 1.2 1.0 1.2 1.4 1.7 10.2 10.3 12.4 370 53.3 0.6 Unitech 29 RS 76,134 1,549 2,616 2.3 2.6 2.7 (23.4) 12.8 4.9 12.5 11.1 10.6 14.1 11.4 9.3 0.7 0.6 0.5 — 0.7 1.0 5.4 5.7 5.4 — — 14.5 Property Cautious 766,700 15,601 42.1 31.3 5.3 17.9 12.6 9.6 13.9 10.1 7.5 1.1 1.0 0.9 0.7 1.0 1.2 6.1 8.0 9.5

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of key Indian companies India DailyIndia Summary-November 2011 4,

O/S Target 3-Nov-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 35 REDUCE 8,028 163 228 1.9 3.7 1.6 (28.7) 90.5 (57.3) 18.2 9.6 22.4 16.7 5.5 5.3 0.3 0.3 0.2 1.7 1.7 1.7 1.7 2.7 1.1 60 70.7 2.0 Balrampur Chini Mills 53 BUY 13,063 266 247 6.7 4.0 7.7 111.0 (40.5) 94.0 7.9 13.3 6.8 11.1 8.8 5.9 0.9 0.9 0.8 1.5 1.4 1.4 11.6 6.5 11.9 80 51.2 1.7 Shree Renuka Sugars 57 BUY 38,078 775 670 10.5 6.4 5.0 214.7 (39.4) (21.0) 5.4 8.9 11.3 8.3 6.5 5.3 1.5 1.3 1.2 1.8 1.8 1.8 34.4 16.1 11.4 75 32.0 7.6 Sugar Cautious 59,169 1,204 122.4 (24.7) (7.4) 7.3 9.7 10.5 10.5 6.4 5.4 0.8 0.8 0.7 1.7 1.7 1.7 11.6 8.1 7.0 Technology HCL Technologies 438 REDUCE 308,861 6,285 705 22.9 33.0 38.7 30.4 44.2 17.3 19.2 13.3 11.3 11.6 8.1 6.9 3.7 2.8 2.4 1.7 1.8 1.8 21.0 23.2 22.8 450 2.7 11.8

IndiaDaily Summary -November Hexaware Technologies 86 ADD 25,032 509 290 3.0 8.4 8.8 (36.8) 186.0 3.8 29.2 10.2 9.8 22.2 8.5 6.6 2.6 2.3 2.0 1.7 3.5 3.8 9.3 23.7 21.6 100 16.0 3.0 Infosys Technologies 2,802 BUY 1,608,405 32,728 574 119.7 145.6 175.0 10.5 21.6 20.2 23.4 19.2 16.0 16.0 13.0 10.4 6.2 5.1 4.3 2.1 1.6 2.0 28.0 29.2 29.2 3,300 17.8 91.1 Mahindra Satyam 74 SELL 86,554 1,761 1,176 4.2 6.7 7.0 68.9 58.4 4.7 17.5 11.1 10.6 13.0 6.7 5.2 5.0 3.5 2.6 — — — 27.6 37.1 28.2 70 (4.9) 8.3 Mindtree 391 ADD 16,077 327 41 24.7 42.0 45.4 (52.7) 70.2 8.1 15.8 9.3 8.6 8.8 6.2 4.8 2.1 1.7 1.5 0.6 1.1 3.5 14.4 20.3 18.9 460 17.8 0.7 Mphasis BFL 336 SELL 70,782 1,440 211 51.8 38.6 30.0 18.8 (25.5) (22.2) 6.5 8.7 11.2 5.5 6.5 7.0 2.1 1.8 1.6 1.2 1.3 1.5 38.6 22.3 14.8 300 (10.7) 3.1 Patni Computer Systems 332 ADD 44,236 900 133 42.6 30.3 34.3 16.5 (29.0) 13.5 7.8 11.0 9.7 4.5 4.1 2.9 1.4 1.3 1.1 19.9 1.8 2.1 18.4 9.6 12.3 400 20.4 2.3 Polaris Software Lab 140 REDUCE 13,978 284 100 19.3 20.3 20.8 25.7 5.0 2.8 7.3 6.9 6.7 4.2 3.0 2.5 1.4 1.2 1.0 2.6 2.8 2.9 20.2 18.0 16.0 145 3.4 2.1 TCS 1,105 BUY 2,162,706 44,007 1,957 44.5 54.5 66.6 26.8 22.4 22.1 24.8 20.3 16.6 18.8 14.4 11.6 8.6 7.0 5.7 1.6 2.0 2.4 37.8 38.0 37.9 1,260 14.0 48.9 Tech Mahindra 621 SELL 78,265 1,593 126 48.8 72.1 75.5 (25.2) 47.8 4.7 12.7 8.6 8.2 8.8 8.8 7.7 2.3 2.0 1.8 0.6 0.6 1.6 20.5 26.0 23.8 600 (3.4) 3.2 Wipro 371 ADD 909,943 18,515 2,454 21.6 22.6 26.4 14.5 4.7 16.9 17.2 16.4 14.0 12.6 11.0 9.2 3.8 3.2 2.7 1.2 1.3 1.6 24.3 21.2 21.0 410 10.6 12.2 Technology Attractive 5,324,839 108,350 17.1 18.6 17.7 20.7 17.5 14.9 14.9 12.0 9.9 5.4 4.5 3.8 1.8 1.7 2.1 26.2 25.7 25.3 Telecom Bharti Airtel 393 ADD 1,493,976 30,399 3,798 15.9 18.2 28.0 (32.6) 14.5 53.7 24.7 21.6 14.0 10.5 8.2 6.2 3.1 2.7 2.3 — — — 13.3 13.3 17.4 460 16.9 41.1 IDEA 97 ADD 319,759 6,506 3,303 2.7 2.3 5.0 (0.5) (16.9) 120.0 35.6 42.8 19.5 11.3 8.7 6.5 2.6 2.5 2.2 — — — 7.6 5.9 11.9 115 18.8 14.1 MTNL 31 SELL 19,215 391 630 (10.4) (9.1) (8.4) (33.7) (11.9) (8.1) (2.9) (3.3) (3.6) 1.0 1.3 1.6 0.2 0.2 0.2 — — — (6.1) (5.7) (5.5) 35 14.8 0.6 Reliance Communications 83 SELL 177,532 3,612 2,133 6.3 2.6 5.2 (71.1) (59.4) 103.2 13.2 32.5 16.0 6.1 6.6 5.6 0.4 0.4 0.4 — — — 3.2 1.3 2.7 80 (3.9) 17.1 Tata Communications 186 REDUCE 52,967 1,078 285 (24.9) (28.8) (34.0) (13.0) 15.6 18.1 (7.5) (6.5) (5.5) 10.6 9.2 9.2 1.5 2.1 3.9 — — — (17.5) (27.0) (50.2) 180 (3.1) 0.9 Telecom Neutral 2,063,450 41,987 (45.8) (1.4) 74.4 29.8 30.3 17.4 9.7 8.1 6.3 1.8 1.7 1.5 — — — 6.0 5.6 8.9 Utilities Adani Power 86 REDUCE 205,097 4,173 2,393 2.4 11.0 15.0 200.7 368.5 35.8 36.4 7.8 5.7 36.3 7.6 4.9 3.3 2.2 1.6 — — — 8.5 33.5 31.8 100 16.7 2.4 CESC 275 BUY 34,414 700 125 37.7 42.5 51.3 9.1 12.7 20.8 7.3 6.5 5.4 5.4 5.7 5.5 0.7 0.7 0.6 1.8 1.9 2.2 10.5 10.7 11.5 440 59.7 1.0 JSW Energy 51 REDUCE 84,296 1,715 1,640 5.1 4.8 4.7 12.9 (6.2) (1.8) 10.0 10.7 10.9 11.4 7.6 5.9 1.5 1.3 1.2 (1.9) — — 16.1 13.0 11.3 60 16.7 1.2 Lanco Infratech 16 BUY 34,901 710 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 45 186.6 5.0 NHPC 25 ADD 301,368 6,132 12,301 1.3 2.1 2.2 (27.2) 52.4 5.4 18.2 11.9 11.3 12.6 9.6 8.5 1.1 1.1 1.0 2.4 2.3 2.4 6.4 9.2 9.1 29 18.4 2.0 NTPC 178 REDUCE 1,468,517 29,881 8,245 10.9 11.5 12.7 4.2 5.2 10.2 16.3 15.5 14.1 12.3 12.7 11.2 2.1 2.0 1.8 2.1 1.9 2.1 13.6 13.2 13.3 180 1.1 9.1 Reliance Infrastructure 466 BUY 123,500 2,513 265 58.0 64.1 76.3 (6.5) 10.5 19.0 8.0 7.3 6.1 7.9 4.2 3.1 0.5 0.5 0.5 2.0 2.2 2.4 6.4 11.2 12.2 920 97.6 14.7 Reliance Power 99 SELL 277,562 5,648 2,805 2.7 2.9 2.9 (5.0) 7.6 (0.5) 36.5 33.9 34.1 181.5 76.9 16.0 1.7 1.6 1.5 — — — 4.9 4.9 4.7 88 (11.1) 7.0 Tata Power 105 BUY 260,163 5,294 2,468 7.6 8.5 9.2 21.5 10.7 8.8 13.8 12.4 11.4 10.8 8.4 8.1 1.8 1.6 1.5 1.3 1.4 1.6 13.8 13.6 13.3 135 28.1 9.8 Utilities Cautious 2,789,819 56,767 4.5 23.9 13.0 16.3 13.1 11.6 13.9 10.6 8.7 1.6 1.5 1.4 1.6 1.5 1.7 10.1 11.3 11.6 Others Carborundum Universal 155 SELL 14,469 294 93 18.3 18.9 21.0 67.7 3.7 10.6 8.5 8.2 7.4 6.7 5.8 5.1 1.7 1.5 1.2 2.5 2.6 2.8 20.7 18.4 17.8 290 87.3 0.1 Havells India 386 REDUCE 48,207 981 125 24.5 25.8 28.8 334.1 5.1 11.5 15.7 15.0 13.4 10.3 9.5 8.3 6.8 4.8 3.6 0.6 0.7 0.8 53.9 37.6 30.9 370 (4.2) 1.9 Jaiprakash Associates 78 BUY 166,395 3,386 2,126 6.0 6.3 7.2 230.2 3.9 15.6 13.0 12.5 10.8 12.1 10.4 9.9 1.5 1.4 1.3 — — — 13.3 11.7 12.3 115 47.0 26.8 Jet Airways 257 BUY 22,221 452 86 (10.1) (69.1) 7.0 (91.0) 588 (110.1) (25.6) (3.7) 36.9 9.7 11.7 7.5 1.4 2.2 2.1 — — — (5.0) — — 500 94.3 9.2 SpiceJet 24 BUY 10,548 215 441 2.5 (3.0) 3.3 (1.8) (220.2) (210.4) 9.6 (8.0) 7.2 14.1 (18.1) 9.5 3.3 3.4 2.3 — — — (961) (41.6) 37.7 50 109.2 1.8 Tata Chemicals 329 REDUCE 83,764 1,704 255 26.2 32.9 38.8 (0.7) 25.4 17.9 12.5 10.0 8.5 7.6 5.3 4.5 1.5 1.4 1.2 3.0 3.6 4.6 16.9 18.6 19.5 365 11.0 2.5 United Phosphorus 146 BUY 67,608 1,376 462 12.3 15.8 20.0 3.9 28.3 26.3 11.9 9.2 7.3 7.2 5.0 4.2 1.8 1.6 1.3 1.4 2.0 2.4 18.0 18.3 19.9 220 50.3 3.6 Others 413,213 8,408 233.8 (5.9) 57.7 14.6 15.5 9.8 10.2 9.0 7.8 1.8 1.6 1.4 1.0 1.2 1.5 12.1 10.4 14.4 KS universe (b) 45,701,343 929,929 #REF! #REF! #REF! #REF! #REF! #REF! 10.1 8.4 7.2 #REF! #REF! #REF! 1.5 1.7 2.0 #REF! #REF! #REF! KS universe (b) ex-Energy 37,865,525 770,486 #REF! #REF! #REF! #REF! #REF! #REF! 11.7 9.9 8.3 #REF! #REF! #REF! 1.4 1.5 1.7 #REF! #REF! #REF! KS universe (d) ex-Energy & ex-Commodities 32,044,932 652,049 #REF! #REF! #REF! #REF! #REF! #REF! 13.2 11.1 9.1 #REF! #REF! #REF! 1.5 1.5 1.7 #REF! #REF! #REF!

Notes: (a) For banks we have used adjusted book values. (b) 2010 means calendar year 2009, similarly for 2011 and 2012 for these particular companies. (c) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector. (d) Rupee-US Dollar exchange rate (Rs/US$)= 49.15 Source: Company, Bloomberg, Kotak Institutional Equities estimates 36

Disclosures

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

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

40% 36.5% * The above categories are defined as follows: Buy = We expect this stock to outperform the BSE Sensex by 17.5% over the next 29.3% 30% 12 months; Add = We expect this stock to outperform the BSE Sensex by 7.5-17.5% over the next 12 months; Reduce = We 19.2% expect this stock to underperform the BSE Sensex by 0-7.5% over 20% 15.0% the next 12 months; Sell = We expect this stock to underperform the BSE Sensex by more than 0% over the next 12 months. Our 10% target prices are also on a 12-month horizon basis. These ratings 4.8% 3.6% 2.4% 3.0% are used illustratively to comply with applicable regulations. As of 0% 30/09/2011 Kotak Institutional Equities Investment Research had investment ratings on 167 equity securities. BUY ADD REDUCE SELL

Source: Kotak Institutional Equities As of September 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.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 38

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