SEPTEMBER 2, 2010

Economy News Equity 4 The Government is likely to fully back a SEBI-appointed panel's proposal % Chg to allow all public shareholders to obtain a complete exit whenever an 1 Sep 10 1 Day 1 Mth 3 Mths open offer is made. The Takeover Regulations Advisory Committee (TRAC) had recently recommended that every open offer made under Indian Indices SENSEX Index 18,206 1.3 0.7 8.7 the takeover code should be for every share held by all the shareholders NIFTY Index 5,472 1.3 0.7 9.0 of the target company. Simply put, following a change in control, an BANKEX Index 12,351 1.3 4.5 17.9 acquirer will have to make an offer for 100 per cent of the outstanding BSET Index 5,483 2.0 (0.1) 6.3 voting capital of a company. (BL) BSETCG INDEX 14,663 1.0 (0.2) 8.0 4 Exports in July grew by 13.2 per cent, the slowest so far this fiscal, to BSEOIL INDEX 10,072 1.5 (1.9) 0.8 $16.24 billion due to weak demand in major markets like the US and CNXMcap Index 8,783 1.2 3.3 13.7 Europe. The Union Commerce Secretary, Dr Rahul Khullar, had recently BSESMCAP INDEX 9,713 1.8 2.9 13.9 said that export growth is likely to slow down in the remaining months of World Indices this year. (BL) Dow Jones 10,269 2.5 (3.8) 0.2 Nasdaq 2,177 3.0 (5.2) (4.6) 4 The parliamentary panel on food and agriculture has recommended FTSE 5,366 2.7 (0.6) 4.2 against sugar decontrol, claiming the move will go against the interest of Nikkei 8,927 1.2 (5.6) (5.9) farmers as well as consumers. The views of this panel, expressed in a Hangseng 20,624 0.4 (2.4) 7.3 report tabled in the Parliament yesterday, are not binding. (BS) Value traded (Rs cr) Corporate News 1 Sep 10 % Chg - Day Cash BSE 4,784 9.6 4 The tractor-to-aerospace Mahindra Group, with nearly 100 companies Cash NSE 13,399 (5.0) in its fold, is consolidating its entire IT infrastructure and applications. The Derivatives 92,165.9 (13.2) entire exercise could cost over Rs 1.0 bn and take more than 500 people — the size of a small IT firm — to run. The consolidation will help the Net inflows (Rs cr) newly-formed group executive board (GEB) in faster decision making 31 Aug 10 % Chg MTD YTD since it will have access to information across all the group’s businesses. FII 538 97.4 11,186 59,088 (ET) Mutual Fund (352) (4,393.9) (3,170) (15,520)

4 Jaguar Land Rover (JLR), the luxury car brands owned by , FII open interest (Rs cr) will launch a slew of entry-level cars including a station wagon and a 31 Aug 10 % Chg roadster to boost volumes across markets. (ET) FII Index Futures 15,795 1.3 4 On the back of sustained consumer demand, excitement on the various FII Index Options 64,812 2.0 new launches and a continued availability of finance at cheap rates, the FII Stock Futures 35,339 3.5 auto industry has posted a healthy growth in sales for the month of FII Stock Options 648 11.5 August. Car market leader posted the highest-ever monthly sales in the month at 1.04 lakh units, while registering a growth Advances / Declines (BSE) of 24 per cent over the same month last year. (BL) 1 Sep 10 A B S Total % total Advances 180 1,485 313 1,978 74 4 Steel majors have increased prices of flat steel by Rs 1,000-1,500 a tonne Declines 24 484 104 612 23 after a gap of four months. Ispat Industries, Bhushan Steel and Essar Unchanged 0 73 14 87 3 Steel have all announced such an increase. Flat steel is used in automobile and white goods industries. (BS) Commodity % Chg 4 NRI billionaire Anil Agrawal-led Vedanta Group said its open offer for 20 1 Sep 10 1 Day 1 Mth 3 Mths per cent stake in Cairn will begin on October 11, as part of its USD Crude (NYMEX) (US$/BBL) 74 (0.0) (9.2) 1.4 9.6 billion takeover deal of the country's fourth largest oil explorer. Sesa Gold (US$/OZ) 1,244 (0.3) 5.4 1.9 is offering a price of Rs 355 per equity to the public shareholders of Silver (US$/OZ) 19 0.0 5.4 5.5 Cairn India, the owner of the India's largest onland oilfield. (FE) Debt / forex market 4 United Breweries Group Chairman said the group has no 1 Sep 10 1 Day 1 Mth 3 Mths plans to sell its stake in Mangalore Chemicals and Fertilisers (MCF). (FE) 10 yr G-Sec yield % 7.93 7.99 7.86 7.50 Re/US$ 46.80 47.08 46.25 47.16

Sensex

18,500

17,650

16,800

15,950

15,100 Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange MORNING INSIGHT September 2, 2010

MARKET STRATEGY MARKET STRATEGY Research Team +91 22 6621 6301 Over the past month, the focus of the markets turned towards economic data points as investors assessed the durability of global economic recovery. For the month, most global indices ended in the negative zone as investors turned cautious after a string of subdued macro indicators. Indian markets outperformed other markets aided by robust foreign fund flows. A highly improved monsoon picture also helped. Among sectors, the banking sector stood out on revival in credit offtake. The Indian markets have shown remarkable resilience in the face of globally weak sentiment for equity markets. Data available with us indicate that in relation to other Asian emerging market peers, the country has received disproportionate share of foreign portfolio funds during the past two months. Among emerging market countries, India scores in terms of being less export intensive. Moreover, the economic growth as well as corporate profit growth is one of the highest in India. However, this aspect also exposes India's vulnerability to reversal in foreign fund flows. Investors should continuously monitor any development which may jeopardize flow of liquidity into emerging markets. At the current market valuation (17x FY11 consensus earnings), there is moderate upside based on FY11 numbers. We recommend buying into sectors with a strong domestic consumption theme. We recommend select stocks in infrastructure, autos, capital goods, financial services and large IT as our preferred picks. The risk to our moderately bullish call comes from any disruptive event in global economy.

Market performance - sector wise (August 2010) Benchmark indices - India

6.0% 19000 Sensex (LHS) 5600 4.0% Nifty (RHS) 5000 16375 2.0% 4400 0.0% 13750 -2.0% 3800 11125 -4.0% 3200 PSU Auto Tech Metal NIFTY FMCG 8500 2600 Sensex Banking Oil & Gas Jul Healthcare Mar Mar Mar July Sep Nov Sep Nov May May May BSE midcap July Capital goods Jan'08 Jan'09 Jan'10 BSE small cap

Source: Bloomberg Source: Bloomberg

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Global markets weak on signs of economic slowdown Post the upbeat earnings season in the US, the focus shifted back to assessing the progress of the economy. However, economic data emerging from the US related to jobs, manufacturing, home sales etc. has been lackluster. By the end of the month, the Dow Jones and Nasdaq were down 3% and 4.5% respectively. On a relative basis, the FTSE and Nikkei did better than the US indices but still ended in the red. The US Fed's Federal open Markets Committee (FOMC) meeting in August sug- gested that the Fed is turning more bearish on the US economy. It said, "the pace of recovery in output and employment has slowed in recent months" and added that, "pace of economic recovery is likely to be more modest in the near term than had been anticipated." The Fed's cautious outlook was corroborated by US housing data, which indicated renewed weakness. The US home resales plunged 27.2% in July 2010 to their lowest level in 15 years. GDP growth in Japan slowed down sharply to 0.4% qoq from 4.4% recorded in the previous quarter due to deceleration in exports and subdued consumer sentiment. Japanese economy being majorly exports driven is being impacted severely by stron- ger Yen which surged against US$ in past few weeks. Germany upgraded its eco- nomic forecast but most other Eurozone nations have curtailed their economic growth estimates

Sensex firm on FII fund flows The Sensex stood resilient in the face of negative market sentiment. Even as there were expectations of an impending correction, foreign funds continued to repose faith in Indian equities. As against minor losses for global markets, the Sensex has ended the month with marginal gains. While there has been moderation in economic growth indicators, markets have been holding on to its gains on account of inline Q1 FY11 numbers and positive monsoon activity. Sector-wise the banking stocks stood out following strong credit growth, improvement in NIM and upgradation in asset quality. The sector has not been af- fected by the ongoing monetary tightening by the RBI. Financial services stocks were active on expectation of banking license.

Crude (US$/bl) FII & Mutual Fund investment (Rs Cr) 160 30,000 FII MF 125 20,000 90 10,000 55 - 20 (10,000) Jul-07 Oct-05 Jun-10 Mar-05 Feb-08 Apr-09 Dec-06 Sep-08 Nov-09 Aug-04 May-06 (20,000) Jul Jul Jul Jun Oct Jun Oct Jun Feb Mar Apr Feb Mar Apr Feb Mar Apr Nov Dec Sep Nov Dec May Aug May Aug May Aug Source: Bloomberg Sep Jan'10 Jan_08 Jan_09

Source: Bloomberg

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RBI releases discussion paper on new banking license. The RBI released a discussion paper on granting of fresh banking license to new players. The central bank opined that existence of a larger number of banks would foster greater competition, and thereby reduce costs, and improve the quality of service. The RBI also initiated discussion on foreign shareholding in new banks, whether industrial and business houses could be allowed to set up banks and if fi- nance companies should be allowed to convert into banks or set up a bank. Follow- ing this, several financial services stocks were in limelight. However, the apex bank was against granting permits to houses engaged (directly or indirectly) in the Realty business.

Inflation - coming off the peak but still a major concern for the economy WPI inflation for the month of July provided some comfort as it came in below the double digit mark, albeit, marginally at 9.97%, lower than market expectations of 10.4%. Inflation decline has been aided by base effect as month on month inflation is up 1%. In terms of broad components, food prices inflation is well off its highs and has al- most halved from 20.04% in December to 10.29% in July. Fuel prices reflected the full impact of price hikes in July and rose by 3.2% on mom basis and 14.29% from last year. Manufactured products prices fell by 0.14% on mom basis, decelerating to grow at 6.15% on yoy basis from 6.66% in the preceding month. The fall in manu- factured commodities prices came mainly from sugar and cement. July headline in- flation was the lowest since January 2010. The RBI has forecast average inflation of 6.0% for FY11, counting on a normal mon- soon, which would ease pressure on food prices. Responding to the elevated levels of inflation, the RBI had raised its policy rates in its monetary policy meeting at the end of July. Given that inflation has remained sticky, the RBI may again raise policy rates in its September 16 meeting. We believe inflation is a real concern for India given its direct linkage to interest rates, impoverishment of weaker sections and for- mation of asset bubbles.

Rupee /US$ Inflation (%)

53.0 16

50.0 12

47.0 8 44.0 4 41.0 0 38.0 -4 Jul-07 Oct-05 Jun-10 Mar-05 Feb-08 Apr-09 Dec-06 Sep-08 Nov-09 Aug-04 May-06 Jul-07 Jul-08 Jul-09 Jul-10 Jan-07 Oct-07 Jan-08 Oct-08 Jan-09 Oct-09 Jan-10 Apr-07 Apr-08 Apr-09 Apr-10

Source: Bloomberg Source: Bloomberg

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Cabinet approves the Direct tax code The Cabinet approved the much-awaited Direct Taxes Code (DTC) Bill, which is likely to be tabled in Parliament during the ongoing Monsoon session and thereafter it may be referred to a select committee of members of both houses of Parliament. The Government proposes to raise exemption limit on income tax from the present Rs 1.6 lakh to Rs 2 lakh. The new provisions under the Direct Tax Code are as fol- lows: n Tax for income between Rs. 2 lakh - Rs. 5 lakh: 10% n Tax for income between Rs. 5 lakh - Rs. 10 lakh (currently Rs 8 lakh): 20% n Tax for income over Rs. 10 lakh (currently Rs 8 lakh): 30%. Individuals earning more than Rs 10 lakh a year may save up to Rs 41,040 in income tax, if slabs proposed by the Direct Taxes Code (DTC) bill come into effect. Corpo- rate tax has been kept at 30% down from 33% plus currently. MAT on book profit has been raised from 19.9% to 20% (largely neutral). The new direct tax code comes into effect from April 2012. For individuals, short-term capital gain has been kept at 50% of applicable tax rate while long-term capital gain from equity has been exempt. This is a positive for investors as it was earlier proposed to tax long- term capital gains as well. Tax exemptions related to SEZs have been retained thus removing uncertainty.

IIP growth (%) Domestic macros - IIP growth strong but base effect catching up… June IIP (Index of Industrial Production) rose 7.1% yoy; lower than the revised 11.3% 20.0 number in May. Mining, Manufacturing and Electricity sectors for the month of June 16.0 2010 grew at rates of 9.5%, 7.3% and 3.5% respectively as compared to June 12.0 2009. As per use-based classification, the sectoral growth rates in June 2010 over 8.0 June 2009 are 3.4% in Basic goods, 9.7% in Capital goods and 8.7% in Intermedi- ate goods. The Consumer durables and Consumer non-durables have recorded 4.0 growth of 27.4% and 1.3% respectively, with the overall growth in Consumer goods - being 8.3%. (4.0) In our view, continued high IIP growth along with high inflation is likely to facilitate RBI's focus on managing price stability. We expect RBI to continue with its tightening Jul-06 Oct-07 Jan-09 Jun-09 Apr-05 Feb-06 Mar-08 Apr-10 Sep-05 Dec-06 Nov-09 May-07 Aug-08 policy stance and increase rates over the course of year albeit in baby-steps.

Source: Bloomberg Good monsoon activity - agriculture sector gets a boost As per the IMD, the cumulative seasonal rainfall for the month upto 25 August was 2% below the Long Period Average (LPA). Out of 36 meteorological subdivisions, the rainfall has been excess over 9, normal over 21 and deficient /scanty over 6 sub- divisions. Area wise, 80% of the country received normal to heavy rainfall. For the country as a whole, one can expect a good Kharif crop on the back of 10% area expansion this year. Water levels in 81 large reservoirs remain good and the initial deficiency has been made good. They are just 2.8% below their 10-year average Area under sowing has been higher due to satisfactory monsoons, which has created a strong base for higher agri-output. We see normal monsoon providing a leg up to consumption driven sectors. This should translate into higher demand for consumer goods - both durables and non-durables, autos, cement for rural housing and agro- based firms. Textile and sugar industries could be beneficiaries on account of higher agri-production (in terms of commodity price correction translating into lower cost of inputs). The monsoon winds bring 75 to 90 percent of the rainfall in most parts of India, and are vital for cane, rice and oilseeds crops as 60 percent of cultivated areas depend entirely on the rains for irrigation. Robust agri-output may also ease inflationary pres- sure on food grains and help contain overall inflation under check.

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Recommendation The Indian markets have shown remarkable resilience in the face of globally weak sentiment for equity markets. Data available with us indicate that in relation to other Asian emerging market peers, India has received disproportionate share of foreign portfolio funds during the past two months. Among emerging market countries, In- dia scores in terms of being less export intensive. Moreover, the economic growth as well as corporate profit growth is one of the highest in India. However, this aspect also exposes India's vulnerability to reversal in foreign fund flows. Investors should continuously monitor any development which may jeopardize flow of liquidity into emerging markets. Markets should continue to take cue from the global markets. At current elevated levels, we believe valuations may not be enticing but they are not demanding ei- ther. However, Sensex can deliver good returns in the medium term, given the eco- nomic momentum. Possibility of a correction cannot be ruled out however we opine that any correction would be technical and not structural in nature. Investors should buy into any corrections. At the current market valuation (17x FY11 consensus earnings), there is moderate upside based on FY11 numbers. We recommend buying into sectors with a strong domestic consumption theme. We recommend select stocks in Infrastructure, autos, capital goods, Financial Services and large IT as our preferred picks. The risk to our moderately bullish call comes from any disruptive event in global economy.

Preferred picks Sector Stocks Automobile Banking ICICI Bank, BoB, Union Bank, Andhra Bank, , J&K Construction Unity Infraprojects, IVRCL, Jaiprakash Associates, J Kumar Infraprojects, Sunil Hi Tech Engineering Blue Star, L&T, Greaves Cotton, Kalpataru Power Information Technology , NIIT Tech, TCS Logistics Mundra Port, Gateway Distriparks, Allcargo, GATI Media UTV, Jagran Prakashan Metals Sesa Goa NBFCs India Infoline, IDFC Oil & Gas GSPL Other Midcaps JBF, Time Techno, Everest Kanto

Source: Kotak Securities - Private Client Research

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AUTO INDUSTRY UPDATE AUTO INDUSTRY VOLUME UPDATE - AUGUST 2010 Arun Agarwal [email protected] Auto sales in the month of August remained buoyant giving a clear +91 22 6621 6143 indication of the strong performance in the upcoming festive season. Majority of the players continued to deal with production related constraints ahead of the festive season. While volumes were more or less similar to that of July 2010, players like Maruti Suzuki and TVS Motors posted record monthly sales volumes. Moving in September 2010, auto players will start building inventory at the dealers end and that is expected to keep the trend positive next month.

Summary - August 2010 volumes Aug July Aug YoY MoM YTD YTD Growth 2009 2010 2010 gth (%) gth (%) FY10 FY11 (%) Hero Honda 2W 415,137 427,686 424,617 2 (1) 1,900,932 2,086,342 10 Bajaj Auto Motorcycles 182,441 279,781 - (100) (100) 833,331 1,108,172 33 Total 2W 183,051 279,781 - (100) (100) 836,202 1,108,199 33 3W 30,021 38,634 - (100) (100) 117,367 138,552 18 Total 2W+3W 213,072 318,415 - (100) (100) 953,569 1,246,751 31 Exports out of the above 75,069 106,794 - (100) (100) 326,534 430,693 32 TVS Motor Scooters 28,582 40,357 40,913 43 1 123,334 176,756 43 Motorcycles 51,127 61,051 66,574 30 9 246,903 327,983 33 Mopeds 47,165 61,698 59,622 26 (3) 224,722 281,517 25 Total sales 126,874 163,106 167,109 32 2 594,959 786,256 32 Exports 11,747 20,067 19,028 62 (5) 56,164 93,139 66 Maruti Suzuki A1 (M800) 2,734 1,680 1,919 (30) 14 12,649 10,505 (17) A2 52,473 64,079 65,953 26 3 247,321 300,545 22 A3 (SX4, D'zire) 7,821 10,352 10,479 34 1 36,869 49,789 35 MUV (Grand Vitara, Gypsy) 332 386 166 (50) (57) 1,929 3,541 84 C (OMNI, Eeco) 6,601 13,617 14,157 114 4 36,136 61,295 70 Total Domestic 69,961 90,114 92,674 32 3 334,904 425,675 27 Export 14,847 10,743 12,117 (18) 13 54,707 63,297 16 Total Sales 84,808 100,857 104,791 24 4 389,611 488,972 26 M&M UV 16,631 16,720 20,527 23 23 82,039 101,509 24 3W/Gio/Maxximo 3,652 7,824 5,074 39 (35) 16,490 22,660 37 LCV 658 1,007 873 33 (13) 4,171 4,858 16 Car (Logan) 469 752 801 71 7 2,391 2,869 20 Total Domestic 21,410 26,303 27,275 27 4 105,091 131,896 26 Export 1,003 1,746 1,628 62 (7) 2,754 7,149 160 Total Sales 22,413 28,049 28,903 29 3 107,845 139,045 29 Tractors 10,646 14,592 13,435 26 (8) 66,881 78,175 17 Tata Motors M&HCV 11,118 15,255 14,851 34 (3) 48,402 72,262 49 LCV 18,644 20,439 20,734 11 1 81,824 96,246 18 Utility 2,609 3,251 2,884 11 (11) 13,328 15,785 18 Cars 14,755 24,613 22,312 51 (9) 67,064 109,514 63 Total Domestic 47,126 63,558 60,781 29 (4) 210,618 293,807 39 Export 2,684 4,241 5,157 92 22 10,359 21,641 109 Total Sales 49,810 67,799 65,938 32 (3) 220,977 315,448 43

Source: Companies

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HERO HONDA (HH)

HH - 2W sales volume Aug July Aug YoY MoM YTD YTD Growth 2009 2010 2010 gth (%) gth (%) FY10 FY11 (%)

2W 415,137 427,686 424,617 2.3 (0.7) 1,900,932 2,086,342 9.8

Source: Company

n HHML's August 2010 sales of 424,617 units were in line with expectations. YoY volumes were up by 2.3% and MoM volumes were lower by 0.7%. n Company's performance in the scooter segment has seen improvement over the past few months and we expect this trend to continue in future. n HHML's YTD monthly run-rate stands at 417,268 units as against our FY11 esti- mated monthly run-rate of 421,350 units. n HHML is expected to launch new variants in the upcoming festive season and the same should help the company post robust numbers moving forward. n We expect the company to sell 5mn units in FY11 and its product mix is ex- pected to remain titled towards the 100cc segment.

HHML - 2W sales volume

500,000 80

400,000 60 300,000 40 200,000 20 100,000

- - Jul-10 Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10

Source: Company

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TVS MOTORS

TVS Motors - sales volume Aug July Aug YoY MoM YTD YTD Growth 2009 2010 2010 gth (%) gth (%) FY10 FY11 (%)

Scooters 28,582 40,357 40,913 43.1 1.4 123,334 176,756 43.3 Motorcycles 51,127 61,051 66,574 30.2 9.0 246,903 327,983 32.8 Mopeds 47,165 61,698 59,622 26.4 (3.4) 224,722 281,517 25.3 Total sales 126,874 163,106 167,109 31.7 2.5 594,959 786,256 32.2 Exports 11,747 20,067 19,028 62.0 (5.2) 56,164 93,139 65.8

Source: Company

n TVS Motors continued with their streak of sequential improvement in monthly volumes by posting their highest ever monthly sales of 170,735 units. TVS Motors volumes grew by a whopping 34% over August 2009 volumes of 127,875 units. On MoM, volumes improved by 3%. n Scooter volumes remained in excess of 40,000 units for the second consecutive month. TVS Motors have witnessed a major improvement in demand for scooters post Wego launch. n Motorcycle volumes returned to normalcy with volumes of 66,574 units after a small blip in volumes witnessed in July 2010. Motorcycle sales continues to re- ceive boost from their clutch-less model - Jive.

(continued ....)

Scooters sales volume trend Motorcycles sales volume trend Volume (Units - LHS) Volume (Units - LHS) 80,000 % YoY growth (RHS) 80 36,000 % YoY growth (RHS) 60 60,000 60 27,000 45 40,000 40 18,000 30 20,000 20 9,000 15 - -

- - (20,000) (20) Jul-10 Jul-10 Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Oct-09 Jan-10 Jun-10 Sep-09 Nov-09 Dec-09 Feb-10 Mar-10 Apr-10 Aug-09 May-10 Aug-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10

Source: Company Source: Company

Mopeds sales volume trend Exports sales volume trend Volume (Units - LHS) Volume (Units - LHS) % YoY growth (RHS) 24,000 % YoY growth (RHS) 100 75,000 44 18,000 75 60,000 33 12,000 50 45,000 22 6,000 25 30,000 - - 11 15,000 (6,000) (25) - - (12,000) (50) Jul-10 Jul-10 Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10 Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10

Source: Company Source: Company

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n Moped sales at 59,622 units continue to remain strong as ever for the company. n Strong exports remain one of the major drivers for the company volumes in FY11. Export for the month at 19,028 units was higher by 62% over Aug 09 volumes of 11,747 units. n 3W sales improved further to 3,626 units in August 2010. n Company's YTD 2W volumes have grown by 32% and the company remains well in line for crossing the 2mn sales mark in FY11.

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MARUTI SUZUKI LTD (MSIL)

MSIL - sales volume Aug July Aug YoY MoM YTD YTD Growth 2009 2010 2010 gth (%) gth (%) FY10 FY11 (%)

A1 (M800) 2,734 1,680 1,919 (29.8) 14.2 12,649 10,505 (16.9) A2 52,473 64,079 65,953 25.7 2.9 247,321 300,545 21.5 A3 (SX4, D'zire) 7,821 10,352 10,479 34.0 1.2 36,869 49,789 35.0 MUV (Grand Vitara, Gypsy) 332 386 166 (50.0) (57.0) 1,929 3,541 83.6 C (OMNI, Eeco) 6,601 13,617 14,157 114.5 4.0 36,136 61,295 69.6 Total Domestic 69,961 90,114 92,674 32.5 2.8 334,904 425,675 27.1 Export 14,847 10,743 12,117 (18.4) 12.8 54,707 63,297 15.7 Total Sales 84,808 100,857 104,791 23.6 3.9 389,611 488,972 25.5

Source: Company

n MSIL posted their highest ever monthly sales volume of 104,791 units in August 2010. Sales were higher by 23.6% over August 2009 volumes of 84,808 units. Sequentially sales improved 4%. n Domestic volumes for the month increased by 32.5% to 92,674 units. Volumes in the A2 and A3 segments stood at 65,953 units and 10,479 units respectively. In the C segment, the company's volumes more than doubled to 14,157 units.

(continued ....)

A2 segment domestic volume trend Domestic sales volume trend Volume (Units - LHS) Volume (Units - LHS) % YoY growth (RHS) 100,000 80 64,000 64 % YoY growth (RHS) 48,000 48 75,000 60

32,000 32 50,000 40 16,000 16 25,000 20 - - (16,000) (16) - - Jul-10 Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Sep-09 Nov-09 Dec-09

Jul-10 Aug-09 May-10 Aug-10

Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10

Source: Company Source: Company

Export volume trend Business Mix (Domestic) Volume (Units - LHS) 100% C % YoY growth (RHS) 20,000 240 MUV 80% A3 15,000 180 A2 60% 10,000 120 A1 40% 5,000 60

- - 20%

(5,000) (60) 0% Jul-10 Oct-09 Jun-10 Oct-09 Jan-10 Jun-10 Feb-10 Apr-10 Feb-10 Mar-10 Apr-10 Dec-09 Sep-09 Nov-09 Dec-09 Aug-09 Aug-10 Aug-09 May-10 Aug-10

Source: Company Source: Company

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n Domestic volumes are expected to have received boost from the launch of the new 1-litre Alto (with K-series engine). The company also launched CNG variants for 5 of its models during the month. n Upcoming festive season coupled with high waiting period on its key models is expected to keep the company's domestic volumes strong. n Exports for the month stood at 12,117 units that were 18.4% lower YoY but 12.8% more MoM. MSIL is expected to report YoY de-growth in export volumes for balance FY11. For the full year, we expect export volumes to remain flat at ~150,000 units. n MSIL's monthly production is capped by capacity constraints and currently the company is operating at 120% of its installed capacity. Through continuous de- bottlenecking the company is in the process to further increase its monthly pro- duction. n MSIL's YTD monthly volumes stand at 97,794 units versus our FY11 monthly run- rate estimate of ~96,000 units. We expect the company's volumes in FY11 to grow by ~16-18%.

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MAHINDRA AND MAHINDRA (M&M)

M&M - sales volume Aug July Aug YoY MoM YTD YTD Growth 2009 2010 2010 gth (%) gth (%) FY10 FY11 (%)

UV 16,631 16,720 20,527 23.4 22.8 82,039 101,509 23.7 3W/Gio/Maxximo 3,652 7,824 5,074 38.9 (35.1) 16,490 22,660 37.4 LCV 658 1,007 873 32.7 (13.3) 4,171 4,858 16.5 Car (Logan) 469 752 801 70.8 6.5 2,391 2,869 20.0 Total Domestic 21,410 26,303 27,275 27.4 3.7 105,091 131,896 25.5 Export 1,003 1,746 1,628 62.3 (6.8) 2,754 7,149 159.6 Total Sales 22,413 28,049 28,903 29.0 3.0 107,845 139,045 28.9 Tractors 10,646 14,592 13,435 26.2 (7.9) 66,881 78,175 16.9

Source: Company n M&M's automotive segment sales volumes for August 2010 stood at 28,903 units. On YoY basis, volumes grew by 29% on back of growth across segments. Sequentially volumes improved by 3% primarily driven by robust UV volumes. n In the UV segment, the company showcased their dominance with sharp 22.8% sequential growth. M&M's volumes in the UV segment were subdued over the past few months. With the upcoming festive season, we expect the company's UV volumes to sustain this month's performance in the near future. (continued ....) UV - domestic volume trend Tractor - volume trend Volume (Units - LHS) Volume (Units - LHS) % YoY growth (RHS) % YoY growth (RHS) 25,000 150 20,000 160 20,000 120 120 15,000 15,000 90 80 10,000 60 10,000 5,000 30 40 5,000 - - - (5,000) (30) - (40) Jul-10 Jul-10 Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Oct-09 Jan-10 Jun-10 Sep-09 Nov-09 Dec-09 Feb-10 Mar-10 Apr-10 Aug-09 May-10 Aug-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10

Source: Company Source: Company

Domestic volume trend (Automotive) Export volume trend (Automotive) Volume (Units - LHS) Volume (Units - LHS) 2,000 % YoY growth (RHS) 440 36,000 % YoY growth (RHS) 160 1,500 330 27,000 120 1,000 220 18,000 80 500 110 9,000 40 - - - - (500) (110) Jul-10 Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10 Jul-10 Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10

Source: Company Source: Company

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n Company's UV production volumes continued to remain affected by shortage of auto components like casting, fuel injection pumps and tyres. M&M have hinted towards import of key auto components in order to bridge the gap between de- mand and supply of some components. n In the 3W/Gio/Maxximo segment, the company reported lower than expected volumes. Volumes were down by 35% over July 2010 at 5,074 units. We believe this to be an aberration and expect the segment volumes to return to normalcy in September 2010. n Logan sales improved with the company clocking 801 units as against their FY10 monthly average run-rate of ~450 units. n Exports for the month remained strong at 1,628 units. n In the farm equipment sector the company sold 13,435 tractors, a jump of 26% over August 2009 tractor sales of 10,646 units. n M&M's product portfolio would strengthen once it completes the Ssangyong deal. M&M is expected to launch a new SUV in calendar year 2011.

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TATA MOTORS

Tata Motors - sales volume Aug July Aug YoY MoM YTD YTD Growth 2009 2010 2010 gth (%) gth (%) FY10 FY11 (%)

M&HCV 11,118 15,255 14,851 33.6 (2.6) 48,402 72,262 49.3 LCV 18,644 20,439 20,734 11.2 1.4 81,824 96,246 17.6 Utility 2,609 3,251 2,884 10.5 (11.3) 13,328 15,785 18.4 Cars 14,755 24,613 22,312 51.2 (9.3) 67,064 109,514 63.3 Total Domestic 47,126 63,558 60,781 29.0 (4.4) 210,618 293,807 39.5 Export 2,684 4,241 5,157 92.1 21.6 10,359 21,641 108.9 Total Sales 49,810 67,799 65,938 32.4 (2.7) 220,977 315,448 42.8

Source: Company n Tata Motors August 2010 volumes jumped by 32.4% YoY to 65,938 units. Ro- bust YoY growth came from 33.6% and 51.2% increase in M&HCV and car volumes respectively. However, sequentially the volumes were down by 2.7%. n In the passenger car segment, the company sold 8,103 units of Nano (YoY growth of 224%), 7,531 units of Indica (YoY growth of 22%) and 6,678 units of Indigo (YoY growth rate of 151%). Additionally the company also sold 2,884 units of Sumo/Safari range (11% higher YoY). Nano will be the main driver of the company's volumes in the car segment in FY11. (continued ....)

M&HCV - domestic volume trend LCV - domestic volume trend

Volume (Units - LHS) Volume (Units - LHS) 25,000 % YoY growth (RHS) 250 24,000 % YoY growth (RHS) 120 20,000 200 18,000 90 15,000 150 10,000 100 12,000 60 5,000 50 6,000 30 - - (5,000) (50) - - Jul-10 Jul-10 Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10 Oct-09 Jan-10 Jun-10 Feb-10 Mar-10 Apr-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10

Source: Company Source: Company

Cars - domestic volume trend Business Mix ( Domestic) Volume (Units - LHS) 100% 28,000 % YoY growth (RHS) 80 Cars 75% UV 21,000 60 LCV M&HCV 14,000 40 50%

7,000 20 25%

- - 0% Jul-10 Oct-09 Jun-10 Feb-10 Apr-10 Oct-09 Jan-10 Jun-10 Dec-09 Feb-10 Mar-10 Apr-10 Aug-09 Aug-10 Sep-09 Nov-09 Dec-09 Aug-09 May-10 Aug-10

Source: Company Source: Company

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n In the LCV segment the company continued its strong performance with sales of 20,734 units, YoY growth of 11.2% and MoM growth of 1.4%. n Volumes in M&HCV segment stood at 14,851 units for the month of August 2010 translating into a YoY growth rate of 34%. We expect the company to continue to post strong YoY growth in the M&HCV segment until November 2010, post which high base effect will come into play. n Export volumes of the company jumped from 2,684 units in August 2009 and 4,241 units in July 2010 to 5,157 units for the period under consideration. Export volumes are expected to remain robust moving ahead. n We expect the company's CV volumes in September 2010 to show strong perfor- mance as buyers will like to pre-pone their purchases because from 1st October 2010 the new emission norms will come into effect and will lead to rise in prod- uct prices.

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Gainers & Losers Nifty Gainers & Losers Price (Rs) chg (%) Index points Volume (mn)

Gainers Infosys Tech 2,776 2.3 10.4 1.3 Reliance Ind 936 1.9 9.9 6.4 ICICI Bank 995 1.8 6.7 4.2 Losers HDFC 623 (0.6) (1.7) 2.8 Hero Honda 1,765 (1.5) (0.9) 0.8 124 (1.1) (0.4) 1.0

Source: Bloomberg

Research Team Dipen Shah Apurva Doshi Sarika Lohra Jayesh Kumar K. Kathirvelu IT, Media Logistics, Textiles, Mid Cap NBFCs Economy Production [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6621 6301 +91 22 6621 6308 +91 22 6621 6301 +91 22 6652 9172 +91 22 6621 6311 Sanjeev Zarbade Saurabh Agrawal Arun Agarwal Ritwik Rai Capital Goods, Engineering Metals, Mining Automobiles FMCG, Media [email protected] [email protected] [email protected] [email protected] +91 22 6621 6305 +91 22 6621 6309 +91 22 6621 6143 +91 22 6621 6310 Teena Virmani Saday Sinha Ruchir Khare Shrikant Chouhan Construction, Cement, Mid Cap Banking, Economy Capital Goods, Engineering Technical analyst [email protected] [email protected] [email protected] [email protected] +91 22 6621 6302 +91 22 6621 6312 +91 22 6621 6448 +91 22 6621 6360

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