Visit us at www.sharekhan.com February 14, 2014

Index

 Stock Update >> Mahindra & Mahindra

 Stock Update >> State Bank of India

 Stock Update >> Eros International

 Stock Update >> Dishman Pharmaceuticals & Chemicals

 Sector Update >> Telecommunications

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Mahindra & Mahindra Reco: Buy

Stock Update

Tractors firing; auto business to catch up CMP: Rs903

Company details Key points

Price target: Rs1,122  M&M posted a double-digit growth in earnings in Q3FY2014 on the back of a Market cap: Rs55,590 cr robust operating performance (due to an improved product mix and cost control initiatives) even as the revenues remained flat. The margin improved for 52 week high/low: Rs1,026/742 both the automotive and the tractor segments. NSE volume: 8.7 lakh (no. of shares)  The tractor segment is expected to maintain a double-digit growth in FY2015 BSE code: 500520 on the back of strong demand drivers (increased in the rural income and a labour shortage which encourages mechanisation). In the automotive business NSE code: M&M the volume growth could turn positive aided by the low base effect, demand Sharekhan code: M&M revival and the launch of compact UV models. Also, the management expects Free float: 46.0 cr to sustain the margin due to the continued improved mix and benign (no. of shares) commodity prices.

Shareholding pattern  We have maintained our Buy recommendation with a SoTP-based price target for M&M at Rs1,122. M&M has a strong rural play and has shown resilience in Public & Others the challenging macro economic environment. M&M remains our preferred Promoters Bodies 14% pick in the automotive space. 25% corporate 5%

Institutions Foreign 16% 40%

Price chart

1050 Results Rs cr 1000 Particulars* Q3FY14 Q3FY13 YoY % Q2FY14 QoQ % 950 Revenues 10,241.6 10,242.6 0.0 8,660.4 18.3 900 Total expenses 8,709.1 8,863.1 -1.7 7,406.0 17.6 850 EBITDA 1,532.5 1,379.5 11.1 1,254.4 22.2 800 Other income 97.5 75.8 28.7 362.8 -73.1 750 Depreciation 223.5 205.4 8.8 224.4 -0.4 Interest 88.3 72.5 21.9 89.2 -0.9 Jun-13 Oct-13 Feb-14 Feb-13 Apr-13 Dec-13 Aug-13 PBT 1,318.2 1,177.4 12.0 1,303.6 1.1 Price performance Tax 318.1 262.5 21.2 275.9 15.3 PAT recurring 1,000.1 914.9 9.3 1,027.6 -2.7 (%) 1m 3m 6m 12m Reported PAT 1,000.1 914.9 9.3 1,027.6 -2.7 Absolute 2.1 1.3 3.8 2.6 EPS 16.2 14.9 16.7 EBITDA margin (%) 15.0 13.5 150 BPS 14.5 50 BPS Relative 6.6 1.0 -1.7 -2.1 to Sensex Eff tax rate (%) 24.1 22.3 21.2 *(MM+MVML)

Sharekhan 2 February 14, 2014 Home Next investor’s eye stock update

Q3FY2014 segmental performance commodity prices and improved mix (a higher proportion of Automotive segment tractors and cost control initiatives) enabled M&M to improve the margin. With benign commodity prices and cost control In Q3FY2014, the Mahindra and Mahindra (M&M) initiatives, we expect M&M’s margin to remain in the high automotive segment’s revenues declined by 11% year on trajectory. year (YoY) on the back of a similar decline in the volumes. The segment’s realisation remained flat YoY. Despite the Automotive segment to recover in FY2015 on low base, falling revenues, the margin improved on both a year-on- improved macro environment and new product launches year (Y-o-Y) as well as sequential basis on the back of M&M’s automotive volumes have been under pressure with cost control initiatives. the volumes declining 10% YoY in the YTD FY2014 period. Farm equipment segment This is attributable to a decline in the industry volumes and M&M’s relatively lower presence in the growing For Q3FY2014, the revenues of the farm equipment compact utility vehicle (UV) category. M&M expects the segment grew by 21% YoY, mainly on the back of a similar automotive volumes to recover in FY2015 on the back of volume growth. The realisation remained flat YoY. Given a low base created by the current slowdown and an the strong volume growth and the consequent operating improvement in the macro economic conditions. Further, leverage, the margin improved both a Y-o-Y and quarter- new product launches (in Q4FY2015) would also lead to a on-quarter (Q-o-Q) bases. volume recovery. M&M is expecting a single-digit growth Segmental performance Rs cr in FY2015. We have factored a volume growth of 4% for Particulars Q3 Q3 YoY Q2 QoQ the M&M automotive segment in our estimate. FY14 FY13 % FY14 % Automotive division Ssangyong operating performance improves; to work Volumes 128039 144466 -11.4 116535 9.9 on joint product development with M&M Revenues 6161.0 6876.1 -10.4 5554.7 10.9 M&M’s Korean subsidiary Ssangyong Motor Corporation PBIT 732.8 766.9 -4.4 624.0 17.4 (SYMC) volumes jumped by 20% YoY in CY2013, registering PBIT margin (%) 11.9 11.2 11.2 volumes of 1,45,649 units. SYMC has received an Farm equipment division encouraging response from the new ‘Korando’ which has Volumes 78419 64800 21.0 59264 32.3 boosted sales in both the domestic and the export Revenues 4098.7 3404.0 20.4 3147.6 30.2 markets. SYMC’s financial performance improved PBIT 721.4 527.4 36.8 534.5 35.0 significantly given the surge in the volumes and cost PBIT margin (%) 17.6 15.5 17.0 control efforts. SYMC posted a second consecutive quarter Others of profits Q3CY2013 (reporting a profit of 1.5 billion Korean Revenues 5.5 14.4 -62.0 5.9 -7.9 Won). The losses significantly reduced to 14 billion Korean PBIT 1.2 1.7 -32.0 0.1 875.0 Won in the January 2013 to September 2013 period as PBIT margin (%) 21.4 11.9 2.0 against 66 billion Korean Won in the same period last year. Further, M&M-SYMC are working on a joint product development enabling synergistic benefits for both the Tractor segment demand to remain strong companies. The tractor industry has outperformed the automotive Valuation demand in the year to date (YTD) FY2014 period. As against the subdued automotive volumes, the tractor industry The tractor demand is expected to grow in double digits registered a growth of 22% during YTD FY2014. With strong in FY2015 on the continued strong demand drivers (an demand drivers (an increased crop output leading to a increased rural income and the labour shortage). Further, higher rural income and labour shortages) intact, the the automotive volumes would recover in FY2015 on the industry is expected to grow in double digits in FY2015 as back of the low base effect, improved macro economic well. M&M expects the tractor industry to grow by about conditions and new product launches. The margin is 10% in FY2015. expected to remain high given the improved mix, benign commodity prices and cost control efforts. We have Margin to remain in high trajectory given the improved broadly maintained our earnings estimates for FY2014 and mix and benign commodity FY2015 for the core business. Given M&M’s strong rural M&M has been able to improve the margin despite the focus, we maintain our Buy recommendation with a SoTP- subdued revenues. During Q3FY2014, M&M’s margin improved based price target of Rs1,122. M&M remains our preferred by 150 basis points YoY despite the flat revenues. The soft pick in the automotive space.

Sharekhan 3 February 14, 2014 Home Next investor’s eye stock update

Valuations Particulars* FY2011 FY2012 FY2013 FY2014E FY2015E Total income (Rs cr) 23,460.3 31,370.3 38,356.6 38,362.5 41,344.8 Growth (%) 27.6 33.7 22.3 0.0 7.8 EBITDA (Rs cr) 3,454.3 4,150.4 5,329.3 5,623.0 5,888.1 EBITDA margin (%) 14.7 13.2 13.9 14.7 14.2 PAT (Rs cr) 2,662.1 2,888.8 3,543.8 3,807.7 3,794.4 Growth (%) 27.5 8.5 22.7 7.4 -0.3 FD EPS (Rs) 41.4 47.1 57.7 61.8 61.6 P/E (x) 21.8 19.2 15.6 14.6 14.7 P/B (x) 5.4 4.5 3.7 3.0 2.5 EV/EBIDTA (x) 16.3 13.8 10.6 9.8 9.0 RoE (%) 24.7 23.6 23.7 20.3 16.8 RoCE (%) 27.5 23.9 26.0 23.0 20.3 *(MM+MVML)

SoTP Particulars Remarks Core business (MM+MVML) 801 At 13x FY2015 earnings Key subsidiaries Tech Mahindra 207 Bloomberg consensus price target M&M FSL 103 2x its FY2015 book value Mahindra Lifespace 12 Market cap Mahindra Holiday Resort 24 Market cap Systech 16 Price offered to CIE Ssangyong 96 Market cap Value of subsidiaries before discount 459 After holdings 30% discount 322 Price target 1,122

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Sharekhan 4 February 14, 2014 Home Next investor’s eye stock update

State Bank of India Reco: Hold

Stock Update

Asset quality issues to remain on fore; price target revised to Rs1,675 CMP: Rs1,475

Company details Key points

Price target: Rs1,675  SBI’s Q3FY2014 performance has shown an improvement on the operational

Market cap: Rs110,126 cr front as its NII grew by 13.3% YoY. However, a higher opex (up 31.4% YoY) and an increase in the effective tax rate (due to the creation of a deferred tax liability 52 week high/low: Rs2,469/1,453 of Rs234 crore) marred the earnings growth. NSE volume: 19.5 lakh  (no. of shares) The addition to the stressed loans were lower on a sequential basis at Rs15,362 crore in Q3FY2014 vs Rs16,950 crore in Q2FY2014, as the fresh restructuring BSE code: 500112 was lower at Rs3,924 crore. However, the slippages of Rs11,438 crore were at NSE code: SBIN the higher end. The bank has indicated for a restructuring pipeline of Rs9,500 Sharekhan code: SBIN crore and the asset quality issues remain a key overhang on the stock.

Free float: 25.8 cr  We have revised our earnings estimates for FY2014 and FY2015 to factor for higher (no. of shares) provisions and opex. In addition, we have also lowered our valuation multiple to 0.8x on FY2015 book value (to factor for subdued return ratios and a potential Shareholding pattern dilution over the next three years) leading to a SoTP-based price target of Rs1,675. We maintain our Hold rating on the stock (purely based on the valuations).

Public & Results Rs cr others 11% Particulars Q3FY14 Q3FY13 YoY % Q2FY14 QoQ % Interest income 34,870.5 30,343.6 14.9 33,922.1 2.8 MF & FI Interest expense 22,229.9 19,189.2 15.8 21,670.7 2.6 18% Net interest income 12,640.5 11,154.5 13.3 12,251.4 3.2 Promoter Non-interest income 4,190.3 3,648.5 14.9 3,277.8 27.8 Foreign 62% - Fee income 2,971.3 2,558.7 16.1 2,614.6 13.6 9% - Forex income 643.2 418.4 53.8 210.3 205.8 - Treasury profit 238.2 417.8 -43.0 236.2 0.8 Price chart - Misc. income 337.6 253.6 33.1 216.6 55.8 Net total income 16,830.8 14,803.0 13.7 15,529.2 8.4 2550 Operating expenses 9,212.4 7,012.2 31.4 9,217.5 -0.1 2350 - Employee expenses 5,867.1 4,351.2 34.8 5,818.5 0.8 2150 - Other operating expenses 3,345.2 2,661.0 25.7 3,399.0 -1.6 1950 Pre-provisioning profit 7,618.5 7,790.8 -2.2 6,311.7 20.7 1750 Provisions 4,149.6 2,667.9 55.5 3,028.7 37.0 1550 Profit before tax 3,468.9 5,122.9 -32.3 3,282.9 5.7 1350 Tax 1,234.5 1,726.8 -28.5 907.9 36.0 Profit after tax 2,234.3 3,396.1 -34.2 2,375.0 -5.9 Asset quality Jun-13 Oct-13 Feb-13 Apr-13 Feb-14 Dec-13 Aug-13 Gross NPLs 67,799.3 53,457.8 26.8 64,206.3 5.6 Price performance - Gross NPLs (%) 5.73 5.30 43 BPS 5.64 9 BPS Net NPLs 37,167.4 25,370.3 46.5 32,151.4 15.6 - Net NPLs (%) 3.24 2.59 65 BPS 2.91 33 BPS (%) 1m 3m 6m 12m Capital adequacy (%) CAR 11.59 12.21 -62 BPS 11.69 -10 BPS Absolute -8.6 -11.6 -7.4 -32.2 Tier I 8.68 8.66 2 BPS 8.73 -5 BPS Relative -4.5 -11.8 -12.2 -35.3 Key reported ratios (%) to Sensex NIM 3.19 3.41 -22 BPS 3.18 1 BPS CASA 43.89 45.54 -165 BPS 43.58 31 BPS

Sharekhan 5 February 14, 2014 Home Next investor’s eye stock update

NII growth in line with estimate Advances growth picks up, CASA ratio improves State Bank of India (SBI)’s net interest income (NII) grew During the quarter, the advances grew by 17.5% YoY, mainly by 13.3% year on year (YoY), led by a strong growth in the driven by the large corporate (27.4% YoY), mid corporate advances (up 17.5% YoY) and a sequential increase in the (25.3% YoY) and the retail advances (15.5% YoY). Within domestic net interest margins (NIMs; 3.51% in Q3FY2014 the retail deposits the auto and the home loans showed a vs 3.48% in Q2FY2014). The bank had raised its base rate good growth of 21.2% and 19.4% respectively. by 20 basis points during the quarter, which led to an improvement in the domestic NIM. However, the global Advance growth NIM improved by a mere 1 basis point sequentially to 3.19% as the overseas NIM declined to 1.49% in Q3FY2014 (1.50% 1,200,000 22.0 in Q2FY2014). 1,100,000 21.0 1,000,000 20.0 NIM (%) 19.0 900,000 18.0 4.0 800,000 17.0 700,000 16.0 600,000 15.0 3.5 500,000 14.0 Q3FY11 Q3FY12 Q3FY13 Q3FY14 Advances (Rs crs) Grow th (YoY,%) 3.0

On the other hand, the deposits grew by 16.7%, partly 2.5 aided by Rs19,000 crore of foreign currency non-resident Q3FY11 Q3FY12 Q3FY13 Q3FY14 deposits raised under the Reserve Bank of India (RBI)’s concessional window. The current account and savings account (CASA) ratio improved marginally to 43.89% from Non-interest income grows by 14.9% YoY 43.58% in Q2FY2014. The non-interest income grew by 14.9% YoY (27.8% quarter on quarter [QoQ]) led by a growth in the fee income (16.1% CASA ratio (%) YoY) and the foreign exchange (forex) income (53.8% YoY). The treasury profit declined to Rs238.2 crore from Rs417.8 50.0 crore in Q3FY2013. The operating expenses (opex) grew 48.0 by 31.4% YoY as the employee expenses grew by 34.8%

YoY; the bank has made a pension provision to the tune of 46.0 Rs600 crore led by a change in the mortality table. The cost-to-income ratio (excluding treasury gains) declined 44.0 to 55.5% from 60.3% in Q2FY2014. 42.0 Cost/income ratio (%) 40.0 62.0 Q3FY11 Q3FY12 Q3FY13 Q3FY14 60.0 58.0 56.0 Stressed loan formation slows on a sequential basis 54.0 The bank reported a relatively lower stressed loans 52.0 (slippages + restructured loans of Rs15,362 crore) 50.0 compared with Q2FY2014. The slippages were higher at 48.0 46.0 Rs11,438 crore but the fresh restructuring was lower at 44.0 Rs3,942 crore. While the management does expects some 42.0 pressure on the asset quality going ahead, it plans to bring Q3FY11 Q3FY12 Q3FY13 Q3FY14 down the non-performing assets (NPAs) by focusing on

Sharekhan 6 February 14, 2014 Home Next investor’s eye stock update recoveries (including the sale of loans to asset Valuation and outlook restructuring companies). The bank has indicated for a The Q3FY2014 results show some improvement in the restructuring pipeline of Rs9,500 crore. operating performance though the earnings growth remained Asset quality under pressure. Given the weak economic environment, we believe the bank will continue to face challenges in 6.5 maintaining its asset quality. In addition, the carry-over of 5.5 investment losses (due to a rise in the bond yields), provision for pension and NPAs will affect the earnings growth. We 4.5 have revised our earnings estimates for FY2014 and FY2015 3.5 to factor for higher provisions and the opex. In addition, we have also lowered our valuation multiple to 0.8x on FY2015 2.5 book value (to factor for subdued return ratios and potential 1.5 dilution over the next three years) leading to a price target Q3FY11 Q3FY12 Q3FY13 Q3FY14 of Rs1,675. We maintain our Hold rating on the stock (purely Gross NPA (%) Net NPA (%) based on the valuations).

Financials Profit and loss statement Rs cr Key ratios Particulars FY12 FY13 FY14E FY15E FY16E Particulars FY12 FY13 FY14E FY15E FY16E Net interest income 43291 44331 48116 56119 65536 Per share data (Rs) Non-interest income 14351 16035 17003 19167 21496 Earnings 174.5 206.2 140.0 176.2 210.2 Dividend 35.0 41.5 28.0 35.2 42.0 Net total income 57643 60366 65119 75286 87032 Book value 1,214.8 1,394.8 1,519.5 1,654.5 1,815.6 Operating expenses 26069 29284 35877 41258 46923 Adj. book value 979.1 1,073.8 966.3 1,087.7 1,271.5 Pre-provisioning profit 31574 31082 29243 34028 40109 Spreads (%) Provisions 13090 11131 13761 14391 16685 Yield on advances 10.0 9.5 9.3 9.1 9.1 Profit before tax 18483 19951 15482 19636 23424 Cost of deposits 5.6 6.0 6.0 5.8 5.8 Tax 6776 5846 5032 6480 7730 Net interest margins 3.8 3.3 3.1 3.1 3.2 Operating ratios (%) Profit after tax 11707 14105 10450 13156 15694 Credit to deposit 83.1 86.9 86.9 87.1 87.3 Cost to income 45.2 48.5 55.1 54.8 53.9 Balance sheet Rs cr CASA 43.9 44.8 44.7 44.6 44.4 Particulars FY12 FY13 FY14E FY15E FY16E Non interest income/ 24.9 26.6 26.1 25.5 24.7 total income Liabilities Assets/Equity (x) 17.2 15.9 15.6 15.8 16.8 Networth 83951 98884 116920 126998 139020 Return ratios (%) Deposits 1043647 1202740 1383151 1607912 1877238 RoE 15.7 15.4 9.7 10.8 11.8 Borrowings 127006 169183 193641 225108 262813 RoA 0.9 1.0 0.6 0.7 0.7 Other liabilities 80915 95455 100228 108246 116906 Asset quality ratios (%) & provisions Gross NPA 4.5 4.8 6.4 6.0 5.5 Total liabilities 1335519 1566261 1793940 2068264 2395977 Net NPA 1.8 2.1 3.4 3.0 2.5 Assets Growth ratios (%) Cash & balances 54076 65830 78840 91651 107003 Net interest income 33.1 2.4 8.5 16.6 16.8 with RBI Pre-provisioning profit 24.6 -1.6 -5.9 16.4 17.9 Balances with banks 43087 48990 51684 54527 57526 Profit after tax 41.7 20.5 -25.9 25.9 19.3 & money at call Advances 14.7 20.5 15.0 16.5 17.0 Investments 312198 350927 403831 456948 532147 Deposits 11.7 15.2 15.0 16.3 16.8 Advances 867579 1045617 1202459 1400865 1639012 Valuation ratios (%) Fixed assets 5467 7005 8056 9264 10654 P/E 8.5 7.2 10.6 8.4 7.0 Other assets 53113 47892 49070 55010 49636 P/BV 1.2 1.1 1.0 0.9 0.8 Total assets 1335519 1566261 1793940 2068264 2395977 P/ABV 1.5 1.4 1.5 1.4 1.2

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Sharekhan 7 February 14, 2014 Home Next investor’s eye stock update

Eros International Reco: Buy

Stock Update

Strong performance on all counts CMP: Rs155

Company details Key points  In Q3FY2014 the consolidated revenues of Eros International Media (Eros) rose Price target: Rs220 by 17% YoY to Rs432.7 crore, led by the box-office success of movies Market cap: Rs1,425 cr “Goliyon Ki Raasleela Ram-Leela”, “Krrish 3” (overseas) and “R…Rajkumar”, 52 week high/low: Rs201/107 and a strong growth in the revenues of the subsidiary, , led by movies (Tamil) like “Arambam”. The total revenues of the subsidiary NSE volume: 2.2 lakh grew by 66% YoY to Rs124.3 crore during the quarter. (no. of shares)  The EBIT margin improved by 680BPS YoY to 31.6% (the highest ever in reporting BSE code: 533261 history), led by a strong margin improvement in the stand-alone financials (up NSE code: EROSMEDIA 940BPS YoY to 29.4%) led by highly profitable movies like “Goliyon Ki Raasleela Sharekhan code: EROSMEDIA Ram-Leela” and a strong growth in the high-margin television syndication and catalogue sales (around 14% of revenues, up significantly on a yoy basis). The Free float: 2.3 cr net income for the quarter rose by 41% YoY and 149% QoQ to Rs92 crore. (no. of shares)  The visibility of Eros’ earnings in FY2015 is promising, with an impressive movie Shareholding pattern slate led by Rajinikanth starrer "Kochadaiyaan" and also other high-profile releases, such as "Happy Ending", starring Saif Ali Khan, and "Action Jackson", Public & starring Ajay Devgan, among others. The management has plans to release Foreign Others around six to seven “A” category movies in FY2015 13% 6% Institutions  In view of the strong earnings performance in the third quarter and an impressive 2% movie slate for FY2015, we have increased our earnings estimates for FY2014, FY2015 and FY2016 by 17.7%, 8.2% and 6.9% respectively. However, to factor in Non-promoter corporate the volatility in the earnings performance, we have maintained our 12-month 4% price target at Rs220 (a 39% upside) along with the Buy rating. Risk: a poor Promoters box-office performance of the forthcoming movies could have a significant 75% impact on our earnings estimates. Results (consolidated) Rs cr Price chart Particulars Q3FY14 Q3FY13 YoY % Q2FY14 QoQ % 220 Net sales 432.7 369.3 17.2 201.1 115.2 200 Direct costs 282.1 259.8 8.6 139.4 102.4 180 Gross profit 150.6 109.5 37.5 61.7 144.1 160 SG&A 15.0 18.9 -20.5 10.5 42.4 140 EBITDA 135.6 90.6 49.6 51.2 165.0 Depreciation 1.3 1.6 -18.6 1.3 0.8 120 EBIT 134.3 89.1 50.8 49.9 169.2 100 Other income 1.0 0.8 21.3 0.4 131.0 Interest expenses 7.4 2.6 184.2 6.2 19.2 Jun-13 Oct-13 Feb-14 Feb-13 Apr-13

Dec-13 PBT 127.9 87.3 46.5 44.1 189.9 Aug-13 Tax provision 37.4 16.5 126.9 8.5 340.6 Price performance PAT 90.5 70.8 27.8 35.6 153.9 Minority interest 1.5 -5.6 NA 1.4 14.1 (%) 1m 3m 6m 12m Net profit 92.0 65.2 41.1 37.0 148.8 EPS (Rs) 10.0 7.1 41.1 4.0 148.8 Absolute -9.7 -7.3 25.3 -15.4 GPM (%) 34.8 29.6 30.7 EBITDA (%) 31.3 24.5 25.4 Relative -5.7 -7.6 18.7 -19.3 EBIT (%) 31.0 24.1 24.8 to Sensex NPM (%) 21.3 17.7 18.4 Tax rate (%) 29.3 18.9 19.2

Sharekhan 8 February 14, 2014 Home Next investor’s eye stock update

Valuations  The earnings before interest and tax (EBIT) margin Particulars FY13 FY14E FY15E FY16E improved by 680 basis points (BPS) YoY to 31.6% (the Revenues (Rs cr) 1,068.0 1,159.7 1,335.0 1,524.8 highest ever in the reporting history), led by a strong Net profit (Rs cr) 154.4 216.1 238.3 274.6 margin improvement in the stand-alone financials (up Growth YoY (%) 3.1 40.0 10.3 15.3 940BPS YoY to 29.4%) led by highly profitable movies EPS (Rs) 16.8 23.5 25.9 29.9 like “Goliyon Ki Raasleela--Ram-Leela” and a strong EV/EBITDA (x) 7.4 5.3 4.4 3.6 P/E (x) 9.4 6.7 6.1 5.3 growth in the high-margin television syndication and RoE (%) 16.8 19.7 18.2 17.7 catalogue sales, which rose around 70-80% yoy RoCE (%) 15.4 19.5 19.8 20.6  The cost of revenues including the amortisation cost Revenue performance strong, up 17% YoY rose by 8.6% YoY to Rs282.1 crore, 65% of revenues as

500 compared with 70.3% in Q3FY2013. 433 450 408 400 369 Other business highlights 350 280 300 263 257 229 207 212  HBO alliance: The Eros-HBO Asia collaboration rolled 250 187 186201 163 175 (Rs cr) 200 150 154 126 out premium channels like HBO Defined and HBO Hits 150 114 100 on Tata Sky direct-to-home (DTH) platform on 50 0 December 31, 2013. The channels are now available on most major DTH and digital cable platforms within India. HBO Defined and HBO Hits are already live on Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Revenues Dish TV and Airtel, and also multi-system operators (MSOs) like Hathway and Den Network.  During the quarter, the company released 15 movies, three of which were of high budget and two of medium  Eros Now: Eros Now, the company’s online service budget, compared with 24 films Q3FY2013, three of offering full length films and music videos, launched which were high-budget and two medium-budget films. its “Freemium” model during the quarter. Certain Eros  The major Hindi movies released during the quarter content can now be accessed for free, while the other were: “Goliyon Ki Rasleela–Ram-Leela”, “Grand Masti” contents are also being offered on a transactional or and “R…Rajkumar”. subscription basis. The company’s ErosNow YouTube channel has crossed over 1.7 billion video views in  The subsidiary Ayngaran International has reported aggregate and averages over 80 million video views strong financials for the quarter, with its revenues going up by 66% year on year (YoY) to Rs124.3 crore, the per month. operating profit margin (OPM) standing at 36.2% and  NYSE listing: On November 13, 2013 Eros completed the net profit rising by 41% YoY to Rs41.3 crore, up by an initial public offering on the New York Stock 41% YoY. Major movies released in Exchange of 5,000,000 shares of common stock to the through Ayngaran International during the quarter were “”, “Endrendrum Punnagai”, “All in All public at a price of $11.00 per share, raising $55 million Azhagu Raja” and “Pandiya Naadu”. in new capital. Margin expansion impressive, up 680BPS YoY  TV syndication deal: Eros signed deals with MSM

35 31.0 Satellite (Singapore), Pvt Ltd (Sony) and Viacom 18 29.5 30 26.3 Media Pvt Ltd (Colours) during the quarter. It continues 24.4 24.1 24.8 25 21.8 20.5 19.8 19.2 19.5 to deliver films from the previously executed contracts 18.5 18.5 17.7 18.9 20 15.8 15.7 for new and library films.

(in %) 15 10.8 10  Total net debt at the end of December 31st 2014, stood 5 at Rs 280 crore. 0 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 EBIT margins

Sharekhan 9 February 14, 2014 Home Next investor’s eye stock update

Upcoming film slate (selective) Film name Star cast (director) Tentative release Kochadaiyaan (Tamil, Hindi, Telugu) Rajinikanth, Deepika Padukone; music by AR Rehman FY2015 (Soundarya Rajinikanth) Happy Ending Saif Ali Khan, Ileana Dcruz (Raj and DK) FY2015 Illuminati (untitled) Sriram Raghavan FY2015 Purani Jeans Aditya Seal (Tanushree Basu) FY2015 Chalo China Lara Dutta, Vinay Patak FY2015 Tanu Weds Manu Season 2 R Madhavan, Kangana Ranaut (Anand Rai) FY2015 Tewar Arjun Kapoor, Sonakshi Sinha (Okkadu remake) FY2015 R.Balki untitled Amitabh Bachchan, Dhanush FY2015 NH 10 Anushka Sharma FY2015 Telegu untitled Pawan Kalyan FY2015 Tamil untitled Ajith FY2015 Source: Company

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Sharekhan 10 February 14, 2014 Home Next investor’s eye stock update

Dishman Pharmaceuticals & Chemicals Reco: Buy

Stock Update

Q3 results disappoint; inconsistency in performance limits multiple expansion CMP: Rs79

Company details Key points

Price target: Rs112  Despite a strong performance on a stand-alone basis, Dishman Pharma

Market cap: Rs638 cr disappointed with a weak consolidated performance during Q3FY2014, which is reflected in a 1.3% and 6% decline in the revenues and the adjusted net profits 52 week high/low: Rs110/37 respectively. NSE volume: 9.5 lakh (no. of shares)  The disappointment mainly came from the foreign subsidiaries including

BSE code: 532526 Carbogen Amcis and Dishman Netherlands, which witnessed a sharp fall in the OPM due to the deferment of a certain contract. We observe that Q3 tends to NSE code: DISHMAN be a sequentially weak for the company traditionally. Sharekhan code: DISHMAN  The management maintains the revenue guidance of over Rs1,300 crore and Free float: 3.1 cr (no. of shares) the net profit of Rs110 crore for FY2014, which implies that Q4FY2014 would be better. The subsequent quarters will see a better traction in the Carbogen Shareholding pattern Amcis and the vitamin-D businesses, which was amiss in Q3FY2014.

Non-  Despite a weak Q3, we believe the long-term growth elements remain intact promoter but with a risk of seasonal fluctuations in the CRAMS business. We cut our price corporate Public and target by 13% to Rs112 to factor in a lower than anticipated performance in Q3. others 9% Institutions We maintain our Buy rating on the stock (trades at 5.8x FY2014 earnings) purely 16% 3% Foreign on the valuations that more than factors in the inconsistency in the company’s 11% performance.

Promoters 61% Results Rs cr Price chart Particulars Q3FY14 Q3FY13 YoY % Q2FY14 QoQ %* 115 Net sales 313.4 318 -1.3 352.9 -11.2 105 95 Expenditure 253.6 260.9 -2.8 259.7 -2.3 85 Operating profit 59.9 56.7 5.6 93.3 -35.8 75 Other income 5.7 3.9 45.6 3.6 56.7 65 55 EBITDA 65.5 60.6 8.2 96.9 -32.4 45 Interest 18.7 17.2 8.3 16.8 11.4 35 Depreciation 26.6 20.7 28.3 27.6 -3.9 PBT 20.3 22.6 -10.4 52.4 -61.3 Jun-13 Oct-13 Feb-13 Apr-13 Feb-14

Dec-13 Taxes 4.7 6.1 -22.2 10.0 -52.6 Aug-13 Adj.PAT 15.6 16.6 -6.0 42.5 -63.4 Price performance Forex loss/(gains) 0.4 0.2 0.0 0.22 0.0 Reported PAT 15.2 16.4 -7.6 42.3 -64.2 (%) 1m 3m 6m 12m EPS 1.93 2.05 -6.0 5.3 -63.4 Margins (%) BPS BPS Absolute -18.0 10.9 77.2 -4.9 OPM 19.1 17.8 125 26.4 -732 Relative -14.3 10.6 67.9 -9.2 EBIDTA 20.9 19.1 183 27.4 -654 to Sensex PATM 5.0 5.2 -25 12.0 -708 Effective tax rate 23.3 26.8 -355 19.0 430 *Sequential growth in Q3 tends to be weak

Sharekhan 11 February 14, 2014 Home Next investor’s eye stock update

Weak quarter for CRAMS business; expect improvement Weaker business from CRAMS limits the margin in the subsequent quarter expansions in Q3 During the quarter, the revenues from the contract During the quarter, the earnings before interest, tax, research and manufacturing services (CRAMS) dropped by depreciation and amortisation (EBITDA) margin (including 2% to Rs205 crore, mainly due to a deferment of certain the other income) expanded by 196 basis points to 21%, contracts related to the Carbogen Amicis business. thanks to a better performance in the stand-alone business Although, H1FY2014 was exceptionally good for Carbogen (Dishman’s Indian CRAMS business and other marketable Amcis and a similar performance could not be repeated business). However, the Carbogen Amcis and Dishman’s in the subsequent quarters, we expect a gradual recovery Netherlands vitamin-D business recorded a sharp fall in the in the overseas CRAMS business going forward. The EBIDTA margin. The margin would also be impacted by the management expects $100-110 million of revenues from loss making Chinese business. However, the management the Carbogen Amcis business in FY2015 as compared with expects a recovery in the EBIDTA margin to the extent of 25- $72 million achieved in 9MFY2014. 26% in FY2015 on the back of a recovery in the Chinese business, a better traction in the CRAMS and a higher capacity However, Dishman Pharmaceuticals and Chemicals utilisation at the Unit-IX facility at Bavla (Ahmadabad). (Dishman Pharma)’s Indian CRAMS business which includes the supply of Eprosartan to the innovator company, Segment-wise EBIDTA margin (%) continues to grow steady and is expected to see more Particulars Q3 Q3 YoY Q2 QoQ traction from the additional contracts in the generic FY14 FY13 BPS FY14 BPS segment. Carbogen Amcis 8.9 18.8 -995.3 31.9 -2305.0 Dishman-Netherlands 8.9 9.2 -22.8 17.1 -819.2 Vitamin–D business continues to show good growth in Remaining business 38.4 22.5 1592.0 25.7 1271.3 top line but sharp erosion in the margin: The vitamin-D Consolidated EBIDTA margin 21.0 19.1 195.5 27.5 -642.4 business of the company, which includes the operations of the Netherlands-based facilities, continues to grow well in the top line (recorded a 22% rise in sales to Rs53.4 Management keeps guidance intact for FY2014 and crore in Q3FY2014) but the operating profit margin (OPM) indicate a better outlook for FY2015 has eroded sharply due to a substantial portion of the The management continues to maintain its revenue manufacturing being outsourced. As the Indian-based guidance of over Rs1,300 crore and Rs110 crore net profit facility is still in the restructuring phase to fully replace for FY2014. It also aims to achieve a near 15% revenue the outsourcing part, we believe the margin will continue growth in FY2015 with an EBIDTA margin of 26-27% (vs to be under pressure for a couple of quarters. 25% achieved in 9MFY2014).

Revenue mix Rs cr We cut our earnings estimates and revise price target Particulars Q3 Q3 YoY Q2 QoQ down to Rs112; Buy maintained FY14 FY13 % FY14 % Despite a weak Q3, we believe the long-term growth CRAMS business 205 209 -2 236 -13.0 elements remain intact but with a risk of seasonal Dishman CRAMS 74 72 2.5 69 7.0 fluctuations in the CRAMS business. Getting our cues from Carbogen Amcis 131 137 -4.2 167 -21.4 9MFY2014 performance and the interaction with the MM business 108.3 108.5 -0.2 117.0 -7.5 management, we have cut our earnings estimates by 6% Marketable molecules 55.0 65 -15.1 68 -19.5 and 19% for FY2014 and FY2015 respectively. and others We cut our price target by 13% to Rs112 (6.5x FY2015E) Vitamin-D business 53.4 43.8 21.9 48.8 9.3 but maintain our Buy rating on the stock (which currently Total revenues 313 318 -1.3 353 -11.2 trades at 5.8x FY2014E) purely on the valuations that more than factors in the inconsistency in the company’s performance.

Sharekhan 12 February 14, 2014 Home Next investor’s eye stock update

Revised estimates Rs cr Old New Var % Particulars FY2014E FY2015E FY2014E FY2015E FY2014E FY2015E Net sales 1,402.5 1,597.7 1,313.3 1,506.4 -6.4 -5.7 Expenditure 1,101.0 1,227.1 1,011.3 1,152.4 -8.1 -6.1 Operating profit 301.5 370.7 302.1 354.0 0.2 -4.5 Other Income 21.3 22.4 17.9 18.8 -15.8 -15.8 EBITDA 322.9 393.1 320.0 372.8 -0.9 -5.1 Interest 67.5 58.5 67.5 58.5 0.0 0.0 Depreciation 99.5 102.5 116.8 120.3 17.4 17.3 PBT 155.9 232.1 135.8 194.1 -12.9 -16.4 Taxes 39.0 58.0 25.8 54.4 -33.8 -6.3 Adj.PAT 116.9 173.1 110.0 138.8 -5.9 -19.8 Reported PAT 116.9 173.1 110.0 138.8 -5.9 -19.8 EPS 14.5 21.6 13.6 17.3 -5.9 -19.7 Margin (%) BPS BPS OPM 21.50 23.20 23.00 23.5 150.0 30.0 EBIDTA 23.02 24.60 24.37 24.8 134.7 15.0 PATM 8.34 10.83 8.37 9.2 3.7 -162.1 Effective tax rate 25.00 25.00 19.00 28.0 -600.0 300.0

Valuations Paticulars FY2012 FY2013 FY2014E FY2015E Net sales (Rs cr) 1,122.1 1,267.6 1,313.3 1,506.4 PAT (Rs cr) 56.3 100.3 110.0 139.8 Shares in issue (cr) 8.1 8.1 8.1 8.1 EPS (Rs) 7.0 12.4 13.6 17.3 YoY change (%) -29.7 77.9 9.7 27.1 PER (x) 11.3 6.4 5.8 4.6 Cash EPS (Rs) 16.5 22.8 28.1 32.2 Cash PER (x) 46.7 33.8 27.4 23.9 EV/EBIDTA (x) 6.0 4.5 4.2 3.3 Book value (Rs/share) 115.5 128.2 138.7 153.4 P/BV (x) 0.7 0.6 0.6 0.5 Mcap/sales 0.6 0.5 0.5 0.4 RoCE (%) 9.0 12.2 10.5 12.9 RoNW (%) 6.0 9.7 9.8 11.3

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Sharekhan 13 February 14, 2014 Home Next investor’s eye sector update

Telecommunications

Sector Update Spectrum auction: event over; pain already reflected in recent correction

 The 2G spectrum auction finally ended with the incumbents Bharti Airtel–valuation holding on to 900MHz band but at higher than expected Particulars FY12 FY13 FY14E FY15E FY16E prices (85% higher than the reserve prices). Surprisingly, Revenue (Rs cr) 71506 79434 86171 95983 105717 Reliance Jio acquired a spectrum in 1800MHz only across Growth (%) 20.2 11.1 8.5 11.4 10.1 14 circles (more focused on the southern region). Thus, it EBITDA 23712 24453 27677 30923 34072 would be interesting to see what strategy Reliance Jio adopts Growth (%) 18.8 3.1 13.2 11.7 10.2 for the launch of its pan-India services (especially voice) EBITDA margin (%) 33.2 30.8 32.1 32.2 32.2 going ahead. Adj. PAT (Rs cr) 4,258 2,172 4,172 6,147 7,187 EPS (Rs) 10.7 5.4 10.4 15.4 18.0  The total pay-out for Bharti Airtel, Vodafone India and Idea Growth (%) -27.8 -49.0 92.1 47.3 16.9 Cellular is Rs18,530 crore, Rs19,580 crore and Rs10,674 crore PER (x) 28.6 56.1 29.2 19.8 17.0 respectively. This increase in the spectrum price is likely to EV/EBITDA (x) 8.0 7.9 7.0 6.3 5.5 put pressure on the financials of these players, unless they RoCE (%) 9.0 7.5 9.4 11.3 12.4 can pass on the same to their customers through price hikes RoE (%) 7.9 4.3 4.6 9.3 9.8 (a difficult situation for the incumbents, given the increasing Please note we have not made adjustments to our estimates yet competition from the launch of Reliance Jio services). Details of the 2G auctions  Our analysis shows that the gross impact of the additional  Key takeaways from the auctions: (a) the auction of pay-out on Bharti Airtel would be roughly 5-6% on the FY2015E 900MHz spectrum saw aggression among the earnings and a reduction of Rs38 per share (net present value incumbents, driving the prices up by 85%; (b) Reliance [NPV] based price target). Bharti Airtel’s share price has Jio stayed away from the 900MHz band; (c) the corrected by close to 10% in the last one month. Thus, at this 1800MHz band saw aggression in select circles; (d) juncture we adjust for Rs38 per share for Bharti Airtel from Reliance Jio won 1800MHz spectrum in 14 circles; and our earlier price target of Rs395 to arrive at a revised price (e) the incumbent players protected their turf by target of Rs357. At the current price, the stock offers a 17% winning spectrum in circles likely to witness renewal upside; hence we maintain our Buy rating on the stock (it is in 2015 and 2016. our preferred pick in the telecommunications sector).  Pay-outs: The total pay-out for Bharti Airtel, Vodafone  In case of Idea Cellular, the impact is likely to be higher on India and Idea Cellular is Rs18,530 crore, Rs19,580 earnings and fair value of the company, given the fact that crore and Rs10,674 crore respectively. The players would pay 25-33% of the amount upfront (depending the total outgo is more than the operating profit of the on the spectrum) and would be required to pay the company in FY2014. The impact could be in the range of balance after two years in ten equal installments. Rs25-30 per share and to the tune of 9-10% on the earnings estimate for FY2015.

2G spectrum auction snapshot Spectrum acquired Total consideration (Rs cr) Outgo/ this year* Particulars 900 Mhz 1800 Mhz 900 Mhz 1800 Mhz Total outgo (Rs cr) Bharti Airtel 18 97 8624 9906 18530 5425 Vodafone India 23 48.7 11261 8319 19580 5560 Idea Cellular 5 60.2 3705 6969 10674 3226 Reliance Jio 78.4 11064 11064 3651 *The outgo for the current year is calculated at 25% of the total pay-out for the 900MHz spectrum and 33% of the total pay-out for the 1800MHz spectrum; the balance would be paid after two years in ten equal installments

Sharekhan 14 February 14, 2014 Home Next investor’s eye sector update

900MHz block on offer—reserve and final clearing prices Particulars Block on offer Reserve price Final bidding price Final bid % higher than reserve Delhi 16 360 741 105.8 Kolkata 14 125 195 55.7 Mumbai 16 328 563 71.7 Total 46

Details of 900MHz band auction Quantity Payout Particulars Bharti Vodafone Idea Bharti Vodafone Idea Delhi 6 5 5 4,446 3,705 3,705 Kolkata 7 7 - 1,362 1,362 - Mumbai 5 11 - 2,815 6,194 - Total 18 23 5 8,624 11,261 3,705

 Details of the 900MHz band auction: The price of spectrum and Bharti Airtel increased its share by aggression in the 900MHz spectrum was led by the winning 5MHz of spectrum at a clearing price of Rs563 incumbent players (as Reliance Jio, the new entrant, per MHz (1.7x clearing/reserve ratio). No other player has not won any spectrum in this band). All the three bid for this band. circles on offer (viz Mumbai, Delhi and Kolkata) saw  robust activity, with Delhi prices rising by 105%. Details of the 1800MHz band: The overall pricing in the 1800MHz band was 29% higher than the reserve price.  Reliance Jio refrained from 900MHz spectrum: We The 1800MHz band saw a selective bidding in certain see Reliance Jio’s non-winning of the spectrum in the circles where the prices increased by 50-60%. The circles 900MHz band and not going overly aggressive as a that witnessed aggression include Assam, Maharashtra, positive for the sector. Delhi, Mumbai, Gujarat and Uttar Pradesh west.

 Price aggression high amongst the incumbents: On the  Who won what in 1800MHz band: Bharti Airtel won flip side, the aggression shown by the incumbents the 97MHz spectrum in 15 circles, Vodafone India won themselves (Idea Cellular surprisingly won the 5MHz the 48.8MHz spectrum in 11 circles (concentrated in spectrum in the Delhi circle which led to an increase of metro cities), Idea Cellular won the 60.2MHz spectrum more than 106% over the reserve price in the circle) primarily in the circles where its licences are coming continues to warn us of the competitive intensity amongst up for renewal in 2015 and 2016. the incumbents. In the 900MHz circle, the players  collectively paid 85% higher than the reserve price. Reliance Jio won 78.4MHz spectrum: Reliance Jio won licences in 14 circles for a total of 78.4MHz, by  Everyone protected their turf; Idea a surprise entry paying Rs10,991 crore. Thus, now Reliance Jio has in Delhi: Bharti Airtel has acquired 6MHz of spectrum 2100MHz presence in all the 22 circles, with additional in Delhi followed by Vodafone India and Idea Cellular, 1800MHz airwaves in 14 circles, providing it with a which have won 5MHz each. In Kolkata, both Vodafone decent bandwidth for roll-out of its data business. We India and Bahrti Airtel have won 7MHz of spectrum cannot fully rule out Reliance Jio’s entry into the voice each with a clearing price of Rs195 crore per MHz (1.6x segment (which, if it happens, would be negative for clearing/reserve ratio). The Mumbai circle was the industry). Thus, it would be interesting to see what dominated by Vodafone India, which won 11MHz block strategy Reliance Jio adopts going ahead.

Sharekhan 15 February 14, 2014 Home Next investor’s eye sector update

Details of the 1800MHz band Quantity (MHz) Pay-out (Rs cr) Regions Bharti Vodafone Idea Reliance Jio Bharti Vodafone Idea Reliance Jio Andhra Pradesh 8.8 0.6 6.0 5.8 1,434 98 978 945 Assam 5.4 - - - 195 Bihar ---- Delhi 7.0 8.0 0.6 5.4 2,548 2,912 218 1,966 Gujarat 4.4 1.6 6.0 - 1,046 380 1,427 Haryana 2.2 6.0 - 59 162 - 10.2 61 - - - Jammu & Kashmir 2.6 16 - - - Karnataka 8.8 5.0 5.0 5.0 1,364 775 775 775 Kerala 5.0 7.0 10.0 5.0 260 364 520 260 Kolkata 5.0 8.0 7.0 5.0 365 584 511 365 5.8 5.0 292 - - 252 Maharashtra 9.0 5.0 - - 2,613 1,452 Mumbai 6.0 8.2 2.0 6.6 1,632 2,230 544 1,795 North-East 7.0 5.0 7.4 49 - 35 52 5.0 5.0 80 - - 80 Punjab 8.2 0.6 8.0 443 32 432 - 8.2 0.8 213 21 - - Tamil Nadu 5.0 6.2 1,040 - - 1,290 Uttar Pradesh (East) 4.0 - 256 - - Uttar Pradesh (West) - - - - West Bengal 4.4 5.6 108 - - 138 Total 97.0 48.8 60.2 78.4 9,906 8,378 7,169 10,991

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