INDIA DAILY

October 5, 2012 India 4-Oct 1-day1-mo 3-mo Sensex 19,058 1.0 10.1 8.7

Nifty 5,788 1.0 10.8 8.6

Contents Global/Regional indices Daily Alerts Dow Jones 13,575 0.6 4.0 5.3 Nasdaq Composite 3,149 0.5 2.6 5.8

Company FTSE 5,828 0.0 3.0 2.4 Larsen & Toubro: So far so good Nikkie 8,861 0.4 2.1 (2.4) Hang Seng 20,969 0.3 9.5 5.9

Sector KOSPI 1,996 0.2 6.5 6.4 Automobiles: 2QFY13 results preview Value traded – India Metals & Mining: 2QFY13E preview - metal stocks stare at weak operational Cash (NSE+BSE) 176 144 124 quarter Derivatives (NSE) 1,090 735 716 Deri. open interest 1,366 1,130 1,161 Strategy

Strategy: Sentiments drive alpha in CYTD12 even as value flourishes in

September Forex/money market Change, basis points 4-Oct 1-day 1-mo 3-mo Rs/US$ 51.6 14 (427) (372) 10yr govt bond, % 8.4 - (1) (3) Net investment (US$mn) 3-Oct MTD CYTD FIIs 155 199 16,333 MFs (57) (75) (282)

Top movers -3mo basis Change, % Best performers 4-Oct 1-day 1-mo 3-mo UNSP IN Equity 1254.7 0.3 23.7 69.5 Z IN Equity 204.9 5.3 19.7 37.7 FTECH IN Equity 1002.8 3.5 21.2 34.2 UTCEM IN Equity 1982.1 (1.4) 18.3 28.4 GRASIM IN Equity 3397.8 0.7 16.1 27.6 Worst performers NACL IN Equity 51.3 0.8 2.7 (17.1) BHARTI IN Equity 269.8 1.7 4.6 (16.8) WLCO IN Equity 100.3 0.1 4.5 (16.3) BOI IN Equity 305.3 0.1 19.7 (13.9) SESA IN Equity 175.1 (0.8) 6.7 (13.5)

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

REDUCE Larsen & Toubro (LT)

Industrials OCTOBER 04, 2012 UPDATE Coverage view: Cautious

So far so good. While L&T inches closer to Rs200 bn inflows/quarter run-rate in 2Q also, Price (Rs): 1,634 note that 45% of this was from real estate with attendant concentration risks. Several Target price (Rs): 1,515 headwinds remain pertinent to (1) replacing in-house inflows (15% of total) with reluctance BSE-30: 19,058 to commit fresh capital, (2) sweet spot in real estate has helped but PSU/Govt tendering (about 50%) is quite competitive with L&T win rate being quite low (0-35%, 5-7 bidders), (3) valuations at 15.5X one-year forward P/E (adjusted standalone) seem full considering slower earnings growth (10-14% vs 30% CAGR till FY2012). Retain REDUCE (TP: Rs1,515).

Company data and valuation summary Larsen & Toubro Stock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low)1,637-969 EPS (Rs) 76.1 84.6 92.9 Market Cap. (Rs bn) 1,000.7 EPS growth (%) 12.4 11.2 9.8 Shareholding pattern (%) P/E (X) 21.5 19.3 17.6 Promoters 0.0 Sales (Rs bn) 643.1 793.1 940.4 FIIs 17.3 Net profits (Rs bn) 46.3 51.5 56.6 MFs 6.8 EBITDA (Rs bn) 87.4 107.6 128.2 Price performance (%) 1M 3M 12M EV/EBITDA (X) 16.4 14.3 12.5 Absolute 19.6 15.2 22.1 ROE (%) 16.1 15.1 14.1 Rel. to BSE-30 9.5 5.5 1.6 Div. Yield (%) 0.9 0.9 0.9

Strong inflow momentum but too much dependence on urban real estate driven by sweet spot

L&T announced orders to the tune of Rs158 bn in 2QFY13 (reported Rs196 bn in 1QFY13) of which about 44% of orders were from urban real estate (40% in residential itself). We understand that L&T enjoys a sweet spot in urban real estate with developers having an opportunity to boost project credentials (and pricing) by using L&T as the construction contractor. However, urban real estate may have its own risks related to clearances, completion timelines and developer finances.

Sweet spot does not apply to other areas, particularly in Government/PSU contracts

A similar sweet spot does not seem to exist in other areas, particularly in Government contracts. Business originating from this segment is highly competitive—L&T’s strike rate from clients such as NPCIL (36%), NMDC (nil), ONGC (27%), NTPC (nil in bulk tender), etc. has been relatively low. While we do not expect L&T to win 100% of these orders, we note that order wins may not be an easy walk in this segment. Public sector orders (including in-house) formed about 50% of inflows over the past 2-3 years. While balance sheet stress may inhibit some contractors from bidding for development projects, these players would still bid for cash contracts.

Several headwinds remain related to inflows mix, slow investment pick-up in power, metals, O&G

We also note headwinds related to (1) high proportion of orders from highly competitive (T&D) and plain vanilla (buildings, roads) segments may adversely impact margins, (2) potential difficulty in replacing in-house orders (17% of backlog) in context of incremental reluctance to take up more development jobs; NHAI also shifting gears towards EPC versus BOT, (3) sustained weak investment cycle (power, metals, hydrocarbons, etc.) and (4) lower-than-expected scale-up in international orders.

Even with limited capital commitments, consolidated returns may remain range-bound till FY2015E

Despite limited incremental capital commitments, we believe that the consolidated returns of L&T may still remain range-bound (RoE at 14-15% and RoCE at 6-7%) till FY2015E.

L&T is trading at relatively full 12-month forward valuations of 15.5X P/E (standalone adjusted for Rs420/share value and dividend income from subs), 13.3X EV/EBITDA (consol.) and 2.5X P/B (consol.).

Retain REDUCE (TP: Rs1,515) on weak cyclical outlook creating risk for inflows, margins and working capital. Key upside risks relate to potential stake-sale transactions at higher-than-attributed values and higher-than-expected margins.

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

Larsen & Toubro Industrials

Strong inflows momentum so far though primarily driven by urban real estate

L&T announced orders to the tune of Rs158 bn in 2QFY13 (versus reported number of Rs196 bn in 1QFY13 and announcements of Rs156 bn in 1QFY13). Of the Rs158 bn announced in 2QFY13, Rs69 bn is from the industrial & commercial buildings segment, about Rs22 bn from water segment (water supply schemes) and Rs16 bn from T&D sector (file contains the detail list and segmental split of the orders). L&T had guided for 15-20% growth in order inflows—which implies Rs800-850 bn of orders in full-year FY2013E (our estimate of Rs765 bn).

L&T has reported 44% of orders out of total of Rs158 bn from urban real estate (with 40% in residential alone). We understand that L&T enjoys sweet spot in urban real estate with developers having an opportunity to boost project credentials (and pricing) by using L&T as construction contractor. However, we believe that urban real estate has its own risks related to clearances, completion timelines and finances of developers.

Rough break-up of sector-wise order inflows of L&T

Segment 2008 2009 2010 2011 2012 1QFY13 2Q13-Ann. 1Q+2Q Ann. 2013E 2014E Infrastructure 130 (100) 201 (185) 188 (112) 303 (220) 339 (256) 127 (132) 112 239 407 407 Roads and bridges 3 43 — 33 82 68 9 78 100 Ports and airports 55 — — 22 8 5 — 5 25 Railways 3 28 8 70 21 6 11 17 40 Industrial & commercial bldg 33 92 92 72 118 50 69 119 200 Water 6 23 13 23 27 4 22 26 50 Power 59 (35) 129 (80) 230 (217) 255 (200) 148 (111) 41 (20) 16 57 163 196 BOP 5 20 45 46 2 — — — 50 EPC — — 103 93 18 1 — 1 Equipment — 16 24 28 — — — — Electrification/ T&D 30 45 45 32 91 19 16 34 115 Process + Oil & Gas 168 (137) 144 (140) 230 (168) 183 (139) 156 (87) 14 (7) 21 35 144 158 Refineries 38 37 21 12 — — 13 13 Petrochemicals 3 8 30 — 10 — — — Minerals & metals 54 80 43 99 38 7 — 7 Bulk material handling — — — 4 — — — — Platforms 42 — 74 18 31 — 7 7 Pipelines — 15 — 6 8 — — — Others 63 (7) 41 (5) 49 (10) 56 (5) 64 (2) 14 (0) 9 23 71 79 Total 420 (280) 516 (410) 696 (507) 798 (565) 706 (456) 196 (159) 158 354 785 839

Note: Figures in brackets represent quantum of orders announced (versus the reported number)

Source: Company, Kotak Institutional Equities estimates

Sweet spot may not be present in other areas particularly Government/PSU contracts

Similar sweet spot does not seem to exist in other areas particularly in Government and PSU contracts. We highlight that business originating from these clients is highly competitive. L&T’s strike rate (orders won versus bids placed) from clients such as NPCIL (36%), NMDC (nil), ONGC (27%), NTPC (nil in bulk tender), etc. has been relatively low in the past 12-18 months. While balance sheet stress (on high debt levels) may inhibit some contractors from bidding for development projects, these players would still bid for cash contracts (which may in fact help relieve some of the balance sheet stress).

Public sector orders (including in-house development projects) constituted an average of about 50% of inflows over the past two-three years.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Industrials Larsen & Toubro

L&T's hit rate in major public sector orders in which L&T had placed bids

Awards Total L&T L&T's hit rate Segment Agency Opprtunity (Rs bn) (Rs bn) (%) Steel NMDC 3 MTPA Nagarnar steel plant 111 - - Power NTPC Bulk tender (excluding BHEL's share) 212 - - Oil & Gas ONGC Major awards since Dec-10 bid by L&T 66 18 27.0 Nuclear NPCIL Major awards since Jan-09 bid by L&T 60 22 36.1 Rail DMRC Civil Awards for Ph-III (Apr-11-Jul-12) 55 14 24.9 Total 504 53 10.6

Note: Details of the bids included in the Appendix

Source: Company, Industry sources, Kotak Institutional Equities

Several other headwinds related to inflow mix, capex slowdown remain

We also note several other headwinds related to (1) high dependence (17% of backlog) on in-house orders in context of incremental reluctance to take up more development jobs to preserve capital and boost returns; NHAI also shifting gears in preference of cash contracts versus BOT contracts, (2) investment cycle remains weak and may take some time to pick up in several areas like power, metals, hydro carbons oil & gas, etc., (3) international orders have also remained lackluster in FY2013E so far and may take time to scale up and (4) high proportion of orders from highly competitive (T&D) and plain vanilla (roads, buildings) segments may adversely impact margins.

17% from in-house development projects may be difficult to replace

We also note that in-house development projects contributed an average of about 10-15% of total order inflows in the past three years and constitute about 17% of the 1QFY13-end order backlog. These development projects were primarily related to L&T’s road projects and Hyderabad Metro project.

These order inflows are likely to slow down significantly on the back of (1) sedate ordering by NHAI in 1QFY13; furthermore, NHAI may be shifting gears with a larger proportion of incremental contracts to be awarded on cash-basis versus BOT earlier, (2) company’s own stance to not bid for any new BOT projects with an aim to preserve capital commitments and boost consolidated returns and (3) significant proportion of Hyderabad Metro project has already placed on L&T.

The company would have to replace these orders by other segments which may be difficult to achieve, especially in a slow capex environment.

International orders have also not scaled up as yet

Order inflows from international geographies is yet to scale up in FY2013E—international orders constituted about 9-11% of total inflows in FY2013E so far. L&T management has earlier shared that they expect international orders to lead the yoy growth in FY2013E (expected to grow by about 35% yoy in FY2013E).

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Larsen & Toubro Industrials

Segmental break-up of L&T's inflows, backlog, FY2010-1QFY13

FY2010 FY2011 1QFY12 2QFY12 3QFY12 4QFY12 FY2012 1QFY13 Order inflows Segmental Process 90 128 16 16 22 23 78 10 Oil & gas 139 56 18 40 11 8 78 4 Power 230 255 36 42 26 44 148 41 Infrastructure 188 303 79 50 93 116 339 127 Others 49 56 13 13 19 19 64 14 Total 696 798 162 161 171 212 706 196 Geographical Domestic 661 718 136 106 153 183 579 180 Middle East 28 64 11 50 13 18 92 10 Other exports 7 16 15 5 5 11 35 6 Customer Private 264 415 100 84 98 128 409 110 Public 410 207 32 77 53 63 226 43 Dev. Project (L&T) 21 175 29 (0) 20 21 71 43 Order backlog Segmental Process 160 208 218 213 219 219 219 214 Oil & gas 150 156 150 185 160 146 146 122 Power 301 417 422 441 423 408 408 413 Infrastructure 331 469 517 526 583 627 627 720 Others 60 52 54 57 73 58 58 61 Total 1,002 1,302 1,362 1,422 1,458 1,457 1,457 1,531 Geographical Domestic 932 1,198 1,239 1,265 1,283 1,282 1,282 1,363 Middle East 40 78 82 128 146 131 131 138 Other exports 30 26 41 28 29 44 44 31 Customer Private 401 560 613 668 700 699 699 781 Public 531 508 517 555 554 510 510 490 Dev. Project (L&T) 70 234 231 199 204 248 248 260

Source: Company, Kotak Institutional Equities

Investment cycle may take time to pick up in power, metals, hydrocarbons

We also believe that investment cycle may take time to pick up in:

` Power. Power may remain subdued based on (1) large pipeline of under construction contracts amounting to >100 GW, (2) lack of clarity on fuel availability, pass through, cap on merchant, review of block allocations etc., (3) some State Government contracts may offer opportunity however states may be keen to tie available power in case 1 bids rather than develop green-field projects. Most of current pipeline from states is based on captive coal allotted to their mining corporations and thus they may wait for clarity on coal blocks before committing to develop plants.

` Metals, other resource-intensive sectors. Similarly capex cycle in metals and other resource intensive areas may take time to take off as Government may have to establish clear guidelines for resource allocations in light of recent Supreme Court judgment. Capex attractiveness in several areas may go down if resource is fully priced.

` Hydrocarbons and oil & gas. Our energy team believes that there is limited fresh capex planning in hydrocarbons (no new refinery on anvil right now post Paradip as Bina, Bhatinda are completed) and oil & gas (GSPC KG project is nearing completion, relatively smaller redevelopment contracts from ONGC in Mumbai High and other marginal fields).

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Industrials Larsen & Toubro

Despite limited capital commitments, consolidated returns may remain range- bound till FY2015E

We believe that despite limited incremental capital commitments, the consolidated returns of the company may remain range-bound (RoE at about 14-15% and RoCE at about 6-7%) till FY2015E. The increased profits from finance and IT subsidiaries are likely to be offset by (1) recently commercialized shipbuilding and forgings facilities likely to make losses in the first few years of operations and (2) potential incremental losses from commissioning of road projects in the portfolio.

Consolidated return ratios of L&T, March fiscal year-ends, 2006-15E (%)

(%) RoE RoE 30.0 28.2 25.5 23.5 25.0 21.9

18.8 20.0 17.1 16.2 20.9 15.1 18.8 14.2 14.4 15.0 15.1 14.3 10.0 12.9 9.6 7.9 5.0 7.3 7.0 7.1

0.0 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Source: Company, Kotak Institutional Equities estimates

Core business returns (adjusted for investment in subsidiaries) though remains strong

Fixed asset turnover and return ratios of L&T standalone, March fiscal year-ends, 2006-14E

(Rs mn) Avg. net fixed assets (RHS) (X) (%) RoE RoCE adjusted RoCE 100,000 12.0 28.4 Fixed assets turnover ratio (LHS) 30.0 27.4 21.7 24.7 23.6 23.3 80,000 25.0 22.1 22.6 22.6 27.1 9.0 26.2 20.6 20.0 19.9 23.5 18.1 18.7 18.0 60,000 17.3 16.8 21.2 21.5 21.0 6.0 15.0 18.6 16.8 40,000 15.9 15.0 15.1 14.4 10.0 14.0 13.9 3.0 20,000 5.0

0 0.0 0.0 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2013E 2014E 2015E

Source: Company, Kotak Institutional Equities estimates

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Larsen & Toubro Industrials

Absolute price run-up though high, stock has outperformed the Sensex only by 5% since end-1QFY13

We note a sharp price rally in the absolute stock price of L&T by about 18.5% in the past 2.5 months (since end-1QFY13). However, do note that the outperformance versus the market (Sensex) was only about 5% during the same period.

5% relative outperformance by L&T versus Sensex since end-1QFY13 Absolute and relative performance for L&T (%)

1-Month Since end-1QFY13 3-Month 6-Month 1-Year Absolute 19.6 18.5 15.2 21.5 22.1 Relative to sensex 10.4 5.0 6.0 12.5 1.9

Source: Bloomberg, Kotak Institutional Equities

Valuations close to 10-year averages (most of which was in a period of good cycle)

Post the recent run-up, L&T’s valuations appear full—L&T is trading at relatively expensive 12-month forward valuations of 15.5X standalone P/E (adjusted for Rs420/share value and dividend income from subsidiaries), 13.3X consolidated EV/EBITDA and 2.5X consolidated P/B.

Key valuation charts of L&T, September 2002 - September 2012

L&T P/E (LHS) Avg. 5-yr P/E (LHS) 50 25.0 120 Premium over Sensex Avg. 5-yr premium Avg. 10-yr premium Avg. 10-yr P/E (LHS) SENSEX (RHS)

40 20.0 90

30 15.0 60

20 10.0 30

10 5.0 0

0 - (30) Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12

EV/EBITDA Chart based on 12-month rolling forward EBITDA, September 2002-12 P/B Chart based on 12-month rolling forward BVPS, September 2002-12

10 P/B Avg. 5-yr P/B Avg. 10-yr P/B 35 EV/EBITDA Avg. 5-yr EV/EBITDA Avg. 10-yr EV/EBITDA

28 8

21 6

14 4

7 2

0 0 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12

Source: Bloomberg, Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Industrials Larsen & Toubro

Marginally revise estimates; reiterate REDUCE with a TP of Rs1,515

We marginally revise our consolidated estimates to Rs84.6 and Rs93 (from Rs83.2 and Rs90) and our standalone estimates to Rs79.7 and Rs88.4 (from Rs79 and Rs86.3) for FY2013E and FY2014E respectively on slightly higher order inflows assumption and shift in inflow mix for FY2013E.

We revise our SOTP-based target price to Rs1,515/share from Rs1,475/share earlier based on marginal revisions to standalone estimates and 6-month forward rollover for valuations of services and manufacturing subsidiaries. Value for infrastructure SPVs is based on potential invested book value at end-FY2013E and other subsidiaries value is based on invested equity at end-FY2012.

Our SOTP-based target price of Rs1,515/share is comprised of (1) Rs1,097/share from the standalone EPC business (on 14X 12-month forward EPS), (2) Rs184/share from the service subsidiaries (Finance, Infra Finance and Infotech), (3) Rs38/share from the manufacturing subsidiaries and associate companies), (4) Rs144/share from 1.25X FY2013E book value of infrastructure SPVs and (5) Rs52/share from other subsidiaries and investments.

We arrive at an SOTP-based target price of Rs1,515/share for L&T 12-month forward based Sum of The Parts (SOTP) valuation of Larsen and Toubro

Earnings/Book FY13E multiple Value Valuation Stake L&T's stake value Per share (Rs mn) (X) (Rs bn)basis (%) (Rs bn) (Rs) Core company valuation 47,968 14.0 672 P/E 100 672 1,097 Key subsidiaries-services 184 L&T Finance 28,077 1.3 35.1 P/B 84 29 48 L&T Infra. Finance 27,277 1.3 34.1 P/B 84 29 47 L&T Infotech 5,503 10.0 55.0 P/E 100 55 90 Key subsidiaries - mfg 38 Associate companies* 1,784 10.0 18 P/E 50 9 15 Power equipment JV NA 28 DCF 51 14 23 Infrastructure SPVs 72,041 1.3 90 P/B 97.7 88 144 Other subsidiaries 42,170 0.8 32 P/B 100.0 32 52 Total subsidiaries 256 418 Grand total 927 1,514

Source: Company, Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Larsen & Toubro Industrials

Details of L&T investment in infrastructure subsidiaries, March fiscal year-ends, 2011-14E (Rs mn)

Equity invested 2011 2012 Incr. equity Projects Total IDPL Stdalone Others Total L&A 2013E 2014E Roads Completed L&T Panipat Elevated Corridor 843 843 - 843 419 - - Narmada Infra Constrn 474 121 126 527 - - - L&T Krishnagiri Thopur 788 788 - 788 - - - L&T Western Andhra Tollways 565 565 - 565 - - - L&T Transportation Infra 640 531 109 640 - - - L&T Interstate Road Corridor 572 572 - 572 - - - L&T Vadodara Bharuch Tollway 435 435 - 435 1,740 - - Under implementation Rajkot Vadinar Tollway 900 1,100 - - 1,100 675 2,188 - Samakhiali-Gandhidham 805 805 0 0 805 - 2,349 746 Ahmedabad-Maliya Tollway 970 1,490 - - 1,490 504 3,001 - L&T Halol-Shamlaji Tollway 1,305 1,305 - - 1,305 1,028 1,958 653 Chennai-Tada Tollway 420 - - 420 420 - 1,566 558 L&T Deccan Tollways - 2 - - 2 - 382 955 Beawar-Pali-Pindwara - 821 - - 821 - 1,854 2,596 Pimplegaon-Nasik 626 695 440 647 1,781 240 - - Krishnagiri-Walajahpet 900 900 0 - 900 357 2,349 861 Devihalli-Hassan 332 900 - - 900 - 582 - Amravati-Jalgaon ------810 1,620 Jalgaon-Gujarat/Mah border ------630 1,260 Ports Dhamra port (50:50 JV) 3,240 3,240 - - 3,240 - 450 - Katupalli port 6,231 - 8,779 - 8,779 - - - Metro Hyderabad Metro project 3,440 4,326 44 - 4,370 - 5,078 7,110 L&T Urban Infra 1,070 ------L&T Power Development Rajpura 700X 3 MW project 9,600 - - 9,600 9,600 - 3,000 6,000 Other projects ------1,000 2,500

Grand total 34,155 19,438 9,497 10,947 39,882 4,962 27,197 24,857

Total investments (including lons & advances) of about Rs45 bn across various infrastructure projects

Source: Company, Kotak Institutional Equities estimates

We retain our REDUCE rating on the company based on (1) weak trends in margins and working capital (at 15.3% of sales), (2) inflows outlook remains weak with deterioration in inflow mix (increased share from roads, buildings, T&D sectors) and (3) full valuations— standalone trades at 15.5X one-year forward P/E (adjusted for Rs420/share for subsidiaries).

Potential upside risks relate to private equity/strategic investor transaction in the Infrastructure development business, higher-than-expected margins, slightly better outlook on new areas like shipbuilding and better-than-expected order inflows in the power sector (even on BTG/EPC order can be meaningful based on absolute size of the orders).

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Industrials Larsen & Toubro

Standalone balance sheet and income statement of L&T, March fiscal year-ends, 2007-15E (Rs mn)

2007 2008 2009 2010 2011 2012 2013E 2014E 2015E Income statement Net operating revenues 176,142 248,779 339,385 370,348 439,049 531,705 646,934 751,064 837,440 Cost of goods sold (158,247) (220,515) (300,164) (322,592) (382,685) (469,067) (573,307) (667,542) (745,109) S, G & A (10,280) (13,856) (17,703) (14,627) (19,903) (22,230) (26,524) (30,043) (33,498) Salaries & wages (12,592) (15,354) (19,745) (23,791) (28,845) (36,635) (43,791) (52,420) (60,920) EBIDTA 17,895 28,264 39,222 47,756 56,364 62,639 73,628 83,522 92,331 EBIDTA margin (%) 10.2 11.4 11.6 12.9 12.8 11.8 11.4 11.1 11.0 Other income 4,927 6,520 7,398 9,502 11,811 13,383 15,510 15,074 15,923 Interest (930) (1,227) (4,156) (5,053) (6,474) (6,661) (9,474) (10,536) (10,536) Depreciation (1,715) (2,022) (3,073) (4,159) (6,003) (7,005) (7,912) (8,451) (9,011) PBT 20,191 31,534 39,404 48,059 55,708 62,553 71,752 79,609 88,707 Tax (6,019) (9,821) (12,312) (16,409) (19,459) (18,538) (22,961) (25,475) (28,386) PAT 14,172 21,714 27,092 31,650 36,250 44,015 48,792 54,134 60,321 Extraordinaries 0(8)7,72512,1053,329550000 Reported PAT 14,172 21,706 34,817 43,755 39,579 44,565 48,792 54,134 60,321 EPS (Rs) 25.0 37.1 46.3 52.6 59.5 71.9 79.7 88.4 98.5 Balance sheet Shareholders funds 57,405 95,292 124,351 182,884 218,241 252,019 290,780 334,883 385,173 Equity capital 567 585 1,171 1,204 1,218 1,225 1,225 1,225 1,225 Reserves & surplus 56,839 94,707 123,180 181,679 217,024 250,794 289,555 333,659 383,948 Total debt 20,778 35,840 65,560 68,008 71,611 98,958 123,958 123,958 123,958 Total sources of funds 78,462 131,391 190,157 251,125 290,074 351,188 414,949 459,052 509,342 Total fixed assets 21,440 35,534 50,538 62,231 72,370 82,255 86,868 93,418 99,407 Intangible assets 807 920 1,408 1,427 2,212 1,381 1,381 1,381 1,381 Investments 31,044 69,223 82,637 137,053 146,848 158,719 169,416 194,273 224,878 Net working capital (excl. cash) 14,530 16,652 48,303 36,869 53,975 91,110 147,243 150,363 157,211 Cash and bank balances 10,944 9,645 7,753 14,319 17,304 19,053 10,041 19,618 26,466 Total application of funds 78,462 131,391 190,157 251,125 290,074 351,188 414,949 459,052 509,342 Cash flow statement Cash flow from operations 21,510 21,893 (1,600) 47,522 26,996 12,383 570 59,465 62,484 Cash flow from investing activities (19,343) (53,941) (30,695) (69,191) (25,681) (27,120) (23,221) (39,857) (45,605) Free cash flow 2,167 (32,047) (32,295) (21,668) 1,315 (14,737) (22,651) 19,608 16,878 Cash flow from financing activities 3,367 31,235 31,688 29,330 2,711 17,109 14,969 (10,031) (10,031) Net cash (utilized)/ generated 5,534 (812) (608) 7,662 4,026 2,372 (7,682) 9,577 6,848 Cash balance at start of the year 5,832 10,944 9,645 7,753 14,319 17,304 19,053 11,968 21,750 Cash balance at end of the year 10,944 9,645 7,753 14,319 17,304 19,053 10,041 19,618 26,466

Source: Company, Kotak Institutional Equities estimates

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Larsen & Toubro Industrials

APPENDIX: PROJECT AWARD DETAILS FOR ONGC, NPCIL, NMDC AND METRO

Details and status of NTPC bulk tender awards

Capacity Project State Agency Units (MW) Awarded to Comment 11X660 MW tranche Mouda, St-II Maharashtra NTPC Ltd. 2 1,320 Boiler: BHEL Pending FC and LA Turbine: BHEL Solapur Maharashtra NTPC Ltd. 2 1,320 Boiler: BGR Energy Pending FC; has commitment for land Turbine: Bharat Forge from state govt. Nabinagar Bihar NTPC & Bihar SEB 3 1,980 Boiler: BHEL Pending FC and LA Turbine: Bharat Forge Meja Uttar Pradesh NTPC & UPRVUNL 2 1,320 Boiler: BGR Energy Pending EC, FC and LA Turbine: BHEL / JSW-Toshiba Raghunathpur, Ph- West Bengal DVC 2 1,320 Boiler: BGR Energy Pending EC, FC and LA Turbine: BHEL / JSW-Toshiba Total under 660 MW bulk tendering 11 7,260 9X800 MW tranche Kudgi Karnataka NTPC 3 2,400 Boiler - Doosan Pending FC and LA; green tribunal has Turbine - BHEL challenged EC Lara Chattisgarh NTPC 2 1,600 Boiler: Doosan Pending EC (public hearing over) and Turbine: BGR Energy FC; in-principle clearance for land Darlipali Orissa NTPC 2 1,600 Boiler - BHEL Pending EC, FC; has commitment for Turbine - BGR Energy land from state govt. Gajmara Orissa NTPC 2 1,600 Boiler: BHEL Pending EC, FC; has partially acquired Turbine: BHEL land Total under 800 MW bulk tendering 9 7,200 Total under bulk tendering 20 14,460

Source: NTPC, News flows, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Industrials Larsen & Toubro

Key orders awarded by NMDC as of Aug 2012

Amount Date Details of project Bidders # of bidders (Rs mn) Plant Apr-12 Steel melting package for setting up of 3MTPA Siemens VAI-SEW Infra-Mukand Engineers 2 20,541 Nagarnar, Chhattisgarh ISP at Nagarnar Chhattisgarh Larsen and Toubro-SMS Apr-12 Oxygen plant (consisting of the 2x1250 tpd Air Linde-BOC 2 5,823 separation units - Package No. – 09) HDO-Praxair India May-12 Thin Slab Caster & Hot Strip Mill Package Danieli-Shapoorji Pallonji -Bricmont 2 26,332 Nagarnar, Chhattisgarh L&T - Siemag AG- SMS India Dec-11 By Product complex Shriram EPC-Hutni projekt -BeeKay Engg. 3 5,092 Nagarnar, Chhattisgarh Larsen & Toubro-Paul Wurth Mcnally Bharat-MCC China Aug-11 Raw material handling system package BHEL 4 13,950 Nagarnar, Chhattisgarh Larson and Toubro Mcnally Bharat Thyssen Krupp Aug-11 Blast furnace Tata Projects and Daniele-Corus NA 17,310 Nagarnar, Chhattisgarh Aug-11 Coke Owen Package Shriram EPC-Hutni projekt -BeeKay Engg 4 19,800 Nagarnar, Chhattisgarh GIPROKOKS-Bhilai Engg-CONCORD-CUI Larsen & Toubro-Paul Wurth China Metallurgical Group-McNally Bharat (not qualified) Jan-11 Sinter plant NCC-Siemens VAI 4 7,482 Nagarnar, Chhattisgarh Mcnally Bharat-TPE L&T-Qutotec Tata Projects-Sino Steel (China) Jan-11 Construction power supply for setting up of 3.0 KEC 4 396 Nagarnar, Chhattisgarh MTPA ISP at Nagarnar Areva Larsen & Toubro Siemens Total 0 Total 116,726 Jan-11 1.2 MTPA Karnataka Plant Tata Projects-Sino Steel (China) 7 2,885 Karnataka Mcnally Bharat -Mekhanobrchermet, Ukraine,-Uralmash, Russia NCC -CIE China-Shabro Metals HDO-VT Corp (not qualified) Llyods Steel Industries (not qualified) L&T India-Outotec (not qualified) Tecpro-BSIET China-Trafalagar (Dubai) (not qualified)

Source: Company, Kotak Institutional Equities estimates

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Larsen & Toubro Industrials

Key orders awarded by NPCIL as of June 2012

Amount Date Details of project Bidders # of bidders (Rs mn) Jun-12 Field instrumnetation package Larsen & Toubro Ltd.7 1,929 Hindustan Dorr Oliver 1,900 ECIL, Hyderabad Technip KT India Ltd Punj Lloyd Ltd Lanco Infratech McNally Bharat Engineering Sep-11 Balance of Turbine Island (BOTI) Package for KAPP- Dodsal Enterprises P.Ltd9 8,340 3&4 Bharat Heavy Electricals Gammon India Ltd. IOT Infra & Energy Jyoti Structures Ltd. Larsen & Toubro Ltd. Punj Lloyd Ltd Tata Projects Ltd Thermax Limited Jul-11 Main Plant Electrical Systems Package for KAPP-3&4 BGR Energy Limited5 4,444 and RAPP- 7&8 Areva T&D India Limited BHEL, New Delhi Larsen & Toubro Limited Technimont ICB Jul-11 Common services packages Larsen & Toubro11 2,693 Punj Lloyd Technip KT India IOT Infrastructure & Energy Services Hindustan Dorr-oliver Thermax Engineers India Ltd Mcnally Bharat Hindustan Construction IVRCL Nicco Jun-11 Primary Piping Package Punj Lloyd7 6,994 Dodsal Enterprise HCC EIL consortuim IOT Infrastructure and Energy Services Larsen & Toubro Hindustan Dorr Oliver Bharat Heavy Electricals Ltd May-10 Construction of Main Plant Civil work –Package-I HCC 6 9,879 (RAPP 7,8) Gammon India Ltd. Simplex Punj Lloyd and NCC Shapoorji Palonji Larsen & Toubro Mar-10 End Shield and Calanderia Larsen & Toubro 3 1700 Godrej Walchandnagar Sep-09 Steam Generators Larsen & Toubro2 3,450 Bharat Heavy Electricals Ltd 3,450 Mar-09 Steam Generators Larsen & Toubro2 3,630 Bharat Heavy Electricals Ltd 3,630 Feb-09 Main Plant Civil Works at KAPP 3&4 Larsen & Toubro5 8,441 HCC Gammon Simplex Afcons Infrastructures Ltd Total L&T 21,843 Total 60,480

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Industrials Larsen & Toubro

Details of key ONGC projects in which L&T participated as of Mar 2012

Amount Date Details of project Bidders # of bidders (Rs mn) 28-Aug-12 Construction of four wellhead platforms Larsen & Toubro Ltd, Mumbai NA 7,490 10-May-12 OGIP power to ESP project Dolphin Offshore Enterprises, Mumbai 6 2,737 Das offshore Engg Pvt. Ltd HAL, Offshore Ltd, Mumbai Essar Offshore Subsea Ltd, Mumbai Leighton Welspun Contractors, Mumbai 1-May-12 Repair od mud tank E1400-3 Shiv Engineering 3 3 Larsen & Toubro Ltd, Surat Krishna Enginneers 22-Mar-12 WO-16 Cluster & SB-14 Pipeline Project Consortium Of Punj Lloyd Ltd, New Delhi 5 4,782 Hyundai Heavy Industries Co. Ltd, Ulsan, Korea National Petroleum Construction Co., Abu Dhabi Valentine Maritime Ltd., Abu Dhabi Larsen & Toubro Ltd, Mumbai 29-Mar-12 Devp Of WO-16 Cluster And AB-14 WPP National Petroleum Construction Co., Abu Dhabi 3 7,435 J. Ray McDermott Middle East Inc., Dubai Larsen & Toubro Ltd, Mumbai 7-Dec-11 Cluster- 7 Pipeline Project Consortium Of Swiber Offs.(India)Pv, Mumbai 11 8,009 Hyundai Heavy Industries Co. Ltd, Ulsan, Korea National Petroleum Construction Co., Abu Dhabi Valentine Maritime Ltd, Abu Dhabi Larsen & Toubro Ltd, Mumbai Great Offshore Ltd, Mumbai Leighton Contractors (India), Mumbai Punj Lloyd Ltd, Gurgaon Pratibha Industries Ltd, Mumbai Essar Offshore Subsea Ltd, Mumbai Swiber Offshore (India) Private, Mumbai 26-Dec-11 Conversion Of Sagar Samrat To Mobile Offshore Production Unit Consortium Of Mercator Oil And Gas,, Mumbai 2 8,294 Larsen & Toubro Ltd, Mumbai 18-Nov-11 Cluster 7 Well Platform Project McDermott, Dubai 8 7,925 Sew Infrastructure Ltd, Hyderabad National Petroleum Construction Co., Abu Dhabi J. Ray McDermott Middle East Inc., Dubai Larsen & Toubro Ltd, Mumbai Leighton Contractors (India), Mumbai Punj Lloyd Ltd, Gurgaon Essar Offshore Subsea Ltd, Mumbai 12-Oct-11 SH - RC Additional Payment Larsen & Toubro Ltd, Surat 1 383 1-Oct-11 Upgradation Of Barge Instrumentation System Emerson Process Management, Mumbai 3 99 Honeywell Automation India Ltd, Pune Larsen & Toubro Ltd, Mumbai 16-May-11 Procurement Of WSS Units Larsen & Toubro Ltd, Mumbai 2 794 Rush Sales Company, Texas 12-Apr-11 Win Revamping Project Consortium Of Leighton Contractors, Mumbai 7 6,136 Larsen & Toubro Ltd, Mumbai Great Offshore Ltd, Mumbai Afcons Infrastructure Ltd, Mumbai Leighton Contractors (India), Mumbai Punj Lloyd Ltd, Gurgaon Essar Offshore Subsea Ltd, Mumbai 30-Mar-11 Construction Of Office Complex For ONGC, BKC, Mumbai Pratibha-Al Ambia Joint Venture, Mumbai 8 2,400 IVRCL Infrastructures & Projects Ltd, Hyderabad Shapoorji Pallonji & Co. Ltd, Mumbai Unity Infraprojects Ltd, Mumbai Consolidated Construction, Chennai Pratibha Industries Ltd, Mumbai B.L.Kashyap And Sons Ltd, New Delhi Larsen & Toubro Ltd, Mumbai 3-Jan-11 Replacement Of RTUs For MH Asset Larsen & Toubro Ltd,, Mumbai 2 183 ABB Ltd, Bangalore 1-Dec-10 Additional Process Unit At Uran Larsen & Toubro Ltd, Mumbai 2 8,852 Toyo Engineering India Ltd, Mumbai 13-Dec-10 Procurement Of Main Hyd. Pumps 2 Nos For Crane Engine Larsen & Toubro Ltd, Mumbai 1 1 Total (L&T) 17,703 Total 65,522

Source: Company, Kotak Institutional Equities estimates

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH

NEUTRAL Automobiles

India OCTOBER 04, 2012 UPDATE BSE-30: 19,058

2QFY13 results preview. We expect a weak quarter for auto companies despite strong revenue growth due to pressure on EBITDA margins, largely because of currency headwinds and weaker product mix. Revenues are expected to rise by 18% yoy for the companies under our coverage universe driven by M&M and Tata Motors. We expect M&M to outperform peers while Hero and Maruti will have a tough quarter.

M&M is likely to outperform peers while Hero and Maruti are likely to face currency headwind

We expect M&M + MVML profits to rise by 18% yoy in 2QFY13, outperforming its peers by a wide margin. We expect M&M + MVML’s revenue growth of 24% yoy driven by strong growth in UV volumes and addition of XUV500 volumes. We estimate EBITDA margins to decline by 70 bps qoq due to lower share of tractors in the product mix and deterioration in tractor margins due to 16% qoq decline in tractor volumes.

Hero Motocorp’s and Maruti Suzuki’s profits are likely to decline by 28-30% yoy in 2QFY13E due to significant decline in volumes and pressure on operating margins, driven by lag impact of currency headwind and negative operating leverage. We expect Hero Motocorp’s and Maruti Suzuki’s EBITDA margins to decline by 200-230 bps sequentially.

Negligible volumes of Range Rover to impact JLR’s profitability

We expect Tata Motors’ consolidated profits to decline by 10% yoy despite a 22% yoy growth in revenues. The key reason for this decline is the sharp rise in interest expenses in the standalone operations due to increase in working capital requirements and subdued growth in JLR EBITDA (+2% yoy). JLR’s EBITDA margins are likely to decline by 160 bps qoq in our view, driven by negligible volumes of Range Rover in the product mix. We expect a revenue loss of GBP553 mn due to lack of Range Rover in the product mix, but we expect revenue loss to be offset to some extent by higher volumes of Freelander and Discovery on a sequential basis.

Bajaj Auto’s profitability is likely to remain intact on a qoq basis

We estimate Bajaj Auto volumes to decline by 10% yoy in 2QFY13E, driven by 12% yoy decline in three-wheeler volumes. Despite weak volume growth, we expect Bajaj Auto’s EBITDA margins to remain flat qoq driven by (1) 200 bps positive impact of pricing/product mix (higher share of three- wheelers and addition of Pulsar 200NS, Discover 125ST sales in the mix) offset by (2) 200 bps impact on margins due to price cut in the Sri Lankan market. We estimate Bajaj Auto profits to remain flat qoq.

We maintain Tata Motors as our top pick in the sector

We maintain Tata Motors as our top pick in the sector followed by M&M as we believe New Range Rover and Range Rover Sport will be key contributors towards improving JLR’s profitability in

FY2014E. We believe the SUV share in luxury car market will continue to increase and JLR will be a key beneficiary of this trend.

Our top sell idea is Maruti in the sector as we expect volume growth to remain subdued while EBITDA margins are unlikely to improve significantly due to sluggish market growth and increase in competition.

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

India Automobiles

2QFY13 results preview

We expect a weak quarter for auto companies despite strong revenue growth due to pressure on EBITDA margins, largely because of currency headwinds and weaker product mix. Revenues are expected to rise by 18% yoy for the companies under our coverage universe driven by 24% yoy growth in M&M revenues and 22% yoy growth in Tata Motors revenues. We expect EBITDA margins to decline by 150 bps qoq primarily due to deterioration in margins of Hero Motocorp, Maruti Suzuki and Tata Motors. We expect raw material costs to remain stable during the quarter; however, currency headwinds could impact Hero Motocorp’s and Maruti Suzuki’s margins during the quarter.

Key highlights of companies

` Ashok Leyland. We estimate Ashok Leyland’s MHCV volumes to decline by 17% yoy which will be a key pressure point for the operating margins. Addition of Dost volumes would boost overall volumes but due to low contribution of Dost in the revenues, we believe EBITDA margins are likely to decline by 230 bps yoy. We expect profit to decline by 54% yoy due to sharp rise in depreciation and interest expenses.

` Bajaj Auto. We estimate Bajaj Auto volumes to decline by 10% yoy in 2QFY13E driven by 12% yoy decline in three-wheeler volumes. Despite weak volume growth, we expect Bajaj Auto’s EBITDA margins to remain flat qoq driven by (1) 200 bps positive impact of pricing/product mix (higher share of three-wheelers and addition of Pulsar 200NS, Discover 125ST sales in the mix) offset by (2) 200 bps impact on margins due to price cut in Sri Lankan market.

` Hero Motocorp. We expect Hero Motocorp’s EBITDA margins to decline by 200 bps qoq driven by (1) 7% appreciation of JPY versus INR in 1QFY13 versus 4QFY12 which is likely to result in increase in vendor import costs as it is passed through with a quarter’s lag (we estimate -100 bps impact due to currency) and (2) we reckon EBITDA margins could also decline further by 100 bps due to negative operating leverage as volumes have declined by 19% qoq.

` Maruti Suzuki. We believe Maruti’s EBITDA margins are likely to decline by 230 bps qoq driven by (1) -90 bps impact due to inferior product mix (lower diesel sales) and increase in discounts on petrol models, (2) -100 bps impact due to 7% appreciation of JPY versus INR in 1QFY13 versus 4QFY12 which is likely to result in increase in vendor import costs as it is passed through with a quarter’s lag and (3) -40 bps due to negative operating leverage.

` Mahindra and Mahindra. We expect strong topline growth (24% yoy) driven by strong growth in UV volumes and addition of XUV500 volumes. We estimate EBITDA margins to decline by 70 bps qoq due to lower share of tractors in the product mix and deterioration in tractor margins due to 16% qoq decline in tractor volumes.

` Tata Motors. We expect standalone business to remain under pressure driven by very low profitability of passenger vehicle business and decline in commercial vehicle volumes. Jaguar and Land Rover will also have a weak quarter due to negligible volumes of high- margin Range Rover in the product mix due to model change. We estimate JLR’s EBITDA margins to decline by 160 bps qoq.

` Exide Industries. We expect a stable quarter for Exide due to strong growth in the inverter business but we expect EBITDA margins to decline by 40 bps qoq due to rise in lead prices and lower share of inverter business in the product mix.

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Automobiles India

Raw material costs have remained fairly stable during the quarter Raw material prices trend, March fiscal year-ends

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 Domestic CRC steel price (Rs/ton) 40,704 38,226 39,077 42,902 42,876 42,705 41,997 41,379 44,243 43,989 QoQ chg (%) (6.1) 2.2 9.8 (0.1) (0.4) (1.7) (1.5) 6.9 (0.6) China CRC steel price ($/ton) 872 783 810 859 861 858 836 827 805 722 QoQ chg (%) (10.2) 3.4 6.0 0.2 (0.3) (2.6) (1.1) (2.7) (10.3) LME Aluminium ($/ton) 2,092 2,085 2,339 2,533 2,612 2,384 2,145 2,179 1,979 1,934 QoQ chg (%) (0.3) 12.2 8.3 3.1 (8.7) (10.0) 1.6 (9.2) (2.3) LME lead ($/ton) 1,937 2,038 2,388 2,609 2,552 2,442 2,010 2,092 1,982 2,001 QoQ chg (%) 5.2 17.2 9.3 (2.2) (4.3) (17.7) 4.1 (5.3) 1.0 LME Copper ($/ton) 7,022 7,252 8,649 9,668 9,193 8,913 7,583 8,346 7,856 7,757 QoQ chg (%) 3.3 19.3 11.8 (4.9) (3.0) (14.9) 10.1 (5.9) (1.3) RSS4-Natural rubber (Rs/kg) 165.0 176.2 193.7 224.8 229.0 210.4 202.8 190.9 192.9 195.2 QoQ chg (%) 6.8 9.9 16.1 1.9 (8.1) (3.6) (5.9) 1.0 1.2

Source: Bloomberg

Average currency movements (quarterly) March fiscal year-ends

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 USDINR 45.6 46.5 44.8 45.3 44.7 45.9 50.9 50.2 54.1 55.1 QoQ chg (%) 2.0 (3.7) 1.1 (1.2) 2.5 10.9 (1.3) 7.8 1.8 GBPUSD 1.49 1.55 1.58 1.60 1.63 1.61 1.58 1.57 1.58 1.58 QoQ chg (%) 4.0 1.9 1.3 1.9 (1.2) (2.2) (0.1) 0.4 - GBPEUR 1.17 1.20 1.16 1.17 1.14 1.14 1.17 1.20 1.23 1.26 QoQ chg (%) 2.7 (3.1) 0.6 (2.7) 0.0 2.5 2.7 2.6 2.7 JPYINR 0.496 0.540 0.543 0.550 0.548 0.590 0.655 0.631 0.677 0.700 QoQ chg (%) 8.9 0.6 1.3 (0.3) 7.6 11.0 (3.7) 7.3 3.4 EURINR 58.1 59.9 60.9 62.0 63.9 64.7 68.6 65.8 69.3 68.9 QoQ chg (%) 3.1 1.7 1.7 3.1 1.2 6.0 (4.1) 5.3 (0.6) GBPINR 67.9 72.0 70.8 72.6 72.8 73.8 80.0 78.9 85.5 87.0 QoQ chg (%) 6.0 (1.6) 2.5 0.3 1.3 8.5 (1.4) 8.3 1.7

Source: Bloomberg

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 India Automobiles

Company-wise estimates and comments

Earnings preview of auto stocks March fiscal year-ends (Rs mn)

Change (%) 2QFY13E 2QFY12 1QFY13 qoq yoy Comments Ashok Leyland Volumes 28,716 24,408 27,585 4.1 17.6 Net sales 29,969 30,946 30,073 (0.3) (3.2) 1) We expect volumes to increase by 18% yoy driven by addition of EBITDA 2,503 3,312 2,407 4.0 (24.4) Dost volumes, ex Dost volumes MHCV volumes are likely to decline Margin (%) 8.4 10.7 8.0 by 17% yoy, 2) We estimate EBITDA margins to decline by 230 bps yoy due to decline in MHCV volumes and increase in discounts in Recurring PAT 706 1,541 66 9 5.5 (54.2) MHCV segment EPS FD 0.3 0.6 0.3 5.5 (54.2)

Bajaj Auto Volumes 1,049,208 1,164,120 1,078,971 (2.8) (9.9) 1) We estimate volumes to decline by 10% yoy primarily driven by Net sales 49,147 52,673 48,657 1.0 (6.7) weakness in domestic volumes . 2) We expect EBITDA margins to decline by 210 bps yoy driven by lower share of premium bikes in EBITDA 8,859 10,574 8,717 1.6 (16.2) the mix, lower exports growth, pricing deterioration in Sri Lankan Margin (%) 18.0 20.1 17.9 market and decline in volumes. We expect EBITDA margins to remain flat sequentially as price increase/positive product mix is Recurring PAT 7,317 7,258 7,184 1.9 0.8 likely to offset negative impact due to cut in prices in Sri Lanka and EPS FD 25.3 25.1 24.9 1.9 0.8 rise in input costs

Hero Motocorp

Volumes 1,332,805 1,544,290 1,640,199 (18.7) (13.7) Net sales 50,819 58,293 62,473 (18.7) (12.8) 1) We expect volumes to decline by 14% yoy and expect average selling price to remain flat qoq 2) We expect EBITDA margins to EBITDA 4,821 7,087 7,169 (32.8) (32.0) decline by 200 bps qoq due to lag impact of appreciation of yen Margin (%) 9.5 12.2 11.5 versus INR on imported raw material cost, negative operating leverage and rise in advertising expenses Recurring PAT 4,176 6,036 6,155 (32.2) (30.8) EPS FD 20.9 30.2 30.8 (32.2) (30.8)

Maruti Suzuki Volumes 230,575 252,307 295,896 (22.1) (8.6) Net sales 80,631 78,316 107,782 (25.2) 3.0 1) We estimate volumes to decline by 9% yoy due to strike at Manesar plant and expect average selling prices to decline by 3% EBITDA 4,006 4,942 7,863 (49.1) (18.9) qoq due to lower diesel sales 2) We forecast EBITDA margins to Margin (%) 5.0 6.3 7.3 decline by 230 bps qoq driven by poor product mix, negative operating leverage and lagged currency impact on vendor raw Recurring PAT 1,721 2,404 4,238 (59.4) (28.4) material imports EPS FD 6.0 8.3 14.7 (59.4) (28.4)

Source: Kotak Institutional Equities estimates

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Automobiles India

Earnings preview of auto stocks March fiscal year-ends (Rs mn)

Change (%) 2QFY13E 2QFY12 1QFY13 qoq yoy Comments M&M + MVML Volumes 188,412 170,561 182,149 3.4 10.5 Net sales 90,217 73,077 88,785 1.6 23.5 1) We expect volumes to increase by 11% yoy and ASPs to improve due to addition of XUV500 EBITDA 11,940 9,534 12,350 (3.3) 25.2 in the product mix. 2) We expect EBITDA margins Margin (%) 13.2 13.0 13.9 to decline by 70 bps qoq due to lower share of tractors in the product mix than last quarter and Recurring PAT 8,943 7,614 7,785 14.9 17.5 negative operating leverage in tractor segment EPS FD 14.6 12.4 12.7 14.9 17.5

Tata Motors Standalone Volumes 215,649 206,437 188,774 14.2 4.5 Net sales 128,259 129,538 105,864 21.2 (1.0)

EBITDA 9,069 8,729 6,998 29.6 3.9 Margin (%) 7.1 6.7 6.6

Recurring PAT 1,229 3,080 3,180 (61.4) (60.1) EPS FD 0.4 1.0 1.0 (61.4) (60.1)

1) We forecast standalone volumes to increase by 14% qoq primarily driven byincrease in passenger JLR (mn pounds) vehicle volumes due to strong revival in Nano Volumes 83,000 68,000 83,452 (0.5) 22.1 volumes. 2) We expect EBITDA margins to rise by Net sales 3,317 2,915 3,638 (8.8) 13.8 50 bps sequentially due to operating leverage benefit. (3) We forecast JLR volumes to remain flat EBITDA 428 420 527 (18.8) 1.9 qoq and EBITDA margins to decline by 160 bps Margin (%) 12.9 14.4 14.5 sequentially due to negligible volumes of Range Rover in the product mix due to new model Recurring PAT 169 172 236 (28.4) (1.7) change

Consolidated Net sales 440,204 361,975 433,236 1.6 21.6

EBITDA 48,449 45,039 57,549 (15.8) 7.6 Margin (%) 11.0 12.4 13.3

Recurring PAT 16,825 18,775 22,449 (25.1) (10.4) EPS FD 5.2 5.8 7.0 (25.1) (10.4)

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 India Automobiles

Earnings preview of auto stocks March fiscal year-ends (Rs mn)

Change (%) 2QFY13E 2QFY12 1QFY13 qoq yoy Comments Bharat Forge - consolidated Net sales 15,366 15,593 16,427 (6 .5) (1.5)

1) We estimate standalone revenues to decline by 1% yoy EBITDA 2,496 2,534 2,751 (9 .3) (1.5) driven by 7% yoy decline in domestic revenues partially Margin (%) 16.2 16.3 16.7 offset by 5% yoy improvement in export revenues. 2) We forecast standalone EBITDA margins to decline by 50 bps Recurring PAT 1,021 1,040 1,019 0.2 (1.8) qoq due to decline in domestic revenues EPS FD 4.3 4.4 4.3 0.2 (1.8)

Exide Industries Net sales 14,930 11,761 15,536 (3 .9) 26.9 1) We estimate revenues to improve by 26% yoy driven by EBITDA 2,195 903 2,342 (6 .3) 143.1 improvement in inverter volumes and 4 wh replacement Margin (%) 14.7 7.7 15.1 volumes, 2) We expect EBITDA margins to decline by 40 bps qoq due to lower share of inverter battery revenues in the Recurring PAT 1,443 512 1,534 (5 .9) 181.8 overall revenues EPS FD 1.7 0.6 1.8 (5 .9) 181.8

Motherson Sumi - consolidated Net sales 58,462 23,402 63,880 (8 .5) 149.8 1) We estimate standalone revenues to decline by 14% yoy EBITDA (adjusted for forex driven by 8% yoy decline in domestic revenues due to strike 3,651 2,036 4,552 (19.8) 79.3 changes) at Maruti plant. 2) We forecast standalone EBITDA margins Margin (%) 6.2 8.7 7.1 (adjusted for forex changes) to decline by 420 bps qoq due to decline in domestic revenues, however we expect Reported PAT 1,219 243 81 1,404.9 401.6 consolidated EBITDA margins (adjusted for forex changes) EPS FD 2.1 0.4 0.1 1,404.9 401.6 to decline by 90 bps qoq

Source: Kotak Institutional Equities estimates

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH

CAUTIOUS Metals & Mining

India OCTOBER 04, 2012 UPDATE BSE-30: 19,058

2QFY13E preview—metal stocks stare at weak operational quarter. We expect a weak operational quarter for Indian metal and mining names due to (1) a decline in commodity prices—1-3% in non-ferrous and 9-13% in the steel segment, and (2) increase in conversion costs. Reported net profit may however appear better on forex gains on unhedged FX borrowings. JSPL would be the only company to report yoy and qoq growth in earnings. We retain our Cautious coverage view on the sector.

A weak operational quarter for Indian metal stocks

2QFY13 had it all—resurfacing of Euro debt crisis, slowdown in China without any adjustment in production and a freefall in commodity prices. Commodity prices rebounded in September led by the announcement of a bond-buying program by ECB, open-ended monetary easing by FED and stimulus measures in China through approval of US$125 bn of infrastructure projects. Despite the rebound, commodity prices would be down on a sequential basis—1-3% for nonferrous and 9- 13% for steel products. We forecast sequential EBITDA decline for all companies (except JSPL and Hindalco) under our coverage due to (1) a decline in commodity prices and (2) cost push with increase in power & fuel and employees costs.

Non-ferrous segment to be impacted by price decline and cost inflation

While lower commodity prices is a common underlying theme for a weak quarter, there are additional concerns in each of the segments—(1) aluminium producers would have a seasonally weak quarter due to the monsoon that impacts availability of coal to fire power plants. As a result, expect sequential spike in coal costs. We expect yoy and qoq EBITDA decline for Nalco and muted performance from Hindalco, (2) deterioration in ore grade will impact production, costs and EBITDA of Hindustan Zinc for the quarter and (3) Sterlite will be impacted by the above factors. In addition, the power segment may also be impacted by lower availability of coal for the Jharsugda power plant. We expect yoy and qoq EBITDA decline of 10.7% and 4% respectively.

Steel companies—fine for a seasonally weak quarter

Steel prices have declined by Rs1,500-1,800/tonne in the flats segments and Rs2,000-2,500 in the long products. We expect a marginal uptick in steel deliveries though continuation of inventory build-up is a source of concern. However, a combination of strong volume growth (JSW Steel and

JSPL) and benefit of Rupee depreciation (all companies) shall ensure flattish-to-marginal growth in EBITDA on yoy comparison.

Currency to the rescue at the operational and net income level

Indian metal companies would have the best of both worlds—average currency depreciation of 2.1% in 2QFY13 over 1QFY13 and appreciation at the end of the quarter period (September 30 over June 30) that shall ensure large forex gains on unhedged foreign currency borrowings. We expect gains of Rs0.2-2 bn for companies under our coverage universe.

Retain Cautious view on the sector—overcapacity and excess inventory to hurt

We maintain our Cautious coverage view on the sector. We believe that slowdown in China, overcapacity, lack of production discipline, especially in steel, and excess inventory will keep commodity prices under check and impede any recovery in stock prices. India-specific factors of projects that are stuck due to lack of availability of raw material, environmental clearances and mining ban are additional headwinds. Highly leveraged balance sheet of select companies in a weakening cycle does not help either.

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

India Metals & Mining

Exhibit 1: Commodity price trend (US$/tonne)

Change (%) Implied Rupee realization Change (%) 2QFY12 1QFY13 2QFY13 yoy qoq 2QFY12 1QFY13 2QFY13 yoy qoq Aluminium 2,398 1,980 1,921 (19.9) (3.0) 109,780 107,325 105,883 (3.5) (1.3) Zinc 2,221 1,929 1,885 (15.2) (2.3) 101,694 104,550 103,883 2.2 (0.6) Lead 2,450 1,976 1,975 (19.4) (0.0) 112,179 107,098 108,853 (3.0) 1.6 Copper 9,429 7,872 7,708 (18.3) (2.1) 431,666 426,667 424,858 (1.6) (0.4)

Source: Bloomberg, Kotak Institutional Equities

Exhibit 2: Metal price assumptions (US$/tonne)

Current prices Price assumptions (US$/tonne) 2012 2013E 2014E Spot Aluminium 2,316 1,950 2,050 2,080 Zinc 2,098 1,875 1,975 2,053 Lead 2,269 1,950 2,025 2,261 Steel 738 621 588 570

Source: Bloomberg, Kotak Institutional Equities estimates

Exhibit 3: CIS export and China export FOB HRC price trend over the last year (US$/tonne)

750 China export HRC FOB (US$/tonne) CIS export HRC FOB (US$/tonne)

700

650

600

550

500 Jul-12 Jan-12 Jun-12 Feb-12 Oct-11 Sep-11 Sep-12 Apr-12 Dec-11 Nov-11 Mar-12 Aug-12 May-12

Source: Bloomberg, Kotak Institutional Equities

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Metals & Mining India

Exhibit 4: Non-ferrous metal price trend, December year-ends, 2008-12 (US$/tonne)

LME Aluminium (US$/tonne) LME Zinc (US$/tonne) 3,600 3,000

3,200 2,500 2,800

2,400 2,000

2,000 1,500 1,600

1,200 1,000 Jun-09 Jun-10 Jun-11 Jun-12 Oct-08 Feb-09 Oct-09 Feb-10 Oct-10 Feb-11 Oct-11 Feb-12 Oct-12 Jun-09 Jun-10 Jun-11 Jun-12 Oct-08 Feb-09 Oct-09 Feb-10 Oct-10 Feb-11 Oct-11 Feb-12 Oct-12

LME Copper (US$/tonne) LME Lead (US$/tonne) 12,000 4,000

10,000 3,500

3,000 8,000 2,500 6,000 2,000 4,000 1,500

2,000 1,000

0 500 Jun-09 Jun-10 Jun-11 Jun-12 Jun-09 Jun-10 Jun-11 Jun-12 Oct-08 Feb-09 Oct-09 Feb-10 Oct-10 Feb-11 Oct-11 Feb-12 Oct-12 Oct-08 Feb-09 Oct-09 Feb-10 Oct-10 Feb-11 Oct-11 Feb-12 Oct-12

Source: Bloomberg, Kotak Institutional Equities

Exhibit 5: Rupee appreciated towards the end of the quarter

(INR/US$) INR/US$

58

52.3 54

50

46

42 Jul-12 Jan-12 Jun-12 Oct-12 Oct-11 Feb-12 Sep-12 Apr-12 Dec-11 Nov-11 Mar-12 Aug-12 May-12

Source: Bloomberg, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 India Metals & Mining

Exhibit 6: Results preview for ferrous companies (Rs mn)

Change (%) 2QFY12 1QFY13 2QFY13E yoy qoq FERROUS Jindal Steel and Power - Standalone Net Sales 33,338 33,311 37,359 12.1 12.2 Expect robust EBITDA growth led by (1) higher steel deliveries of 606 kt, an increase from 561 kt in EBITDA 10,867 10,377 12,352 13.7 19.0 1QFY13 and (2) forex gain of Rs200 mn versus a loss of Rs1 bn in 1QFY13. Note that forex EBIT 8,728 8,005 9,861 13.0 23.2 gain/(losses) are included in other expenses Net profit 5,435 124 5,074 (6.6) 3,985.6 We expect EBITDA/tonne of Rs14,775 (numerator includes entire segment EBITDA, denominator Steel deliveries ('000 tonnes) 598 561 606 1.3 8.0 excludes pellet volumes), a decline of Rs2,753 from the previous quarter on account of decline in Metallic deliveries ('000 tonnes) 29 2 37 28.0 1,815.5 steel prices. 1QFY13 net income includes write-down of entire Rs5.74 bn of investment in Bolivia Power sales (mn units) 947 1,516 1,592 68.1 5.0 Jindal Steel and Power - consolidated Net Sales 44,232 47,015 50,377 13.9 7.2 Previous quarter net income included one-off items, viz. (1) forex loss of Rs1 bn at the EBITDA EBITDA 17,038 15,932 19,050 11.8 19.6 level, (2) non-recurring provision of Rs1 bn in JPL and (3) Rs5.74 bn write-down of investment in EBIT 13,695 12,404 15,229 11.2 22.8 Bolivia mines. Expect net income to improve materially on qoq basis Net profit 8,754 3,853 9,382 7.2 143.5 Steel deliveries ('000 tonnes) 598 561 606 1.3 8.0 We expect net profit of Rs3.7 bn at Jindal Power, a subsidiary of JSP Power (mn units) 2,765 3,682 3,446 24.6 (6.4) JSW Steel - standalone Net Sales 76,321 90,376 88,781 16.3 (1.8) We model crude steel production of 2,145 kt, implying ~80% capacity utilization for the Sep 2012 EBITDA 12,961 17,728 15,410 18.9 (13.1) quarter. Sesonally weak quarter will lead to build-up of inventories EBIT 9,291 13,773 11,376 22.4 (17.4) Net profit 1,271 2,690 6,339 398.7 135.7 Steel deliveries ('000 tonnes) 1,882 2,109 2,145 14.0 1.7 We expect EBITDA/tonne to decline 16% qoq to Rs7,184 on Rs1,500/tonne decline in steel prices, Average realisation/tonne (US$) 885 790 751 (15.1) (5.0) offset by decline in raw material costs. Forex gain of Rs2 bn likely and will aid net income EBITDA/tonne (US$) 150 155 130 (13.3) (15.9) JSW Steel - consolidated Net Sales 81,339 99,020 96,318 18.4 (2.7) Expect strong yoy growth in EBITDA to be led by 14% growth in steel deliveries EBITDA 13,938 19,085 16,285 16.8 (14.7) EBIT 9,747 14,062 11,258 15.5 (19.9) Net profit before extraordinaries, tax 6,518 3,888 4,153 (36.3) 6.8 We forecast JSW's share of loss in Ispat at Rs341 mn. For Ispat, we expect steel deliveries of 730 Net profit (6,693) 495 5,493 (182.1) 1,009.1 kt, EBITDA of Rs1.55 bn, forex gain of Rs1.75 bn and net loss of Rs73 bn Steel deliveries ('000 tonnes) 1,882 2,109 2,145 14.0 1.7 Sesa Goa Net Sales 7,841 17,249 4,528 (42.3) (73.7) Iron ore shipments likely to decline 75% yoy on account of (1) negligible volumes from Karnataka mines, down from 710k tonnes in 2QFY12, and (2) 55% decline in Goa shipments to 400k EBITDA 2,600 6,762 407 (84.4) (94.0) tonnes. Decline on account of imposition of ban on mining in Goa and delays in issue of transport EBIT 2,861 6,610 240 (91.6) (96.4) permits in South Goa impacted volumes Net profit 13 9,640 5,385 41,967 (44.1) Expect Rs1.25 bn of Fx gain on US$500 mn of unhedged foreign currency borrowings. KIE energy Saleable ore ('000 dmt) 1,550 2,900 400 (74.2) (86.2) team forecasts net profit of Rs26.2 bn for Cairn India; Sesa's share of earnings stands at Rs5.25 bn Average realisation/tonne (US$) 75 90 83 10.0 (7.8) Tata Steel - Standalone Net Sales 82,119 89,080 90,630 10.4 1.7 EBITDA 27,698 27,798 27,160 (1.9) (2.3) We expect shipments of 1,655 kt, qoq increase 4.1% and flat on yoy comparison. We expect steel EBIT 25,062 25,773 25,377 1.3 (1.5) realization to decline Rs1,750/tonne on lower flat and long product prices Net profit 14,952 13,566 14,343 (4.1) 5.7 Steel deliveries ('000 tonnes) 1,650 1,590 1,655 0.3 4.1 We expect EBITDA/tonne to decline qoq to Rs16,409/tonne (US$289/tonne)—decline would be Average realisation/tonne (US$) 1,086 1,038 985 (9.3) (5.1) arrested to some extent on likely lower forex loss EBITDA/tonne (US$) 357 324 289 (19.1) (10.7) Tata Steel - Consolidated Net Sales 327,979 338,212 323,915 (1.2) (4.2) We expect loss of US$5/tonne at the EBITDA level for Corus versus a positive number of EBITDA 27,500 34,033 26,966 (1.9) (20.8) US$35/tonne in the previous quarter on account of (1) decline in realization and (2) likely write- EBIT 17,617 23,847 16,178 (8.2) (32.2) down of coking coal and iron ore inventory. We expect shipments of 3.3 mn tonnes at Corus Net profit 2,124 5,979 3,322 56.4 (155.6) Steel deliveries ('000 tonnes) 6,100 5,680 5,566 (8.7) (2.0) Previous quarter financials include one-off expenses and forex losses that will reduce materially in Average realisation/tonne (US$) 1,173 1,100 1,056 (10.0) (4.0) this quarter EBITDA/tonne (US$) 98 111 88 (10.6) (20.8)

Source: Company, Kotak Institutional Equities estimates

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Metals & Mining India

Exhibit 7: Results preview for non-ferrous companies (Rs mn)

Change (%) 2QFY12 1QFY13 2QFY13E yoy qoq NON - FERROUS Hindalco Industries Net Sales 62,719 60,279 64,822 3.4 7.5 Inconsistent power supply at Hirakud and Renukoot to impact 2QFY13 production and EBITDA 6,692 4,631 5,321 (20.5) 14.9 increase COP. Expect aluminium production to decline 11% yoy to 128 kt EBIT 6,712 5,941 5,320 (20.7) (10.4) Net profit 5,025 4,248 3,669 (27.0) (13.6) Copper segment to have robust quarter sequentially led by improvement in production, Primary aluminium ('000 tonnes) 143 132 128 (10.7) (3.0) acid realization and Tc/Rc. 1QFY13 other income included dividend received from Copper cathodes ('000 tonnes) 75 69 78 4.6 13.0 subsidiaries, unlikely to recur in this quarter and will result in sequential net income Aluminium EBITDA/tonne (US$) 855 558 606 (29.1) 8.7 decline Novelis Net Sales (US$ mn) 2,880 2,550 2,511 (12.8) (1.5) Shipments may improve marginally qoq though decline on yoy comparison. Decline in EBITDA (US$ mn) 301 260 265 (12.1) 1.8 beverage can volumes is a concern Net profit (US$ mn) 120 91 78 (35.3) (14.7) Shipments ('000 t) 765 748 757 (1.0) 1.3 Company's focus on profitability over volumes shall ensure steady EBITDA/tonne Adj. EBITDA/tonne (US$) 393 348 350 (11.2) 0.6 Hindustan Zinc Net Sales 26,368 27,477 26,651 1.1 (3.0) Refined zinc volumes to decline due to deterioration of ore grade at Rampura Agucha EBITDA 14,648 14,286 13,683 (6.6) (4.2) mine. Maintenance shutdown of lead smelter will impact lead production. Lower volume EBIT 17,061 18,295 16,440 (3.6) (10.1) and zinc and lead prices will result in EBITDA decline Net profit 13,447 15,813 13,702 1.9 (13.4) Refined Zinc ('000 tonnes) 184 160 156 (15.1) (2.3) Previous quarter other income includes Rs1.2 bn MTM gain on bond portfolio and Refined Lead ('000 tonnes) 15 29 23 59.6 (19.2) unlikely to recur in 2QFY13 Silver (kg) 41,454 73,000 71,000 71.3 (2.7) National Aluminium Co. Net Sales 16,139 17,481 16,216 0.5 (7.2) EBITDA likely to decline on cost inflation—furnace oil and lower availability of coal for EBITDA 1,526 3,042 1,474 (3.4) (51.5) CPP will impact financials EBIT 1,667 3,222 1,552 (6.9) (51.8) Net profit 1,393 2,231 1,069 (23.3) (52.1) Aluminum smelting will continue to be a loss-making business for the company. Expect Aluminium deliveries ('000 tonnes) 106 102 103 (2.7) 0.8 loss to continue in the current quarter Sterlite Industries Net Sales 101,957 106,484 99,132 (2.8) (6.9) EBITDA 24,820 23,083 22,164 (10.7) (4.0) Expect EBITDA to decline on lower commodity prices. Zinc and lead production is likely EBIT 20,370 17,901 17,590 (13.6) (1.7) to be impacted by deterioration of grade of ore. Copper segment will have a robust Net profit 9,978 12,016 10,750 7.7 (10.5) quarter led by improvement in Tc/Rc and acid realization Copper cathodes ('000 tonnes) 87 88 84 (3.3) (4.4) Aluminum ('000 tonnes) 60 60 60 — — Power wheeled units (mn units) 1,615 2,410 2,507 55.2 4.0 Likely forex gain of Rs1.5 bn (Rs2.2 bn loss in the previous quarter) may be offset by Refined Zinc ('000 tonnes) 184 160 156 (15.1) (2.3) lower gain on MTM of bonds Refined Lead ('000 tonnes) 15 29 23 59.6 (19.2) Silver (kg) 41,454 73,000 71,000 71.3 (2.7)

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 India Metals & Mining

Exhibit 8: Metals comparative valuation summary, March fiscal year-ends, 2011-14E

Market cap. CMP (Rs) Target EPS (Rs) P/E (X) Company (US$ mn) 4-Oct price (Rs) Rating 2011 2012 2013E 2014E 2011 2012 2013E 2014E Hindalco Industries 4,579 124 115 REDUCE 12.8 17.7 14.9 14.5 9.7 7.0 8.3 8.5 Hindustan Zinc 11,176 137 135 ADD 11.6 13.1 13.1 13.3 11.8 10.5 10.5 10.3 Jindal Steel and Power 7,507 416 445 REDUCE 40.2 42.4 39.1 45.2 10.4 9.8 10.7 9.2 JSW Steel 3,199 743 585 SELL 78.6 24.1 46.7 64.3 9.5 30.8 15.9 11.6 National Aluminium Co. 2,548 51 50 SELL 4.1 3.4 3.1 3.2 12.4 15.2 16.3 15.9 Sesa Goa 2,936 175 196 ADD 48.6 31.0 43.9 38.2 3.6 5.6 4.0 4.6 Sterlite Industries 6,602 102 117 ADD 15.0 14.4 13.8 14.0 6.8 7.1 7.4 7.3 Tata Steel 7,666 409 390 ADD 69.5 26.1 34.8 49.9 NM 15.7 11.7 8.2

EV/EBITDA (X) Price/BV (X) RoE (%) Company 2011 2012 2013E 2014E 2011 2012 2013E 2014E 2011 2012 2013E 2014E Hindalco Industries 5.4 6.9 7.3 7.2 0.8 0.7 0.7 0.7 9.7 11.1 8.6 7.8 Hindustan Zinc 7.8 6.6 6.3 5.4 2.6 2.2 1.9 1.9 24.1 22.4 19.0 16.8 Jindal Steel and Power 8.3 8.2 8.3 7.4 2.8 2.1 1.8 1.8 30.6 24.6 16.4 18.2 JSW Steel 6.7 5.5 6.1 6.3 1.0 1.0 0.9 0.9 13.6 3.2 6.1 7.9 National Aluminium Co. 5.1 7.3 6.4 5.3 1.2 1.1 1.1 1.1 10.0 7.6 6.8 6.6 Sesa Goa 1.1 5.0 5.2 6.9 1.2 1.0 0.8 0.8 40.7 19.3 22.7 16.6 Sterlite Industries 5.0 4.5 3.6 2.9 0.8 0.7 0.7 0.7 13.0 12.1 9.7 9.1 Tata Steel 5.5 7.8 6.5 5.8 1.1 0.9 0.9 0.9 22.8 6.4 7.7 10.4

Note: 1. EV/EBITDA for Sterlite Industries is proportionate EV/EBITDA

Source: Company, Kotak Institutional Equities estimates

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy.dot

INDIA Strategy

India Quantitative OCTOBER 04, 2012 UPDATE BSE-30: 19,058 Sentiments drive alpha in CYTD12 even as value flourishes in September. While value-based investing continues to exhibit a high risk-reward profile, sentiment as an investment style has flourished in CYTD12 yielding 14% during the period. Three out of the five companies in the sentiment-based portfolio for October 2012 are from the Cement sector.

Introducing eXtractor, KIE’s proprietary data-analytics tool We introduce KIE’s proprietary data-analytics tool, eXtractor, which mines a universe of Indian stocks based on nine factors: value, relative value, growth, profitability, momentum, leverage, size, sentiment and our proprietary factor iQ, or investment quotient. The data-mining is comprehensive in nature with iQ, deriving higher concepts from basic financial parameters by unifying various traditional investment parameters under a single factor. This bridges the gap between data and QUICK NUMBERS inference. eXtractor will soon be available on our website, where clients can screen and test • In September 2012, various investment styles, using their own parameters for universe, investment horizons, churn periods, portfolio size and more. portfolios based on value and relative September 2012 portfolio performance—value dominates while iQ lags behind value returned 13% With the broader markets rallying ~8% during the month, most of the investment styles failed to and 18% outperform the CNX Nifty 50. Value and relative value dominated in terms of outperformance respectively with the respective portfolios yielding 13.3% and 17.9% respectively (see Exhibit 1). The value portfolio benefited with the presence of PSU banks like PNB (up 24% mom) and BoB (up 26% • Value-based mom) which saw a reversal in sentiments in September as India witnessed strong FII inflows. iQ investing has and growth lagged the broader benchmark with TCS disappointing in both portfolios (down 3.6%). underperformed Since June 2012, investment styles based on value and relative value have shown considerable the CNX Nifty 50 by volatility (see Exhibit 2). Momentum and KIE’s composite factor, iQ, have disappointed while a 6% in CYTD12 portfolio strategy based on sentiments has shown relative consistency during the same period. CYTD12 investment trends—sentiments have been a driving force again • Sentiment has been the best performing For CYTD12, portfolios based on sentiments like EPS and rating revisions have been the best investment style in performers, outperforming the CNX Nifty 50 by ~14% (see Exhibit 3). This is similar to the trend CYTD12 witnessed in CY2010 and CY2011 where sentiment-based investments outperformed the broader index and other traditional investment styles. While value gained dominance in June 2012 and September 2012, the investment style has underperformed the broader index on a CYTD basis. These current trends for sentiment and value seem to verify the historical trend witnessed for each of these styles since April 2006. Sentiment has historically shown alpha-generating accuracy with a hit ratio of ~70% (see Exhibit 4) while value has a coin-toss probability of outperforming on a monthly basis. Value picking’s unimpressive hit ratio is compensated by its high risk-reward balance with a historical profit factor of ~1.5X (see Exhibit 5) implying that expected returns from a value-picking strategy are usually 1.5X the downside risk.

Portfolio changes for October 2012—Cairn enters the value and relative value portfolio While Exhibit 6 showcases the different portfolios based on the traditional investment styles for the previous month (September 2012), refer to Exhibit 7 for the October 2012 portfolios for the same. With a strong rally witnessed in September, the portfolio based on relative value has three replacements. Jaiprakash Associates, Hindalco and Sterlite have been replaced by Cairn, Sesa Goa and Axis Bank. JPA and Hindalco rallied 27% and 16% in September while Sterlite gets removed from the portfolio as it has exited the CNX Nifty 50. ONGC replaces TCS in the iQ-based portfolio while Cairn continues to exhibit a high iQ-score on the back of growth, value and profitability. Cement companies dominate the sentiment portfolio with three out of the five companies coming from the sector (Ambuja Cements, Ultratech Cements and Grasim Industries). The portfolio based on sentiment is already up 2.8% in October 2012.

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

Exhibit 1: The value portfolio outperformed on the back of PSU banks like PNB and BoB Performance of the portfolios based on different investment styles, September 2012

Portfolio returns Minimum Maximum Average Investment style Company Returns (%) Company Returns (%) (%) iQ Tata Consultancy Services Ltd (3.6) Tata Motors Ltd 14.2 3.2 Growth Tata Consultancy Services Ltd (3.6) Tata Motors Ltd 14.2 2.0 Value Oil & Natural Gas Corp Ltd 1.8 Bank of Baroda 26.3 13.3 Relative value Sterlite Industries India Ltd 3.5 Jaiprakash Associates Ltd 27.4 17.9 Profitability Tata Consultancy Services Ltd (3.6) Bajaj Auto Ltd 13.2 4.8 Size Tata Consultancy Services Ltd (3.6) State Bank of India 21.9 6.3 Momentum Cipla Ltd/India 1.0 Grasim Industries Ltd 10.9 5.7 Sentiments Coal India Ltd 2.1 ACC Ltd 12.3 7.1 Leverage Coal India Ltd 2.1 Maruti Suzuki India Ltd 18.1 7.7

Source: Source: eXtractor, Factset estimates, Kotak Institutional Equities

Exhibit 2: iQ and momentum have been the most disappointing in terms of outperformance Mom performance of different investment styles in the CNX Nifty 50 universe, June 2012-September 2012

Jun-12 Jul-12 Aug-12 Sep-12 20

15

10

5

0

(5)

(10) iQ Size Value value Growth Relative Leverage Sentiments Profitability Momentum

Source: eXtractor, Factset estimates, Kotak Institutional Equities

Exhibit 3: Sentiments have been the best performing investment style in CYTD12 while the composite factor iQ has underperformed Performance breakup for the different factors between April 2006 and September 2012 within the CNX Nifty 50 universe

iQ Growth Value Relative value Profitability Size Momentum Sentiments Leverage Absolute returns (%) CY2006283422394940132532 CY2007 86 46 49 25 22 50 125 56 7 CY2008 (48) (57) (36) (25) (37) (55) (39) (40) (34) CY2009 174 153 155 169 118 73 110 164 98 CY2010 30 (1) 21 10 10 1 22 37 19 CY2011 2 5 (9) (1) 13 (6) (9) 20 15 CY2012 (4) 20 2 14 17 8 6 25 10 Relative outperformance (%) CY2006 (4) 1 (9) 4 13 5 (16) (6) (1) CY2007 57 17 19 (6) (1) 19 91 27 (16) CY2008 (3) (16) 19 45 13 (17) 2 4 14 CY2009 64 55 56 62 25 4 25 58 18 CY2010 14 (13) 7 (2) (3) (11) 8 21 6 CY2011 7 10 (2) 9 15 (1) (6) 26 19 CY2012 (13) 8 (6) 6 6 (2) (4) 14 1

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Source: eXtractor, Factset estimates, Kotak Institutional Equities

Exhibit 4: Sentiment has been the most accurate investment style during our period of analysis Hit ratio (a) for different investment styles in the CNX Nifty 50, April 2006-September 2012

Hit ratio 75 70 65 60 55 50 45 40 iQ Size Value value Growth Relative Leverage Sentiments Profitability Momentum

Notes: (a) Hit ratio stands for the number of periods where the portfolio has made positive returns. (b) Portfolio of top five stocks in the CNX Nifty 50 universe churned on a monthly basis.

Source: Factset estimates, eXtractor, Kotak Institutional Equities

Exhibit 5: Value picking has shown a trend of having a high risk-reward profile Profit factor (a) for different investment styles in the CNX Nifty 50, April 2006-September 2012

Profit factor 1.6

1.4

1.2

1.0

0.8 iQ Size Value value Growth Relative Leverage Sentiments Profitability Momentum Notes: (a) Profit factor is calculated as (average positive returns)/(average negative returns). (b) Portfolio of top five stocks in the CNX Nifty 50 universe churned on a monthly basis.

Source: Factset estimates, eXtractor, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 India Strategy

Exhibit 6: Value and relative value outperform the benchmark while other investment styles lag behind in September 2012 The portfolios based on different investment strategies within the CNX Nifty 50 universe for September 2012

eXtractor factor ranks Price change MoM Current Portfolio Growth Value Relative value Profitability Size Momentum Sentiments Leverage iQ (%) iQ Cairn India Ltd 4 8 12 6 26 20 15 21 1 (2.6) Tata Motors Ltd 1 9 8 17 6 15 39 38 2 14.2 Coal India Ltd 21 22 31 7 5 22 3 10 3 2.1 Tata Consultancy Services Ltd 2 43 42 5 4 8 14 18 4 (3.6) HCL Technologies Ltd 8 23 34 13 33 10 2 27 5 6.1 Growth Tata Motors Ltd 1 9 8 17 6 15 38 38 2 14.2 Tata Consultancy Services Ltd 2 42 41 5 4 8 14 18 4 (3.6) Sun Pharmaceutical Industries 3 45 40 10 29 6 1 12 7 4.1 Cairn India Ltd 4 8 11 6 26 20 15 21 1 (2.6) Dr Reddy's Laboratories Ltd 5 36 37 16 42 17 29 33 32 (1.9) Value Punjab National Bank 30 1 9 38 14 44 42 35 24.2 Bank of Baroda 24 2 13 39 16 39 40 28 26.3 Oil & Natural Gas Corp Ltd 33 3 27 12 2 26 28 26 6 1.8 Tata Steel Ltd 44 4 19 45 12 45 48 43 43 10.9 Sterlite Industries India Ltd 35 5 5 31 24 42 23 32 20 3.5 Relative value Reliance Infrastructure Ltd 37 18 1 47 38 37 8 37 26 21.1 Jindal Steel & Power Ltd 13 28 2 15 34 48 25 39 33 21.3 Jaiprakash Associates Ltd 43 36 3 41 39 35 45 49 46 27.4 Hindalco Industries Ltd 41 12 4 48 22 47 38 42 42 16.2 Sterlite Industries India Ltd 35 5 5 31 24 42 23 32 20 3.5 Profitability Hindustan Unilever Ltd 6 49 47 1 21 1 17 14 15 6.0 ITC Ltd 26 48 49 2 11 3 21 19 31 1.8 Bajaj Auto Ltd 20 24 32 3 31 25 26 23 13 13.2 Hero Motocorp Ltd 10 20 29 4 36 38 32 13 14 6.7 Tata Consultancy Services Ltd 2 43 42 5 4 8 14 18 4 (3.6) Size Reliance Industries Ltd 45 20 21 42 1 19 19 30 12 9.2 Oil & Natural Gas Corp Ltd 33 3 26 12 2 26 28 26 6 1.8 State Bank of India 29 10 16 40 3 40 45 37 21.9 Tata Consultancy Services Ltd 2 42 41 5 4 8 14 18 4 (3.6) Coal India Ltd 21 21 30 7 5 22 3 10 3 2.1 Momentum Hindustan Unilever Ltd 6 49 47 1 21 1 17 14 15 6.0 Cipla Ltd/India 34 44 39 19 44 2 7 24 23 1.0 ITC Ltd 26 48 49 2 11 3 21 19 31 1.8 Ambuja Cements Ltd 28 33 48 18 43 4 6 17 16 9.0 Grasim Industries Ltd 36 17 33 26 35 5 5 35 10 10.9 Sentiments Sun Pharmaceutical Industries 3 46 41 10 29 6 1 12 7 4.1 HCL Technologies Ltd 8 23 34 13 33 10 2 27 5 6.1 Coal India Ltd 21 22 31 7 5 22 3 10 3 2.1 ACC Ltd 31 29 46 21 47 13 4 16 19 12.3 Grasim Industries Ltd 36 17 33 26 35 5 5 35 10 10.9 Leverage Maruti Suzuki India Ltd 32 22 24 33 29 23 28 1 32 18.1 Coal India Ltd 18 16 25 7 6 18 3 2 4 2.1 Infosys Ltd 21 24 15 8 12 27 31 3 15 7.3 Sun Pharmaceutical Industries 4 38 33 10 26 6 1 4 7 4.1 Hero Motocorp Ltd 9 14 23 4 33 33 29 5 13 6.7

Notes: (a) The ranks for a company may vary depending on the permissible universe used for analyzing a particular investment style

Source: Factset estimates, eXtractor, Kotak Institutional Equities

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 7: Sentiments have turned positive for ACEM, UTCEM and GRASIM; ONGC replaces TCS in the iQ-based portfolio for October 2012 The portfolios based on different investment strategies within the CNX Nifty 50 universe for October 2012

eXtractor factor ranks Price change MoM Current Portfolio Growth Value Relative value Profitability Size Momentum Sentiments Leverage iQ (%) iQ Tata Motors Ltd 1 7 9 19 6 11 37 39 1 2.2 Cairn India Ltd 4 5 2 6 25 39 24 22 2 (1.3) Coal India Ltd 21 14 18 7 5 36 9 10 3 1.7 Oil & Natural Gas Corp Ltd 36 2 13 12 2 37 36 26 4 0.1 HCL Technologies Ltd 10 20 31 14 35 7 11 27 5 2.4 Growth Tata Motors Ltd 1 7 9 19 6 11 37 39 1 2.2 Tata Consultancy Services Ltd 2 37 30 5 4 33 33 18 7 2.1 Sun Pharmaceutical Industries 3 46 36 10 28 16 13 12 14 0.3 Cairn India Ltd 4 5 2 6 25 39 24 22 2 (1.3) Ultratech Cement Ltd 5 38 49 23 30 1 4 28 9 2.2 Value Punjab National Bank 32 1 15 39 15 31 35 19 (1.5) Oil & Natural Gas Corp Ltd 36 2 13 12 2 37 36 26 4 0.1 Bank of Baroda 24 3 27 40 17 19 42 22 (2.2) Tata Steel Ltd 46 4 16 45 12 46 40 44 43 0.7 Cairn India Ltd 4 5 2 6 25 39 24 22 2 (1.3) Relative value Reliance Infrastructure Ltd 40 19 1 46 39 28 7 37 20 2.2 Cairn India Ltd 4 5 2 6 25 39 24 22 2 (1.3) Sesa Goa Ltd 41631749484832403.1 Jindal Steel & Power Ltd 15 28 4 18 32 40 47 38 38 (2.8) Axis Bank Ltd 18 12 5 38 19 26 41 17 (2.0) Profitability Hindustan Unilever Ltd 6 49 46 1 21 3 5 14 13 1.8 Bajaj Auto Ltd 26 24 38 2 31 20 38 23 16 (2.7) ITC Ltd 27 48 45 3 11 23 10 19 32 (0.8) Hero Motocorp Ltd 14 16 22 4 37 47 44 13 29 (1.6) Tata Consultancy Services Ltd 2 37 30 5 4 33 33 18 7 2.1 Size Reliance Industries Ltd 44 22 21 42 1 25 23 31 12 1.1 Oil & Natural Gas Corp Ltd 36 2 13 12 2 37 36 26 4 0.1 State Bank of India 29 11 28 41 3 21 32 10 2.5 Tata Consultancy Services Ltd 2 37 30 5 4 33 33 18 7 2.1 Coal India Ltd 21 14 18 7 5 36 9 10 3 1.7 Momentum Ultratech Cement Ltd 5 38 49 23 30 1 4 28 9 2.2 Grasim Industries Ltd 37 17 35 28 34 2 3 35 8 1.9 Hindustan Unilever Ltd 6 49 46 1 21 3 5 14 13 1.8 ICICI Bank Ltd 22 21 24 47 7 4 14 6 (0.5) Mahindra & Mahindra Ltd 12 29 43 26 27 5 8 30 11 0.6 Sentiments Ranbaxy Laboratories Ltd 20 36 37 24 48 30 1 45 39 1.7 Ambuja Cements Ltd 31 32 47 15 42 10 2 17 15 6.4 Grasim Industries Ltd 37 17 35 28 34 2 3 35 8 1.9 Ultratech Cement Ltd 5 38 49 23 30 1 4 28 9 2.2 Hindustan Unilever Ltd 6 49 46 1 21 3 5 14 13 1.8 Leverage Maruti Suzuki India Ltd 35 24 31 34 26 11 37 1 34 1.0 Coal India Ltd 17 10 16 7 5 28 9 2 4 1.7 Infosys Ltd 22 19 15 9 12 32 24 3 16 1.7 Sun Pharmaceutical Industries 3 38 28 10 27 14 13 4 14 0.3 Hero Motocorp Ltd 12 11 19 4 32 39 36 5 21 (1.6)

Notes: (a) The ranks for a company may vary depending on the permissible universe used for analyzing a particular investment style

Source: Factset estimates, eXtractor, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31

KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of KIE Universe stocks India DailyIndia Summary-October 2012 5,

O/S Target ADVT- 4-Oct-12 Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) price Upside 3mo Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2 012 2013E 2014E (Rs) (%) (US$ mn) Automobiles Apollo Tyres 90 BUY 45,444 880 504 8.1 11.7 14.0 (7.0) 43.8 20.0 11.1 7.7 6.4 6.2 4.7 4.0 1.4 1.2 1.0 0.5 0.7 0.9 15.6 19.0 19.1 110 22.0 6.6 Ashok Leyland 25 REDUCE 65,719 1,273 2,661 2.1 1.3 2.6 (10.6) (39.7) 105.3 11.6 19.3 9.4 7.6 9.5 6.5 1.4 1.4 1.3 4.0 4.0 4.0 17.7 10.3 20.3 23 (6.9) 3.4 Bajaj Auto 1,761 ADD 509,706 9,872 289 103.8 101.3 130.9 14.9 (2.4) 29.2 17.0 17.4 13.5 12.3 13.2 10.2 8.4 6.7 5.3 2.6 2.3 3.0 54.5 42.7 43.8 1,850 5.0 16.2 Bharat Forge 311 REDUCE 73,741 1,428 237 17.4 17.5 22.0 38.5 0.9 25.7 17.9 17.7 14.1 9.5 8.9 7.6 3.0 2.6 2.2 0.3 0.3 0.3 15.1 15.5 15.1 300 (3.5) 1.9 Exide Industries 151 SELL 128,690 2,493 850 5.4 6.9 7.9 (27.2) 27.2 14.7 27.9 21.9 19.1 18.7 14.3 12.9 4.2 3.7 3.3 1.0 1.2 1.3 15.9 18.0 18.2 115 (24.0) 3.2 Hero Motocorp 1,831 SELL 365,731 7,084 200 119.1 125.5 128.8 19.9 5.4 2.6 15.4 14.6 14.2 11.6 11.3 9.5 6.6 5.1 4.2 1.6 2.1 2.1 61.8 47.2 37.0 1,800 (1.7) 14.7 Mahindra & Mahindra 858 BUY 527,088 10,209 614 45.1 50.7 57.8 8.1 12.4 14.0 19.0 16.9 14.8 14.5 11.8 10.2 4.2 3.6 3.1 1.3 1.8 2.0 24.6 23.6 23.1 910 6.0 18.4 Maruti Suzuki 1,391 SELL 420,042 8,136 302 56.6 60.6 83.8 (28.6) 7.1 38.3 24.6 22.9 16.6 19.4 16.0 10.8 2.7 2.5 2.2 0.5 0.5 0.5 11.1 11.3 13.9 1,000 (28.1) 25.2

Motherson Sumi Systems 161 BUY 63,073 1,222 392 6.9 14.0 22.8 (31.9) 103.8 62.8 23.5 11.5 7.1 12.6 7.7 3.8 3.4 2.8 2.0 1.4 1.9 4.3 15.5 26.8 33.1 255 58.5 1.4 Tata Motors 274 BUY 882,655 17,096 3,218 44.6 35.3 51.8 58.7 (20.9) 47.0 6.2 7.8 5.3 5.3 5.0 3.7 2.6 2.1 1.5 1.5 1.9 2.0 54.8 30.0 33.5 320 16.7 53.6 Automobiles Neutral 3,081,889 59,692 25.8 (7.9) 34.7 11.7 12.7 9.4 8.5 7.9 6.0 3.5 2.9 2.3 1.5 1.7 2.0 29.7 22.7 24.7 Banks/Financial Institutions Andhra Bank 113 ADD 63,177 1,224 560 24.0 21.4 24.3 6.1 (10.9) 13.8 4.7 5.3 4.6 — — — 0.9 0.8 0.8 4.9 4.3 4.9 19.2 15.1 15.4 120 6.3 1.5 Axis Bank 1,141 ADD 471,383 9,130 413 102.7 103.2 104.7 24.4 0.5 1.5 11.1 11.1 10.9 — — — 2.1 1.8 1.6 1.4 1.4 1.4 20.3 17.4 15.4 1,200 5.2 53.4 Bajaj Finserv 954 REDUCE 138,025 2,673 145 94.8 71.8 71.1 21.3 (24.3) (1.1) 10.1 13.3 13.4 — — — 2.7 2.3 2.0 1.6 1.6 1.6 32.2 19.0 16.1 725 (24.0) 3.8 Bank of Baroda 794 REDUCE 327,268 6,339 412 121.4 116.1 117.0 12.4 (4.3) 0.7 6.5 6.8 6.8 — — — 1.3 1.2 1.1 2.1 2.5 2.5 21.7 17.0 15.0 710 (10.5) 10.8 Bank of India 305 BUY 175,401 3,397 575 46.6 59.8 62.7 2.5 28.3 4.9 6.6 5.1 4.9 — — — 1.0 0.9 0.8 2.3 2.9 3.1 15.0 16.2 15.0 370 21.2 4.8 Canara Bank 436 REDUCE 193,237 3,743 443 74.1 68.6 82.8 (18.5) (7.4) 20.6 5.9 6.4 5.3 — — — 1.0 0.9 0.8 2.5 2.8 2.8 15.4 12.7 13.8 420 (3.7) 7.4 Corporation Bank 423 BUY 62,599 1,212 148 101.7 88.1 114.7 6.6 (13.3) 30.1 4.2 4.8 3.7 — — — 0.8 0.7 0.7 4.9 4.2 5.5 19.5 14.9 17.1 510 20.7 0.5 Federal Bank 458 BUY 78,391 1,518 171 45.4 43.3 47.0 32.3 (4.7) 8.5 10.1 10.6 9.8 — — — 1.4 1.3 1.2 2.0 1.9 2.0 14.4 12.4 12.2 500 9.1 4.4 HDFC 789 SELL 1,208,603 23,409 1,532 27.9 32.0 37.9 15.8 14.7 18.5 28.3 24.7 20.8 — — — 6.4 4.8 4.3 1.3 1.5 1.8 22.7 22.2 21.7 690 (12.6) 48.0 HDFC Bank 631 SELL 1,481,464 28,694 2,347 22.0 28.0 35.0 30.4 27.3 24.9 28.7 22.5 18.0 — — — 5.0 4.3 3.7 0.7 0.9 1.1 18.7 20.3 21.5 580 (8.1) 31.5 ICICI Bank 1,083 ADD 1,248,909 24,190 1,153 56.1 61.9 64.8 25.4 10.3 4.7 19.3 17.5 16.7 — — — 2.1 2.0 1.9 1.5 1.7 1.8 11.2 11.4 11.1 1,085 0.1 77.1 IDFC 163 ADD 246,590 4,776 1,512 10.3 12.4 14.8 17.2 20.6 19.1 15.9 13.1 11.0 — — — 2.0 1.8 1.6 — 1.5 1.8 13.7 14.5 15.4 155 (4.9) 17.1 India Infoline 67 REDUCE 22,006 426 327 4.5 5.8 7.0 (38.3) 28.3 20.6 14.8 11.6 9.6 — — — 1.3 1.1 1.0 2.0 3.0 1.8 7.7 10.0 10.8 70 3.9 0.5 Indian Bank 195 BUY 83,612 1,619 430 39.6 39.9 42.6 1.2 0.9 6.7 4.9 4.9 4.6 — — — 1.0 0.9 0.8 3.9 3.8 4.0 19.4 17.0 16.0 260 33.6 1.0 Indian Overseas Bank 82 REDUCE 65,713 1,273 797 13.2 17.4 21.2 (24.0) 32.3 21.6 6.3 4.7 3.9 — — — 0.7 0.7 0.6 5.4 4.9 6.0 9.9 11.2 12.4 80 (3.0) 1.9 IndusInd Bank 371 ADD 173,564 3,362 468 17.2 19.3 22.7 38.5 12.4 17.6 21.6 19.2 16.4 — — — 3.9 3.4 2.9 0.6 0.7 0.8 20.1 18.7 18.5 360 (3.0) 3.3 J&K Bank 814 ADD 39,473 765 48 165.6 173.8 174.0 30.6 4.9 0.1 4.9 4.7 4.7 — — — 1.0 0.8 0.7 4.1 4.3 4.3 21.2 19.1 16.7 1,000 22.9 1.0 LIC Housing Finance 277 ADD 139,770 2,707 505 18.1 22.1 28.4 (11.8) 22.2 28.6 15.3 12.5 9.7 — — — 2.5 2.2 1.9 1.3 1.6 2.0 18.6 18.3 20.2 290 4.8 10.2 L&T Finance Holdings 49 ADD 83,938 1,626 1,715 2.7 3.7 4.9 (5.6) 39.2 32.3 18.4 13.3 10.0 — — — 1.8 1.6 1.3 — — — 11.9 12.5 14.4 55 12.4 0.7 Mahindra & Mahindra Financial 897 ADD 92,078 1,783 103 60.4 81.1 93.8 33.6 34.3 15.7 14.8 11.1 9.6 — — — 3.2 2.8 2.2 1.6 2.1 2.5 22.8 25.6 24.7 905 0.9 1.2 Muthoot Finance 182 BUY 67,596 1,309 372 24.0 21.4 22.6 52.4 (11.0) 5.5 7.6 8.5 8.1 — — — 2.3 1.8 1.5 2.2 — — 41.9 25.4 21.5 190 4.5 — Oriental Bank of Commerce 294 ADD 85,763 1,661 292 39.1 55.1 57.0 (24.0) 40.9 3.4 7.5 5.3 5.2 — — — 0.9 0.8 0.8 2.7 3.8 3.9 9.9 12.8 12.1 310 5.5 2.9 PFC 196 ADD 258,787 5,012 1,319 23.0 27.7 30.6 0.9 20.3 10.3 8.5 7.1 6.4 — — — 1.3 1.3 1.2 3.1 3.7 4.1 16.9 16.6 16.4 220 12.2 11.6 Punjab National Bank 833 REDUCE 282,400 5,470 339 144.0 145.3 158.6 2.9 0.9 9.2 5.8 5.7 5.2 — — — 1.2 1.1 0.9 2.6 2.7 2.9 21.1 17.4 16.5 820 (1.5) 12.0 Reliance Capital 453 ADD 111,424 2,158 246 21.1 22.8 21.8 126.7 8.2 (4.5) 21.5 19.8 20.8 — — — 1.0 1.0 0.9 1.7 1.5 1.4 5.7 5.0 4.6 450 (0.6) 28.8 Rural Electrification Corp. 222 REDUCE 218,756 4,237 987 28.6 35.7 39.1 10.0 24.9 9.7 7.8 6.2 5.7 — — — 1.5 1.5 1.4 3.4 4.2 4.6 20.5 22.1 20.9 234 5.6 8.8 Shriram City Union Finance 792 BUY 43,813 849 55 65.4 81.2 97.5 34.7 24.1 20.1 12.1 9.8 8.1 — — — 2.5 2.0 1.5 0.8 1.3 1.7 23.3 22.6 22.3 905 14.3 1.1 Shriram Transport 635 ADD 141,761 2,746 223 56.4 61.9 71.7 2.3 9.8 15.9 11.3 10.3 8.9 — — — 2.4 2.1 1.9 1.0 1.9 2.3 23.1 21.2 20.9 700 10.2 3.0 SKS Microfinance 130 RS 9,498 184 73 (189.0) (32.2) 0.5 (1,304.4) (83.0) (101.4) (0.7) (4.0) 288.2 — — — 2.2 4.1 3.7 — — — (122.9) (70.7) 1.4 — — 7.8 State Bank of India 2,346 ADD 1,574,060 30,487 671 174.5 206.3 219.2 34.0 18.3 6.2 13.4 11.4 10.7 — — — 2.4 2.2 1.9 1.7 1.8 1.9 15.7 15.5 14.7 2,300 (1.9) 124.4 Union Bank 206 BUY 113,358 2,196 551 32.3 39.2 40.7 (18.2) 21.3 4.0 6.4 5.3 5.1 — — — 1.0 0.9 0.8 3.9 3.7 3.9 14.9 15.7 14.5 240 16.6 4.4 Yes Bank 398 ADD 140,630 2,724 353 27.7 31.7 38.3 32.1 14.4 21.0 14.4 12.6 10.4 — — — 3.0 2.5 2.1 1.0 1.1 1.4 23.1 21.7 21.9 385 (3.4) 19.6 Banks/Financial Institutions Cautious 9,443,047 182,898 14.6 13.3 11.0 13.0 11.5 10.3 ——— 2.1 1.9 1.7 1.6 1.8 2.0 16.4 16.8 16.6 Cement ACC 1,481 SELL 278,194 5,388 188 57.1 71.6 78.6 7.8 25.4 9.7 25.9 20.7 18.8 15.0 11.1 9.5 3.6 3.2 2.9 2.2 1.6 1.6 16.9 17.9 17.4 1,160 (21.7) 7.6 Ambuja Cements 218 SELL 332,030 6,431 1,522 7.8 10.6 12.3 (1.2) 36.2 15.9 28.0 20.6 17.7 16.4 12.1 10.4 3.8 3.5 3.2 1.0 1.3 1.8 14.6 18.2 18.9 160 (26.6) 9.3 Grasim Industries 3,398 BUY 311,642 6,036 92 288.6 307.1 327.0 24.4 6.4 6.5 11.8 11.1 10.4 7.7 6.3 5.4 1.8 1.6 1.4 1.0 1.0 1.0 16.7 15.4 14.4 2,900 (14.6) 5.0 India Cements 95 ADD 29,228 566 307 9.0 10.5 13.4 373.8DailyIndia Summary -October 17.2 27.3 10.6 9.1 7.1 5.4 4.8 3.8 0.7 0.6 0.6 2.2 3.4 3.4 6.9 7.8 9.2 100 5.1 2.6 Shree Cement 4,075 SELL 141,965 2,750 35 159.6 230.2 231.3 179.3 44.2 0.5 25.5 17.7 17.6 7.4 9.2 8.2 5.3 4.9 4.0 0.5 0.5 0.5 24.3 28.9 24.9 2,850 (30.1) 1.0 UltraTech Cement 1,982 SELL 543,220 10,521 274 89.3 95.7 109.4 99.0 7.2 14.3 22.2 20.7 18.1 13.6 12.0 10.1 3.7 3.2 2.7 0.5 0.5 0.5 20.8 18.7 18.1 1,360 (31.4) 4.9 Cement Cautious 1,636,279 31,692 40.8 16.4 10.9 20.0 17.2 15.5 10.9 9.4 8.0 3.0 2.6 2.3 1.0 1.0 1.1 14.9 15.3 14.9

Source: Company, Bloomberg, Kotak Institutional Equities estimates 32

33 33

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

O/S Target ADVT- 4-Oct-12 Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) price Upside 3mo Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E (Rs) (%) (US$ mn) Consumer products Asian Paints 3,874 SELL 371,593 7,197 96 99.9 115.9 137.8 23.6 16.0 18.9 38.8 33.4 28.1 27.1 22.4 18.6 14.5 11.4 8.9 1.0 0.9 0.9 42.9 39.3 36.4 3,000 (22.6) 6.3 Bajaj Corp. 183 BUY 27,037 524 148 8.1 9.6 11.4 16.5 18.4 18.5 22.5 19.0 16.0 23.2 18.1 14.9 6.3 5.5 4.8 2.2 2.6 3.1 29.9 31.0 32.1 200 9.1 0.8 Colgate-Palmolive (India) 1,227 SELL 166,904 3,233 136 32.8 39.5 45.7 10.9 20.2 15.8 37.4 31.1 26.9 32.0 26.1 22.2 38.3 31.4 27.4 2.0 2.3 2.8 109.0 110.9 108.9 1,150 (6.3) 1.7 Dabur India 129 ADD 226,006 4,377 1,753 3.7 4.4 5.1 12.6 18.5 16.4 35.0 29.6 25.4 27.7 22.9 19.5 12.9 10.3 8.3 1.0 1.2 1.4 41.4 39.4 36.6 125 (3.1) 3.1 GlaxoSmithkline Consumer 3,012 ADD 126,688 2,454 42 84.5 104.6 122.4 18.5 23.9 17.0 35.7 28.8 24.6 27.3 22.7 18.9 11.5 9.5 8.0 1.2 1.4 1.7 33.8 35.0 34.2 3,000 (0.4) 1.5 Godrej Consumer Products 700 ADD 226,465 4,386 324 17.7 22.9 28.0 18.7 29.7 22.3 39.6 30.5 25.0 27.5 21.3 17.1 8.0 6.3 5.4 0.7 0.7 0.8 25.2 24.3 26.9 710 1.5 3.2 Hindustan Unilever 556 REDUCE 1,199,567 23,234 2,159 11.9 14.5 16.7 23.9 22.0 15.2 46.6 38.2 33.2 39.8 31.4 26.2 34.1 29.5 25.5 1.6 2.2 2.5 83.4 82.8 83.1 510 (8.2) 25.6 ITC 275 ADD 2,139,344 41,436 7,771 7.9 9.1 10.3 23.7 15.3 12.9 34.7 30.1 26.7 24.5 20.6 18.0 10.9 9.7 8.6 1.6 1.9 2.1 35.5 35.6 35.6 265 (3.7) 30.0 Jubilant Foodworks 1,335 SELL 87,546 1,696 66 16.7 23.9 35.2 49.3 42.7 47.6 79.8 55.9 37.9 46.0 31.4 22.1 29.2 19.2 12.7 — — — 44.7 41.4 40.4 1,000 (25.1) 10.7 Jyothy Laboratories 160 ADD 26,150 506 164 5.5 4.6 6.9 (46.6) (17.3) 51.1 28.9 34.9 23.1 37.9 20.6 15.9 4.3 3.8 3.3 — — — 6.1 11.6 15.3 130 (18.6) 0.9 Marico 204 ADD 131,450 2,546 645 5.3 6.6 7.9 36.3 25.5 19.4 38.6 30.7 25.7 29.0 21.2 17.4 11.3 8.6 6.7 0.3 0.5 0.5 31.5 32.3 29.8 205 0.5 1.2 Nestle India 4,586 SELL 442,167 8,564 96 104.6 118.7 142.7 20.5 13.5 20.2 43.8 38.6 32.1 29.0 23.6 19.8 34.7 25.1 17.9 1.1 1.2 1.3 94.7 75.3 65.1 4,000 (12.8) 3.0 Speciality Restaurants 188 ADD 8,828 171 47 4.9 6.6 8.5 7.6 34.9 28.5 38.4 28.5 22.2 24.3 15.0 11.1 7.7 5.6 4.5 — — — 16.2 14.7 12.2 200 6.4 0.7 Tata Global Beverages 152 BUY 93,935 1,819 618 5.4 6.4 7.8 36.3 19.1 21.2 28.2 23.6 19.5 16.6 13.8 11.8 1.6 1.6 1.5 1.2 1.4 1.7 7.8 8.5 9.7 130 (14.4) 6.6 Titan Industries 267 ADD 237,261 4,595 888 6.7 7.8 9.3 36.5 16.5 19.4 39.8 34.2 28.6 27.3 23.3 18.9 16.4 12.7 9.1 0.8 1.1 0.4 47.9 41.8 37.1 255 (4.6) 8.1 United Spirits 1,255 ADD 157,577 3,052 126 16.6 33.5 38.2 (53.0) 102.2 13.9 75.6 37.4 32.9 21.6 15.5 14.1 3.4 3.1 2.9 0.1 0.2 0.3 4.7 8.7 9.1 770 (38.6) 88.3 Consumer products Cautious 5,668,518 109,791 19.8 19.9 16.3 39.2 32.7 28.1 27.8 22.5 19.1 11.9 10.3 8.9 1.3 1.6 1.8 30.4 31.6 31.6 Constructions IVRCL 48 REDUCE 12,736 247 267 0.9 3.3 6.1 (84.7) 265.1 85.8 52.9 14.5 7.8 10.5 7.4 6.0 0.6 0.6 0.6 0.8 0.8 0.8 1.2 4.3 7.6 43 (9.9) 7.9 NCC 52 ADD 13,265 257 257 1.4 2.5 3.6 (78.0) 81.5 43.1 36.8 20.3 14.2 8.7 7.5 8.2 0.6 0.5 0.5 1.2 1.2 1.9 12.9 11.3 11.2 55 6.4 2.3 Punj Lloyd 57 REDUCE 19,408 376 340 3.3 3.9 7.6 (322.9) 18.7 94.5 17.3 14.5 7.5 10.1 6.8 5.8 0.7 0.6 0.6 0.2 0.6 1.2 3.8 4.5 8.2 60 5.0 3.0 Sadbhav Engineering 150 BUY 22,515 436 150 9.4 8.1 11.3 20.5 (13.4) 39.9 16.0 18.5 13.2 9.2 9.6 7.5 2.9 2.5 2.1 0.4 0.4 0.4 17.9 13.6 16.1 180 20.2 0.3 Construction Cautious 67,925 1,316 (19.2) 30.5 68.1 21.7 16.6 9.9 9.7 7.4 6.5 0.8 0.8 0.7 0.6 0.7 1.0 3.9 4.8 7.6 Energy Aban Offshore 483 RS 21,035 407 44 68.3 66.5 79.6 (49.1) (2.6) 19.7 7.1 7.3 6.1 8.5 7.3 6.6 0.7 0.7 0.6 0.7 0.9 1.0 12.3 11.6 11.6 — — 8.4 Bharat Petroleum 360 ADD 260,200 5,040 723 18.3 16.3 21.0 (5.7) (11.1) 28.8 19.6 22.1 17.1 10.8 10.3 9.1 1.6 1.5 1.4 1.5 1.4 1.8 8.1 6.7 8.2 410 13.9 7.9 Cairn india 327 ADD 623,623 12,079 1,907 41.6 60.5 54.2 25.0 45.3 (10.3) 7.9 5.4 6.0 5.9 3.8 3.8 1.3 1.1 1.0 — 3.7 4.9 17.7 22.0 17.8 375 14.7 38.3 Castrol India 315 SELL 155,861 3,019 495 9.5 10.1 11.0 (4.4) 7.0 8.5 33.3 31.1 28.7 22.8 21.5 19.5 28.4 25.9 23.9 2.4 2.5 2.7 87.9 87.2 86.7 215 (31.8) 2.3 GAIL (India) 391 ADD 496,483 9,616 1,268 28.8 30.9 31.8 2.3 7.3 2.7 13.6 12.7 12.3 8.8 7.8 7.4 2.1 1.9 1.7 2.2 2.4 2.6 15.7 15.0 13.7 410 4.8 6.6 GSPL 83 BUY 46,731 905 563 9.3 7.7 7.9 4.7 (17.1) 2.2 8.9 10.7 10.5 5.4 6.0 5.6 1.7 1.5 1.3 1.2 1.2 1.2 20.7 14.5 12.9 85 2.3 2.1 Hindustan Petroleum 322 REDUCE 108,992 2,111 339 26.8 19.3 25.5 (34.4) (28.2) 32.6 12.0 16.7 12.6 2.7 3.1 2.7 0.7 0.7 0.6 2.6 1.8 2.4 5.4 3.8 4.8 330 2.6 6.8 Indian Oil Corporation 260 ADD 631,995 12,241 2,428 33.0 17.7 24.4 1.9 (46.3) 37.4 7.9 14.7 10.7 6.9 8.2 6.9 1.0 1.0 0.9 1.9 1.5 2.9 13.1 6.6 8.5 280 7.6 2.2 Oil India 489 BUY 293,980 5,694 601 57.3 60.2 64.1 19.5 4.9 6.6 8.5 8.1 7.6 3.4 2.7 2.2 1.5 1.4 1.2 3.9 4.3 4.7 17.2 15.9 15.3 575 17.6 1.5 Oil & Natural Gas Corporation 284 ADD 2,431,479 47,094 8,556 32.1 31.8 33.5 30.2 (0.9) 5.4 8.9 8.9 8.5 3.8 3.6 3.1 1.4 1.3 1.2 3.4 3.5 3.9 16.5 14.6 13.8 310 9.1 16.4 Petronet LNG 162 ADD 121,125 2,346 750 14.1 13.8 13.3 70.7 (1.8) (4.0) 11.5 11.7 12.2 7.8 8.1 7.1 3.1 2.5 2.1 1.5 1.5 1.5 29.7 23.1 18.1 155 (4.0) 4.2 India Daily Summary - OctoberSummary 2012 Daily- 5, India Reliance Industries 853 SELL 2,542,495 49,245 2,981 61.3 64.0 63.0 (1.1) 4.5 (1.6) 13.9 13.3 13.5 8.1 8.6 7.9 1.4 1.3 1.2 1.0 1.0 1.0 11.7 11.2 10.1 750 (12.1) 54.6 Energy Neutral 7,733,999 149,797 12.1 0.4 3.3 10.3 10.2 9.9 5.9 5.7 5.1 1.4 1.3 1.2 2.0 2.3 2.7 13.9 12.7 12.0 Industrials ABB 795 SELL 168,499 3,264 212 8.7 19.9 23.7 192.0 128.7 19.1 91.3 39.9 33.5 58.4 24.6 20.8 6.6 5.9 5.1 0.4 0.4 0.4 7.4 15.6 16.3 500 (37.1) 0.8 BGR Energy Systems 292 REDUCE 21,089 408 72 31.1 27.9 33.9 (30.7) (10.1) 21.5 9.4 10.5 8.6 6.2 5.7 5.3 1.9 1.7 1.4 2.4 1.9 2.3 21.7 16.9 18.0 280 (4.2) 3.5 Bharat Electronics 1,236 REDUCE 98,860 1,915 80 106.3 110.7 125.7 (0.9) 4.1 13.5 11.6 11.2 9.8 6.0 4.8 3.4 1.7 1.5 1.4 1.7 2.4 2.4 15.3 14.3 14.6 1,300 5.2 1.1 Bharat Heavy Electricals 266 SELL 651,674 12,622 2,448 28.8 29.5 24.2 17.1 2.6 (17.9) 9.3 9.0 11.0 6.4 6.3 7.1 2.6 2.1 1.8 2.4 2.4 1.9 30.9 25.7 18.0 205 (23.0) 22.3 Crompton Greaves 133 ADD 85,095 1,648 642 5.7 6.9 10.4 (60.0) 20.8 49.6 23.1 19.2 12.8 10.3 10.6 7.6 2.3 2.1 1.9 1.1 1.1 1.2 10.6 11.7 15.7 145 9.3 5.6 Cummins India 511 REDUCE 141,538 2,741 277 22.0 25.1 29.0 (0.9) 13.8 15.7 23.2 20.4 17.6 21.3 17.0 14.5 6.9 6.1 5.4 2.2 2.4 2.8 30.7 30.6 31.0 480 (6.0) 3.2 Kalpataru Power Transmission 89 BUY 13,643 264 153 13.3 13.9 15.8 (4.1) 4.3 14.1 6.7 6.4 5.6 4.7 4.5 4.2 0.7 0.7 0.6 1.7 1.7 1.7 10.7 10.0 10.5 120 35.0 0.3 KEC International 71 BUY 18,202 353 257 6.9 7.9 8.9 (14.1) 14.3 13.8 10.3 9.0 7.9 6.1 6.1 5.6 1.6 1.4 1.2 1.7 1.7 1.9 16.4 16.3 16.2 75 5.9 0.3 Larsen & Toubro 1,634 REDUCE 1,000,692 19,382 612 76.1 84.6 92.9 12.4 11.2 9.8 21.5 19.3 17.6 16.4 14.3 12.5 3.2 2.7 2.3 0.9 0.9 0.9 16.1 15.1 14.1 1,515 (7.3) 45.7 Maharashtra Seamless 346 BUY 24,432 473 71 45.0 42.1 47.4 (6.6) (6.5) 12.6 7.7 8.2 7.3 4.8 4.2 3.3 0.9 0.8 0.8 2.6 2.4 2.7 11.8 10.3 10.8 430 24.1 0.1 Siemens 741 REDUCE 251,988 4,881 340 18.0 26.6 31.7 (29.3) 47.8 19.2 41.1 27.8 23.3 25.4 17.1 14.3 5.8 5.0 4.3 0.5 0.7 0.9 14.9 19.3 19.8 640 (13.6) 4.8

KOTAK INSTITUTIONAL EQUITIES RESEARCH Suzlon Energy 18 REDUCE 31,815 616 1,777 (4.0) (3.7) (0.4) (34.1) (6.0) (88.1) (4.5) (4.8) (40.4) 8.0 8.2 6.6 0.6 0.7 0.8 — 1.1 1.1 (11.7) (13.7) (1.8) 15 (16.2) 5.9 Tecpro Systems 171 ADD 8,618 167 50 24.4 24.1 25.9 (9.6) (1.2) 7.5 7.0 7.1 6.6 5.2 5.1 4.7 1.1 1.0 0.9 — — — 17.1 14.7 14.0 200 17.1 0.0 Thermax 559 REDUCE 66,593 1,290 119 32.9 26.4 30.9 4.0 (19.9) 17.2 17.0 21.2 18.1 11.3 13.5 11.0 4.1 3.6 3.2 1.3 1.5 1.6 26.6 18.2 18.8 430 (23.1) 0.5 Voltas 122 REDUCE 40,400 782 331 9.4 8.3 9.1 (3.4) (11.7) 8.7 12.9 14.6 13.5 10.7 10.6 9.0 2.7 2.4 2.2 1.3 2.0 2.2 21.7 17.4 16.9 135 10.5 4.8 Industrials Cautious 2,623,138 50,806 7.1 8.7 4.3 17.1 15.8 15.1 11.7 10.6 9.9 2.9 2.5 2.2 1.3 1.4 1.4 16.8 15.8 14.6

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of KIE Universe stocks India DailyIndia Summary-October 2012 5,

O/S Target ADVT- 4-Oct-12 Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) price Upside 3mo Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2 012 2013E 2014E (Rs) (%) (US$ mn) Infrastructure Adani Port and SEZ 130 BUY 261,461 5,064 2,017 5.5 6.8 10.7 20.0 25.2 56.8 23.7 18.9 12.1 21.1 13.3 10.0 5.3 4.1 3.2 0.8 1.0 1.4 23.8 24.5 30.0 150 15.7 3.4 Container Corporation 981 ADD 127,546 2,470 130 65.6 82.4 93.6 (3.0) 25.7 13.6 15.0 11.9 10.5 9.8 8.0 6.7 2.3 2.0 1.8 1.6 1.9 2.2 16.1 17.9 17.8 1,050 7.0 0.9 GMR Infrastructure 26 RS 100,813 1,953 3,892 (1.1) 0.1 1.1 236.7 (113.0) 645.0 (22.8) 175.8 23.6 19.7 8.5 5.5 1.1 0.9 0.8 — — — (5.8) 0.8 5.5 — — 3.6 Gujarat Pipavav Port 53 ADD 25,622 496 483 1.4 2.1 3.0 (212.6) 55.9 44.6 39.2 25.1 17.4 16.5 12.6 11.0 3.2 2.1 1.8 — — — 10.4 10.3 13.5 63 18.9 0.9 GVK Power & Infrastructure 15 RS 23,609 457 1,579 0.4 1.0 3.5 (60.3) 165.6 243.1 38.4 14.5 4.2 26.5 12.0 6.8 0.7 0.5 0.4 2.0 2.3 5.4 1.8 3.9 11.1 — — 3.4 IRB Infrastructure 157 BUY 52,297 1,013 332 14.9 13.0 10.4 9.5 (13.1) (19.5) 10.6 12.1 15.1 7.6 7.6 6.7 1.6 1.3 1.2 — — — 16.9 11.7 8.3 175 11.2 8.8 Infrastructure Neutral 591,349 11,454 (4.3) 50.6 51.7 27.8 18.5 12.2 16.9 10.4 7.4 2.2 1.7 1.5 0.8 1.0 1.3 7.8 9.3 12.3 Media

DB Corp 209 BUY 38,339 743 183 11.0 11.6 14.3 (14.5) 4.9 24.1 19.0 18.1 14.6 11.0 10.1 8.3 4.1 3.8 3.5 2.4 2.9 3.8 23.0 21.9 24.9 260 24.3 0.4 DishTV 83 ADD 88,545 1,715 1,064 (1.0) 0.4 1.4 (45.3) (143.5) 212.8 (82.1) 188.9 60.4 19.8 14.5 11.8 (94.4) (188.6) 88.9 — — — 694.0 (66.6) 557 85 2.1 5.0 Eros International 162 BUY 14,808 287 91 15.8 18.7 21.0 26.8 18.3 12.0 10.2 8.6 7.7 6.9 5.7 5.1 1.8 1.5 1.2 — — — 19.3 18.8 17.4 260 60.5 0.7 Hindustan Media Ventures 128 BUY 9,372 182 73 8.9 10.4 12.5 22.3 16.0 20.6 14.3 12.3 10.2 7.6 6.2 4.8 2.1 1.9 1.7 0.8 1.6 3.1 15.9 16.2 17.3 190 48.8 0.0 HT Media 100 ADD 23,555 456 235 7.0 7.5 10.9 (8.4) 5.8 46.7 14.2 13.4 9.2 6.1 5.1 3.2 1.5 1.4 1.3 0.4 2.0 4.0 11.0 10.6 14.3 130 29.8 0.4 Jagran Prakashan 97 BUY 30,597 593 316 5.6 6.0 7.0 (17.4) 6.7 16.8 17.2 16.1 13.8 9.5 8.9 7.7 4.1 3.8 3.4 3.6 3.6 3.6 24.5 24.3 25.8 130 34.4 0.4 Sun TV Network 365 ADD 143,780 2,785 394 17.6 17.9 19.9 (10.0) 1.9 11.2 20.8 20.4 18.3 13.1 12.3 11.1 5.4 4.9 4.5 2.6 2.7 3.3 28.6 26.4 26.9 360 (1.3) 6.8 Zee Entertainment Enterprises 205 REDUCE 194,655 3,770 950 6.0 7.3 8.9 (0.5) 20.6 22.0 34.0 28.2 23.1 24.3 19.3 15.5 4.2 4.0 3.8 0.7 0.8 1.0 13.0 14.9 17.3 190 (7.3) 8.0 Media Attractive 543,652 10,530 (1.8) 18.5 23.4 28.4 24.0 19.4 14.7 12.6 10.4 4.7 4.3 3.9 1.3 1.5 1.9 16.4 17.8 20.0 Metals & Mining Coal India 362 BUY 2,284,629 44,250 6,316 23.2 25.8 31.1 34.4 11.0 20.7 15.6 14.0 11.6 10.0 8.8 6.7 5.4 4.3 3.4 2.8 2.1 2.6 38.0 34.1 32.8 390 7.8 13.9 Hindalco Industries 124 REDUCE 237,352 4,597 1,915 17.7 14.9 14.5 38.9 (15.9) (2.7) 7.0 8.3 8.5 7.0 7.5 7.4 0.7 0.7 0.6 1.2 1.2 1.2 11.1 8.6 7.8 115 (7.2) 16.6 Hindustan Zinc 137 ADD 579,248 11,219 4,225 13.2 13.1 13.3 13.2 (1.0) 1.7 10.4 10.5 10.3 6.6 6.3 5.4 2.2 1.9 1.6 1.8 1.8 1.8 22.6 19.0 16.8 135 (1.5) 2.3 Jindal Steel and Power 416 REDUCE 389,064 7,536 935 42.4 34.4 45.2 5.6 (18.9) 31.3 9.8 12.1 9.2 8.2 8.3 7.4 2.1 1.8 1.5 0.4 0.4 0.4 24.8 16.5 18.3 445 6.9 26.3 JSW Steel 743 SELL 165,823 3,212 223 24.1 46.7 64.3 (69.3) 93.8 37.7 30.8 15.9 11.6 5.5 6.1 6.3 1.0 0.9 0.9 1.0 1.3 1.3 8.2 9.5 7.9 585 (21.3) 24.1 National Aluminium Co. 51 SELL 132,083 2,558 2,577 3.4 3.1 3.2 (19.7) (6.5) 2.3 15.2 16.3 15.9 7.3 6.4 5.3 1.1 1.1 1.0 2.0 2.0 2.0 7.6 6.8 6.6 50 (2.4) 0.3 Sesa Goa 175 ADD 152,180 2,948 869 31.0 43.9 38.2 (36.2) 41.7 (13.2) 5.6 4.0 4.6 5.4 5.6 7.4 1.0 0.8 0.7 2.7 2.7 2.7 11.1 9.5 7.2 196 11.9 9.8 Sterlite Industries 102 ADD 342,170 6,627 3,361 15.8 13.8 14.0 3.9 (12.4) 1.4 6.5 7.4 7.3 3.9 3.5 3.1 0.7 0.7 0.6 2.0 2.0 2.0 12.1 9.7 9.1 117 14.9 15.5 Tata Steel 409 ADD 397,307 7,695 971 17.2 34.8 49.9 (72.3) 102.1 43.2 23.7 11.7 8.2 7.8 6.6 5.9 0.9 0.9 0.8 2.9 2.9 2.9 6.4 7.7 10.4 390 (4.6) 37.8 Metals & Mining Cautious 4,679,855 90,642 (1.5) 8.6 10.3 11.8 10.9 9.9 7.3 6.8 6.1 1.9 1.7 1.5 2.2 1.9 2.2 15.7 15.2 14.8 Pharmaceutical Apollo Hospitals 782 ADD 108,779 2,107 139 15.8 21.5 27.1 19.3 35.9 26.1 49.5 36.4 28.9 21.2 18.3 15.3 4.3 3.8 3.5 — — — 9.6 11.2 12.7 700 (10.5) 2.3 Biocon 281 ADD 56,130 1,087 200 16.9 19.9 21.5 (8.0) 17.7 8.2 16.6 14.1 13.0 8.9 7.3 6.5 2.5 2.2 2.0 — — — 15.7 16.5 16.0 265 (5.6) 2.2 Cipla 366 REDUCE 293,909 5,693 803 14.0 18.8 19.7 13.5 34.7 4.6 26.2 19.4 18.6 17.8 13.3 12.1 3.8 3.3 2.8 0.5 0.5 0.5 15.7 16.6 16.4 400 9.3 14.0 Cadila Healthcare 830 ADD 170,013 3,293 205 31.9 39.6 49.0 (8.2) 24.2 23.7 26.1 21.0 17.0 20.1 15.5 12.4 6.6 5.4 4.4 0.9 1.2 1.5 27.8 28.3 28.7 980 18.0 2.4 Dishman Pharma & chemicals 98 REDUCE 7,946 154 81 7.0 9.7 12.0 (29.0) 38.7 23.7 14.0 10.1 8.1 7.8 6.5 5.7 0.9 0.8 0.8 — — — 4.6 7.2 8.4 50 (48.8) 2.7 Divi's Laboratories 1,131 ADD 150,106 2,907 133 40.2 52.1 59.9 24.0 29.7 14.8 28.1 21.7 18.9 21.3 16.4 13.5 7.0 5.9 4.9 1.1 1.5 1.7 27.1 29.5 28.2 1,197 5.8 5.6 Dr Reddy's Laboratories 1,720 ADD 292,738 5,670 170 84.0 94.0 101.9 29.4 11.9 8.4 20.5 18.3 16.9 13.0 12.0 11.0 5.1 4.1 3.4 0.8 0.8 0.8 23.4 22.3 21.1 1,810 5.2 12.3 GlaxoSmithkline Pharmaceuticals 1,952 SELL 165,453 3,205 85 74.3 83.2 91.1 8.8 12.0 9.6 26.3 23.5 21.4 18.5 17.1 15.3 8.5 8.1 7.5 2.3 2.7 3.3 32.4 35.3 36.4 2,035 4.2 1.4 Glenmark Pharmaceuticals 407 REDUCE 110,150 2,133 271 21.9 22.1 28.5 31.1 1.2 29.0 18.6 18.4 14.3 21.8 13.2 10.7 4.6 3.8 3.1 — 0.7 0.8 26.7 22.5 23.8 400 (1.7) 3.8 Jubilant Life Sciences 218 REDUCE 34,751 673 159 22.9 31.0 37.4 58.7 35.4 20.7 9.5 7.0 5.8 8.4 6.5 5.5 1.4 1.2 1.0 0.9 1.4 1.8 16.2 19.4 19.7 185 (15.2) 0.8 Lupin 579 ADD 258,729 5,011 447 19.5 28.2 30.3 1.2 45.1 7.3 29.7 20.5 19.1 21.0 13.2 12.1 6.3 5.1 4.2 0.6 0.8 0.9 23.9 27.9 24.3 600 3.6 11.1 Ranbaxy Laboratories 535 SELL 225,639 4,370 422 (18.5) 22.0 25.2 (145.7) 218.4 14.8 (28.8) 24.4 21.2 15.8 12.9 14.6 7.9 6.0 4.8 — — — (68.5) 28.0 25.3 436 (18.5) 10.8 Sun Pharmaceuticals 699 REDUCE 723,606 14,015 1,036 25.0 34.6 33.0 42.5 38.4 (4.6) 28.0 20.2 21.2 20.7 13.0 13.0 5.4 4.4 3.8 0.6 0.7 0.9 21.9 24.2 19.4 664 (5.0) 11.5 Pharmaceuticals Attractive 2,597,952 50,319 (8.2) 50.2 8.0 30.1 20.0 18.5 17.3 12.9 12.0 5.1 4.3 3.6 0.7 0.8 1.0 17.0 21.3 19.5 Real Estate DLF 241 NR 413,383 8,007 1,715 7.1 12.7 16.9 (22.1) 79.7 33.1 34.1 19.0 14.3 16.7 12.7 9.8 1.5 1.4 1.3 1.0 1.2 1.4 4.5 7.6 9.5 — — 24.9 Housing Development & Infrastructure 107 NR 44,750 867 419 22.0 28.8 28.8 11.3 30.5 0.2 4.8 3.7 3.7 5.5 4.9 4.5 0.4 0.4 0.3 — 1.4 1.9 8.3 10.8 9.6 — — 33.8 Mahindra Life Space Developer 412 NR 16,817 326 41 29.4 29.8 34.3 18.0 1.3 15.1 14.0 13.8 12.0 13.8 11.0 10.4 1.5 1.4 1.3 1.1 1.2 1.3 11.2 10.4 11.0 — — 0.2 Oberoi Realty 277 NR 91,436 1,771 330 14.1 14.3 22.4 (10.5) 1.4 57.3 19.7 19.5 12.4 16.2 12.6 8.0 2.4 2.2 1.9 0.7 0.9 1.1 13.1 12.0 16.9 — — 0.6 Phoenix Mills 200 NR 28,969 561 145 7.3 10.7 11.5 14.9 46.9 7.9 27.5 18.7 17.3 21.0 14.6 13.9 1.7 1.6 1.5 1.0 1.0 1.0 6.4 8.9 9.0 — — 0.3

Sobha Developers 383 NR 37,578 728 98 21.4 25.1 37.4 DailyIndia Summary -October 13.8 17.1 49.2 17.9 15.3 10.2 10.5 9.5 6.6 1.9 1.7 1.5 1.3 1.3 1.3 10.9 11.7 15.6 — — 1.0 Unitech 26 NR 67,631 1,310 2,616 0.9 1.8 2.3 (56.1) 84.8 32.7 27.2 14.7 11.1 28.7 15.7 12.1 0.6 0.5 0.5 0.4 0.4 0.4 2.1 3.7 4.7 — — 6.8 Real Estate Cautious 700,565 13,569 (17.4) 52.1 26.7 22.1 14.6 11.5 14.6 11.2 8.8 1.2 1.1 1.0 1.0 1.3 1.5 5.4 7.7 9.0

Source: Company, Bloomberg, Kotak Institutional Equities estimates 34

35 35

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

O/S Target ADVT- 4-Oct-12 Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) price Upside 3mo Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E (Rs) (%) (US$ mn) Technology HCL Technologies 589 REDUCE 421,171 8,157 715 34.6 46.1 49.4 51.2 33.5 7.1 17.0 12.8 11.9 10.5 8.0 7.3 4.3 3.2 2.6 1.3 1.4 1.4 25.1 27.5 24.3 575 (2.4) 13.8 Hexaware Technologies 118 REDUCE 34,736 673 294 9.1 12.5 12.9 207.9 37.9 3.1 13.0 9.4 9.2 11.5 6.7 6.1 3.4 3.0 2.6 2.5 5.3 5.5 26.9 33.7 30.4 130 9.8 3.6 Infosys 2,576 REDUCE 1,478,423 28,635 574 144.9 170.0 185.8 21.0 17.3 9.3 17.8 15.2 13.9 11.9 9.8 8.7 4.7 3.9 3.3 1.8 2.1 2.3 29.0 28.3 26.1 2,600 0.9 54.0 Mahindra Satyam 112 ADD 132,182 2,560 1,176 10.2 10.6 11.2 142.3 4.2 5.4 11.0 10.6 10.1 10.1 6.3 5.4 4.4 3.1 2.5 — — 2.0 50.4 35.0 28.1 118 5.0 10.1 Mindtree 648 ADD 26,652 516 41 53.1 80.5 85.3 115.1 51.7 6.0 12.2 8.0 7.6 9.0 5.0 4.6 2.8 2.2 1.9 0.8 2.5 4.0 25.2 30.6 26.5 830 28.2 1.6 Mphasis 405 SELL 85,237 1,651 211 39.0 38.0 39.3 (24.6) (2.7) 3.5 10.4 10.7 10.3 8.7 7.4 6.5 2.2 1.9 1.6 1.1 1.2 1.4 22.8 18.9 16.8 375 (7.3) 1.4 Polaris Financial Technology 132 REDUCE 13,180 255 100 20.8 22.6 22.6 7.4 9.0 0.1 6.4 5.8 5.8 3.6 3.1 2.6 1.1 0.9 0.8 3.0 3.1 3.3 18.1 16.8 14.9 130 (1.7) 2.3 TCS 1,317 REDUCE 2,577,926 49,931 1,957 54.4 71.1 78.8 22.0 30.7 10.9 24.2 18.5 16.7 17.2 13.3 11.9 7.9 6.4 5.3 1.9 2.2 2.4 36.8 38.4 35.0 1,250 (5.1) 35.3 Tech Mahindra 972 ADD 123,905 2,400 128 80.1 96.0 102.9 63.5 19.8 7.2 12.1 10.1 9.4 15.4 10.9 9.6 3.1 2.6 2.3 0.4 0.6 0.8 28.4 28.8 26.9 1,000 2.9 14.6 Wipro 383 REDUCE 940,402 18,214 2,456 22.7 27.1 29.4 5.2 19.4 8.6 16.9 14.1 13.0 11.6 9.3 8.2 3.3 2.8 2.4 1.2 1.6 1.8 21.2 21.4 19.8 375 (2.1) 11.2 Technology Cautious 5,833,815 112,993 21.2 23.1 9.1 18.7 15.2 14.0 13.2 10.4 9.3 4.9 4.0 3.4 1.7 1.9 2.2 26.0 26.3 24.2 Telecom Bharti Airtel 270 NR 1,024,403 19,841 3,798 11.2 8.6 12.9 (29.6) (23.7) 50.2 24.1 31.5 21.0 7.1 6.7 5.7 2.0 1.9 1.8 — 0.6 0.5 8.6 6.2 8.8 — — 37.0 IDEA 84 ADD 277,477 5,374 3,303 2.2 3.6 6.2 (19.6) 62.8 74.8 38.4 23.6 13.5 8.1 6.8 5.2 2.1 2.0 1.7 — — — 5.7 8.6 13.5 90 7.1 3.6 MTNL 32 RS 19,908 386 630 (9.1) (8.4) (8.3) (11.9) (8.1) (1.7) (3.5) (3.8) (3.8) (0.3) (0.4) (0.4) 0.2 0.2 0.2 — — — (5.7) (5.5) (5.8) — — 6.8 Reliance Communications 63 SELL 130,238 2,523 2,064 4.5 3.3 4.6 (31.0) (26.0) 38.2 14.0 19.0 13.7 8.7 7.2 6.2 0.4 0.3 0.3 — — — 2.4 1.9 2.5 45 (28.7) 13.9 Tata Communications 254 REDUCE 72,290 1,400 285 (27.9) (27.5) (21.2) 12.0 (1.5) (23.0) (9.1) (9.2) (12.0) 10.1 7.7 7.0 3.2 4.4 6.7 — — — (27.0) (39.7) (44.2) 215 (15.2) 1.1 Telecom Cautious 1,524,316 29,524 (34.4) (16.3) 77.9 33.6 40.1 22.5 7.8 6.9 5.8 1.4 1.3 1.2 — — 0.3 4.0 3.3 5.5 Utilities Adani Power 55 SELL 120,336 2,331 2,180 (0.4) (3.8) 2.5 (118.0) 786.4 (165.8) (130.2) (14.7) 22.3 36.2 23.8 10.5 2.0 2.5 2.3 — — — (1.5) (15.2) 10.7 33 (40.2) 2.6 CESC 335 BUY 41,810 810 125 21.7 25.2 35.2 (9.3) 16.0 39.7 15.4 13.3 9.5 8.9 9.3 6.1 0.7 0.7 0.6 — 1.5 1.6 4.5 5.1 6.7 350 4.6 1.3 JSW Energy 62 SELL 102,090 1,977 1,640 2.0 4.1 4.2 (60.6) 100.8 4.3 30.8 15.3 14.7 14.6 8.4 6.5 1.8 1.6 1.4 — — — 5.8 11.0 10.3 50 (19.7) 2.3 Lanco Infratech 16 RS 34,901 676 2,223 (0.5) (0.7) 1.0 (131.8) 39.2 (233.2) (30.0) (21.5) 16.2 11.0 10.6 7.1 0.7 0.8 0.8 — — — (2.5) (3.6) 4.8 — — 7.8 NHPC 20 BUY 248,475 4,813 12,301 2.4 2.0 2.2 79.5 (18.5) 9.9 8.3 10.2 9.3 7.5 8.4 7.1 0.9 0.8 0.8 3.3 2.7 3.1 10.8 8.3 8.6 26 28.7 1.8 NTPC 171 REDUCE 1,408,738 27,285 8,245 11.2 12.0 15.3 2.4 6.9 27.6 15.3 14.3 11.2 13.2 12.0 9.1 1.9 1.7 1.6 2.0 2.1 2.7 12.8 12.6 14.7 160 (6.4) 8.5 Power Grid 118 ADD 546,308 10,581 4,630 7.1 8.1 10.0 22.9 14.3 23.8 16.7 14.6 11.8 13.0 11.7 9.2 2.3 2.1 1.9 1.8 2.1 2.6 14.6 15.1 16.9 140 18.6 7.4 Reliance Infrastructure 556 BUY 146,284 2,833 263 60.3 66.7 73.6 4.0 10.6 10.3 9.2 8.3 7.6 11.1 9.6 8.2 0.6 0.6 0.5 1.9 2.0 2.0 8.9 9.8 10.2 890 60.0 25.0 Reliance Power 104 SELL 291,733 5,650 2,805 3.1 3.2 3.1 14.0 3.0 (2.7) 33.7 32.7 33.6 53.0 29.3 17.8 1.6 1.6 1.5 — — — 5.0 4.9 4.6 76 (26.9) 11.2 Tata Power 104 ADD 257,818 4,994 2,468 4.6 5.9 6.5 (40.6) 29.0 9.8 22.7 17.6 16.0 11.3 8.4 7.1 1.9 1.8 1.7 1.4 1.6 1.6 8.1 10.6 10.8 109 4.4 7.2 Utilities Attractive 3,198,493 61,950 (0.6) 3.5 30.0 16.4 15.9 12.2 13.4 11.8 8.9 1.6 1.5 1.4 1.6 1.7 2.1 9.5 9.3 11.1 Others Carborundum Universal 157 REDUCE 29,303 568 187 11.6 10.9 12.8 27.0 (5.7) 17.3 13.5 14.3 12.2 8.2 8.2 6.9 2.8 2.4 2.1 1.6 1.5 1.7 26.0 20.7 20.6 150 (4.3) 0.2 Coromandel International 299 SELL 84,389 1,634 283 22.5 22.7 24.6 (8.5) 0.9 8.5 13.3 13.2 12.1 10.8 9.3 8.6 3.5 3.0 2.6 2.5 2.6 2.7 27.5 23.3 21.9 260 (12.9) 0.6 Havells India 649 ADD 80,954 1,568 125 31.5 33.0 39.7 61.6 4.8 20.5 20.6 19.7 16.3 13.0 11.3 9.6 8.0 6.1 4.8 1.0 1.1 1.2 45.6 35.3 32.9 600 (7.5) 3.1 Jaiprakash Associates 91 BUY 193,507 3,748 2,126 2.9 6.5 10.8 (51.5) 123.0 65.6 31.1 14.0 8.4 12.0 9.0 6.9 1.7 1.5 1.3 — — — 5.6 11.6 16.9 86 (5.5) 25.4 India Daily Summary - OctoberSummary 2012 Daily- 5, India Jet Airways 369 SELL 31,817 616 86 (184.6) (34.2) 21.5 1,735.6 (81) (162.9) (2.0) (10.8) 17.1 (599.8) 10.7 7.1 24.3 (19.3) 150.1 — — — 6.0 6.0 6.0 312 (15.3) 17.0 Rallis India 147 BUY 28,607 554 194 5.1 7.6 8.8 (21.6) 48 15.8 28.8 19.5 16.8 14.7 11.2 9.4 5.2 4.4 3.7 1.5 1.5 1.5 20.4 23.6 24.0 150 2.0 0.7 SpiceJet 38 BUY 16,816 326 441 (13.7) 0.2 2.4 (650.1) (101.4) 1,103.7 (2.8) 194.1 16.1 (4.7) 20.6 7.9 (10.6) (11.2) (36.7) — — — (746) (5.6) (106.5) 45 18.1 3.8 Tata Chemicals 326 REDUCE 83,089 1,609 255 32.9 38.8 42.3 25.4 17.9 9.0 9.9 8.4 7.7 5.3 4.5 3.8 1.3 1.2 1.0 3.7 4.6 5.2 18.6 19.5 19.4 365 11.9 2.6 United Phosphorus 132 REDUCE 60,797 1,178 462 12.0 15.8 17.5 (0.4) 31.5 10.5 10.9 8.3 7.5 5.9 5.0 4.5 1.5 1.3 1.1 1.9 1.9 1.9 0.1 0.2 — 130 (1.3) 2.0 Others 609,278 11,801 (67.4) 262.4 43.8 52.3 14.4 10.0 12.0 8.3 6.5 2.3 2.0 1.7 1.3 1.5 1.6 4.4 14.1 17.3 KS universe (b) 50,534,070 978,773 9.0 10.6 13.4 15.6 14.1 12.4 10.0 8.9 7.6 2.4 2.1 1.9 1.6 1.7 1.9 15.2 15.0 15.2 KS universe (b) ex-Energy 42,800,071 828,977 8.1 13.8 16.1 17.2 15.1 13.0 11.7 10.1 8.5 2.7 2.4 2.1 1.5 1.6 1.8 15.6 15.8 16.2 KS universe (d) ex-Energy & ex-Commodities 36,483,937 706,642 9.2 14.7 17.4 18.1 15.8 13.5 13.1 10.9 9.0 2.8 2.5 2.2 1.4 1.6 1.8 15.6 16.0 16.6

Notes: (a) For banks we have used adjusted book values. (b) 2012 means calendar year 2011, similarly for 2013 and 2014 for these particular companies. (c) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector. (d) Rupee-US Dollar exchange rate (Rs/US$)= 51.63 KOTAK INSTITUTIONAL EQUITIES RESEARCH Source: Company, Bloomberg, Kotak Institutional Equities estimates

Disclosures

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

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

40% * The above categories are defined as follows: Buy = We expect this 32.3% 33.5% stock to deliver more than 15% returns over the next 12 months; Add = We expect this stock to deliver 30% 5-15% returns over the next 12 months; Reduce = We expect this stock to deliver -5-+5% returns over the next 12 months; Sell = We 18.0% expect this stock to deliver less than -5% returns over the next 12 20% 16.2% months. Our target prices are also on a 12-month horizon basis. These ratings are used illustratively to comply with applicable regulations. As 10% 4.2% of 30/06/2012 Kotak Institutional Equities Investment Research had 0.6% 0.6% 1.2% investment ratings on 167 equity securities. 0% BUY ADD REDUCE SELL

Source: Kotak Institutional Equities As of June 30, 2012

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% 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.

37 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Corporate Office Overseas Offices

Kotak Securities Ltd. Kotak Mahindra (UK) Ltd Kotak Mahindra Inc Bakhtawar, 1st Floor 8th Floor, Portsoken House 50 Main Street, Ste. 890 229, Nariman Point 155-157 Minories Westchester Financial Centre Mumbai 400 021, India London EC3N 1LS White Plains, New York 10606 Tel: +91-22-6634-1100 Tel: +44-20-7977-6900 Tel:+1-914-997-6120

Copyright 2012 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and

2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment.

Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have “long” or “short” positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. For the purpose of calculating whether Kotak Securities Limited and its affiliates holds beneficially owns or controls, including the right to vote for directors, 1% of more of the equity shares of the subject issuer of a research report, the holdings does not include accounts managed by Kotak Mahindra Mutual Fund. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions.

This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be deemed to mean and include Kotak Mahindra Inc.