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Market Strategy Diwali Special

Please refer to important disclosures at the end of this report. 1

Dear Friends,

I wish you all a Happy Diwali and a Prosperous

New Year!

This auspicious occasion reminds us to renew

our spirit of positivity and optimism which

has the power to turn dreams and aspirations

into reality. In fact, to be pessimistic is to bet

against the human spirit and that will always

be a losing bet! So, if aspirations eventually

become reality then what are India's aspirations? I am sure you will all

agree that it is the aspiration to achieve growth and prosperity that

dominates our national psyche. This is not surprising considering we

are ultimately a nation of young people raring to go.

Just imagine that in the past five years alone, 10 crore more people

aged between 18 to 23 years have joined the workforce in India. No

other country can boast of such numbers, not even China! It is inevitable

that our young country is going to assert its aspirations on the global

stage ever more strongly in the coming years. Imagine the pessimism

that prevailed in China during the eighties, and how, almost overnight

the economy changed, recording an 9-10% growth for the next 20 years.

If that is not the power of a nation's aspirations, then what is!

In fact, some powerful forces are already underway in our economy,not the least of which is the rupee's substantial depreciation. This

depreciation provides powerful stimulation to export growth. Exports

have grown by 15% in the past few months and a continuation of this

trend will raise our GDP growth by a massive 150-200 bps given the

16-17% weightage of value-added exports in our economy. Once this

virtuous cycle is underway, the investment cycle is also likely to revive.

I do believe the government will also rise to the occasion. Why? Because

that is what democratic governments eventually do - they work to enable

the broader aspirations of their nation, in order to survive themselves!

The markets have a tendency to read too much into the day-to-day

gyrations. In fact, if the experience since November 2008 has shown

anything, it is that policymakers and economists globally have figured

out how to manage crises through effective monetary and fiscal stimulus.

The US economy is already recovering and US stock markets are at new

highs. I strongly believe that in the coming months if not days, even our

markets will achieve sustainable new highs!

So this Diwali let’s light up the diya of optimism, shake off all the negativity

and celebrate the good times that are just around the corner!

Best regards,

Dinesh Thakkar

Dinesh Thakkar



Market Strategy

Diwali Special

October 2013 Please refer to important disclosures at the end of this report. 2

On the road to new highs

The recent positives on growth in exports and the anticipated pick-up in agricultural

production do provide reason for optimism on the macro front. Also, we believe that

the delay in Federal Reserve (Fed)'s tapering of QE3 appears as a window of opportunity

for our economy since it gives us space to continue on the course of corrective policy

action and improve resilience against external headwinds. Swift policy measures have

been taken to attract capital inflows in the economy. Consequently FII investors have

returned in the equity market driven by a) global liquidity continuing to remain benign

for now and b) receding domestic macro risks.

Our current account deficit (CAD) is pegged to moderate considerably led by the

performance of exports as well as compression in imports (particularly gold) and the

concern on financing of the deficit has also materially diminished. Meanwhile, some

near-term concerns continue to persist on account of sluggish pace of growth, rise in

inflation and elections remaining an overhang for substantial revival in investment.

But going forward we do believe that irrespective of the government that comes topower, the focus would remain on creating employment opportunities and kick-starting

the capex cycle to boost economic recovery.

Sustainable growth in exports to be a good starting point for

recovery

For three successive months in July, August and September 2013 exports have reported

a robust double-digit growth performance. Apart from positively impacting the trade

deficit, we believe that the improvement in exports is likely to be a good starting point

for economic recovery. We maintain that a sustainable growth in exports with a

double-digit run rate can potentially trigger a virtuous growth cycle and add about

150-200bp to GDP growth as investments start picking up.

Overall, real GDP growth is expected to bottom out during FY2014. We believe that

going forward the gradual easing of interest rates in FY2015 would push up

consumption and investment. Coupled with export growth, these factors are likely to

improve economic performance considarably from headline growth prints presently

hovering around the modest 4-5%-levels.

Outlook and Valuation

We expect the Sensex EPS to post a growth of 9.6% for FY2014 and a healthier 15.4%

for FY2015. Attributing a 15x multiple to our Sensex EPS (in line with the 5-year

average), we arrive at a target of 22,600 for the Sensex, implying an upside of 8.8%

from the present levels.

Owing to near-term cyclical headwinds, we recommend a longer investment horizon

for rate-sensitives. We continue to have a positive outlook on export-oriented sectors

owing to signs of recovery in advanced economies and the rupee depreciation on a

yoy basis. So our top recommendations continue to be in the IT and pharmaceuticals

space. We are positive on the metal sector as well. We believe that the recent capacity

additions and meaningful under-utilized capacity in the metal sector are likely to be

employed for sharp increase in exports going ahead aided by improving global

fundamentals. Although expensive, defensives like FMCG stocks are also likely to

continue to outperform in the current environment. We also selectively prefer large

private banks over a medium to long term perspective but overall continue to maintain

a cautious near-term outlook on the banking sector and PSU banks in particular.

Note: Investment period - 12 Months

BSE Sensex (20,768) and Price as on October 23, 2013

Top Picks

Company CMP ( ` ) TP ( ` )

Wipro 492 567

ICICI Bank 1,025 1,181

Hindustan Zinc 135 156

Axis Bank 1,210 1,392

Cipla 423 504

Tata Steel 335 390

Cadilla 660 894

United Phosphorus 154 225

Aurobindo Pharma 216 271

Crompton Greaves 98 115



Market Strategy

Diwali Special


Policymakers to maintain global financial stability

Over the past 5 years, post the Lehman crisis, markets have

gone through various risk-on and risk-off phases in anticipation

of global events. The impact of these uncertainties on markets

has been temporary since policymakers have ultimately managed

to negotiate deals (in many instances at the very last-minute)

and averted any undesirable consequences for the economy and

financial markets.

Even in the event of political stalemates extending past the

deadline (as in the case of raising the US debt ceiling in August

2011 and sequester issue in March 2013) pragmatic resolutions

have been adopted going forth so that the economic recovery

does not get derailed. Time and again we have seen that

policymakers, having learnt from their past mistakes, eventually

take mature decisions to maintain stability and avoid disruptionsin global financial markets.

Delayed tapering gives us a window for positive

policy action

The Federal Reserve appears to have put off for now the tapering

of its monthly bond purchases. Through its monetary stimulus,

the Fed is injecting liquidity to the tune of USD85bn per month.

In May 2013, the Fed first indicated at a tapering of its asset

purchases following which the INR (similar to the trend in other

emerging markets [EMs]) witnessed about 25% depreciation and

touched a record-low during August 2013.

The postponement of tapering has come as a tailwind for EMs

including India. We believe that the delay in withdrawing the

stimulus by 3-6 months has provided our economy with a window

for policy action to mitigate our external sector vulnerability and

policymakers have also moved in the right direction by taking

steps to narrow the trade gap and augment capital flows.

Going ahead, the tapering itself appears inevitable but we believe

that our economy is now better poised to tackle the eventual

withdrawal of liquidity stimulus. Buoyed by signs of continuedglobal liquidity since September 2013, FIIs poured in USD3.8bn

in our equity markets. These inflows come on the back of three

Source: SEBI, Angel Research

Exhibit 1: Daily net FII equity inflows in positive territory again

(900)

(600)

(300)

-

300

600

Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

(USDmn)FII net equity inflows

Source: RBI, Angel Research

Exhibit 2: Trade deficit to improve significantly

(10.6) (10.4) (10.2)

(11.4)(12.0)

(9.0)

(11.3)

(7.3)

(14)

(12)

(10)

(8)

(6)

(4)

(2)

-

(70)

(60)

(50)

(40)

(30)

(20)

(10)

-

3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14E

(% of GDP)(USD bn) Trade def icit as % of GDP (RHS)

Exports have reported a strong double-digit growth for three

straight months in July, August and September 2013. We believe

that a double-digit export growth run rate, given the weightage

of value-added exports in our economy of at least about 16%,

could potentially add 150-200bp to the overall GDP growth.

Also, this would in turn trigger a virtuous GDP upgrade cycle asinvestments start picking up.

straight months of net FII equity outflows amounting to USD3.7bn.

Subsequently, the INR has recovered by about 12% from its

record low.

Improved external sector outlook

CAD fundamentals:CAD fundamentals:CAD fundamentals:CAD fundamentals:CAD fundamentals: The recent appreciation in the currency is

supported by global cues as well as our receding external risks.

Concerns on India's balance of payment situation have eased

significantly owing to the anticipation of a much lower current

account deficit during FY2014 at about 3.2-3.7% of GDP

compared to 4.8% of GDP in FY2013. This improvement is

expected on the back of growth in exports which is likely to be

supported by the recovering advanced economies like the US,

Japan and to an extent the Eurozone coupled with a weaker INR

on a yoy basis. At the same time, imports are also expected to

be contained led by curbs on gold imports in particular. Aided

by these positives, the estimated trade deficit for 2QFY2014 has

declined dramatically to USD30bn from USD50bn in 1QFY2014.

Source: Ministry of Commerce, Angel Research

Exhibit 3: Double-digit export growth for 3 straight months

1.2

(6.6) (6.1)

(12.2)

(6.5) (7.2)

0.7

(2.5)

0.6 1.2 2.3

6.6

(0.8)(3.3)

(5.3)

11.6 13.0

11.2

(15.0)

(10.0)

(5.0)

-

5.0

10.0

15.0

A p r - 1

2

M a y -

1 2

J u n - 1

2

J u l - 1 2

A u g - 1

2

S e p -

1 2

O c t - 1

2

N o v - 1

2

D e c - 1

2

J a n - 1

3

F e

b - 1 3

M a r - 1

3

A p r - 1

3

M a y -

1 3

J u n - 1

3

J u l - 1 3

A u g - 1

3

S e p -

1 3

(%) Export growth



Market Strategy

Diwali Special


Source: Ministry of Commerce, RBI, Angel Research

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

A p r - 1

2

M a y - 1

2

J u n - 1

2

J u l - 1 2

A u g - 1

2

S e p - 1

2

O c t - 1 2

N o v - 1

2

D e c - 1

2

J a n - 1

3

F e

b - 1

3

M a r - 1

3

A p r - 1

3

M a y - 1

3

J u n - 1

3

J u l - 1 3

A u g - 1

3

S e p - 1

3

(USDbn) Non oil, non gold imports Oil imports Gold imports

Exhibit 4: Lower imports led by curbs on gold

FFFFFinancing the CAD:inancing the CAD:inancing the CAD:inancing the CAD:inancing the CAD: We believe that the concerns surrounding

financing of the current account deficit have materially subsided.

This can be attributed to multiple factors like 1) anticipated

improvement in the CAD itself, 2) postponement of Fed's QE3

tapering and 3) policy measures to attract capital flows. In order

to enhance capital inflows in the economy to finance the CAD

gap, the government has liberalized caps on FDI and FII

investment and the Reserve Bank of India (RBI) has taken

measures rendering debt and NRI deposits attractive. The RBI's

measures on attracting banking capital in the economy by

November 2013 are alone expected to bring in additional foreign

exchange in the economy to the tune of ~USD10-15bn.

Better agri production to result in easing of food

inflation going ahead

Good monsoon and the increase in area under sowing of kharif

crop bode well for agricultural production during the kharif

season. In addition, conditions (such as soil moisture and

groundwater levels) are also favorable for robust production in

the rabi season. Overall agricultural production is expected to

be boosted during FY2014. As a result, going forward as

harvesting progresses and the new crop enters the market; we

expect the pressure on food inflation to abate.

The easing of food prices is expected to impact headline CPI

inflation substantially. Owing to the higher (almost 50%)

weightage given to the food basket in the index, the headline

CPI inflation has remained elevated. As food inflation recedes,

the CPI would likely moderate from the sticky near double-digit

Source: Office of Economic Adviser, Angel Research

Exhibit 5: Elevated vegetables and cereal inflationCereals (wt: 3.4) Pulses (wt: 0.7) Fruits (wt: 2.1) Vegetables (wt: 1.7)

(20.0)

-

20.0

40.0

60.0

80.0

100.0

Mar-13 Apr-13 May-13 Jun -13 Jul-13 Aug-13 Sep -13

(%)

levels. Moderation in food inflation is also likely to have a

cascading positive impact on inflationary expectations and can

potentially result in an increase in the saving and investment

rates for the economy.

Source: Office of Economic Adviser, Mospi, Angel Research

Exhibit 6: Trends in WPI and CPI inflation WPI Inflation CPI inflation

6.46

9.84

3.0

5.0

7.0

9.0

11.0

A p r - 1

2

M a y - 1

2

J u n - 1

2

J u l - 1 2

A u g - 1

2

S e p - 1

2

O c t - 1 2

N o v - 1

2

D e c - 1

2

J a n - 1

3

F e

b - 1

3

M a r - 1

3

A p r - 1

3

M a y - 1

3

J u n - 1

3

J u l - 1 3

A u g - 1

3

S e p - 1

3

(%)

Boost to investment likely post general elections

The investment outlook continues to remain lackluster owing to

sluggish pace of growth, demand environment and still-high

interest rates coupled with political overhang now. Five states

are headed for polls over the next 2 months and general elections

are slated to happen in the next 4-6 months. However, it is likely

that positive outcomes in the upcoming state elections would

build up expectations of a strong government in the general

elections as well. If and when that does happen, with focus

returning on revival of capex and positive structural reforms in

the economy, we believe that new projects and big-ticket

investments in particular are likely to be boosted going forward.

This is likely to provide a further leg up to the market.

Source: Election Commission of India, Angel Research

Exhibit 7: Upcoming state and general election calendar

StateStateStateStateState End of termEnd of termEnd of termEnd of termEnd of term Ruling PRuling PRuling PRuling PRuling Party arty arty arty arty SeatsSeatsSeatsSeatsSeats SeatsSeatsSeatsSeatsSeats

in Lin Lin Lin Lin L.S.S.S.S.S in R.Sin R.Sin R.Sin R.Sin R.S

Madhya Pradesh Dec-13 NDA/BJP 29 11

Mizoram Dec-13 UPA/Congress 1 1

NCT Delhi Dec-13 UPA/Congress 7 3

Rajasthan Dec-13 UPA/Congress 25 10Chhattisgarh Jan-14 NDA/BJP 11 5

Sikkim May-14 SDF 1 1

LLLLLok Sabhaok Sabhaok Sabhaok Sabhaok Sabha May May May May May -14-14-14-14-14 UPUPUPUPUP A/Congress A/Congress A/Congress A/Congress A/Congress 545545545545545 245245245245245



Market Strategy

Diwali Special


Outlook and Valuation

We expect the Sensex EPS to post a growth of 9.6% for FY2014

and a healthier 15.4% for FY2015. Attributing a 15x multiple to

our Sensex EPS (in line with the 5-year average), we arrive at a

target of 22,600 for the Sensex, implying an upside of 8.8%

from the present levels.

Owing to near-term cyclical headwinds, we recommend a longer

investment horizon for rate-sensitives. We continue to have a

positive outlook on export-oriented sectors owing to signs of

recovery in advanced economies and the rupee depreciation on

a yoy basis. So our top recommendations continue to be in the

IT and pharmaceuticals space. We are positive on the metal

sector as well. We believe that the recent capacity additions and

meaningful under-utilized capacity in the metal sector are likely

to be employed for sharp increase in exports going ahead aided

by improving global fundamentals. Although expensive,

defensives like FMCG stocks are also likely to continue to

outperform in the current environment. We also selectively prefer

large private banks over a medium to long term perspective but

overall continue to maintain a cautious near-term outlook on

the banking sector and PSU banks in particular.

Source: Angel Research

Exhibit 9: Sensex one-year-forward P/E

5.0

10.0

15.0

20.0

25.0

30.0

Oct-01 Oct-03 Oct-05 Oct-07 Oct-09 Oct-11 Oct-13

Sensex 1 year forward P/E 15 year Avg 5 year Avg

Source: Angel Research

Exhibit 8: Sensex EPS growth over FY2015E

1,192

1,307

1,508

500

700

900

1,100

1,300

1,500

1,700

FY2013 FY2014E FY2015E

( ` )

9.6 % g r o w

t h 1 5. 4

% g r o w t h




Market Strategy

Diwali Special

Top Picks




Market Strategy

Diwali Special

ICICI Bank's strategic transformation over the past five years has expectedly resulted

in a significantly better balance sheet and earnings quality. CASA ratio, which was

29% at the end of FY2009, has improved to around 43% as of 1QFY2014.

Apart from the paradigm shift in the deposit mix, the bank has largely exited

unattractive business segments such as small-ticket personal loans in the domestic

segment and most non-India related exposures in its international business, which

has resulted in a commensurate decline in credit costs for the bank. Even during

FY2013, credit costs for the bank remained under check at 66bp (which was lower

than the Managements' guidance of 75bp).

The bank's substantial branch expansion (from 1,388 branches at the end of1QFY2009 to 3,350 branches by 1QFY2014) and strong capital adequacy at

18.35% (tier-1 at 12.5%) positions the bank to grow its loan book at a faster rate

than the system average as and when business environment turns conducive. In

the near term, we expect the bank to grow moderately taking into account the

current challenging times for the sector.

The stock is trading at an attractive valuation of 1.5x FY2015E P/ABV. Hence, wewewewewe

maintain our Buy view on the stock with a target price ofmaintain our Buy view on the stock with a target price ofmaintain our Buy view on the stock with a target price ofmaintain our Buy view on the stock with a target price ofmaintain our Buy view on the stock with a target price of ` ` ` ` ` 1,181, valuing the core1,181, valuing the core1,181, valuing the core1,181, valuing the core1,181, valuing the core

bank at 1.7x FY2015E P/ABbank at 1.7x FY2015E P/ABbank at 1.7x FY2015E P/ABbank at 1.7x FY2015E P/ABbank at 1.7x FY2015E P/AB V and assigning a value of V and assigning a value of V and assigning a value of V and assigning a value of V and assigning a value of ` ` ` ` ` 187 to its subsidiaries.187 to its subsidiaries.187 to its subsidiaries.187 to its subsidiaries.187 to its subsidiaries.

ICICI Bank (CMP: ` 1,025/ TP: ` 1,181/ Upside: 15%)

Y/EY/EY/EY/EY/E Op Inc.Op Inc.Op Inc.Op Inc.Op Inc. NIMNIMNIMNIMNIM PPPPP A A A A A TTTTT EPSEPSEPSEPSEPS AB AB AB AB AB V V V V V RoA RoA RoA RoA RoA RoERoERoERoERoE P/EP/EP/EP/EP/E P/ABP/ABP/ABP/ABP/AB V V V V V

MarchMarchMarchMarchMarch ((((( ` ` ` ` ` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) ((((( ` ` ` ` ` cr)cr)cr)cr)cr) ((((( ` ` ` ` ` ))))) ((((( ` ` ` ` ` ))))) (%)(%)(%)(%)(%) (%)(%)(%)(%)(%) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)

FY2014E 25,863 3.2 9,624 83.4 632.3 1.6 15.0 12.3 1.6

FY2015E 30,193 3.2 11,187 97.0 695.5 1.6 15.5 10.6 1.5

Wipro has identified four momentum industry verticals: 1) BFSI, 2) energy & utilities,

3) retail and 4) lifesciences and healthcare; these verticals account for 65% of the

company's revenue. The Managements of all its peer companies have indicated

that IT spend in industry verticals such as retail and energy & utilities is expected to

grow higher than the overall industry growth and Wipro's exposure to energy &

utilities is ~100% higher than the next largest competitor in this space (Infosys). We

expect USD and INR revenue CAGR for IT services to be at 9% and 16%, respectively

over FY2013-15E.

Wipro has operating margin levers such as improving utilization level and increasing

offshore revenue. Wipro's utilization level is currently at at 66.1%, which is nearer

to its historic low levels. The company has headroom to improve its utilization by

~500bp even if the Management does not want to run a tight ship.

The portfolio of top-10 client accounts has seen a change at Wipro (with only

2 hi-tech/telecom clients within the top-10 client roster vs 4-5 clients from the

hi-tech/telecom segment earlier). W W W W W e value the stock at 15.5x FY2015E EPS ofe value the stock at 15.5x FY2015E EPS ofe value the stock at 15.5x FY2015E EPS ofe value the stock at 15.5x FY2015E EPS ofe value the stock at 15.5x FY2015E EPS of ` ` ` ` ` 36.5, which gives us a target price of36.5, which gives us a target price of36.5, which gives us a target price of36.5, which gives us a target price of36.5, which gives us a target price of ` ` ` ` ` 567 and recommend it as one of our top567 and recommend it as one of our top567 and recommend it as one of our top567 and recommend it as one of our top567 and recommend it as one of our top

picks with a Buy ratingpicks with a Buy ratingpicks with a Buy ratingpicks with a Buy ratingpicks with a Buy rating.....

Wipro (CMP: ` 492/ TP: ` 567/ Upside: 15%)

Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPP A A A A A TTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/B V V V V V EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITD A A A A A EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales

MarchMarchMarchMarchMarch ((((( ` ` ` ` ` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) ((((( ` ` ` ` ` cr)cr)cr)cr)cr) ((((( ` ` ` ` ` ))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)

FY2014E 44,029 22.8 7,781 31.5 22.5 15.6 3.6 10.1 2.3

FY2015E 49,961 23.5 9,020 36.5 21.6 13.5 2.9 8.0 1.9




Market Strategy

Diwali Special

Axis Bank has aggressively expanded its branch network at around 30% CAGR

over the past ten years (~2,250 branches now), which has not only aided the bank

in steadily growing its retail liabilities profile (CASA ratio stands at ~43% and

share of domestic CASA & retail deposits to total deposits at 73%), but has also laid

a strong platform for building up a sustainable retail assets portfolio (share of

retail advances to total advances at 30%).

Axis Bank has been able to sustain its healthy growth on the non-interest income

front and maintain the fee income contribution at a meaningful 1.9% of total assets.

Axis Bank's tier-I ratio stood at 12.8% as of 2QFY2014, which gives it enough headroom

for credit growth for the next three years. We expect the Management to meet its

guidance of above-industry average loan growth and improve its credit market share.

Notwithstanding moderate concerns on its corporate book asset quality, we expect

the retail business to drive earnings at a healthy CAGR of 19.2% over

FY2013-15E. In our view, the current valuations at 1.3x FY2015 ABV are below

our longer term fair value estimates. In the near term, given the weak macro

environment and cautious outlook for the sector, stocks such as Axis Bank may

undershoot fair value estimates, but from a relative point-of-view compared to

peers, it remains one of the preferred banks, in our view, from a medium term

perspective. W W W W W e maintain our Buy recommendation, with a target price ofe maintain our Buy recommendation, with a target price ofe maintain our Buy recommendation, with a target price ofe maintain our Buy recommendation, with a target price ofe maintain our Buy recommendation, with a target price of ` ` ` ` ` 1,392.1,392.1,392.1,392.1,392.

Axis Bank (CMP: ` 1,210/ TP: ` 1,392/ Upside: 15%)

Y/EY/EY/EY/EY/E Op Inc.Op Inc.Op Inc.Op Inc.Op Inc. NIMNIMNIMNIMNIM PPPPP A A A A A TTTTT EPSEPSEPSEPSEPS AB AB AB AB AB V V V V V RoA RoA RoA RoA RoA RoERoERoERoERoE P/EP/EP/EP/EP/E P/ABP/ABP/ABP/ABP/AB V V V V V

MarchMarchMarchMarchMarch ((((( ` ` ` ` ` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) ((((( ` ` ` ` ` cr)cr)cr)cr)cr) ((((( ` ` ` ` ` ))))) ((((( ` ` ` ` ` ))))) (%)(%)(%)(%)(%) (%)(%)(%)(%)(%) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)

FY2014E 19,329 3.4 6,048 129.2 802.5 1.6 17.1 9.4 1.5

FY2015E 22,724 3.4 7,368 157.5 922.0 1.7 18.1 7.7 1.3

For Hindustan Zinc (HZL), we expect zinc-lead/ silver volumes to grow at a CAGR

of 5.8%/6.2% over FY2013-15. Also, HZL is expanding its mining capacity at the

Kayar mine, which has 11mn tonne of high-grade reserves. The company expects to

increase its capacity from 1.0mn tonne to 5.0mn tonne over the coming five years. At current levels of ~US$1,900/tonne, zinc prices stand near marginal cost of

production for several zinc producers globally. Hence, we believe that the probability

of a further decline in zinc prices from the current levels remains muted. Further, over

the next 3-5 years, several zinc mines are expected to be exhausted; hence, production

is likely to suffer. This should support zinc prices over the medium term in our view.

With net cash of ` 23,632cr as on September 30, 2013, the company continues to

explore new reserves. Its reserves and resources have increased to 348mn tonne as on

March 31, 2013, compared to 210mn tonne as on March 31, 2007, indicating that

HZL has added more reserves and resources than it has mined during the same period.

The stock is currently trading at an inexpensive valuation of 4.6x FY2014E and

3.6x FY2015E EV/EBITDA. On a P/B basis, the stock trades at 1.5x FY2014E and

1.3x FY2015E. W W W W W e maintain a Buy on the stock.e maintain a Buy on the stock.e maintain a Buy on the stock.e maintain a Buy on the stock.e maintain a Buy on the stock.

Hindustan Zinc (CMP: ` 135/ TP: ` 156/ Upside: 16%)



FY2014E 12,964 49.9 6,503 15.2 18.5 8.8 1.5 4.6 2.3

FY2015E 13,537 52.0 7,034 16.6 17.6 8.1 1.3 3.6 1.9




Market Strategy

Diwali Special

Tata Steel (CMP: ` 335/ TP: ` 390/ Upside:16%)

Tata Steel completed its 2.9mn-tonne expansion program at the Jamshedpur plant

during FY2013. We expect this expansion to contribute ~ ` 2,000cr per annum to

the company's consolidated EBITDA as the new plant reaches optimum utilization

over the coming two years.

Tata Steel is in the process of restructuring its European operations. Over the past

two quarters, its European operations have shown better-than-expected improvement

in operating profit. Going forward, we expect European operations to continue to

improve on the profitability front, which have been dragging down the company's

consolidated profits in the past.

Tata Steel is setting up a 6mn-tonne integrated steel plant (including cold rolling

mill) in two phases of 3mn tonne each for a capex of ` 34,500cr. Phase 1 of the3mn-tonne plant is expected to be completed by FY2015. This project is expected

to have high returns on invested capital as it would be backed by captive iron ore.

The stock is currently trading at an inexpensive valuation of 5.8x FY2014E and

5.2x FY2015E EV/EBITDA. On a P/B basis, the stock trades at 0.9x FY2014E and

0.8x FY2015E. W W W W W e maintain a Buy on the stock.e maintain a Buy on the stock.e maintain a Buy on the stock.e maintain a Buy on the stock.e maintain a Buy on the stock.



FY2014E 153,835 9.0 3,325 34.2 9.5 9.8 0.9 5.8 0.5

FY2015E 165,673 9.7 3,846 39.6 10.1 8.5 0.8 5.2 0.5

For Cipla, exports contributed 53% to the total turnover of FY2013, with Africa, US

and Latin America constituting more than 60% of total exports. In the US, Cipla has

entered into a partnership with more than 22 players and has a strong product

pipeline of ANDAs, of which 47 have been launched, out of the 76 approved. Withthe Medpro acquisition, the company now has a front end in the fast growing

African market.

Cipla is one of the largest players in the domestic formulation market, with a

market share of around 5%, contributing 47% to the total turnover in FY2013.

Cipla's distribution network in India consists of a field force of around 7,500

employees. The company plans to focus on growing its market share and sales by

increasing penetration in the Indian market, especially in rural areas, and plans to

expand its product portfolio by launching biosimilars, particularly relating to the

oncology, anti-asthmatic and anti-arthritis categories.

For FY2014, the Management has given a revenue growth guidance of 14-15%

(excluding Medpro). We expect the company's net sales to post a 15.5% CAGR to

` 10,796cr and EPS to record a 12.1% CAGR to ` 23.9 over FY2013-15E.

Cipla (CMP: ` 423/ TP: ` 504/ Upside: 19%)



FY2014E 9,274 23.1 1,685 21.0 17.2 20.2 3.2 15.7 3.4

FY2015E 10,796 23.1 1,916 23.9 16.8 17.8 2.8 13.1 2.8




Market Strategy

Diwali Special

Cadila (CMP: ` 660/ TP: ` 894/ Upside: 35%)

Cadila is the fifth largest player in the domestic market. The company's domestic sales,

at ` 2,987cr in FY2013, accounted for ~48% to its overall top-line. The company

enjoys a leadership position in the CVS, GI, women's healthcare and respiratory

segments, and has a sales force of 4,500 MRs. Going forward, the company expects

these segments to grow at above-industry rate on the back of new product launches

and field force expansion. While FY2014 sales would be lower, however FY2015 should

witness a strong sales growth.

Cadila has a two-fold focus on exports, wherein it is targeting developed as well as

emerging markets, which contributed around 53% to its FY2013 top-line. The company

has developed a formidable presence in the developed markets of US, Europe (France

and Spain) and Japan. In the US, the company achieved a critical scale of ` 1,500cr on

the sales front in FY2013. The company's exports growth to the US market will be

subdued in FY2014, on back of lack of new products along with price erosion among

its key products and with just 5-8 approvals. However, in FY2015, the region is expected

to post a growth of 20% on back of 20 approvals.

We expect Cadila's net sales to post a 16.6% CAGR to ` 8,367cr and EPS to report an

18.1% CAGR to ` 44.7 over FY2013-15E. While the growth momentum has slowed

down, the stock has corrected significantly, making it attractive.



FY2014E 7,123 15.5 765 37.3 22.9 17.7 3.7 14.0 2.2

FY2015E 8,367 15.7 915 44.7 22.9 14.8 3.1 11.7 1.9

United Phosporus (CMP: ` 154/ TP: ` 225/ Upside: 46%)

United Phosphorus (UPL) figures among the top five generic agrichemical players

in the world, with a presence across major markets such as the US, EU, Latin

America and India.

The global agrichem industry, valued at ~US$45bn (CY2012E), is dominated by

the top six innovators, viz Bayer, Syngenta, Monsanto, BASF, DuPont and Dow,

which enjoy a large market share of the patented (28%) and off-patent (32%)

market, while in generic, the top-5 companies occupy 61% of market share (of the

40% off-patent market). In fact, from an overall market perspective, the top

11 players control 84% of the total agrichemical market. This is due to high entry

barriers by way of investments required for product registration and to set up

manufacturing facilities. Thus, one-third of the total pie worth ~US$15bn, which is

controlled by the top six innovators through proprietary off-patent products, provides

a high-growth opportunity for larger integrated generic players such as UPL.

Moreover, as we go forward, around US$7bn worth of products would be going

off-patent in the next 2-3 years, augmenting the overall growth opportunity for

generic players like UPL.

We estimate UPL to post a 12.0% and 15.0% CAGR in sales and PAT, respectively,

over FY2013-15. The stock is trading at an attractive valuation of 6.8x FY2015E EPS.


SeptemberSeptemberSeptemberSeptemberSeptember ((((( ` ` ` ` ` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) ((((( ` ` ` ` ` cr)cr)cr)cr)cr) ((((( ` ` ` ` ` ))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)

FY2014E 10,091 16.5 850 19.2 17.0 8.0 1.3 4.8 0.8

FY2015E 11,302 16.5 998 22.5 17.2 6.8 1.1 4.0 0.7




Market Strategy

Diwali Special

Crompton Greaves (CG) is among the leading players in the power transmission &

distribution equipment business. It is a globally diversified company, deriving more

than 50% of its order backlog from international operations as of FY2013.

The underperformance of the stock in the last few years can be attributed to intense

competition in the domestic market, slowdown in European market and restructuring

of the Belgium plant which led to execution delays and margin contraction. However,

we are of the opinion that CG's margins have bottomed out in FY2013 and expect

operating margin to gradually improve over the next 12 months, partly due to

expected recovery of margin in overseas business (aided by cost savings on account

of restructuring of Belgium operations and transfer of orders to Hungary plant).

Given the attractive valuations (stock trading at 0.5x FY2015E EV/Sales compared

to its trading range of 0.5x to 1.5x and median of 0.9x), we maintain our positive

stance on the company. We have assigned an EV/Sales multiple of 0.7x to arrive at

a target price of ` 115, implying an upside of 17% from the current levels.

Crompton Greaves (CMP: ` 98/ TP: ` 115/ Upside:17%)



FY2014E 13,272 5.7 360 5.6 9.8 17.5 1.6 9.9 0.6

FY2015E 14,982 6.7 514 8.0 12.8 12.3 1.5 7.8 0.5

Aurobindo Pharma (CMP: ` 216/ TP: ` 271/ Upside:25%)

Aurobindo Pharma (APL) has increased its filing (ANDAs and dossiers) dramatically

from 313 in FY2008 to 1,647 in FY2013, as it proposes to scale up from SSP and

Cephs to NPNC products. APL has entered into long-term supply agreements with

Pfizer (March 2009) and AstraZeneca (September 2010), which provide significantrevenue visibility going ahead. APL is also in discussion with other MNCs for more

supply agreements.

APL's business, excluding the supply agreements, would primarily be driven by the

US and ARV segments on the formulation front. The company has been an aggressive

filer in the US market, with 281 ANDAs filed until 1QFY2014. Amongst peers, APL

has emerged as one of the top ANDA filers. APL expects to file 15-20 ANDAs every

year going forward.

We estimate net sales to log a 14.9% CAGR to ` 7,637cr over FY2013-15E on the

back of supply agreements in the US and ARV formulation contracts. Even after

factoring in lower profitability going forward, the stock trades at an attractivevaluation.

Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPP A A A A A T*T*T*T*T* EPS*EPS*EPS*EPS*EPS* RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/B V V V V V EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITD A A A A A EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales


FY2014E 6,641 15.9 504 17.3 19.5 12.5 2.0 8.8 1.4

FY2015E 7,637 15.9 601 20.6 18.9 10.5 1.7 7.5 1.2

Note: * Recurring numbers




Market Strategy

Diwali Special

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Market Strategy

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Market Strategy

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