Pre Market Report 24th July, 2012

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1 Pre Market Report 24th July, 2012 Bears coming back, Larsen and Toubro, HUL beating street estimates, global headwinds continue On Monday, the markets closed with significant declines with metal, infra and capital goods being the worst performers. Europe, too, didn't come to the rescue of the markets and pulled the indices down. The Sensex closed at 16877, down 281 points from its previous close, and the Nifty closed at 5118, down 87 points. The market breadth was negative with advances at 331 against declines of 1106 on the NSE. Monday s fall in Sensex was the biggest fall in two months owing to Spain woes and road block to FDI in retail. Rupee depreciation also added to domestic woes. Globally, the problems in the euro zone, a slowdown in China and emerging markets, added to the chance that oil prices could be driven higher by tensions over Iran's nuclear program, will add to America's economic woes. Domestically, Engineering and construction major (L&T) posted its Q1FY13 results which beat street expectations on the topline and PAT front. However, the company disappointed the street on Operating Profit margin and EBITDA front. Colgate Palmolive too announced its Q1FY13 results. Its first quarter net profit rose 17% year-on-year to Rs. 117 crore, helped by strong growth across its toothpastes and toothbrush categories. The company gained market share in both the segments. Colgate strengthened its leadership position in toothpastes with a volume market share of 54.5% in Jan-June period, up from 52.4% in the same period a year ago. Its market share in toothbrushes also grew to 38.2% from 36.3%. The company has recently acquired land on long-term lease to set up a toothbrush manufacturing facility in Andhra Pradesh. Its net sales in April-June were up 20% to Rs. 736 crore, helped by a 11% volume growth. Fast moving consumer goods major Hindustan Unilever reported strong operating numbers for the June quarter, with net sales rising 13.7% year-on-year to Rs 6, crore. Profit before interest and taxes (PBIT) jumped 30.2% YoY to Rs crore. Telecom operator Idea Cellular's net profit fell 2% quarter-on-quarter to Rs 234 crore in the first quarter of FY13, which was lower than expectations. Analysts on an average had expected a net profit at Rs 300 crore. Net sales too rose lower than expected by 2% to Rs 5,501 crore during the same period. Analysts had forecast at Rs 5,606 crore. Software services exporter Wipro's IT services revenues grew higher than expected by 9.54% quarter-onquarter to Rs 8,314 crore for the quarter ended June 2012.IT services EBIT too increased better than expected by 10.87% QoQ to Rs 1,744 crore in the first quarter of FY13. Analysts on an average had expected IT services revenues at Rs 8,145 crore and IT services EBIT at Rs 1,688 crore during the quarter. Meanwhile, Samajwadi Party, Left and Janta Dal parties opposed FDI in retail dampened investor sentiment. Holding that FDI in retail will harm farmers and small traders, Uttar Pradesh Chief Minister Akhilesh Yadav has said any move facilitating entry of multi-national firms in the sector would be opposed. Pantaloon Retail, Provogue (India), Koutons Retail and Shoppers Stop were down 4-8%. At the current level of 16877, the Sensex trades at a PE of 16x FY12E street earnings. Going ahead, markets would take a cue from the crop output from the present monsoon season, changes in rupee levels, behavior of crude oil prices, ongoing Q1FY13 earnings season and RBI Policy meet.

2 Investors having short term horizon, can consider booking partial profits in fairly valued stocks which were recommended in the past weeks in the Pre- Market report like State Bank of India, ICICI Bank, Larsen and Toubro, Shriram Transport Finance, IDFC, BHEL and Mahindra and Mahindra. Long term investors horizon of 1-2 years should remain stock specific and can consider accumulating stocks like Bajaj Auto, Timken India, Astra Zeneca Pharma, Dr. Reddy s, Maharashtra Seamless, Nestle, State Bank of Bikaner and Jaipur, Engineers India, Opto Circuits, Axis Bank, HDFC Bank, Mercator Lines, Karur Vysya Bank, Swaraj Engines, Jyothy Labs and ICRA. Top Fundamental Picks 1) Larsen and Toubro a) Engineering and construction major (L&T) net profit grew higher than expected by 16%, at Rs. 864 crore on the back of a healthy orderbook and good progress in execution of various projects. The company's sales also grew 26% to Rs 11,955 crore. Revenues too rose better than expected by 26.07% YoY to Rs. 11,955 crore in the first quarter of FY13. Street had expected net profit at Rs. 827 crore and revenues at Rs. 10,951 crore during the same period. However, company disappointed the street by its EBITDA margin that came in at 9.1%, a drop of 280 basis points YoY. Analysts had forecast it at 11.5% for the quarter. b) The management had guided for 15-20% top line and order inflow growth for financial year In the FY12, margin was at 11.6%. On its business outlook, the company said delayed policy measures, slowdown in industrial production, elevated interest rates and liquidity concerns have moderated the growth prospects in the domestic economy. This together with the uncertainties in the global market has impacted the investment sentiment, thereby restricting the business opportunities for the capital goods industry. c) The heavy engineering and construction major showed some optimism by saying that the company could witness renewed focus on economic reforms for improving the investment momentum and attractive capital inflows. On the international front, select markets in the middle-east, south-east Asia and CIS countries hold promising prospects and the company is strengthening its position there. 2) Bajaj Auto Accumulate a) Country's second largest two-wheeler maker Bajaj Auto 's Net sales increased by 4% to Rs. 4,714 crore from Rs 4,535 on yoy basis. Total income, during the quarter, stood at Rs. 4,865 crore, which was tad higher than expectations of Rs 4,811 crore. Total volumes declined by 1.3% year-on-year to lakh units, but that increased 6% on a sequential basis. Realisations rose by 5% YoY to Rs 45,095 per unit due to adverse product or market mix. b) EBITDA margin went down by 180 basis points quarter-on-quarter to 17.9%. Adjusted margins too declined 130 bps to 19.4% versus 20.7% QoQ, but that increased by 30 basis points year-onyear.employees expenses increased 12% YoY and 34% QoQ to Rs 160 crore during the quarter. Tax expenses rose by 24% year-on-year to Rs 300 crore due to reduction in tax benefit at Pantnagar from 100% to 30%. c) On the profitability front, the Company met street expectations. Net profit rose by 1% on yoy basis to Rs. 718 crore for the quarter ended June 2012 led by higher other income. However, it has seen a drop of 7% on a sequential basis. Analysts on an average had expected net profit of around Rs 712 crore. Other income went up by 26.4% to Rs 182 crore from Rs 144 crore year-on-year.

3 d) Overall the company, in a release, said the first quarter has witnessed subdued domestic demand. "Disruption in exports and rising input costs hurt earnings this quarter." e) Demand in domestic market remains weak as company's domestic growth was flat in the April-June quarter as against 6% for industry. f) Company expects normalcy in Sri Lanka sales by September while problems in Egypt would continue. It has received good response for Discover 125ST motorcycle. It expects to launch Pulsar 200 NS Pan- India shortly g) Cash & cash equivalents stood at Rs 5,682 crore for the quarter ended June ) Karur Vysya Bank Accumulate a) Net Interest Income has seen a YoY increase of 23.49% to touch Rs. 261 crs whereas for FY12 the growth stood at 19.59% to Rs. 917 crs. b) Operating Revenue witnessed YoY growth of 35.57%. For FY12, it stood at 22.9%. c) Operating Profit grew by 20.83% to Rs. 726 crores in FY12. For the quarter, Operating profit registered a YoY growth of 46.03% to Rs. 213 crores. d) Q4FY12 Net Profit increased by 27.3% to Rs. 147 crores. Net Profit jumped by 20.72% to Rs. 502 in FY12. e) NIM stood at 3.04%, Cost of Funds stood at 8.35% (against 7.12% in Q4FY11 and 8.16% in Q3FY12), ROA stood at 1.63% and Return on Networth stood at 21.64% in Q4FY12. f) For the whole year, NIM stood at 3.08%, ROA stood at 1.56% and Return on Networth stood at 18.53%. g) The Company s Cost to Income(C/I) stood at 42.85% in Q4FY12. For the whole year, C/I stood at 42.73%. While margins during FY12 dipped by 28bps on higher cost of funds, however the earnings continued their growth on account of cushion from high PCR of earlier years. During FY12, this came off to 75% as the bank derived advantage of high provisions made in previous years 4) Opto Circuits Accumulate a) Opto's growth is likely to be driven by the non-invasive segment in the near to medium term. This shall be led by new product launches (low cost monitors in particular) and scale up in revenues from AED segment in Japan. On the invasive side, increased penetration in Emerging Markets (EMs) and new launches shall aid revenue growth. b) The company s net working capital saw a reduction from 255 days in FY11 to 145 days in FY12. The working capital cycle of the company has immensely improved c) Opto Circuits subsidiary and global leader in automated external defibrillators (AED), Cardiac Science Corporation, recently announced the European launch of its CE-certified Powerheart G5, the nextgeneration AED to help save lives from sudden cardiac arrest (SCA). Each year, as many as 700,000

4 lives are lost to SCA in Europe. The Powerheart G5, which enters a global AED market valued at $550M as of 2011, is designed to enable both professional rescuers and first-time users to swiftly provide effective, life-saving therapy to aid a person who has suffered SCA. It is the first AED to combine realtime CPR guidance for the rescuer, customized patient therapy, and fast shock times, providing significant differentiation and greatly expanded features vis-a-vis competition. The management expects the new G5 AED to help us secure a top global market-share position. The Powerheart G5 s combination of life-saving features and intuitive controls will appeal to current and new customers in work places, public spaces and emergency services. d) Presently, the company operates out of manufacturing units across India, Malaysia and the US. It has three plants each in the US and Malaysia, and six units in India. Its Indian units are in Bangalore, Vizag, Kolkata, Chennai and in Himachal Pradesh. Another subsidiary, Advanced Micronic Systems Ltd also has a manufacturing unit in Bangalore. e) It has commenced work on its new single-product special economic zone (SEZ) at Hassan. The company is investing close to Rs 200 crore on setting up a greenfield manufacturing facility. The Company acquired 250 acres at the industrial growth centre in Hassan from Karnataka Industrial Area Development Board (KIADB). Three group companies of Opto Group will set up their manufacturing facility at this SEZ. The construction work has started and it expects to complete the work in the next months 5) Jyothy Labs Hold and Accumulate on decline a) Jyothy Labs (JLL) Q4FY12 standalone results were better than street expectations. The Company s topline witnessed YoY growth 0f 37.5% whereas the operating profit margin improved by 614bps on YoY basis to touch 16.6%. JLL s PAT registered growth of 25.7% on YoY basis to Rs. 28 crores. b) Its acquired company Henkel India (HIL) also reported a strong performance. Revenues grew by healthy 30.8% on qoq basis to Rs. 101 crores and operating margin of 4.4%, an improvement of 130bp on qoq basis. Street expects JLL s consolidated revenue to post a CAGR of 31.0% to Rs. 1,568cr with an operating margin of 11.1% and profit to post a CAGR of 40.2% to Rs. 88cr over FY E. Key indices Index July 23, 2012 July 20, 2012 % change Sensex (1.64) Nifty (1.67) Nasdaq* (1.20) Dow Jones Ind. Avg.* (0.79) FTSE (2.09) Straits Times (1.10) Hang Seng (2.99) SSE Composite Index (Shanghai) (1.26) Nikkei (1.86) Source: Moneycontrol, Ajcon Research Key Commodity prices Index July 23, 2012 July 21, 2012 % change Brent Crude Oil US$ US$ (July 23, 8.40 am) (2.02) Gold (Rs.) 29,453 29, Silver (Rs.) 52,920 52, Source: Moneycontrol, Ajcon Research

5 Top Nifty gainers Dr. Reddy s Cipla ONGC Source: National Stock Exchange (NSE), Ajcon Research Top 5 Group A gainers Shriram Transport Finance Indian Bank M&M Financial Services Zee Entertainment Manappuram Finance Source: BSE, Ajcon Research Top 5 Group A losers Crompton Greaves (9.19) Pantaloon Retail 175 (8.32) HDIL (6.90) Godrej Industries 232 (5.69) Maruti Suzuki (5.65) Source: BSE, Ajcon Research Top 5 Nifty losers Maruti Suzuki (5.75) JP Associates 74.1 (4.69) Sesa Goa (4.67) Sterlite (4.66) Hindalco (4.46) Source: NSE, Ajcon Research Institutional Fund Movements (Net Inflows Rs. bn) - Monthly Trends Period FIIs Mutual Funds As on June 28, (8.39) May, 2012 (15.22) April 2012 (11.09) (3.9) March (18.99) February (22.2) Source: Securities Exchange Board of India (SEBI), Moneycontrol, Ajcon Research

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