Q 1 Results

JULY 9, 2013
Economy News
As the rupee slid to its lowest level against the dollar in early trade, the Prime Minister's Office said on Monday that he'd convened a meeting with captains of industry on July 29 on these and other issues of concern on the economy. (BS) The rupee hit an all-time low in early trade on Monday breaching 61 levels but recovered after the central bank intervened. (BS) Several petitions were filed by aggrieved steelmakers and miners in the Odisha High Court on Monday challenging the state government's July 4 order to district collectors not to allow mine owners to operate their mines if they do not pay stamp duty by July 9. (ET) Life Insurance Corporation (LIC), will buy shares of around Rs 400bn in the current financial year, a one-third increase over the previous year, partially blunting the impact of recent FII outflows from Indian stocks. (ET) India's gold imports in June have fallen 80% to about 32 tonnes, providing some relief to the current account deficit and the weak rupee. (BL) RBI, in a notification issued late on Monday, banned banks from proprietary trading in domestic currency futures and the exchangetraded options market. (BS)
Equity
% Chg 8 Jul 13 Indian Indices SENSEX Index NIFTY Index BANKEX Index BSET Index BSETCG INDEX BSEOIL INDEX CNXMcap Index BSESMCAP INDEX World Indices Dow Jones Nasdaq FTSE NIKKEI HANGSENG 1 Day 1 Mth 3 Mths
19,325 5,812 12,900 6,246 9,135 8,743 7,360 5,670 15,225 3,485 6,450 14,109 20,582
(0.9) (1.0) (1.1) 0.3 0.1 (1.9) (0.3) (0.4) 0.6 0.2 1.2 (1.4) (1.3)
(0.5) (1.2) (7.8) 1.8 (2.3) 3.0 (5.7) (4.9) (0.2) 0.5 0.6 10.8 (4.4)
6.0 5.8 2.9 (4.3) 4.2 5.0 (0.1) (3.2) 3.8 7.6 2.2 8.2 (5.7)
Value traded (Rs cr)

8 Jul 13 Cash BSE Cash NSE Derivatives 1,512 8,993 117,721 % Chg - Day (4.5) 9.2 14.4
Corporate News
The Department of Public Enterprises has upgraded the public sector Mangalore Refinery and Petrochemicals Ltd (MRPL) from Schedule 'B' to Schedule 'A' with effect from July 4. (BL) French courier major GeoPost has acquired a 42% stake in domestic courier and cargo company DTDC. This follows a complete stake sale by Reliance Capital's private equity arm, which held 39.51% in DTDC, for Rs 1.58bn. (BL) The government will tomorrow finalise merchant bankers for managing the disinvestment of hydel power producer NHPC, which is expected to fetch over Rs 22bn to the exchequer. The government plans to sell 11.36% of its stake, or its 1.2bn shares of NHPC through Offer for Sale (OFS) in the domestic market. Bharti Airtel on Monday, said it had repaid Rs 67.96bn of debt from the proceeds of the 5% stake sale to Qatar Foundation Endowment. The debt reduction would result in improvement in the company's capital structure and balance sheet leverage. (BS) Maruti Suzuki had slashed production by around 25% in June. The company, which has seen demand taper for even diesel vehicles after the recent fuel price increases, is understood to have asked 200 contract workers at Suzuki Powertrain India Ltd to go on indefinite leave. (BS) With the rupee hitting new lows against the US dollar almost on a daily basis, SAIL has said that for every Re 1 depreciation, on an annual basis, the company may have to take a Rs 1.25 - 1.3bn hit. (BS) Jaguar Land Rover (Tata Motor's subsidiary) and logistics firm DHL said on Monday plans were in place to minimise the impact on production at the carmaker's British plants from a threatened strike by DHL staff. (BS) Educomp Solutions has initiated discussions with its lenders to restructure its debt. The company has approached the Corporate Debt Restructuring forum. The company has a gross debt of Rs. 21bn as on March 31. (BL)
Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange
Net inflows (Rs cr)

5 Jul 13 FII Mutual Fund (18) (24) % Chg (104.2) (80.0) MTD YTD 1,023 72,330 (450) (12,627)
FII open interest (Rs cr)

5 Jul 13 FII FII FII FII Index Index Stock Stock Futures Options Futures Options 10,138 45,556 26,769 1,623 % Chg (6.2) (2.6) 0.0 20.5
Advances / Declines (BSE)

8 Jul 13 Advances Declines Unchanged A 69 134 B 805 973 102 T 160 150 14 Total % total 1,034 1,257 116 43 52 5
Commodity
% Chg
8 Jul 13 1 Day 1 Mth 3 Mths
Crude (NYMEX) (US$/BBL) 102.9 Gold (US$/OZ) 1,236.9 Silver (US$/OZ) 19.1
(0.2) 1.7 1.5
7.2 (9.5) (11.6)
9.3 (21.1) (30.9)
Debt / forex market

8 Jul 13 1 Day 1 Mth 3 Mths 10 yr G-Sec yield % Re/US$ N/A 60.8 7.7 60.2 7.4 58.1 8.0 54.6
Sensex
21,000 19,500 18,000 16,500 15,000 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Research Team dipen.shah@kotak.com +91 22 6621 6301
Q1FY14 RESULTS PREVIEW

5% revenue growth expected during the quarter Overall, we expect a muted quarter for our coverage universe. We expect stocks under our coverage (ex-banking / NBFCs) to report revenue growth of 4.9% on a YoY basis. Among sectors, IT and Oil & Gas are expected to predominantly propel this growth, apart from FMCG and Shipping / Logistics sectors. Revenues of IT companies are expected to be driven by the near 4% rupee depreciation (average) YoY. On a closing basis, the rupee has depreciated by about 5.5% YoY. Higher crude prices and production should support revenue growth for the Oil & Gas sector. We will watch out for the order bookings and order execution issues, if any, in Construction and Capital Goods sectors.
For banks / NBFCs, net interest income is expected to register a growth of 9.6%. The credit growth has moderated further to 13.6% YoY (as on June 14, 2013) as compared to 14-15% range reported during previous four fortnights. Deposit mobilization has remained stable at 13.7%, vis--vis the previous fortnight with not much change in the C/D ratio. We expect NIM to remain flat QoQ with some negative bias. Although there has been decline in the bulk-deposit rates during Q1FY14 by 50-60 bps for different tenures, impact on overall margin is likely to be limited, as there is some pressure on the asset yields due to change in competitive landscape (especially retail book) as well as seasonal built-up of PSL book during Q4FY13.
Margins are expected to moderate marginally for our coverage universe (ex-banking / NBFCs) EBIDTA margins for the sectors under our coverage are expected to be marginally lower YoY. Metals and IT sectors are expected to report lower margins YoY, whereas Capital Goods and Oil & Gas are expected to report an improvement. The pressure on margins for metals sector is due to lower subdued demand and the consequent fall in production levels. The IT sector is facing lower realisations, lower utilization levels and salary hikes, which may impact margins. On the other hand, a depreciated rupee and higher crude prices should support margins for the Oil & Gas sector.
As far as banks are concerned, pre-provisioning profits are expected to rise by about 6.0% v/s 8.6% rise in NIIs on back of higher wage provisions and subdued core-fee income, despite strong likely trading profit. Fresh slippage is likely to remain higher during Q1FY14 as compared to Q4FY13; however, it would be lower than the quantum reported during H1FY13. PSU banks would continue to disappoint on the asset quality front, while, private banks are likely to report higher delinquencies albeit on low base. Retail assets will continue to see lower slippage as compared to wholesale book. We expect restructuring to remain higher during Q1FY14. However, banks would be reporting their restructured book under RBI's new guidelines.
Q1FY14 estimates - Banking & NBFC
Sector (Rs mn) Banking (12) NBFCs (4) Total Net Interest Income 1QFY14 364,230 42,182 406,412 1QFY13 335,521 35,208 370,729 YoY (%) 8.6 19.8 9.6 Pre-Provisioning Profit 1QFY14 273,472 42,222 315,694 1QFY13 257,929 34,304 292,233 YoY (%) 6.0 23.1 8.0 1QFY14 128,498 25,667 154,165 PAT 1QFY13 128,507 20,943 149,450 YoY (%) (0.0) 22.6 3.2
Source: Companies, Kotak Securities - Private Client Research
Kotak Securities - Private Client Research
Please see the disclaimer on the last page
For Private Circulation
MORNING INSIGHT
July 9, 2013
Q1FY14 estimates - ex-Banking & NBFCs

Sector Revenues (Rs mn) 1QFY14 1QFY13 Auto (8) Capital Goods (24) Cement (5) Construction (11) FMCG (4) IT (11) Media (7) Metals (3) Oil and Gas (7) Power (2) Real Estate (1) Total 741,314 409,248 170,472 144,185 176,857 492,144 32,685 442,642 353,932 248,121 680 742,203 390,914 173,026 142,856 156,868 444,418 63,110 28,988 473,464 284,552 226,741 626 EBIDTA (%) EBIDTA (Rs mns) PAT (Rs mns) YoY(%) (4.4) (3.6) (25.1) (36.6) 10.1 9.3 (29.8) 14.4 (29.2) 10.9 (8.0) 7.8 (2.1) YoY(%) 1QFY14 1QFY13 1QFY14 1QFY13 (0.1) 4.7 (1.5) 0.9 12.7 10.7 10.9 12.8 (6.5) 24.4 9.4 8.6 4.9 12.7 9.6 20.7 15.9 23.7 24.5 25.2 25.3 13.2 15.5 20.9 66.0 16.6 12.3 9.2 24.8 17.8 23.3 25.3 23.8 27.7 13.4 18.1 23.1 62.9 94,123 39,288 35,259 22,944 41,886 120,448 17,628 8,266 58,372 54,859 51,857 449 91,036 35,964 42,946 25,379 36,605 112,293 15,026 8,032 63,471 51,504 52,377 394 YoY(%) 1QFY14 1QFY13 3.4 9.2 (17.9) (9.6) 14.4 7.3 17.3 2.9 (8.0) 6.5 (1.0) 14.0 40,871 25,367 17,439 3,231 29,963 94,151 2,675 4,269 20,301 42,530 24,306 330 42,770 26,312 23,279 5,096 27,205 86,118 3,811 3,733 28,672 38,367 26,428 306
Logistics/Shipping (9) 69,985
3,282,265 3,127,766
17.1 545,380 535,027
1.9 305,433 312,097
Focus areas Domestically, we will focus on the order bookings of capital goods and construction companies. There has been some improvement in the business confidence post the recent reform initiatives from the Government. The same needs to be translated into project initiations and order bookings. Management commentary on momentum of decision-making and order placements will be important for us.
We note that, the Government spending was muted in 1Q and the private sector also did not announce major projects during the quarter. To that extent, order bookings may have been subdued during this period. The continuing slowdown in the economy has raised concerns about the repayment capabilities of Indian companies and consequently, the asset quality of banks. There have been asset quality issues with several PSU banks and we will closely watch these numbers and the amount of restructured assets of banks. We will also closely track the comments of the managements of IT companies on the impact of the global economic issues on client decisions and budgets.
Conclusion Markets have turned weak recently on liquidity concerns and also the depreciating rupee. FII flows have also turned negative over the past few weeks. The Government has announced some reforms initiatives, which have provided some support to the markets. Continuing global concerns and liquidity issues may keep markets under pressure. Further initiatives from the Government to attract investments in core sectors may cushion the impact of these negatives, we believe. Valuations are slightly lower than the long-term average though, based on consensus estimates for the Sensex companies.
We opine that, if the markets have to sustain the current levels and move up, it will need to have more confidence in the medium-to-long term growth rates of Corporate India. Growth rates will move up once there is a more-enabling investment climate and a lower-interest rate regime. Disappointment in earnings or on future outlook may result in corresponding specific corrections.
MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Arun Agarwal arun.agarwal@kotak.com +91 22 6621 6143
AUTOMOBILES
Weakness in volumes continued in 1QFY14 and companies reported volume de-growth across segments. In the M&HCV space, the volumes declined drastically for all the players. LCV segment which, until last quarter, was reporting positive growth, too started showing signs of weakness in 1QFY14. Demand for petrol-run passenger vehicles remained sluggish. Meanwhile, the demand for diesel-run passenger vehicles started to taper off. 2W manufacturer's found it difficult to report growth in the domestic market. Overall weak macro-environment continued to dent the performance of auto manufacturers. Due to sluggish demand, discounts increased during the quarter. Players had to resort to production cuts in order to align their production with sales. Waiting period visible for certain products during 4QFY13 have almost vanished and most of the products/models are available off the shelf. On the positive though, tractor sales witnessed revival after staying under pressure for more than a year. Both M&M and Escorts reported strong growth in tractor sales. For the companies under our coverage, all the companies (except Escorts) have reported YoY drop in volumes. In terms of volume de-growth, Ashok Leyland was the worst hit followed by Tata Motors (Indian operations). Escorts witnessed 21% jump in tractor volumes.
Volume performance
Company Ashok Leyland Bajaj Auto Hero MotoCorp Maruti Suzuki Tata Motors TVS Motors Q1 FY14 21,721 979,275 1,559,282 266,434 153,172 494,484 3,474,368
Source: Companies
Top Pick:
Tata Motors
Q4 FY13 34,627 981,242 1,527,351 343,709 196,370 509,210 3,592,509
QoQ (%) (37.3) (0.2) 2.1 (22.5) (22.0) (2.9) (3.3)
Q1 FY13 27,585 1,078,971 1,642,292 295,896 188,774 547,000 3,780,518
YoY (%) (21.3) (9.2) (5.1) (10.0) (18.9) (9.6) (8.1)
Apollo Tyres - We expect APTY's revenues to show decline, both YoY and QoQ on weak demand. Margins are expected to increase YoY on the back of decline in rubber prices witnessed over the past one year. Sequentially we expect marginal decline in EBITDA margins. Ashok Leyland - For Ashok Leyland, 1QFY14 was a difficult quarter. Volumes during the quarter declined by 21% YoY and 37% QoQ. Weak demand led to higher discounts in the truck market. Due to steep decline in volumes, we expect almost similar significant decrease in revenues for the company. EBITDA margins are expected to be weak due to low volumes leading to negative operating leverage and higher discounts in the market. We expect ALL to report loss during the quarter. ALL's reported net profit of Rs1,500 in 4QFY13 included exceptional gain to the tune of Rs1,344mn. Bajaj Auto - BAL's volumes 1QFY14 were down by 9% YoY and flat QoQ. Higher USD realization on exports should aid margins for the company. Despite volume de-growth, we expect 5% YoY increase in PAT.
Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation
MORNING INSIGHT
July 9, 2013
Escorts Limited - For Escorts, tractor sales witnessed recovery in 3QFY13 (September year ending). We thereby expect the quarter to remain strong for Escorts, even though performance of the construction equipment business is expected to stay weak. Hero MotoCorp - Volumes for HMC were down by 5% YoY and up by 2% QoQ. We expect HMC's EBITDA margin in 1QFY14 to largely remain similar to 4QFY13 levels. HMC will continue to benefit from yen depreciation on its royalty payments. Tax rates will increase for HMC given the fall in income tax exemption at its Haridwar plant from 100% earlier to 30% in FY14 onwards. Maruti Suzuki - 1QFY13 numbers do not include impact of SPIL merger and 4QFY13 numbers include full year impact of SPIL merger. Hence 1QFY14 estimated financials are not comparable YoY and QoQ. MSIL reported volume degrowth of 10% YoY and 23% QoQ and we thereby expect revenues to remain under pressure. Yen depreciation is expected to play positively on the margins in 1QFY14. Tata Motors - Given poor performance in the Indian operations, we expect TAMO to report losses in the standalone operations. For JLR, we expect performance to be better over 1QFY13. However, over 4QFY13, we expect fall in margins for JLR. On a consolidated basis, we expect net profit to de-grow YoY largely on account of expected losses in the standalone operations. TVS Motors - TVS volumes in 1QFY14 were down, both YoY and QoQ and we accordingly expect revenues to be lower over 1QFY13 and 4QFY13. We expect EBITDA margins for TVSM in 1QFY14 to remain at 4QFY13 levels. Over 1QFY13, we expect profits to decline by 12%.
Quarterly estimates - Automobiles
Company Q1 FY14 Apollo Tyres Ashok Leyland Bajaj Auto Hero MotoCorp Maruti Suzuki Tata Motors TVS Motors 29,259 23,624 47,794 61,212 100,839 449,410 17,383 Q3 FY13 Escorts Total 11,792 741,314 Revenues (Rs mn) Q4 FY13 30,378 37,285 47,465 61,458 133,040 560,016 17,483 Q2 FY13 10,006 QoQ (%) (3.7) (36.6) 0.7 (0.4) Q1 FY13 31,647 30,073 48,657 62,473 YoY (%) (7.5) (21.4) (1.8) (2.0) (6.4) 3.7 (4.5) YoY (%) 16.3 (0.1) Q1 FY14 11.6 3.2 18.6 13.7 11.6 13.2 5.4 Q3 FY13 6.5 12.7 EBIDTA (%) Q4 FY13 11.7 5.3 17.6 13.8 15.0 13.9 5.4 Q2 FY13 5.4 13.6 Q1 FY13 11.1 8.0 17.9 15.0 7.3 13.3 5.9 Q3 FY12 5.3 Q1 FY14 1,216 (797) 7,544 5,285 6,418 20,333 448 Q3 FY13 423 Adj. PAT (Rs mn) Q4 FY13 1,418 157 7,658 5,742 12,396 39,455 581 Q2 FY13 375 QoQ (%) (14.2) (1.5) (8.0) (48.2) (48.5) (22.9) QoQ (%) 13.0 Q1 FY13 1,380 669 7,184 6,155 4,238 22,449 511 Q3 FY12 185 YoY (%) (11.9) 5.0 (14.1) 51.4 (9.4) (12.3) YoY (%) 129.2 (4.4) Q1 FY14 2.4 (0.3) 26.1 26.5 22.2 6.4 0.9 Q3 FY13 3.5 Adj. EPS (Rs) Q4 FY13 2.8 0.1 26.5 28.8 42.9 12.4 1.2 Q2 FY13 3.1 QoQ (%) (14.2) (1.5) (8.0) (48.2) (48.5) (22.9) QoQ (%) 13.0 Q1 FY13 2.7 0.3 24.8 30.8 14.7 7.0 1.1 Q3 FY12 1.5 YoY (%) (11.9) 5.0 (14.1) 51.4 (9.4) (12.3) YoY (%) 129.2
(24.2) 107,782 (19.8) 433,236 (0.6) QoQ (%) 17.8 18,198 Q3 FY12 10,138
897,131 (17.4) 742,203
12.3 40,871 67,781
(39.7) 42,770
MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Sanjeev Zarbade sanjeev.zarbade@kotak.com +91 22 6621 6305 Ruchir Khare ruchir.khare@kotak.com +91 22 6621 6448
CAPITAL GOODS, ENGINEERING & POWER

The stocks of Capital Goods companies have underperformed in the first quarter with the BSE Cap Goods Index rising 1% in the past three months as against a 5% rise in Sensex. Sector Scenario The growth in IIP based Capital Goods Index for the month of April 2013 stood at 2.3% YoY.
The unwillingness of the private sector to commit fresh investment on a large scale continued in May 2013 also. As against 240 new proposals worth Rs 121 bn, taken up by the private sector in April, the month of May saw the announcement of 184 new projects worth Rs 104 bn. Significant projects announced include a gas processing facility at an estimated cost of Rs 100 bn and a gas a based power project of 2200 MW by ONGC.
Top Picks:
L&T Cummins India VA Tech Wabag
The three month moving average of projects tendered grew 1.9% only in May 2013 to Rs 279 bn. Order placements from PGCIL have also been weak for the first quarter at ~ Rs 30 bn, vs Rs 58 bn in 1QFY13. In a bid to ramp up investor sentiment, the government has set an investment target of Rs 1.15 trn in PPP (public private partnership) projects across infrastructure sectors in rail, port and power in the next six months Key to investment climate revival lies in enabling conditions in two decision areas (1) clearances (land, environment) and (2) viability (availability of financing, lack of uncertainty about fuel (Coal, Gas and Iron Ore) and demand).
Voltas Greaves Cotton
Valuations Due to the weakening business outlook, valuations of Indian Capital Goods companies have contracted appreciably in the last twelve months. However, the sector is still not out of the woods. Hence, maintain Cautious View. Utilise depressed market conditions to Accumulate L&T, Cummins India, VA Tech Wabag, Voltas and Greaves Cotton at these levels. Avoid BHEL and CGL. Preview Highlights We expect aggregate revenue growth of 4.7% YoY in the June-ending quarter.
Aggregate EBITDA is expected to grow in line with revenue growth as we project only a slight improvement aggregate EBITDA margins to remain stable at 9.6%. Aggregate PAT is expected to post modest decline of 3.6% yoy in Q1 FY14. Remain selective in our stock picks with preference for product-oriented companies over project-oriented ones. Prefer L&T, Greaves Cotton, Elgi Equipments, Voltas and VA Tech Wabag.
MORNING INSIGHT
July 9, 2013
Trend in YoY quarterly revenue and profit growth for our capital goods universe
60% 45% 30% 15% 0% 15% 30% YoY Change in Aggregate PAT YoY Change in Aggregate Revenue
Source: Company
HR Coil price (Rs per ton)
45000 43000 41000 39000 37000
Source: Bloomberg
Forex Scenario - INR sharply lower during the quarter Rupee has depreciated sharply in the first quarter hence we expect forex related impact (gains/losses) in quarterly numbers especially of CG and cummins. Stock View ABB: The power transformer sector is going through a prolonged phase of margin pressure as players have been undercutting prices to utilize their capacity. The company has continued to report depressed margins and delay in finalization of projects is slowing down order intake.
AIA Engineering Ltd (AIA): AIA is expected to report growth in revenues as well as profits in Q1FY14. This would mainly be on account of continued up tick in new market creation in mining space. Alstom T&D: While the company's order book is healthy as compared to peers, bad debts have been a matter of concern. Bajal Electricals Limited (BAEL): We expect BAEL to report PAT growth in Q1 FY14 driven by growth in consumer appliances business and part margin restoration in project business. Bharat Electronics: BEL had surprised the market with a strong fourth quarter performance. Its order book is also strong at Rs 249 bn providing revenue visibility for four years of trailing revenues. We maintain positive view on the company. BHEL: Order intake has remained weak in 1QFY14. Situation is unlikely to improve in the near-term. We would also watch out for execution issues. We remain negative on the stock.
MORNING INSIGHT
July 9, 2013
Blue Star: Blue Star has continued to highlight sustained weakness in order intake. The company's margins are expected to recover as legacy projects get completed. The company has become selective on orders with a view to maintain profitability. Crompton Greaves: CGL should report sluggish earnings growth in the quarter mainly as a result of subdued power sector outlook and restructuring in the international business. Cummins India: We expect resilient domestic market sales driven by power segments. Company is likely to report moderation in operating margin in Q4FY13. Diamond Power Infrastructure (DPIL): The demand for HT cables has been strong but EPC segment has been sluggish. We are concerned by the massive capex of Rs 7.5 bn (spread over 3-4 years) that the company is planning to undertake in cables. ELGI Equipment Ltd (EEL): EEL is expected to report growth in demand for compressors in domestic as well as overseas geographies. We expect company to maintain margins in the quarter. Everest Kanto: The offtake from Iran (EKC's most profitable market) continues to remain adversely affected due to geopolitical developments. The company reported loss (at PBT level) in FY13 results due to sharp fall in volumes and higher interest and depreciation charges. We expect this trend to continue in 1QFY14 as well.. Greaves Cotton: 3W volumes have been tepid in 1QFY14, which would weigh on the company's revenues. Havells India Ltd (HIL): HIL is likely to report YoY growth in net profits. Sylvania is likely to aid moderately to profits. Domestic business is likely to report growth mainly in consumer alliances and lighting division. Hind Dorr Oliver: The company would most likely continue to post losses in Q1FY14 as its operations are in disarray due to declining order backlog and crippling interest burden. Kalpataru Power Transmission: KPTL is likely to observe moderate growth due to slight improvement in execution. Order book is expected to grow slightly in Q1FY14. Larsen & Toubro: The L&T stock has underperformed the market post the Q4FY13 results. In the current quarter, the company has announced sizeable order wins of ~ Rs 210 bn (including a mega order of Rs 67 bn). The company has given an order intake guidance of 20% in FY14 (Rs 1056 bn). The street is also concerned on the execution front and margin front, wherein there is scope of negative surprises. Siemens: We forecast revenue growth for Siemens in Q3FY13. Margins are likely to expand in the current quarter. Tractors India Limited (TIL): TIL is expected to report increase in sales for the quarter. We believe that the sluggish infrastructure spending and rising interest rate scenario pose a threat on company's growth. Thermax: The company is a play on the industrial capex cycle, which continues to witness weak trends. Additionally, Captive power projects are facing issues relating to availability of coal. We forecast modest growth in revenue and PAT in Q1FY14. Time Technoplast: Revenue growth should be healthy driven by the completion of industrial packaging plants in Asia and Middle East.
MORNING INSIGHT
July 9, 2013
VA Tech Wabag: We expect healthy growth in revenues. However, it being a seasonally lean quarter for the company, profits tend to be low in first quarter. During the quarter, the company has achieved several large order wins. Voltas: The company took a fresh charge of ~ Rs 950 mn in Q4FY13 on Sidra Medical project, which impacted profits. While order intake scenario has clearly not improved, we would be watchful of margins in project business. Voltamp: The performance of the company has been creditable in a challenging environment. The previous two quarter's results indicate that margins are now on a recovery mode. We expect contraction in revenue but margin recovery would lead to profit growth.
Power NTPC: During the quarter, the company is expected to have generated around 57 bn units, down marginally. We have thus projected minor decline in profits for 1QFY14.
Tata Power - Generation is expected to be driven by higher volumes from the five units of 800 MW each at Mundra. Coal prices have remained stable in 1QFY14 but INR depreciation is expected to be positive for the company's investment in Indonesian mines.
Quarterly estimates - Capital Goods, Engineering & Power
Company Q1 FY14 Capital Goods ABB AIA Engg Alstom T&D Bajaj Electricals BEL BHEL Blue Star CGL Cummins Diamond Power Elgi Equipment Everest Kanto Greaves Cotton Havells Hind Dorr Kalpataru Power L&T Siemens Thermax Time Technoplast TIL VA Tech Waabag Voltamp Voltas TOTAL Power NTPC Tata Power TOTAL 155,382 92,739 248,121 164,618 84,416 249,034 (5.6) 159,600 9.9 67,141 (2.6) 38.1 9.4 24.0 15.7 20.9 24.0 22.0 23.3 24.0 21.0 23,407 899 43,816 1,814 (46.6) (50.4) 24,987 1,441 (6.3) (37.6) (8.0) 2.8 0.4 5.3 0.8 (47.2) (50.0) 3.0 0.6 (6.7) (37.7) 17,143 5,289 7,247 7,141 8,500 75,679 6,980 27,707 13,618 5,500 2,736 1,050 4,430 15,237 700 7,624 133,900 34,764 9,730 4,748 2,595 2,725 869 16,061 409,248 19,534 4,574 10,886 11,121 27,276 188,502 8,509 33,873 11,543 7,365 3,672 1,223 4,949 24,310 817 10,316 202,938 29,556 14,487 5,206 3,649 6,855 1,750 15,922 641,978 (12.2) 15.6 (33.4) (35.8) (68.8) (59.9) (18.0) (18.2) 18.0 (25.3) (25.5) (14.1) (10.5) (37.3) (14.3) (26.1) 18,584 4,375 6,710 6,640 7,792 83,262 7,232 28,111 12,588 4,154 2,285 1,270 4,092 13,040 820 6,994 (7.8) 20.9 8.0 7.6 9.1 (9.1) (3.5) (1.4) 8.2 32.4 19.7 (17.3) 8.3 16.9 (14.6) 9.0 12.0 15.2 17.6 10.7 18.0 (12.8) (0.3) 4.7 4.5 16.9 10.3 4.3 (9.5) 14.5 6.5 6.0 17.4 10.2 9.0 (6.2) 12.7 9.0 5.7 9.5 9.0 10.6 10.3 15.5 6.5 4.1 5.9 6.3 9.6 5.5 20.1 10.3 1.2 21.7 24.7 2.3 2.3 7.1 8.4 8.5 (3.8) 12.8 10.1 5.0 9.7 12.1 2.6 11.5 14.2 10.0 13.1 9.5 5.2 14.4 5.7 18.3 10.2 5.2 (13.6) 14.4 8.2 5.9 18.5 12.0 10.0 (23.6) 12.1 8.9 (3.2) 10.1 9.1 4.3 9.9 16.4 1.7 4.5 3.9 5.8 9.2 323 624 276 129 357 7,029 308 831 1,838 117 165 (3) 337 701 (125) 290 8,521 2,069 737 234 104 44 72 681 25,367 426 637 530 7 5,929 32,375 185 242 1,542 326 210 (7) 385 1,650 (115) 486 17,692 300 1,153 250 198 600 150 722 65,273 (24.2) (2.0) (47.9) 1,818.6 (94.0) (78.3) 66.5 243.9 19.2 (64.1) (21.5) (12.5) (57.5) (40.4) (51.8) 589.5 (36.1) (6.4) (47.7) (92.7) (52.0) (5.7) (61.1) 516 541 230 120 193 9,209 464 859 1,806 220 150 (3) 315 560 (118) 274 9,020 362 672 242 (153) 25 57 777 26,312 (37.4) 15.5 20.0 7.2 85 (23.7) (33.6) (3.2) 1.8 (46.8) 9.9 7.0 25.2 5.9 (5.5) 471.4 9.7 (3.3) 79.6 26.3 (12.4) (3.6) 1.5 6.6 1.2 1.3 4.5 2.9 3.4 1.3 6.6 3.1 1.0 1.4 5.6 (1.8) 1.9 13.9 5.9 6.2 1.1 10.3 1.7 7.1 2.0 2.0 6.8 2.2 0.1 74.0 13.2 2.1 0.4 5.5 8.7 1.3 1.6 13.2 (1.6) 3.2 28.9 0.9 9.7 1.2 19.8 22.7 14.8 2.2 (24.0) (2.1) (47.3) 1,818.6 (94.0) (78.0) 61.9 243.9 19.5 (64.4) (21.2) (12.5) (57.7) (40.4) (51.9) 592.0 (36.1) (8.3) (92.7) (52.0) (9.1) 2.4 5.7 1.0 1.2 2.4 3.8 5.2 1.3 6.5 5.9 1.0 1.3 4.5 (1.6) 1.8 14.7 1.0 5.6 1.1 0.9 5.7 2.4 79.3 25.6 (14.9) (37.7) 15.5 20.8 7.2 85.0 (23.7) (34.6) (3.2) 1.8 (47.5) 9.5 7.7 24.8 5.9 (5.6) 473.5 10.7 Revenues (Rs mn) Q4 FY13 QoQ (%) Q1 FY13 YoY (%) Q1 FY14 EBIDTA (%) Q4 FY13 Q1 FY13 Q1 FY14 PAT (Rs mn) Q4 FY13 QoQ (%) Q1 FY13 YoY (%) Q1 FY14 Q4 FY13 EPS (Rs) QoQ (%) Q1 FY13 YoY (%)
(34.0) 119,554 17.6 (32.8) (8.8) (28.9) (60.2) (50.3) 0.9 30,186 9,730 4,038 2,344 2,310 996 16,116
(36.3) 390,914
(0.4) 226,741
23.1 24,306 45,630
(46.7) 26,428
MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Teena Virmani teena.virmani@kotak.com +91 22 6621 6302
CEMENT
Cement demand remained subdued even during Q1FY14 after witnessing weak growth of nearly 5.5% during FY13. This was impacted by lack of construction activity due to labor shortage coupled with early onset of monsoons. However, cement prices continued to remain firm after witnessing declines during beginning of Q1FY14. Prices started moving up from mid-May,13 and continued the trend till June-end, after that decline of Rs 5-10 per bag was witnessed in few pockets. Average cement prices at the end of Q1FY14 witnessed a decline of Rs 5 per bag QoQ and stood at Rs 286 per bag (Rs 291 per bag in Q4FY13). All India average cement prices at the end of Jun, 13 stood at Rs 292 per bag.
Top Pick
Shree Cement Grasim Industries
Cost pressures would move up further due to hike in diesel prices as well as increase in domestic coal prices by Coal India. However, with improvement in cement prices during Q1FY14, we expect EBITDA/tonne to improve sequentially. We expect revenues in our coverage universe to decline by 1.5% on YoY basis. Operating margins are expected to improve sequentially due to higher average cement prices during Q1FY14 but are expected to be lower than last year. Net profit during Q1FY14 is expected to decline by 25% YoY on account of higher costs. Going forward, we would be watching out for demand revival across regions as well as increase in cement prices post monsoons along with further update on CCI vs cement companies' hearing in COMPAT. We expect prices to come down during monsoons but prices are expected to firm up post monsoons. We thus expect cement companies to benefit from improvement in cement prices and hence we maintain our positive stance on the sector. Our top picks in the cement sector remain Shree Cement and Grasim Industries
Key highlights during the quarter

Demand growth remained subdued during Q1FY14 As per the core industries data, cement production registered a growth of 3.0% in May, 2013 against 15.4% growth in May, 2012. Cumulative growth of cement production during April to May, 2013-14 was 5.6 % as compared to 13.9% during April to May 2012-13. Demand was impacted by labor unavailability in northern and central region as well as water shortage in Maharashtra. Demand is expected to improve going forward led by pre-election spend in some of the regions, recovery in real estate sector as well as revival in infrastructure sector. Cement prices in different regions Northern region - Cement prices in northern region had witnessed correction during beginning of Q1FY14 led by lack of demand and labor unavailability. However, prices started recovering during and currently range around Rs 270-275 on an average in northern region.
North (Rs/bag)
310 290 270 250 230 210 190
Source: Dealer feedback

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MORNING INSIGHT
July 9, 2013
Southern region - Prices in AP had crashed sharply till end of April, 13 and moved to as low as Rs 190 per bag. However, prices have now recovered to almost as high as Rs 275-280 per bag in AP led by supply discipline since demand continued to stay weak. Correspondingly prices in Chennai and Bangalore also moved up and average price in Southern markets is currently hovering around Rs 300-305 per bag.
South (Rs/bag)
325 305 285 265 245 225 205 185
Western region - Western region cement prices were impacted by near drought like situation and prices had dropped by Rs 20-25 per bag till May,13. Prices remained largely stable in Mumbai and Nagpur while witnessed some downward pressure in Ahmedabad and Pune.
West (Rs/bag)
320 295 270 245 220 195
Eastern region - Prices have remained largely stable in eastern India but may witness correction as monsoon progresses and even demand remains weak.
East (Rs/bag)
340 315 290 265 240 215 190
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MORNING INSIGHT
July 9, 2013
Cost pressures to remain high Cost pressures are likely to remain high for the sector due to higher freight rates. Post the diesel rate hikes as well as railways freight hikes, we expect freight cost per tonne to remain high for the sector. Along with this, Coal India has also hiked the prices of low grade coal - G17 and G6 by nearly 11% which would impact players using low grade coal. Though imported coal prices have come down but corresponding currency depreciation has offset the impact for the same. Thus, we expect EBITDA/tonne to decline on yearly basis for the cement companies. Companies may also make the provisioning for 10% of the penalty imposed by CCI as directed by Court. Recommendation We expect prices to come down during monsoons but prices are expected to firm up post monsoons. We thus expect cement companies to benefit from improvement in cement prices and hence we maintain our positive stance on the sector. Weakness in cement stocks during the monsoon should be used as a buying opportunity. Our top picks in the cement sector remain Shree Cement and Grasim Industries
Quarterly estimates - Cement
Company Q1 FY14 Grasim ACC* India Cement Shree Cement** Ultratech Cement TOTAL 66,250 27,435 11,436 14,851 50,500 170,472 Revenues (Rs mn) Q4 FY13 75,525 29,111 11,906 14,568 53,892 185,003 QoQ (%) (12.3) (5.8) (4.0) 1.9 (6.3) Q1 FY13 67,934 27,778 12,014 14,553 50,747 YoY (%) (2.5) (1.2) (4.8) 2.0 (0.5) (1.5) Q1 FY14 20.8 16.8 19.7 25.9 21.3 21.0 EBIDTA (%) Q4 FY13 19.3 15.3 14.1 27.8 22.3 20.0 Q1 FY13 23.5 23.4 23.1 33.1 25.5 Q1 FY14 6,196 2,766 424 2,173 5,880 PAT (Rs mn) Q4 FY13 8,177 4,377 263 2,741 7,262 QoQ (%) (24.2) (36.8) 61.3 (20.7) (19.0) Q1 FY13 7,180 4,179 621 3,515 7,783 YoY (%) (13.7) (33.8) (31.7) (38.2) (24.5) (25.1) Q1 FY14 67.5 14.7 1.4 62.4 21.4 Q4 FY13 89.1 23.3 0.9 78.7 26.5 EPS (Rs) QoQ (%) (24.2) (36.8) 61.3 (20.7) (19.0) Q1 FY13 78.3 22.2 2.0 100.9 28.4 YoY (%) (13.8) (33.8) (31.7) (38.2) (24.5)
(7.9) 173,026
25.0 17,439 22,819
(23.6) 23,279
Source: Companies, Kotak Securities - Private Client Research; *ACC is CY ending company; results are for Q2CY13 **Shree Cements has changed its financial year to June; results are for Q4FY13
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MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Teena Virmani teena.virmani@kotak.com +91 22 6621 6302
CONSTRUCTION
Lack of order inflows as well as slower than expected pace of execution is likely to dampen the performance of construction sector in Q1FY14 also. Along with this, early onset of monsoons is also likely to impact the revenues for some of the companies in our construction universe. Revenues are expected to decline sequentially as well as on yearly basis due to relatively better execution seen during Q4FY13 as well as Q1FY13. Operating margins are also expected to decline for Q1FY14 on account of high cost overheads as well as lower revenue booking. Companies have made continuous efforts to reduce their working capital and borrowing requirements. We do expect some easing of working capital during Q1FY14 but lower than expected reduction in interest rates may continue to impact net profit margins of the companies.
Top Pick
IRB Infrastructure IL&FS transportation network Jaiprakash Associates Phoenix mills
Government has been taking a couple of steps to improve the investment climate for infrastructure sector but implementation of the same has been below expectations, thereby resulting in lower than expected order inflows across sectors. Due to lack of interest in BOT projects, we do expect NHAI to award EPC projects during FY14. Going ahead we would watch out for further progress on easing bottlenecks for infrastructure sector, improvement in order inflows across segments, fund raising at SPV, decline in interest rates and faster environmental clearances for speedier financial closure. Till that time, we continue to remain selective on the sector and would prefer companies with healthy order book, improved execution and attractive valuations. We would thus prefer IRB Infrastructure, IL&FS transportation network and Jaiprakash Associates. We would also continue to maintain our positive bias for Phoenix mills based on its strong rental revenue stream, excellent margins and fully operational market cities in various cities.
Key highlights about Q1FY14

Revenue growth to remain subdued during Q1FY14 Revenue growth of the companies during Q1FY14 is likely to remain subdued led by lower than expected order inflow, delays in execution as well as monsoons. Companies like IL&FS Transportation network, JP Associates, NCC, BGR energy, Unity Infraprojects, Pratibha industries and Phoenix mills are likely to post positive growth in revenues led by improvement in execution. Despite a subdued performance in FY13, revenue growth in FY14 is not expected to jump up sharply for the companies in order to contain working capital cycle and maintain balance sheet strength. Hence we expect overall revenues in our construction universe to grow by 1% YoY for Q1FY14 but decline by 16% QoQ. Net profits to remain impacted by lower execution and high borrowings Net profits are likely to be impacted by subdued execution during Q1FY14 coupled with continued high interest outgo. Interest rates had come down marginally but we expect interest outgo for the sector to remain high for another one year till meaningful rate cuts are announced. Borrowings have continued to stay high since companies have witnessed delays in stake sale from their SPVs. NCC, IVRCL and JP associates are likely to sell stake in their projects to reduce leverage and are likely to finalize the sale by Q2/Q3FY14.
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MORNING INSIGHT
July 9, 2013
Remain selective on the sector on account of subdued execution and declining net profit margins We continue to remain selective on the sector and would prefer companies with healthy order book, improved execution and attractive valuations. We would thus prefer IRB Infrastructure, IL&FS transportation network and Jaiprakash Associates. We would also continue to maintain our positive bias for Phoenix mills based on its strong rental revenue stream, excellent margins and fully operational market cities in various cities.
Key risks to our recommendations would come from lower than expected order inflow, revenue execution and higher than expected working capital cycle
Quarterly estimates - Construction & Real estate
Company Q1 FY14 Construction Punj Lloyd Jaiprakash Associates IRB Infra IL&FS Transportation IVRCL NCC BGR energy Simplex Infra Unity Infra Pratibha Industries J Kumar Infraprojects TOTAL Real Estate Phoenix mills Ltd 680 722 (5.8) 626 8.6 66.0 66.3 63.0 330 361 (8.7) 306 8 2.3 2.5 (8.7) 2.1 7.8 27,278 30,861 9,300 16,500 11,000 15,563 7,366 13,415 4,186 5,933 2,783 144,185 31,980 38,642 9,801 19,305 14,921 16,783 10,629 14,790 6,924 5,412 3,179 (14.7) (20.1) (5.1) (14.5) (26.3) (7.3) (30.7) (9.3) (39.5) 9.6 (12.5) 27,068 29,636 10,123 15,796 11,915 14,721 6,108 15,830 3,952 5,598 2,110 0.8 4.1 (8.1) 4.5 (7.7) 5.7 20.6 (15.3) 5.9 6.0 31.9 0.9 7.0 21.3 46.6 26.0 8.0 7.5 11.5 9.0 12.5 13.0 16.0 15.9 5.2 22.0 46.0 24.4 8.8 5.6 13.0 9.3 10.6 12.7 16.5 15.3 8.1 26.0 45.2 29.5 9.1 7.9 14.4 9.0 13.6 14.3 15.8 17.8 85 485 1,138 985 (390) 122 217 79 107 229 175 3,231 153 1,235 1,511 1,785 61 272 538 180 298 183 232 6,448 (44.7) (60.8) (24.7) (44.8) (55.1) (59.6) (56.3) (64.3) 25.0 (24.4) (49.9) (134) 1,388 1,418 1,217 (60) 166 336 201 181 228 153 5,096 (163) (65) (20) (19) (26) (35) (61) (41) 0 14 (37) 0.3 0.2 3.4 5.1 (1.3) 0.5 3.0 1.6 1.4 2.3 6.3 0.5 0.6 4.5 9.2 0.2 1.1 7.5 3.6 4.0 1.8 8.3 (44.7) (60.8) (24.7) (44.8) (55.1) (59.6) (56.3) (64.3) 25.0 (24.4) (0.4) (163.3) 0.7 4.3 6.3 (0.2) 0.6 4.7 4.0 2.4 2.3 5.5 (66.5) (19.8) (19.1) (26.5) (35.4) (60.8) (41.1) 0.4 14.2 Revenues (Rs mn) Q4 FY13 QoQ (%) Q1 FY13 YoY (%) Q1 FY14 EBIDTA (%) Q4 FY13 Q1 FY13 Q1 FY14 PAT (Rs mn) Q4 FY13 QoQ (%) Q1 FY13 YoY (%) Q1 FY14 Q4 FY13 EPS (Rs) QoQ (%) Q1 FY13 YoY (%)
172,366 (16.3) 142,856
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MORNING INSIGHT
July 9, 2013
RESULS PREVIEW
Ritwik Rai ritwik.rai@kotak.com +91 22 6621 6310
FMCG
1QFY14 is likely to be see further moderation in topline growth in FMCG companies. We expect our coverage universe to register revenue growth of 14% y/y, with modest organic growth. However, most companies shall register gross margin expansion on account of lower raw material prices, leading to fairly strong EBITDA growth (+16% y/y). In our coverage universe, GCPL and ITC shall bring in relatively stronger financials in the quarter, we believe.
Top Picks
Marico
Godrej Consumer: Sales growth is expected to be strong (+23%, y/y) on account of continued momentum in domestic and Indonesian markets, and benefits of inorganic growth in Africa and UK. We expect that gross margin gains in soaps (India) shall be offset by weakness in Indonesia margins (higher wages, lower margins for Simba business), leading to margin contraction of 20 bps (y/y). We estimate PAT growth for the quarter at 19.6%. Hindustan Unilever: We expect sales growth to moderate further in the quarter, on account of weakening pricing and lower volume growth. The company shall, however, register gross margin gains (decline in palm oil prices), leading to significant margin expansion, despite strong growth in advertising spends. EBITDA gains shall be significant (17%, y/y); however, we have factored in lower other income and higher effective tax rate, which lead to our PAT growth being close to nil. ITC: Cigarette volumes are likely to show a modest de-growth in the quarter, with a decline of 2%. Cigarette net sales are likely to register growth of 10% y/ y. With strong growth in other FMCG, agri-business segments, we expect net sales growth of 17%. We factor in moderation in margins (weaker margins in cigarettes on rising contribution of <65mm cigarettes, higher contribution from agri-business), leading to PAT growth of 15% (y/y). Marico: We expect Marico's topline growth to be muted, on account of weak pricing growth, and moderated volume growth. The company shall register gross margin gains (weaker prices across most significant raw materials), leading to EBITDA margin expansion of 60 bps. We factor in lower other income than 1QFY13, and estimate 7% growth in the company's PAT.
Quarterly estimates - FMCG

Company Q1 FY14 Godrej Consumer Hindustan Unilever ITC Marico 17,080 68,420 77,798 13,559 Revenues (Rs mn) Q4 FY13 17,155 64,658 81,803 9,973 QoQ (%) -0.4 5.8 -4.9% 36.0 Q1 FY13 13,886 63,788 66,522 12,672 YoY (%) 23.0 7.3 17.0 7.0 Q1 FY14 14.3 16.5 33.5 15.2 EBIDTA (%) Q4 FY13 16.2 15.0 32.1 11.9 Q1 FY13 14.5 15.2 34.7 14.6 Q1 FY14 1,561 8,665 18,413 1,324 PAT (Rs mn) Q4 FY13 2,052 7,778 19,280 839 QoQ (%) -23.9 11.4 -4.5 57.8 Q1 FY13 1,305 8,641 16,021 1,238 YoY (%) 19.6 0.3 14.9 6.9 Q1 FY14 4.6 4.0 2.4 2.1 Q4 FY13 6.0 3.6 2.5 1.3 EPS (Rs) QoQ (%) -23.9 11.4 -4.5 57.8 Q1 FY13 3.8 4.0 2.1 1.9 YoY (%) 19.6 0.3 14.9 6.9
Source: Company Reports, Kotak Securities - Private Client Research
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MORNING INSIGHT
July 9, 2013
RESULT PREVIEW
Dipen Shah dipen.shah@kotak.com +91 22 6621 6301
INFORMATION TECHNOLOGY
We expect a relatively subdued performance from the companies under our coverage with volumes for the Top 4 companies are expected to rise by 1% - 3%. Cross-currency fluctuations will likely impact USD revenue growth by about 0.5% - 0.7%. Margins are expected to improve QoQ, largely on the back of rupee depreciation. This is despite salary increments (select cases) and higher visa charges. For the companies under our coverage, we expect a 6% revenue growth in INR terms (helped by rupee depreciation) and a near 7% rise in EBIDTA. PAT growth is seen lower at 3.7% because of forex losses (hedging) and higher taxes in some cases. We understand that, the overall demand scenario has remained stable over the quarter. We believe that, while the economies of USA and EU may take long to improve, the stimulus measures taken by them have eased concerns of catastrophic defaults / bankruptcies and helped them stabilise. This may prevent demand from falling in the foreseeable future. However, there is considerable unease over the proposed Immigration Bill in USA, which may weigh on the sector. We maintain our constructive view on the medium-tolong term prospects of the sector on expectations of improving demand over this period.
Subdued quarter We expect volume growth of the Top 4 companies to be in the 1% - 3% range. While April - June quarter has traditionally been a strong quarter for the sector, the macro uncertainty and the consequent soft demand scenario will continue to impact growth rates.
We understand that, the demand scenario has remained stable. There has been no perceptible improvement in budget releases or decision-making. Specific cases of ramp-downs by clients or cut-overs (closed project not substituted with new ones) may impact some mid-tier companies. The cross currency fluctuations between USD, Euro, GBP and AUD is expected to impact USD revenue growth by about 0.5% - 0.7% QoQ. In INR terms, the growth is expected to be higher due to the rupee. Rupee has depreciated by an average of 3% during the quarter (>9% end-to-end). Average realizations are expected to have remained stable QoQ, barring few cases of declines. For the companies under our coverage, INR revenues are expected to grow by about 6%, with the Top 4 also reporting similar trends.
EBIDTA margins up EBIDTA margins are expected to be higher QoQ. This is largely due to the rupee depreciation. Better employee utilization and absence of one-time provisions (for select companies) are also expected to help. However, salary increments for a few companies and higher visa charges are expected to off-set the improvement to a great extent. We expect EBIDTA to rise by about 7% QoQ, for companies under our coverage. PAT expected to rise by 3.7% QoQ The rupee depreciation will lead to hedging losses for companies depending on the extent of hedges. Companies follow different hedging strategies and different accounting policies. This may lead to corresponding impact of currency volatility on other income. Consequently, PAT is expected to grow by about 3% QoQ for companies under our coverage.
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MORNING INSIGHT
July 9, 2013
What to watch out for? As usual, markets will watch out for any change in the FY14 revenue guidance by Infosys. The return of Mr. Murthy to Infosys has raised hopes on the medium-to-long term prospects of the company. However, the near term scenario remains challenging. The company has guided for a 6% - 10% growth in revenues in USD terms. On a CC basis, we do not expect any change in the guidance but expect revenues to gravitate towards the lower end of the range. Margins are expected to come under further pressure due to the recently announced salary increments.
We will also watch out for comments by company managements on any improvement seen in spending patterns and order-booking trends. Discretionary spends have been a point of concern and we will watch out for comments relating to the same. Some of the verticals and sub-verticals in manufacturing, Travel / Transportation, Retail, etc have displayed stable demand trends and we will watch out for management commentary on the same. With increased competitive intensity, we will watch out for the performance on pricing and management commentary about their expectations on the same. We will also watch the progress made by and expectations of the various companies in new areas of opportunities like Cloud Computing, Analytics, Mobility, etc. Demand trends in these businesses will be of interest to us. Non-linear initiatives are becoming very important from the perspective of sustaining margin. Progress on the same by various companies will be something to watch out for.
Remain constructive on medium-to-long term prospects; to watch macro scene closely While the economies of USA and EU may take long to improve, the stimulus measures taken by the developed economies of USA and EU have eased concerns of catastrophic defaults / bankruptcies. This may prevent demand from falling in the foreseeable future.
However, there is considerable unease over the proposed Immigration Bill in USA. The Bill, after being passed by the US Senate, will now come up before the House of Representatives. The House has prepared its own bill, which is less harsh for the Indian IT services companies, as compared to the Senate's version. The bill will have to pass both, Senate and House of Representatives, before it goes to the President for his assent and becomes a law. The final passage of the bill may take a few weeks / months. There are expectations that, the Senate's version may get diluted. However, if the bill is passed in its current form, it will have a significant negative impact on the sector. This uncertainty may weigh on the sector in the near term. We maintain our constructive view on the medium-to-long term prospects of the sector on expectations of improving demand over this period.
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MORNING INSIGHT
July 9, 2013
Quarterly Estimates (April - June 2013) - Information Technology

Company Q1 FY14 Infosys ^ TCS # Wipro ^^ HCL Tech * TOTAL Geometric Infotech Ent KPIT NIIT Ltd NIIT Tech Oracle Zensar TOTAL TOTAL 110,017 176,653 100,309 68,644 455,623 2,662 4,886 5,633 2,313 5,370 10,339 5,319 36,521 492,144 Revenues (Rs mn) Q4 FY13 104,540 164,301 96,431 64,246 429,518 2,471 4,644 5,699 2,216 5,372 8,815 5,081 34,299 463,817 QoQ (%) 5.2 Q1 FY13 96,160 YoY (%) 14.4 18.8 (5.8) 16.0 11.0 2.1 7.1 17.4 1.7 14.3 9.3 (2.3) 7.9 10.7 24.5 24.3 16.0 14.5 15.6 5.4 15.2 39.2 14.1 13.5 17.0 17.8 3.2 16.4 38.5 14.2 20.2 18.7 15.8 5.0 16.0 40.7 13.7 Q1 FY14 23.4 28.4 21.1 22.6 EBIDTA (%) Q4 FY13 23.6 28.4 20.5 22.4 Q1 FY13 28.0 29.1 20.1 22.0 Q1 FY14 23,383 37,946 16,827 10,554 PAT (Rs mns) Q4 FY13 23,940 35,969 15,752 10,191 QoQ (%) (2.3) 5.5 6.8 3.6 Q1 FY13 22,890 32,806 15,802 8,413 YoY (%) 2.2 15.7 6.5 25.4 11.0 (8.9) (26.2) 15.4 (50.3) (3.2) (13.0) (16.8) (12.3) 9.3 3.0 4.3 2.6 0.3 9.3 38.1 10.4 1.8 4.9 2.7 0.2 9.4 33.6 9.0 69.6 (11.9) (1.4) 109.7 (1.3) 13.5 16.0 3.3 5.8 2.5 0.7 9.6 43.8 12.6 (8.9) (26.2) 7.4 (50.3) (3.2) (13.0) (16.8) Q1 FY14 40.9 19.4 6.8 14.9 Q4 FY13 41.9 18.4 6.4 14.4 EPS (Rs) QoQ (%) (2.3) 5.5 6.8 3.6 Q1 FY13 40.1 16.8 6.4 11.9 YoY (%) 2.2 15.7 6.5 25.4
7.5 148,687 4.0 106,531 6.8 59,191
6.1 410,569 7.7 5.2 (1.2) 4.4 (0.0) 17.3 4.7 2,608 4,564 4,800 2,275 4,696 9,463 5,443
88,710 85,853 188 477 504 57 557 3,203 454 5,441 111 542 512 27 565 2,813 391 4,960
3.3 79,911 69.6 (11.9) (1.4) 109.7 (1.3) 13.9 16.0 9.7 207 647 437 114 576 3,681 545 6,207
6.5 33,849 6.1 444,418
25.3 94,151 90,813
3.7 86,118
Source: Companies, Kotak Securities - Private Client Research * ^ ^^ # Estimates are for 4QFY13 Margin numbers and % are EBIT and EBIT %, respectively, for Infosys 1QFY13 numbers include numbers of businesses de-merged WEF 1QFY14 EBIDTA impacted in 4QFY13 by one-time provision of Rs.1510mn.
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MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Amit Agarwal agarwal.amit@kotak.com +91 22 6621 6222
LOGISTICS
Logistics - Port volumes at key ports in Q1FY14 Performance of Logistics companies involved with container rail business, CFS business and related business is strongly linked to performance of the port sector in the country. With the container volumes in Q1FY14 at the 12 major ports of the country falling to 1.87 mn TEUs (-2% YoY) and minor ports like Adani and Gujarat Pipavav estimated to grow much faster (14% CAGR), we expect the Logistics companies in our coverage to report marginal growth in Q1FY14. The marginal growth would be primarily on account of improved realisation and diversified business profile. Container Corporation of India (SELL: TP - Rs 975) Q1FY14 consolidated revenue is expected to increase ~22% YoY and increase ~ 3% QoQ to Rs 12655 mn in sync with growth in volumes at ports across the country. It is important to note here that Concor primarily operates in Exim segment out of JNPT. The Exim volumes are expected to report a marginal change YoY growth while the domestic volumes of the company are estimated to remain flat after 4 continuous quarters of fall in domestic volumes led by arbitrary rail policy. Operating profit is expected at Rs 2775 mn which translates into an operating margin of ~22 %, declining almost 370 bps YoY primarily due to increased competition in the Exim segment (waning pricing power), slowing trade, higher empty running because of Exim imbalances and higher haulage cost in domestic segment (not completely passed to customers till date). Net profit for Q1FY14 is expected at Rs.2,330 mn versus Rs 2,452mn in Q1FY13. Gateway Distriparks Ltd (BUY: TP - Rs 140) We expect GDL's Q1FY14 revenues to increase ~34% YoY and increase ~7% QoQ to Rs 3110 mn. This we believe would be largely led by congestion at JNPT and Chennai port (it leads to higher CFS volumes and realization) and improved load factor in the rail business. Also the cold chain segment has started to contribute significantly to the revenues. The rail business is expected to report healthy load factor of 80% with operating margin of 15%.Margins in the rail segment are expected to fall from 17% YoY primarily due to higher haulage cost in domestic segment. The cold chain segment is expected to report a healthy Ebidta of 22%. With healthy performance of the cold chain segment, stable CFS realizations (YoY) and subdued rail performance, we expect GDL to report operating profit of Rs 725 mn which translates into operating margin of ~23% (~29% YoY) Net profit is expected at Rs 350 mn versus Rs 336 mn in Q4FY13 and Rs 352 mn in Q1FY13. Allcargo Global Logistics (ACCUMULATE: TP - Rs 114) Q1FY14 consolidated revenue is expected to increase ~ 3% YoY and increase ~5% QoQ to Rs 10010 mn, Again the congestion at JNPT and Chennai port would help the company report better numbers in the CFS business. However ECU line and domestic Multimodal Transport Operations (MTO) business is estimated to report sluggish growth in volumes in line with slowness in global container shipping business. Even the realization may be under pressure due to uncertainty in Eurozone. Operating profit is expected at Rs752 mn which translates into an operating margin of ~7.51 %, falling 500 bps YoY primarily due to slowness in the key MTO business. Net profit is expected at Rs 225 mn against profit of Rs 168 mn in Q4FY13 and profit of Rs 555 mn in Q1FY13.
Top Picks:
Gateway Distriparks Adani Port Gujarat Pipavav Port
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MORNING INSIGHT
July 9, 2013
Adani Port and Special Economic Zone (ADSEZ) (BUY: TP - Rs 172) The overall volume at the port is expected to reach 24 mn tonnes in the current quarter (Q4FY13 ~23 mn tonnes) with significant contribution from coal and container. We are expecting marginal sales in the SEZ segment due to uncertainty of laws on taxation of SEZ units and SEZ developers (as mentioned in Direct Tax Code) and also due to slowing corporate capex.
Q1FY14 consolidated revenue is expected to increase ~ 25% YoY and increase ~8% QoQ to Rs 9900 mn. The revenues would be primarily led by volume growth and improving realisation per tonne/per TEU. Operating profit is expected at Rs 6800 mn which translates into an operating margin of ~69%. We expect the company to report sustained operating margins. Quicker berthing of ships, faster turnaround time, mechanized operations, ample storage facility and good hinterland connectivity enables the company to command superior realisation in comparison to government ports and even private counterparts. Net profit for Q1FY14 is expected at Rs.5100 mn versus Rs 4185 mn in Q1FY13. Company has sold Abbot Point to Adani family which has helped reduce the risk perception of the company (huge debt, near term losses and interest rate risk). It is now evaluating a few assets on the East coast of India including Dhamra.
Gujarat Pipavav Port (GPPL) (BUY: TP - Rs 56) We expect GPPL to report volumes of 0. 8lakh tonnes (+25% QoQ) in the bulk segment and 1.65 lakh TEUs (+6% QoQ) in the container segment,
Hyundai Merchant Marine (HMM) has stopped calling at GPPL (3000/ TEUs per month) and the last the call was in May. However another Korean company, Hanjin has started calling at the port. Management that the above two events would have a nullifying effect on the company. The company had signed two long-term (five years) contracts in its container business in Q4CY12 which will help the volumes to grow QoQ. We are not very optimistic about the bulk and liquid cargo in near term as captive liquid and bulk volume would depend on revival or restart of certain stalled projects in the vicinity. Q1FY14 consolidated revenue is expected to increase ~ 28% YoY and increase ~5% QoQ to Rs 1310 mn. Operating profit is expected at Rs 601 mn which translates into an operating margin of ~46 %. Net profit for Q4FY13 is expected at Rs.375 mn versus Rs 355 mn in Q4FY13 and Rs 157mn in Q1FY13.
Quarterly estimates - Logistics
Company Q1 FY14 Concor Gateway Distriparks Allcargo Global Adani Port Gujarat Pipavav Port 12,655 3,110 10,010 9,900 1,310 Revenues (Rs mn) Q4 FY13 12,314 2,896 9,553 9,152 1,245 QoQ (%) 2.8 7.4 4.8 8.2 5.2 Q1 FY13 10,369 2,320 9,752 7,894 1,025 YoY (%) 22.0 34.1 2.6 25.4 27.8 Q1 FY14 21.9 23.3 7.5 68.7 45.9 EBIDTA (%) Q4 FY13 21.1 23.2 6.8 71.3 45.9 Q1 FY13 25.8 28.9 11.6 76.0 46.0 Q1 FY14 2,330 350 225 5,100 375 PAT (Rs mn) Q4 FY13 2,255 336 168 4,909 355 QoQ (%) 3.3 4.2 33.9 3.9 5.6 Q1 FY13 2,452 352 555 4,185 157 YoY (%) (5.0) (0.6) (59.5) 21.9 138.9 Q1 FY14 17.5 3.2 1.6 2.5 0.8 Q4 FY13 17.3 3.1 1.3 2.5 0.7 EPS (Rs) QoQ (%) 1.2 3.2 23.1 3.2 9.6 Q1 FY13 18.9 3.3 4.3 2.1 0.4 YoY (%) (7.4) (3.0) (62.8) 20.4 116.2
Source: Companies; Kotak Securities - Private Client Research
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MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Ritwik Rai ritwik.rai@kotak.com +91 22 6621 6310
MEDIA
The media sector is likely to register modest growth in revenues and profits for the quarter. We expect that, advertising revenues for the industry shall continue to register soft growth (8-10%), with stronger growth in regions/ genres exposed to government/ political advertising. We expect that our coverage universe shall register 13% growth in revenues, and 6% growth in operating profits for the quarter. DB Corp, ENIL, and Zee Entertainment are likely to register relatively stronger performance in the quarter.
Top Picks
DB Corp ENIL
DB Corp: We expect 12% growth in revenues for the company, on the back of 12% growth in advertising revenues - DB Corp is likely to receive continued benefits from political advertising. We expect a 3.6 ppt expansion in EBITDA margins on account of improving yields and only modest growth in newsprint prices, leading to 23.6% growth in PAT. Dish TV: We expect modest growth in subscriber adds (in line with 4QFY13), and improvement in ARPU to lead to 10% growth in revenues for the company. EBITDA margins are likely to be flattish on a sequential quarter basis (higher content expenses on renegotiated deal with Mediapro in the last quarter). We estimate PAT (loss) of Rs 437mn in the quarter. ENIL: Expect 12% growth in advertising revenues of the company, on account of continued stress on activation revenues, and improvement in yields. We expect margin expansion of 1.7 ppt, on improving yields as also containment of costs (soft growth in production expenses). We estimate EBITDA growth of 18%, but expect PAT growth of 1.5% on account of moderated expectations of other income. Jagran Prakashan: On account of inclusion of Nai Dunia financials, Jagran Prakashan shall report a strong topline in the quarter, with a 13.5% growth. Margins shall, however, register declines (Nai Dunia is in investment mode) of 2.3 ppt (y/y). Expect modest EBITDA growth (2%, y/y) , and 10% decline in PAT (assumed ETR at 25% versus zero tax in FY13). Sun TV Network: We expect Sun TV Network to register 10% advertising revenue growth in the quarter. The company shall likely continue to gain in subscription revenues, on account of growth in DTH revenues, as also depreciation of the rupee (international subscription revenues). We factor in higher content expenses in the quarter, leading to operating margin decline of 2.6ppt. We estimate 4QF13 PAT shall grow 8% y/y. TV18 Broadcast: We expect topline growth to be moderated in 1QFY14, on account of several factors, including : 1/ weak advertising revenues in several genres, especially news, and infotainment, 2/ lack of big movies in the quarter. Expect advertising revenues to grow 5% y/y. Indiacast revenues are likely to be flat q/q. We do not expect significant gains in carriage fees in the quarter, as lower carriage fees in metros shall be offset by carriage fees paid in new TAM territories. Expect margins to decline, and expect PAT (loss) of Rs 68mn in the quarter. Zee Entertainment: We factor in 14% growth in Zee Entertainment's topline, led by strong growth in subscription revenues, and industry-level growth in advertising revenues. We expect margins of the company to decline on account of higher programming expenses and other expenses. Expect EBITDA growth of 12%, and PAT growth of 18% (higher effective tax rate in base quarter).
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MORNING INSIGHT
July 9, 2013
Quarterly estimates - Media

Company Q1 FY14 DB Corp Dish TV ENIL* Jagran Prakashan Sun TV Network* TV18 Broadcast Zee Entertainment 4,229 5,710 770 3,603 4,793 4,000 9,581 Revenues (Rs mn) Q4 FY13 3,981 5,554 1,019 3,428 4,727 4,747 9,643 QoQ (%) 6.2 2.8 -24.4 5.1 1.4 -15.7 -0.6 Q1 FY13 3,770 5,200 688 3,175 4,258 3,469 8,430 YoY (%) 12.2 9.8 12.0 13.5 12.6 15.3 13.7 Q1 FY14 23.9 21.9 30.8 20.7 51.6 1.9 27.2 EBIDTA (%) Q4 FY13 23.6 21.6 34.3 15.7 52.2 7.3 25.1 Q1 FY13 20.3 29.9 29.1 23.0 54.0 4.4 27.7 Q1 FY14 539 (437) 132 451 1,775 (68) 1,878 PAT (Rs mn) Q4 FY13 553 (436) 257 394 1,772 173 1,796 QoQ (%) -2.4 0.3 -48.6 14.3 0.1 -139.4 4.6 Q1 FY13 437 (323) 130 499 1,643 (234) 1,582 YoY (%) 23.6 35.3 1.5 -9.7 8.0 NM 18.8 Q1 FY14 2.9 -0.4 2.8 1.4 4.5 -0.04 2.0 Q4 FY13 3.0 -0.4 5.4 1.2 4.5 0.10 1.9 EPS (Rs) QoQ (%) -2.4 0.3 -48.6 14.3 0.1 -139.4 4.6 Q1 FY13 2.4 -0.3 2.7 1.6 4.2 -0.6 1.7 YoY (%) 23.6 35.3 1.5 -9.7 8.0 NM 18.8
Source: Company Reports, Kotak Securities - Private Client Research; Note: * Standalone financials, Sun TV Network EBIDTA margins column to be read as EBIT margins for comparability.
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MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Saurabh Agrawal agrawal.saurabh@kotak.com +91 22 6621 6309
METALS
No recovery in sight but timing the bottom not always prudent, in our experience Expectations of US Fed is beginning to taper QE3 from Sep 2013 and ending it in mid-2014 has kept sustained pressure on base metals. We highlight that Fed Chairman is due to retire on Jan 2014 and our take is that though tapering of QE3 is likely, it's unlikely to end in 2014.
China's manufacturing data has been lending slowdown signals over last few months and last month there were reports of extreme liquidity crunch which led to sharp rise in short term lending rates which further had adverse impact on business sentiments and commodity prices. There have been aggressive talks of China's new regime aiming to focus on structural reforms and stay away from any stimulus measures which is likely to lead to sharp contraction in China's GDP over medium term. Our take is any aggressive slowdown might not so easy as envisaged, given labour intensive economy and its associated complexities. We expect China to introduce stimulus measures over next few months if growth falters further from these levels.
Top Picks
Hindustan Zinc SAIL Tata Steel
European manufacturing data has been showing signs of bottoming out over last two months or so post ECB rate cut. But the concern is that starting July we are headed for summer holidays led seasonal slowdown. Japans aggressive stance on liquidity infusion of $70-75bn/ month is the only reasonable support for improvement in global commodity prices. We believe we are early into easing monetary policy in Japan and its government efforts should gain further pace in months ahead. Indian manufacturing growth weakness has shown no signs of recovering. Further, interest rate cut led revival looks difficult in backdrop of sharply depreciating INR and surprise interest rate hikes amongst few emerging markets during last two months. Now, central government has been talking aggressive actions of resolving infrastructure and power sector bottlenecks over new few weeks and domestic metal industry is praying for domestic demand to kick-start. Also, our expectation is that government expenditure on Infra projects is likely to rise significantly in 2HFY14 ahead of the parliamentary elections next year.
Ferrous raw materials As per JPC steel industry data, domestic consumption registered a decline of 0.8% Y/Y during Apr-May 2013 and a decline of 4.8 Y/Y in May2013. Prices have been reasonably stable Q/Q despite weak demand and falling global prices as rupee depreciation has helped to some extent. Quarterly average 62% Fe grade iron ore export spot price to China has corrected 15.8% Q/Q and is trading at $122/t levels while quarterly average 58% Fe grade price is down 16.5% Q/Q and trading at $114/t CIF. However, spot iron ore prices last week had biggest weekly gain over last 6months to 6 week high as Chinese steel mills replenished run down inventories. Also, over last week there has been spike seen in Shanghai rebar futures Q2FY14 hard coking coal price has settled 15.7% lower at $145/t between trend setters BHP Billiton and Japan's Nippon Steel. However, hard coking coal spot prices remain weak at $130/t levels indicating recovery is unlikely anytime soon. Scrap average quarterly prices declined 8.2% Q/Q and benchmark Rotterdam scrap prices are trading at $347/t FOB. MTM forex losses on unhedged liabilities will hit the earnings of several companies in the sector.
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MORNING INSIGHT
July 9, 2013
Base metals Average LME aluminium prices for Q1FY14 were down 8.5%Q/Q and 7.6% Y/Y. Average aluminium inventory at LME kept it pace of marginal rise of 1.2% Q/Q and are now up 5.7% Y/Y. As earlier stated, crux is that LME aluminium inventory levels are >5x the levels of late 2008 financial crisis, so aluminium prices have failed to and unlikely to recover smartly on sustainable basis in medium term. Average LME copper prices for Q1FY14 were down 9.8% Q/Q and 8.3% Y/Y. Average copper inventory at LME maintained last quarter trend by massive rise of 47.9% Q/Q resulting in 153.4% rise on Y/Y basis. Please note that LME copper inventory have tripled over last nine months and this is a warnings sign of increasing global industrial slowdown. Average LME zinc prices for Q1FY14 fell 8.6%Q/Q and 2.9%Y/Y. This was despite 9.4% Q/Q fall in average zinc inventory at LME. LME zinc prices have been more or less stable at present levels during last quarter. Average LME lead prices for Q1FY14 fell 10.6%Q/Q but still up 4.3%Y/Y. This was despite massive 20.6% Q/Q and 35.1% Y/Y fall in average lead inventory at LME. LME lead prices have followed zinc price trend and have also been more or less stable at present levels during last quarter. Average MCX silver prices for Q1FY14 have seen massive destruction of 20.7%Q/Q and 17.9%Y/Y. Silver prices have been downhill throughout last quarter following sell off in gold prices. INR depreciation over last month has also failed to reverse the downward trend. Average INR/US$ for Q1FY14 has depreciated by 3.7%Q/Q and 4.1% Y/Y. But there has been sharp 10% depreciation over last 45 days. Hind Zinc Q4FY13 saw a record PAT performance aid by improved metals prices and 61kt sales of metals in concentrate (MIC). Q1FY14 won't be enjoying similar performance as there has been sharp fall in metal prices and there would not be any MIC sales as well. We understand, Zawar mine has seen production pickup (post receipt of approvals in Q4FY13) and Q1FY14 mining run rate stood at 0.8mtpa. Zawar production run rate is expected to reach the targeted 1.2mtpa during 2QFY14. We understand that Rampura Agucha underground mine and Kayar mine are likely to start commercial production in 2HFY14. This would help in marginal volume growth in FY14 and benefits would fully flow in FY15. With the progress of mining expansions reasonably satisfactory, margin support would flow in from increased integrated metal production. We see Q1 integrated zinc volumes rising 14% Y/Y to 179kt (down from 181kt in Q4), Q1 integrated lead volumes rising 1.7% Y/Y to 29.5kt (down from 32kt in Q4), Q1 integrated silver volumes rising 13.9% Y/Y to 90t (down from 100t in Q4), We expect Q1FY14 Sales to fall 16.4% Q/Q, EBITDA to fall 24.6% Q/Q and PAT and EPS to drop 25% Q/Q to Rs16.37bn and Rs3.88 respectively. However, Y/Y comparison reflects improved performance as Q1FY14 sales is likely to expand 18.9% Y/Y, EBITDA to increase 11.7% Y/Y and PAT and EPS to improve marginal 4% Y/Y.
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MORNING INSIGHT
July 9, 2013
SAIL We expect net sales to decline 4.8% Y/Y and 6.8% Q/Q to Rs. 102.5bn. Sales volume is expected to rise 6% Y/Y (fall 17.2% Q/Q) to 2.65mt. We expect steel price realisations to fall 10.2% Y/Y but gain marginal 0.4% Q/Q to Rs38700/t. We expect EBITDA/t to recover 36% Q/Q to Rs3926/t i.e. slightly above $70/t on decade low base of the previous quarter, when performance was affected by several one-offs. EBITDA is expected to improve 12.6% Q/Q to Rs. 10.4bn while EBITDA margins are expected to improve by 265bps Q/Q. EPS is likely to fall 13.3% Q/Q and 44.4% Y/Y to Rs0.94. Raw material cost is expected to be lower on account of lower coking coal cost. Employee costs should fall and depreciation cost should rise as last quarter oneoff would not be repeated. Other income would see a decline while net interest charges would rise as funds are utilized for capex. Foreign currency denominated loan accounts for 60% of the total term loans of Rs220bn. However, management has stated that these loans are fully hedged. So, it should not have any significant forex loss Impact on the company. SAIL imports 75% of its coking coal requirement but does limited steel exports. So, rupee depreciation negatively impacts SAIL's financials. Management has stated that every Re1/- decline would increase costs by Rs1.3bn. Please note that management has indicated that the significant one-time benefit of revised rail prices w.e.f 2008 is likely to flow into P&L in next quarter. Tata Steel Tata Steel (standalone) is expected to report flattish realizations Q/Q but down 13.5% Y/Y during Q1FY14. We expect domestic steel volumes to fall 16.7% Q/ Q but rise 17.8% Y/Y to 1.9mt in Q1. Indian operations would enjoy lower coking coal price benefit in this quarter. We expect EBITDA/t to decrease 4% Q/Q to Rs 13912/t leading to 200bps Q/Q contraction in EBITDA margins. EBITDA is expected to fall 20% Q/Q and 11.2% Y/Y to Rs. 26.4bn. Q1 EPS is expected to fall 10.2% Q/Q and 13.3% Y/Y to Rs. 12.1. We expect Tata Steel Eurore (TSE) to report $50/t Q/Q fall in steel realizations and 5% Q/Q fall in steel volumes to 3.25m. We expect TSE to report EBITDA/t of $20/t in Q1 down from $33/t levels in Q4. Sharp fall in iron ore and coking coal prices would cushion margins from drop in steel prices. EU manufacturing data improvement over last two months is signaling that worst might be behind TSE. We expect consolidated Q1FY14 EBITDA margins to contract 220bps Q/Q to 10.4. We forecast 27% Q/Q fall in consolidated EBITDA to Rs32bn. We expect Q1 consolidated EPS of Rs0.06 vs. loss of Rs 67.21 last quarter and Rs. 6.15 Y/Y.
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MORNING INSIGHT
July 9, 2013
INDUSTRY CHARTS
Aluminium Price ($/t) & Inventory (t)
LME Inventory 5,500,000 LME Price (RHS) 2300
Copper Price ($/t) & Inventory (t)

LME Inventory 720,000 LME Price (RHS) 8600 8200
5,250,000
2100
540,000
7800 7400 7000
5,000,000
1900
360,000
4,750,000
1700
180,000
6600
Source: Bloomberg
Source: Bloomberg
Zinc Price ($/t) & Inventory (t)

LME Inventory 1,250,000 LME Price (RHS) 2190 2090 1990 950,000 1890 800,000 1790
Lead Price ($/t) & Inventory (t)

LME Inventory 370,000 320,000 270,000 220,000 170,000 LME Price (RHS) 2430 2270 2110 1950 1790
1,100,000
Source: Bloomberg
Source: Bloomberg
Silver Price (Rs/Kg)

MCX Price
USD/INR
61.00
64000 59000 54000 49000 44000 39000

52.00 49.00 58.00 55.00
Source: Bloomberg
Source: Bloomberg
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MORNING INSIGHT
July 9, 2013
China iron ore port inventory (mt)
China iron ore import price (CIF $/t)

175
105
62% Fe 58% Fe
95
150
85 75 65
125 100 75
Source: Bloomberg
Source: Bloomberg
N Europe HRC ex-works price (US$/t)

750 700 650 600 550
China HRC Export Price (FOB $/t)

680 630 580 530 480
Source: Bloomberg
Source: Bloomberg
Rotterdam Export Shredded Scrap (FOB) US$/t

435 405 375 345 315
Australian Coking Coal Spot Price (FOB) US$/t

245 215 185 155 125
Source: Bloomberg
Source: Bloomberg
Quarterly estimates - Metal

Company Q1 FY14 Hind Zinc SAIL Tata Steel - Standalone Tata Steel - Consolidated Total 32,662 102,555 92,033 307,425 442,642 Revenues (Rs mn) Q4 FY13 39,087 123,304 107,705 346,505 508,895 QoQ (%) -16.4 Q1 FY13 27,477 YoY (%) 18.9 -4.8 3.3 -9.1 -6.5 Q1 FY14 49.4 10.1 28.7 10.4 13.2 EBIDTA (%) Q4 FY13 55.0 7.5 30.7 12.6 14.6 Q1 FY13 52.7 14.1 33.4 10.1 Q1 FY14 16,374 3,871 11,756 PAT (Rs mn) Q4 FY13 21,833 4,465 13,092 QoQ (%) -25.0 -13.3 -10.2 -100.1 Q1 FY13 15,729 6,964 13,566 5,979 YoY (%) 4.1 -44.4 -13.3 -99.1 -29.2 Q1 FY14 3.9 0.9 12.1 0.1 Q4 FY13 5.1 1.1 13.5 (67.2) EPS (Rs) QoQ (%) -24.4 -13.3 -10.2 -100.1 Q1 FY13 3.7 1.7 14.0 6.2 YoY (%) 4.1 -44.4 -13.3 -99.1
-16.8 107,775 -14.6 89,080
-11.3 338,212 -13.0 473,464
56 (65,285)
13.4 20,301 (38,986) -152.1 28,672
Source: Company Reports, Kotak Securities - Private Client Research
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MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Sumit Pokharna sumit.pokharna@kotak.com +91 22 6621 6313
OIL & GAS

The high current account deficit (CAD) numbers in India and concerns over foreign fund outflows have weakened the rupee. In Q1FY14, Indian rupee remained very volatile and traded in a wide range of INR 53.8-60.73/ USD. It averaged at ~ INR55.96/$ and closed at INR 59.39/USD$. Though this is negative for inflation, subsidy bill and corporate balance sheets, it will be positive for upstream oil and gas exploration companies (like Cairn India, etc) as they price their product in dollar terms. Refineries will also benefit from weak rupee. In Q1FY14, Singapore GRMs were marginally under pressure as compared to last quarter but part of it is compensated by weak rupee and part by inventory gains on crude oil. On the other side of the coin, weak rupee will have a negative impact on downstream companies like OMCs as it will led to higher under-recovery. Coming to Brent crude oil price (global benchmark) touched a high of USD $112/ bbls but later ended the quarter at USD $ 102/ bbls, averaging the quarter at USD$ 103.4/bbls. We are bullish on crude oil prices, going forward. This is mainly on account of 1). Continued tensions in Egypt (may disrupt shipments in the Suez Canal), 2). Disruptions in Africa (civil war in Syria) may impact global crude supply 3). Geopolitical risk in Egypt is stoking some demand from those who want to increase stockpiles just in case of a disruption in oil supplies 4). Positive data flows from USA (biggest crude oil consumer), and 5). U.S. crude inventories declined by 9.4 million barrels last week, the most this year (impact of floods on Canadian pipeline). If the political uncertainty in Egypt / Portugal escalates, we can see Brent crude moving even higher to USD$120/bbls levels. This will be positive for crude oil exploration companies like Cairn India, OINL, HOEC, ONGC, etc. On the domestic front, sector favorable news flows from the media kept the sector in limelight. To begin with, the Cabinet Committee on Economic Affairs (CCEA) approved doubling of natural gas prices to USD$ 8.4/mmbtu from USD$ 4.2/mmbtu with effect from 1st April'14. This is as per the Rangarajan committee formula and will be applicable for five years. The oil ministry has also recommended revising domestic gas prices every quarter. The new price will apply uniformly to all the producers like Oil and Natural Gas Corp (ONGC), OIL INDIA Ltd., Reliance Industries, HOEC, Selan exploration, etc. This will be mainly positive in terms of earnings for RIL, ONGC, OIL India and, among others, Cairn India. Also, there is a possibility that in the next few quarters, some of these companies might upgrade their gas reserves base. Additionally, this will give some support to weak Indian currency, boost investment sentiment in the oil and gas space and increase government revenue. We believe that, every dollar increase in gas price would result in USD$ 128.5 mn (Rs 7.07 Bn) in additional royalty and profit petroleum. However, it will have a negative impact on Gail India (natural gas as feedstock for Petrochemical business), IGL (as CNG and PNG prices will rise), GSPL, etc. Among other sectors, it will be negative for Power sector, Fertilzers, etc. As the price hike is effective from 1st April'14, there will be no impact on the earnings of oil and gas exploration companies in the current financial year. Also, we need to watch out whether there is any change in the subsidy formula by the Government, though the probability of this seems to be low. The natural gas supply in India was lower due to delay in ramp-up of the natural gas production from KG-D6 by RIL. This will not only negatively impact the performance of RIL but also impact gas-utility companies such as GSPL, GAIL, Gujarat Gas, etc. However, part of the gas volume loss was compensated by higher import of LNG by PLNG.
Top picks Cairn India MRPL Petronet LNG
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MORNING INSIGHT
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Key highlights We expect upstream companies to report strong growth in revenues in Q1FY14 mainly on account of weak rupee. Gas utility companies can see some volume pressure on account of lower domestic natural gas supply. At the same time, the raw material cost will be higher as part of the gas supplied was costly imported LNG which will have negative impact on the profitability. Oil & Gas Companies Cairn India Ltd. We expect, CIL to report decent bottom line growth on sequential basis on account of volume growth and weak rupee. Cairn India is a private exploration company so it will reap full benefits of weak rupee and crude oil prices. We expect PAT to fall on YoY basis on account of higher government share in profit petroleum.
The Company expects to boost output to 215 Kbopd by March 2014. Cairn India is planning to take its market presence beyond Gujarat and Maharashtra through extension of its existing pipeline. The extended part of the pipeline is ready and operational and the company is targeting all coastal refineries of India to sell its crude. Castrol. We expect the Company to show volume pressure both in the automotive segment and industrial segment. The rupee depreciation will impact the Company's margins negatively. Indraprastha Gas (IGL). We expect IGL to show marginal volume growth YoY basis mainly due to conversion of vehicles to CNG. On sequential basis, the gas volume performance and margins are expected to be better due to higher demand and price hikes under taken. In Q1FY14, Indraprastha Gas Ltd announced an increase in the consumer price of CNG in Delhi and in Noida, Greater Noida and Ghaziabad. The new consumer price of Rs. 41.90 per kg in Delhi and Rs 47.35 per kg in Noida, Greater Noida & Ghaziabad. The full benefit of the same will be reflected in Q2FY14.
Table
Particulars Previous price (Rs/Kg) Hike (Rs/Kg) New Price (Rs/Kg) % change
CNG Delhi Noida, Greater Noida and Ghaziabad. PNG Delhiup to consumption of 30 scm in two months Beyond consumption of 30 scm in two months Noida, Greater Noida and Ghaziabad-up to consumption of 30 scm in two months Beyond consumption of 30 scm in two months *with effect from 25th June 2013.
Source:
39.90 45.10 Rs/SCM 23.50
2.0 2.25 Rs/SCM 1.0
41.90 47.35 Rs/SCM 24.50 40.50
5.01 4.98
4.25
25
1.0
26 43
4.0
We believe the hike is warranted mainly due to major depreciation in rupee against dollar. We would like to highlight here that both the domestic and RLNG gas price is denominated in dollar terms so both higher RLNG price and weak rupee will impact IGL's cost. Last but not the least, Supreme Court (SC) hearing regarding PNGRB vs Indraprastha Gas Limited is expected on 16th July'13. SC is looking for some clarity from the government regarding the interpretation of the rules. So, till final verdict is out, this will be a drag on the stock.
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MORNING INSIGHT
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Gujarat State Petronet Ltd (GSPL). We expect GSPL to report de-growth in profits partly due to lower gas transmission volume. Lower gas volume is mainly due to fall in domestic gas supply and also weak rupee has made imported gas unaffordable for many sections of the industry. However, the Company may get benefited by take-or-pay clause. Gujarat State Petronet Ltd has entered into a 15 years long term gas transmission agreement with Essar Oil Limited for LNG supply of about 2.5 million cubic meters per day (mcmd) to Vadinar refinery. The agreement is on take-or-pay basis. The pipeline is expected to be ready by 2014. OIL India (OINL): We expect sedate Q1FY14 earnings performance of OIL India mainly on account of flat volume growth and pressure on net realization. However, OIL will benefit from weak rupee. Petronet LNG (PLNG). Petronet LNG is the primary beneficiary of KG D6 gas shortfall in last couple of years. We expect PLNG to report strong results mainly on account of higher tariffs and transmission volumes. MRPL. We expect MRPL to show decent performance on account of higher capacity utilisation level, better margins on account of improved yields and weak rupee. Recently, Department of Public Enterprises (DPE), Government of India (GOI) has upgraded MRPL from Schedule 'B' status to Schedule 'A' status this implies greater autonomy to the management, growth in organizational hierarchy besides placing MRPL in a better position in the international competitive market.
INR/$ - Weak rupee improves realisation - Cairn
Refining margin ($/bbls)

DubaiCrackSinRef.margin WTICrackUSGRef.Mnargin UralsCrackMedRef.Margin BrentcrackROPTrefMargin
62.0 61.0 60.0 59.0 58.0 57.0 56.0 55.0 54.0 53.0 52.0 2Apr13
40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0
2May13
2Jun13
2Jul13
Source: Bloomberg
Source: Bloomberg
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MORNING INSIGHT
July 9, 2013
Worst Emerging Markets currency performance (US$)

Brazilian Real Indian Rupee Peruvian New Sol South African Rand Chilean Peso Philippine Peso Thai Baht Turkish Lira Colombian Peso Mexican Peso Russian Ruble South Korean Won Singapore Dollar Indonesian Rupiah Malaysian Ringgit Polish Zloty Taiwanese Dollar
3M performance (%)
Ageis 2.8 -16.3 -21.9 -6.8 -10.8 -5.1 -9.1 -16.6 -24.7 -17.8 -9.0 -24.7 -0.6 3.9 -2.9 10.1 -40 -30 -20 -10 0 10 20 GUJS GGAS OIL PLNG IGL Shivvani -34.6 Aban Essar Oil MRPL HPCL
8 6.68 6.01 5.91 5.87 5.24 5.09 4.63 4.24 3.83 3.75 2.23 2.1 1.51 1.32 1.25 0.31 8.0 6.0 4.0 2.0 0.0
BPCL IOCL GAIL CAIRN ONGC RIL
10.0
Source: Bloomberg; Note: Data till 30 June 2013
Source: Bloomberg
Quarterly estimates - Oil & Gas

Company Q1 FY14 Cairn India Castrol IGL GSPL MRPL OIL India PLNG TOTAL 43,418 7,669 8,950 2,656 168,583 23,648 99,008 353,932 Revenues (Rs mn) Q4 FY13 43,634 7,814 8,818 3,590 185,795 23,766 84,656 358,072 QoQ (%) -0.5 -1.9 1.5 -26.0 Q1 FY13 44,400 8,513 7,602 2,676 YoY (%) -2.2 -9.9 17.7 -0.7 31.6 1.3 41.6 24.4 Q1 FY14 73.6 21.3 20.5 87.1 1.8 38.4 5.2 15.5 EBIDTA (%) Q4 FY13 66.2 21.6 21.0 91.0 1.2 37.1 5.1 14.3 Q1 FY13 97.4 19.9 23.6 92.1 (10.1) 47.0 6.0 Q1 FY14 28,670 1,197 868 1,147 92 7,698 2,857 PAT (Rs mn) Q4 FY13 25,636 1,243 835 1,615 (619) 7,646 2,451 QoQ (%) 11.8 -3.7 3.9 -28.9 Q1 FY13 38,257 1,209 850 1,248 YoY (%) -25.1 -1.0 2.1 -8.1 -100.6 -17.2 5.5 10.9 Q1 FY14 15 2 6 2 0 13 4 Q4 FY13 13 3 6 3 (0) 13 3 EPS (Rs) QoQ (%) 11.8 -3.7 3.9 -28.9 -114.9 0.7 16.5 Q1 FY13 20 2 6 2 (9) 15 4 YoY (%) (25) (1) 2 (8) (101) (17) 5
-9.3 128,099 -0.5 17.0 23,333 69,929
-114.9 (15,206) 0.7 16.5 9,299 2,709
-1.2 284,552
18.1 42,530 38,807
9.6 38,367
Source: Companies; Kotak Securities - Private Client Research; * Follows calendar year
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MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Amit Agarwal agarwal.amit@kotak.com +91 22 6621 6222
SHIPPING
The dry bulk market continues to face problem of oversupply of ships pegged at 8 to 9% per annum (Gross supply of 248 mn tonnes in the next 2 to 3 years) and that is putting the various Baltic Indices and freight rates under pressure. However due to increased demand from China for iron ore and coal, various baltic indices increased by 20 to 30% during the quarter. The key Baltic Dry Index (BDI) gained almost 25% in the quarter to 1200 points. The gain is good for the dry bulk segment. However we believe the recovery for the segment is still few quarters away.It may be the right time for ship-owners to buy vessels but, with substantial near-term negative catalysts and downside risks from new orders, it's too early to buy into a recovery story in shipping for equity shareholders. The orderbook to fleet ratio has deteriorated again for the segment currently at 33%- down from 38% in April 2013, but up from 32% in July 2012. The oversupply of vessel is a serious concern even in the crude tanker market. Activity has slowed down in all the key segments of tanker primarily due to sluggish world economy and the debt crisis in Europe leading to poor demand for crude oil and petroleum products. Charters are withholding cargoes in anticipation of better freight rates. This is negatively impacting the market with number of ships exceeding the number of cargoes. The tanker market was flattish in the quarter. With slowing consumer demand and burgeoning order book, the container market was weak in Q1FY14 and is estimated to remain weak in near term. The weak market is forcing container shipping companies to lay up ships.The containership time charter indes was flat at 370 points in the quarter Shipping asset prices continue to hold in the quarter across segments which is positive reading for the shipowners. Concurrently, the NAV and replacement cost of most of the companies should continue to hold. Another major positive news for the shipping industry was the fall in bunker prices which has fallen from $734/ tonne in March 2012 (Singapore) and from $600/tonne in March 2013 to $570/tonne in June 2013. Lower bunker cost during the quarter should positively impact the margins for shipping companies.
Top Picks:
GE Shipping ABG Shipyard Pipavav Defence
Shipping Corporation of India (REDUCE: TP - Rs 38) We expect SCI's Q1FY14 revenues to increase ~1% YoY and increase ~22% QoQ at Rs 11,700 mn, led by increased fleet size of the company, improved bulk segment and stable tanker segment. The company should be able to bring down its operating loss in the quarter primarily due in bunker prices which constitute almost 30% of the operating cost. Again we expect SCI to report net loss of Rs 750 mn versus a huge loss of Rs 1249 mn in Q1FY13. This would be primarily due to weak freight market, lower gains from sale of ships, increased depreciation and higher interest impact this quarter. We also estimate the gross NAV of the company to remain stable in the current quarter.
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MORNING INSIGHT
July 9, 2013
Great Eastern Shipping Company (BUY: TP - Rs 280) Q1FY14 consolidated revenue is expected to increase ~5 % YoY and increase ~9% QoQ to Rs 8450 mn amidst declining fleet, weak freight market and strong performance of the offshore market. The offshore segment is expected to do well in the quarter with Brent crude sustaining above $100 per barrel in the quarter. Operating profit is expected at Rs 3100 mn which translates into an operating margin of ~37 %. Improved bulk segment, lower bunker cost and strong offshore market should help the company report strong margins. Net profit is expected at Rs 1254 mn versus profit of Rs 851mn in Q4FY13 and profit of Rs 1811 mn in Q1FY13. The QoQ improvement would be primarily due to lower bunker price, higher gains from sale of ships and strong offshore market. ABG Shipyard (BUY: TP - Rs 350) We expect ABG's Q1FY14 revenues to decrease ~20% YoY but increase ~27% QoQ at Rs 5100 mn on the back of strong order book of Rs 160 bn of the company. The YoY fall would be primarily due to weak shipping market leading to deferral of deliveries by ship owners.
Operating profit is expected at Rs 1465 mn which translates into an operating margin of ~29%.Operating margins are expected to remain stable as the company sources a significant portion of the raw material upon winning an order. We don't expect the company to book any significant subsidy amount in the quarter Net profit for Q1FY14 is expected at Rs 210 mn versus Rs 414 mn in Q1FY13 primarily due to weak revenues, lower booking of subsidy and higher interest cost.
Pipavav Defence and Offshore Limited (BUY: TP - Rs 92) We expect Pipavav' s Q1FY14 revenues to increase ~35% YoY and increase ~7% QoQ at Rs 7750 mn on the back of strong order book of Rs 106 bn of the company.
Operating profit (ex-subsidy) is expected at Rs 1610 mn which translates into an operating margin of ~21%. . Net profit for Q1FY14 is expected at Rs.95 mn versus Rs 83mn in Q4FY13.
Quarterly estimates - Shipping

Company Q1 FY14 GE shipping SCI ABG Shipyard Pipavav Defence 8,450 11,700 5,100 7,750 Revenues (Rs mn) Q4 FY13 7,753 9,607 4,020 7,271 QoQ (%) 9.0 21.8 26.9 6.6 Q1 FY13 8,070 11,550 6,406 5,724 YoY (%) 4.7 1.3 -20.4 35.4 Q1 FY14 36.7 (1.7) 28.7 20.8 EBIDTA (%) Q4 FY13 36.6 (8.8) 38.7 18.0 Q1 FY13 35.7 (14.5) 25.9 21.2 Q1 FY14 1,254 (900) 210 95 PAT (Rs mn) Q4 FY13 851 (2,847) 144 83 QoQ (%) 47.4 (68.4) 45.8 14.5 Q1 FY13 1,811 (3,581) 414 22 YoY (%) (30.8) (74.9) (49.3) 331.8 Q1 FY14 8.2 (1.9) 4.1 0.1 Q4 FY13 5.6 (6.1) 2.8 0.1 EPS (Rs) QoQ (%) 46.7 (68.9) 47.3 (16.7) Q1 FY13 11.9 (7.7) 8.1 0.0 YoY (%) (31.0) (75.3) (49.1) 233.3
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MORNING INSIGHT
July 9, 2013
RESULTS PREVIEW
Saday Sinha saday.sinha@kotak.com +91 22 6621 6312
BANKING & NBFCS

Outlook: Neutral
During Q1FY14, net income for banks under our coverage is expected to remain flat with private banks likely to grow faster at 23.0% YoY, while PSU banks are likely to report 13.0% YoY decline. NBFCs are expected to report healthy earnings (22.6% YoY) on back of healthy core earnings and stable credit costs. The credit growth has moderated further to 13.6% YoY (as on June 14, 2013) as compared to 14-15% range reported during four previous fortnights. Deposit mobilization has remained stable at 13.7%, vis--vis the previous fortnight with not much change in the C/D ratio. We are of the view that unless deposit mobilization picks-up, monetary transmission will continue to get delayed. We expect NIM to remain flat QoQ with some negative bias. Although there has been decline in the bulk-deposit rates during Q1FY14 by 50-60 bps for different tenures, impact on overall margin is likely to be limited, as there is some pressure on the asset yields due to change in competitive landscape (especially retail book) as well as seasonal built-up of PSL book during Q4FY13. Fresh slippage is likely to remain higher during Q1FY14 as compared to Q4FY13; however, it would be lower than the quantum reported during H1FY13. PSU banks would continue to disappoint on the asset quality front while private banks are likely to report higher delinquencies albeit on low base. Retail assets will continue to see lower slippage as compared to wholesale book. We don't expect We expect restructuring to remain higher during Q1FY14. However, banks would be reporting their restructured book under RBI's new guidelines. Top Picks: ICICI bank, HDFC Bank and IDFC
Top Picks:
ICICI Bank HDFC Bank IDFC
Muted earnings performance for banks under our coverage - private banking universe is likely to grow faster while PSU banks to witness subdued performance During Q1FY14, net income for banks under our coverage is expected to remain flat with private banks are likely to grow faster at 23.0% YoY, while PSU banks under our coverage are likely to report 13.0% YoY decline on back of modest NII, higher credit costs and higher provisions for impending new wage settlement. NBFCs are expected to report healthy earnings (22.6% YoY) on back of healthy core earnings and stable credit costs.
For Banks & NBFCs under our coverage, we expect NII growth of 9.9% YoY, with private banks growing at 23.2% YoY while PSU banks likely to report almost flat NII (2.9% YoY). During the same period, NBFC's core earnings are likely to witness healthy growth (19.8%) mainly aided by strong loan growth and stable margins (YoY).
Credit growth further moderated to 13.6% YoY (as on June 14, 2013) vis--vis previous fortnight; deposit mobilization remained stable with not much change in the in the C/D ratio. The credit growth has moderated further to 13.6% YoY (as on June 14, 2013) as compared to 14-15% range reported during four previous fortnights. Although there has been some perceptible change in the business sentiments post few policy-reforms announced by the FM, new project proposals are not yet picking up. However, we expect things to improve during H2FY14 and modeling ~15% of loan growth for the system.
Deposit mobilization has remained stable at 13.7% (as on June 14, 2013) vis--vis the previous fortnight with not much change in the C/D ratio. We are of the view that unless deposit mobilization picks-up, monetary transmission will continue to get delayed. We expect banks (BoB, ICICI bank & SBI) having decent presence in overseas market are likely to report strong business growth on back of recent weakness in INR.
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MORNING INSIGHT
July 9, 2013
Expect NIM to remain stable QoQ with negative bias; higher treasury profit to support healthy traction in other income despite subdued core fee income We expect NIM to remain flat QoQ with some negative bias as banks tend to build their low yielding PSL book at the end of Q4 every year. Although there has been decline in the bulk-deposit rates during Q1FY14 by 50-60 bps for different tenures, which could help banks having higher share of wholesale deposits in reducing their cost of borrowings, impact on overall margin is likely to be limited, in our view. This is because of some pressure on the asset yields due to change in competitive landscape (especially retail book) as well as seasonal built-up of PSL book during Q4FY13.
We expect NIM for NBFCs under our coverage to remain stable YoY during Q1FY14, while it is likely to be lower QoQ, as recovery improves during Q4 and slips thereafter during Q1 (seasonal factor) thus affecting the NIM during Q1. We expect strong treasury profit during Q1FY14 as yield curve was volatile during the quarter. 10-Yr G-Sec declined from 7.96% at the end of Q4FY13 to 7.11% during May end (May 24, 2013) before recovering to 7.46% at the end of Q1FY14. Similarly, 5-Yr G-Sec fell by ~70bps during May end to close at ~26bps lower during Q1FY14. The long-tenure G-Sec paper was very volatile during Q1FY14 and could have provided enough opportunity to banks to book treasury gains. Hence, we are building strong non-interest income on back of robust trading gains despite muted performance on core fee income.
Asset quality pain to persist; credit costs for PSU banks are likely to be higher vis--vis private banks. We will be closely watching the corporate book - especially exposure to sensitive sectors like power, aviation, textiles, Iron & steel and construction etc. However, private sector banks are better placed with significant exposure to retail assets and this segment is doing better in terms of asset quality.
We expect fresh slippages to remain higher during Q1FY14 as compared to Q4FY13; however, it would be lower than the quantum reported during H1FY13. PSU banks would continue to disappoint on the asset quality front, while, private banks are likely to report higher delinquencies albeit on low base. Retail assets will continue to see lower slippage as compared to wholesale book. We expect slippage to remain higher during Q1FY14. However, banks would be reporting their restructured book under RBI's new guidelines. Under the new guidelines, all restructured loans which have satisfactory performance for a period of two years, can be removed from the pool of restructured book. Now, all banks would come on the same platform and would report the restructured loans as per borrower-wise including all facilities.
Retain our cautious stance on PSU banks; prefer private sector banks which have higher retail focus with lower asset quality overhang. We reiterate our cautious stance on PSU banking space in near term on back of deteriorating macro environment. Slowing loan growth with almost completely dried up new corporate capex proposals has forced many banks to go aggressive on retail book to deliver some respectable loan growth, in-turn impacting their margins.
Although many PSU banks are still trading below its average trading multiple, we believe, the near term outlook remains challenging for the stocks on back of high share of stressed assets (restructured book + net NPA) along with relatively lower coverage ratio. We prefer private sector banks which have higher retail focus with lower asset quality overhang.
Top Picks: ICICI bank, HDFC Bank & IDFC
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MORNING INSIGHT
July 9, 2013
Quarterly estimates - Banking & NBFC

Company Net Interest Income (Rs mn) Q1 FY14 Banks Allahabad Bank Andhra Bank Axis Bank BOB HDFC Bank ICICI Bank Indian Bank IOB J&K Bank PNB SBI Union Bank 12,269 10,114 26,964 29,595 43,575 38,729 11,413 13,784 6,402 38,426 10,560 9,534 26,647 28,140 42,953 38,032 11,074 12,959 6,336 37,787 16.2 6.1 1.2 5.2 1.4 1.8 3.1 6.4 1.0 1.7 13,059 9,385 21,799 27,981 34,841 31,929 11,532 13,283 5,356 36,951 (6.0) 7.8 23.7 5.8 25.1 21.3 (1.0) 3.8 19.5 4.0 1.4 11.0 7,592 6,989 26,642 23,536 31,179 35,139 7,859 9,513 4,835 27,136 77,958 15,094 7,673 7,137 27,997 21,820 29,627 36,041 5,646 11,461 5,381 28,517 77,606 16,846 (1.0) (2.1) (4.8) 7.9 5.2 (2.5) 39.2 (17.0) (10.2) (4.8) 0.5 (10.4) 9,556 7,033 19,637 22,532 25,809 29,493 8,402 8,468 4,152 28,409 81,767 12,671 (20.6) (0.6) 35.7 4.5 20.8 19.1 (6.5) 12.3 16.5 (4.5) (4.7) 19.1 2,292 2,789 13,892 10,162 18,429 22,039 3,109 1,763 2,635 11,636 33,958 5,794 1,262 3,446 15,552 10,289 18,898 23,041 2,921 589 2,501 11,308 32,992 7,894 81.7 (19.0) (10.7) (1.2) (2.5) (4.3) 6.4 199.6 5.4 2.9 2.9 (26.6) 5,141 3,617 11,535 11,389 14,174 18,151 4,617 2,334 2,461 12,457 37,516 5,116 (55.4) (22.9) 20.4 (10.8) 30.0 21.4 (32.7) (24.5) 7.1 (6.6) (9.5) 13.3 4.6 5.0 29.7 24.1 7.7 19.1 7.2 1.9 54.3 32.9 49.6 9.7 2.5 6.2 34.4 25.0 7.9 20.0 6.5 0.7 51.6 32.9 49.1 14.2 81.9 (19.0) (13.7) (3.8) (2.5) (4.3) 10.8 165.0 5.4 0.0 1.0 (31.4) 10.3 6.5 27.7 27.6 6.0 15.7 10.5 2.9 50.8 36.7 55.9 9.3 (55.4) (23.0) 7.1 (12.9) 29.1 21.4 (30.9) (34.9) 7.1 (10.4) (11.2) 4.5 Q4 FY13 QoQ (%) Q1 FY13 YoY (%) Pre-Provisioning Profit (Rs mn) Q1 FY14 Q4 FY13 QoQ (%) Q1 FY13 YoY (%) Q1 FY14 Q4 FY13 PAT (Rs mn) QoQ (%) Q1 FY13 YoY (%) Q1 FY14 Q4 FY13 EPS (Rs) QoQ (%) Q1 FY13 YoY (%)
112,736 110,784 20,224 19,795
1.8 111,188 2.2 18,217
NBFCs
HDFC Ltd IDFC LIC Housing M&M Finance Shriram Transport TOTAL 15,050 6,550 4,460 6,527 9,595 18,994 6,430 4,608 6,632 8,939 (20.8) 1.9 (3.2) (1.6) 7.3 12,582 6,220 3,505 4,876 8,025 19.6 5.3 27.3 33.9 19.6 17,465 7,700 4,281 4,881 7,895 21,247 8,570 4,128 4,959 7,459 (17.8) (10.2) 3.7 (1.6) 5.8 14,200 6,590 3,479 3,248 6,787 23.0 16.8 23.1 50.3 16.3 12,165 4,320 3,001 2,481 3,700 15,552 5,289 3,162 3,338 3,552 (21.8) (18.3) (5.1) (25.7) 4.2 10,020 3,817 2,277 1,610 3,219 21.4 13.2 31.8 54.0 15.0 3.2 7.9 2.8 5.9 4.4 16.3 10.1 3.5 6.3 6.1 15.7 (21.8) (18.3) (5.1) (27.6) 4.1 6.8 2.5 4.5 3.1 14.2 16.0 12.9 31.9 40.4 14.7
406,412 400,202
1.6 370,728
9.6 315,694 322,116
(2.0) 292,232
8.0 154,165 161,583
(4.6) 149,450
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MORNING INSIGHT
July 9, 2013
Bulk deals
Trade details of bulk deals

Date Scrip name Name of client Buy/ Sell Quantity of shares Avg. price (Rs) 0.2 0.2 14.2 123.1 123.9 123.3 123.0 0.1 7.3 7.3 25.9 24.3 84.6 60.4 5.6 5.7 2.9 29.3 34.8 18.9 5.9 4.2 31.4 31.2 4.4
08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul 08-Jul
Adinath Bio Adinath Bio Ahmedabad Stl Cupid Trades Cupid Trades Cupid Trades Cupid Trades Dhanus Tech Eastern Sugar Eastern Sugar Goenka Diamnd Goenka Diamnd Mahanivesh Ind Mahindra Com Marvel Capital Marvel Capital Netvista Info Ok Play India Rushil Decor Sawaca Bsns Shreychem Smilax Surya Indl Surya Indl Texmo Pipes
Pranali Commodities Pvt Ltd Aadesh Commodities Pvt Ltd Baierlien Ltd Jayshriben Dhirendrakumar Maniar Pradeep Narendra Bhatt Firoz Hanifbhai Memon Magan Mercantile Pvt Ltd A P Trading And Finance Co P Ltd Anoop Nopany Tax And Finance Services India The Bank Of Nova Scotia Asia Ltd Durga Cresec Pvt Ltd Ratnabali Capital Markets Ltd Jagdish Sudhakar Kadam Ashok Champalal Bokadia B M Traders United Air Products P Ltd Harsha Rajeshbhai Jhaveri Shree Bhuvnakaram Tradinvest Dobariya Ashvinbhai Thobhanbhai Sree Lakshmi Mikkilineni Vivek Jain Tarun Sharma Gyansheela Marketing Pvt Ltd
S B S S B S B S B B B B B S B B B S S S S S S B
7,018,399 5,009,965 44,017 5,500 6,000 21,500 8,000 2,900,000 160,000 160,000 1,850,000 2,500,000 63,300 33,432 88,715 63,000 100,000 97,364 75,549 75,000 181,716 95,000 48,200 24,800 160,000
Value Plus Shares N Securities Pvt Ltd S
Source: BSE
37
MORNING INSIGHT
July 9, 2013
Gainers & Losers
Nifty Gainers & Losers

Price (Rs) Gainers ITC Ltd Indusind Bank HCL Tech Losers HDFC ICICI Bank Reliance Ind
Source: Bloomberg
chg (%)
Index points
Volume (mn)
347 492 819 824 1,028 867
1.2 3.6 2.9 (3.1) (2.2) (1.5)
7.0 2.3 1.9 (12.6) (8.5) (6.8)
5.3 2.0 1.2 3.7 3.5 3.3
Fundamental Research Team

Dipen Shah IT dipen.shah@kotak.com +91 22 6621 6301 Sanjeev Zarbade Capital Goods, Engineering sanjeev.zarbade@kotak.com +91 22 6621 6305 Teena Virmani Construction, Cement teena.virmani@kotak.com +91 22 6621 6302 Saurabh Agrawal Metals, Mining agrawal.saurabh@kotak.com +91 22 6621 6309 Saday Sinha Banking, NBFC, Economy saday.sinha@kotak.com +91 22 6621 6312 Arun Agarwal Auto & Auto Ancillary arun.agarwal@kotak.com +91 22 6621 6143 Ruchir Khare Capital Goods, Engineering ruchir.khare@kotak.com +91 22 6621 6448 Ritwik Rai FMCG, Media ritwik.rai@kotak.com +91 22 6621 6310 Sumit Pokharna Oil and Gas sumit.pokharna@kotak.com +91 22 6621 6313 Amit Agarwal Logistics, Transportation agarwal.amit@kotak.com +91 22 6621 6222 Jayesh Kumar Economy kumar.jayesh@kotak.com +91 22 6652 9172 K. Kathirvelu Production k.kathirvelu@kotak.com +91 22 6621 6311
Technical Research Team

Shrikant Chouhan shrikant.chouhan@kotak.com +91 22 6621 6360 Amol Athawale amol.athawale@kotak.com +91 20 6620 3350 Premshankar Ladha premshankar.ladha@kotak.com +91 22 6621 6261
Derivatives Research Team

Sahaj Agrawal sahaj.agrawal@kotak.com +91 79 6607 2231 Rahul Sharma sharma.rahul@kotak.com +91 22 6621 6198 Malay Gandhi malay.gandhi@kotak.com +91 22 6621 6350 Prashanth Lalu prashanth.lalu@kotak.com +91 22 6621 6110
Disclaimer
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Correspondence address: Infinity IT Park, Bldg. No 21, Opp Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Tel No : 66056825. Securities and Exchange Board Of India: Registration No's: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230/ INE 011207251, OTC INB 200808136, MCXSX INE 260808130. AMFI No: 0164. Investment in securities market is subject to market risk, please read the combined risk disclosure document prior to investing.
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Q 1 Results

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Q 1 Results

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JULY 9, 2013

Value traded (Rs cr)

Net inflows (Rs cr)

FII open interest (Rs cr)

Advances / Declines (BSE)

(0.2) 1.7 1.5

7.2 (9.5) (11.6)

9.3 (21.1) (30.9)

Debt / forex market

Q1FY14 RESULTS PREVIEW

Source: Companies, Kotak Securities - Private Client Research

Kotak Securities - Private Client Research

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Q1FY14 estimates - ex-Banking & NBFCs

Logistics/Shipping (9) 69,985

17.1 545,380 535,027

1.9 305,433 312,097

Source: Companies, Kotak Securities - Private Client Research

Kotak Securities - Private Client Research

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Q4 FY13 34,627 981,242 1,527,351 343,709 196,370 509,210 3,592,509

QoQ (%) (37.3) (0.2) 2.1 (22.5) (22.0) (2.9) (3.3)

Q1 FY13 27,585 1,078,971 1,642,292 295,896 188,774 547,000 3,780,518

YoY (%) (21.3) (9.2) (5.1) (10.0) (18.9) (9.6) (8.1)

897,131 (17.4) 742,203

12.3 40,871 67,781

Source: Companies, Kotak Securities - Private Client Research

Kotak Securities - Private Client Research

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CAPITAL GOODS, ENGINEERING & POWER

Voltas Greaves Cotton

HR Coil price (Rs per ton)

45000 43000 41000 39000 37000

Kotak Securities - Private Client Research

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Kotak Securities - Private Client Research

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23.1 24,306 45,630

Source: Companies, Kotak Securities - Private Client Research

Kotak Securities - Private Client Research

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Key highlights during the quarter

Source: Dealer feedback

Source: Dealer feedback

Source: Dealer feedback

Source: Dealer feedback

Kotak Securities - Private Client Research

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For Private Circulation

25.0 17,439 22,819

Kotak Securities - Private Client Research

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Key highlights about Q1FY14

172,366 (16.3) 142,856

Source: Companies, Kotak Securities - Private Client Research