Amara Raja Batteries Ltd

Sector: Auto ancillary/Mid-cap Initiating Coverage

Sensex 17,381 Background: Nifty 5,259

31 August 2012

31 August 2012 Price: INR 373 Target Price: INR 434

BUY

Amara Raja Batteries Ltd (ARBL), a Joint Venture between Amara Raja Group & Johnson Controls, each holding 26% stake, is the second largest

battery manufacturer in India. It is the largest manufacturer of standby valve regulated lead acid (VRLA) batteries in the Indian Ocean Rim region and manufactures automotive batteries for all vehicle segments. With a production capacity of 12.4 mn (Automotive: 10.4 mn & Industrial 2 mn), ARBL has built a strong pan-India distribution network of 18000 retailers and 274 franchisees (Amaron network) & 900 retailers (Powerzone network).ARBLs m arket share in different segments: 4wheeler (OEM-26%, Replacement -24%), 2-wheeler (Replacement 24%), UPS (32%) and Telecom (45%). 52 Week High/Low Bloomberg code Reuters code Issued Equity (shares in mn) Mkt. Cap in mn Mkt. Cap in mn USD Avg. Daily Vol (000) Avg. Daily Vol. (mn) Shareholding Promoters(%) FII (%) DII (%) Others (%) Pledge (% of promoter holding)
Performance%
Dec11

INR 404/179 AMRJ IN AMAR.BO 85.41 INR 31,677 569.73 100.34 INR 37.23/$0.67
Mar12 Jun12

Continues to charge ahead amid demand slowdown

Amara Raja Batteries (ARBL) has emerged as the second largest player in the Indian battery market with a production capacity of 12.4 million. For FY12, the company registered 34% y-o-y revenue growth with net sales at INR 23.67 bn & 45% PAT y-o-y growth at INR 2.15 bn. The company continues to increase shareholders value with ROE ~25% & has maintained operating margins at 15% in a competitive market. Forays into two-wheeler OEM segment to boost sales and increase market share The company is venturing into supply of batteries to the two wheeler OEM segment and is likely to start supplies from Q2 of FY13. The company has introduced two wheeler batteries through the Powerzone network to further expand its reach to semi urban and rural areas. These initiatives will help the company boost volumes & increase its market share in the two wheeler segment. Tactical shift to automotive segment as demand in the industrial segment becomes sluggish In the wake of low demand witnessed in industrial battery segment, the company has decided to increase its focus on the automotive battery segment, specifically the replacement market and is targeting to derive 55% of its revenues from automotive battery segment & plans on increasing this share to 65% in the near future. High capex with low debt capital structure to cater to burgeoning demand will drive growth The company has proposed to spend around INR2.2bn to set up a new plant to further expand its production capacity. The company has no interest bearing debt and is confident of funding the project through internal accruals. Increased production capacity & improved capacity utilization to meet demand ARBL's current production capacity in 4 wheeler and 2 wheeler batteries stands at 5.6 and 4.8 million respectively. The capacities can be further stretched to 8 & 6 million with minimal capital expenditure in the existing plant. The company can comfortably manage to meet the demand for the next one year. Plans to strengthen distribution network to extend reach across the country

52.06 6.32 19.61 22.01 0.0

52.06 6.22 19.65 22.07 0.0

52.06 6.39 19.42 22.13 16.28

Amara Raja Sensex

1M 26.5 1.8

3M 23.6 7.2

12M 54.6 5.2

450 400 350 300 250 200 150 100 50 0 May-12 Aug-11 Nov-11 Feb-12

170 150 130 110 90 70 50 30 10 -10

ARBL plans to double its distribution network within the next two years and will focus more on areas where unorganized players are predominant- semi urban & rural areas. Valuation: At CMP of INR 373, the stock trades at P/E of 11.9x of FY13 EPS and 10.3x FY14 EPS. We initiate coverage with a Buy rating and a target price of INR 434 based on target P/E of 12x FY14 EPS. Risks: Rising lead prices can have an impact on the margins. Slowdown in key user segments could affect growth. Exposure to telecom segment is considered high.

Amara Raja

Relative to Sensex (RHS)

Valuation Summary
Y/E March ( INRmn) Revenue EBIDTA PAT EPS EPS growth (%) PE P/ BV EV / EBIDTA EV / Sales Dividend Yield (%) ROCE (%) ROE (%) Net Debt / Equity FY11 17,594.3 2,651.5 1,480.9 17.3 -11.3 21.4 4.9 11.4 1.7 1.2 32.8 24.9 0.1 FY12 23,638.3 3,691.8 2,150.6 25.2 45.2 14.7 3.9 8.2 1.3 1.0 39.3 29.3 0.1 FY13E 28,217.7 4,554.7 2,667.9 31.2 24.1 11.9 3.0 6.7 1.1 1.1 39.6 28.9 0.1 FY14E 33,014.7 5,294.7 3,134.14 36.2 15.8 10.3 2.4 5.8 0.9 1.2 39.8 27.3 0.1

Analyst: Rajasekhar.R +91-44-30007266 rajasr@chola.murugappa.com

Industry Overview:
The Indian battery market is predominantly dominated by two players; Exide Industries & Amara Raja Batteries, who control 90% of the organized market. The battery market has significant growth potential and with the presence of only two major players, the pricing power remains fairly healthy. Amara Raja has partnered with Johnson Controls, worlds leading manufacturer of lead acid batteries for technology expertise in manufacturing automotive batteries under the Amaron brand. Brand Equity & access to wide distribution service network are significant entry barriers. Delay in obtaining approvals from original equipment manufacturers and industrial customers will deter new players in foraying into this field to a certain extent. Amara Raja has excelled in building a strong brand identity by manufacturing & delivering batteries of high quality & durability over the last decade. The threat of substitute products remains high as there are many cheap alternatives from unorganized players that are readily available in the market.

Chart 1: Porters Five Forces analysis

Source: CSEC Research

According to a report published by Global Industry Analytics, the global lead acid battery (automotive) is forecast to reach US $15.4 billion by 2015. The size of the Indian lead acid storage battery as on March 2011 is estimated to be about INR130 billion. The industrial battery segment accounts for 37% of market at INR 48 billion while the automotive battery division accounts for 63% of the market at INR 82 billion. The overall size of the unorganized market accounts for 42% of the automotive battery market and is estimated at about INR 34 billion. Both the industrial & automotive segments were growing at a healthy 10-14% over the last few years but the growth outlook going forward is likely to be subdued amidst adverse macroeconomic conditions. Automotive Component Manufacturers Association (ACMA) has scaled down the revenue growth projection for the auto component industry for FY13 between 5-7%, compared with 12 % growth in 2011-12 on the back of slowdown in demand for cars and commercial vehicles. The growth in the automobile battery segment primarily depends on roll out of new vehicles & replacement demand. The OEM business is driven by fresh

vehicle demand (2 wheelers & 4 wheelers) while the replacement market is influenced by a number of factors such as number of vehicles in use, average battery life & average vehicle age.
Chart 2: Domestic Lead acid battery market

Source: Company, CSEC Research

The number of registered vehicles (both 2 wheelers & 4 wheelers) has grown from 115 million in 2009 to 160 million in 2012. Assuming the average life expectancy for 4 wheeler batteries at 3.5 years and 2 wheeler batteries at 2 years, the market potential for 4 wheelers is estimated to be 5 million while it hovers around 60 million for the 2 wheeler batteries segment. Based on the projected sales growth projections given by Society of Indian Automobile Manufacturers (SIAM), the OEM market potential is expected to be around 21 million for 2013.Based on the robust growth & assumption that automotive battery has an average life expectancy of around 2.5 years; the demand outlook looks strong for the next few years given the strong double digit sales growth in 2010 & 2011.
Chart 3: Automobile sales trend 2 wheelers & 4 wheelers

Source: Ministry of Road Transport & Highways (MORTH), CSEC Research

Key Business Verticals ARBL operates in two segments industrial & automotive business and has a manufacturing plant located in Karakambadi, Triupati in Andhra Pradesh. The current production capacity of the plant stands at 12.4m units. ARBL commands a market share of 34% in the replacement market & 26% market share in the OEM segment. The companys recent foray into the two wheeler OEM segment is expected to boost volumes and help expand its market share in the 2 wheeler segment as it currently caters to only the replacement market where it enjoys a market share of 24%. In the industrial battery segment, the company enjoys 32% market share in the UPS segment & 45% market share in the telecom space.
Table 1: ARBL Market Share Current Market Share
Car Batteries Replacement OEM Two wheeler batteries Replacement Industrial Batteries UPS Telecom
Source: Company, CSEC Research

Table 2: ARBL Production Capacity Current production capacity

Automotive Batteries 34% 26% 24% 32% 45% Four wheeler batteries Two wheeler batteries Industrial Batteries Medium VRLA batteries Large VRLA batteries
Source: Company, CSEC Research

5.6 mn 4.8 mn 2 mn 900 mn Ah

Company Overview:
Amara Raja Batteries Limited (ARBL) is an auto ancillary company engaged in the manufacture & distribution of batteries for industrial & automotive applications. It commenced production in 1992 with an initial foray into industrial batteries and from thereon it has steadily diversified its product range & scaled up its operations. From an initial capacity of 0.73 million in 2002 the company has quickly raised its capacity to 12.4 million in FY12. In the initial period, the company specialized in the manufacture of industrial batteries & after it gained prominence in the industrial battery segment, it entered into an equal joint venture with Johnson Controls for the manufacture of automotive batteries in 2000. The company launched two wheeler batteries in 2008 and initially targeted the replacement market. The company expanded its total capacity at 44% CAGR in FY08-12 period and is expected to increase production & tie up with a few 2 wheeler OEMs this year. The major milestones of the company are presented in the timeline chart given below.
Chart 4: ARBL Timeline

Source: Company, CSEC Research

The automotive product portfolio of ARBL consists of Powerzone brand to cater to the rural & semi urban segments and Amaron brand to cater to the urban segments. Both the brands are distributed through a strong pan-India distribution and service network, which comprises of 274 Amaron franchisees, 18,000 Amaron retailers, 900+ PowerZone retailers. As given in the chart below, the industrial battery segment is represented by Amaron sleek, Amaron Quanta, Amaron Volt & Amaron Stack. ARBL is one of the preferred suppliers to major telecom service providers (BSNL, MTNL, VSNL, Airtel, Vodafone & Reliance), telecom equipment manufacturers (Alcatel, Lucent, Siemens, Nokia etc), UPS Segments (OEM & Replacement), Indian railways and to Power, Oil & Gas among other industry segments. The company is one of the preferred suppliers to OEMs such as Ashok Leyland, Ford India, General motors, Honda, Hyundai, Mahindra & Mahindra, Maruti Suzuki and Tata Motors. The companys Industrial and Automotive batteries are exported to Asia Pacific, Africa and the Middle East.
Chart 5: ARBL Product Range

ARBL Product Range

Industrial Batteries
Amaron Volt Telecom network, data center, power station & oil and gas

Automotive Batteries Passenger cars: Amaron Pro, Amaron Flo, Amaron Go, Amaron Black and Amaron Fresh Commercial Vehicles: Amaron Hi-way Tractors: Amaron Harvest Two-wheelers: Amaron Pro Bike Rider

Power Stack Telecom network, data center, power station, oil & gas and Indian railways Quanta UPS applications Power Sleek Wireless telecom network UPS applications

Source: Company, CSEC Research

ARBL manufactures batteries for all vehicle segments (personal vehicles, tractors, commercial vehicles & motorcycles). It is the largest manufacturer of industrial batteries & the second largest player in the automotive battery segment. Amara Raja was the first company to introduce maintenance free 4 wheeler, 2 wheeler batteries with warranties extending up to 5 years. It pioneered the introduction of maintenance free VRLA battery for UPS & telecom applications & is also considered the largest manufacturer of standby valve regulated lead acid (VRLA) batteries in the Indian Ocean Rim region. ARBL is the market leader in the telecom and UPS battery business with ~45% and ~32% market share, respectively.

Investment Rationale:
Tactical shift to automotive segment as demand in the industrial segment becomes sluggish In the wake of sluggish demand from the industrial battery buyers last year, the company has decided to alter its automotive & industrial revenue mix to 55:45 & further plans to increase its revenue share from the automotive segment to 65% in the next 1- 2 years. ARBL posted an impressive sales growth of 34% in FY12. A significant portion, i.e. ~20% of revenue is obtained from the telecom sector, which has witnessed a lot of turbulence in the recent years due to corruption issues in licensing, regulatory changes & higher competitive intensity.

The number of telecom towers in India has increased steeply from ~85000 in 2006 to around 400,000 towers in 2012. However, most of the towers were set up before 2008. If the average life of a telecom battery is assumed to be four years, then the replacement market is expected to be significant & will drive the demand in the coming years. The rapid growth in mobile subscriber base, roll out of 3G and 4G services by telecom operators and the preferred supplier status will help the company maintain its market share of ~45% in the telecom segment.
Chart 6: ARBL Revenue break-up

Source: Company, CSEC Research

High capex with low debt capital structure to cater to burgeoning demand will drive growth As the company reached its peak capacity in the existing plant, the company is currently scouting for a new location to set up a greenfield project with an initial capital outlay of INR 1.9 bn. The companys debt exposure is low and D/E stands at 0.1 in FY12. The companys cash reserves at INR 2.29 bn will help the company fund the expansion project without the need for debt & drive long term growth. Once the new plant is commissioned the UPS battery capacity shall be enhanced to 3 million units from the existing 1.8 million units.

Better volumes, gain in market share leads to higher capacity utilization ARBL's capacity in 4 wheeler and 2 wheeler batteries currently stands at 5.6 million and 4.8 million, respectively. There is a significant improvement in the capacity utilization, which has now scaled up to over 80%. ARBLs main competitor, Exide lost significant market share in the replacement segment on account of capacity constraints & premium pricing in FY12. Amara Raja has improved its market share in the four wheeler replacement segment from 30% in FY11 to 34% in FY12. Optimum capacity utilization levels coupled with future expansion plans offers little or no scope for any capacity constraints in the near future.
Chart 7: ARBL Capacity Utilization trend

Source: Company, CSEC Research

Plans to strengthen distribution network to extend reach across the country Amara Raja has created a dominant distribution network (274 franchised distributors, about 18,000 retailers in Amaron format, 900 exclusive retail partners in Power Zone format spread across semi-urban and rural locations & around 2,000 service hubs) in the automobile battery segment in India. The company plans to double its distribution network within the next two years and will focus more on areas where unorganized players are predominant- semi urban & rural areas. The company, which produces UPS batteries under the Quanta brand continues to retain dominant market share, i.e. ~32% in the UPS segment. The distribution channel, AQuA of Quanta batteries has been increased from 75 to 100 to expand companys reach and thereby augment sales in the UPS segment. Frequent Power cuts recharges Amara Raja & drives UPS revenue Amara Raja currently enjoys ~32% market share in the UPS & inverter segment. Indian UPS market is estimated to be $3-3.5 billion. India continues to reel under frequent power cuts with even major cities facing power cuts for a few hours on a daily basis. India derives roughly ~67% of its power needs through thermal power plants & the shortage of coal is causing a great deal of trouble to a majority of the power producers. We believe that the shortage of power which leads to power cuts and frequent unannounced disruptions of power supply to both residential & industrial consumers will act as a key growth driver & augment revenue in the coming years. A snapshot of power shortfall in some of the major states is highlighted in the table below.
Table 3: Power shortfall is some of the states States Tamil Nadu Andhra Pradesh Karnataka Maharashtra Power demand ( MW) 8500-12000 10500-13000 8000-9000 15000-16500 Power shortfall ( MW) 4000-4500 2000-2500 1000-1500 2000-2500

Source: CEA, CSEC Research

Unorganized players take a hit an opportunity to increase market share The recent hike in the excise duty on lead & lead products shall make imports expensive and will affect the unorganized market, which still continues to enjoy 40% in the automotive aftermarket segment. Furthermore, battery manufacturers repurchase used batteries to reduce the supply of lead to smaller battery makers. These factors will curb the supply of unbranded batteries to a certain extent & eventually propel the demand in the replacement market Softening of lead prices offset by rupee depreciation: Will margins take a hit? Lead as a key raw material constitutes ~80% of the raw material cost and lead price fluctuations can have severe impact on margins. Exide, the main competitor of ARBL in the organized market sources most of its lead from local smelters it had acquired in the recent past. Amara Raja continues to import 55-60% of its total lead requirement from Australia & Korea exposing itself more to currency fluctuations whereas Exide imports only 20-25% of its total local lead requirement. Lead prices have softened a little bit in the last 2-3 quarters but the rupee depreciation has practically erased all the gains on lower lead prices. The management is however confident in achieving 15% operating margins for FY13. According to a preliminary report released by International Lead and Zinc Study Group (ILZSG), global supply of refined lead exceeded demand by 22000 tons in January-April 2012. So we expect lead prices to soften a little further in the next few quarters. However, the benefit on price decrease primarily depends on the exchange rate.
Chart 8: Raw material cost trend Chart 9: Lead price & operating margin trend

Source: Company, CSEC Research

Source: Company, CSEC Research

Amara Raja to sign up OE deals for 2 wheeler batteries -Is it a rightly timed decision?
The company ventured into the two wheeler replacement segment in 2009 with an initial capacity of 1.8 million and rapidly scaled it up to 4.8 million in FY12 and now commands a market share of over 25% in the organized

replacement battery space. The volume growth is impressive given the fact that the company doesnt have any presence in the two wheeler OEM segment. The company spent INR 0.8 bn last year to expand its 2 wheeler battery production from 3.6 to 4.8 million units. The production limit of two wheeler batteries can be further stretched to 6 million in the existing plant with minimal capital expenditure. The company is confident of garnering more volumes with the introduction of PowerZone branded batteries in the replacement market to cater to the rural demand. The decision to enter the 2 wheeler OEM market may be appropriate as 76% of total vehicle sales (~13 mn units) in FY12 are dominated by two wheelers. The OE market offers relatively lower EBIDTA margins as opposed to the replacement market but the company believes that an overwhelming majority of the users hardly switch brands when battery needs to be replaced. Furthermore, the industry is slowly moving from kickstart vehicles to self start vehicles and this will continue to drive strong volumes for the next two years.

Source: Company, CSEC Research

Financials & Valuation:

The company has recorded revenue growth at 36.4% CAGR & profit growth at 44.28% CAGR during 200612. This stellar performance is primarily attributed to strong demand from the automotive segment coupled with the presence of strong fundamentals in the Indian economy. However, in the recent years, steep increase in interest rates, fuel prices & weak consumer sentiment in the face of slowing economic growth has hurt automotive demand. The industrial battery segment has also faced some heat as telecom companies cut on their spending and 3G roll outs were delayed due to prolonged regulatory and legal issues apart from poor demand for 3G. Revenue obtained from exports grew at 40% to INR 1.17 bn aided by surge in demand through the expansion of Airtels network in Africa, Sri Lanka and Bangladesh.
Chart 10: Net Sales & PAT growth trend

Source: Company, CSEC Research

The company managed to grow at a faster pace (~18%) than the industry growth of 15% in the UPS segment. The UPS capacity will be enhanced to 3 million once the new plant is commissioned and this will help the company expand its market share from the current 32% in this segment. The impact of slowdown in both passenger vehicles & two wheeler production is mitigated to a certain extent as ARBL derives only 14% of its total revenues through the automotive OEM market. The aftermarket automotive segment, which contributes 41% of the revenues, will get a major boost in the coming years on the back of automobile sales growth witnessed in 2010 & 11.
Table 4: Returns (based on FY) during FY08-12 Returns based on financial year
BSE Auto BSE Midcap Sensex Amara Raja Exide Industries

FY08 FY09 FY10 FY11 FY12

-1.0% -31.5% 148.9% 21.2% 8.3%

23.4% -53.8% 126.0% 0.1% -9.1%

25.6% -37.9% 77.0% 9.9% -10.4%

195.0% -70.9% 327.3% 12.2% 55.2%

77.1% -39.2% 197.6% 16.2% 2.6%

Source: CSEC Research

ARBL share price has grown at a CAGR of 45% while its peer Exide Industries has grown at a CAGR of 30.7% in the last five years. Given the valuation gap that exists, Amara Raja is a better investment option compared to Exide Industries.

Table 5: Peer comparison estimates for FY13 FY13E ARBL* Exide Industries OPM(%) 14.2 16.1 NPM(%) 8.3 10.9 P/E 11.9 16.9 P/BV 3.0 3.1 EV/EBIDTA 6.6 10.8 EV/Sales 1.1 1.7 ROE(%) 28.9 19.4 Div Yield (%) 1.1 1.3

Source: Bloomberg, *CSEC Estimates

Raw material cost as a percentage of total cost hovers around ~80% and can have a severe impact on the margins.. The company continues to maintain a robust balance sheet with low debt and substantial cash reserves at INR 2.29bn. The cash reserves should be more than adequate to cover the companys capital expenditure requirement for FY13. This will help the company preserve its very low debt ratio of 0.11. We expect ARBLs revenues to grow at 16.5% CAGR & profits to grow at 14.3% CAGR in the FY12 -14 period. The company has managed to deliver ROE over 25% and is confident of maintaining 15% EBIDTA margins going forward.

ARBL is currently trading at 12 times its one year forward earnings while Exide trades at close to 17 times its one year forward earnings. ARBL has historically traded at around 8 times one-year estimated earnings while Exide used to trade around 14 times its one year forward earnings. In the current scenario, the valuation gap between the two firms has come down and is bound to come down further going forward.
Chart 11: Forward P/E band chart
400 350 14X 12X Share Price (INR) 10X 8X

Chart 12: Forward P/BV band chart

450 400 350 300 250 200 150 100 50 0
janv.-07 mai-08 janv.-09 mai-10 janv.-11 sept.-07 sept.-09 sept.-11 mai-12

Share Price (INR)

300 250 200 150 100 50 0

3.5x
3x 2.5x 2x

Aug-09

Mar-10

Nov-07

Jan-09

May-11

Dec-11

Feb-06

Sep-06

Apr-07

Oct-10

Jun-08

Source: Company, CSEC Research

Jul-12

Source: Company, CSEC Research

At CMP of INR 373, the stock trades at P/E of 11.9x of FY13 EPS and 10.3x FY14 EPS. We initiate coverage with a Buy rating on Amara Raja batteries with a target price of INR 434, implying an upside potential of 16.5% based on a target P/E of 12x FY14 EPS.

Source: Company, CSEC Research

Source: Company, CSEC Research

10

Risks:
High Raw material cost: Lead & its alloys constitute 65-70% of the total raw material cost. If lead prices climb, then margins would take a hit and there will be a decline in profitability. The impact on OEM market will be minimal as the presence of pass-through agreements will alleviate the price impact to a certain extent. However, the company may lose market share in the replacement market if the company is unable to pass on the increase in lead prices to consumers due to competitive pressures and with the intent of protecting or increasing its market share

Slowdown in key user segments could affect growth: The slowdown in auto sales can have a cascading effect on auto ancillary companies as inventories can pile up due to fall in demand. According to Automotive Component Manufacturers Association of India (ACMA), growth of auto component industry is expected to slow down to 6-7% this year compared to 14% in 2011- 12. These projections reflect the poor demand & can affect the OEM market more than the replacement market.

High exposure to telecom segment: In 2010, 50% of the revenues in the industrial segment, i.e. 20% were obtained through the telecom segment. Although the revenue contribution from industrial segment has reduced in the recent years, the dependence on telecom sector is still high given the recent slowdown in telecom sector.

Promoter pledging of shares: In a recent development, one of the promoters of the company has pledged 3.35% of the total shares, which is almost equivalent to 17% of the promoters shareholding.

11

Financial Summary
Income Statement (Abstract) INR(million) Parameters Net Revenue Growth (%) Raw Material cost Staff cost Other expenses EBIDTA Growth (%) Depreciation Other Income Interest Tax Paid Tax Rate (%) Reported PAT Adjusted PAT Growth (%) FY11 17,594.3 20.3 11,861.3 884.6 382.5 2,651.5 -13.2 417.1 96.6 30.6 722.9 32.8 1,480.9 1,480.9 -11.3 FY12 23,638.3 37.1 15,833.4 1,002.6 392.5 3,691.8 39.2 464.7 157.3 40.59 1,035.8 32.5 2,150.6 2,150.6 45.2 FY13E 28,217.6 19.3 19,380.3 1,133 412.1 4,554.7 23.3 581.9 267.4 20.2 1,284.6 32.5 2,667.9 2,667.9 24.1 FY14E 33,014.7 17.0 22,856.3 1,280.3 432.7 5,294.6 16.4 630.9 294.2 20.2 1,509.2 32.5 3,087.2 3,087.2 15.8 Key Ratios (Consolidated) Parameters Dividend payout (%) EBIDTA margin (%) PBT Margin RoCE (%) RoE (%) Current Ratio Debt/Equity Inventory Days Debtor Days Creditor Days Cash Conversion Cycle Interest Cover Ratio FY11 26.5 13.6 11.3 32.8 24.6 1.9 0.1 47 29 51 72 73.1 FY12 15 14.2 12.2 39.3 29.3 2.3 0.1 39 18 44 62 79.5 FY13E 12.1 14.7 12.7 39.7 28.9 2.3 0.1 40 14 41 54 196.6 FY14E 10.5 14.6 11.8 39.8 27.3 2.9 0.1 39 13 40 49 230.8

Balance Sheet (Abstract) INR(million) Parameters Share Capital Reserves & Surplus Shareholders' funds Current Liabilities Non-Current Liabilities Total Liabilities Net Fixed Assets Other Non Current Assets Cash & marketable securities Other Current Assets Total Assets FY11 170.8 6,288.5 6459.3 2,021.7 901.1 11,159.2 3,150.9 308.3 451.2 946.7 11,159.2 FY12 170.8 8,063.9 8,234.7 2,013.1 840.8 13,515.2 3,545.7 284.7 2,292.2 1,182.7 13,515.2 FY13E 170.8 10.347.7 10,518.5 2,084.1 1,328.0 15,916.6 3,963.8 284.7 1,971.8 1,550.4 15,916.6 FY14E 170.8 13,098.9 13,269.8 2,122.5 1,370.6 18,395.0 4,532.8 284.7 3,458.1 1,814 18,395.0

DuPont Analysis (Consolidated) Parameters Net Profit Margin (%) Asset Turnover Leverage factor RoE (%) FY11 7.6 2.9 1.12 24.6 FY12 8.3 3.2 1.11 29.3 FY13E 8.6 3.1 1.09 28.9 FY14E 8.7 3.0 1.04 27.3

Valuation Ratios (Consolidated) Parameters P/E P/BV EV/Sales EV/EBIDTA FY11 21.4 4.9 1.7 11.4 1.2 17.3 22.1 75.6 40.8 4.6 FY12 14.7 3.9 1.3 8.2 1.0 25.1 30.5 96.4 278.3 3.8 FY13E 11.9 3 1.1 6.6 1.1 31.2 34.4 120.4 147.4 4.2 FY14E 10.3 2.4 0.9 5.8 1.2 36.7 40.1 148.8 138.2 4.6

Cash Flow statement (Abstract) INR(million) Parameters Cash flow from operations Cash flow from investing Cash flow from financing Free cash flow Net change in cash FY11 861.2 -612.3 -422.4 347.5 173.5 FY12 2,962.8 -696.3 -425.5 2,366 1,841 FY13E 587.04 -1000 92.5 -413 -320.4 FY14E 3,039.8 -1200 -353.5 1,839.8 1486.3

Div Yield (%) Adjusted EPS (Rs.) Cash EPS BV/Share (Rs.) FCF/Share(Rs.) DPS (Rs.)

12

Cholamandalam Securities Limited Member: BSE,NSE,MSE Regd. Office: Dare House,2 (Old) # 234) N.S.C Bose Road, Chennai 600 001. Website : www.cholawealthdirect.com Email id customercarewm@chola.murugappa.com

RESEARCH
Singaravelu K P Alagappan Ar Sathyanarayanan M Vinayakam P Michel Charles C Rajasekhar R Sreedevi K Head of Research Financial Services Consumption Engineering Technicals IT & Auto Ancillary Associate +91-44 - 4505 6003 +91-44 - 3000 7363 +91-44 - 3000 7361 +91-44 - 3000 7360 +91-44 - 3000 7353 +91-44 - 3000 7266 +91-44 - 3000 7266 singaravelukp@chola.murugappa.com alagappana@chola.murugappa.com sathyanarayananm@chola.murugappa.com vinayakamp@chola.murugappa.com michelcc@chola.murugappa.com rajasr@chola.murugappa.com sreedevik@chola.murugappa.com

INSTITUTIONAL SALES
Venkat Chidambaram Lakshmanan T S P Ananthanarayan J Head of FII Business & Corporate Finance Chennai Mumbai +91-44 - 24473310 +91 - 9840019701 +91 - 9930103070 venkatc@chola.murugappa.com lakshmanantsp@chola.murugappa.com ananthanarayanj@chola.murugappa.com

RETAIL SALES
Chetan Dilipkumar Daxini Sathyanarayana N Baskaran S Sridharan P S Chandrasekar K Maneesh Gupta Murthy A S L N Shibarjun Mukherjee Sheetal Bheda Gowthaman G Deepak V Kshirsagar Gangadhar M AHMEDABAD BANGLORE CHENNAI - Annanagar CHENNAI - Adyar COIMBATORE DELHI HYDERABAD KOLKATA MUMBAI MADURAI PUNE VIZAG 079 - 64500318 / 19 080 - 41503340 / 44 044 - 26208911 / 14 044 - 2452 2111 / 2333 0422 - 4292041 / 4204620 011 - 30461161 / 62 / 63 040 - 23316567 / 68 033 - 44103638 / 39 022 - 22617210 / 7203 0452 - 2601195 / 96 020 - 30225432 / 33 /34 0891 - 6642718 chetandd@chola.murugappa.com sathyanarayanaN@chola.murugappa.com baskarans@chola.murugappa.com sridharanps@chola.murugappa.com chandrasekark@chola.murugappa.com maneeshg@chola.murugappa.com murthyasln@chola.murugappa.com shibarjunm@chola.murugappa.com sheetalbheda@chola.murugappa.com gowthamang@chola.murugappa.com deepakvk@chola.murugappa.com gangadharm@chola.murugappa.com

COMPLIANCE
Balaji H Compliance +91-44 - 3000 7370 balajih@chola.murugappa.com

DISCLAIMER: This report is for private circulation and for the personal information of the authorized recipient only, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not provide individually tailor-made investment advice and has been prepared without regard to any specific investment objectives, financial situation, or any particular needs of any of the persons who receive it. The research analyst who is primarily responsible for this report certifies that: (1) all of the views expressed in this report accurately reflect his or her personal opinions about any and all of the subject securities or issuers; and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of Cholamandalam Securities Limited makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. The views expressed are those of the analyst and the Company may or may not subscribe to all the views expressed therein Cholamandalam Securities Limited reserves the right to make modifications and alterations to this statements as may be required from time to time without any prior approval. Cholamandalam Securities Limited, its affiliates, directors and employees may from time to time, effect or have effect an own account transaction in or deal as agent in or for the securities mentioned in this report. The recipient should take this into account before interpreting the report. All investors may not find the securities discussed in this report to be suitable. Cholamandalam Securities Limited recommends that investors independently evaluate particular investments and strategies. Investors should seek the advice of a financial advisor with regard to the appropriateness of investing in any securities / investment strategies recommended in this report. The appropriateness of a particular investment or strategy will depend on an investors individual preference. Past performance is not necessary a guide to future performance. Estimates of future prospects are based on assumptions that may not be realized. Re-publication or redistribution in any form, in whole or in part, is prohibited. No part of this material may be duplicated in any form and/or redistributed without Cholamandalam Securities Limited prior written consent.