9am with Emkay - Emkay Global Financial Services Ltd.

Major indices movements 

Major indices Clsg 1d (%) 3m (%) 6m (%) 

BSE Sensex 18,202 2.7 (9.7) 0.2 

Nifty 5,456 2.7 (10.1) 0.1 

Dow 12,268 (0.0) 9.6 19.1 

Nikkei 10,726 0.0 9.1 15.9 

Hang Seng 22,945 (0.8) (4.5) 8.9 

Brasil Bovespa 66,558 1.2 (5.4) 0.4 

Mexico Bolsa 36,999 (0.0) 2.6 15.3 

Turnover 

Value Traded 

14 Feb % Chg 52 Wk 52 Wk 

(Rs bn) 

2011 

Hi Lo 

Cash BSE 34.7 0.6 105.2 19.1 

Cash NSE 129.0 (6.4) 298.5 42.2 

Total 163.6 

Del.(%) 39.9 

F&O 1444.6 (1.8) 2525.1 226.0 

Total Trade 1608.3 

Fund Activity 

Net Inflows 

(Rs bn) Purch Sales Net YTD 

Contents 

9am with Emkay 

15 February, 2011 

Research Views 

Tata Steel Q3FY11 Result Expectations 

GSK Pharma Q4CY11 results – inline with estimates 

Jubilant Life Sciences Q3FY11 results – below estimates 

Voltamp Transformers Q3FY11 Results First Cut 

GIPCLQ3FY11 Results First Cut 

Reliance Power Q3FY11 Results First Cut 

McNally Bharat Q3FY11 Results First Cut - Mixed Bag 

Research Update included 

Emkaynomics; Fortnightly round up of key banking and economic indicators; 

Dishman Pharma Q3FY11R Update; Another quarter of dismal performance; Hold 

Hindustan Petroleum Corp. Q3FY11 Result Update; Results above estimates; Buy 

Apollo Tyres Q3FY11 R Update; Trading at replacement cost, upgrade to Accumulate 

GSPL Q3FY11 Result Update; Lower depreciation leads to higher profitability; Buy 

Mahindra Satyam Q3FY11 R Update; Margin challenges continue, Retain REDUCE 

Technical Comments 

Results Today 

Morning meeting notes 

11 Feb 2011 

FII's 32.5 (36.9) (4.3) 233.4 

Domestic Funds 6.8 (4.3) 2.5 98.8 

14 Feb 2011 

Cash Provisional (1.3) 

F&O - Index 127.9 (112.4) 15.5 (27.6) 

F&O - Stock 34.9 (24.5) 10.3 (11.6) 

Advances/declines BSECash 

14 Feb 2011 A B1 B2 Total 

Advance 192 1545 350 2,087 

Decline 12 237 64 313 

Commodity Prices 

15 Feb 1d 3m 6m 

Commodity 

2011 (%) (%) (%) 

Crude (USD/Bbl) 102.7 0.4 19.5 37.7 

Copper(usd/t) 10,160 2.0 17.9 42.0 

Aluminum H.G.(usd/t) 2,514 0.8 4.6 19.1 

Zinc(usd/t) 2,521 2.3 5.3 23.2 

Debt/Forex Mkt Clsg 1d (%) 3m (%) 6m (%) 

Re/USD 45.50 0.4 (0.6) 2.9 

10 yr Gsec Yield 8.12 (0.4) 0.2 3.3 

News clippings 

Larsen & Toubro (L&T) has received an order worth over Rs 11 billion from 

Gujarat State Electricity Corporation (GSECL), a government of Gujarat 

company. The order is for setting up a 1x375 MW gas based power plant at 

Dhuvaran, near Baroda in Gujarat, on EPC basis. 

Coal India will set up 20 new washeries with a combined capacity of 111 million 

tonnes during the XI and XII Five-Year Plans to help realise better price for its 

produce. 

Reliance Infrastructure board has approved a buy-back of its outstanding equity 

shares of Rs 10 each of the company for an aggregate amount of up to Rs 

10 billion (USD 222 million) at a price not exceeding Rs 725 a equity share. 

Unity Infraprojects has emerged as the lowest bidder for 4 projects of about Rs 

300 crore and expects them to be awarded in a month. 

Jyothy Laboratories has announced a national launch of Diethlyl Phenyl 

Acetamide (DEPA) based Multi Insect Repellants formulations in the form of 

`Cream`, `Spray` and `Lotion` and `Wipes` under the brand names `Maxo - 

Military` and `Maxo - Safe & Soft`. 

NIIT and California-based Zend Technologies have announced a partnership to 

develop a skilled workforce within the country on hypertext preprocessor (PHP) 

web technology. 

Emkay Global Financial Services Ltd. 1


Research views 

Tata Steel 

Reco CMP TP 

Accumulate 619 712 

Jagdish Agarwal 

jagdish.agarwal@emkayglobal.com 

+91 22 6612 1381 

Goutam Chakraborty 

goutam.chakraborty@emkayglobal.com 

+91 22 6612 1275 

Tata Steel Q3FY11 Result Expectations 

We expect Tata Steel to show a marginal revenue growth of 3.8% YoY on 

consolidated basis 

We estimate sales volume of 3.5 mn tonnes for the European operations 

EBITDA margins are likely to improve both on YoY and QoQ by 300 bps and 150 

bps respectively for the consolidated business 

Standalone EBITDA margin is likely to improve by 560 bps and 240 bps 

respectively on YoY and QoQ basis 

The standalone APAT is likely to grow by 32% and 9% on YoY and QoQ 

respectively 

The consolidated APAT though is expected to grow 102% YoY, however, it is 

likely to fall 2% on QoQ basis 

Tata Steel (Standalone) 

(Rs mn) Q3FY11E Q3FY10 Q2FY11 YoY (%) QoQ (%) 

Revenue 73857.8 63748.8 71070.5 15.9 3.9 

EBITDA 29121.0 21569.0 26293.2 35.0 10.8 

EBITDA Margin (%) 39.4 33.8 37.0 +560 bps +240 bps 

APAT 15742.8 11917.5 14384.3 32.1 +9.4 

Tata Steel (Consolidated) 

(Rs mn) Q3FY11E Q3FY10 Q2FY11 YoY (%) QoQ (%) 

Revenue 272075.3 262020.1 286461.9 3.8 -5.0 

EBITDA 38798.53 29505.7 36723.3 31.5 5.7 

EBITDA Margin (%) 14.3 11.3 12.8 +300 bps +150 bps 

PAT 13523.7 6683.7 13833.9 102.3 -2.2 

Basic EPS (Rs) 15.3 7.5 15.6 102.3 -2.2 

Diluted EPS (Rs) 14.1 7.0 14.4 102.3 -2.2 

Things to look at: 

Sales volumes and margins at European operations and guidance on Tata Steel 

Europe’s EBITDA/ tonne 

Update on raw material costs for European operations going forward 

EBITDA margin at Indian operation 

Update on further balance sheet restructuring 

Update on Riversdale and New Millennium mines 

Update on Orissa Project 

Financials 

(Rs bn) 

Home 

YE- Net EBITDA EPS EPS RoE EV/ 

Mar Sales (Core) (%) APAT (Rs) 

% 

chg 

(%) P/E EBITDA P/BV 

FY09 1,456.9 181.3 12.4 49.5 60.4 -63.0 17.4 9.3 5.2 3.7 

FY10 1,017.6 80.4 7.9 -20.1 -22.6 NA -8.5 -27.9 12.1 6.8 

FY11E 1,116.5 172.5 15.5 76.4 79.7 NA 22.6 7.3 5.0 2.9 

FY12E 1,230.2 199.7 16.2 90.0 92.7 16.3 21.5 6.2 4.1 1.9 

Emkay Research 15 February, 2011 2



GSK Pharma 

Reco CMP TP 

Hold 2201 UR 


Y/e Mar Q3FY10 Q3FY11 % YoY 

Net Sales (Rs 

mn) 4499 5007 11.3% 

EBITDA (Rs 

mn) 1438 1574 9.4% 

EBITDA % 32.0 31.4 -54 bps 

APAT (Rs mn) 1057 1223 15.7% 

EPS (Rs) 12.6 13.7 8.4% 

GSK Pharma Q4CY11 results – inline with estimates 

The growth in total sales was 11.3% to Rs5bn (expected Rs5.1bn). Revenue growth 

was driven by strong growth in the vaccines business and key specialties such as 

dermatology, oncology and critical care. Operating margins contracted marginally by 

54bps to 31.4%, however, higher other income led to expansion in net profit margin 

by 94bps to 24.4%. EPS for the quarter stood at Rs13.7. For the full year (CY10), 

EPS stands at Rs68.6. 

Deepak Malik 

deepak.malik@emkayglobal.com 

+91 22 6612 1257 

Ashish Thavkar 

ashish.thavkar@emkayglobal.com 

+91 22 6612 1254 

Rashmi Sancheti 

rashmi.sancheti@emkayglobal.com 

+91 22 6612 1238 

Jubilant Life Sciences 

Reco CMP TP 

UR 204 UR 


Y/e Mar Q3FY10 Q3FY11 % YoY 

Net Sales (Rs 

mn) 9664 8690 -10.1% 

EBITDA (Rs 

mn) 2301 1322 -42.6% 

EBITDA % 23.8 15.2 

-1090 

bps 

APAT (Rs mn) 1416 464 -67.2% 

EPS (Rs) 6.8 2.8 -59.5% 

Jubilant Life Sciences Q3FY11 results – below estimates 

Revenues at Rs8.7bn was down 10% YoY on account of decline of 32% in Services 

business i.e. CMO and DDDS and 13% growth in Products business i.e. 

Intermediates & Generics business. EBITDA at Rs1.3bn was down 43% YoY and 

decline of Margins by 860 bps to 15.2%. There were realized forex gains of 570 mn 

in Q3 FY10 versus realized forex loss of Rs30mn in Q3FY11. PAT at Rs464mn was 

down 67% YoY, mainly on account of increase in depreciation and reduction in 

EBITDA. EPS for the quarter and 9MFY11 stood at Rs2.8 and Rs10.5 respectively. 

Deepak Malik 


+91 22 6612 1257 



+91 22 6612 1254 



+91 22 6612 1238 

Home 



Voltamp Transformers Q3FY11 Results First Cut 

Same story continuing – Competition in full flow 

Amit Golchha 

amit.golchha@emkayglobal.com 

+91 22 66242408 

Nihag Shah, CFA 

nihag.shah@emkayglobal.com 

+91 22 6624 2486 

Against our expectations of 29% growth, revenues actually declined by 5% yoy 

to Rs1.3bn. 

EBITDA declined by 49% yoy to Rs145mn, below estimates due to low EBITDA 

margins of 10.8% (lower than estimated 13% margins) against 20.2% in 

Q3FY10. 

APAT declined by 39% yoy to Rs128mn - below our estimate of Rs166mn. 

EPS for the quarter stood at Rs12.6/Share. 

For 9mFY11 EPS stood at Rs32.5/share, down 42% yoy. Q411 is the last qtr of 

high margin base (19.2%), after which the base impact should play out (Q1 11 

EBITDA margins at 10.9%). 

Our FY11E/FY12E EPS estimate stands at Rs57.1/Share and Rs72.1/shares. 

Likely downgrade (8-10%) in earnings. 

At CMP of Rs630, the stock is trading at 8.7xFY11E earnings & 1.5xFY11E 

Book Value (ROE of 18%). 

 

Though we believe that the valuations are not demanding at current level on 

absolute basis (20-25% expensive on relative basis) but more important to 

watch is the competition panning out in Q4FY11 and Q1FY12 especially in the 

order inflows and then take a call. We currently have a Hold rating on the stock. 

Detailed note to follow. 

Rs mn Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 YoY (%) QoQ (%) 9mFY10 9mFY11 YoY (%) 

Revenue 1,400 1,801 1,193 1,243 1,336 -4.5 7.5 3,554 3,773 6.2 

Expenditure -1,117 -1,452 -1,063 -1,118 -1,192 6.7 6.6 -2,910 -3,373 15.9 

as % of sales -79.8% -80.6% -89.1% -89.9% -89.2% -81.9% -89.4% 

Consumption of RM -1,062 -1,384 -996 -1,045 -1,133 6.7 8.4 -2,648 -3,175 19.9 

as % of sales -75.9% -76.8% -83.5% -84.1% -84.8% -74.5% -84.1% 

Power and Fuel 0 0 0 0 0 0 0 

as % of sales 0 0 0 0 0 0 0 

Other Mfg Expenses 0 0 0 0 0 0 0 

as % of sales 0 0 0 0 0 0 0 

Employee Cost -36 -40 -41 -41 -39 8.1 -4.6 -114 -121 6.1 

as % of sales -2.6% -2.2% -3.4% -3.3% -2.9% -3.2% -3.2% 

Other expenditure -18 -28 -26 -32 -19 3.6 -40.6 -147 -77 -47.5 

as % of sales -1.3% -1.5% -2.2% -2.6% -1.4% -4.1% -2.0% 

EBITDA 283 349 130 125 145 -48.8 15.7 644 400 -37.9 

Depreciation -20 -20 -18 -16 -18 -9.0 9.6 -40 -52 30.8 

EBIT 263 330 112 109 127 -51.8 16.7 604 347 -42.5 

Other Income 0 0 0 0 0 0 0 

Interest 43 68 44 43 47 8.9 7.6 177 134 -24.3 

PBT 306 398 156 152 173 -43.3 14.1 781 481 -38.4 

Total Tax -110 -133 -48 -59 -46 -58.5 -22.6 -264 -153 -42.2 

Adjusted PAT 196 265 107 93 128 -34.7 37.2 516 328 -36.4 

Extra ordinary items 45 0 0 0 0 45 0 

Reported PAT 241 265 107 93 128 -46.9 37.2 561 328 -41.5 

(Profit)/loss from JV's/Ass/MI 0 0 0 0 0 0 0 

PAT after MI 241 265 107 93 128 -46.9 37.2 561 328 -41.5 

Reported EPS 23.8 26.1 10.6 9.2 12.6 -46.9 37.2 55.4 32.5 -41.5 

Margins (%) (bps) (bps) (bps) 

EBIDTA 20.2 19.4 10.9 10.1 10.8 -936 77 18.1 10.6 -752 

EBIT 18.8 18.3 9.4 8.7 9.5 -930 75 17.0 9.2 -778 

EBT 25.1 22.1 13.0 12.2 13.0 -1208 75 22.0 12.8 -921 

PAT 14.0 14.7 9.0 7.5 9.6 -442 207 15.8 8.7 -709 

Effective Tax rate 31.3 33.5 31.0 38.7 26.3 -506 -1245 33.9 31.7 -214 

Home 




Amit Golchha 


+91 22 66242408 



+91 22 6624 2486 

GIPCLQ3FY11 Results First Cut 

Results ahead of expectations 

GIPCL’s Q3FY11 revenues stood at Rs3.1bn up 29.2% yoy ahead of our estimate 

of Rs2.6bn might be due to lower under recoveries in the Surat Expansion – Have 

to check the billing as of now – is it as per CERC regulations pending GERC 

order. 

Company reported EBITDA margin of 26.6% up 138bps yoy ahead of our 

estimate of 23.5% .The reason is higher Interest and depreciation recovery in 

revenues arising from new plant. 

PAT stood at Rs244mn down 15% yoy however ahead of our estimate of 

Rs146mn. Current quarter PAT includes income tax refund of at least Rs80mn. 

GIPCL’s reported EPS of Rs1.6/share. 9mFY11 stands at Rs5.4/share our 

forecast for FY11E/FY12E EPS is Rs6.2/share and Rs12.6/share. 

We have an “Accumulate” rating on the stock. At CMP of Rs92 the stock is trading 

at 1xFY12E book value. 

Detail note to follow…. 


Revenue 2,383 2,502 2,489 2,120 3,078 29.2 45.2 6,891 7,686 11.5 

Expenditure -1,782 -1,921 -1,885 -1,702 -2,259 26.8 32.7 -5,282 -5,846 10.7 

as % of sales -74.8% -76.8% -75.7% -80.3% -73.4% -76.7% -76.1% 

Consumption of RM -1,548 -1,663 -1,623 -1,297 -1,872 21.0 44.3 -4,446 -4,793 7.8 

as % of sales -65.0% -66.5% -65.2% -61.2% -60.8% -64.5% -62.4% 

Power and Fuel 0 0 0 0 0 0 0 

as % of sales 0 0 0 0 0 0 0 

Other Mfg Exenses 0 0 0 0 0 0 0 

as % of sales 0 0 0 0 0 0 0 

Employee Cost -76 -78 -73 -109 -158 106.4 44.5 -196 -340 73.1 

as % of sales -3.2% -3.1% -2.9% -5.1% -5.1% -2.8% -4.4% 

Other expenditure -158 -180 -189 -296 -229 45.2 -22.5 -640 -714 11.5 

as % of sales -6.6% -7.2% -7.6% -13.9% -7.4% -9.3% -9.3% 

EBITDA 601 581 604 418 819 36.3 95.8 1,609 1,841 14.4 

Depreciation -219 -216 -215 -273 -388 76.9 42.2 -664 -876 31.9 

EBIT 381 365 389 145 431 -24.4 196.5 944 965 2.2 

Other Income 5 41 41 30 2 -59.2 -93.4 97 74 -23.9 

Interest -35 -33 -41 -119 -267 668.0 124.9 -129 -426 229.1 

PBT 352 373 390 57 166 -52.8 191.2 912 613 -32.8 

Total Tax -64 -12 29 98 78 -222.2 -20.8 -204 205 -200.1 

Adjusted PAT 288 361 419 155 244 -15.4 57.2 707 817 15.6 


Reported PAT 288 361 419 155 244 -15.4 57.2 707 817 15.6 

(Profit)/loss from JV's/Ass/MI 0 0 0 0 0 0 0 

PAT after MI 288 361 419 155 244 -15.4 57.2 707 817 15.6 

Reported EPS 1.9 2.4 2.8 1.0 1.6 -15.4 57.2 4.7 5.4 15.6 


EBIDTA 25.2 23.2 24.3 19.7 26.6 138 688 23.3 23.9 60 

EBIT 16.0 14.6 15.6 6.8 14.0 -202 714 13.7 12.6 -115 

EBT 14.8 14.9 15.7 2.7 5.4 -936 271 13.2 8.0 -526 

PAT 12.1 14.4 16.8 7.3 7.9 -418 60 10.3 10.6 37 

Effective Tax rate 18.1 3.2 -7.4 -171.9 -46.7 -6481 12518 22.4 -33.4 -5580 

Home 



Reliance Power Q3FY11 Results First Cut 

Results ahead of expectations 

Amit Golchha 


+91 22 66242408 



+91 22 6624 2486 

Revenues of Rs2.5bn up 49% qoq – ahead of our estimate of Rs2.1bn. 

Company reported EBITDA of Rs617mn up 119% qoq, EBITDA margin of 24.6% 

significantly higher than our margin estimate of 16.7% mainly due to higher per 

unit realizations. 

Other Income for the quarter stood at Rs1bn. 

Net profit for the quarter stood at Rs1.4bn up 7.5% yoy but it declined sequentially 

by 39% higher than our estimate of Rs982mn led by higher revenue growth, 

EBITDA margin expansion and lower depreciation. 

The company reported EPS of Rs 0.5/share and for 9mFY11 the EPS stands at 

Rs2.0/share and our FY11E/12E EPS is Rs2.2/share and Rs3.2/share. 

At CMP of Rs118, stock is trading at 1.9xFY12E Book Value with an FY11E- 

FY15E average ROE of 12.0%. 

We currently have an Accumulate rating on the stock. 

Detailed note to follow. 


Revenue 0 0 1,393 1,687 2,512 48.9 0 5,593 

Expenditure -267 -759 -2,037 -2,402 -1,895 608.8 -21.1 -743 -6,334 752.8 

as % of sales -146.2% -142.4% -75.4% -113.3% 

Consumption of RM 0 0 0 0 0 0 0 

as % of sales 0.0% 0.0% 0.0% 0.0% 

Power and Fuel 0 -221 -736 -997 -1,242 35.5 0 -2,975 -100.0 

as % of sales -52.8% -59.1% -49.5% -53.2% 

Other Mfg Exenses 0 0 0 0 0 0 0 

as % of sales 0 0 0 0 

Employee Cost -121 -154 -161 -153 -196 62.0 27.9 -279 -510 83.1 

as % of sales -11.5% -9.1% -7.8% -9.1% 

Other expenditure -146 -383 -1141 -1252 -457 212.1 -63.5 -464 -2,849 513.9 

as % of sales -81.9% -74.2% -18.2% -50.9% 

EBITDA -267 -759 -644 -715 617 -330.7 -186.3 -743 -742 -0.1 

Depreciation -2 -53 -238 -375 -77 4740.3 -79.3 -4 -690 18545.2 

EBIT -269 -812 -881 -1,090 540 587.4 -149.5 -747 -1,432 91.8 

Other Income 1792 826 2874 3437 1038 -42.0 -69.8 7,608 7,350 -3.4 

Interest 0 -70 -290 -499 -685 37.3 0 -1,474 

PBT 1,523 -57 1,703 1,848 893 -41.4 -51.7 6,862 4,444 -35.2 

Total Tax -186 760 -485 -497 544 -392.2 -209.4 -947 -438 -53.7 

Adjusted PAT 1337 703 1218 1351 1436 7.5 6.3 5915 4006 -32.3 


Reported PAT 1337 703 1218 1351 1436 7.5 6.3 5915 4006 -32.3 

(Profit)/loss from JV's/Ass/MI 0 0 0 0 0 -100.0 0 0 

PAT after MI 1337 703 1218 1351 1436 7.5 6.3 5915 4006 -32.3 

Reported EPS 0.5 0.3 0.7 0.8 0.5 7.5 -38.8 2.1 2.0 -3.0 


EBIDTA 6.6 16.7 24.6 785 -13.3 

EBIT -10.4 -5.5 21.5 2699 -25.6 

EBT 175.0 168.7 35.5 -13312 79.5 

PAT 140.2 139.2 57.2 -8201 71.6 

Effective Tax rate 12.2 -462.4 19.9 17.5 -60.9 -7313 -7838 13.8 9.9 -393 

Home 




McNally Bharat 

Reco CMP TP 

Buy 214 418 

Consolidated Key Financials 

Y/E, Mar (Rs. 

mn) 

FY10 FY11E FY12E 

Revenues 18,028 25,474 31,102 

EBITDA 1,478 2,040 2,477 

EBITDA Margin 

(%) 

8.2 8.0 8.0 

APAT 521 754 950 

EPS (Rs) 16.7 24.3 30.6 

PER 12.7 8.8 7.0 

Pritesh Chheda, CFA 

pritesh.chheda@emkayglobal.com 

+91 22 6612 1273 

Prerna Jhavar 

prerna.jhavar@emkayglobal.com 

+91 22 6612 1337 

McNally Bharat Q3FY11 Results – First Cut 

Standalone net profit above estimates, But subsidiaries disappoint 

Standalone Revenues grew 14% yoy to Rs3.8 bn below expectation of Rs4.3 

bn 

EBITDA margins declined 40 bps yoy to 6.5% marginally ahead estimates of 

6.4% 

Led by lower revenue growth, EBITDA growth was subdued at 7.5% yoy to Rs247 

mn below estimate of Rs272 mn 

However, APAT growth at 54% yoy to Rs113 mn was ahead estimates of Rs83 

mn – led by high other income (up 322% yoy to Rs53 mn) 

McNally Sayaji (MSE) – Revenues grew 9% yoy to Rs742 mn, EBITDA margins 

declined 280 bps yoy to 16.8% and net profits increased 20% yoy to Rs73 mn – 

Below estimates. 

The CMT business (coal & mineral beneficiation technology), Germany – 

Revenues declined 67% qoq (on a high base) to Rs365 mn while PBT stood at 

Rs21 mn (-83% qoq) – below estimates 

MBE (group) witnessed order inflows worth Rs3.5 bn (-64% yoy). The group order 

book increased 16% yoy to Rs43.7 bn. MBE is L1 in orders worth Rs4.7 bn. 

MBE has also revised its consolidated guidance down 

In Q2FY11 press release 

In Q3FY11 press release 

Revenue Rs25 bn Rs23.5 bn 

EBITDA margin 9% 8-9% 

We were always at the lower end of consensus estimates and had factored 

conservative EBITDA margin assumptions – hence post above revision in guidance, 

our earnings downgrade will be limited to 3-5% only. We currently have consolidated 

earnings of Rs24.3 and Rs30.6 per share for FY11E and FY12E respectively. We 

continue to maintain a positive bias towards MBE and retain our BUY rating 




McNally Bharat Q3FY11 Results – First Cut (Cont’d…) 

Quarterly Financials 

Rs mn Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 YoY (%) QoQ (%) YTD’11 YTD’10 Gr (%) 

Revenue 3,325 5,624 2,839 4,018 3,788 13.9 -5.7 10,645 8,907 19.5 

Expenditure 3,095 5,216 2,683 3,799 3,541 14.4 -6.8 10,023 8,294 20.9 

Consumption of RM 2,238 3,345 1,411 2,245 1,810 -19.1 -19.4 5,467 5,724 -4.5 

as % of sales 67.3 59.5 49.7 55.9 47.8 51.4 64.3 

Job Work Outsourcing Exps 571 1,171 680 759 721 26.2 -5.1 2,160 1,558 38.6 

as % of sales 17.2 20.8 24.0 18.9 19.0 20.3 17.5 

Employee Cost 194 205 246 314 326 67.8 3.8 885 506 74.9 

as % of sales 5.8 3.6 8.7 7.8 8.6 8.3 5.7 

Other expenditure 93 495 346 481 684 636.5 42.2 1,511 506 198.6 

as % of sales 2.8 8.8 12.2 12.0 18.1 14.2 5.7 

EBITDA 230 408 156 219 247 7.5 12.9 622 614 1.3 

Depreciation 13 15 18 21 22 68.8 3.8 60 27 120.1 

EBIT 217 394 138 198 225 3.9 13.9 561 586 -4.2 

Other Income 13 13 15 35 53 321.6 49.7 103 18 461.7 

Interest 136 69 60 87 106 -22.1 22.4 253 327 -22.8 

PBT 93 337 93 146 172 84.5 17.5 412 277 48.4 

Total Tax 24 122 32 50 59 149.4 17.7 140 66 111.2 

Adjusted PAT 70 215 62 97 113 62.7 17.4 272 211 28.7 

Extra ordinary items 4 10 0 0 0 -100.0 NA 0 -48 -100.0 

Reported PAT 74 224 62 97 113 53.5 17.4 272 163 66.6 

Adjusted EPS 2.2 6.9 2.0 3.1 3.6 62.7 17.4 8.7 6.8 28.7 


EBIDTA 6.9 7.3 5.5 5.4 6.5 -40 110 5.8 6.9 360 

EBIT 6.5 7.0 4.9 4.9 6.0 -60 100 5.3 6.6 420 

PBT 2.8 6.0 3.3 3.6 4.5 170 90 3.9 3.1 340 

PAT 2.1 3.8 2.2 2.4 3.0 90 60 2.6 2.4 180 

Effective Tax rate 25.2 36.3 33.9 34.0 34.1 890 10 34.0 23.9 610 

McNally Sayaji 

Rs mn Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 

Revenues 683 1,246 522 620 742 

Growth (yoy) 57.8% 66.4% 17% -10% 9% 

EBITDA 134 196 72 100 125 

Growth (yoy) 39.5% 47.9% -17% -15% -7% 

EBITDA Margin (%) 19.6% 15.7% 13.9% 16.1% 16.8% 

PAT 61 107 15 52 73 

Growth (yoy) 35.3% 44.7% -66% -24% 20% 

CMT Business, Germany 

Rs mn Q1FY11 Q2FY11 Q3FY11 

Revenues 760 1,112 365 

Growth (qoq) 46% -67% 

EBITDA 30 152 3 

Growth (qoq) 407% -98% 

EBITDA Margin (%) 3.9% 13.7% 0.9% 

PBT 24 126 21 

Growth (qoq) 425% -83% 

Home 


February 14, 2011 

Arjun G Nagarajan 

Arjun.Nagarajan@emkayglobal.com 

+91 22 6624 2494 

Kashyap Jhaveri 

kashyap.jhaveri@emkayglobal.com 

+91 22 6612 1249 

Emkaynomics 

Fortnightly round up of key banking and economic indicators 

¾ The growth in non food credit has moved down marginally to 

23.1% for the week ended January 28, 2011 as growth in 

deposit mobilisation dropped to 16% 

¾ The CD ratio has marginally inched down to 75% for the week 

ended January 28, 2010 with TTM CD ratio moving up to 

103%. The incr. CD ratio has moderated to 100% 

¾ Money supply growth has eased to 16.9% and the money 

multiplier stood up at 5x 

Economy 

¾ Call money rates have risen to 6.58% as on February 11, 2011 

from 6.39% last fortnight 

¾ The shortage of liquidity in the system moved up and stood at 

Rs291.1bn. The net repo balances stood at ~ Rs561bn for the 

week ended February 04, 2011 

¾ The spread between the long and short end OIS has risen 

marginally to 43bps as opposed to 41 bps last fortnight 

Econometer 

Dec-10 Sep-10 Jun-10 Mar-10 Dec-09 Sep-09 Jun-09 Mar-09 

GDP# (% yoy chg) NA 8.89 8.88 8.57 6.53 8.68 6.33 5.76 

IIP (% yoy chg) 1.60 4.90 7.17 15.55 17.95 8.22 8.61 0.52 

Trade Balance (US$ bn) (21.30) (35.08) (32.27) (27.15) (28.63) (22.14) (15.50) (15.05) 

Current account balance (US$ bn) NA (15.80) (12.10) (13.00) (12.03) (12.60) (5.80) 4.70 

Fiscal balance (US$ bn) (8.41) (20.23) (8.63) (22.49) (24.06) (15.18) (25.54) (23.24) 

Inflation (%) 8.43 8.93 10.28 9.45 4.50 -0.62 0.48 3.05 

10-year bond yield (%) 7.92 7.85 7.55 7.83 7.14 7.14 6.60 7.01 

INR/$ (avg) 45.16 46.01 46.57 45.50 46.63 48.41 48.67 49.76 

INR/$ (quarter end) 44.86 44.93 45.63 45.14 46.20 47.98 47.87 50.95 

# Base: 2004-2005 

Emkay Global Financial Services Ltd 1

Emkaynomics Economy 

Non food credit 

Deposits 

38.0 

28.0 

52.0 

19.0 

36.0 

34.0 

24.0 

50.0 

48.0 

17.0 

32.0 

20.0 

46.0 

30.0 

44.0 

15.0 

28.0 

16.0 

42.0 

26.0 

15-Jan-10 

26-Feb-10 

9-Apr-10 

21-May-10 

2-Jul-10 

13-Aug-10 

24-Sep-10 

5-Nov-10 

17-Dec-10 

28-Jan-11 

12.0 

40.0 

15-Jan-10 

26-Feb-10 

9-Apr-10 

21-May-10 

2-Jul-10 

13-Aug-10 

24-Sep-10 

5-Nov-10 

17-Dec-10 

28-Jan-11 

13.0 

Rs tn (LHS) 

% yoy chg (RHS) 

Rs tn (LHS) 


• The growth in non food credit has marginally moved down to 

23.1% for the week ended January 28, 2011 from 23.2% 

last fortnight. 

Source: RBI, Emkay Research 

• The growth in deposit mobilization has dropped to 16% from 

16.6% last fortnight. 

ource: RBI, Emkay Research 

CD Ratio (%) TTM CD Ratio (%) 

77.0 

115 

76.0 

105 

75.0 

74.0 

73.0 

72.0 

71.0 

70.0 

69.0 

95 

85 

75 

65 

55 

45 

68.0 

35 

29-Jan-10 

26-Feb-10 

26-Mar-10 

23-Apr-10 

21-May-10 

18-Jun-10 

16-Jul-10 

13-Aug-10 

10-Sep-10 

8-Oct-10 

5-Nov-10 

3-Dec-10 

31-Dec-10 

28-Jan-11 

29-Jan-10 

26-Feb-10 

26-Mar-10 

23-Apr-10 

21-May-10 

18-Jun-10 

16-Jul-10 

13-Aug-10 

10-Sep-10 

8-Oct-10 

5-Nov-10 

3-Dec-10 

31-Dec-10 

28-Jan-11 

• Consequently the CD ratio has marginally inched down to 

75% for the week ended January 28, 2011. 


CASA as % of total 

• The TTM CD ratio has moved past 100% to 103% for the week 

ended January 28, 2011. The incremental CD ratio has 

dropped to 100% from 105% last fortnight. 


SLR as % of NDTL 

14.0 

% 

33.0 

13.5 

32.0 

13.0 

12.5 

12.0 

11.5 

31.0 

30.0 

29.0 

11.0 

15-Jan-10 

26-Feb-10 

9-Apr-10 

21-May-10 

2-Jul-10 

13-Aug-10 

24-Sep-10 

5-Nov-10 

17-Dec-10 

28-Jan-11 

28.0 

15-Jan-10 

26-Feb-10 

9-Apr-10 

21-May-10 

2-Jul-10 

13-Aug-10 

24-Sep-10 

5-Nov-10 

17-Dec-10 

28-Jan-11 

• The demand deposits stood at 11.8% of the total deposits 

for week ended January 28, up from 11.6% last fortnight. 

• SLR ratio inched up and stood at 29.3% for the week ended 

January 28, 2011. 



Emkay Research 14 February 2011 2


Inflation (%) Government bond yields (%) 

12.0 

% 

8.5 

10.0 

7.5 

8.0 

6.5 

6.0 

4.0 

2.0 

5.5 

4.5 

0.0 

Dec-09 

Jan-10 

Feb-10 

Mar-10 

Apr-10 

May-10 

Jun-10 

Jul-10 

Aug-10 

Sep-10 

Oct-10 

Nov-10 

Dec-10 

All commodities Mfg Articles Ex-Food 

3.5 

12-Feb-10 

12-Mar-10 

9-Apr-10 

7-May-10 

10-yr 

4-Jun-10 

2-Jul-10 

30-Jul-10 

27-Aug-10 

24-Sep-10 

22-Oct-10 

19-Nov-10 

1-yr 

17-Dec-10 

14-Jan-11 

11-Feb-11 

• Inflation has jumped up sharply 8.4% in December 2010 from 

7.5% in November. This move is mainly due to an increase in 

food inflation. 

• The 10-year bond yields as on February 11, 2011, remain 

relatively unchanged from last fortnight at 8.13%. 

M3 



Money multiplier (x) 

64.0 

22.0 

5.4 

62.0 

21.0 

60.0 

58.0 

56.0 

20.0 

19.0 

18.0 

17.0 

5.2 

54.0 

16.0 

5.0 

52.0 

15.0 

50.0 

29-Jan-10 

26-Feb-10 

26-Mar-10 

23-Apr-10 

21-May-10 

Rs tn (LHS) 

18-Jun-10 

16-Jul-10 

13-Aug-10 

10-Sep-10 

8-Oct-10 

5-Nov-10 

3-Dec-10 

31-Dec-10 


28-Jan-11 

14.0 

4.8 

29-Jan-10 

26-Feb-10 

26-Mar-10 

23-Apr-10 

21-May-10 

18-Jun-10 

16-Jul-10 

13-Aug-10 

10-Sep-10 

8-Oct-10 

5-Nov-10 

3-Dec-10 

31-Dec-10 

28-Jan-11 

• M3 growth has eased to 16.9% for the week ended January 

28, 2011. 


• The money multiplier inched up to 5 from 4.93 last fortnight. 


Excess liquidity (Rs bn) Call money borrowing rate (%) 

1,500.0 

1,000.0 

500.0 

0.0 

8.0 

6.0 

% 

-500.0 

-1,000.0 

4.0 

-1,500.0 

5-Feb-10 

26-Feb-10 

19-Mar-10 

16-Apr-10 

7-May-10 

28-May-10 

18-Jun-10 

9-Jul-10 

30-Jul-10 

20-Aug-10 

10-Sep-10 

1-Oct-10 

22-Oct-10 

12-Nov-10 

3-Dec-10 

24-Dec-10 

14-Jan-11 

4-Feb-11 

2.0 

12-Feb-10 

12-Mar-10 

9-Apr-10 

7-May-10 

4-Jun-10 

2-Jul-10 

30-Jul-10 

27-Aug-10 

24-Sep-10 

22-Oct-10 

19-Nov-10 

17-Dec-10 

14-Jan-11 

11-Feb-11 

MSS LAF Govt balance 

Repo Reverse repo Call money 

• The net shortage of liquidity in the system stood at 

Rs291.1bn. The net repo balances stood at Rs 561bn. for the 

week ended February 04, 2011. 


• The call money rates have risen to 6.58% compared to 

6.39% last fortnight 

• The spread between call money and repo rates as on 

February 11, 2011 stood at 8bps, as the rates are still 

marginally above the LAF corridor. 




10-year AAA corporate bond yield 

3 year – 3 month swap spread 

9.3 

9.2 

9.1 

9.0 

8.9 

8.8 

8.7 

8.6 

8.5 

12-Feb-10 

% 

12-Mar-10 

9-Apr-10 

7-May-10 

4-Jun-10 

2-Jul-10 

30-Jul-10 

27-Aug-10 

24-Sep-10 

22-Oct-10 

19-Nov-10 

17-Dec-10 

bps 

14-Jan-11 

11-Feb-11 

130 

120 

110 

100 

90 

80 

70 

60 

50 

300 

200 

100 

0 

-100 

-200 

-300 

Feb-06 

May-06 

Aug-06 

Dec-06 

Mar-07 

Jun-07 

Oct-07 

Jan-08 

Apr-08 

Jul-08 

Nov-08 

Feb-09 

May-09 

Sep-09 

Dec-09 

Mar-10 

Jul-10 

Oct-10 

Jan-11 

10 

9 

8 

7 

6 

5 

4 

3 

AAA corp bond yield 

Spread over 10yr Gsec 

3yr-3m swap (bps-LHS) Repo (%-RHS) Rev repo (%-RHS) 

• The spread between the yield on 10-year AAA corporate 

bonds and similar tenure G-Sec, have increased to 108bps as 

on February 11, 2011. 

Source: Bloomberg, Emkay Research 

• The spread between the long and short end OIS have risen 

to marginally to 46bps as opposed to 42bps last fortnight. 

Source: Bloomberg, Emkay Research 

Government auction calendar 

Period of auction 

January 31-February 4, 2011 

Amount (Rs bn) 

100 

Term of the Security 

i) 5-9 Years for Rs. 3,000-4,000 cr. 

ii) 10-14 Years for Rs. 4,000-5,000 cr. 

February 7-11, 2011 100 

iii) 20 Years & Above for Rs. 2,000-3,000 cr. 

i) 5-9 Years for Rs. 3,000-4,000 cr. 

ii) 10-14 Years for Rs. 4,000-5,000 cr. 

iii) 15-19 Years for Rs. 2,000-3,000 cr. 

Total 200 

Source: RBI 

Emkay Research 14 February 2011 www.emkayglobal.com 4


Reco 

Hold 

CMP 

Rs117 

Previous Reco 

Hold 

Target Price 

Rs118 

EPS change FY11E/12E (%) -25 / -38 

Target Price change (%) -38 

Nifty 5,310 

Sensex 17,729 

Price Performance 

(%) 1M 3M 6M 12M 

Absolute (19) (33) (43) (43) 

Rel. to Nifty (10) (22) (42) (49) 

Source: Bloomberg 

Relative Price Chart 

250 

220 

190 

160 

130 

Rs 

% 

10 

-4 

-18 

-32 

-46 

Dishman Pharma 

Another quarter of dismal performance 

• Q3FY11 was significantly below our expectations with 

a) Revenues at Rs2.38bn (est. Rs2.32bn), EBIDTA at Rs315mn 

(est. Rs488mn) and APAT at Rs17mn (est. Rs203mn) 

• Profitability was largely impacted because of continued 

underperformance in Indian CRAMS, poor show at Carbogen 

Amcis (CA) and high material cost in Marketable Molecules 

• Delay in commencement of new European order in CRAMS, 

major restructuring required at CA and postponement of 

commercialization of HIPO & China facility are key concerns 

¾ Poor 9MFY11, lack of base business visibility & delay in new 

contracts ramp-up leads to earnings downgrade by 28%/35% 

for FY11E/FY12E; revise target to Rs117; retain Hold 

Results disappoint once again; CA gets into restructuring mode 

Dishman’s Q3FY11 revenue (incl. operating income) at Rs2.38bn (est. of Rs2.32bn; up 

by 7% YoY) and APAT at Rs17mn (est. of Rs203mn; down by 93% YoY) was way 

below our expectations. The lower than expected performance was on account of a) 

subdued performance in the Indian CRAMS segment, delay in commencement of new 

European contract b) poor show at Carbogen Amcis, led by internal problems and c) 

high raw material cost in the Marketable Molecules (MM) business. 

Result Update 

100 

Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 


Stock Details 

Sector 

Bloomberg 

Dishman Pharma (LHS) Rel to Nifty (RHS) 

-60 

Pharmaceuticals 

DISH@IN 

Equity Capital (Rs mn) 161 

Face Value(Rs) 2 

No of shares o/s (mn) 81 

52 Week H/L 235/108 

Market Cap (Rs bn/USD mn) 9/197 

Daily Avg Volume (No of sh) 198339 

Daily Avg Turnover (US$mn) 0.6 

Shareholding Pattern (%) 

D’10 S’10 J’10 

Promoters 60.9 60.9 60.9 

FII/NRI 9.2 9.7 9.1 

Institutions 9.3 11.1 12.5 

Private Corp 14.0 13.3 13.0 

Public 6.5 5.1 4.6 

Source: Capitaline 

Deepak Malik 


+91 22 6612 1257 



+91 22 6612 1254 



+91 22 6612 1238 

Going ahead, management has guided for a recovery in the business from FY12E 

onwards on the back of a) commencement of operations at China facility, b) execution 

of order worth US$25-30mn in FY12 for a European customer, c) commencement of 

HIPO facility, and d) new contract signed with an MNC pharma player (has already 

signed master supply agreements in CRAMS business). However, we are of the view 

that, recovery in base business will be gradual and ramp-up from new contracts to be 

slower than anticipated. In lieu of major restructuring at CA, we expect revenues from 

CA to be flat in FY11E and expect recovery post FY12E. The MM segment continues to 

do well for Dishman with 19% YoY and 42% QoQ growth in revenues. However, higher 

raw material cost dented profitability in the MM segment. On the back of delay in 

commencement of new CRAMS contract, major restructuring required at CA and 

postponement of commercialization of HIPO & China facility, we tone down our 

FY11E/12E sales estimates by 4% and 6% for FY11E/12E respectively. 

Segment wise revenue break-up 

Rs mn 

Q3FY11 Q3FY10 Q2FY11 YoY % QoQ % 

CRAMS 1504.4 1607.0 1608.1 -6.4 -6.4 

Solvay and Other MNC 748.7 937.5 656.4 -20.1 14.1 

CA 755.7 669.5 951.7 12.9 -20.6 

MM 735.8 615.8 519.9 19.5 41.5 

MM (Quats) 361.0 327.1 272.7 10.4 32.4 

Vit-D 374.8 288.7 247.2 29.8 51.6 

Total Sales 2240.2 2222.8 2128.0 0.8 5.3 



Rs mn 

Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV 

FY09 10,625 3,328 31.3 1,469 18.1 20.7 23.3 6.5 6.4 1.3 

FY10 9,154 2,038 22.3 983 12.1 (33.1) 16.0 9.7 8.4 1.2 

FY11E 8,925 1,500 16.8 625 7.7 (36.4) 4.1 15.2 12.3 1.1 

FY12E 10,162 1,829 18.0 740 9.1 18.4 8.7 12.9 10.0 1.1 


Dishman Pharma Result Update 

Quarterly financials 

Rs mn Q3FY10 Q4FY10 Q1FY11 Q2FY11A Q3FY11A YoY (%) QoQ (%) YTD'11 YTD'10 YoY (%) 

Revenue 2,223 2,480 2,018 2,128 2,379 7.0 11.8 6,525 6,674 (2.2) 

Expenditure 1,710 1,984 1,574 1,759 2,064 20.7 17.4 5,397 5,132 5.2 

as % of sales 76.9 80.0 78.0 82.6 86.8 82.7 76.9 

Consumption of RM 590 1,017 559 597 838 41.9 40.4 1,993 1,750 13.9 

as % of sales 26.6 41.0 27.7 28.0 35.2 30.6 26.2 

Employee Cost 677 450 631 693 728 7.7 5.1 2,053 2,091 (1.8) 

as % of sales 30.4 18.1 31.3 32.6 30.6 31.5 31.3 

Other expenditure 443 517 384 469 498 12.4 6.2 1,350 1,290 4.6 

as % of sales 19.9 20.9 19.0 22.0 20.9 20.7 19.3 

AEBITDA 513 496 444 369 315 (38.6) (14.8) 1,128 1,543 (26.9) 

EBITDA (incl. forex impact) 444 369 315 (14.8) 1,128 0 

Depreciation 141 135 161 168 171 21.5 1.7 500 459 8.9 

EBIT 372 361 282 201 144 (61.4) (28.5) 628 1,083 (42.1) 

Other Income 13 (6) 3 (7) - (100.0) (100.0) (4) 20 (119.0) 

Interest 85 100 82 95 133 56.4 39.7 311 288 8.1 

PBT 300 255 203 99 10 (96.5) (89.4) 313 816 (61.6) 

Total Tax (6) 74 34 14 (7) 10.3 (60.2) 41 75 (46.2) 

Adjusted PAT 314 181 169 85 (33) (110.7) (139.1) 221 748 (70.4) 

(Profit)/loss from JV's/Ass/MI 60.2 0 0 0 0 60.2 

APAT after MI 253 181 169 85 (33) (113.2) (139.1) 221 688 (67.8) 

Extra ordinary items 77 30 101 198 51 (34.3) (74.2) 349 276 26.6 

Reported PAT 331 211 270 283 17 (94.7) (93.8) 570 963 (40.8) 

EPS 4.1 2.7 3.4 3.5 0.2 (94.7) (93.8) 7.1 11.9 (40.7) 


EBIDTA 23.1 20.0 22.0 17.4 13.2 -984 -413 17.3 23.1 (583) 

EBIT 16.8 14.6 14.0 9.5 6.0 -1070 -341 9.6 16.2 (661) 

EBT 13.5 10.3 10.1 4.7 0.4 -1306 -421 4.8 12.2 (743) 

PAT 11.4 7.3 8.4 4.0 (1.4) -1281 -542 3.4 10.3 (691) 

Effective Tax rate (2.1) 29.1 16.7 13.7 (66.8) -6464 -8045 13.0 9.3 373 

EBIDTA margins crash 984bps to 13.2% (lowest in Dishman’s history) 

EBITDA margins for the quarter contracted 984bps to 13.2% on account of a) 500bps 

contraction in gross margins, led by higher raw material cost (up 42% YoY/ 40% QoQ; led 

by 30-40% increase in solvent prices and 20-25% increase in other key inputs). b) Increase 

in other expenditures (up 100bps YoY, led by increase in contract research expenses for 

which revenues will be recognized in future) and c) staff cost (up 20bps YoY), further 

eroded the margins. We expect EBITDA margins to be around 16-18% levels, until there is 

an up-tick in the base business and commencement of new contracts. 

PAT at Rs17mn led by overall deterioration in business 

PAT registered a decline of 93% to Rs17mn on account of overall deterioration in the 

business and increase in interest cost by 56% (led by increase in debt) The EPS for the 

quarter and 9MFY11 stood at Rs0.2 (against our expectation of Rs2.5) and Rs7.1 

respectively. 



Lack of visibility in base business pick-up and delay in ramp-up from new 

contracts; downgrade earnings and target price 

We lower our FY11/12E earning estimates by 28%/35% respectively due to lack of 

momentum in base business and delay in ramp-up from new contracts. We believe 

Dishman’s under-performance (49% relative to Nifty) to continue for some more time until 

clarity emerges in CRAMS business. Against the management’s expectation of a recovery 

in Q1FY12, we believe that a meaningful recovery may get delayed to H2FY12E. Among 

the key notables, a) revenues at Carbogen Amcis may decline next year due to 

restructuring, b) delay in ramp-up from newly signed contracts, and c) lower than expected 

utilizations at the China and HIPO facility, weigh negatively on the company. In lieu of 

continued subdued performance, we downgrade our full year earning estimates by 

28%/35% for FY11E/12E. Our revised EPS estimates now stands at Rs7.7 (earlier Rs10.7) 

for FY11E and Rs9.1 (earlier Rs13.9) for FY12E. Owing to earnings downgrade, we cut our 

target price from Rs181 to Rs118. At 13x FY12E earnings, we retain our Hold rating on the 

stock. 

Dishman Pharma continues to disappoint on revenues and earnings front (13 th consecutive 

quarter of under-performance). Though we believe that operating environment in the 

CRAMS space is going to ease out going forward, we do not foresee immediate triggers for 

Dishman to get re-rated. The management has guided revenue growth to be flat in FY11E 

(from 10% growth guidance in last quarter) and 15% growth in standalone business in 

FY12E. 

Revision of estimates 

Rs mn. Old Estimates Revised Estimates % change in estimates 

FY11E FY12E FY11E FY12E FY11E FY12E 

Revenues 9341 10854 8925 10162 -4.5 -6.4 

EBITDA 1915 2366 1500 1829 -21.7 -22.7 

Net Profit 867 1127 625 740 -28.2 -34.6 

EPS 10.7 13.9 7.7 9.1 -28.2 -34.6 

Target Price (Rs) 181 118 -34.6 

Rating Hold Hold 

Key upside risk to our call 

• Positive outcome on the drug Brilinta would trigger supplies of intermediates to 

AstraZeneca (peak potential of US$50mn for Dishman) 

• Earlier than expected ramp-up in supplies to US clients may lead to incremental revenue 

contribution in early FY12E from the HIPO facility in Bavla 




Income Statement 

Balance Sheet 

Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E 

Net Sales 10,625 9,154 8,925 10,162 Equity share capital 161 161 161 161 

Growth (%) 32.3 -13.8 -2.5 13.9 Reserves & surplus 6,981 7,619 8,101 8,698 

Expenditure 7,297 7,116 7,425 8,333 Net worth 7,143 7,780 8,262 8,860 

Raw Materials 3,242 2,768 2,905 3,150 Minority Interest 0 63 63 63 

SGA 1,146 1,808 1,794 2,642 Secured Loans 6,643 7,169 7,969 7,769 

Employee Cost 2,730 2,541 2,725 2,541 Unsecured Loans 594 571 1,071 1,171 

Other Exp 179 0 0 0 Loan Funds 7,237 7,739 9,039 8,939 

EBITDA 3,328 2,038 1,500 1,829 Net deferred tax liability 208 316 316 316 

Growth (%) 70.9 -22.1 -26.4 22.0 Total Liabilities 14,588 15,898 17,681 18,178 

EBITDA margin (%) 31.3 22.3 16.8 18.0 

Depreciation 629 594 709 719 Gross Block 9,733 10,910 17,485 18,485 

EBIT 2,699 1,444 791 1,110 Less: Depreciation 1,953 2,481 3,189 3,909 

EBIT margin (%) 25.4 15.8 8.9 10.9 Net block 7,781 8,429 14,295 14,576 

Other Income 48 13 -8 50 Capital work in progress 2,227 3,574 0 0 

Interest expenses 459 388 410 328 Investment 14 14 14 14 

PBT 1,576 1,326 672 831 Current Assets 6,850 5,880 5,841 6,399 

Tax 107 150 47 91 Inventories 3,040 2,423 2,380 2,795 

Effective tax rate (%) 6.8 11.3 7.0 11.0 Sundry debtors 1,494 1,131 1,487 1,694 

Adjusted PAT 1,463 983 625 740 Cash & bank balance 452 455 634 387 

(Profit)/loss from JV's/Ass/MI -5 0 0 0 Loans & advances 1,865 1,871 1,339 1,524 

Adjusted PAT after MI 1,469 983 625 740 Other current assets 0 0 0 0 

Growth (%) 20.7 -33.1 -36.4 18.4 Current liab & Prov 2,284 2,000 2,469 2,811 

Net Margin (%) 13.8 10.7 7.0 7.3 Current liabilities 1,588 1,617 1,934 2,202 

E/O items 0 256 298 0 Provisions 696 382 535 610 

Reported PAT 1,469 1,239 625 740 Net current assets 4,566 3,880 3,371 3,588 

Growth (%) 20.7 -15.7 -49.5 18.4 Total Assets 14,588 15,898 17,681 18,178 

Cash Flow 

Key Ratios 

Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E Y/E, Mar FY09 FY10 FY11E FY12E 

PBT (Ex-Other income) 1,528 1,313 680 781 Profitability (%) 

Depreciation 629 594 709 719 EBITDA Margin 31.3 22.3 16.8 18.0 

Interest Provided 459 388 410 328 Net Margin 13.8 10.7 7.0 7.3 

Other Non-Cash items 0 0 0 0 ROCE 14.3 9.2 4.6 6.0 

Chg in working cap -651 562 815 -464 ROE 23.3 16.0 4.1 8.7 

Tax paid -107 -35 -47 -91 RoIC 14.5 8.8 4.6 5.8 

Operating Cashflow 1,858 2,822 2,566 1,274 Per Share Data (Rs) 

Capital expenditure -2,394 -1,771 -3,000 -1,000 EPS 18.1 12.1 7.7 9.1 

Free Cash Flow -535 1,051 -434 274 CEPS 25.8 16.2 12.7 17.9 

Other income 48 13 -8 50 BVPS 87.8 98.0 102.4 109.7 

Investments -1 0 0 0 DPS 1.2 1.5 1.5 1.5 

Investing Cashflow -2,347 -1,758 -3,008 -950 Valuations (x) 

Equity Capital Raised 373 -190 0 0 PER 6.5 9.7 15.2 12.9 

Loans Taken / (Repaid) 937 503 1,300 -100 P/CEPS 4.5 7.2 9.2 6.5 

Interest Paid -459 -388 -410 -328 P/BV 1.3 1.2 1.1 1.1 

Dividend paid (incl tax) -114 -113 -143 -143 EV / Sales 1.6 1.9 2.1 1.8 

Income from investments 0 0 0 0 EV / EBITDA 6.4 8.4 12.3 10.0 

Others -167 -873 -126 0 Dividend Yield (%) 1.0 1.3 1.1 1.0 

Financing Cashflow 570 -1,061 621 -571 Gearing Ratio (x) 

Net chg in cash 81 3 180 -248 Net Debt/ Equity 0.9 0.9 1.0 0.9 

Opening cash position 371 452 455 634 Net Debt/EBIDTA 2.5 3.5 5.5 4.6 

Closing cash position 452 455 634 387 Working Cap Cycle (days) 165 152 134 137 



Reco 

Buy 

CMP 

Rs. 340 

EPS change FY11E/12E (%) 

Previous Reco 

Buy 

Target Price 

Rs. 444 

NA 


Nifty 5,310 

Sensex 17,729 


(%) 1M 3M 6M 12M 

Absolute (11) (25) (30) (2) 

Rel. to Nifty (2) (13) (28) (11) 



550 

490 

430 

370 

310 

250 

Rs 



Stock Details 

Sector 

Bloomberg 

HPCL (LHS) Rel to Nifty (RHS) 

% 

40 

26 

12 

-2 

-16 

-30 

Oil & Gas 

HPCL@IN 




52 Week H/L 555/293 

Market Cap (Rs bn/USD mn) 115/2,517 




D’10 S’10 J’10 

Promoters 51.1 51.1 51.1 

FII/NRI 8.6 9.0 6.8 


Private Corp 6.6 6.0 6.6 

Public 5.9 6.0 6.2 


Dhaval Joshi 

dhaval.joshi@emkayglobal.com 

+91 22 6612 1282 

¾ HPCL reported results which were above our estimates at 

EBIDTA and PAT Level, primarily due to issuance of oil 

bonds/Cash receivables during the quarter 

¾ EBIDTA at Rs.7.8bn, against Rs.3.5bn, growth of 120% YoY, 

mainly due to Inventory gain and issuance of oil bonds/cash 

receivables from the government of India 

¾ Average gross refining margin for 9mths FY11 was at 

$3.96/bbl as compared to $3.73/bbl (increase of 6.1% YoY) 

¾ Post correction, stock trades at 0.8x FY12E ABV, which looks 

attractive considering the recent reforms, Continue BUY 

rating with TP of Rs.444 

Highlights of the results 

HPCL reported results which were above our estimates at EBIDTA and PAT Level, 

primarily due to issuance of oil bonds/cash pay out by the government during the 

quarter. Revenue for the quarter was at Rs. 340bn (against our expectation of Rs. 

319bn), growth of 22% YoY, mainly on account of higher volumes and cash 

compensation received from the government of Rs.17.4bn. EBIDTA during the quarter 

was at Rs.7.8bn, against of Rs.3.5bn, growth of 120%, YoY. During the quarter 

company reported inventory gain of Rs.16.8bn as against inventory loss of Rs.8.3bn a 

year ago. Interest cost increased by 10% to Rs.2.4bn. During the quarter the company 

reported net profit of Rs.2.1bn, against Rs.0.3bn, growth of 572% YoY. 

The company received upstream discount of Rs.11.3bn, in respect of crude 

Oil/LPG/SKO purchased from them has been accounted during the quarter. The 

company has received budgetary support of Rs.17.4bn from the GOI for the underrecovery 

of cooking fuel and auto fuel during the quarter. 

Better clarity on subsidy sharing mechanism 

After years of ad-hoc subsidy arrangements, a proper subsidy sharing mechanism is 

being worked out. The Oil secretary S Sudarshan has clarified that the 1/3rd of the 

under recovery would be absorbed by the upstream companies, the government would 

certainly absorb 50% or more, the balance 17% would be based on the companies 

performance over the quarter. 

Interest cost increased by 10% to Rs.2.4bn 

During the quarter, interest costs have increased significantly by 10% to Rs.2.4bn in 

tandem with increase in borrowings during the quarter. 

GRM was at $5.1 per bbl as against $2.7 per bbl on QoQ 

Higher product demand, especially in light distillate, has seen product spreads 

increasing in Q3FY11. Gross refining margin was at $5.1/bbl as compared to $2.7/bbl 

(Increased by 88% QoQ). We expect GRM’s to improve further in the coming quarters, 

in tandem with the improvement in the global economy, which will improve the petro 

product spreads. 

Valuation table 

Y/E, Mar Net EBIDTA APAT AEPS EPS RoE P/E EV/ P/ 

Rs Mn Sales (Rs mn) (%) % chg (%) EBIDTA BV 

FY09 1271091 32655 2.9 7573 22.3 (44.5) 7.5 15.2 6.6 1.0 

FY10 1158103 38146 3.4 14761 43.5 94.9 13.5 7.8 5.7 1.0 

FY11E 1183804 40343 3.8 17436 51.4 18.1 15.0 6.6 5.3 0.9 

FY12E 1232503 43509 3.9 19628 57.9 12.6 15.3 5.9 4.6 0.8 

Source: Company, Emkay Research 

HPCL 

Results above estimates 

Result Update 


HPCL Result Update 

Financial Snapshot 

Rs Mn 

Rs mn Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3FY11 YoY (%) QoQ (%) YTD’10 YTD’09 YoY (%) 

Revenue 278742.0 315584.1 293015.0 308702.0 340559.9 22.2 10.3 942276.9 769393.1 22.5 

Expenditure 275198.4 300074.0 308354.0 283872.9 332757.6 20.9 17.2 924984.5 750868.9 23.2 

as % of sales 98.7 95.1 105.2 92.0 97.7 

Consumption of RM 258984.7 269740.9 295366.8 264633.0 312146.0 20.5 18.0 872145.8 701813.6 24.3 

as % of sales 92.9 85.5 100.8 85.7 91.7 

Employee Cost 3142.6 5342.4 3662.1 4405.7 4244.1 35.1 (3.7) 12311.9 10830.8 13.7 

as % of sales 1.1 1.7 1.2 1.4 1.2 

Other expenditure 13071.1 24990.7 9325.1 14834.2 16367.5 25.2 10.3 40526.8 38224.5 6.0 

as % of sales 4.7 7.9 3.2 4.8 4.8 

EBITDA 3543.6 15510.1 -15339.0 24829.1 7802.3 120.2 (68.6) 17292.4 18524.2 -6.6 

Depreciation 3007.0 3175.4 3174.1 3233.5 3646.7 21.3 12.8 10054.3 8468.6 18.7 

EBIT 536.6 12334.7 -18513.1 21595.6 4155.6 674.4 (80.8) 7238.1 10055.6 -28.0 

Other Income 2250.4 2079.1 1652.5 2213.3 1448.9 -35.6 (34.5) 5314.7 5779.9 -8.0 

Interest 2202.3 1639.9 1968.3 2199.7 2416.6 9.7 9.9 6584.6 7397.6 -11.0 

PBT 584.7 12773.9 -18828.9 21609.2 3187.9 445.2 (85.2) 5968.2 8437.9 -29.3 

Total Tax 270.7 5235.5 0.0 711.6 1077.6 298.1 51.4 1789.2 3001.1 -40.4 

Adjusted PAT 314.0 7538.4 -18828.9 20897.6 2110.3 572.1 (89.9) 4179.0 5436.8 -23.1 

(Profit)/loss from JV's/Ass/MI - - - - - 

APAT after MI 314.0 7538.4 -18828.9 20897.6 2110.3 572.1 (89.9) 4179.0 5436.8 -23.1 

Extra ordinary items - (36.9) 14.0 - - 14.0 -1.5 

Reported PAT 314.0 7575.3 -18842.9 20897.6 2110.3 572.1 (89.9) 4165.0 5438.3 -23.4 

Reported EPS 0.9 22.2 -55.6 61.7 6.2 575.9 (89.9) 12.3 16.0 -23.0 


EBIDTA 1.3 4.9 (5.2) 8.0 2.3 102.0 (575.2) 1.8 2.4 (57.2) 

EBIT 0.2 3.9 (6.3) 7.0 1.2 102.8 (577.5) 0.8 1.3 (53.9) 

EBT 0.2 4.0 (6.4) 7.0 0.9 72.6 (606.4) 0.6 1.1 (46.3) 

PAT 0.1 2.4 (6.4) 6.8 0.6 50.7 (615.0) 0.4 0.7 (26.5) 

Effective Tax rate 46.3 41.0 0.0 3.3 33.8 (1,249.4) 3,051.0 30.0 35.6 (558.8) 

Valuations 

Though there has been some clarity on sharing mechanism, more budgetary support from 

GOI is needed to keep HPCL in black. We expect GOI’s budgetary support to increase only 

if it is able to garner larger funds from disinvestment or by full implementation of Kirit Parekh 

committee recommendation. However, pressure on the US dollar has been diverting 

interest of investors towards commodities including crude oil. If US dollar continues to 

remain under pressure, the commodities are likely to stay firm including crude oil, hurting 

the OMC’s performance. Also lower contribution from the government during the quarter 

has raised concern for Q4 FY11 contribution as well. Hence, we have downgraded our 

target multiple from 1.2x to 1x for FY12E P/BV and reduced our target price to Rs.444 

(Rs.515, earlier), maintains our BUY rating on the stock. 


HPCL Result Update 



Balance Sheet 

Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E 

Net Sales 1,271,091 1,158,103 1,183,804 1,232,503 Equity share capital 3,390 3,390 3,390 3,390 

Growth (%) 12.7 (8.9) 2.2 4.1 Reserves & surplus 108,023 118,025 131,495 147,158 

Expenditure Net worth 111,413 121,415 134,885 150,548 

Materials Consumed 1,180,167 1,039,098 1,053,492 1,097,681 Minority Interest 27 0 0 0 

Employee Cost 11,627 16,428 20,125 20,698 Secured Loans 17,232 18,232 19,232 20,232 

Other Exp 46,643 64,431 69,844 70,615 Unsecured Loans 223,380 183,380 158,380 120,380 

EBITDA 32,655 38,146 40,343 43,509 Loan Funds 240,612 201,612 177,612 140,612 

Growth (%) 70 17 6 8 Net deferred tax liab. 16,864 16,864 16,864 16,864 

EBITDA margin (%) 2.9 3.4 3.8 3.9 Total Liabilities 368,928 339,891 329,361 308,024 

Depreciation 10,661 12,505 12,677 12,933 

EBIT 21,994 25,641 27,666 30,576 Gross Block 219,496 223,496 230,496 239,496 

EBIT margin (%) 1.7 2.2 2.3 2.5 Less: Depreciation 92,873 105,379 118,056 130,989 

Other Income 9,243 7,835 5,462 4,345 Net block 126,622 118,117 112,440 108,507 

Interest expenses 21,123 9,321 7,104 5,624 CWIP 64,547 74,047 81,047 86,047 

PBT 10,118 24,154 26,023 29,296 Investment 128,274 88,274 68,274 48,274 

Tax 2,545 9,393 8,588 9,668 Current Assets 174,155 166,834 171,440 173,400 

Effective tax rate (%) 25.2 38.9 33.0 33.0 Inventories 91,163 93,764 98,650 101,459 

Adjusted PAT 7,573 14,761 17,436 19,628 Sundry debtors 24,920 21,638 22,765 23,414 

Growth (%) (44.5) 94.9 18.1 12.6 Cash & bank bal. 12,763 12,309 8,863 6,195 

Net Margin (%) 0.7 1.3 1.6 1.8 Loans & advances 1,853 1,617 1,701 1,749 

(Profit)/loss from JVs/Ass/MI - - - - Other current assets 1,853 1,617 1,701 1,749 

Adj. PAT After JVs/Ass/MI 7,573 14,761 17,436 19,628 Current lia & Prov 124,665 113,575 110,035 114,399 

E/O items - - - - Current liabilities 112,294 102,283 98,529 102,453 

Reported PAT 7,573 14,761 17,436 19,628 Provisions 12,371 11,293 11,506 11,946 

PAT after MI 7,573 14,761 17,436 19,628 Net current assets 49,490 53,258 61,405 59,001 

Growth (%) (44.5) 94.9 18.1 12.6 Misc. exp 10.5 - - - 

Total Assets 368,928 339,891 329,361 308,024 

Cash Flow 

Key Ratios 


PBT (Ex-Other income) 10,118 24,154 26,023 29,296 Profitability (%) 

Depreciation 10,661 12,505 12,677 12,933 EBITDA Margin 3.7 4.1 4.3 4.3 

Interest Provided 21,123 9,321 7,104 5,624 Net Margin 0.7 1.3 1.6 1.8 

Other Non-Cash items - - - - ROCE 12.1 10.0 9.3 10.4 

Chg in working cap 27,099 (10,173) (11,593) (263) ROE 7.5 13.5 15.0 15.3 

Tax paid 2,153 6,607 8,588 9,668 RoIC 20.2 18.7 20.2 20.8 

Operating Cash flow 61,772 21,367 20,162 33,578 Per Share Data (Rs) 

Capital expenditure (30,734) (13,500) (14,000) (14,000) EPS 22.3 43.5 51.4 57.9 

Free Cash Flow 31,038 7,867 6,162 19,578 CEPS 53.8 80.4 88.8 96.1 

Other income (4,177) (7,835) (5,462) (4,345) BVPS 328.7 358.2 397.9 444.2 

Investments 92,755 40,000 20,000 20,000 DPS 5.2 12.0 10.0 10.0 

Investing Cash flow -97,095 26,500 6,000 6,000 Valuations (x) 

Equity Capital Raised - - - - PER 15.2 7.8 6.6 5.9 

Loans Taken / (Repaid) 57,207 (39,000) (24,000) (37,000) P/CEPS 6.3 4.2 3.8 3.5 

Interest Paid (25,862) (9,321) (7,104) (5,624) P/BV 1.0 1.0 0.9 0.8 

Dividend paid (incl tax) (1,621) (4,759) (3,966) (3,966) EV / Sales 0.2 0.2 0.2 0.2 

Income from investments - - - - EV / EBITDA 6.6 5.7 5.3 4.6 

Others - - - - Dividend Yield (%) 2.0 3.5 2.9 2.9 

Financing Cash flow 42,202 -45,245 -29,608 -42,246 Gearing Ratio (x) 

Net chg in cash 6,879 2,621 -3,446 -2,668 Net Debt/ Equity 2.0 1.6 1.3 0.9 

Opening cash position 2,810 9,688 12,309 8,863 Net Debt/EBIDTA 7.0 5.0 4.2 3.1 

Closing cash position 9,688 12,309 8,863 6,195 Wrkng Cap Cycl 5.7 1.2 4.0 6.9 



Reco 

Accumulate 

CMP 

Rs51 

EPS change FY11E/12E (%) 

Previous Reco 

Hold 

Target Price 

Rs58 

+1 / -13 


Nifty 5,130 

Sensex 17,729 


(%) 1M 3M 6M 12M 

Absolute (18) (28) (21) (9) 

Rel. to Nifty (10) (16) (19) (17) 


Apollo Tyres Ltd. 

Trading at replacement cost, upgrade to ACCUMULATE 

¾ Conso. EBIDTA at Rs2.5bn (est. Rs 2.3bn) is marginally ahead. 

Net profits at Rs 1.2bn was significantly above est. of 

Rs647mn due to lower tax rate (23.6%) and interest cost 

¾ Change in rubber purchasing policy (quarterly contracts) to 

provide some given the high rubber prices. However, quantum 

is not disclosed 

¾ Revise our FY11/FY12 conso EPS by 1%/-13% to Rs 6.1/Rs7.2. 

Upgrade our rating to ACCUMULATE as stock trades 1x FY12 

P/BV and near replacement cost 

¾ FY12 earnings growth of 18% will be back ended driven by 

stable rubber prices and price hikes. Near term margins 

remain a concern 

Result Update 


90 Rs 

80 

70 

60 

50 

40 


% 

40 

26 

12 

-2 

-16 

-30 

Net sales – Below estimate due to lower volumes 

Apollo Tyre (ATL) sold ~111,000 MT in 3QFY11, 22% QoQ growth but declined 12% Yoy. 

We had est. tonnage sales of 125,600 MT. The disappointment is largely due to lower 

sales in the standalone business at ~Rs 78,600 MT against our est. of ~98,000 MT. ATL 

has a finished goods inventory of Rs 6.8bn, which was not sold in 3QFY11. Conso. net 

sales stood at Rs 23.5bn, significantly below est. of Rs 27.4bn. Realization per ton was 

Rs 213,380 (15% YoY, 0-0.4% QoQ). 


Stock Details 

Sector 

Bloomberg 

Apollo Tyres (LHS) Rel to Nifty (RHS) 

Auto Ancillaries 

APTY@IN 




52 Week H/L 89/44 

Market Cap (Rs bn/USD mn) 26/569 




S’10 J’10 M’10 

Promoters 39.8 39.8 39.4 

FII/NRI 26.3 29.3 26.1 



Public 15.4 14.6 13.2 


Chirag Shah 

chirag.shah@emkayglobal.com 

+91 22 612 1252 

Segmental Details (Rs Mn) 3QFY10 2QFY11 3QFY11 YoY (%) QoQ(%) 

Europe 

Net Sales 6,810 5,247 6,492 (4.7) 23.7 

Results 1,230 432 883 (28.2) 104.4 

Margins (%) 18.1 8.2 13.6 

Capital Employed 3,964 5,608 5,941 49.9 5.9 

ROCE (%) 31.0 7.7 14.9 

South Africa 

Net Sales 2,919 2,632 2,995 2.6 13.8 

Results 202 (73) 78 (61.4) 

Margins (%) 6.9 (2.8) 2.6 


ROCE (%) 14.2 (3.2) 3.3 

India 

Net Sales 13,233 11,756 14,320 8.2 21.8 

Results 1,761 915 1,155 (34.4) 26.2 

Margins (%) 13.3 7.8 8.1 


ROCE (%) 9.5 4.5 5.5 

Source: Company. Emkay Research 



Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV 

FY09 49,841 4,162 8.4 1,392 2.8 (50.0) 11.0 18.1 8.2 1.9 

FY10 81,207 11,750 14.5 5,661 11.2 306.6 34.1 4.5 3.6 1.3 

FY11E 90,640 8,844 9.8 3,059 6.1 (46.0) 14.6 8.2 5.4 1.1 

FY12E 112,343 10,307 9.2 3,614 7.2 18.1 15.2 7.0 4.7 1.0 

Source: Company. Emkay Research 


Apollo Tyres Ltd. Result Update 

Quarterly Summary - Consolidated 

Rs mn Q3FY10 Q1FY11 Q2FY11 Q3FY11 YoY (%) QoQ (%) YTD’11 YTD’10 YoY (%) 

Revenue 22,953 18,207 19,489 23,686 3.2 21.5 61,382 59,766 2.7 

Expenditure 19,128 16,222 17,636 20,955 9.6 18.8 54,813 51,010 7.5 

as % of sales 83.3 89.1 90.5 88.5 89.3 85.4 

Consumption of RM 12,284 10,224 11,476 13,912 13.3 21.2 35,612 32,703 8.9 

as % of sales 53.5 56.2 58.9 58.7 58.0 54.7 

Employee Cost 2,965 2,911 3,013 3,126 5.4 3.7 9,051 7,911 14.4 

as % of sales 12.9 16.0 15.5 13.2 14.7 13.2 

Other expenditure 3,879 3,087 3,147 3,917 1.0 24.5 10,151 10,396 (2.4) 

as % of sales 16.9 17.0 16.1 16.5 16.5 17.4 

EBITDA 3,825 1,985 1,853 2,731 (28.6) 47.4 6,569 8,755 (25.0) 

Depreciation 674 638 669 673 (0.0) 0.6 1,981 1,901 4.2 

EBIT 3,151 1,347 1,183 2,058 (34.7) 73.9 4,588 6,855 (33.1) 

Other Income 30 35 4 50 67.2 1,136.0 89 76 16.6 

Interest 435 338 442 529 21.5 19 1,309 1,025 27.7 

PBT 2,746 1,043 745 1,579 (42.5) 112.0 3,368 5,906 (43.0) 

Total Tax 882 301 213 372 (57.8) 75.2 887 2,012 (55.9) 

Adjusted PAT 1,864 742 533 1,207 (35.3) 126.7 2,481 3,893 (36.3) 

(Profit)/loss from JV's/Ass/MI - - - - - - 

Adjusted PAT after MI 1,864 742 533 1,207 (35.3) 126.7 2,481 3,893 (36.3) 

Extra ordinary items - - - - - - - - - 

Reported PAT 1,864 742 533 1,207 (35.3) 126.7 2,481 3,893 (36.3) 

Reported EPS 3.7 1.5 1.1 2.4 (35.3) 126.7 4.9 7.7 (36.3) 


EBIDTA 16.7 10.9 9.5 11.5 (513) 202 10.7 14.6 (395) 

EBIT 13.7 7.4 6.1 8.7 (504) 262 7.5 11.5 (399) 

EBT 12.0 5.7 3.8 6.7 (530) 285 5.5 9.9 (439) 

PAT 8.1 4.1 2.7 5.1 (303) 236 4.0 6.5 (247) 

Effective Tax rate 32.1 28.9 28.5 23.6 (854) (495) 26.3 34.1 (775) 



Quarterly Summary - Standalone 

Rs mn Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 YoY (%) QoQ (%) YTD’11 YTD’10 YoY (%) 

Revenue 13,233 13,128 11,213 11,756 14,321 8.2 21.8 37,290 37,238 0.1 

Expenditure 11,183 11,282 10,044 10,541 12,830 14.7 21.7 33,415 31,246 6.9 

as % of sales 84.5 85.9 89.6 89.7 89.6 89.6 83.9 

Consumption of RM 8,567 8,903 7,642 7,886 9,926 15.9 25.9 25,454 22,837 11.5 

as % of sales 64.7 67.8 68.2 67.1 69.3 68.3 61.3 

Employee Cost 800 715 774 769 779 (2.6) 1.3 2,322 2,180 6.5 

as % of sales 6.0 5.4 6.9 6.5 5.4 6.2 5.9 

Other expenditure 1,817 1,664 1,627 1,887 2,126 17.0 12.7 5,640 6,230 (9.5) 

as % of sales 13.7 12.7 14.5 16.0 14.8 15.1 16.7 

EBITDA 2,050 1,846 1,169 1,215 1,491 (27.3) 22.7 3,875 5,992 (35.3) 

Depreciation 293 294 341 377 367 25.4 (2.5) 1,085 933 16.3 

EBIT 1,757 1,551 828 838 1,123 (36.1) 34.0 2,789 5,058 (44.9) 

Other Income 3 88 7 58 31 970.3 (46.1) 95 21 345.5 

Interest 211 200 259 362 434 105.9 20 1,055 539 95.8 

PBT 1,549 1,439 575 534 720 (53.5) 34.9 1,829 4,541 (59.7) 

Total Tax 529 277 169 160 172 (67.5) 7.4 501 1,555 (67.8) 

Adjusted PAT 1,019 1,162 406 374 548 (46.2) 46.7 1,328 2,986 (55.5) 

(Profit)/loss from JV's/Ass/MI - 1 2 3 4 4 - 

Adjusted PAT after MI 1,019 1,161 404 371 544 (46.6) 46.8 1,324 2,986 (55.7) 

Extra ordinary items - - - - - - - 

Reported PAT 1,019 1,161 404 371 544 (46.6) 46.8 1,324 2,986 (55.7) 

Reported EPS 2.0 2.3 0.8 0.7 1.1 (46.2) 46.7 2.6 5.9 (55.5) 


EBIDTA 15.5 14.1 10.4 10.3 10.4 (508) 8 10.4 16.1 (570) 

EBIT 13.3 11.8 7.4 7.1 7.8 (543) 71 7.5 13.6 (610) 

EBT 11.7 11.0 5.1 4.5 5.0 (668) 49 4.9 12.2 (729) 

PAT 7.7 8.8 3.6 3.2 3.8 (388) 65 3.6 8.0 (446) 

Effective Tax rate 34.2 19.3 29.4 30.0 23.9 (1,028) (612) 27.4 34.2 (683) 

EBIDTA – Standalone EBIDTA in line, VBBV disappoints 

Consolidated EBIDTA at Rs 2.5bn was above our est. of Rs 2.3bn due to better than expected 

performance at standalone business. The key reasons for the deviation are the cost of rubber 

price (Rs 185 per kg vs est. of Rs 195 per kg) and higher inventory. Standalone EBIDTA 

margins at 10.4% were significantly above our est. of 7.4%. 

EBIDTA and Inventory Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 

EBIDTA 

Standalone 2,050 1,846 1,169 1,215 1,491 

Margins (%) 15.5 14.1 10.4 10.3 10.4 

Subsdiaries 1,775 (1,846) 816 638 1,240 

Margins (%) 18.3 14.1 11.7 8.3 13.2 

(Inc) / Dec in Inventory - Conso 854.2 - (1,314.6) (1,103.9) (2,023.7) 

% sales 3.7 - 2.7 (7.2) (5.7) 



Net profit at Rs 1.2bn – significantly above estimate of Rs 624bn 

Net profit was above our estimate due to sharp reduction in effective rate (23.6% vs est. of 

31%) and lower interest cost. 

Valuations and View 

At Rs 51, the stock trades at PER of 7x and EV/EBIDTA of 4.7x our FY12 consolidated 

estimates respectively. We have lowered our FY12 EPS estimate by 13.3% to Rs 7.2 per 

share due to higher rubber price assumption in our estimates. We lower our TP to Rs 58 (down 

17%). Post the stock price correction; we upgrade our rating to ACCUMULATE as the stock is 

trading at 1x FY12 P/BV and near replacement cost. 

Revision in Estimates 

FY11E 

FY12E 

Rs mn Earlier Revised % Change Earlier Revised % Change 

Sales 97,848 90,640 (7.4) 128,427 112,343 (12.5) 

EBIDTA 8,862 8,844 (0.2) 10,789 10,307 (4.5) 

EBIDTA margins (%) 10.1 9.8 10.4 9.2 

Net Profits 3,032 3,059 0.9 4,171 3,614 (13.3) 

EPS 6.0 6.1 0.9 8.3 7.2 (13.3) 

Key Con Call Extracts 

• Average RM prices/kg for quarter - Natural rubber Rs 185, NTC – Rs 225 and Carbon black 

– Rs 55 

• Tonnage sold for quarter – 110,000MT (Conso), 3QQFY10 – 124000 MT (Conso) 

• Total price hike of 12% to 15% in FY11 including January price hike of ~1% to 1.5%. in 

India. South Africa price hike of 4% in 3QFY11 and 8% in April 2010. ABBV price hike of 

4% in may 2010 and 4% in 3QFY11. 

• Domestic business has finished goods inventory of Rs 6.5bn as there was higher 

production than demand post the resumption of Peranbara plant. Replacement demand 

continued to be sluggish in 3QFY11. However, there is a pick up visible from January 2011 

end. Expect inventory to be cleared given the pick up in the replacement demand 

• Chennai plant ramp up continues on schedule 

• Current utilization rates – India – 85% to 90% Soutn Africa - ~80% ABBV – optimal 

utilization 

• Rubber procurement – There is a slight change in policy in the rubber procurement as 

company is going in for quarterly contracts which are available in South East Asian region. 

The share of imports has increased to 40% as compared to traditional share of 10%. 

However, off late the international prices are ruling at a significant premium to the domestic 

price and hence the share of imports can go down for the time being 



Financials – Consolidated 


Balance Sheet 

Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E Y/E, Mar (Rs. Mn) FY09 FY10 FY11E FY12E 

Net Sales 49,841 81,207 90,640 112,343 Equity share capital 504 504 504 504 

Growth (%) 6.2 62.9 11.6 23.9 Reserves & surplus 12,992 19,174 21,766 24,803 

Expenditure 45,678 69,458 81,795 102,036 Net worth 13,496 19,678 22,270 25,307 

Materials Consumed 34,003 45,808 55,215 71,495 Minority Interest - - - - 

Employee Cost 4,150 10,885 12,548 13,892 Secured Loans 6,368 14,465 14,465 14,465 

Other Exp 7,526 12,765 14,033 16,649 Unsecured Loans 2,539 2,607 8,407 8,407 

EBITDA 4,162 11,750 8,844 10,307 Loan Funds 8,907 17,072 22,872 22,872 

Growth (%) (29.7) 182.3 (24.7) 16.5 Net deferred tax liability 1,942 2,514 2,514 2,514 

EBITDA margin (%) 8.4 14.5 9.8 9.2 Total Liabilities 24,345 39,264 47,656 50,693 

Depreciation 1,285 2,542 2,865 3,283 


EBIT margin (%) 5.8 11.3 6.6 6.3 Less: Depreciation 8,822 31,203 34,068 37,351 

Other Income 230 214 237 245 Net block 14,019 24,425 31,160 35,277 

Interest expenses 973 1,154 2,022 2,106 Capital work in progress 3,049 6,536 7,175 3,175 

PBT 2,135 8,267 4,195 5,163 Investment 48 59 59 59 

Tax 742 2,607 1,136 1,549 Current Assets 14,228 23,704 27,390 34,796 

Effective tax rate (%) 34.8 31.5 27.1 30.0 Inventories 6,302 9,929 11,374 14,141 

Adjusted PAT 1,392 5,661 3,059 3,614 Sundry debtors 2,247 7,869 9,154 11,003 

Growth (%) (48.4) 306.6 (46.0) 18.1 Cash & bank balance 3,621 3,490 4,337 6,373 

Net Margin (%) 2.8 7.0 3.4 3.2 Loans & advances 2,052 2,372 2,520 3,270 

(Profit)/loss from JV's/Ass/MI - - - - Other current assets 5 44 6 8 

Adj. PAT After JVs/Ass/MI 1,392 5,661 3,059 3,614 Current lia & Prov 6,999 15,459 18,129 22,614 

E/O items - 874 - - Current liabilities 5,860 13,122 15,394 19,156 

Reported PAT 1,392 6,534 3,059 3,614 Provisions 1,139 2,337 2,735 3,458 

Growth (%) (48.4) 306.6 (46.0) 18.1 Net current assets 7,228 8,245 9,262 12,182 

Misc. exp 2 - - - 

Total Assets 24,345 39,264 47,656 50,693 

Cash Flow 

Key Ratios 


PBT (Ex-Other income) 1,905 8,054 3,958 4,918 Profitability (%) 

Depreciation 1,285 2,542 2,865 3,283 EBITDA Margin 8.4 14.5 9.8 9.2 

Interest Provided 973 1,154 2,022 2,106 Net Margin 2.8 7.0 3.4 3.2 

Other Non-Cash items 513 5,129 - - ROCE 14.0 29.6 14.3 14.8 

Chg in working cap 317 (1,148) (170) (884) ROE 11.0 34.1 14.6 15.2 

Tax paid (742) (2,607) (1,136) (1,549) RoIC 17.1 39.3 18.3 18.2 

Operating Cashflow 4,250 13,125 7,539 7,874 Per Share Data (Rs) 

Capital expenditure (5,151) (35,334) (10,240) (3,400) EPS 2.8 11.2 6.1 7.2 

Free Cash Flow (901) (22,209) (2,701) 4,474 CEPS 5.3 16.3 11.8 13.7 

Other income 230 214 237 245 BVPS 26.8 39.0 44.2 50.2 

Investments (300) (11) (0) - DPS 0.4 0.7 0.8 1.0 

Investing Cashflow (70) 23,192 237 245 Valuations (x) 

Equity Capital Raised 16 - - - PER 25.3 6.2 8.2 7.0 

Loans Taken / (Repaid) 2,446 8,164 5,800 - P/CEPS 13.2 4.3 4.3 3.7 

Interest Paid (973) (1,154) (2,022) (2,106) P/BV 2.6 1.8 1.1 1.0 

Dividend paid (incl tax) (265) (441) (468) (576) EV / Sales 0.8 0.6 0.5 0.4 

Income from investments - - - - EV / EBITDA 10.6 4.5 5.4 4.7 

Others (552) (7,371) - - Dividend Yield (%) 0.7 1.2 1.6 1.9 

Financing Cashflow 671 (801) 3,310 (2,682) Gearing Ratio (x) 

Net chg in cash (300) 182 847 2,037 Net Debt/ Equity 0.4 0.7 0.8 0.6 

Opening cash position 3,370 3,621 3,490 4,337 Net Debt/EBIDTA 1.3 1.2 2.1 1.6 

Closing cash position 3,070 3,803 4,337 6,373 Working Cap Cycle (days) 19.7 21.0 20.7 19.5 

* The difference between the closing cash as per balance sheet and as per cash flow is due to cash credit balances 



Reco 

Buy 

Previous Reco 

Buy 

CMP 

Rs. 94 

Target Price 

Rs. 135 

EPS change FY11E/12E (%) +18 / 24 


Nifty 5,403 

Sensex 18,023 

GSPL 

Lower depreciation leads to higher profitability 

¾ Transmission tariff increased by 3.3% YoY & 10.3% QoQ, but 

volume remains flat at 35.3mmscmd 

¾ EBIDTA at Rs.2.6bn, against Rs.2.5bn, growth of 4% YoY 

mainly due to rise in transmission tariff 

¾ Profitability jumped by 38% to Rs.1.5bn YoY, due to change in 

depreciation rate from 8.33% to 4.75% 

¾ Valuations look attractive at 9x FY13E EPS and 1.8x P/Bv, 

maintain BUY rating on the GSPL with the TP of Rs.135 

Result Update 


(%) 1M 3M 6M 12M 

Absolute (14) (20) (15) 4 

Rel. to Nifty (5) (6) (13) (5) 



150 

136 

122 

Rs 

% 

20 

12 

4 

Highlights of the results 

GSPL reported results which were inline with our estimates at top line and EBIDTA level 

but came above estimates at PAT level due to change in depreciation rate by the 

company. Revenue for the quarter was at Rs. 2.7bn (against our expectation of 

Rs.2.7bn), growth of 4.1% YoY, mainly on account of rise in transmission tariff. EBIDTA 

during the quarter was at Rs.2.6bn, (as against our expectation of Rs.2.5bn) growth of 

3.7%, YoY. During the quarter depreciation cost has significantly declined by 96% to 

Rs.25mn, mainly on account of change in depreciation rate from 8.33% to 4.75%, which 

resulted in a higher profitability for the quarter at Rs.1.5bn, growth of 38% YoY. 

108 

-4 

94 

-12 

80 

-20 


Gujarat State Petronet (LHS) Rel to Nifty (RHS) 


Stock Details 

Sector 

Oil & Gas 

Bloomberg 

GUJS@IN 




52 Week H/L 128/82 




Transmission tariff up by 3.3% YoY & 10.3% QoQ, but volume remains flat 

at 35.3mmscmd 

Transmission tariff for Q3 FY11 has increased by 3.3% YoY and 10.3% QoQ, mainly on 

account of higher volumes transported to longer distances, which generated higher 

tariffs. However, overall volumes for the quarter remains flat at 3251.2mmscm 

(35.3mmscmd) on YoY and QoQ basis. Hence, we cut our volume assumption for 

FY12-FY13E by 3.3-1.3% to 40.8-44.5mmscmd respectively. 

Change in depreciation rate boosts profitability in Q3 FY11 

During the quarter depreciation cost has significantly declined by 96% to Rs.25mn, 

mainly due to change in depreciation rate by the company from 8.33% to 4.75%, 

resulting in a higher profitability for the quarter at Rs.1.5bn, growth of 38% YoY. As per 

the management depreciation rate will further decline to 3.17% subject to government 

approval. New depreciation rate will be applicable with retrospective effect from 1 st April 

2010, and approval from the same is expected before end of FY11. Based on new 

depreciation rate we have changed our earnings for FY11E, FY12E and FY13E to 

Rs.8.5, Rs.9.7 and Rs.10.4 respectively. 


D’10 S’10 J’10 

Promoters 37.7 37.7 37.7 

FII/NRI 14.9 15.9 16.1 



Public 23.8 23.9 23.7 


Dhaval Joshi 

dhaval.joshi@emkayglobal.com 

+91 22 6612 1282 

Expects transmission volume at 40mmscmd in FY12E 

GSPL expects transmission volume at 40mmscmd by FY12E backed by new demand 

from the gas based power plant, located at Hazira and Pipava (351 MW each). However 

we expect supply deficit to continue in the future also and this can only be met by 

imported RLNG at reasonable price. 

Valuation table 

Rs 

Mn 

Net 

Sales 

EBIDTA 

EBIDTA 

(%) 

APAT 

AEPS 

EPS 

% chg 

RoE 

(%) 

P/E 

EV/ 

EBIDTA 

FY09 10008.5 9413.4 94.1 4137.4 7.4 235.4 29.8 12.8 6.7 3.4 

FY10 10643.0 9943.8 93.4 4801.4 8.5 16.0 27.1 11.0 6.7 2.7 

FY11E 11319.7 10595.2 93.6 5452.8 9.7 13.6 24.6 9.7 6.4 2.2 

FY12E 12341.8 11527.2 93.4 5865.3 10.4 7.6 21.6 9.0 5.6 1.8 


P/ 

BV 


GSPL Result Update 


Rs Mn 

Rs mn Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 YoY (%) QoQ (%) YTD’10 YTD’09 YoY (%) 

Revenue 2684.9 2667.9 2545 2544.7 2795.2 4.1 9.8 7,884.9 7,340.8 7.4 

Expenditure 154.36 208.32 136.5 208.3 172.2 11.6 -17.3 517.0 386.8 33.7 

as % of sales 5.7 7.8 5.4 8.2 6.2 

Consumption of RM 0 0 0 0 0.0 0.0 0.0 

as % of sales 0.0 0.0 0.0 0.0 0.0 

Employee Cost 40.5 46.8 25.7 41.9 40.6 0.3 -3.2 108.2 52.6 105.8 

as % of sales 1.5 1.8 1.0 1.6 1.5 

Other expenditure 113.9 161.5 110.8 166.4 131.6 15.6 -20.9 408.8 334.2 22.3 

as % of sales 4.2 6.1 4.4 6.5 4.7 

EBITDA 2530.6 2459.6 2408.5 2336.4 2623.0 3.7 12.3 7,367.9 6,954.0 6.0 

Depreciation 595.59 632.4 687.1 759.78 25.4 -95.7 -96.7 1,472.3 1,732.5 -15.0 

EBIT 1935.0 1827.2 1721.4 1576.7 2597.6 34.2 64.8 5,895.6 5,221.5 12.9 

Other Income 32.94 31.74 29.8 68.1 50.4 53.0 -26.0 148.3 126.8 17.0 

Interest 217.74 224.97 224.3 241.67 258.7 18.8 7.0 724.7 713.4 1.6 

PBT 1750.2 1634.0 1526.9 1403.1 2389.3 36.5 70.3 5,319.3 4,634.9 14.8 

Total Tax 596.58 555.29 475.792 487.92 797.9 33.7 63.5 1,761.6 1,575.9 11.8 

Adjusted PAT 1153.6 1078.7 1051.1 915.2 1591.4 37.9 73.9 3,557.7 3,059.0 16.3 

(Profit)/loss from JV's/Ass/MI 0 0 0 0 0.0 0.0 0.0 

APAT after MI 1153.6 1078.7 1051.1 915.2 1591.4 37.9 73.9 3,557.7 3,059.0 16.3 

Extra ordinary items 0 0 0 0 0.0 0.0 0.0 

Reported PAT 1153.6 1078.7 1051.1 915.2 1591.4 37.9 73.9 3,557.7 3,059.0 16.3 

Reported EPS 2.05 1.92 1.87 1.63 2.83 37.9 73.9 6.3 5.4 16.2 


EBIDTA 94.3 92.2 94.6 91.8 93.8 -41.1 202.4 93.4 94.7 -128.8 

EBIT 72.1 68.5 67.6 62.0 92.9 2,086.2 3,097.3 74.8 71.1 364.1 

EBT 65.2 61.2 60.0 55.1 85.5 2,029.3 3,034.2 67.5 63.1 432.2 

PAT 43.0 40.4 41.3 36.0 56.9 1,396.7 2,097.0 45.1 41.7 344.8 

Effective Tax rate 34.1 34.0 31.2 34.8 33.4 -69.2 -138.0 33.1 34.0 -88.3 

Revised estimates 

FY12E 

FY13E 

(Rs. Mn) Old Revised % Change Old Revised % Change 

Sales 11698.3 11319.7 -3.2 12498.3 12341.8 -1.3 

EBIDTA 10940.7 10595.2 -3.2 11660.9 11527.2 -1.1 

PAT 4396 5452.8 24.0 4475.5 5865.3 31.1 

Volumes (mmscmd) 42.2 40.8 -3.3 45.1 44.5 -1.3 

EPS* 7.8 9.7 24.4 7.98 10.4 30.3 

Source: Company, Emkay Research, Note: Revised earnings calculated on new depreciation rate 

Valuations 

We have reduced our target price to Rs.135 (Rs. 151 earlier) as we have reduced our 

volume assumption for FY12-FY13E by 3.3-1.3% respectively owing to gas supply 

constrain going forward. At CMP of Rs.94 stock trades at 9x FY13E EPS and 1.8x FY13E 

P/Bv, we maintain our BUY rating on the GSPL with the target price of Rs.135. 



Transmission volume trend 

mmscmd 

40 

30 

20 

10 

120 

90 

60 

30 

0 

% Change 

0 

-30 

Q2 FY07 

Q3 FY07 

Q4 FY07 

Q1 FY08 

Q2 FY08 

Q3 FY08 

Q4 FY08 

Q1 FY09 

Q2 FY09 

Q3 FY09 

Q4 FY09 

Q1 FY10 

Q2 FY10 

Q3 FY10 

Q4 FY10 

Q1 FY11 

Q2 FY11 

Q3 FY11 

Volumes 

% Change 


Transmission tariff trend 

Tariff/scm 

1.5 

1.2 

0.9 

0.6 

0.3 

20 

10 

0 

-10 

-20 

% change 

0.0 

Q2 FY07 

Q3 FY07 

Q4 FY07 

Q1 FY08 

Q2 FY08 

Q3 FY08 

Q4 FY08 

Q1 FY09 

Q2 FY09 

Q3 FY09 

Q4 FY09 

Q1 FY10 

Q2 FY10 

Q3 FY10 

Q4 FY10 

Q1 FY11 

Q2 FY11 

Q3 FY11 

-30 

Transmission Tariff 

% Change 






Balance Sheet 

Y/E, Mar (Rs. mn) FY10 FY11E FY12E FY13E Y/E, Mar (Rs. mn) FY10 FY11E FY12E FY13E 

Net Sales 10008.5 10643.0 11319.7 12341.8 Equity share capital 5624.4 5624.4 5624.4 5624.4 

Growth (%) 105.3 6.3 6.4 9.0 Reserves & surplus 10014.9 14158.5 18953.4 24160.9 

Expenditure 595.1 699.2 724.5 814.6 Net worth 15639.3 19782.9 24577.8 29785.3 

Materials Consumed 0 0 0 0 Minority Interest 0.0 0.0 0.0 0.0 

Employee Cost 99.4 150.3 169.8 197.5 Secured Loans 12144.5 15144.5 15845.3 15417.5 

Other Exp 495.7 548.9 554.7 617.1 Unsecured Loans 450.0 450.0 450.0 450.0 

EBITDA 9413.4 9943.8 10595.2 11527.2 Loan Funds 12594.5 15594.5 16295.3 15867.5 

Growth (%) 121.8 5.6 6.6 8.8 Net deferred tax liability 1405.3 1405.3 1405.3 1405.3 

EBITDA margin (%) 94.1 93.4 93.6 93.4 Total Liabilities 29639.1 36782.7 42278.4 47058.1 

Depreciation 2364.9 1926.6 1309.0 1449.9 

EBIT 7048.5 8017.2 9286.2 10077.4 Gross Block 33254.8 38254.8 44254.8 47254.8 

EBIT margin (%) 70.4 75.3 82.0 81.7 Less: Depreciation 8886.2 10812.7 12121.7 13571.6 

Other Income 158.5 198.9 213.0 215.7 Net block 24368.7 27442.1 32133.1 33683.2 

Interest expenses 938.3 1006.6 1237.4 1406.2 Capital work in progress 5386.7 7386.7 8386.7 10386.7 

PBT 6268.6 7209.6 8261.9 8886.9 Investment 665.7 665.7 665.7 665.7 

Tax 2131.2 2408.1 2809.0 3021.5 Current Assets 7549.3 6858.1 7444.5 9959.8 

Effective tax rate (%) 34.0 33.4 34.0 34.0 Inventories 1326.5 1251.4 1443.9 1601.4 

Adjusted PAT 4137.4 4801.4 5452.8 5865.3 Sundry debtors 752.7 1078.9 1147.5 1251.1 

Growth (%) 235.4 16.0 13.6 7.6 Cash & bank balance 1741.9 1028.7 1131.5 3049.7 

Net Margin (%) 41.3 45.1 48.2 47.5 Loans & advances 3599.6 2624.3 2791.2 3043.2 

(Profit)/loss from JVs/Ass/MI 0 0 0 0 Other current assets 128.6 874.8 930.4 1014.4 

Adj. PAT After JVs/Ass/MI 4137.4 4801.4 5452.8 5865.3 Current lia & Prov 8334.2 5569.7 6351.3 7636.1 

E/O items 0.0 0.0 0.0 0.0 Current liabilities 4848.4 4546.2 5174.3 6303.7 

Reported PAT 4137.4 4801.4 5452.8 5865.3 Provisions 3485.8 1023.5 1177.1 1332.4 

PAT after MI 4137.4 4801.4 5452.8 5865.3 Net current assets -784.9 1288.4 1093.1 2323.7 

Growth (%) 235.4 16.0 13.6 7.6 Misc. exp 3.1 0.0 0.0 0.0 

Total Assets 29639.1 36782.7 42278.4 47058.1 

Cash Flow 

Key Ratios 

Y/E, Mar (Rs. mn) FY10 FY11E FY12E FY13E Y/E, Mar FY10 FY11E FY12E FY13E 

PBT (Ex-Other income) 6268.6 7209.6 8261.9 8886.9 Profitability (%) 

Depreciation 2364.9 1926.6 1309.0 1449.9 EBITDA Margin 94.1 93.4 93.6 93.4 

Interest Provided 938.3 1006.6 1237.4 1406.2 Net Margin 41.3 45.1 48.2 47.5 

Other Non-Cash items 0.0 0.0 0.0 0.0 ROCE 26.5 24.7 24.0 23.0 

Chg in working cap 1419.4 -2783.4 298.1 687.6 ROE 29.8 27.1 24.6 21.6 

Tax paid 1958.2 2408.1 2809.0 3021.5 RoIC 37.1 33.2 31.8 31.6 

Operating Cash flow 8862.6 4752.3 8084.3 9194.3 Per Share Data (Rs) 

Capital expenditure -7776.7 -7000.0 -7000.0 -5000.0 EPS 7.4 8.5 9.7 10.4 

Free Cash Flow 1085.9 -2247.7 1084.3 4194.3 CEPS 11.6 12.0 12.0 13.0 

Other income 0.0 0.0 0.0 0.0 BVPS 27.8 35.2 43.7 53.0 

Investments 0.0 0.0 0.0 0.0 DPS 1.0 1.0 1.0 1.0 

Investing Cash flow -7617.4 -7000.0 -7000.0 -5000.0 Valuations (x) 

Equity Capital Raised 0.0 0.0 0.0 0.0 PER 12.8 11.0 9.7 9.0 

Loans Taken / (Repaid) 1085.9 3000.0 700.8 -427.8 P/CEPS 8.1 7.9 7.8 7.2 

Interest Paid -1075.0 -1006.5 -1237.4 -1406.2 P/BV 3.4 2.7 2.2 1.8 

Dividend paid (incl tax) -493.4 -657.9 -657.9 -657.9 EV / Sales 6.3 6.3 6.0 5.3 

Income from investments 0.0 0.0 0.0 0.0 EV / EBITDA 6.7 6.7 6.4 5.6 

Others 0.0 0.0 0.0 0.0 Dividend Yield (%) 1.1 1.1 1.1 1.1 

Financing Cash flow -477.8 1534.5 -981.4 -2276.1 Gearing Ratio (x) 

Net chg in cash 767.3 -713.2 102.8 1918.2 Net Debt/ Equity 0.7 0.7 0.6 0.4 

Opening cash position 974.6 1741.9 1028.7 1131.5 Net Debt/EBIDTA 1.1 1.4 1.4 1.1 

Closing cash position 1741.9 1028.7 1131.5 3049.7 Working Cap Cycle (days) -101.0 -76.0 -83.3 -102.1 



Reco 

Reduce 

CMP 

Rs. 65 

Previous Reco 

Reduce 

Target Price 

Rs 65 

EPS change FY11E/12E (%) 5 / (11) 

Target Price change (%) (7) 

Nifty 5,456 

Sensex 18,202 


(%) 1M 3M 6M 12M 

Absolute (2) (24) (23) (34) 

Rel. to Nifty 2 (16) (23) (42) 



125 

110 

95 

80 

65 

50 

Rs 



Stock Details 

Sector 

Bloomberg 

Mahindra Satyam (LHS) Rel to Nifty (RHS) 

% 

10 

-2 

-14 

-26 

-38 

-50 

IT Services 

SCS@IN 




52 Week H/L 114/54 





D’10 S’10 J’10 

Promoters 42.7 42.7 42.7 

FII/NRI 18.4 22.5 22.4 



Public 26.7 23.2 20.8 


Manik Taneja 

manik.taneja@emkayglobal.com 

+91 22 6612 1253 

Priya Gajwani 

priya.gajwani@emkayglobal.com 

+91 22 6612 1385 

¾ Marginal beat on revenues at US$284 mn (+4.4% QoQ) with 

mgn improvement continuing to be a struggle as mgns 

improved by ~50 bps QoQ to 6.4% (V/s est of +220 bps) 

¾ Profits (adjusted for exceptional losses of Rs 533 mn) at Rs. 

1,122 mn (+254% QoQ) higher than est ( Rs 846 mn) despite 

lower op profits helped by lower taxes/ higher other income 

¾ Cut FY12/FY13E EPS by ~11%/4.2% to Rs 4.4/5.8 (V/s Rs 

4.9/6.0) despite lower currency resets driven by lower margin 

assumptions at 11.1%/12.5% (V/s 14.1%/14.7% earlier) 

¾ Post a 24% price correction in the past 3months, valuations 

continue to remain rich at ~14.7x/11x FY12/13E earnings. 

Retain REDUCE with a revised TP of Rs 65(V/s Rs 70 earlier) 

In line revenues, margin challenges continue 

Mahindra Satyam reported revenues at US$ 284 mn (+4.4% QoQ), marginally ahead of 

Emkay estimates. Operating profits at Rs 819 mn were up by ~11.4% sequentially with 

margins improving by ~50 bps QoQ to 6.4% (V/s expectations of ~220 bps 

improvement) driven by higher SG&A expenses during the quarter. Profits ( ex 

exceptional losses of Rs 530 mn) at Rs 1122 mn (+254% QoQ) were higher than Emkay 

expectations of Rs 846 mn driven by lower effective tax rates (12% V/s estimates of 

20%) and higher other income at Rs 873 mn. Co added ~764 employees during the 

quarter to take the total headcount to 28,832 with quarterly annualized attrition 

remaining high at ~25%. While revenues from Europe were up by ~20.5% sequentially, 

revenues from US were flat QoQ. 

Cut FY12/13E EPS by ~11%/4% to Rs 4.4/5.8 despite lower currency 

resets 

We lower our FY12/13E earnings by ~11%/4.2% respectively to Rs 4.4/5.8 despite 

lower currency resets to Rs 45/$ (V/s Rs 44/$ earlier) as we build in lower margins at 

11.1%/12.5% for FY12/13 (V/s 14.1/%14.7% earlier). We still continue to build in a 

21%/20% YoY revenue growth for FY12/13 which essentially entails a 5% CQGR over 

the next 5 quarters. We believe that there are more downside risks to our margin 

assumptions on a/c of lower revenues and supply side headwinds both from higher 

wage increases/ attrition woes (which would continue to be elevated in case of growth 

pangs).We note that we build in tax rates at ~25% for FY12/13 (V/s ~21% in 9MFY11) in 

our earnings assumptions 

Retain REDUCE with a revised TP of Rs 65 

Valuations in our view still remain rich at ~14.7x/11x FY12/13E earnings in the back 

drop of stiff revenue growth and margin headwinds despite a 24% correction over the 

past 3 months. Even after ~20% cut in our operating profits (after a 21% cut post 

Q2FY11 results) we believe that there is downside risk to operating performance. Retain 

REDUCE with a revised TP of Rs 65 (V/s Rs 70 earlier) 


Mahindra Satyam 

Margin challenges continue, Retain REDUCE 

Rs mn 

Year end Net EBITDA EBITDA PAT EPS ROE P/E EV/ P/B 

March Sales % (Rs) % (x) EBITDA (x) 

FY10 54,810 4,569 8.3 3,917 2.5 58.4 26.1 12.0 4.1 

FY11E 50,986 3,908 7.7 3,025 2.9 17.2 22.0 13.5 3.5 

FY12E 60,650 6,725 11.1 5,178 4.4 21.7 14.6 7.4 2.9 

FY13E 72,495 9,061 12.5 6,860 5.9 23.0 11.0 5.0 2.3 

Result Update 


Mahindra Satyam Result Update 

Quarterly performance 

Rs mn Q1 FY11 Q2FY11 Q3FY11 QoQ (%) YTD’11 

Revenue 12,480 12,424 12,793 3.0 37,697 

Operating Expenditure 11,266 11,689 11,974 2.4 34,929 

Cost of revenues 8,677 9,136 9,089 (0.5) 26,902 

as % of sales 69.5 73.5 71.0 71.4 

SG&A expenses 2,589.0 2,553.0 2,885.0 13.0 8,027 

as % of sales 20.7 20.5 22.6 21.3 

EBITDA 1,214 735 819 11.4 2,768 

Depreciation 594 429 381 (11.2) 1,404 

EBIT 620 306 438 43.1 1,364 

Other Income 707 288 850 195.1 1,845 

PBT 1,327 594 1,288 116.8 3,209 

Prior period items - - - 0 

Total Tax 264 270 159 (41.1) 693 

Adjusted PAT 1,063 324 1,129 158 2,516 

(Profit)/loss from JV's/Ass/MI 9.0 7.0 7.0 23 

APAT after MI 1,054 317 1,122 253.9 2,493 

Extra ordinary items 79 84 533 696 

Reported PAT 975 233 589 152.8 1,797 

Reported EPS 0.8 0.2 0.5 152.8 1.5 

Margins (%) 

(bps) 

EBIDTA 9.7 5.9 6.4 49 7.3 

EBIT 5.0 2.5 3.4 96 3.6 

EBT 10.6 4.8 10.1 529 8.5 

PAT 7.8 1.9 4.6 273 6.6 

Effective Tax rate 19.9 45.5 12.3 (3,311.0) 21.6 


Another steep cut in 

FY12E earnings (after a 

24% cut in Nov’10) despite 

lower currency resets 

( All fig in Rs mn FY11E FY12E FY13E 

except EPS) Old New % chg Old New % chg Old New % chg 

Revenues(US$ mn) 1,109 1,119 0.9% 1,347 1,348 0.1% 1,602 1,611 0.6% 

Revenues 49,899 50,986 2.2% 59,288 60,650 2.3% 70,498 72,495 2.8% 

EBITDA 4,198 3,908 -6.9% 8,350 6,725 -19.5% 10,391 9,061 -12.8% 

Net profits 3,311 3,470 4.8% 5,782 5,150 -10.9% 7,163 6,832 -4.6% 

EPS 2.8 2.9 4.8% 4.9 4.4 -10.9% 6.0 5.8 -4.2% 

Source: Emkay Research 


Mahindra Satyam Result Update 



Balance Sheet 

Y/E, Mar (Rs. m) FY10 FY11E FY12E FY13E Y/E, Mar (Rs. m) FY10 FY11E FY12E FY13E 

Net Sales 54,810 50,986 60,650 72,495 Equity share capital 2,352 2,352 2,352 2,352 

Growth (%) (7) 19 20 Reserves & surplus 43,947 46,721 51,871 58,703 

Total Expenditure (50,241) (47,078) (53,925) (63,434) Networth 46,299 49,073 54,223 61,055 

Growth (%) (6) 15 18 Minority Interest 201 201 201 201 

EBIDTA 4,569 3,908 6,725 9,061 Secured Loans 422 - - - 

Growth (%) (14) 72 35 Unsecured Loans - - - - 

EBIDTA % 8.3 7.7 11.1 12.5 Loan Funds 422 - - - 

Other Income 2,043 1,967 2,100 2,170 Total Liabilities 46,923 49,274 54,424 61,256 

Depreciation (2,144) (1,800) (1,829) (1,993) Goodwill 


Interest (329) (96) (92) (92) Less: Depreciation (19,501) (21,301) (23,130) (25,122) 

EBT 4,139 3,980 6,904 9,147 Net block 6,134 5,834 6,005 8,013 

Tax (222) (955) (1,726) (2,287) Capital WIP 3,731 3,731 3,731 3,731 

EAT 3,917 3,025 5,178 6,860 Investment 6,268 4,686 4,686 4,686 

Growth (%) (23) 71 32 Current Assets 39,799 43,278 49,714 59,406 

EAT (%) 7.1 5.9 8.5 9.5 Inventories - - - - 

Sundry debtors 9,230 10,477 11,631 13,903 

Cash & bank balance 21,768 23,442 26,617 31,401 

Loans & advances 3,845 4,191 5,317 6,753 

Other current assets 4,956 5,168 6,148 7,349 

Current Liab & Prov 24,222 23,468 24,924 29,792 

Current liabilities 8,818 9,499 9,970 11,917 

Provisions 15,404 13,969 14,955 17,875 

Net current assets 15,577 19,810 24,789 29,613 

Misc exps 15,187 15,187 15,187 15,187 

Deferred Tax 26 26 26 26 

Total Assets 46,923 49,274 54,425 61,256 

Cash Flow 

Key Ratios 

Y/E, Mar (Rs. m) FY10 FY11E FY12E FY13E Y/E, Mar FY10 FY11E FY12E FY13E 

Net Profit after Tax (1,246) 2,774 5,242 6,924 EPS (Rs) 2.5 2.9 4.4 5.9 

Add : Depreciation 2,144 1,800 1,829 1,993 CEPS (Rs) 4.3 4.5 6.0 7.6 

Add : Misc exp w/off Book Value Per Share (Rs) 15.9 18.3 22.7 28.4 

Net changes in WC (990) (745) (2,790) (2,961) Dividend Per Share (Rs) - - - - 

Operational Cash Flows 914 2,045 5,295 8,904 Valuations Ratios (x) 

Capital expenditure 379 (1,500) (2,000) (4,000) PER 26.1 22.0 14.6 11.0 

Investments (5,994) - - - P/CEPS 20.0 19.3 14.4 11.4 

Investing Cash Flows (5,615) (1,500) (2,000) (4,000) P/BV 4.1 3.5 2.9 2.3 

Borrowings (7,720) (422) - - EV/EBIDTA 12.0 13.5 7.4 5.0 

dividend paid - - - - EV/Sales 1.0 1.0 0.8 0.6 

Issue of shares 29,180 (1) (120) (120) M-Cap/sales 1.8 2.0 1.7 1.4 

Share Premium - - 

Financing Cash Flows 21,460 (423) (120) (120) Profitability Ratios (%) 

changes in cash 16,759 122 3,175 4,784 RoCE 25.5 10.2 20.1 23.3 

Opening balance 5,009 21,768 23,442 26,617 RoNW 58.4 17.2 21.7 23.0 

Closing balance 21,768 23,442 26,617 31,401 EBITDA Margin 8.3 7.7 11.1 12.5 

EBIT Margins 4.4 4.1 8.1 9.8 

Net Profit Margin 7.1 5.9 8.5 9.5 



Indices 

Indices Today’s close % chg 

Sensex 18,202.20 2.67 

Nifty 5,456.00 2.75 

S&P CNX 500 4365.75 2.95 

BSE 500 7,029.92 2.92 

BSE Mid-Cap 6,703.82 3.52 

BSE Small-Cap 8,116.62 3.94 

BSE Auto 8,812.73 3.79 

BSE Health 6,031.28 1.94 

BSE FMCG 3,290.72 2.79 

BSE IT 6,270.13 2.12 

BSE PSU 8,543.61 2.37 

BSE Bankex 12,242.39 3.37 

BSE Oil & Gas 9,324.49 0.97 

BSE Metal 15,817.95 3.53 

BSE Cons Dur 5,719.15 3.40 

BSE Cap Good 13,301.26 5.26 

BSE Realty 2,141.43 2.01 

BSE Power 2,635.88 3.02 

Levels to watch 

Sensex Nifty 

Day’s High 18,227 5,463 

Day’s Low 17,857 5,340 

20 DSMA 18,428 5,513 

TechCheck 

Nifty 

After a gap up opening, Nifty went on scaling fresh intraday highs all through the day 

and did manage to hold that opening gap on close. Furthermore, with a gap up gain 

of 146 points, Nifty has also formed a Long Bullish belt hold candlestick line (also 

known as white opening Marubozu) near the low price area which forecasts that a 

bottom is in place and this ongoing rally will go on for few more trading sessions. As 

mentioned previously, 5528 mark is the first hurdle on the way up and its clearance 

will transport Nifty to 5578 which is the 61.8% retracement level of the previous 5- 

wave decline. 

27 4 11 

October 

18 25 1 8 

November 

Relative Strength Index (44.1742) 

- NSE50 [NIFTY] (5,340.25, 5,463.80, 5,340.25, 5,460.90, +148.750) 

15 22 29 6 13 

December 

20 27 3 10 

2011 

17 24 31 7 

February 

14 21 28 

March 

80 

70 

60 

50 

40 

30 

6500 

6450 

6400 

6350 

6300 

6250 

6200 

6150 

6100 

6050 

6000 

5950 

5900 

5850 

5800 

5750 

5700 

5650 

5600 

5550 

5500 

5450 

5400 

5350 

5300 

5250 

5200 

5150 

5100 

50 DSMA 19,309 5,775 

Nifty Intraday levels to watch 

Support Resistance 

Nifty 5340/5417 5500/5556 

Sarvendra Srivastava 

Technical Strategist 

sarvendra.srivastava@emkayglobal.com 

+91 22 66121243 

Dharmesh Patel 

Associate Technical Analyst 

dharmesh.patel@emkayglobal.com 

+91 22 66121242 

Home 



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