PINC POWERPICKS - Moneycontrol.com

RESEARCH 

RESEARCH 

PINC POWERPICKS 

Ashok Leyland 

Ashoka Buildcon 

Bajaj Auto 

HSIL 

Infosys 

Jagran Prakashan 

Jyothy Laboratories 

Mahindra & Mahindra 

MRPL 

Nestle India 

NIIT Tech 

Phoenix Mills 

Power Grid Corporation 

Tecpro Systems


Here’s the roster for the PINC PowerPicks: 

1 

Company Sector 

CMP 

(Rs) 

Recom. 

TP 

(Rs) 

Top-Shelf Selections 

Upside 

(%) 

FEBRUARY 2012 

Market Cap 

(Rs bn) 

RESEARCH 

RESEARCH 

P/E (x) EV/EBITDA (x) Earnings gr. (%) ROE (%) ROCE (%) 

FY12E FY13E FY12E FY13E (FY11-13E) FY12E FY12E 

Ashok Leyland Auto 28 ACCUMULATE 30 7 74 13.0 11.3 8.4 7.9 (0.1) 20.0 15.5 

Ashoka Buildcon Infrastructure 195 BUY 280 44 10 9.7 7.9 6.2 4.5 13.5 11.3 9.5 

Bajaj Auto Auto 1,732 BUY 1,850 7 501 15.9 14.1 11.1 9.5 16.7 55.5 69.0 

HSIL Diversified 153 BUY 230 50 10 9.3 6.8 5.3 4.2 32.1 15.1 12.6 

Infosys IT services 2,800 ACCUMULATE 2,975 6 1,600 18.9 16.9 12.4 10.6 17.6 24.9 29.7 

Jagran Prakashan Media 108 BUY 145 34 34 14.0 13.5 9.7 8.4 10.5 29.8 31.8 

Jyothy Laboratories FMCG 200 BUY 212 6 16 37.9 16.1 17.4 10.2 20.7 8.1 10.0 

Mahindra & Mahindra Auto 717 BUY 885 23 421 15.8 13.7 11.3 9.8 9.8 23.6 25.9 

MRPL Oil & Gas 72 BUY 88 21 127 26.8 10.1 20.3 6.5 3.4 7.1 7.9 

Nestle India FMCG 4,397 SELL 3,685 (16) 424 43.8 37.2 27.8 23.1 18.0 75.7 68.9 

NIIT Tech IT services 243 BUY 290 19 14 7.0 6.2 4.7 3.3 11.7 23.6 19.9 

Phoenix Mills Real Estate 213 BUY 265 24 31 18.4 18.0 16.1 13.7 42.6 9.6 6.8 

Power Grid Corp. Power Utilities 110 BUY 125 14 507 15.9 15.0 11.1 10.5 14.3 14.3 8.8 

Tecpro Systems Material Handling 193 BUY 375 95 10 6.2 5.2 4.8 4.5 17.7 21.4 23.1 

PINC POWERPICKS is a list of our high-conviction stock ideas, a choice of stocks from across sectors in our coverage universe. 

What moved in and what moved out: 

In our February issue of PINC Power Picks, we have introduced MRPL. 

We have excluded IRB Infrastructure in the February series as the stock has run up significantly since our last PINC Power Picks issue. Similarly, we are also 

excluding CESC as the stock has run up over the past two months and due to limited clarity on tariff revision owing to delay in issuance of tariff order. 

We have removed HCL Tech since our target price has been achieved and stock has given 18% absolute returns since we introduced the stock in our 

September 2011 issue. However, we still like the stock on the back of traction witnessed in its service lines and would be reviewing our valuations in the next 

issue. 

15th February 2012 

For rating objective and disclaimer, please refer to last page of the report 

PINC Research reports are also available on Reuters, Thomson Publishers and Bloomberg PINV


ASHOK LEYLAND: ACCUMULATE, TP-Rs30 (7% upside) 

What’s the theme? 

FY12 has been a lackluster year for the company as it has underperformed the industry. In YTDFY12, as 

against the industry growth of 9.89%, Ashok Leyland volumes have been flat resulting in 240bps erosion in 

marketshare. We expect the company to claw back marketshare in Q4FY12 as demand sentiment in key 

markets of Southern India improves. We expect a volume growth of 7.4% in FY13 to 104k units with additional 

21k units for LCV 'Dost' dispatches. 

What will move the stock? 

1) Sales of the LCV Dost, produced in JV with Nissan, outside the state of Tamil Nadu are through Ashok 

Leyland. We expect the Dost to contribute 21k units in FY13. Additionally, two more products from the JV 

i.e. the van Stile and 6mt (GVW) goods carrier Partner would be launched over the coming year. 2) We 

expect MHCV truck volume growth of 7% in FY13. After a decline in FY12 in bus segment, we expect 

volumes to pickup in FY13 with a moderate growth of 5% as demand from STUs revive. Further, a revival 

of purchases under the JNNURM scheme would boost volumes in the segment. 3) We expect profitability 

to have bottomed out in Q3FY12 (EBITDA margin of 7.3%) and expect the company to post margin of 

9.4% in FY13. The improvement in margins would be driven by the ramp up of volumes at Pantnagar 

facility and ramp up of LCV volumes. 

Where are we stacked versus consensus? 

Our earnings estimates for FY12 and FY13 are Rs2.1 and Rs2.4, respectively. Our FY13 earnings estimate 

is 10.3% lower than the consensus estimate of Rs2.6.We have a 'Accumulate' recommendation on the 

stock with a target price of Rs30, which discounts FY13E earnings by 12.5x. 

What will challenge our target price? 

1) Increase in prices of raw materials such as steel and rubber affecting profitability; 2) Significant slowdown 

in industrial activity leading to a drop in freight rates and operator profitability. 

(Rs mn) FY10 FY11 FY12E YoY % FY13E YoY % 

Net Sales 72,447 111,177 128,206 15.3 146,292 14.1 

EBITDA 7,596 12,176 12,564 3.2 13,802 9.9 

EBITDA Marg. (%) 10.5 11.0 9.8 (120)bps 9.4 (40)bps 

Adj. Net Profit 4,237 6,313 5,508 (12.7) 6,303 14.4 

Dil. EPS (Rs) 1.6 2.4 2.1 (12.7) 2.4 14.4 

PER (x) 16.9 11.3 13.0 - 11.3 - 

ROE (%) 19.0 25.2 20.0 (520)bps 14.8 (520)bps 

ROCE (%) 13.7 18.4 15.5 (280)bps 15.2 (30)bps 

2 

Sector: Auto 

CMP: Rs28; Mcap: Rs74bn 

Bloomberg: AL IN; Reuters: ASOK.BO 

Units ('000s) 

Price performance 

34 

30 

26 

22 

Sales volume 

32 

24 

16 

8 

0 

Mar-10 

Jun-10 

MHCV Passenger MHCV Goods 

LCVs Vol. Gr (RHS) 

Sep-10 

Dec-10 

Mar-11 

Jun-11 

Sep-11 

RESEARCH 

RESEARCH 

AL BSE (Rebased) BSE AUTO (Rebased) 

18 

Feb-11 May -11 Aug-11 Nov -11 Feb-12 

Dec-11 

210 

150 

90 

30 

(30) 

(%) 

vineet.hetamasaria@pinc.co.in +91-22-6618 6388 

nikhil.deshpande@pinc.co.in +91-22-6618 6339 

tasmai.merchant@pinc.co.in +91-22-6618 6377


ASHOKA BUILDCON: BUY, TP-Rs280 (44% upside) 


We believe, Ashoka Buildcon (ABL), a well experienced BOT road player with 18 operational projects and 6 

projects of ~2500kms under construction, is likely to become a prominent player in road infra over the next 3 

years. However, due to unhealthy economic and market dynamics the stock is available at a sharp discount of 

P/BV 0.9x, which we believe does not reflect a long term average valuation for the company. 


1) The P/E deal, which is likely post March 2011, wherein ABL will offload stake in a bouquet of 7-8 large 

BoT road assets. We believe ABL may offload approximately 20-25% stake for a value of Rs6-7bn. 

2) Going ahead, we expect ABL to substantially improve its EPC execution as OB has improved to Rs43.1bn 

(Rs54.1bn including Cuttack-Angul project). We estimate EPC revenue to grow by 11.4% in FY12E 

and then improve by 29.4% in FY13E. 


Our FY12 and FY13 earnings estimates are Rs20.1 and Rs24.7, 7.2% and 11.8% lower than consensus 

estimates, respectively. We expect top-line growth of 16.5% and 31.7% to Rs15.2bn and Rs19.9bn in 

FY12E and FY13E vs. consensus forecasts of 28.9% and 25.3% to Rs16.8bn and Rs21bn, respectively. 

We value BOT (on a DCF basis) at FY12E and FY13E equity multiple of 1.7x and 1.1x, respectively. Our 

SOTP-based target price is Rs280, where BOT is valued at Rs196 and EPC at Rs84 (8x FY13E earnings). 

The stock offers an upside potential of 43% at our SOTP-based target price of Rs280 vs. consensus 

target of Rs273. 


1) Lower IRR owing to further increase in interest rates; 2) Lower traffic growth; 3) Slowdown in execution 

of current orders; and 4) Adverse impact on tolling charges from any changes in the government policy. 


Net Sales 7,956 13,020 15,168 16.5 19,980 31.7 

EBITDA 2,143 2,522 3,315 31.5 4,609 39.0 

EBITDA Marg. (%) 26.9 19.4 21.9 249 bps 23.1 5.6 bps 

Adj. Net Profits 804 1,008 1,060 5.1 1,299 22.5 

Dil. EPS (Rs) 17.6 19.2 20.1 5.1 24.7 22.5 

PER (x) 11.1 10.2 9.7 - 7.9 - 

ROE (%) 20.6 31.2 11.3 (1989)bps 12.3 100 bps 

ROCE (%) 12.5 17.2 9.5 (768)bps 9.3 (26)bps 

3 

Sector: Infrastructure 


Bloomberg: ASBL IN; Reuters: ABDL.BO 


340 

300 

260 

220 

SOTP 

ASBL BSE (Rebased) 

RESEARCH 

RESEARCH 

180 


Particulars Rs/Share Percentage 

BOT Operational (SPV) 88 31.3% 

BOT Operational (Standalone) 31 11.0% 

BOT Under construction 78 27.7% 

Construction business 84 30.0% 

Total 280 

Upside (%) 43.5 

vinod.nair@pinc.co.in +91-22-6618 6379 

subramaniam.yadav@pinc.co.in +91-22-6618 6371


BAJAJ AUTO: BUY, TP-Rs1,850 (7% upside) 


The high-margin brands Pulsar and Discover, account for 70% of the Bajaj Auto's motorcycle sales thus 

validating its brand-centric strategy. The company showcased the brand new Pulsar 200NS which will be 

launched by Apr'12. Another executive segment motorcycle is expected to be launched by mid-2012. The 

company also launched the KTM Duke 200 at an attractive price of Rs117k in Jan'12. We expect the company 

to post a volume growth of 11.9% in FY13 and maintain 20% plus EBITDA margins. 


1) Aided by new product launches and model refreshes, we expect Bajaj Auto to maintain market share with 

domestic volume growth of 12% in FY13. 2) The management expects to maintain a high growth in export 

markets largely through penetration into newer geographies. Exports contribute more than one third of the 

revenues for the company. 3) The company undertook a price hike of 3.5% in all export geographies to 

compensate for the lower export benefit under the Duty drawback scheme. The rupee depreciation, increase 

in benefit rate under the Focused Market Scheme (FMS) and an additional 1% special incentive till FY12 are 

set to substantially boost export profitability. 4) BJAUT recently showcased the RE60 touted as an upgrade to 

the passenger three-wheeler. The product would first be launched in Sri Lanka wherein the current threewheeler 

finds acceptance in the personal segment too. 


Our FY12 and FY13 earnings estimates are Rs109.2 and Rs123.1, respectively. We have a 'BUY' 

recommendation on the stock with a target price of Rs1,850 discounting FY13E earnings at 15x. Our 

FY13 earnings estimate is 3.1% higher than the consensus estimate of Rs119.4. 


1) Loss of market share and lack of pricing power due to increase in competition would affect the company's 

ability to pass on cost inflation. 2) Slowdown in export markets is also a key risk to our volume estimate. 


Net Sales 115,085 159,981 193,604 21.0 219,928 13.6 

EBITDA 25,752 33,836 40,835 20.7 46,048 12.8 


Adj. Net Profit 18,118 26,152 31,586 20.8 35,630 12.8 

Dil. EPS (Rs) 62.6 90.4 109.2 20.8 123.1 12.8 

PER (x) 27.7 19.2 15.9 - 14.1 - 

ROE (%) 78.5 66.7 55.5 (1120)bps 48.1 (740)bps 

ROCE (%) 65.4 73.4 69.0 (440)bps 61.5 (750)bps 

4 

Sector: Auto 

CMP: Rs1,732; Mcap: Rs501bn 

Bloomberg: BJAUT IN; Reuters: BAJA.BO 


1,800 

1,600 

1,400 

1,200 

Sales volume 

RESEARCH 

RESEARCH 

1,000 


Units ('000s) 

1,200 

900 

600 

300 

0 

Mar-10 

BJAUT BSE BSE AUTO 

2-Wheelers 3-Wheelers Sales grow th (RHS) 

Jun-10 

Sep-10 

Dec-10 

Mar-11 

Jun-11 

Sep-11 

Dec-11 

100 



tasmai.merchant@pinc.co.in +91-22-6618 6377 

75 

50 

25 

0 

(%)


HSIL: BUY, TP-Rs230 (50% upside) 


HSIL operates in 2 business segments, sanitary ware and container glass. Strong recall of the flagship 

brand Hindware enhances HSIL's leadership with 40% share in organised sanitary ware market and 

advantageous location of container glass plants helped achieve a 70% market share in south India. 


� Growth in demand of the user industries of sanitary ware and glass will help engender a CAGR of 27% 

and 20% for sanitary ware and glass over FY11-FY13e. 

� Margin expansion of 100bps to 19.8% in FY13e over FY11 on increased realisation, reduced 

outsourcing and focus on value mix. 

� Improvement in FCF in FY12-FY13e through better operational efficiency. 


Our earnings estimates (EPS) for FY12 and FY13 are Rs16.4 and Rs22.5, respectively. Our FY12 earnings 

estimate is 12% higher than the consensus estimate of Rs16.2. We have a 'BUY' recommendation on the 

stock with a target price of Rs270, which discounts FY12e earnings by 13.5x. 


� Fall in real estate demand 

� Rise in soda ash prices 


Net Sales 8,042 10,785 13,391 24.2 16,583 23.8 

EBITDA 1,458 2,064 2,615 26.7 3,313 26.7 

EBITDA Marg. (%) 17.8 18.8 19.3 46 bps 19.8 48 bps 

Adj. Net Profits 436 782 1,086 38.9 1,486 36.9 

Dil. EPS (Rs) 7.9 12.9 16.4 27.3 22.5 37.0 

PER (x) 19.3 11.8 9.3 - 6.8 - 

ROE (%) 12.4 13.7 15.1 139 bps 17.9 277 bps 

ROCE (%) 9.1 10.5 12.6 208 bps 13.6 101 bps 

5 

Sector: Diversified 


Bloomberg: HSI IN; Reuters: HSNT.BO 


260 

215 

170 

125 

Revenue breakup 

100% 

75% 

50% 

25% 

0% 

HSIL Sensex Rebased 

RESEARCH 

RESEARCH 

80 


Building Products Container Glass 

47.6% 49.8% 54.3% 52.3% 50.9% 49.5% 

52.4% 50.2% 45.7% 47.7% 49.1% 50.5% 

FY08 FY09 FY10 FY11 FY12E FY13E 

suman.memani@pinc.co.in +91-22-6618 6479 

abhishek.kumar@pinc.co.in +91-22-6618 6398


INFOSYS: ACCUMULATE, TP-Rs2,975 (6% upside) 


We recommend staying with the leader during uncertain times. Infosys has a full-services portfolio with 

exposure to well-diversified verticals. The new management appears more aggressive on aspects such 

as inorganic growth and is looking for acquisitions in healthcare vertical and for increasing presence in 

Europe which seems to be opening up to outsourcing. 


1) In anticipation of future demand, the company maintains an overall hiring guidance for FY12 at 45,000 

and for FY13 has already given 20,000 campus offers. 2) The company can exercise the utilisation lever 

to take care of demand spurt which would boost the operating margins. 3) Large deal wins in the recent 

past along with higher client mining gives revenue visibility over a longer term. 4) Salary increment will be 

lower going ahead and rupee depreciation is expected to support margins 5) Potential for utilisation of 

huge cash (~USD3.9bn) for acquisitions; the management indicated its interest in large-ticket acquisition 

to plug the gaps and drive growth; and 6) In case of recovery in the global economy, clients will stick to 

established and reliable brands such as Infosys with excellent execution skills. 


Our revenue estimates for FY12 and FY13 lag the consensus by 0.7% and 1.6% respectively. For FY12, 

our EBITDA margin and EPS estimates are marginally higher than consensus by 98bps and 1.2% 

respectively. For FY13, while EBITDA margin estimate is marginally higher than consensus by 49bps, EPS 

estimate lag the consensus by 1.7%. 


1) Prolonged delays in clients' decision making on project ramp-ups and new initiatives; 2) Appreciation of 

INR vs. USD and strengthening of USD against EUR; and 3) Higher attrition and wage increments. 

6 


Net Sales 227,420 275,010 342,182 24.4 390,653 14.2 

EBITDA 78,520 89,640 111,242 24.1 124,545 12.0 


Adj. Net Profits 62,340 68,230 84,591 24.0 94,414 11.6 

Dil. EPS (Rs) 109.2 119.4 148.0 24.0 165.2 11.6 

PER (x) 25.7 23.4 18.9 - 16.9 - 

ROE (%) 25.9 25.0 24.9 (8)bps 22.7 (221)bps 

ROCE (%) 28.3 29.3 29.7 40 bps 27.0 (277)bps 

Sector: Information Technology 

CMP: Rs2,800; Mcap: Rs1,600bn 

Bloomberg: INFO IN; Reuters: INFY BO 


3,500 

3,150 

2,800 

2,450 

Strong employee addition 

20000 

16000 

12000 

8000 

4000 

0 

Q2FY10 

Q3FY10 

Q4FY10 

Q1FY11 

Q2FY11 

Q3FY11 

Q4FY11 

Q1FY12 

RESEARCH 

RESEARCH 

Infosy s BSE (Rebased) BSE IT (Rebased) 

2,100 


Gross Addition Lateral Employ ees added 

Q2FY12 

Q3FY12 

6000 

4500 

3000 

1500 

rohit.anand@pinc.co.in +91-22-6618 6372 

niraj.garhyan@pinc.co.in +91-22-6618 6382 

0


JAGRAN PRAKASHAN (JPL): BUY, TP-Rs145 (34% upside) 


We like JPL for its leadership in the UP market (the largest print market in terms of readership and print ad 

value). We believe the company is well poised to benefit from steady growth in the print media sector, 

underpinned by: 1) its well-entrenched position in growing regions such as Bihar and Jharkhand; 2) phased 

and planned expansion into new media businesses; and 3) a wide portfolio (including Mid-day, I-next and 

Cityplus). JPL's well-balanced business model (more than 30% revenue from circulation and other media 

businesses), its growth strategy to further increase penetration in terms of circulation in its current market, 

and monetisation of its readership insulates it from slowdown in advertisements due to the current 

macroeconomic scenario. 


1) Momentum in ad revenue, underpinned by government spends (UP election in Q4); 2) Broad-based growth 

across other new media businesses; 3) Attractive valuations-At CMP, the stock is trading at an attractive 

13.5xFY13E EPS. 


Our FY13 revenue and EPS estimate of Rs8 is 3% and 6% below consensus estimates, respectively. We have 

a 'BUY' recommendation on the stock with a target price of Rs145 (18xFY13E EPS). 


1) Increase in imported newsprint prices; 2) Slowdown in the economy; and 3) Increased competition in 

markets where JPL has presence. 

Consolidated (Rs mn) FY10 FY11 FY12E YoY % FY13E YoY % 

Net Sales 9,419 12,210 13,251 8.5 14,575 10.0 

EBITDA 2,821 3,568 3,885 8.9 4,120 6.0 

EBITDA Marg. (%) 29.9 29.2 29.3 10 bps 28.3 (105)bps 


Dil. EPS (Rs) 5.8 6.6 7.7 17.4 8.0 4.0 

PER (x) 18.6 16.4 14.0 - 13.5 - 

ROE (%) 28.7 29.6 29.8 22 bps 27.5 (239)bps 

ROCE (%) 33.6 33.1 31.8 (132)bps 30.7 (112)bps 

7 

Sector: Media 


Bloomberg: JAGP IN: Reuters: JAGP BO 


140 

125 

110 

Financial performance 

(%) 

95 

42 

34 

26 

18 

10 

ROE ROCE 

RESEARCH 

RESEARCH 

Jagran Prakashan BSE (Rebased) 

80 


FY07 FY08 FY09 FY10 FY11 FY12E FY13E 

namrata.sharma@pinc.co.in +91-22-6618 6412 

sakshee.chhabra@pinc.co.in +91-22-6618 6516


MAHINDRA & MAHINDRA: BUY, TP-Rs885 (23% upside) 


New launches and strong performance from its existing products has helped M&M retain its dominance in the 

utility vehicle (UV) and pick-up segments in addition to maintaining healthy margins despite surge in raw 

material costs increases. We expect an 18% growth in the automotive segment volumes in FY13. The farm 

equipment segment too is expected to grow 8.2% in FY13, given shortage of labour, rising rural income and 

increasing non-farm usage of tractors. 


1) The passenger UV segment has grown 17.3% in 9MFY12 aided by the launch of lower end EX variant 

of the Scorpio and refreshed Bolero. 2) New offering XUV500 received overwhelming response since its 

launch in Sep'11 and the company has received a whooping 25k applications for the 7.2k units on offer in 

the second phase. The company has taken a price hike of up to Rs55k on the vehicle and production 

capacity has been ramped up from 2k to 3k per month. 3) M&M is expected to launch the mini SUV based 

on the Xylo in H1FY13 which would provide incremental volumes. 2) Pick-up and SCVs segment is expected 

to maintain its impressive performance with continued contribution coming from Genio and Maxximo mini 

van. 3) M&M is working on turning around its recent acquisition of South Korean automaker Ssangyong. 

Two SUVs from the Ssangyong Motors' portfolio (Rexton and Korando) would be assembled at M&M's 

Chakan facility. 4) Tractor sales have remained soft in the past few months and volumes are expected to 

pick up from Apr'12 with the new season. 


Our FY12 and FY13 earnings forecast are Rs45.4 and Rs52.2, respectively. Our FY13 earning estimate 

is 5.7% higher than the consensus estimate of Rs50.1. We value M&M at Rs885 using SOTP methodology, 

discounting the core earnings of standalone business at 13x FY13E. 


1) Imposition of additional taxes on diesel powered vehicles or dual pricing for diesel would adversely 

impact demand for M&M's products; and 2) Global turbulence may delay turnaround at Ssangyong. 


Net Sales 180,381 227,575 300,745 32.2 356,993 18.7 

EBITDA 29,758 34,581 38,165 10.4 42,535 11.5 



Dil. EPS (Rs) 36.3 44.1 45.4 2.9 52.2 15.1 

PER (x) 19.7 16.2 15.8 - 13.7 - 

ROE (%) 30.9 28.1 23.6 (450)bps 22.8 (80)bps 

ROCE (%) 28.0 28.5 25.9 (260)bps 25.6 (30)bps 

9 

Sector: Auto 


Bloomberg: MM IN; Reuters: MAHM.BO 


900 

800 

700 

600 

RESEARCH 

RESEARCH 

MM BSE (Rebased) BSE Auto (Rebased) 

500 


SOTP 

Valuation Per share Value 

Method (Rs) Multiple (Rs) 

M&M (Standalone) P/E 49.3 13 641 

M&M Veh. Mfg. (MVML) EV/EBITDA 8.5 4 34 

Tech Mahindra CMP 66.4 0.8 53 

Mahindra Holiday CMP 35.7 0.8 29 

M&M Financial Services CMP 68.5 0.8 55 

Mahindra Lifespace CMP 10.9 0.8 9 

M&M (Treasury Stocks) CMP 60.8 0.8 49 

Swaraj Engines CMP 3.1 0.8 2 

Mahindra Forgings CMP 4.5 0.8 4 

Mahindra Ugine Steel CMP 1.5 0.8 1 

Mahindra Composites CMP 1.1 0.8 1 

Mahindra Navistar P/BV 5.1 1.5 8 

SOTP Value (Rs) 885 



tasmai.merchant@pinc.co.in +91-22-6618 6377


MRPL: BUY, TP-Rs88 (21% upside) 


Capacity addition of ~30% to 15.4mmpta along with enhancement in complexity index from ~6 to ~9 should 

boost the future profitability. Progress has been expedited keeping in mind the target of commissioning 

before Mar'12 so as to get the full benefit of tax exemption. Capacity expansion along with polypropylene 

and SPM project should improve the GRM substantially. 


1) Hangover on crude imports from Iran (~70% for MRPL) post recent sanctions by US is abated after 

inter government agreement under which 45% of payment will be done in INR 

2) Strong GRM supported by diesel cracks as MRPL has ~43% of HSD in their portfolio 

3) As of Mar'11, the company has Net Debt/ equity at around zero, which provides significant leverage to 

the company. Around 70% of the upcoming capex (~Rs160bn) will be funded through debt and even 

at peak debt levels, Net Debt/ Equity for MRPL should be below 1.0. 


We expect that full impact of ongoing capex should materialise in FY14 with partial benefit coming in 

FY13. As a result, our FY13 earnings estimate is ~3% lower while FY14 estimate is ~15% higher than 

consensus. 


Delay in refinery-III commissioning beyond Mar'12, problem in crude sourcing from Iran (ME ~90%, Iran 

~70%), volatility in crude oil price/ international GRM/ USD-INR exchange rate in the current weak global 

environment may impact the earnings substantially. 


Net Sales 319,452 389,567 513,116 31.7 561,257 9.4 

EBITDA 19,253 20,482 8,653 (57.8) 28,158 225.4 

EBITDA Marg. (%) 6.0 5.3 1.7 (357)bps 5.0 333 bps 

Adj. Net Profits 11,122 11,765 4,749 (59.6) 12,580 164.9 

Dil. EPS (Rs) 6.3 6.7 2.7 (59.6) 7.1 164.9 

PER (x) 11.4 10.8 26.8 - 10.1 - 

ROE (%) 21.5 19.4 7.1 (1230)bps 17.2 1005 bps 

ROCE (%) 23.7 22.5 7.9 (1456)bps 15.5 762 bps 

10 

Sector: Oil & Gas 


Bloomberg: MRPL IN; Reuters: MRPL.BO 


100 

85 

70 

55 

Substantial jump in GRM 

12 

8 

4 

0 

-4 

-8 

FY06 

FY07 

FY08 

MRPL BSE (Rebased) 

FY09 

FY10 

FY11 

FY12E 

FY13E 

RESEARCH 

RESEARCH 

40 


GRM (USD/bl) Prem./ (Dis.) to Singapore 

Singapore GRM 

FY14E 

FY15E 

FY16E 

satish.mishra@pinc.co.in +91-22-6618 6488 

urvashi.biyani@pinc.co.in +91-22-6618 6334


NESTLE INDIA: SELL, TP-Rs3,685 (16% downside) 


Rising competition in almost all the categories along with sharp price hike on all the key brands resulted into 

slower volume growth of 9% (lowest in the past 5 years) during 9MCY11 and the similar volume pressure was 

also witnessed in the Q4CY11 performance in which sales grew at slower pace of 17% (lowest in the last 7 

quarters). Nestle is in the capacity expansion mode which would force the company to focus more on the 

volume growth. Higher marketing efforts would be required for retaining leadership position which would exert 

pressure on profitability. 


1) Noodles contribute ~35% of the total EBITDA and higher competition would force Nestle to invest more 

on marketing efforts. As a result, we expect 70bps and 20bps decline in EBITDA margin in CY12E and 

CY13E respectively; 2) Nestle currently trades at 36x 12-month forward earnings which is ~33% premium 

over the FMCG sector P/E. Considering pressure on Nestle's EBITDA margin, reduction in the return 

ratios and improvement in performance of peers, we argue that Nestle's P/E premium should reduce. 


Our estimates and target price are lower than the consensus, led by the expectation of pressure on 

EBITDA margin and argument of narrowing down of the Nestle's valuation premium. We assign P/E of 30x 

on the next 12-months earnings to derive a TP of Rs3,685. 


1) We expect Nestle would focus on retaining the volume market share for Maggi noodles hence there will 

be volume driven growth going forward. This assumption would result in lower profitability for Nestle and 

any change in this proposition might change our estimates; 2) We expect ITC, GSK Consumer and HUL to 

be very aggressive in noodle segment, any delay in such efforts would again help Nestle to earn better 

profitability. 

11 

(Rs mn) CY09 CY10 CY11E YoY % CY12E YoY % 

Net Sales 51,395 62,609 75,336 20.3 93,176 23.7 

EBITDA 10,448 12,559 15,484 23.3 18,559 19.9 

EBITDA Marg. (%) 20.3 20.1 20.6 49bps 19.9 (64)bps 


Dil. EPS (Rs) 68.2 84.9 100.3 18.1 118.3 17.9 

PER (x) 64.5 51.8 43.8 - 37.2 - 

ROE (%) 113.1 95.7 75.7 (2,003)bps 67.6 (812)bps 

ROCE (%) 179.7 146.8 68.9 (7,797)bps 66.1 (277)bps 

Sector: FMCG 

CMP: Rs4,397; Mcap: Rs424bn 

Bloomberg: NEST IN; Reuters: NEST.BO 


4,900 

4,300 

3,700 

3,100 

Domestic Volume Growth 

20% 

15% 

10% 

5% 

0% 

15% 

19% 

13% 

18% 

RESEARCH 

RESEARCH 

Nestle BSE (Rebased) BSE FMCG (Rebased) 

2,500 


10% 

9MCY07 9MCY08 9MCY09 9MCY10 9MCY11 

naveent@pinc.co.in +91-22-6618 6384


NIIT TECH: BUY, TP-Rs290 (19% upside) 


Sustained performance and aggressive deal wins reflected in strong order book would drive re-rating of 

the stock. NIIT Tech has large exposure to high-growth niche verticals such as travel and transportation. 

Moreover, it has a differentiated strategy with development of IPs in emerging technologies (such as cloud 

computing) & verticals (such as insurance & healthcare). 


1) Good performance in the BFSI and travel and transportation verticals, which contribute ~75% to revenue; 

2) Recent acquisition of Proyecta Sistemas and JV with Morris, will give further thrust to growth through 

access to untapped markets and presence in newer industries. 3) Large untapped opportunity in the 

APAC and Latin American markets; 4) Strong order book of USD245mn to be implemented over next 12 

months and continued high order bookings; 5) Ramp-ups of the major deals won in the recent quarters 

would substantiate growth 6) New service lines would boost non-linear growth and lead to improvement in 

realisations. 


Our top-line estimate for FY12 is in-line with consensus while lag the consensus for FY13 by 3.5%. Our 

EBITDA margin estimates for FY12 are marginally lower than consensus by 21bps while higher than 

consensus for FY13 by 137bps. Our EPS estimates for FY12 & FY13 are higher than consensus by 0.4% 

and 1.8% respectively. 


1) Prolonged macroeconomic uncertainty in Europe; 2) Sharp currency volatility; 3) Higher attrition and 

wage increments; and 4) Project delays and cancellation of government contracts. 

12 


Net Sales 9,138 12,323 15,785 28.1 18,211 15.4 

EBITDA 1,889 2,363 2,719 15.0 3,484 28.1 



Dil. EPS (Rs) 21.5 30.9 34.2 10.5 38.6 13.0 

PER (x) 11.3 7.9 7.0 - 6.2 - 

ROE (%) 21.7 24.2 23.6 (65)bps 22.3 (127)bps 

ROCE (%) 19.1 20.4 19.9 (53)bps 21.7 176 bps 

Sector: Information Technology 

CMP: Rs243; Mcap: Rs14.3bn 

Bloomberg: NITEC IN; Reuters: NITT.BO 


250 

220 

190 

160 

Healthy order book 

(USD mn) 130 

RESEARCH 

RESEARCH 


600 

450 

300 

150 

0 

NIIT Tech BSE (Rebased) BSE IT (Rebased) 

Order Book Ex ecutable ov er nex t 12 months Fresh Order Wins 

Q1 FY11 

Q2 FY11 

Q3 FY11 

Q4 FY11 

Q1 FY12 

Q2 FY12 

Q3 FY12 

rohit.anand@pinc.co.in +91-22-6618 6372 

niraj.garhyan@pinc.co.in +91-22-6618 6382


PHOENIX MILLS: BUY, TP-Rs265 (24% upside) 


PHNX's key project, High Street Phoenix (HSP), is now fully operational and is likely to generate rental 

income of ~Rs2-2.2bn in FY12E. In Q3FY12, three out of four market cities were operational and expect 

to deliver higher occupancy going forward. This will help strengthen the company's rental model. At present, 

PHNX's rental revenue (FY11- Rs1.8bn) comes from HSP and the launch of Pune, Chennai and Bengaluru 

Market Cities is likely to add ~Rs550mn of rental revenue to the topline in FY12E. 


We see the following near-term stock triggers: (i) Kurla Market City project commenced operation in 

Q3FY12 and is ramping up, (ii) The first phase of Shangri-La Hotel to commence in H1FY13, (iii) HSP 

Phase-IV (at present 0.25 msf) to provide a strong delta to the company's valuation if it manages to get 

hospitality FSI (5x), (iv) repositioning of its hospitality project under Phoenix hospitality (PHCPL) into retail/ 

commercial and residential projects is likely to help PHNX have a better cash flow visibility and reduce debt 

levels and (v) PHNX may further opt to increase its stake in Kurla, Bengaluru and Chennai market city 

projects 12-15 months down the line which will help improve stock valuations. 


Our EPS estimates for FY12 and FY13 are Rs11.6 and Rs11.8 respectively. Our FY12 earnings estimate 

is 21% higher than consensus estimate of Rs8.4. We have a 'BUY' recommendation on the stock with a 

target price of Rs265 after assigning 15% discount to FY12E gross NAV. 


1) Slowdown in execution in Market City projects and extending free rental periods may hamper the holding 

company's profitability, 2) economic slowdown may affect revenue from Market City and HSP. 


Net Sales 1,230 2,102 3,993 90.0 4,349 8.9 

EBITDA 775 1,406 2,447 74.1 2,872 17.4 


Adj. Net Profits 620 842 1,675 98.9 1,713 2.3 

Dil. EPS (Rs) 4.3 5.8 11.6 98.9 11.8 2.3 

PER (x) 49.8 36.6 18.4 - 18.0 - 

ROE (%) 4.0 5.1 9.6 446 bps 9.0 (57)bps 

ROCE (%) 3.2 4.1 6.8 268 bps 6.4 (44)bps 

13 

Sector: Real Estate 


Bloomberg: PHNX IN; Reuters: PHOE.BO 


300 

250 

200 

150 

PHNX one year forward NAV 

RESEARCH 

RESEARCH 

PHNX Sensex Rebased BSE Realty 

100 


Project NAV (Rs) 

High Street Phoenix 142 

Market City (Kurla, Bengaluru, Chennai, Pune) 87 

Other Residential 36 

BARE 10 

Investment in Treasure World Developers 18 

Investment in Galaxy Entertainment 0.2 

Investment in Phoenix construction 0.1 

Other investments 26 

Shangrila hotel 11 

HSP Phase IV 21 

Share Application Money 21 

Less: Net Debt 60 

NAV (Post 15% discount) 265 

suman.memani@pinc.co.in +91-22-6618 6479 

abhishek.kumar@pinc.co.in +91-22-6618 6398


POWER GRID: BUY, TP-Rs125 (14% upside) 


PGCIL remains confident of achieving not only its XIth Plan capex and capitalisation target but also achieving 

a large part of its XIIth Plan target too. Till January 2012, the company achieved 84% and 86% of its XIth 

Plan capex and capitalisation target respectively. PGCIL already has investment approvals for ~Rs700bn 

worth of projects and has placed orders for Rs560bn - all of which will commission in the XIIth Plan. PGCIL 

targets to achieve a yearly capex and ordering run rate of Rs200bn and Rs180bn respectively. This 

should translate into 17% CAGR in regulated equity over FY11-15E. We believe the stock offers safe and 

steady returns as compared to its private sector peers as it is insulated from risks like rising fuel cost, 

backing down and SEB defaults (as payments are secured through a tripartite agreement). 


1) Conversion of its huge CWIP into regulatory assets will translate into increased earnings for the company, 

2) Increased capex run rate, translating into higher capitalisation and hence higher earnings, 3) Earnings 

visibility is further supported by healthy growth in telecom division and growing order book of consultancy 

division 4) Improving debtor days as distribution tariffs are revised. 


Our FY12 & FY13 PAT estimates are in line with consensus. We value PGCIL on FCFE basis to arrive at 

a target price of Rs125 (terminal growth rate 3% and 13% Ke). 


1) Delay in capitalisation of projects under construction & delayed payments by SEBs 

2) Lower incentives and STOA income will impact our earnings estimate 

3) Slowdown in its consultancy division 

4) High debtor days 


Net Sales 72,182 84,009 96,126 14.4 111,282 15.8 

EBITDA 61,593 74,642 86,619 16.0 96,862 11.8 

EBITDA Marg. (%) 85.3 88.9 90.1 126 87.0 (307) 


Dil. EPS (Rs) 5.1 5.6 6.9 23.8 7.3 5.5 

PER (x) 21.6 19.6 15.9 - 15.0 - 

RoE (%) 13.9 13.8 14.3 43 13.7 (52) 

ROCE (%) 8.4 8.8 8.8 (4) 8.6 (15) 

14 

(Rs bn) 

Sector: Power Utilities 


Bloomberg: PWGR IN; Reuters: PGRD.BO 


140 

120 

100 

80 

Steady growth in capitalisation 

Pow er Grid BSE (Rebased) 

RESEARCH 

RESEARCH 

60 


280 

210 

140 

70 

0 

Capex Capitalisation Regulated Equity 

FY11 FY12E FY13E FY14E FY15E 

hitul.gutka@pinc.co.in +91-22-6618 6410 

vinod.nair@pinc.co.in +91-22-6618 6379 

madhura.joshi@pinc.co.in +91-22-6618 6395


TECPRO SYSTEMS: BUY, TP-Rs375 (95% upside) 


Most of the power BoP orders pertaining to the XIIth Five-Year Plan (including orders for coal and ash 

handling) are yet to be awarded. Tecpro appears to be best placed among peers to bag these orders, 

given its past experience. If interest rates stabilise in the near term, we expect incremental order inflows to 

come from the cement, steel, minerals and mining sectors. A healthy (1.6x FY12E revenue) and safe (all 

orders have achieved financial closure) order book minimises the risk of any delay or cancellations. 


� Increased pace of order inflow, expected in H2FY12, mainly from the power sector. We expect Tecpro 

to record 9% growth in order inflow in FY12. 

� Execution of the current order book in a timely and profitable manner. We expect Tecpro to achieve a 

29% CAGR in revenue and 20% CAGR in profit over FY11-13E. 

� Any decline in interest rates would enable the company to improve net profit margins. 

� Improvement in working capital would lead to higher cash flows. 


We expect EPS of Rs31.4 and Rs37.6 in FY12 and FY13, respectively, almost in-line with consensus 

forecasts. We expect 9% growth in order inflow in FY12, whereas some analysts forecast de-growth of 

~30-35%. However, the management has guided for ~30% growth in order inflow in FY12. We maintain 

our BUY recommendation on the stock with a target price of Rs375 (10x FY13E). 


� Further rise in interest rates, which cannot be passed on to customers and hence, impact the bottom 

line. 

� Any delay in execution leading to further deterioration of working capital. 

� Less than estimated order inflows. 

15 


Net Sales 14,628 19,736 26,594 34.7 32,889 23.7 

EBIDTA 1,982 3,010 3,736 24.1 4,456 19.3 

EBIDTA Marg. (%) 13.5 15.2 14.0 (115) bps 13.5 (50) bps 

Adj. Net Profit 1,096 1,363 1,565 14.9 1,887 20.5 

Dil. EPS (Rs) 24.8 27.0 31.0 14.9 37.4 20.5 

PER (x) 7.8 7.1 6.2 - 5.2 - 

ROE (%) 42.8 26.9 21.4 (550)bps 21.3 (10)bps 

ROCE (%) 37.1 26.9 23.1 (380)bps 22.9 (20)bps 

Sector: Material Handling 


Bloomberg: TPRO IN; Reuters: TPSL.BO 


500 

400 

300 

200 

Order inflow 

(Rs bn) 100 

60 

45 

30 

15 

0 

7.1 

Tecpro BSE (Rebased) 

9.7 9.9 

22.2 

43.5 

RESEARCH 

RESEARCH 

Oct-10 Jan-11 Apr-11 Sep-11 Feb-12 

47.5 

49.0 

FY07 FY08 FY09 FY10 FY11 FY12E FY13E 

ankit.b@pinc.co.in +91-22-6618 6551

RESEARCH 

RESEARCH 

EQUITY DESK 

T E A M 

Sadanand Raje Head - Institutional Sales sadanand.raje@pinc.co.in 91-22-6618 6366 

Technical Analyst 

RESEARCH 

Vineet Hetamasaria, CFA Head of Research, Auto, Cement vineet.hetamasaria@pinc.co.in 91-22-6618 6388 

Nikhil Deshpande Auto, Auto Ancillary, Cement nikhil.deshpande@pinc.co.in 91-22-6618 6339 

Tasmai Merchant Auto, Auto Ancillary, Cement tasmai.merchant@pinc.co.in 91-22-6618 6377 

Vinod Nair Construction, Power, Capital Goods vinod.nair@pinc.co.in 91-22-6618 6379 

Ankit Babel Capital Goods, Engineering ankit.b@pinc.co.in 91-22-6618 6551 

Hitul Gutka Power hitul.gutka@pinc.co.in 91-22-6618 6410 

Subramaniam Yadav Construction subramaniam.yadav@pinc.co.in 91-22-6618 6371 

Madhura Joshi Power madhura.joshi@pinc.co.in 91-22-6618 6395 

Satish Mishra Fertiliser, Oil & Gas satish.mishra@pinc.co.in 91-22-6618 6488 

Urvashi Biyani Fertiliser, Oil & Gas urvashi.biyani@pinc.co.in 91-22-6618 6334 

Naveen Trivedi FMCG naveent@pinc.co.in 91-22-6618 6384 

Rohit Kumar Anand IT Services rohit.anand@pinc.co.in 91-22-6618 6372 

Niraj Garhyan IT Services niraj.garhyan@pinc.co.in 91-22-6618 6382 

Namrata Sharma Media namrata.sharma@pinc.co.in 91-22-6618 6412 

Sakshee Chhabra Media sakshee.chhabra@pinc.co.in 91-22-6618 6516 

Bikash Bhalotia Metals, Mining bikash.bhalotia@pinc.co.in 91-22-6618 6387 

Harleen Babber Metals, Mining harleen.babber@pinc.co.in 91-22-6618 6389 

Dipti Vijaywargi Metals, Mining dipti.vijaywargi @pinc.co.in 91-22-6618 6393 

Sushant Dalmia, CFA Pharma sushant.dalmia@pinc.co.in 91-22-6618 6462 

Poonam Sanghavi Pharma poonam.sanghavi@pinc.co.in 91-22-6618 6709 

Suman Memani Real Estate, Mid caps suman.memani@pinc.co.in 91-22-6618 6479 

Abhishek Kumar Real Estate, Mid caps abhishek.kumar@pinc.co.in 91-22-6618 6398 

C Krishnamurthy Technical Analyst krishnamurthy.c@pinc.co.in 91-22-6618 6747 

SALES 

Rajeev Gupta Equities rajeev.gupta@pinc.co.in 91-22-6618 6486 

Ankur Varman Equities ankur.varman@pinc.co.in 91-22-6618 6380 

Himanshu Varia Equities himanshu.varia@pinc.co.in 91-22-6618 6342 

Shailesh Kadam Derivatives shaileshk@pinc.co.in 91-22-6618 6349 

Ganesh Gokhale Derivatives ganeshg@pinc.co.in 91-22-6618 6347 

DEALING 

Mehul Desai Head - Sales Trading mehul.desai@pinc.co.in 91-22-6618 6303 

Amar Margaje amar.margaje@pinc.co.in 91-22-6618 6327 

Ashok Savla ashok.savla@pinc.co.in 91-22-6618 6321 

Sajjid Lala sajjid.lala@pinc.co.in 91-22-6618 6337 

Raju Bhavsar rajub@pinc.co.in 91-22-6618 6322 

Hasmukh D. Prajapati hasmukhp@pinc.co.in 91-22-6618 6325 

Dhirenpuri D. Goswami dhirenpurig@pinc.co.in 91-22-6618 6345 

Arjun Prajapati arjun.prajapati@pinc.co.in 91-22-6618 6346 

DIRECTORS 

Gaurang Gandhi gaurangg@pinc.co.in 91-22-6618 6400 

Hemang Gandhi hemangg@pinc.co.in 91-22-6618 6400 

Ketan Gandhi ketang@pinc.co.in 91-22-6618 6400 

COMPLIANCE 

Rakesh Bhatia Head Compliance rakeshb@pinc.co.in 91-22-6618 6400

ight thinking 

Rating Objective 

Rating 

Infinity.com 

Financial Securities Ltd 

SMALL WORLD, INFINITE OPPORTUNITIES 

Large Caps Mid Caps 

M.Cap > USD1bn M.Cap

PINC POWERPICKS - Moneycontrol.com

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