7/30/2019 Clsa Forum 20090525 Clsa

1/6

N. Krishnankrishnan@clsa.com(9122) 66505070

Vivek Maheshwarivivek.maheshwari@clsa.com

(91-22) 6650 5053

IndiaMarket strategy

Find CLSA research on Bloomberg (CLSA ), Thomson First Call, Reuters Knowledge - and profit from our powerful CLSA evalu@tor database at clsa.com

24 May 2009

IndiaStrategy

Companies at our Forum

Aditya Birla Nuvo

Educomp Solutions

Financial Technologies

Godrej Consumer Products

JSW Steel

MindTree

Ranbaxy Laboratories

Tulip Telecom

Unitech

www.clsa.com

Singapore Access ForumWe hosted nine Indian mid-cap companies at the CLSA Corporate Access

Forum, Singapore over May 20-23, 2009. In general, the companies said that

they are seeing signs of an improvement in demand environment and with the

liquidity scenario having improved, most corporates are pushing ahead with

ongoing projects and reviving expansion plans. Companies believe that in the

near-term, the economic environment will remain challenging and will

continue to focus on various cost saving initiatives that have been

undertaken. Our top picks in the midcap space are Educomp, Godrej

Consumer, Exide and Shree Cement.

Corporates witnessing sequential improvementMost companies that presented in our forum were of the view that there are visiblesigns of revival in the domestic demand.

The outcome of election and a likely stability in government/economy has raised hopesof a much better FY10 than what it was before the elections.

The companies were appreciative of government efforts during last year towardskeeping the economy on a growth path despite a global slowdown through variousinitiatives viz. farm waiver scheme, support prices, pre-election spending, payrevisions etc.

While the companies are looking forward to similar initiatives by government in thecoming months, deteriorating fiscal balance did come out as a concern in ourinteractions with these corporates.

Mixed view on near-term outlook; different growth strategiesThe companies are generally cautious on near term outlook and have stressed uponthe various self-help cost saving initiatives that have been undertaken.

Godrej Consumer, JSW Steel expect international businesses to remain under pressure

and expect a better performance from the domestic operations.Interestingly, Mindtree is already seeing some traction in financial services in Europeand manufacturing and Hi-tech in US.

Tulip Telecom and Financial Technologies viewed regulatory action as a key risks whileGodrej Consumer viewed rising commodity prices (crude, palm etc from the bottom) apotential threat in 2HFY10.

JSW Steel, which benefits from rising commodity prices, stated that the company isalready witnessing an uptick in pricing and believes that the worst is over incommodity (steel) cycle.

Expansions to continue as per schedule; easing liquidity helpingThe government action has improved the liquidity situation and the availability of fundsto the corporate sector.

JSW Steel is going ahead with the existing expansion plans while Unitech, Educomp

are working on new projects - thanks to the improvement in availability of funds.Companies upbeat on long term India potential (Godrej Consumer, Aditya Birla Nuvo,JSW Steel) are working on to scale up distribution channel in India.

Ranbaxy and Financial Technologies are planning to expand footprints in newergeographies outside India.

Top midcap picks: GCPL, Educomp, Exide, Shree Cement The positive election outcome has helped boost investor sentiment, but the sharp

rally in the market has made investors hesitant to aggressively add their exposureto Indian equities, particularly the high beta names that have run the hardest.

An early revival in confidence will augur well for a 2H FY10 recovery, but thisappears priced in to a large extent; the Sensex is near our 12m target of 14,000.Clearer signals on fiscal consolidation and revival in private investment will be pre-requisites for the next leg-up for the market.

In this backdrop, we would recommend a high quality filter for investment into mid-cap stocks; we are also biased towards domestic plays with high earnings visibility.Our picks from forum are Godrej Consumer, Educomp and also prefer Exide andShree Cement in the mid cap space.

7/30/2019 Clsa Forum 20090525 Clsa

2/6

Singapore Access Forum India

2 krishnan@clsa.com 24 May 2009

Highlights from the company presentations

Aditya Birla Nuvo- Ajay Srinivasan (CEO Financial services)

While ABNL is the group holding company for Birla groups interest in financial as wellas industrial segments, the presentation was focussed on its life insurance and asset

management businesses.

Insurance- Birla Sun Life Insurance (BLSI)

Given the lower penetration levels, growing economy and increasing saving rate,management is very positive on industry growth potential.

Life insurance has grown at a 38% Cagr over the last 4 years. Growth in new businesssales (APE) during FY09 at 44% was significantly higher than 6% growth for private

insurers.

BSLI is well poised with a current market share of 4.3% (9% amongst private players). Strong growth in new business sales had been a key reason for losses; increasing

renewal premium and enforce policy base should help earnings in the coming years.

Company is optimising profitability through sale of longer term policies and costmanagement initiatives; unit costs for expenses are declining.

Focus for FY10: Balanced growth, stronger franchisee, new verticals and distributionchannel, process and productivity improvement.

Asset management- Birla Sun Life Asset Management Company (BSLAMC)

As on Mar-09, BSLAMC ranked #5 in the sector with AUM of Rs230bn. Market sharesimproved from 6.9% in Mar-05 to 9.5% in Mar-09.

While industry AUM declined by 7%, BSLAMC registered a 31% growth in FY09. BSLAMC is aggressively expanding its footprint through branch expansions (currently at

115), number of employees, increasing systematic investment plans (SIPs) etc.

Educomp- Shantanu Prakash (Chairman & Managing Director)

Educomp has further consolidated its position in the multimedia in private schoolssegment (SmartClass) and now has a footprint across 1,737 schools in ~130 cities.

Addition of 40-60 sales staff to the existing strength of 180 and absence of any

meaningful competitor should further aid increase in school coverage. Educomp expects

to end FY10 with 2,800-2,900 schools.

ICT is now opening up interesting cross-sell opportunities for Educomp. ICTinfrastructure in government schools is now being used for vocational training even as

PPP (public private partnership) opportunities for running government schools are

emerging.

Pragmatism has replaced earlier aggression with increased focus on signing up schoolsfor dry-management contracts and building budget schools rather than concentrating

solely on premium schools. Success in turning around the Chiranjeev Bharti School in

Gurgaon has spurred Educomp to push for more management contracts and by Jun10,

this should increase to at least 15, from 3 currently. That said, Educomp is capitalising

on falling land and raw material prices and construction on 12 land parcels should start

by Jun09. Mar10 target of 43 schools looks safe for now.

Educomp is consolidating its presence in the pre-schools segment and now has 170franchisees under its brand Roots to Wings. Its acquired brand Euro Kids has over 450

pre-schools and together Educomp is targeting 2,000 centres over the next 3 years.

Low penetration, growingeconomy presents huge

opportunity

Longer term policy andcost savings to optimise

profitability

Fifth largest player

Educomp to continue withexpansion plans

Increasing focus onschools for dry

management and buildingbudget schools

Acquired Euro Kids brand

ABNL IN (Mcap: $1.5bn)

EDSL IN (Mcap: $1.0bn)

7/30/2019 Clsa Forum 20090525 Clsa

3/6

Singapore Access Forum India

24 May 2009 krishnan@clsa.com 3

Overall, business momentum at Educomp for FY10 is robust and new initiatives invocational/higher education will likely supplement the growth in core businesses.

Financial Technologies (FT) Shreekant Javalgekar (Director Finance)

FT started as a software provider for trading on Indian stocks exchanges after itsfounder, Jignesh Shah, was asked to implement new technologies for electronic trading

by the Bombay Stock Exchange.

FTs revenue model is a annuity based with 3 key business areas 44% from technology(licensing fees, AMC and messaging fees, consultancy, and project divestment income),

35% from exchanges (Transaction, membership fees, content distribution), and 21%

ecosystems (warehouse receipt, financing revenue, storage and allied service and

procurement revenue)

FTs trading terminal, ODIN, has more than 80%+ of the market among brokers inIndia and has provided internet-trading platforms for leading brokers.

Its exchanges are market leaders in their respective categories with MCX (MultiCommodity Exchange), FT's flagship exchange, having nearly 90% share of the

domestic trading volumes.

Presently MCX-SX (currency exchange), IEX (power exchange) and NBHC (warehousereceipt financing and collateral management) have the #1 position in their respective

markets.

FT has also strengthened its product by offering ecosystem infrastructure like clearingcorporation, risk management, payment processing and training.

Management expects SEBI to announce confirmation of framework for trading on mobilephones over the next few weeks which will be positive for FT.

Other new growth areas are cross currency pairs, interest rate derivatives, creditmarket derivatives, inter and intra commodity spread credits, exchange for physicals

(EFPs), and corporate bond.

Regulation is one the major risks but FT is working closely with all regulators and at theforefront of new technologies which should drive contributions of international business

section from current 5% of revenue.

Godrej Consumer AB Godrej (Chairman) and Dalip Sehgal (MD)

Godrej Consumer (GCPL) expects FY10 to be a strong year for entire consumer industryas the input cost pressures have subsided. Additionally, despite concerns on the

potential impact of slowdown on the consumer sector, there has not been any slowdown

and industry is witnessing a healthy growth.

After a challenging FY09 where GCPL witnessed a 6ppt YoY decline in margins, themanagement sounded confident on recouping back the margins. With continuing

momentum in volumes, the company should register the best ever growth in FY10.

The management attributed a strong topline performance in FY09 to its conservativepricing strategy coupled with several innovations, variant introductions and product

renovations which helped the topline growth.

The company would continue these innovations in FY10 as well and in addition, thecompany has identified an opportunity in low unit packs in soaps (Rs5 pack) which iscurrently witnessing strong growth and has introduced the smaller packs in Godrej

No.1, Cinthol and Cinthol Fresh.

Annuity based revenuemodel

FTs exchanges aremarket leaders in therespective categories

Trading on mobile couldbe a huge opportunity

Regulation a key risk

FY10 should be strong for

consumer industry

Conservative pricing,innovations helped

Low unit packs in soap

a focus in FY10

FTECH IN (Mcap: $1.3bn)

GCPL IN (Mcap: $0.8bn)

7/30/2019 Clsa Forum 20090525 Clsa

4/6

Singapore Access Forum India

4 krishnan@clsa.com 24 May 2009

While the company is concerned on the increase in palm oil prices (+80% from thebottom), the inventory/ cover till Sep-09 would ensure that there would not be any

need to take price hike to maintain margins.

The company sees a scope in increasing its distribution reach particularly in the ruralIndia and would invest behind the infrastructure to scale up its presence in rural India.

With recession in UK and South Africa, the company expects a modest performancefrom its international businesses though would endeavour to expand the portfolio to

newer geographies.

The company is aggressively pursuing an acquisition opportunity in India and overseasmarket and is hopeful on concluding a deal in FY10.

JSW Steel Rajesh Asher (Senior VP Finance & IR)

JSW Steel highlighted its strong volume growth. It expects FY10 crude steel productionof 6.4mn tons and FY10 steel sales of 6.1mn tons.

Company expects to commission Phase-I of its new 3.5mn tpa hot strip mill atVijaynagar along with Phase-I of the beneficiation plant by Mar10. JSW Steel now

expects to complete the Vijaynagar capacity expansion to 10mn tpa by Mar11, along

with the 300MW power plant and Phase-II of the beneficiation plant.

Company expects the commissioning of 30 MW power plant at Vasind by 1QFY10, whichshould bring down downstream costs. It also plans to commission the blooming mill at

Salem in 2HFY10, which should increase the proportion of rolled long products (and

reduce semis proportion) in overall sales mix in FY11.

On steel prices, JSW believes that steel prices have reached a bottom and does notexpect further pressure on margins. It expects Indian government to impose 20-25%

safeguard duties on flat steel imports after next 45 days.

Company believes that Indian steel demand outlook is better is than rest of the world.JSW expects its cost of production (for hot-rolled coil) to decline to ~US$300/ton levels

in FY10, from a peak of US$650/ton.

JSW also highlighted its growing focus on rural and semi-urban areas going forward. Itis expanding its domestic retail sales network, and plans to set up 600 steel retail

outlets over the next few years.

On overseas investments, company commented that it has put Chile iron ore project onhold, as raw material prices have eased considerably. Outlook for US operations is weak

as demand has collapsed. JSW plans to shut down the plate mill and run the pipe mill in

the US with externally purchased plates. Company is targeting to achieve cash break-

even at its US operations in coming quarters.

Mindtree Rostow Ravanan (Chief Financial Officer)

Mindtree indicated that business is looking up and in the last 2-3 weeks, it has closed afew good deals which were pending for some time. Specifically, Mindtree is seeing

traction in financial services segment in Europe and Manufacturing & Hi-tech in US.

Mindtree is confident of achieving the 6-8%CQGR required through Sep-Dec-Mar tomeet its FY10 guidance.

While rupee appreciation will likely impact Mindtrees topline, reversal of forex lossesshould help buffer this impact somewhat.

Concerned on increase ininput prices from bottom

GCPL aggressivelyscouting for an

acquisition opportunity

Continuing withexpansion plans

JSW believes that steelprices have already

bottomed

Outlook on Indian steeldemand much better than

rest of the world

Outlook on US operationsis weak

Mindtree is seeing signsof recovery

JSTL IN (Mcap: $2.0bn)

MTCL IN (Mcap: $0.3bn)

7/30/2019 Clsa Forum 20090525 Clsa

5/6

7/30/2019 Clsa Forum 20090525 Clsa

6/6

Singapore Access Forum India

6 krishnan@clsa.com 24 May 2009

After a long lull, company has been able to kick start new launches. It has launched 9msf of new projects worth Rs35bn and sold 2.5m sf of area worth Rs8.5bn in the past 3-4

months.

Sales were triggered as Unitech took advantage of its low cost, city centric land bank tocut prices by 20%+, in turn capturing pent up end-user demand.

Overall Unitech plans to launch 30m sf of projects in FY10. With 90% of its projectsbeing residential, a comparatively stronger segment in a weak market, near term

outlook for the company is better than its peers.

Key to CLSA investment rankings: BUY = Expected to outperform the local market by >10%; O-PF = Expected to outperform the local market

by 0-10%; U-PF = Expected to underperform the local market by 0-10%; SELL = Expected to underperform the local market by >10%.

Performance is defined as 12-month total return (including dividends).

2009 CLSA Asia-Pacific Markets (CLSA). Note: In the interests of timeliness, this document has not been edited.The analyst/s who compiled this publication/communication hereby state/s and confirm/s that the contents hereof truly reflect his/her/their views andopinions on the subject matter and that the analyst/s has/have not been placed under any undue influence, intervention or pressure by any person/s in

compiling such publication/ communication.

The CLSA Group, CLSA's analysts and/or their associates do and from time to time seek to establish business or financial relationships with companiescovered in their research reports. As a result, investors should be aware that CLSA and/or such individuals may have one or more conflicts of interests

that could affect the objectivity of this report. The Hong Kong Securities and Futures Commission requires disclosure of certain relationships andinterests with respect to companies covered in CLSA's research reports and the securities of which are listed on The Stock Exchange of Hong KongLimited and such details are available at www.clsa.com/member/research_disclosures/. Disclosures therein include the position of the CLSA Group only

and do not reflect those of Calyon and/or its affiliates. If investors have any difficulty accessing this website, please contact webadmin@clsa.com on

(852) 2600 8111. If you require disclosure information on previous dates, please contact compliance_hk@clsa.com

IMPORTANT: The content of this report is subject to CLSA's Legal and Regulatory Notices as set out at www.clsa.com/disclaimer.html, a hard copy

of which may be obtained on request from CLSA Publications or CLSA Compliance Group, 18/F, One Pacific Place, 88 Queensway,Hong Kong, telephone (852) 2600 8888. 05/03/2009

Outlook on Unitech betterthan peers given itshigher bias towardsresidential segment

New projects after a longlull