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Weekly Wrap

December 03, 2010Investment Ideas

BUYInfosys Technologies CMP Rs3,115

Valuation summary

Source: Company, India Infoline Research

Y/e 31 Dec (Rs m) CY08 CY09 CY10E CY11E

Revenues 422,806 479,103 546,220 594,020

yoy growth (%) 19.0 13.3 14.0 8.8

Operating profit 39,309 114,891 144,406 158,268

OPM (%) 9.3 24.0 26.4 26.6

Reported PAT 20,754 96,224 116,114 127,441yoy growth (%) (56.0) 363.6 20.7 9.8

EPS (Rs) 3.2 15.3 18.4 20.2

P/E (x) 99.1 20.7 17.2 15.7

BUYCoal India Ltd CMP Rs322

Robust business traction for large IT companiesTop tier IT companies have seen robust business traction in H1FY11 reflected in robust volume growth and multiple large dealwins. The demand environment continues to be sanguine withmeaningful up-tick in discretionary spends. Pricing has been stablelargely being only driven by changes in the services mix. Like-to-like pricing improvement is expected from Q1 FY12 with return ofbargaining power with vendors. Another heartening feature hasbeen the broad breath of growth with almost all verticals, serviceslines and geographies growing strongly. Large vendors remain

best placed to benefit from revival in Global IT spending due totheir diversified services portfolio and deep client relationships.

Higher exposure to discretionary spend driving growthInfosys has one of the highest exposure to discretionary spends ofthe clients. It has been witnessing strong traction in discretionaryservices like engineering, consulting and package implementationspace with a large chunk of the recent incremental growth comingfrom them. The increasing revenue share of discretionary serviceshas also reflected favourably in pricing of the company. The large-deal pipeline (US$865mn TCV end Q2 FY11) is rich with multi-service, consulting and transformational deals forming a largepart of it. The management is up-beat on near term demand andcontinues to plan for growth (increased hiring target by 33% in

FY11). Infosys is poised to deliver high quality growth driven byvalue added services (higher than average pricing) and non-linearinitiatives.

H2 FY11 guidance modest, expect outperformanceInfosys has guided for a modest 3% CQGR for H2 FY11 citinglower number of working days and slower client decision making.We expect the company to perform reasonably better vis--visguidance and further upgrade its annual guidance. The quality ofdeal pipeline, strong hiring plans, expectation of decent increase(3-5%) in CY11 budget bodes well. Margins are expected to remainin narrow range with a possible up-tick due to better business mixand price increases. With corporate governance of large chunk ofcompanies being questioned, Infosys with the most admirablecorporate governance practice should perform well in the nearterm.

Valuation summary

Source: Company, India Infoline Research

Y/e 31 Mar (Rs m) FY09 FY10 FY11E FY12E

Revenues 216,930 227,420 277,919 339,300

yoy growth (%) 30.0 4.8 22.2 22.1

Operating profit 71,950 78,610 92,410 113,116

OPM (%) 33.2 34.6 33.3 33.3

Reported PAT 59,880 62,660 69,589 82,857yoy growth (%) 28.5 4.6 11.1 19.1

EPS (Rs) 103.0 108.7 121.9 145.1

P/E (x) 29.6 28.1 25.0 21.0

Domestic coal deficit to widen to 25% of consumption byFY17By FY17, India's coal-based power generation is set to more thandouble from the current capacity of 84GW leading to an incrementaldemand of 396mn tons for coal (75% of current capacity). This,coupled with the expansion in the various sectors, would lead toan additional demand of 114mn by FY12 and 513mn tons by FY17.We estimate an increase of 341mn tons in coal supply over FY10-17, which is significantly lower than the demand. As a result, importswould jump 3x and would account for 25% of consumption by

FY17.

Coal India is the best play on the rising coal deficitCoal India Ltd (CIL) enjoys a near monopoly with a dominant 82%share in domestic coal production and is the world's largest coalproducing company. At the end of FY10, CIL's total coal resourcesstood at 64.8bn tons, comprising Proved Geological Reserves of52.5bn tons, Indicated Geological Reserves of 10.3bn tons andInferred Geological Reserves of 1.9bn tons. Company's provenreserves account for ~48% of India's proven reserves and thereserves to production ratio for CIL stands at 122 years. Companyis currently operating out of 471 mines (163 open cast, 273underground and 35 mixed) in 21 major coalfields across eightstates in India. The company has also recently undertaken various

initiatives for the acquisition of coal assets outside India.

Margin to expand; earnings to witness 15% CAGRBeing one of the lowest cost producers globally (US$16/ton) hasenabled the company to maintain healthy margins despite sellingcoal at a huge discount to market price. We estimate OPM to expand260bps over FY10-12 led by a 5.5% CAGR in volumes,improvement in product mix and cost savings/productivityimprovement measures. The lower share of e-auction sales in totalvolumes would be a headwind though. The expansion in OPMwould drive a higher-than-revenue CAGR in earnings of 15%. Webelieve CIL would continue to trade at premium valuations (current9x FY12E EV/EBITDA) considering its lower earnings volatility,

robust balance sheet and large resource base.

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India Infoline Weekly Wrap

Strong Q2 GDP number coupled with signs of inflation cooling off and

buoyant global cues translated into a 4% rally on the Nifty and theSensex. A spate of other macro-economic data also supported thesentiment through the week. The investment focus shifted to largecaps, especially those with strong corporate governance, cash flowsand execution trackrecord. But, the revelation about a stock riggingscam sent shock waves across the market on Friday that hit the small-caps and mid-caps badly.

All the BSE sectoral indices ended in the positive terrain. The Realtystocks, which got pounded recently owing to the bribes-for-loansscam staged a strong come back. Banking stocks too rebounded.Metals and Oil & gas stocks were among the other major gainers.

The much-awaited bailout of Ireland failed to impress the worldmarket initially, but talk of fresh monetary measures by the ECB

helped the euro recover against the dollar. A string of strongeconomic data from the US throughout the week sent Wall Streetgalloping while other risky assets also gained. A stronger thananticipated manufacturing PMI report from China to the US alsopropped up the mood across equity markets. Though the ECBeventually stopped short of expanding its bond buying programme,well received debt auctions by Portugal and Spain supported themarkets.

*As per previous close

FII & MF activity (Rs cr)FII MF

Date Net Investment Net Investment

25-Nov (532) (408)

26-Nov (672) 235

29-Nov 272 (49)

30-Nov 1,191 (305)

01-Dec 446 229

Total 2010 132,021 (28,428)

Market review

BSE Sensex & BSE 200 Top Five Losers

BSE Sensex BSE 200

CMP % CMP %Company (Rs) Chg Company (Rs) Chg

Hero Honda 1,832 (5.4) Welspun Corp. 160 (23.4)

ACC 980 (2.0) Amtek Auto 118 (9.0)

Reliance Infra 837 (1.6) Videocon Ind. 204 (5.8)

Tata Power 1,290 (0.1) Hero Honda 1,832 (5.4)

- - - ACC 980 (2.0)

BSE Sensex BSE 200

CMP % CMP %Company (Rs) Chg Company (Rs) Chg

Tata Motors 1,315 12.7 Renuka 91 19.7

Jindal Stl 680 10.7 Suzlon 52 15.1

Cipla 370 8.9 Adani Ent. 672 15.0

Hindalco Ind. 216 8.0 Shriram Tran. 859 13.9

SBI 3,071 7.4 HDIL 203 13.8

BSE Sensex & BSE 200 Top Five Gainers

Insider Trades

Company Name B/S Qty (000)Lupin Rajeev Patil S 4.5

Reliance Cap Rajendra Chitale S 1.5

Eicher Motors Vinod Aggarwal S 1.7

IndusInd Bank Paul Abraham S 25

Book closures and record datesCompany Date Purpose

Ess Dee Aluminium 07-Dec-2010 Dividend

Sadbhav Engr 07-Dec-2010 Stock Split

Shiva Cement 09-Dec-2010 Bonus 1:10

Bulk deals

Date Institution Scrip name B/S Qty (lacs) Price

29-Nov Blackstone Asia Prakash Ind S 9.7 100.0

1-Dec UCO Bank Dhanus Tech S 0.9 15.1

1-Dec McDowell Hold SBI MF B 1.0 130.0

1-Dec McDowell Hold SBI MF B 4.8 23.31-Dec XL Telecom Goldman Sachs S 2.7 31.0

2-Dec Hitech Plast Reliance Capital B 4.5 19.9

Global Indices

(1.0)

1.41.91.4

1.6

4.24.3

(2.0)

0.0

2.0

4.0

6.0

Sensex Nifty DowJones*

Nasdaq* HangSeng

Nikkei Shanghai

(%)

Sectoral Indices

7.6%5.9%

5.0%

4.8%

4.4%

4.3%4.2%

3.7%3.6%

3.5%

3.1%

2.5%

0% 2% 4% 6% 8%

BSE Realty

BSE Bank

BSE Metal

BSE Oil & Gas

BSE-200

BSE Auto

BSE Cap Goods

BSE ITBSE Small-Cap

BSE Pharma

BSE Power

BSE FMCG

S&P CNX NIFTY

5,830 5,863

5,961

6,012 5,993

29-Nov 30-Nov 1-Dec 2-Dec 3-Dec

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India Infoline Weekly Wrap

Mutual fund round-up

IIFL, IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel (W), Mumbai 400 013The information in this newsletter is generally provided from the press reports, electronic media, research, websites and other media. The information also includes information from interviews conducted,analysis, views expressed by our research team. Investors should not rely solely on the information contained in this publication and must make their own investment decisions based on their specificinvestment objectives and financial position and using such independent advisors as they believe necessary. The materials and information provided by this newsletter are not, and should not be construedas an advice to buy or sell any of the securities named in this newsletter. India Infoline may or may not hold positions in any of the securities named in this newsletter as a part of its business. Past performanceis not necessarily an indication of future performance. India Infoline does not assure for accuracy or correctness of information or reports in the newsletter.

Commodity, debt and currency graphs

* As per previous close

Fund this week: IDFC Small & Midcap Fund

Asset allocation (%)

Equity 89.0

Debt 5.1

Cash/call 5.9

Top 5 holdings (%)

M&M Financial Services Ltd. 4.8

Central Bank Of India 4.3

Shree Renuka Sugars Ltd. 3.9

Vardhman Textiles Ltd. 3.8

Tulip Telecom Ltd. 3.8

Top 3 sectors (%)

Bank - Public 10.2

Textile 5.4

Lubricants 3.8

Fund snapshot

Fund Manager Kenneth Andrade

Latest NAV Rs19.6

NAV 52 high/low Rs21/14

Latest AUM (cr) Rs1,193

Type Open-ended

Class Equity - Diversified

Options Growth & dividend

Min investment Rs5,000

Benchmark CNX Midcap

No. of stocks 21

No. of sectors 15

Expense ratio 2.1%

Exit load 1.0%

India Infoline picks

Mutual Funds Assets NAV Absolute return (%) as on December 02, 2010

(Rs Cr) (Rs) 1wk 1mth 3mth 6mth 1yr 2yr 3yr 5yr

HDFC Top 200 (G) 9,358 226.0 3.4 (1.9) 8.8 23.1 26.3 170.4 40.9 200.3

IDFC Small & Midcap Equity (G) 1,012 19.6 1.7 (4.2) 2.8 18.5 32.7 192.7 -- --

Reliance Equity Opportunities (G) 2,694 38.0 2.8 (2.1) 4.9 22.7 39.6 207.7 27.9 178.1

ICICI Prudential Tax Plan (G) 1,337 147.5 2.4 (2.8) 5.8 17.6 27.1 195.5 27.5 110.9

HDFC Prudence Fund (G) 5,655 221.4 2.3 (1.7) 5.2 17.5 29.0 160.8 45.0 168.1

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NFO update

Fund Name Close Type Class

ICICI Pru FMP Sr 53 - 1 Yr Pl C 7-Dec CE Debt - FMP

DSP BlackRock FMP12M- Sr-10 7-Dec CE Debt - FMP

Principal SMART Equity Fund 10-Dec OE Equity

Mutual Fund Dividend % Record date Class

UTI Half Yearly Interval FSr II 100.0 7-Dec Debt

ICICI Pru Qtrly Interval II Pl D 100.0 7-Dec Debt

Kotak Qtrly Interval Pl Sr 8 100.0 8-Dec Debt

Dividend update

Currency

41

43

45

47

49

51

May-09 Nov-09 May-10 Dec-10

Gold $/OZ

650

850

1,050

1,250

1,450


Crude (US$/bbl)

40

60

80

100


10yr G-Sec Yield (%)

5.5

6.0

6.5

7.0

7.5

8.0

8.5


Copper (US$/ton)

2,000

4,000

6,000

8,000

10,000


Aluminium (US$/ton)

1,100

1,500

1,900

2,300

2,700
