Vipul final

A REPORT
ON
SECTORAL ANALYSIS OF BSE
BY
VIPUL PRAVIN MUNOT
(12BSP2049)
PUNE STOCK EXCHANGE SECURITIES LIMITED
(A subsidiary of Pune Stock Exchange)

i
A REPORT
ON
SECTORAL ANALYSIS OF BSE
BY
VIPUL PRAVIN MUNOT
(12BSP2049)
PUNE STOCK EXCHANGE SECURITIES LTD.
(A subsidiary of Pune Stock Exchange)
A report submitted in partial fulfillment of
The requirements of
PGPM Program of
IBS PUNE
Company Guide: Faculty Guide:
Mr. Nandkumar Kakirde Prof. Gopinath Krishna Pillai
Date of Submission:

ii
CERTIFICATE
This is to certify that VIPUL PRAVIN MUNOT, a student of Batch 2012-14, enrolment no.
12BSP2049 from IBS PUNE has done his Internship at PSE Securities Ltd. from 18th
March
2013 to 10th
June 2013.
The project work entitled “Sectoral Analysis of BSE” embodies the original work done by Mr.
Vipul during his project training period.
Company Guide: Faculty Guide:
Mr. Nandkumar Kakirde Prof. Gopinath Krishna Pillai

iii
ACKNOWLEDGEMENT
The satisfaction & euphoria that accompany the successful completion of any task would
be incomplete without the mention of people who made it possible because “Success is
the abstract of hard work & perseverance, but steadfast of all is encouragement guidance
“. So, I acknowledge all those whose guidance and encouragement served as a beacon
light & crowned my efforts with success.
I take this opportunity to acknowledge the guidelines and suggestions given by my
Company Guide Mr. NandKumar Kakirde because of which I could complete the project
and understand various concepts of working in an organization.
With great pleasure and acknowledgement, I extend my profound thanks to thank Prof. Gopinath
Krishna Pillai, for his valuable guidance, keen interest, cooperation and encouragement at
various stages of preparation of this project and in understanding various aspects and work
process.
Furthermore, I am also grateful to Mrs. Archana Gorhe to provide a platform for the internship. I
would also like to have a special gratitude towards the company staff for their valuable support
and co-operation at the workplace.

iv
EXECUTIVE SUMMARY
Bombay Stock Exchange (BSE) is the leading stock exchange in the world. BSE sectoral indices
consists of Auto, Bankex, Capital Goods, Consumer Durables, FMCG, Healthcare, IT, Metal, Oil
& Gas, Power and Realty. Each sector has numerous companies listed under them. Each sector
gives an overview of sector‟s performance and a general idea about how the sector is performing,
what one should be aware of, etc.
The project tries to determine common factors that affect the stock market. It analyzes the impact
of best performing and worst performing companies on the sector. It also finds out any relation
between fluctuations in SENSEX with the sectoral indices as well as the top gainer, reasons for
those fluctuations. This project will help to determine which sector has been consistent in
performance and how an individual company or a sector can affect the stock market.
The report has been done as a part of academic curriculum. This report will help an investor to
make his portfolio. Most of the reasons for the performance of the sectors as well as the
companies and their effects on Sensex cited in the project get repeated in every 2-3 business
cycle. So the investor can analyze the affect of the particular action and predict the outcome on
the market.

TABLE OF CONTENTS
CERTIFICATE............................................................................................................................... ii
ACKNOWLEDGEMENT.............................................................................................................iii
EXECUTIVE SUMMARY ........................................................................................................... iv
Table of Figures ............................................................................................................................. iv
1. Introduction ............................................................................................................................. 5
1.1. BSE Limited......................................................................................................................... 5
1.1.1. Investor Services:...................................................................................................... 5
1.1.2. The BSE On-line Trading (BOLT):.......................................................................... 5
1.1.3. BSEWEBX.com: ...................................................................................................... 5
1.1.4. Surveillance: ............................................................................................................. 5
1.1.5. BSE Training Institute: ............................................................................................. 6
1.2. Pune Stock Exchange Securities Limited............................................................................. 6
1.3.1. Scrip Selection Criteria for BSE Sectoral Indices............................................................. 7
1.3.1.1. Eligible Universe ........................................................................................................ 7
1.3.1.2. Trading Frequency...................................................................................................... 7
1.3.1.3. Market Capitalization ................................................................................................. 7
1.3.1.4. Buffers ........................................................................................................................ 8
1.3.1.5. Index Review Frequency............................................................................................ 8
1.4. BSE TECk Index.................................................................................................................. 8
1.4.1. Scrip Selection Criteria for BSE TECk Index................................................................... 8
1.4.1.1. Eligible universe......................................................................................................... 8
1.4.1.2. Trading Frequency...................................................................................................... 8

1.4.1.3. Market capitalization.................................................................................................. 8
1.4.1.4. Buffers ........................................................................................................................ 9
1.5. BSE PSU Index.................................................................................................................... 9
1.5.1. Scrip selection criteria for BSE PSU Index ...................................................................... 9
1.6. Problem statement................................................................................................................ 9
1.7. Objective of study ................................................................................................................ 9
1.8. Proposed Methodology ...................................................................................................... 10
1.9. Limitations of the study...................................................................................................... 10
2. BSE Auto Index ........................................................................................................................ 11
3. BSE Bankex Index.................................................................................................................... 13
4. BSE Capital Goods Index......................................................................................................... 16
5. BSE Consumer Durables Index ................................................................................................ 20
6. BSE FMCG Index..................................................................................................................... 23
7. BSE Healthcare Index............................................................................................................... 25
8. BSE IT Index ............................................................................................................................ 28
9. BSE Metal Index....................................................................................................................... 30
10. BSE Oil & Gas Index.............................................................................................................. 33
11. BSE Power Index.................................................................................................................... 36
12. BSE Realty Index.................................................................................................................... 39
13. Tata Motors............................................................................................................................. 42
13.1. Automobile Sector............................................................................................................ 43
13.2. Tata Motors ...................................................................................................................... 44
14. Bharat Heavy Electricals Ltd.................................................................................................. 48
14.1. Power Sector .................................................................................................................... 49

14.2. Bharat Heavy Electricals Ltd ........................................................................................... 51
15. Cipla Ltd ................................................................................................................................. 55
15.1. Healthcare Sector ............................................................................................................. 56
15.2. Cipla Ltd........................................................................................................................... 58
16. Hindustan Unilever Ltd........................................................................................................... 64
16.1. FMCG Sector ................................................................................................................... 65
16.2. Hindustan Unilever Ltd.................................................................................................... 67
17. Recommendation .................................................................................................................... 70
18. Conclusion .............................................................................................................................. 71
19. Glossary .................................................................................................................................. 72
20. Appendix................................................................................................................................. 73
21. References............................................................................................................................... 80

Table of Figures
Figure 1: BSE Auto Performance ................................................................................................. 11
Figure 2: BSE Bankex Performance............................................................................................. 13
Figure 3: BSE Capital Goods Performance .................................................................................. 16
Figure 4: BSE Consumer Durables Performance ......................................................................... 20
Figure 5: BSE FMCG Performance.............................................................................................. 23
Figure 6: BSE Healthcare Performance........................................................................................ 25
Figure 7: BSE IT Performance ..................................................................................................... 28
Figure 8: BSE Metal Performance................................................................................................ 30
Figure 9: BSE Oil & Gas Performance......................................................................................... 33
Figure 10: BSE Power Performance............................................................................................. 36
Figure 11: BSE Realty Performance............................................................................................. 39
Figure 12: Tata Motors, BSE Auto & Sensex Movement for FY2012-13 ................................... 42
Figure 13: BHEL, BSE Power & Sensex Movement FY2012-13................................................ 48
Figure 14: Cipla, BSE Healthcare & Sensex Movement FY2012-13 .......................................... 55
Figure 15: HUL, BSE FMCG & Sensex Movement FY2012-13................................................. 64
Figure 16: Top Gainers & Losers for FY2012-13 ........................................................................ 73

1. Introduction
1.1. BSE Limited
BSE Limited. (Bombay Stock Exchange), is Asia‟s first Stock Exchange and one of India‟s
leading exchange groups, was established in 1875. BSE has facilitated the growth of the Indian
corporate sector by providing it an efficient capital-raising platform. BSE was established as
"The Native Share & Stock Brokers' Association" in 1875. BSE has a corporative and
demutualised entity, with a broad shareholder-base which includes two leading global
exchanges, Deutsche Bourse and Singapore Exchange as strategic partners. BSE provides an
efficient and transparent market for trading in equity, debt instruments, derivatives, mutual
funds. It also has a platform for trading in equities of small-and-medium enterprises (SME).
More than 5000 companies are listed on BSE making it world's No. 1 exchange in terms of listed
members. It is also one of the world‟s leading exchanges (3rd largest in December 2012) for
Index options trading. BSE also has a wide range of services to empower investors and facilitate
smooth transactions:
1.1.1. Investor Services: The Department of Investor Services redresses grievances of
investors. BSE was the first exchange in the country to provide an amount of Rs.1 million
towards the investor protection fund; it is an amount higher than that of any exchange in
the country. BSE launched a nationwide investor awareness program- 'Safe Investing in
the Stock Market' under which 264 programs were held in more than 200 cities.
1.1.2. The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line
screen based trading in securities. BOLT is currently operating in 25,000 Trader
Workstations located across over 359 cities in India.
1.1.3. BSEWEBX.com: In February 2001, BSE introduced the world's first centralized
exchange-based Internet trading system, BSEWEBX.com. This initiative enables
investors anywhere in the world to trade on the BSE platform.
1.1.4. Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis
the price movements, volume positions and members' positions and real-time
measurement of default risk, market reconstruction and generation of cross market alerts.

1.1.5. BSE Training Institute: BTI imparts capital market training and certification, in
collaboration with reputed management institutes and universities. It offers over 40
courses on various aspects of the capital market and financial sector. More than 20,000
people have attended the BTI programmes.
It has a global reach with customers around the world and a nation-wide presence. BSE systems
and processes are designed to safeguard market integrity, drive the growth of the Indian capital
market and stimulate innovation and competition across all market segments. BSE is the first
exchange in India and second in the world to obtain an ISO 9001:2000 certifications. It is also
the first Exchange in the country and second in the world to receive Information Security
Management System Standard BS 7799-2-2002 certification for its On-Line trading System
(BOLT). It operates one of the most respected capital market educational institutes in the country
(the BSE Institute Ltd.). BSE also provides depository services through its Central Depository
Services Ltd. (CDSL) arm.
BSE‟s popular equity index - the S&P BSE SENSEX - is India's most widely tracked stock
market benchmark index. It is traded internationally on the EUREX as well as leading exchanges
of the BRCS nations (Brazil, Russia, China and South Africa).
BSE has won several awards and recognitions that acknowledge the work done and progress
made like The Golden Peacock Global CSR Award for its initiatives in Corporate Social
Responsibility, NASSCOM - CNBC-TV18‟s IT User Awards, 2010 in Financial Services
category, Skoch Virtual Corporation 2010 Award in the BSE Star MF category and
Responsibility Award (CSR) by the World Council of Corporate Governance. Its recent
milestones include the launching of BRICSMART indices derivatives, BSE-SME Exchange
platform, S&P BSE GREENEX to promote investments in Green India.
1.2. Pune Stock Exchange Securities Limited
Pune Stock Exchange Securities Limited. (PSESL), a subsidiary of Pune Stock Exchange was
formed in 1999 to provide a suitable platform to their sub brokers/clients to have an access to
deal and trade in securities listed on NSE/BSE. It is a member of NSE (Capital Market & Future

& Option Segment) and BSE (Capital Market Segment). It is engaged in business of stock
broking. It also acts as a Depository participant1
of CDSL2
.
1.3. Sectoral Indices
BSE constructs of various sectoral indices "Sector Series (90/FF)" such as BSE Auto Index, BSE
BANKEX, BSE Capital Goods Index, BSE Consumer Durables Index, BSE FMCG Index, BSE
Healthcare Index, BSE IT Index, BSE Metal Index, BSE Oil & Gas Index, BSE Power Index and
BSE Realty Index. All these indices are calculated and disseminated on BOLT, BSE's trading
terminal on a real time basis. "90/FF" implies that the index covers 90% of the sectoral market
capitalization and is based on the Free-float Methodology3
.
1.3.1. Scrip Selection Criteria for BSE Sectoral Indices
1.3.1.1. Eligible Universe
Scrip‟s classified under various sectors that are present constituents of BSE-500 index would
form the eligible universe.
1.3.1.2. Trading Frequency
Scrip‟s should have a minimum trading frequency of 90% in preceding three months.
1.3.1.3. Market Capitalization
Scrip‟s with a minimum of 90% market capitalization coverage in each sector based on free-float
final rank will form the index.
1
The depository participant (DP) acts as a link between an investor and CDSL. An investor opening demat account with a DP can utilize the
services offered by CDSL. The DP processes the instructions of the investor, the account and records are maintained with CDSL. It therefore, acts
as “Point of Service” for the investor.
2
CDSL was promoted by BSE Limited. Jointly with SBI, BOI, BOB, HDFC Bank, Standard Chartered Bank and UBI. It was set up with a view
of providing convenient, dependable and secure depository services at affordable cost to all market participants
3
Free-float Methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a
company for the purpose of index calculation and assigning weight to stocks in the Index. Free-float market capitalization takes into
consideration only those shares issued by the company that are readily available for trading in the market. It generally excludes promoters'
holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In
other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the
market

1.3.1.4. Buffers
A buffer of 2% both for inclusion and exclusion in the index is considered so that movements in
and out of the index are minimized. For example, a company can be included in the index only if
it falls within 88% coverage and an existing index constituent cannot be excluded unless it falls
above 92% coverage. However, the above buffer criterion is applied only after the minimum
90% market coverage is satisfied.
1.3.1.5. Index Review Frequency
The BSE Index Committee meets every quarter to discuss index related issues. In case of a
revision in the Index constituents, the announcement of the incoming and outgoing scraps is
made six weeks in advance of the actual implementation of the revision of the Index.
1.4. BSE TECk Index
The decade of 1990s saw the emergence of the Telecom, Media, and Telecommunications
(TMT) sector as a major force in the Indian economy. The remarkable growth of this sector was
reflected in the financial markets.
Going by the trading pattern, around 19% of the turnover on the stock exchanges is taking place
in TMT sector stocks. These stocks collectively account for 15% of the total market
capitalization. The investment interest in technology stocks continues unabated.
Recognizing the growing importance of the TMT sector, BSE TECk index was launched in
2001.
1.4.1. Scrip Selection Criteria for BSE TECk Index
1.4.1.1. Eligible universe
Scrip‟s classified under information technology, media and telecom sectors that are present
constituents of BSE-500 index form the eligible universe.
1.4.1.2. Trading Frequency
Scrip‟s should have a minimum trading frequency of 90% in preceding three months.
1.4.1.3. Market capitalization
Scrip‟s with a minimum of 90% market capitalization coverage in each sector based on free-float
final rank form the index.

1.4.1.4. Buffers
A buffer of 2% both for inclusion and exclusion in the index is considered so that movements in
and out of the index are minimized. For example, a company can be included in the index only if
it falls within 88% coverage and an existing index constituent cannot be excluded unless it falls
above 92% coverage. However, the above buffer criterion is applied only after the minimum
90% market coverage is satisfied.
1.5. BSE PSU Index
BSE Ltd. launched "BSE PSU Index" on 4 June 2001. This index consists of major Public Sector
Undertakings listed on BSE. The BSE PSU Index is displayed on-line on the BOLT trading
terminals nationwide. The objective of BSE PSU Index is An Index to track the performance of
listed equity of PSU companies and a suitable benchmark for the Central Government to monitor
its wealth on the bourses.
The Base Date for the BSE PSU Index is 1st February 1999, the date when the BSE-500 was
launched. Being a subset of BSE-500, the BSE PSU Index ensures a reasonable history of how
the Central Government wealth fluctuated on the bourses. The Base Value for the BSE PSU
Index has been set at 1000 to ensure adequacy in terms of daily index movement.
1.5.1. Scrip selection criteria for BSE PSU Index
For consideration of scrips for inclusion in BSE PSU index, Public Sector Undertaking refers to
any undertaking wherein the Central Government holding is equal to or more than 51%. Since
BSE PSU index is a subset of BSE-500 index, scrips that form part of BSE-500 index
automatically get included in BSE PSU index.
1.6. Problem statement
To understand the relation between the major players of sectoral indices with corresponding
sectors and analyze the fluctuation of Sensex with them.
1.7. Objective of study
To understand the basic terminology of stock market.
Analyzing the sector wise performance.
Effect on Sensex due to sector wise performance.

Co-relating the sector wise performance with factors responsible for fluctuations in the
Sensex.
1.8. Proposed Methodology
Gathering secondary data.
Getting information from secondary collected data.
A detailed analysis of these sectors is done to understand their nature, peculiar features,
growth, profitability and performance over the study period so as to make opinion as to
whether they were bad performing or good performing sectors during the study period.
Analyzing and finding out the reasons for the performance of the sectors
Draw observations and conclusion out of it.
1.9. Limitations of the study
Data Collection
The most important constraint in this study was data collection as Secondary data was
selected for study. Secondary data means data that are already available i.e. they refer to
the data which have already been collected and analyzed by someone else.
Reliability
The data collected in research work was secondary data, so, this puts a question mark on
the reliability of this data, which a very important factor of this study as conclusion has
been derived from this secondary data only.
Accuracy
The facts and findings of the data cannot be accepted as accurate to some extent as firstly,
secondary data was collected. Secondly, for doing descriptive research time needed to be
more, because in short period you cannot cover each point accurately. The accuracy of
the project is limited because of the unavailability of historical data beyond fiscal year
2012-2013.

2. BSE Auto Index
Figure 1: BSE Auto Performance
Q1FY2012-13
The BSE Auto Index have underperformed in the first quarter of FY2013 reflecting the
challenging operating environment. The index declined by 1.67% which was caused largely by
TTMT, MSIL and BJAUT; however, MM and HMCL outperformed the index, led by strong
volume momentum in its monthly sales.
The reason for this underperformance was mainly due to rising fuel cost, inflation and interest
rate as well as profitability in domestic market came under pressure.
Q2FY2012-13
As compared to first quarter, the BSE Auto index outperformed the Sensex during 2QFY2013,
registering absolute gains of 3.48%. This was on account of performance led by major
companies like MM, BJAUT and MSIL; however, HMCL, Ashok Leyland (AL) and Bosch
(BOS) underperformed the index during the quarter.

MM was the top gainer in the index with absolute returns of 22.3% led by strong volume growth;
BJAUT (revival in export markets) and MSIL (resumption of production at Manesar) too
registered strong outperformance driven by reducing uncertainty on the volume front. HMCL
was the major loser as it witnessed sharp decline in volumes leading to inventory pile-up at the
dealer end.
Q3FY2012-13
The BSE Auto index outperformed the Sensex during 3QFY2013 with a gain of 3.19%. The
outperformance was led by TTMT and Bajaj Auto (BJAUT); other companies like Hero
MotoCorp (HMCL) and MM underperformed the auto index. TTMT, BJAUT and MSIL were
the major gainers during the quarter, with absolute gains of ~17%, ~16% and ~10% respectively.
Bharat Forge declined ~17% on account of sluggish CV volumes and Exide Industries was down
~6% on posting weak results for 2QFY2013.
Q4FY2012-13
The BSE Auto index witnessed a significant decline of 4.36% during 4QFY2013, thereby
underperforming the Sensex by 9.5%. This was largely on account of lower-than-expected
volume performance by automotive OEMs amid weak economic environment, which led to a 7-
19% correction in their stock prices. All the stocks in the BSE Auto index witnessed a decline in
prices, with index heavyweights like Bajaj Auto, MSIL and TTMT registering a steep decline of
~16%, ~14% and ~14% respectively.

3. BSE Bankex Index
Figure 2: BSE Bankex Performance
Q1FY2012-13
Deposit growth has slowed down at the sector level to ~14.3% y-o-y levels but no sharp
moderation in loan growth and has been at 17-18% y-o-y. Fall in yields on G-Secs will support
earnings, especially for PSU banks and the yield curve (especially at the longer end) has shifted
downwards over the last three months on sagging growth, lower commodities (viz. crude) and
various liquidity measures (OMO/CRR) carried out by the RBI. Current loan growth is driven by
corporate working capital and retail credit demand. Both the 10-year and 5-year G-sec yields
have corrected by 40-50bps from their highs in Q1, while shorter tenured G-sec securities (1-yr,
2-yr) have corrected by 20- 30bps. Growth in credit remained sluggish.
Q2FY2012-13
During the quarter, it was relatively less tight liquidity conditions. Cash reserve ratio of 25 bps
was cut down by the RBI. Lower treasury profits have seen during the period. During the
quarter, 10 year, 5 year, and 2 year G-sec yields continued to remain largely flat. Deposit rates
are trending down as the RBI has eased liquidity via CRR and SLR cuts resulting in lower cost
of funds for banks. Bulk deposit rates have dipped significantly. These benefits in lower cost of
funds will support NII growth of banks in Q2FY13. With inflation being relatively sticky and

above comfort zone, RBI has refrained from aggressive cuts in Repo rate. Demand for NBFCs
remained strong. Strain on banks continued due to weak macroeconomic environment.
Q3FY2012-13
Over the past few quarters, PSBs have underperformed significantly, led by sharp increase in
slippages/ restructured assets and deterioration in operating performance led by fall in margins.
Credit to industry increased at a slower pace at 17.7 per cent to Rs 20,85,300 crore in November,
2012 as compared with the increase of 20.9 per cent to Rs 17,71,200 crore in November 2011.
Despite the rising non-performing assets, non-food bank credit increased by 17.6 per cent in
November 2012 as compared with the increase of 16.8 per cent in the year-ago period. Bank
loans to NBFCs rose 30.3 per cent on a y-o-y basis to Rs 2, 43,900 crore by November 2012. 10-
yr G-sec yields corrected by 15bps to 8% during Q3FY13 and are steadily trending southwards,
which may shore up treasury profits of banks having higher AFS proportion. The Parliament has
approved Banking (Amendment) Bill paving the way for issuance of new banking licenses by
RBI.
Q4FY2012-13
Overall performance of Banks was muted driven by weak revenue growth, high operating
expenses and elevated credit costs. Banks continue to chase limited deployment opportunities
and close the wedge between deposit and credit growth. Q4 has been a weak quarter from NIM
perspective for most of the banks due to significant portion of priority sector lending and higher
wholesale borrowing rates. In Q4FY13, there were additional margin headwinds for PSU Banks
such as base rate reduction and elevated retail term deposits cost. Average 3 month, 6 month and
12 month bulk deposits rates increased by 30-50bp.
During the fortnight ended March 22, 2013, loans and deposits grew 14.1% y-o-y and 14.3% y-
o-y respectively. Deposits grew by 4.2% or Rs 270,000 cr, while loans grew by 4.7% or Rs
240,000 cr.

Despite substantial liquidity injection through Cash reserve ratio (CRR) cuts and Open market
operations (OMOs) by RBI, liquidity conditions tightened from November raising short-term
wholesale borrowing rates by 30-35bps in Q4FY13.
On the business side, the increase in liquidity deficit was largely driven by weak deposit
mobilization as depositors turned averse to term deposits amid high retail inflation. Banking
system deposit growth touched multi-year low of 11-12% during early Q4FY13.
During the quarter, 1-year and 10-year benchmark G-sec yields declined by 17bp and 10bp
respectively.
Business sentiment has improved due to government's concrete steps on reforms over the past
year. Further, deteriorating macroeconomic indicators and cooling headline inflation has paved
some way for the Reserve Bank of India to reduce policy rates.

4. BSE Capital Goods Index
Figure 3: BSE Capital Goods Performance
Q1FY2012-13
Overall order inflows have been weak for the sector, given the delays in project awards. Most
leading economic indicators have not been very positive so far in Q1FY13. In the June
quarter, the BSE Capital Goods index remained flat vs. a similar performance of the Sensex.
IIP based Capital Goods Index was down 16.3% for April 2012.
The order inflow announcements in the capital goods space marginally picked up (by 17% q-
o-q and 12% y-o-y) with companies bagging orders of ~ Rs 36,000 cr in Q1FY13. L&T was
the highest contributor (34% of the total orders announced). The book-to-bill ratio for most
companies has now started falling, thereby aggravating growth visibility in future.
The fierce competition from the overseas players, mainly the Chinese, has created additional
pricing and margin pressure in the power equipment space. The trend of majority (>50%) of
equipment ordering going to foreign vendors has not only sustained, but in 1QFY13 about
3/4th of substation also have gone to foreign vendors with some new players coming in.

Order inflows remain muted due to multiple challenges like policy paralysis, coal shortage,
land acquisition issues and the tough macro environment, the sector is abuzz with the
expectation of imminent imposition of duties on Chinese power generating equipment.
Q2FY2012-13
There has been no material improvement in execution environment as working capital cycles
remain stretched due to delayed payments and rise in debt levels. Higher interest rate and
slow down in industrial capex has impacted the order inflows for the sector. End market for
Power equipment continued to be weak, with virtually no orders finalized in the quarter. The
issue relating to coal shortage, environment clearance continues to hurt the sector.
Cabinet Committee on Economic Affairs (CCEA) passed the bailout package for SEB.
Salient features of the Restructuring Package: (1) 50% of outstanding ST loans to be taken
over by the State Government in the next 2-5 years and in the interim will be funded by
bonds issued by SEBs but guaranteed and serviced by State Government. (2) Restructuring
the balance 50% debt by banks – Committee recommended extending tenure to 7-10 years
with a 3-yr moratorium (3) Central Government to provide incentive of ~25% of principal
repayment of the loans taken over by State + T&D loss reduction linked incentives.
The committee also recommended a 3-yr transitional finance mechanism to bridge revenue
gap in the near term. It has raised hope of improved capex by SEB. It will also provide
working capital relief for all those vendors who were facing problems due to stressed
financials of SEBs. Over the last few months, Power Grid order awards have picked up. It
has awarded orders worth Rs 74bn (v/s Rs 21.2bn y-o-y) in year-to date FY13, against
project awards of Rs 232bn in FY12 and Rs 161bn in FY11.
Government‟s new found zeal for reforms in the last couple of months have struck a positive
note in the markets temporarily with the Capital goods index outperforming the broader
markets by ~7% over the last three months. The imposition of import duty on mega and ultra

mega power projects is a strong positive, though its impact will largely be visible once the
Thirteenth plan ordering starts.
Q3FY2012-13
Ordering activity remains sluggish, particularly in the industrial / power generation segment.
Ordering by Power Grid Corporation (PGCIL) has also been muted during Q3FY13.
Barring power T&D EPC and short-cycle infra (mainly factories and building), ordering
momentum has been dull. Order intakes for BTG industry continues to stay sluggish and is
severely hit on account of various concerns surrounding power sector. Tough macros
continue to mar industrial capex including large power generation projects.
During Q3FY13, PGCIL released orders worth Rs 43bn compared to Rs 74bn last year.
Road segment has also slowed down with barely any project awards in Q3, even as NHAI‟s
FY13 annual target remains at 9,500 kms.
While commodity prices have corrected meaningfully, a large part of the decline is negated
by currency movements. Companies with high local manufacturing content will be the key
beneficiaries. Net bank credit to the Infrastructure sector is declining since June 2011 and
has reached FY09 levels. Quarterly run rate of project sanctions has reached Rs 250b-270b
v/s a peak of Rs 1,250b in Q1FY11. This indicates continued slowdown in Industrial and
Infrastructure spending.
While power generation continues to stay dry in terms of new tenders, power transmission &
distribution, construction and hydrocarbon among others, continue to remain strong.
Consequently, generation dependent companies like BHEL failed to announce any large new
order wins. L&T because of its diversified nature was steadier, with total orders announced
during the quarter standing at Rs 98 bn, majority of which came from the construction
segment.

Overall, T&D companies would continue to enjoy a good market, power generation
(including captive) would continue to remain sober and diversified players viz. L&T would
continue to be steadier than others.
The Union Cabinet has cleared a proposal to set up a Cabinet Committee on Investment
(CCI) which will accord single window approval to investments, particularly above Rs 1,000
cr.
Subsequently, powers of the panel had been diluted and it will not be able to directly clear
the projects. It will be up to individual ministries to approve projects, but where there are
delays, the new panel will have the authority to intervene.
Q4FY2012-13
The BSE Capital Goods Index underperformed massively in Q4FY13, falling ~19% vs. ~4%
fall in the Sensex. For the first time since Jan 2005, the sector quotes at a discount to the
Sensex. Weak industrial capex, execution delays and problems in the power sector continue
to remain an overhang on the Capital Goods index.
Working capital requirements have remained high, as clients remain stringent on payments,
adversely impacting the companies with weak balance sheets. Continued margin pressure,
due to tough competition in the sector, underutilization of capacities and in some cases
higher interest costs, is expected to be a drag on the companies' profitability.
While commodity prices have corrected meaningfully, a large part of the decline is negated
by currency movements. The environment for capital goods space remains challenging, as
there is dearth of capex in key industries and fresh power capacity addition plans.
In spite of interest rate cuts and expectations of soft interest rate regimes, new project
announcement continues to be sluggish and macro-economic indicators such as GDP growth
and IIP point towards a marked slowdown in industrial activity. Stocks are trading at
significant discount to long-range averages and can rerate once demand visibility sets in.

5. BSE Consumer Durables Index
Figure 4: BSE Consumer Durables Performance
Q1FY2012-13
Demand across segments has been relatively good, despite initial signs of softening in certain
categories in 4QFY12. Most companies took price hikes across their product portfolios to
maintain margins. Despite the price hikes, volume growth across the sector has remained
healthy.
International prices of edible oils (like groundnut, safflower and sunflower) and agri
commodities (like copra, wheat, barley, sugar and palm oil) were lower on YoY basis. Crude and
crude-linked commodities are also on a downtrend. However, steep INR depreciation has
negated some of the impact.
2QFY2013
HUL surprised positively on margin expansion but PP performance was disappointment. ITC
met Cig volume expectations but surprised on Cig margins. Britannia disappointed on Biscuits
volume growth (up just 2%). Pidilite surprised positively on Fevicol volume growth.

HUL indicated moderation in discretionary categories volume growth. Pricing component
continue to fade while ad-spends will be kept competitive to deal with any rise in competitive
intensity on the back of input cost deflation.
MRCO mentioned about possibility of rising competitive pressures in Coconut oil segment due
to correction in Copra prices. It may cut prices in the recruiter pack as well as in Saffola to ward
off the same. Consumer companies have not witnessed material slowdown in consumer demand
however volume growths have moderated sequentially.
Moderation in volume growth across companies in the sector; Britannia, HUL, Dabur, Marico,
showed moderation in volumes while Asian Paints and ITC posted sequential increase in
volumes. Colgate, Pidilite reported healthy volume growth.
Except for a few discretionary categories, consumer demand in Processed Foods has been
healthy. Late revival of the monsoon provides respite to future rural consumer demand. Despite
the relatively sober macroeconomic environment, new launch activity remained healthy during
the quarter. However, the pace of new launches has moderated
3QFY2013
Issues pertaining to the CSD channel continue to adversely impact the sector and the effect of
low base would show up from CY13. Competitive intensity continues to be elevated. Consumer
demand is showing softening in certain discretionary categories like premium skin care,
processed foods, ice-cream etc. New launch activity has been modest in 3QFY13. HUL entered
the premium hair oils category with the launch of Dove Elixir. Consumer Durables has
outperformed the markets (4.3% v/s Sensex in 3QFY13) underscoring preference for quality
defensives in a weak macro environment, despite rich valuations.
Q4FY2012-13
Consumer demand in staples continues to remain soft in 4Q, a spillover from 3Q. New launch
activity has seen sequential improvement with launches in Oral care, hair care and Food and
Beverages. HUL launched products in the personal care category under Lakme brand, while

GSK launched Paradontax. Dabur introduced Babool Salt. Union Budget was marginally
negative for FMCG sector. While excise duty on Cigarette was hiked by 18%, surcharge on
income tax was doubled from 5% to 10% resulting in 1-2% earnings downgrade for the sector.
Consumer Staples have selectively outperformed markets given the continued preference for
defensives in a volatile and uncertain market. In an environment of moderating volume growth,
we have bias for niche plays with strong pricing power and greater visibility on volume growth
and profitability.

6. BSE FMCG Index
Figure 5: BSE FMCG Performance
Q1FY2012-13
BSE FMCG Index outperformed the Sensex by 11.0% and posted an absolute return of 11.1%
during the 1QFY2013. Asian Paints posted the highest returns of 19.9%, followed by Godrej
Consumer and ITC, which gained 19.6% and 14.1%, respectively. However, Britannia (down
11.4%) and Nestle (down 2%) underperformed the Sensex during the quarter.
Consumption in many categories with high growth rates is still very low in urban India (like
penetration of deodorants at ~6%, skin creams at ~30% and noodles at ~21%). In rural India,
penetration of these products is even lower. With rising income levels and changing consumer
behavior in the country, consumer spending on branded FMCG products is set to rise. Also,
growth in modern retail (currently contributing ~6% to FMCG sales) offers scope for further
growth.
2QFY2013
The BSE FMCG Index outperformed the Sensex by 2.8% and posted an absolute return of 13.2%
during the quarter. Tata Global Paints posted the highest return of 23.4%, while HUL and Godrej

Consumer too gained by 20.9% and 17.7% respectively. However, Britannia Industries and
Nestle declined by 9.3% and 2.2% during the quarter.
3QFY2013
The BSE FMCG Index outperformed the Sensex by 4.7% and posted an absolute return of 7.2%
during the quarter. Among the stocks under our coverage USL gained the most due to the Diageo
deal, posting returns of 52.9%. GSK Consumer too posted a strong 27.8% return due to the open
offer.
Q4FY2012-13
The BSE FMCG Index posted a flat performance during the quarter; however, it outperformed
the Sensex which de-grew by ~ 3% during the quarter. Among the stocks under our coverage
Asian Paints gained the most, posting returns of 11.2%. GSK Consumer too posted a healthy
9.5% YoY growth. However, Tata Global and Colgate Palmolive fell by 20% and 21% during
the quarter.

7. BSE Healthcare Index
Figure 6: BSE Healthcare Performance
Q1FY2012-13
During 1QFY2013, the BSE Healthcare (HC) Index continued its outperformance. The HC index
rose by 3.9% as against flat performance by the Sensex. The outperformance was on account of
the slowdown in economic growth and hardening of interest rates. In such a scenario, the
pharmaceutical sector, which is not impacted much by the economic slowdown, emerged
resilient and outperformed the broader indices.
Major gainers during the quarter were Dishman Pharma and Alembic Pharma, which rose by
41.9% and 14.9%, respectively. Sun Pharma rose by 11.6%, whereas Cipla and Ranbaxy Labs
rose by 3.9% and 4.6%, respectively. Dr. Reddy's Laboratories (DRL) was the sole loser
amongst large caps, losing 6.2%.
Q2FY2012-13
During 2QFY2013, the BSE Healthcare (HC) index continued its outperformance. The HC index
rose by 9.0% as against a 7.8% rise in the Sensex. The performance of the sector was mainly
driven by the mid-cap stocks and stocks which had not participated in the rally so far. The
upward rally during the quarter was mainly driven by mid-caps, whereas the large-caps posted
gains in line with the BSE HC.

The major gainers were Dishman Pharmaceuticals and Chemicals (Dishman Pharma), IPCA
Labs and Alembic Pharma, which rose by 41.8%, 33.4% and 30.2% respectively. Other mid-caps
like Aurobindo and Indoco Remedies rose by 24.0% and 23.8% respectively. Among the large
caps, Cipla rose by 20.5%, whereas other large-caps like Ranbaxy Laboratories (Ranbaxy),
Cadila and Lupin rose by 6.8%, 13.2% and 9.7% respectively. Dr. Reddy's (DRL), on the other
hand was flat during the quarter.
Q3FY2012-13
During 3QFY2013, the BSE healthcare (HC) index continued its outperformance. The HC index
rose by 7.6% as against a 3.2% rise in the Sensex. The upward rally in the Pharma sector during
the quarter was driven by mid-caps as well as large caps. The highest gainers were Aurobindo
Pharmaceuticals and Dishman Pharmaceuticals which rose by 31.4% and 17.7% respectively.
Among the large caps, Dr. Reddy‟s, Cipla and GlaxoSmithKline Pharmaceuticals rose by 11.1%,
8.9% and 8.4% respectively, whereas other large caps Sun Pharma and Cadila Healthcare on the
other hand rose by 6.2% and 6.0% respectively. Lupin, another large cap, rose only by 2.4%
during the period. Amongst the losers, Ranbaxy Laboratories lost around 6.8% during the
quarter.
The Government of India has approved and released the new drug pricing policy 2012. The
proposed policy has recommended that the retail price of the essential 348 drugs will be fixed at
weighted average price of brands that have more than 1% market share.
Q4FY2012-13
During 4QFY2013, the BSE Healthcare (HC) index continued its outperformance. Against a
decline of 3.8% in the Sensex, the BSE HC index declined by 1.9%. The performance of the
sector was impacted by lackluster performance of the broader market, which reeled under the
slowdown in the overall economic growth. In such a scenario, the pharmaceuticals sector, which
usually tends not to be impacted much by economic slowdowns, emerged resilient and
outperformed the broader indices.

The decline in the Pharma sector was broad based, with few stocks showing an uptrend. Among
the major gainers was Alembic Pharmaceuticals, which rose 44%. Among the large-caps, Sun
Pharmaceutical Industries (Sun Pharma) rose by 11.0%, while Lupin just posted a rise of 2.0%.
Other large caps like Cipla, Dr Reddy's Laboratories (Dr Reddy's) and Ranbaxy Laboratories
(Ranbaxy) declined by 8.0%, 3.0% and 14% respectively. Cadila Healthcare declined by 17%
during the quarter. The Union Budget FY2013-14 has been positive for the pharmaceutical
sector. Though most of the demands haven't been met, the allocation and focus on the sector
continues.

8. BSE IT Index
Figure 7: BSE IT Performance
Q1FY2012-13
BSE IT Index has fallen 6.7%, underperforming the broader market indices, which were
down by 1%. The underperformance can largely be attributed to Infosys (down 13%) and
Wipro (down 16.3%). At this juncture the performance of the IT companies would depend on
their positioning in the industry demand pockets. Infosys is gradually losing the plot and
looks more vulnerable to demand uncertainties, more so on account of its higher exposure to
the discretionary portfolio. Wipro remains in the transition mode and will continue to lag its
peers.
Q2FY2012-13
In the last three months, the BSE IT Index (up 0.1%) has underperformed the broader market
indices (up 8%), with the exception of HCL Tech, which has smartly outperformed with a
28.5% gain. On the other hand, a higher number of smaller deals below $50 million have put
the mid-cap IT companies in a sweet spot.

Q3FY2012-13
In view of the stable IT budgets and signs of an uptick in discretionary spends, we are
optimistic about the demand improvement in FY2014. After the recent sharp run-up in
Infosys, not much upside in the stock in the near term can be said and at the current levels
TCS seems to be closer to its fair valuation.
Q4FY2012-13
Within the IT services sector, our conviction on CMC and Persistent Systems (Persistent; our
selected mid-cap stocks), and HCL Tech (our lone buy among large-cap stocks) has paid
handsome return in the last six months (CMC [26%], Persistent [28%] and HCL Tech
[36%]). Though the smart outperformance of the IT sector in the last six months (CNX IT:
14%/Nifty: 0.3%) might be capped on the upside in the near term.

9. BSE Metal Index
Figure 8: BSE Metal Performance
Q1FY2012-13
The BSE Metal Index posted a negative return of 4.7% in 1QFY2013. Steel stocks declined
during 1QFY2013 after a significant increase witnessed during 4QFY2012. JSW Steel declined
by 5.8% in 1QFY2013 on the Supreme Court's order deferring the mining ban in Karnataka and
CBI's probe on alleged corporate governance issue relating to donations by the company. SAIL
and Tata Steel also witnessed a similar decline of 3.9% and 6.4%, respectively.
On the non-ferrous side, Sterlite, Hindalco and Hindustan Zinc declined by 7.5%, 7.3% and
6.8%, respectively, on account of a steep fall in spot prices of base metals such as aluminum,
zinc and copper and issues related to project delays.
Nalco, on the other hand, reported an increase of 9.0%. Coal India and MOIL recorded increases
of 0.8% and 13.2% during the quarter, respectively. NMDC outperformed during the quarter as it
raised iron ore prices modestly. Mid-cap steel stocks, apart from Bhushan Steel, also
underperformed during 1QFY2013.

Q2FY2012-13
The BSE Metal Index posted a positive return of 1.0% in 2QFY2013. Steel stocks excluding
JSW Steel declined during 2QFY2013 on the back of a Comptroller and Auditor General (CAG)
report stating the irregularities in coal block allocation to private steel and power producers. JSW
Steel stock increased by 13.1% in 2QFY2013 mainly on the back of Supreme Court order to lift
mining ban in Karnataka and starting 18 category-A mines. SAIL and Tata Steel stock prices
declined by 3.3% and 6.6%, respectively.
On the non-ferrous side Nalco's stock prices declined by 15.6% on account of steep fall in
aluminum price. On the other hand Hindustan Zinc (HZL) and Sterlite Industries (Sterlite) stock
prices rose by 15.3% and 2.1% respectively on the back of news reports suggesting that
government may sell its stake in HZL and Balco (Sterlite's subsidiary) to Vedanta Resources.
Stock prices of Coal India and NMDC recorded an increase of 3.2% and 7.0% respectively
during the quarter, as Coal India reported better than expected 1QFY2013 results and NMDC
raised its prices for 2QFY2013.
Q3FY2012-13
The BSE Metal Index posted a positive return of 5.2% in 3QFY2013. Prices of steel stocks under
coverage increased during 3QFY2013 on the back of positive news of demand recovery in
China, higher domestic HRC prices and opening of the category mines in Karnataka. Stock
prices of SAIL, Tata Steel and JSW Steel increased by 6.1%, 6.9% and 7.3% respectively.
On the non-ferrous side, Hindalco Industries (Hindalco)'s stock price increased by 8.1% after the
MoEF granted stage 1 clearance to its Mahan coal block and Sterlite Industries (Sterlite)' stock
prices also rose by 17.2%.
On the other hand NMDC recorded a substantial fall in its stock performance of 14.9% after it
reported a weaker off-take in volumes due to infrastructural issues and also due to the overhang
of the divestment of 10% stake by the Government of India. However the divestment was a
success due to lower price set by the government.

Q4FY2012-13
The BSE Metal Index posted a negative return of 20.2% in 4QFY2013. Steel stocks under our
coverage declined during 4QFY2013 on the back of poor results. Stock prices of SAIL, Tata
Steel and JSW Steel declined by 30.9%, 27.0% and 17.4%, respectively.
On the non-ferrous side Hindalco's stock price declined by 29.2% after the company locked out
its Silvassa plant due to an illegal strike by workers. Nalco's stock price declined by 32.9% after
the Government of India sold 5.0% stake in the company. Hindustan Zinc and Sterlite also
declined 11.1% and 19.9%, respectively.
Miners like NMDC and Coal India recorded a substantial fall in their stock prices after having
reported weaker volumes.

10. BSE Oil & Gas Index
Figure 9: BSE Oil & Gas Performance
Q1FY2012-13
In Q1FY13, light crude oil price declined 17.5% QoQ (and 11.0% YoY) to close at $85.0 per
barrel driven by concerns on demand growth due to weak global economy. Brent crude
prices fell 20.4% in the quarter. USD/INR appreciated a significant 10.1% QoQ (25.9%
YoY) to close at Rs. 56.3/USD resulting in a net ~8% QoQ drop in light crude prices in
Rupee terms.
Q2FY2012-13
The gas distribution companies witnessed a weak quarter due to rising gas costs and possibly
higher subsidy burden. Light crude oil (WTI) price declined ~1% (on an average) QoQ to
close at $92.2 per barrel. Brent crude prices rose ~1% (on an average) in the quarter.
Additionally, the average USD/INR appreciated ~2% (on an average) QoQ to close at Rs.
52.7/USD, resulting in a net ~3% QoQ rise in Brent crude prices in Rupee terms.

Q3FY2012-13
Lack of volume growth, weak refining environment, flat crude prices and low gas supply.
Upstream companies could see a YoY fall in EBITDA and/or PAT due to lower net
realizations due to expected increase in share of under-recoveries. Brent crude stayed mostly
unchanged ($110 per barrel) in Q3FY13 as high supplies from the US offset a dip in Iranian
exports.
In Q2FY13, light crude oil (WTI) price declined ~4% (on an average) QoQ to close at $91.8
per barrel. Brent crude prices rose ~0.4% (on an average) in the quarter. Additionally, the
average USD/INR depreciated ~2% (on an average) QoQ to close at Rs. 54.8/USD, resulting
in a net ~1.5% QoQ average decline in Brent crude prices in Rupee terms.
Q4FY2012-13
Q4FY13 was laden with a spate of news flow on pricing reforms for subsidized fuels such as
pricing of diesel for bulk consumers at market-determined rates, the Rangarajan Committee
coming out with its recommendations on gas pricing, and the rise in re-gasified liquefied
natural gas (RLNG) prices impacting companies in the energy sector differently. The
decision to hike diesel prices on monthly basis has given a new lease of life to upstream
companies ONGC and Oil India, leading to their likely outperformance.
Strong GRMs and sequential improvement in Petrochemical Netbacks and Crude oil prices,
which will help private players‟ operating results. Average Brent price rose by USD3/bbl
QoQ to USD113/bbl and exchange rate remained flat at INR54, under recoveries are likely to
decline QoQ (~Rs.375 bn vs. Rs.393 bn in Q3) due to lower sales volume and diesel price
hike.
4Q FY13 Reuters‟ Singapore complex refining margin (GRM) at US$8.6/bbl is up 12% YoY
(US$7.7/bbl in 4Q FY12) and up 31% QoQ (US$6.5/bbl in 3Q FY13). It is up 21% YoY and
31% QoQ in INR. Singapore GRM peaked at US$10.9/bbl in the week ended Feb 15 and has
collapsed by 39% since then to US$6.6/bbl in last week of Q4. Going forward, we expect

refining/petchem margins to be under pressure, because global demand growth continues to
be subdued due to weak global macros whilst capacity additions remain robust.
OMCs may be exempted because their finances are already under stress. The sector continues
to heavily dependent on Government intervention. With Union Election in early 2014, any
drastic fuel price hike may not be possible if international prices flare up.

11. BSE Power Index
Figure 10: BSE Power Performance
Q1FY2012-13
Q1FY13 performance was largely ahead of estimates driven by strong generation growth, better
realization with Tata Power being the only exception. NTPC outperformed led by higher
generation, and helped by other income. It had highest generation growth since Q1FY10 (8%
YOY). Generating companies recorded overall growth while EPC players saw margin pressure.
The first quarter of FY2013 was a period of margin expansion for most of the power generation
companies except for CESC. On the contrary, the T&D and EPC players witnessed margin
contraction over the last year. The space is witnessing margin pressure on account of sustained
competition.
Power sector has seen some positive developments in Q1:
Penalty and trigger level under new FSA finalized.
EGOM recommended for forest clearance of Mahan and Chhatrasal coal blocks.
CERC recommended 1% higher RoE for reservoir based hydel plants.
Progress on SEBs‟ debt restructuring.
However further clarity is still required over certain issues:
Price pooling mechanism
New competitive bidding norms.

Coal block allocation and excess coal usage policy
Implementation of SEBs‟ debt restructuring plan.
The power sector faced a number of issues, of which fuel security seems to be of prime
importance. Shortage of domestic coal and difficulties in importing coal due to change in the
Indonesian law with regards to pricing of coal has escalated the problems further. The issue of
fuel shortage has hit private power players the most, as the PPAs secured by them under the
competitive bidding route do not allow them to pass on the increase in fuel costs. The poor
financial position of SEBs is also a concern, as it puts a cap on merchant power rates. Thus, we
feel players operating under cost-plus return models are better placed in this scenario.
Q2FY2012-13
During April-August 2012, overall power generation in India rose by 4.9% YOY to 382.3BU,
aided by a 14.0% YOY increase in installed capacity to 207,006MW. During this period, thermal
power generation grew by 8.6% YOY to 310.2BU while hydro power generation declined
by10.9% YOY to 55.5BU. Nuclear power generation posted a growth of 3.0% YOY to 13.7BU.
The plant load factor (PLF) of thermal power plants during April-August 2012 stood at 69.9% as
compared to 73.4% in corresponding period last year due to coal availability constraints.
The power sector faced many headwinds such as fuel shortage, falling merchant tariffs, land
acquisition problems, and poor financial health of SEBs. The government had shown its intent on
reforms with restructuring plans for SEBs and granting permission of foreign investment of up to
49% in power trading exchanges.
Q3FY2012-13
During April-November 2012, the overall power generation in India rose by 4.6% YOY to
607BU; aided by a 13.7% YOY increase in installed capacity to 210,937MW. During this period,
thermal power generation grew by 9.0% YOY to 495BU while hydro power generation declined
by14.5% YOY to 86.0BU. The decline in hydro power generation is due to decline of water in
reservoirs feeding hydroelectric stations. Nuclear power generation posted a growth of 3.7%

YOY to 22.0BU. The all India plant load factor (PLF) of thermal power plants during April-
November 2012 stood at 69.2% compared to 71.6% in corresponding period last year due to fuel
availability constraints.
The power sector faced many headwinds such as fuel shortage, delay in land acquisition and
environmental clearances among others which is reflected in the underperformance of BSE
power index to Sensex. The government has shown its intent on reforms with restructuring plans
for SEBs and setting up of Cabinet Committee on Investment to fast track projects.
Q4FY2012-13
During this quarter, the overall power generation in India rose by 4.1% YOY to 831.4BU, aided
by a 12.6% YOY increase in installed capacity to 214,630MW. During this period, thermal
by14.0% YOY to 104.9BU. The decline in hydro power generation is due to decline in water
levels at reservoirs feeding hydroelectric stations. Nuclear power generation posted a growth of
2.5% YOY to 30.2BU.
The power sector is currently facing many headwinds such as fuel shortage, delay in land
acquisition, and environmental clearances among others. The government has shown its intent on
reforms with restructuring plans for state electricity boards (SEBs) and setting up Cabinet
Committee on Investment (CCI) to fast track projects. If the government continues with its
emphasis on implementation of policies such as Captive Coal Allocation Policy and Land
Acquisition Policy along with focus on other supportive measures, then it will be a positive for
the sector in the medium to long term.

12. BSE Realty Index
Figure 11: BSE Realty Performance
Q1FY2012-13
India's Realty Index is currently ruling near its lifetime low seen in 2008. Things were better than
2008 with respect to project visibility, cash flow, net debt-equity and growing disposable
income. New launches have been more rewarding for developers who have launched projects at
a 10-15% discount to prevailing market rates. High inventory is still hampering commercial
recovery, especially in the office space with vacancy rates still elevated in key cities.
Although the situation is now much better than that in 2008, high debt levels, falling absorptions
and high inventory remain a challenge for the sector. Prices in Mumbai have rallied by 80%
since the end of 2009, followed by Pune (30%) and Chennai (20%).
Q2FY2012-13
Recent favorable macro trends and reform thrust, viz., much-awaited FDI in multi brand retail,
policy relaxation in single brand retail, expected interest rate down cycle, etc, are positive for the
real estate (RE) sector.

Approval hurdles in worst performing Mumbai market are seemingly easing off with fast-track
clearances on the back of new DCR (development control regulations), resulting in visible
increase in new launches.
Rational approaches from developers in choosing right product and market mix in their near-
term monetization plan have led to better off take in their recent launches.
While leverage situation is broadly unaltered, improving liquidity outlook and success in
divestment transactions have enhanced the expectation of substantial de-leveraging over
2HFY13.
Q3FY2012-13
Favorable macro trends, easing of operational constraints and better liquidity outlook resulted in
outperformance of Real Estate index over 3QFY13, led by sharp recovery in beaten down stocks.
Fast track project approvals which led to a slew of new launches across markets, especially in
Mumbai, and the encouraging off take of some attractive project propositions augur well for the
near term demand outlook.
Rational business approaches from developers in choosing right product and market mix for near
term monetization plans are expected to bolster cash flows.
Leverage situation is expected to improve of real estate companies due to
Success in large ticket divestments (DLF).
Ease of refinancing (visible for Unitech).
Monetary easing.
Uptick in operations.

Q4FY2012-13
Concerns like high promoters' pledging, potential default/delay in debt servicing, various non-
core overhangs (Unitech's Telco issues, etc) have impacted select stocks that have steadily
declined in 4QFY13. The situation had improved slowly. The pace of approvals has increased,
new launches have arrived in the Mumbai and Gurgaon markets in numbers and some projects
have shown encouraging off take. This augurs well for the near-term operational outlook of
companies with smarter operating strategy.
Developers have demonstrated a focused and rational approach in their business strategy by
prioritizing select verticals and performing assets. Greater focus on (1) execution and delivery (to
clear backlogs faster), (2) faster cash generation from core operations (strategic launches in
preferred markets and product segments), (3) selective capex and land banking, (4) smarter,
phase wise sales strategy to combat inflation and cost escalation through the project lifecycle, etc
are some approaches gaining popularity among developers.

13. Tata Motors
Figure 12: Tata Motors, BSE Auto & Sensex Movement for FY2012-13

13.1. Automobile Sector
Q1FY2012-13
There was a tepid growth in the auto sector during this period. Automobile sales showed a mixed
trend due to the slowdown in economic activity and negative consumer sentiments. This situation
was further got worse due to higher inflation.
Later the increase in auto index was more than TTMT. This was on account of the performance
of the heavy weight index. The BSE Auto Index, during 1QFY2013 declined by 6.7%. As
mentioned, this underperformance was due to the index heavyweights such as TTMT, MSIL and
BJAUT; whereas MM and HMCL outperformed the index led by strong volume momentum in
their monthly sales. MSIL and TTMT were the major losers during the quarter, declining by
~13% and ~12%, respectively. MSIL decline was on account of sluggish trend in monthly sales,
TTMT decline post its 4QFY2012 results, which reported a higher decline in JLR margins
compared to street estimates. BJAUT declined by ~6% during the quarter, led by slowing
domestic motorcycle sales and a sharp dip in export volumes.
Q2FY2012-13
As compared to the first quarter, there was a slight rise during the first half followed by a sharp
fall which later on rose during august. Two wheeler auto companies drag down earnings
performance. Demand in the automobile sector further went down excluding volume growth in
light commercial vehicles and utility vehicles segments. The domestic automotive industry
which witnessed initial signs of weakness in 1QFY2013, slowed down considerably in
2QFY2013. Total industry volumes registered a growth of 4.7% YTD in FY2013 (8.2% in
1QFY2013) with almost all the segments of the industry except light commercial vehicles (LCV,
up 17.8% YoY) and utility vehicles (UV, up 56.7% YoY) seeing significant moderation in
demand. While three-wheelers (3W, down 15.5% YoY), medium and heavy commercial vehicles
(MHCV, down 12.9% YoY), tractors and passenger cars (PC, flat YoY) are amongst the worst
impacted segments; two-wheeler (2W, up 5.6% YoY) sales have also slowed down in recent
times.

The BSE Auto index outperformed the Sensex during 2QFY2013, registering gain of 10.1%.
This was again duet to the index heavyweights, MM, BJAUT and MSIL. But HMCL, Ashok
Leyland (AL) and Bosch (BOS) underperformed the index during the quarter. While, MM was
the top gainer in the index with absolute returns of 22.3% led by strong volume growth; BJAUT
(revival in export markets) and MSIL (resumption of production at Manesar) too registered
strong out performance driven by reducing uncertainty on the volume front. HMCL was the
major loser amongst the heavyweights as it witnessed sharp decline in volumes leading to
inventory pile-up at the dealer end.
Q3FY2012-13
The domestic automotive industry failed to recover during 3QFY2013 as demand across the
segments (excl. utility vehicles and light commercial vehicles) faded outpost the festival season.
The BSE Auto index outperformed the Sensex during 3QFY2013, registering absolute gains of
9.7%. This was again due to the index heavyweights, TTMT and Bajaj Auto (BJAUT); whereas
other heavyweights like Hero MotoCorp (HMCL) and MM underperformed the auto index.
Q4FY2012-13
The domestic automotive industry witnessed a sharp slowdown in 4QFY2013 as the sales
momentum, which had recovered slightly during the festival season, lost steam owing to weak
macroeconomic environment and poor consumer sentiments. While the sales of medium and
heavy commercial vehicles (MHCV), passenger cars (PC) and tractors declined considerably
during the quarter, the pace of growth in the utility vehicle (UV) and light commercial vehicle
(LCV) segments sustained momentum despite the challenging environment.
13.2. Tata Motors
Q1FY2012-13
For the first half in the 1st
quarter, TTMT growth was good (April – May) on account of
reduction in the raw material costs. On the contrary, during the second half of 1QFY2013, there

was a sharp reduction in the sales due to weak macro-economic performance. It was also reduced
due to weak product mix of the company providing higher shares of NANO‟s. Also the
marketing expenditure increased along with the staff costs. There was low freight availability
and increase in excise duty during the period which led to fall in volumes. Increase in petrol
price globally also accounted for reduction in the demand. This decline in medium and heavy
commercial vehicles (MHCV) resulted in decline in share value of Tata Motors.
The weak macro economic performance including downgrading of Indian outlook as „negative‟
by S&P also affected the other auto sector constituents including the top contributors. This
resulted in decrease of the index value in BSE auto segment. Therefore there was similar
performance shown by the TTMT and the BSE auto sector during the 1QYFY2013.
Q2FY2012-13
There was growth in CV segment of TTMT but MHCV volumes declined considerably. The
MHCV volumes witnessed a steep decline of 29% due to slowdown in industrial activity and
lack of freight demand. Tractor volumes surprised positively probably due to festival season and
late recovery in monsoons.
The S&P warning pulls Sensex in red affected the performance of BSE Auto. The reasons
affected 1QFY2013 also resulted in slowdown in this quarter still Tata Motors continued to
perform well due to festival sales
Q3FY2012-13
Tata Motor's performance is expected to weigh on the sector due to weak standalone
performance and high base effect at Jaguar-Land Rover (JLR). Tata Motors sales declined
despite the festival cheer. The PV segment and exports were responsible for the decline in
volumes which further fell down due to heavy reduction in MHCV sales. On the contrary, LCV
segment posted a sales growth of 32%.

The demand scenario remained challenging as slowdown in economic growth coupled with
higher interest rates and fuel expenses continue to dampen consumer sentiments
Q4FY2012-13
Tata Motors reported a lower-than-expected 37 percent decline in fourth quarter consolidated net
profit at Rs 3,945 crore. While its British luxury Jaguar Land Rover unit continued to see strong
growth, domestic operations remained a drag posting a loss of Rs 312 crore in Jan-March,
compared with a profit of Rs 565 crore in the year ago quarter.
However, the domestic slowdown shows no signs of ending any time soon. The total sales of
commercial and passenger vehicles plunged 31 percent to 1.97 lakh units, last quarter. While it
has managed to maintain its CV market share at around 60 percent, it is losing out in the PV
space, where the overall industry demand as such is slow.
Medium and heavy truck market also is unlikely to pickup until the overall economic growth
picks up and fleet operators' existing capacity gets filled, he added. Tata Motors will launch 40-
50 products in CV space, including the Ultra LCV range this financial year, to maintain its lead
in the space. In cars there will be product refreshes and Nano variants to stem the decline. New
cars will roll out in the long term.
Major Concerns
Rising fuel cost, inflation and interest rate:
Higher fuel prices could impact demand for vehicles and put pressure on TTMT‟s revenues &
margins. Continued high inflation could also pinch spending power of masses and affect demand
for vehicles. Elevated interest rates could increase in EMI for vehicles in an era when freight
rates (for CVs) are not rising in tandem.
Profitability in domestic market could come under pressure:
The domestic M&HCV segment, LCVs and cars face strong competitive pressures. This could
restrict its ability to hike prices in an inflationary environment. In addition, TTMT‟s depreciation

costs are likely to increase substantially as various plants are made operational. Rising
commodity prices could also put pressure on margins.
Any downturn in JLR’s performance could impact TTMT’s consolidated financials
adversely:
JLR contributes ~67% to total consolidated revenue of TTMT. In case of any poor show by JLR,
TTMT consolidated numbers could get impacted. JLR is exposed to risks of a global macro
slowdown. Weaker-than-forecast demand conditions for luxury cars and SUVs in Europe, China
and the US could impact JLR volumes and EPS, given the high leverage of this business to these
geographies.
TTMT has the lever to capitalize expenses (including product development). This could impact
visibility of margins from quarter to quarter.

14. Bharat Heavy Electricals Ltd
Figure 13: BHEL, BSE Power & Sensex Movement FY2012-13

14.1. Power Sector
Q1FY2012-13
Q1FY13 performance was largely ahead of estimates driven by strong generation growth, better
realization with Tata Power being the only exception. NTPC outperformed led by higher
generation, and helped by other income. It had highest generation growth since Q1FY10 (8%
YOY). Generating companies recorded overall growth while EPC players saw margin pressure.
The first quarter of FY2013 was a period of margin expansion for most of the power generation
companies except for CESC. On the contrary, the T&D and EPC players witnessed margin
contraction over the last year. The space is witnessing margin pressure on account of sustained
competition.
Power sector has seen some positive developments in Q1:
Penalty and trigger level under new FSA finalized.
EGOM recommended for forest clearance of Mahan and Chhatrasal coal blocks.
CERC recommended 1% higher RoE for reservoir based hydel plants.
Progress on SEBs‟ debt restructuring.
However further clarity is still required over certain issues:
Price pooling mechanism
New competitive bidding norms.
Coal block allocation and excess coal usage policy
Implementation of SEBs‟ debt restructuring plan.
The power sector faced a number of issues, of which fuel security seems to be of prime
importance. Shortage of domestic coal and difficulties in importing coal due to change in the
Indonesian law with regards to pricing of coal has escalated the problems further. The issue of
fuel shortage has hit private power players the most, as the PPAs secured by them under the
competitive bidding route do not allow them to pass on the increase in fuel costs. The poor

financial position of SEBs is also a concern, as it puts a cap on merchant power rates. Thus, we
feel players operating under cost-plus return models are better placed in this scenario.
Q2FY2012-13
During April-August 2012, overall power generation in India rose by 4.9% YOY to 382.3BU,
aided by a 14.0% YOY increase in installed capacity to 207,006MW. During this period, thermal
by10.9% YOY to 55.5BU. Nuclear power generation posted a growth of 3.0% YOY to 13.7BU.
The plant load factor (PLF) of thermal power plants during April-August 2012 stood at 69.9% as
compared to 73.4% in corresponding period last year due to coal availability constraints.
The power sector faced many headwinds such as fuel shortage, falling merchant tariffs, land
acquisition problems, and poor financial health of SEBs. The government had shown its intent on
reforms with restructuring plans for SEBs and granting permission of foreign investment of up to
49% in power trading exchanges.
Q3FY2012-13
During April-November 2012, the overall power generation in India rose by 4.6% YOY to
607BU; aided by a 13.7% YOY increase in installed capacity to 210,937MW. During this period,
thermal power generation grew by 9.0% YOY to 495BU while hydro power generation declined
by14.5% YOY to 86.0BU. The decline in hydro power generation is due to decline of water in
reservoirs feeding hydroelectric stations. Nuclear power generation posted a growth of 3.7%
YOY to 22.0BU. The all India plant load factor (PLF) of thermal power plants during April-
November 2012 stood at 69.2% compared to 71.6% in corresponding period last year due to fuel
availability constraints.
The power sector faced many headwinds such as fuel shortage, delay in land acquisition and
environmental clearances among others which is reflected in the underperformance of BSE
power index to Sensex. The government has shown its intent on reforms with restructuring plans
for SEBs and setting up of Cabinet Committee on Investment to fast track projects.

Q4FY2012-13
During this quarter, the overall power generation in India rose by 4.1% YOY to 831.4BU, aided
by a 12.6% YOY increase in installed capacity to 214,630MW. During this period, thermal
by14.0% YOY to 104.9BU. The decline in hydro power generation is due to decline in water
levels at reservoirs feeding hydroelectric stations. Nuclear power generation posted a growth of
2.5% YOY to 30.2BU.
The power sector is currently facing many headwinds such as fuel shortage, delay in land
acquisition, and environmental clearances among others. The government has shown its intent on
reforms with restructuring plans for state electricity boards (SEBs) and setting up Cabinet
Committee on Investment (CCI) to fast track projects. If the government continues with its
emphasis on implementation of policies such as Captive Coal Allocation Policy and Land
Acquisition Policy along with focus on other supportive measures, then it will be a positive for
the sector in the medium to long term.
14.2. Bharat Heavy Electricals Ltd
Q1FY2012-13
BHEL‟s Q1FY13 results were mostly in-line with street expectations. Net Sales was up 16.9% y-
o-y to Rs 8,326.2 cr on strong execution. Operating margins have been maintained at 14.2%.
Interest costs have come down by 37.5% y-o-y to Rs 5.5 cr while Depreciation costs are up
33.6% y-o-y to Rs 228.4 cr. BHEL reported Net Profit of Rs 920.9 cr, up 12.9% y-o-y. Order
inflows at Rs 55.9 bn was up compared to a low base of Rs 25 bn in corresponding quarter last
year. Order backlog decline of 1.3% q-o-q and 16.7% y-o-y to Rs 1,329 bn is a concern as it
could lower revenue visibility in the coming years.

Q2FY2012-13
BHEL‟s Q2FY13 performance was under pressure with ongoing slowdown in capex cycle and
weak macro-environment. Net Sales was almost flat y-o-y and up 24.9% q-o-q to Rs 10,399.6 cr.
Operating margins improved to 18% from 17.8% in Q2FY12 and 14.2% in Q1FY13. However,
significant fall in other income, down 58.8% y-o-y and 64.3% q-o-q and higher interest costs (up
to Rs 25.8 cr) resulted in a weaker bottom-line with fall in PAT of 9.7% y-o-y to Rs 1,274.5 cr.
Order book stood at Rs 1223 bn, 2.5x TTM sales (lower by 24% y-o-y). Order intake was lower
by 78% y-o-y and 43.6% q-o-q to Rs 31.5 bn. So far in H1FY13, it achieved only 15% (87.1 bn)
of the order inflow guidance of Rs 600 bn.
BHEL reported Net Sales of Rs 10,399.6 cr, almost flat y-o-y and up 24.9% y-o-y driven mainly
by the Power segment. Power segment reported 14.9% growth y-o-y and 32.3% q-o-q to Rs
8,958 cr while the Industry segment which had been performing well the last couple of quarters
reported sales down 30.6% y-o-y and up 4.2% q-o-q to Rs 2,054.9 cr.
Cash flow problems at customers‟ end; law and order issues have impacted the execution
affecting the sales of the company. Slowdown in short cycle orders especially for motors,
compressors etc have hurt the industrial segment sales. On overseas front the domestic problems
in Syria and Yemen have hit the execution. Sales for the quarter would have been much higher
but for the fact that company was constrained to hold back dispatches‟ for non receipt of cash
against bills rose. Other operating income was lower by 8.1% y-o-y and up 43.5% q-o-q to Rs
161.9 cr.
Q3FY2012-13
BHEL‟s Q3FY13 performance was disappointing with de-growth in top-line and bottom-line as
execution delays continue to put pressure on company‟s revenues. Net Sales was down 4.7% y-
o-y and 3.4% q-o-q to Rs 10,041.6 cr while net profits were down 17.5% y-o-y and 7.3% q-o-q
to Rs 1,181.9 cr. Operating margins have fallen from 18% in Q2FY13 and 19.1% in Q3FY12 to
16% in Q3FY13. Order intake was lower by 55.1% y-o-y and 38.1% q-o-q to Rs 19.5 bn. Order
book stood at Rs 1,137 bn, 2.4x TTM sales (lower by 22.4% y-o-y)

BHEL reported Net Sales of Rs 10,041.6 cr, down 4.7% y-o-y and 3.4% q-o-q. BHEL posted its
first-ever y-o-y revenue de-growth in Q3FY13 on the back of lower execution and subdued order
inflow Both Power and Industry segments witnessed de-growth in top-line - down 4.6% to Rs
8,307.6 cr and 5.5% to Rs 2236.5 cr respectively. Revenues were impacted by execution delays
given the tight liquidity conditions, as BHEL reduced execution in instances of delayed
payments.
For example, material supplied in Indiabulls Phase II Amravati and Nasik projects (10 units of
270MW each), Visa Power (1,200MW) etc have been suspended given delayed payments. Other
Operating income has improved to Rs 178.1 cr, up 50.5% y-o-y and up 10% q-o-q.
Q4FY2012-13
In Q4FY2012-13, BHEL managed to catch up with the numbers of Q4FY2012 even in this
difficult time, as both the top line as well as the bottom line numbers was marginally lower on a
year-on-year (Y-o-Y) basis. BHEL also managed to report a healthy operating margin of 22.8%.
We believe a better management of the raw material cost was favorable for the company but a
22% increase in other expenses restricted the benefits earned by the company from the raw
material front. Consequently, the operating profit declined by 7% but due to a lower tax rate, the
profit after tax (PAT) declined by 4% year on year (YOY) in Q4FY2012-13. The sequential
performance was influenced by the seasonality, with Q4FY2012-13 being the best quarter
traditionally. In FY2013, the sales remained flat YOY at Rs47, 618 crore but the operating profit
declined by 6%. Below the operating line, the higher interest cost and lower other income pushed
the profit before tax (PBT) down by 8%; however, on account of a lower tax rate, the PAT
declined by 6% YOY to Rs6,615 crore for FY2013.
Order inflow better than expected in Q4FY2012-13; improvement expected in FY2014: During
FY2013, BHEL bagged orders worth Rs31, 650 crore, indicating an addition of almost Rs16, 000
crore in Q4FY2012-13, which is higher than our expectations. In FY2013, the order inflow was
also significantly better than Rs22, 000 crore during FY2012. The order backlog at the end of
FY2013 stood at Rs115, 000 crore. The boiler turbine generator (BTG) orders from the central

and state power generators would flow in the next financial year. Hence, an incremental order
inflow of 10,000-MW capacity could not be ruled out in FY2014. We have built-in order inflow
of around Rs35, 000 crore in FY2014.
Major Concerns
Delays in power-sector reforms could affect order flows and earnings.
Regulatory uncertainties.
Decline in order inflows is a cause of concern for BHEL.
Execution delays in orders.
Super-critical equipment has lower margins due to the high import component
requirement, which could put pressure on BHEL‟s margins going ahead. However,
BHEL is an integrated manufacturer and the management expects the import component
requirement to reduce going ahead as BHEL gains scale of operations and hence the
impact on margins to be mitigated.
Competition pressures from global majors: In the domestic market, BHEL is facing stiff
competition from international players, particularly from Chinese power plant equipment
(PPE) manufacturers, who have twin advantages of economies of scale and global reach.
This threat may be mitigated to some extent by the recent levy of import duty on power
equipment.
Increased competition from local players who have set up capacities in the recent past is
also a concern.
Margin contraction due to higher commodity prices.
Rising working capital cycle is also a concern.

15. Cipla Ltd
Figure 14: Cipla, BSE Healthcare & Sensex Movement FY2012-13

15.1. Healthcare Sector
Q1FY2012-13
During 1QFY2013, the BSE Healthcare (HC) Index continued its outperformance. The HC index
rose by 3.9% as against flat performance by the Sensex. The pharmaceutical sector's
outperformance was on account of the slowdown in economic growth and hardening of interest
rates. In such a scenario, the pharmaceutical sector, which is not impacted much by the economic
slowdown, emerged resilient and outperformed the broader indices. Major gainers during the
quarter were Dishman Pharma and Alembic Pharma, which rose by 41.9% and 14.9%,
respectively. Sun Pharma rose by 11.6%, whereas Cipla and Ranbaxy Labs rose by 3.9% and
4.6%, respectively. Dr. Reddy's Laboratories (DRL) was the sole loser amongst large caps,
losing 6.2%.
Q2FY2012-13
During 2QFY2013, the BSE Healthcare (HC) index continued its outperformance. The HC index
rose by 9.0% as against a 7.8% rise in the Sensex. The performance of the sector was mainly
driven by the mid-cap stocks and stocks which had not participated in the rally so far.
The upward rally during the quarter was mainly driven by mid-caps, whereas the large-caps
posted gains in line with the BSE HC. The major gainers were Dishman Pharmaceuticals and
Chemicals (Dishman Pharma), IPCA Labs and Alembic Pharma, which rose by 41.8%, 33.4%
and 30.2% respectively. Other mid-caps like Aurobindo and Indoco Remedies rose by 24.0% and
23.8% respectively. Among the large caps, Cipla rose by 20.5%, whereas other large-caps like
Ranbaxy Laboratories (Ranbaxy), Cadila and Lupin rose by 6.8%, 13.2% and 9.7% respectively.
Dr. Reddy's (DRL), on the other hand was flat during the quarter.
Q3FY2012-13

During 3QFY2013, the BSE healthcare (HC) index continued its outperformance. The HC index
rose by 7.6% as against a 3.2% rise in the Sensex. The upward rally in the Pharma sector during
the quarter was driven by mid-caps as well as large caps. The highest gainers were Aurobindo
Pharmaceuticals and Dishman Pharmaceuticals which rose by 31.4% and 17.7% respectively.
Among the large caps, Dr. Reddy‟s, Cipla and GlaxoSmithKline Pharmaceuticals rose by 11.1%,
8.9% and 8.4% respectively, whereas other large caps Sun Pharma and Cadila Healthcare on the
other hand rose by 6.2% and 6.0% respectively. Lupin, another large cap, rose only by 2.4%
during the period. Amongst the losers, Ranbaxy Laboratories lost around 6.8% during the
quarter. The Government of India has approved and released the new drug pricing policy 2012.
The proposed policy has recommended that the retail price of the essential 348 drugs will be
fixed at weighted average price of brands that have more than 1% market share.
Q4FY2012-13
During 4QFY2013, the BSE Healthcare (HC) index continued its outperformance. Against a
decline of 3.8% in the Sensex, the BSE HC index declined by 1.9%. The performance of the
sector was impacted by lackluster performance of the broader market, which reeled under the
slowdown in the overall economic growth. In such a scenario, the pharmaceuticals sector, which
usually tends not to be impacted much by economic slowdowns, emerged resilient and
outperformed the broader indices.
The decline in the Pharma sector was broad based, with few stocks showing an uptrend. Among
the major gainers was Alembic Pharmaceuticals, which rose 44%. Among the large-caps, Sun
Pharmaceutical Industries (Sun Pharma) rose by 11.0%, while Lupin just posted a rise of 2.0%.
Other large caps like Cipla, Dr Reddy's Laboratories (Dr Reddy's) and Ranbaxy Laboratories
(Ranbaxy) declined by 8.0%, 3.0% and 14% respectively. Cadila Healthcare declined by 17%
during the quarter.
The Union Budget FY2013-14 has been positive for the pharmaceutical sector. Though most of
the demands haven't been met, the allocation and focus on the sector continues.

15.2. Cipla Ltd
Q1FY2012-13
Domestic sales (contributed ~50% in Q1FY13) growth was impressive at 30.4% y-o-y for the
quarter with strong growth coming from branded generic portfolio, which grew by 60%. Exports
of formulations grew by 23% to Rs.810 cr during Q1FY13 while exports of APIs de grew by
1.7% y-o-y. The growth in export revenues was primarily due to growth in antidepressants and
anti-cancer segments.
Revenue from ARVs (anti-retroviral) was lower during the quarter as the company is looking at
reducing the exposure to this segment due to lower profitability. Revenues from Lexapro supply
also aided in revenue growth and the management has indicated that this trend would continue in
Q2FY13 as well. Management indicated that it continues with the product-cum-geographical
rationalization of this business to ensure focus only on profitable products/ geographies. Inhalers
have been one of the key revenue growth drivers for CL during the quarter.
The revenues from Indore SEZ have also seen a significant increase sequentially. The Indore
SEZ contributed 18-19% during the quarter to the export revenues. CL's material cost has
decreased by 490 bps as a percentage of sales due to changes in product mix, viz. lower
proportion of anti-retrovirals and higher contribution of anti-asthma as well as anti-biotic
segment coupled with increased realizations. As a result operating margins have also expanded
by 440 bps to 27.6% y-o-y. CL had a forex gain of Rs.23 cr in Q1FY13 aided by ~10% fall in
Indian Rupee vis-à-vis the US Dollar. Though the Rupee has depreciated in Q1FY13, CL hasn‟t
had much forex gain as it also imports significant amount of raw materials. So, this largely
offsets the higher export realization. On the hedging front, CL has ~US$220 mn (between Rs.54-
55) of forward contract hedges covering its outstanding debtors.
The management has raised FY13 top line growth guidance to 12-15% from the previous
guidance of 10%. The guidance upgrade is mainly driven by strong growth in domestic
formulations business and one-time contribution of generic Lexapro. Management has also

indicated that FY13 PAT growth could be higher than top line growth. Gross Margins could
taper down a bit once Lexapro goes off but largely it will remain in the current range of 60%.
Management has guided for capex of Rs.4-5 bn for FY13 to be spent on R&D and API facilities.
The API facilities are expected to be commissioned by end of FY14. For FY14, the management
has indicated maintenance capex only.
CL has two factories in Maharashtra and the availability of power and water are a concern. The
company has to work out strategies to stock inventory, or even shift the making of some products
to States with a “relatively better” situation such as Himachal Pradesh, Sikkim or Goa. Meda‟s
Dymista (nasal spray used in the treatment of allergic rhinitis) was approved by USFDA on May
2, 2012. Meda has partnered with CL to produce this drug, which is a combination of GSK‟s
Fluticasone and Meda‟s azelastine. While CL is the manufacturing partner, Meda is involved in
the development and marketing of the drug. The global market size for azelastine is US$200 mn,
while that for fluticasone is US$1.6 bn. Meda could launch the product in H2CY12. There could
be a gradual ramp up in sales as this is a NDA and needs to be promoted to the doctors for
prescription unlike generic versions, which are automatically accepted in the market.
CFC-free Inhalers remain a key long-term trigger for CL. CL has filed for 11 different inhalers in
Europe of which it has received approval for 4. 7 additional products are at various stages of
regulatory process, which might get approval in next two years as per the company. CL has
launched its combination inhalers in Russia, CIS and South African markets. Management
expects its full range of inhalers to be commercialized in Europe over the next 2-3 years and
expects a total of 3-6 players for each product in this category implying that this will be a low-
competition, high-margin opportunity. A combination inhaler launch in EU is still a year away.
Inhalers form ~15% of its export sales.
Q2FY2012-13
During the quarter, the company posted a growth of about 24% in income from operations.
Domestic sales grew by more than 13% and export sales grew by more than 33%. Operating
margins and profits after tax have increased by about 58% and 62% respectively on a year-on-

year basis. Change in product mix from ARVs to therapies like anti-depressant has given better
pricing power to the company. The company has taken price increases across therapies and
markets. Gross margin improvement was led by change in product mix with rationalization of
low margin ARV sales, higher currency realization, incremental contribution from Lexapro and
price increases across segments.
With fixed costs (Employee + SG&A) growing at a slower rate of ~16% YoY, Cipla also
benefited by ~250bps YoY from operating leverage. As a result, EBITDA margins improved to
30.9% for the quarter. While the Q2FY13 margins are difficult to sustain given the contribution
from Lexapro, Cipla management remained confident of improvement in consolidated EBITDA
margins in the current fiscal. Material cost has decreased by 4% mainly on account of changes in
product mix viz. lower proportion of antiretrovirals and higher contribution of anti-depressant
segment (Escitalopram) coupled with increased realizations. As a result, operating margins have
also increased by more than 6%. The increase in staff cost of Rs.55 cr is due to annual
increments and increase in manpower. Other expenditure has increased by Rs.42 cr for the
quarter mainly on account of increase in travel expenses, marketing expenditure, professional
charges, etc.
CL remains highly positive on its inhaler business in the regulated markets. It has begun
supplying Seroflo in the South African as well as Russian markets. Cipla indicated that it has
filed 11 inhalers in the EU market. While four of them have been approved so far, the remaining
seven inhalers are at various stages of approval. Indore SEZ received approval for USFDA. With
the approval, CL plans to file its own ANDA, a digression from previous strategy to participate
via partnerships route in regulated markets. Cipla has filed 4 ANDAs over last six months for
own franchise and expect to ramp up the same going forward. CL started exporting Dymista but
has not received milestone income (expected USD10 mn) during the quarter.
Management expects peak potential sales of USD25-30 mn from the product, going forward. Tax
rate at 23.5% was higher than 22% estimated and company has going forward guided increase in
tax rate to 24% for FY13. Cash has increased to INR14.9bn by end Sept 2012 versus INR6.28bn

in March 2012; management expects to prudently utilize this cash as and when the opportunity
emerges. Aspen JV for Australia may take 1-2 years for sales to begin, given the ongoing
registrations.
In view of strong H1FY13 performance, management has revised its top-line growth guidance
for FY13 to 15% (vs. 23% achieved in H1FY13) and now foresees better OPM (ex Lexapro). CL
incurred a capex of ~Rs.2 bn in H1FY13. Capex for FY13 could be about Rs.5-6 bn. This marks
a sharp slowdown in the capex intensity for the company and this combined with continued good
work on the working capital front could lead to generation of higher free cash. The same is
visible in the ~Rs9bn increment in cash equivalents in H1FY13.
Q3FY2012-13
During the quarter, CL posted a growth of ~18% in income from operations. Domestic sales
grew by more than 10% and export sales grew by about 28%. Operating profits and Profit after
tax have increased by more than 25% on a year-on-year basis. A delayed winter saw CL clock a
modest growth of about 10% in the domestic market. Winter is when antibiotics and other such
remedies are in greater demand, as infections are on the rise, and a delayed winter saw demand
for this getting affected.
The 10% growth in domestic revenues was largely on account of growth in anti-asthma,
antibiotics and cardiovascular therapeutic segments. Growth in exports was fuelled by the sales
of anti-depressants, anti-malarials, anti-retroviral and anti-asthma medicines. Exports of
formulations (including API) accounted for 54% of total revenues and grew by 28% y-o-y
despite the one-off impact of Escitalopram (Lexapro) supplies fading off.
Moving ahead, the gradual impetus to exports is likely to come from allergic rhinitis product
Dymista. CL supplies this product to European firm, Meda. Material cost has decreased by about
3% mainly on account of changes in product mix viz. higher contribution of anti-depressant
segment (Escitalopram) and anti-allergic (Dymista) coupled with increased realizations. As a
result, operating margins have also increased by more than 1% y-o-y. The increase in staff cost

of Rs.71 cr is due to annual increments and increase in manpower. Total manpower as on
December 2012 was 7500.Other expenditure has increased by Rs.57 crore for the quarter mainly
on account of increase in travel expenses, professional charges, etc. EBITDA margin
(EBITDA/Gross sales) at 23.4% recorded a 706 bps q-o-q decline, primarily on lower
contribution from Lexapro sales. In Q3FY13, Lexapro did contribute, but to a lesser extent.
Lexapro contribution is likely to decline further in the subsequent quarters. The management has
given a capex guidance of INR 4-5bn for FY13 which will be used for setting up API facilities
and R&D centers. Apart from this, CL has bought an office premises in Mumbai worth INR
2.7bn. Capex guidance for FY14 is INR 3-4bn. Cash on hand is INR 14bn. The outstanding
hedges for Q3FY13 were US$210 mn mainly on account of outstanding debtors. Forex gain
during the quarter was Rs.19 cr which is included in other income. CL is expecting ramp up in
filing in FY14. For Q4FY13, the Indore SEZ is expected to clock INR 2bn of revenues. The
company has already filed 4-5 products which are mostly from this SEZ. Also company expects
sales to peak in FY16 from this unit.
For the quarter, the company has clocked INR1bn of revenues from this SEZ and for. 9 months
period, the company has clocked INR 4bn from Indore SEZ. Management is reviewing Cipla
Medpro deal because of changes that occurred in the last quarter. Some of them were, change in
the Medpro top management, currency volatility and ARV tender business not having significant
margins. The company has filed 5 ANDAs during the quarter on its own in US. It has 76
approved ANDAs and 23 are pending for approval. Out of these 76 approved ANDAs, 60% are
partnered.
Management expects to launch Dymista in European market in H1FY14. Although, Dymista and
Lexapro contribution was lower in this quarter, CL was able to clock 38% growth in export
formulation business. Export API was lower on like to like basis on account of one time specific
API in the last quarter. CL has increased the tax rate guidance to 24-25% for FY2014 from 20%
earlier. CL continued its transformation with Dr. Hamied announcing his retirement. The
company will now be led by the new CEO Mr. Subhanu Saxena. CL has made several senior

Vipul final

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

En vedette

En vedette (13)

Similaire à Vipul final

Similaire à Vipul final (20)

Dernier

Dernier (20)

Vipul final