Summary of ContentsSTOCK UPDATE

Summary of Contents STOCK UPDATE
HDFC Bank 
Cluster: Evergreen
Recommendation: Buy
Price target: Rs2,205
Current market price: Rs1,991

Price target revised to Rs2,205
ICICI Bank 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,243
Current market price: Rs960

Price target revised to Rs1,243
Maruti Suzuki India 
Cluster: Apple Green
Recommendation: Hold
Price target: Rs1,473
Current market price: Rs1,335

Price target revised to Rs1,473
Sun Pharmaceutical Industries  
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,757
Current market price: Rs1,604

Price target revised Rs1,757
Reliance Industries 
Cluster: Evergreen
Recommendation: Hold
Price target: Rs1,215
Current market price: Rs1,070

Earnings below estimates; time to look for cash flow utilisation strategy
VIEWPOINT
Pantaloon Retail

Robust same stores sales growth drives the top line
Result highlights
* Pantaloon Retail?s Q3FY2010 top line grew by 25% year on year (yoy) to Rs2,057 crore, which is in line with our expectation of Rs2,050 crore. 71% (Rs1,440 crore) of the turnover came from the value segment, whereas 29% (Rs628 crore) was chipped in by the lifestyle segment.
* As expected, discount offerings during the quarter (Sabse Saste 4 din) led the gross margin dilute by 90 basis points and 120 basis points on a quarter-on-quarter (q-o-q) and year-on-year (y-o-y) basis respectively to 29.1%? which is in line with our projection of 29.3%. The gross margin for the value retail segment stood at 25%, while that for the lifestyle segment came in at 38.9%
* The operating profit went up by 25% yoy to Rs216 crore, close to our projection of Rs215 crore. The value retail and the lifestyle segment registered an operating profit margin of 7.4% and 17.8% respectively.
* The profit after tax (PAT) registering a robust 63% y-o-y and 10% q-o-q growth to Rs56 crore came in slightly higher than our expectation of Rs54 crore. The bottom line growth was aided by strong operating performance coupled with lower finance cost during the quarter. The Future value subsidiary reported a profit of Rs23 crore (PAT at 1.6%), while the lifestyle segment earned Rs30 crore as profit during the quarter.
* During the quarter, the company dropped down its value retail business and transferred the same into a wholly-owned subsidiary?Future Value Retail. Hence it has reported results for the stand-alone Pantaloon Retail without incorporating the earnings of Future Value Retail segment. Further, the company proposes to evolve to a consolidated reporting from FY2011 to provide a holistic view of the performance.
Key points
* Reliance Industries Ltd (RIL)?s Q4FY2010 adjusted net income grew by 29.9% year on year (yoy) to Rs4,710 crore, which is significantly below our and the street?s estimates. This is due to a lower-than-anticipated margin in the oil & gas business (on account of a higher-than-expected depletion rate for KG D-6 block) and a lower-than-expected gross refining margin (GRM) of USD7.5 per barrel for the refining business. However, at the operating level, the performance was much better and only marginally below the expectations. A large part of the swing in the net profit is due to a sudden jump in the depreciation charge, which went up to Rs3,392 crore in Q4FY2010 as compared to Rs2,795 crore in Q3FY2010. 
* We have revised our earnings per share (EPS) estimate for FY2011 and FY2012 to incorporate: (1) the revision in our exchange rate assumption to Rs45 for FY2011 and Rs44 for FY2012, 2) a higher depreciation expenses, and 3) a slightly lower KG D-6 gas volume in FY2011. The negative impact of the above assumption is partially offset by higher petrochemical production volume and an increase in our GRM assumption for FY2012 to USD10.9 (we maintain our FY2011 GRM assumption at USD9.5 per barrel). Consequently, our revised EPS estimates now stand at Rs70.9 for FY2011 and Rs81.1 for FY2012.
* With strong demand for petroleum products, we expect the crack spreads for the middle distillates (especially gasoline and gas oil) to improve in the near to medium term. This coupled with a likely increase in the light heavy crude oil price differential at the level of USD2-3 per barrel, will help RIL to enhance its spread over the Singapore GRM. Further, RIL has signed up with Cairn for the supply of 55-60 barrel per day of cheaper Mangala crude and is also consuming KG D-6 gas for its refineries. Hence, we expect the GRM of the refining segment to improve strongly to USD9.5 per barrel in FY2011 and USD10.9 per barrel in FY2012 from USD6.6 per barrel in FY2010. We highlight that the additional supply of petroleum products on account of addition of new capacities would also remain under check due to closure of 1.43 million barrels per day (mbpd) of refining capacity.
* As per our expectation, the petrochemical segment reported a strong earnings before interest and tax (EBIT) in Q4FY2010 with the EBIT margin increasing by 45 basis points on a sequential basis to14.4%. Although the petrochem margin has been strong (supported by delay in new capacity additions), we expect the same to narrow down slightly in the next few quarters due to significant capacity addition in the Middle East. In terms of the domestic market, we see strong demand coming in from agriculture, packaging, infrastructure and automobile sectors.
* The gas production from KG D-6 field averaged 60mmscmd in Q4FY2010 (which is close to the exit rate of Q3FY2010). The company has said that the design capacity of KG D-6 gas production facilities has achieved a flow rate of 80mmscmd. With the production volumes being tested by RIL, the production ramp is largely dependent upon the HVJ pipeline capacity expansion by GAIL (which is expected by October 2010). We have factored in a gas price of USD4.2 per mmbtu and a seven-year income tax holiday in our valuations and estimates.
* Although the company?s Q4FY2010 earnings were significantly below our estimate, we are more focused on the company?s strategy to utilise the huge cash flow (USD10-12 billion over FY2011-12E) that it is expected to generate over the next couple of years. The company?s recent acquisition of a 40% stake in Atlas Energy?s Marcellus Shale gas acreage is a small-ticket acquisition. Hence, we expect strong acquisition related news flow to continue in the near term, which would indicate towards the deployment of cash flow and the long-term growth prospects of the company.
* We maintain our price target of Rs1,215 and Hold recommendation on the stock, as the company still faces uncertainties on: 1) the tax benefits on the natural gas business under section 80-IB (clarity still awaited), and (2) the gas pricing including the court case with Reliance Natural Resources Ltd (RNRL). At the current market price, the stock trades at a price/earnings ratio of 13.2x FY2012 earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 7.3x FY2012.
______________________________

__ * The twin blow of unfavourable decisions for Protonix and Eloxatin would remain as an overhang on the stock in the near term. In order to factor in the loss in the Eloxatin opportunity, we downgrade our earnings estimate by 4.2% for FY2011. Our FY2012 earnings estimate remains largely unchanged given the resumption of Eloxatin sales in FY2012. This brings our earnings per share (EPS) estimate to Rs72 for FY2011 and to Rs84.5 for FY2012. We await more clarity on the Protonix front from the management and the court?s decision. * However, we continue to believe that Sun Pharma remains one of the best pharmaceutical plays in India with its superior business model, leadership in chronic therapies, strong balance sheet and more limited competition opportunities like Effexor XR. With the impact of Caraco Pharmaceuticals and Taro Pharmaceuticals (Taro) already built in the price, we believe that the stock?s valuations reflect most of the negatives and the risk-reward ratio has become favourable for investors. At the current market price of Rs1,604, Sun Pharma is valued at 22.4x FY2011E and 19.1x its FY2012E fully diluted earnings. Thus, we maintain our Buy recommendation on the stock with a revised price target of Rs1,757 (20x its FY2012E and Rs67 for Taro). Result highlights * Maruti Suzuki India (Maruti)?s Q4FY2010 results were in line with our expectation at the operating level, however a lower-than-expected other income pulled down the net profit below our expectations. * The total income for the quarter grew by 30.7% year on year (yoy) to Rs8,280.8 crore on the back of a robust 21.5% year-on-year (y-o-y) growth in the volumes and a 7.5% y-o-y growth in the net average realisation.  * The operating profit margin (OPM) at 11.7% was in line with our expectation of 11.2% and was higher by 614 basis points on a y-o-y basis. The margin expansion was on account of a 277-basis-point y-o-y decline in the raw material cost as a percentage to the total income at 77.4% (the same was however 162 basis points higher on a quarter-on-quarter [q-o-q] basis). Furthermore, a 310-basis-point y-o-y decline in the other expenses as a percentage to the total income at 9% for the quarter led the operating profit to grow by a hefty 175.8% yoy to Rs967.3 crore (against our expectation of Rs914.2 crore). * On account of much lower yields on investments in the quarter as compared to the corresponding quarter of the last year, the other income came in significantly below expectations, at Rs222.7 crore (a growth of 9.2% yoy), which subdued the performance at the operating level. Consequently, the reported net profit surged by a stellar 170% yoy to Rs656.5 crore (as against our expectation of Rs731 crore). * For FY2010, the company has also announced a final dividend of Rs6 per share (face value of Rs5 per share). * Maruti is likely to face headwinds both on the sales volume growth and the profit margin front going ahead. While the high base of FY2010, aggravating competition and upturn in the interest rate cycle pose a challenge to growth in volumes, the rising commodity prices are likely to pressurise the profitability. * Though we maintain our estimates for FY2011, we are reducing our estimates for FY2012 by 4.8%. Our FY2012 estimates stand revised downwards factoring in a higher capital expenditure (capex) of Rs3,000 crore for FY2012, which will reduce the free cash on the books, thereby leading to a higher depreciation and lower other income. * As a consequence of the downward revision in our earnings estimates for FY2012 and to factor in the above risks to the growth going ahead and a moderate earnings compounded annual growth rate (CAGR) of 10.3% for FY2010-12E, we have reduced our target price multiple to 14x (from 16x earlier). We have also rolled over our price target to FY2012 earnings.  * At the current market price, the stock is trading at 14.2x its FY2011E earnings and 12.7x its FY2012 earnings. We maintain our Hold recommendation on the stock with a revised price target of Rs1,473. We expect the stock to underperform in the near term and rather prefer Mahindra & Mahindra (M&M) in the automobile space. Result highlights * For Q4FY2010 ICICI Bank reported a bottom line of Rs1,005.6 crore, which includes a gain of Rs203 crore from the sale of the merchant acquisition business. Adjusting for the same the bottom line is largely in line with our estimate.  * The net interest income (NII) came in at Rs2,034.9 crore, down 5% year on year (yoy) and below our estimate, as the bank continued to contract its balance sheet against our expectation of a flattish trend. Meanwhile, the net interest margin (NIM) was stable at 2.6% sequentially. * The non-interest income registered a growth of 13% yoy and stood at Rs1,890.8 crore, driven by a healthy fee income growth and a treasury gain of Rs196 crore (includes a gain of Rs203 crore from the sale of the merchant acquisition business).  * The continued declining trend in absolute terms of the operating expenses for the previous seven quarters reversed during Q4FY2010 with a sequential increase of 12%. The bulk of the increase can be traced to staff expenses, which witnessed a sequential rise of 36.5%.  * On asset quality front, during the quarter under review, the bank witnessed a 6% sequential increase in its gross non-performing assets (GNPA). However, the incremental gross slippages came off to Rs700 crore in Q4FY2010 from Rs750 crore in the previous quarter and approximately Rs1,200 crore run rate seen in the few quarters before that. The %GNPA stood at 5.06% (up 22 basis points quarter on quarter [qoq]) while the % net NPA (NNPA) stood at 2.12% (down 30 basis points qoq). The provisioning coverage of the bank improved significantly by 830 basis points qoq to 59.5%.  * ICICI Bank?s advances dipped by 17% yoy to Rs181,206 crore and the deposits contracted by 7.5% yoy to Rs202,017 crore, though on a sequential basis there was a growth of 1.1% and 2.2% in the advances and deposits respectively. Though the bank continued to operate in capital preservation mode, the bank is clearly turning to balance sheet growth (FY2011 loan growth guidance 16-20% yoy). Importantly, the current account and savings account (CASA) ratio improved sharply by 210 basis points qoq to 41.7%, driven by a strong 7.6% sequential growth in the demand deposits. * The bank?s capital adequacy ratio (CAR) as on March 31, 2009 was 19.4% (as per Basel II norms), in line with that in the previous quarter. Importantly, the tier-I CAR stood high at 14.0%, one of the highest among its peers. Going forward, the bank intends to leverage its capital by focussing on balance sheet growth again. * The consolidated profit of the bank for FY2010 grew by a healthy 31% Rs4,670 crore yoy, driven by improved bottom line performance for the insurance subsidiaries of the bank as well as mutual fund related business. The life insurance business of the bank turned profitable over the year while the general insurance business saw its bottom line increase five-fold over the year.  * At the current market price of Rs960, ICICI Bank trades at 15.8x its FY2012E earnings per share (EPS), 9.2x FY2011E pre-provisioning profit (PPP) per share and 1.8x its FY2012E standalone book value (BV) per share. We have tweaked our earnings estimates to factor in the additional information. We maintain our Buy recommendation on the stock with a revised price target of Rs1,243.  Godrej Consumer Products Cluster: Apple Green Recommendation: Hold Price target: Rs309 Current market price: Rs298 Downgraded to Hold Result highlights * Godrej Consumer Products Ltd (GCPL)?s Q4FY2010 results are not comparable on a year-on-year (y-o-y) basis on account of consolidation of Godrej Sara Lee?s 49% stake in Q2FY2010. The bottom line growth for Q4FY2010 exceeds our estimate due to a higher-than-expected operating profit margin (OPM), however the stand-alone revenue growth, at just 2.1%, was disappointing. * The consolidated net sales for the quarter went up by 48.6% year on year (yoy) to Rs509.2 crore, which is less than our estimate of Rs533.7 crore. The stand-alone (domestic) business registered a disappointing performance with the sales growing by just 2.1% yoy to Rs282.4 crore. This we believe is mainly on account of ~5% y-o-y decline in the sales of the soap segment (which contributes ~60% to the stand-alone sales). On the other hand, the international operations logged in a strong performance with the revenues growing by ~19.0% yoy, mainly on account of a robust performance of Rapidol