Weekly Wrap

Investment ideas May 20, 2011

BUY BUY
JSW Steel CMP `931 Talwalkars Better Value Fitness CMP `234

Topline growth boosted by strong volume growth
Q4 FY11 standalone revenue of `71.1bn was quite higher than
our estimate of `66bn. The outperformance was on account of
both better realizations as well as volume. The company managed
to sell 1.73mn tons in Q4 FY11, boosted by purchase of HRC
from Ispat and rerolling at its Maharashtra units. Excluding the
trial production of 0.08mn tons from the new facilities during the
quarter; production was flat on a qoq basis and 2.9% higher on a
yoy basis. Blended realizations jumped sharply from `36,457/ton
in Q3 FY11 to `41,000/ton. Share of semis in steel sales declined
from 4.8% in Q3 FY11 to 4.3%.
Market leader with >100 health clubs in 52 cities
Talwalkars Better Value Fitness (TBVF) is amongst the largest
domestic fitness chains, operating over 100 health clubs (~68
owned while rest housed in JVs and franchisees) with over
100,000 members. Incorporated in April ’03, the company offers
diverse suite of services including gyms, spas, aerobics and health
counseling. Although company operates in a highly fragmented
and competitive market, it has ample room for growth on account
of 1) under-penetrated membership rates (0.4% vs Asia-Pac avg of
3.7%) 2) favourable demographic factors and 3) pan-India footprint
covering 52 cities and towns as of May 2011.

EBIDTA/ton jumps to US$210 from US$140 in Q3 FY11
EBIDTA/ton of saleable steel jumped from `6,279/ton in Q3
FY11 to `9,546/ton in Q4 FY11 on account of higher realizations.
Manufacturing costs per ton increased by 4.2% qoq, quite lower
than the 12.5% increase in realizations. Raw material costs per
ton of saleable steel increased 4.7% qoq to `24,502 slightly higher
than our estimate on account of consumption of HRC from Ispat.
Increase in consumption of fines aided the company in maintaining
its iron ore costs. Operating profit of `16.5bn was higher than our
estimate of `14.2bn.
Introduces ‘HiFi’ gyms to capitalize on rural demand
In order to capitalize on the rural demand, TBVF has introduced
‘HiFi’ gyms, a sort of ‘no-frills’ basic gym facilities in Tier III towns
and beyond which would sit alongside existing Talwalkars chain.
Membership fees are priced 25-30% lower while capex at ~`7.5-
10mn is also half of that of existing Talwalkars gyms. TBVF targets
25 such gym openings in current year with another 50 to be added
next year. HiFi gym rentals are likely to be much lower (~4-6%
of sales vs current rate of 10-12%) which can provide upside to
EBIDTA margin.

US Subsidiary managed EBIDTA positive performance
US subsidiary continued to report its EBIDTA positive performance
even though utilization rates declined on a qoq basis. In Q4 FY11,
it managed to register an operating profit of US$4.6mn, marginally
higher than the US$1.7mn reported in Q3 FY11. It expects capacity
utilizations rates to increase from 10% in FY11 to 40% in FY12.
Valuations attractive; Maintain Buy
JSW Steel’s stock price has been under pressure over the last
few months on concerns over acquisition of Ispat, sharp decline in
global steel prices and on expectations of an increase in imports.
We believe that concerns over the stock are over down as JSW
was able to turnaround the operations at Ispat in its first quarter
after acquisition itself. The management would manage to maintain
+US150/ton of EBIDTA/ton in FY12 on the back of 1) superior
product mix 2) commissioning of beneficiation and pellet plant 3)
commencement of iron ore operations in Chile and coking coal in
US. On our revised FY13 earnings, the stock is currently trading
at attractive valuations of 4.6x FY13 EV/EBIDTA. We maintain our
BUY recommendation on the stock with a nine month price target
of `1,105.
Owned gym base set to double over FY11-13
Talwalkars added ~25 owned gyms in FY11 and is likely to add
another 11 in the current quarter. We factor in 30 gym adds each
in FY12 & FY13, down from our earlier estimate of 35 gyms, which
would take owned count to 129. In addition, we assume another
20 ‘HiFi’ gyms (vs guidance of 25) to be opened in the current
fiscal. FY12 capex guidance stands at `850mn across both the
brands and board has created enabling resolution to raise up to
`1bn via QIP.
Trades at attractive valuation: recommend BUY
We model in gross steady-state revenues of `20mn/`10mn
for Talwalkars/ HiFi gyms; assume 50% of HiFi gyms would be
owned and rest housed in franchisees although company is yet
to finalize the exact distribution. Driven by a near doubling of gym
base (ex-HiFi) to 129 from 69 in FY11, TBVF is likely to report
62% EPS cagr over FY11-13. At 14.5x FY13 earnings, the stock is
attractively priced which supports our BUY.

Valuation summary Valuation summary

Y/e 31 Mar (` m) FY10 FY11E FY12E FY13E Y/e 31 Mar (` m) FY10 FY11E FY12E FY13E
Revenues 190,315 241,161 335,736 358,716 Revenues 601 787 1,499 2,123
yoy growth (%) 17.5 26.7 39.2 6.8 yoy growth (%) 13.4 31.0 90.5 41.6
Operating profit 41,450 48,836 72,688 84,875 Operating profit 256 360 580 843
OPM (%) 21.8 20.3 21.7 23.7 OPM (%) 42.6 45.7 38.7 39.7
Reported PAT 16,277 16,644 29,884 36,203 Reported PAT 79 149 251 388
yoy growth (%) 206.2 2.3 79.5 21.1 yoy growth (%) 39.6 87.1 69.0 54.8
EPS (`) 87.0 74.6 118.5 143.5 EPS (`) 3.3 6.2 10.4 16.1
P/E (x) 10.6 12.4 7.8 6.4 P/E (x) 71.1 38.0 22.5 14.5
Source: Company, India Infoline Research Source: Company, India Infoline Research
 India Infoline Weekly Wrap
Market review

Indian markets has been reeling under a series of bad news lately. FII & MF activity (` cr)
It started with RBI with a 50 bps rate hike. Later on earnings from Date FII Net Investment MF Net Investment
RIL and Bharti failed to impress and this week, disappointing Q4
12-May (877) (89)
numbers from SBI aggravated the pain. But L&T's better-than-
expected order inflow and positive guidance for FY12 lifted the 13-May (3,706) 15
mood on the last two days. A drop in food inflation also aided the 16-May (242) (76)
sentiment. Finally, the Nifty and the Sensex fell 1.1% each on the 17-May - (632)
week.
18-May (260) (130)
Total 2011 (3,517) 1,201
S&P CNX NIFTY

BSE Sensex & BSE 200 Top Five Gainers

5,499 BSE Sensex BSE 200
5,486
CMP % CMP %
5,439 Company (`) Chg Company (`) Chg
5,421 5,428
L&T 1,652 8.1 Pantaloon 259 7.4
TCS 1,176 4.3 Mundra Port 148 7.1
16-May 17-May 18-May 19-May 20-May Cipla 316 2.9 Shriram Trans. 684 6.5
HDFC Bank 2,316 2.7 Glenmark 291 6.0
Recovery in crude oil prices and reports that the Government might
BHEL 2,074 2.1 Asian Paints 2,905 4.9
ask the state-owned upstream firms to increase their contribution
to the fuel subsidy pool led to selling in oil & gas stocks. Realty
stocks declined on worries that higher interest rates could dent BSE Sensex & BSE 200 Top Five Losers
demand for residential and commercial property. Banking stocks BSE Sensex BSE 200
fell after SBI announced disappointing results.
CMP % CMP %
Company (`) Chg Company (`) Chg
BSE Cap Goods Sectoral Indices 4.0% SBI 2,322 (12.3) Patni 324 (12.3)
BSE IT 0.4% ONGC 274 (10.1) DCHL 69 (12.0)
BSE Pharma 0.1% RCOM 84 (7.7) Balrampur Chini 63 (11.6)
BSE Power -0.7% Reliance Infra 568 (7.0) Patel Eng. 137 (10.4)
BSE FMCG -1.1%
JP Associates 82 (6.5) ONGC 274 (10.1)
BSE Auto -1.2%
BSE-200 -1.4%
Bulk deals
BSE Metal -1.8%
BSE Small-Cap -2.2% Qty
Date Institution Scrip name B/S (lacs) Price
BSE Bank -3.4%
13-May Voyager Fund Havells India S 16.1 387.0
BSE Realty -4.2%
13-May Reliance Cap Innovative Ind B 18.3 98.0
BSE Oil & Gas -4.6%
13-May Merrill Lynch Marg S 2.1 94.0
-6% -4% -2% 0% 2% 4% 6%
Book closures and record dates
In the US, results from HP weighed on the Dow but earnings from Company Date Purpose
Dell helped boost sentiment. Also, world equity gains accelerated Reliance Indl Infra 23-May-2011 Dividend
after FOMC minutes showed that the Federal Reserve policy
Muthoot Cap 24-May-2011 Right 1:1
makers won't raise interest rates anytime soon. Japan's GDP
shrank more than forecast in Q1. Portugal got final nod for a bailout. Hexaware Tech 26-May-2011 Interim Dividend
Infosys 26-May-2011 Final Dividend
1.0 Global Indices Wintac 26-May-2011 Right 1:3
(%)
Hindustan Const 30-May-2011 Dividend
0.0
HDFC Bank 02-June-2011 Dividend
(0.3) (0.4)
(1.0) (0.4) ICICI Bank 02-June-2011 Dividend
(0.7)
(1.1) (1.1)
(1.4)
(2.0) Insider Trades
(3.0) Company Name B/S Qty (‘000)

Sensex Nifty Dow Nasdaq* Hang Nikkei Shanghai Future Venture Pantaloon B 34.7
Jones* Seng Aptech Ninad Karpe B 420.3
* As per previous close

2
 India Infoline Weekly Wrap
Technical ideas

BUY SELL
Aditya Birla Nuvo CMP `859 Praj Industries CMP `74

Aditya Birla Nuvo has given a breakout from the downward
sloping resistance line on the daily chart. Weekly line chart shows
a breakout from a falling wedge pattern. Such back to back
confirmation on short term and medium term chart supports our
buying argument at current levels and provides better risk-reward
ratio.
The rally was accompanied with a positive crossover in RSI,
earmarking inherent strength in the counter. Based on above
observations, we recommend traders to BUY the stock above
`860 with stop loss of `840 for target of `910.
Praj Industries on the medium term chart has formed ‘Head &
Shoulder top’ pattern and prices have crossed below the neckline
support of `74 in Thursday’s trading session.
The amplitude of ‘Head & Shoulder’ pattern projects downside
target of `66 in the near term. The 200-DMA for the counter was
placed at `75 and hence move below same has reinforced bearish
trend on the long term charts.
The RSI has convincingly dipped below the support of 50 Mark and
every rally is likely to met with stiff resistance. We advise going
short in Praj Industries May Fut in the range of `74-75 with
stop loss of `78 for Target of `67.

Positive open interest build-up Negative open interest build-up

Company Price % chg OI % chg Vol % chg Company Price % chg OI % chg Vol % chg
Bajaj-Auto 2.7 9.9 43.5 Jindal Saw (2.9) 6.3 63.2
IDEA 1.5 8.8 33.7 FSL (1.1) 6.0 171.9
NTPC 1.6 8.7 106.1 Tech M (2.8) 9.9 119.9
EKC 2.1 8.3 213.7 Sintex (0.3) 5.6 126.8
HDFC Bank 1.7 8.2 12.4 Suzlon (0.8) 1.9 (10.3)

Technically strong Technically weak

10 days 10 days
10 days Total Average 10 days Total Average
CMP Moving Traded Qty Traded Qty CMP Moving Traded Qty Traded Qty
Company (`) Average (`) (lacs) (lacs) Company (`) Average (`) (lacs) (lacs)
Crompton Grv. 248 242 1.5 0.9 Reliance Power 113 115 7.0 4.9
HDFC Bank 2,316 2,262 0.6 0.5 IRB Infra 156 162 9.4 3.6
Lupin 439 434 2.0 1.8 CONCOR 1,075 1,115 0.0 0.0
LIC Housing 214 212 15.2 12.2 Indian Bank 221 229 2.2 0.3
Divi Labs 727 706 9.2 0.8 LITL 32 34 11.5 7.7

3
 India Infoline Weekly Wrap
Mutual fund round-up

India Infoline picks

Assets NAV Absolute return (%) as on May 19, 2011
Mutual Funds (` Cr) (`) 1wk 1mth 3mth 6mth 1yr 2yr 3yr 5yr
DSPBR Equity – (G) 932 16.1 (0.5) (3.3) 2.1 (7.7) 9.9 58.9 32.6 --
HDFC Top 200 Fund (G) 9,591 204.3 (2.0) (4.5) (0.1) (8.4) 13.9 53.5 43.8 124.3
ICICI Prudential Dynamic - (G) 2,986 105.7 (1.0) (3.0) 0.1 (3.0) 13.3 63.1 33.2 102.4
Fidelity Tax Advantage (G) 1,173 21.3 (0.4) (5.1) (0.3) (8.4) 12.2 59.0 36.8 105.5
HDFC Prudence Fund (G) 5,808 209.6 (1.2) (2.5) 1.8 (4.5) 13.0 70.6 58.4 124.3

Fund this week: HDFC Top 200 Fund

Fund snapshot Asset allocation (%)
Fund Manager Prashant Jain Equity 93.0
Latest NAV `204.3 Debt 0.0
NAV 52 high/low `236/176 Cash/call 7.0
Latest AUM (cr) `9,489 Top 5 holdings (%)
Type Open-ended SBI 7.0
Class Equity - Diversified Infosys Technologies Ltd. 6.5
Options Growth & dividend ICICI Bank Ltd. 6.1
Min investment `5,000 Reliance Industries Ltd. 5.1
Benchmark BSE 200 Bank Of Baroda 4.1
No. of stocks 64 Top 3 sectors (%)
No. of sectors 21 Banks 23.1
Expense ratio 1.8% IT - Software 11.2
Exit load 1% before 1 year Refineries 8.5

NFO update Dividend update

Fund Name Close Type Class Mutual Fund Dividend % Record date Class
SDFS 370 Days – 15 24-May CE Debt – FMP SBI Debt Fund Sr-90 Days 40 100.0 23-May Debt - FMP
Reliance FHF XVIII Sr 12 25-May CE Debt – FMP IDFC FMP - 17 Months Sr 1 100.0 23-May Debt - FMP
DSP BR FMP – 3M – Sr-36 26-May CE Debt – FMP Kotak QIP Sr 7 100.0 24-May Debt - FMP

Commodity, debt and currency graphs

50
Currency Gold $/OZ 120 Crude (US$/bbl)
1,650
1,450 100
47
1,250
80
1,050
44
60
850
41 650 40
May-09 Jan-10 Sep-10 Apr-11 May-09 Jan-10 Sep-10 Apr-11 May-09 Jan-10 Sep-10 Apr-11

10yr G-Sec Yield (%) 12,000

Copper (US$/ton) Aluminium (US$/ton)
9.0
8.5 10,000 2,700
8.0
8,000 2,300
7.5
7.0 6,000 1,900
6.5
4,000 1,500
6.0
5.5 2,000 1,100
May-09 Jan-10 Sep-10 Apr-11 May-09 Jan-10 Sep-10 Apr-11 May-09 Jan-10 Sep-10 Apr-11

Note: As per previous close

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