India - Banking

17 January 2011

Sector update

Banks - in a state of flux

We see headwinds to banks FY12ii earnings growth, on account of macro vulnerabilities. Sharp increases in interest rates during 2HCY10 and prospects of further increases in CY11, likely moderation in loan growth and a less sanguine outlook for asset quality would drive earnings growth slower than previously expected. We downgrade our earnings forecast for FY12ii by 17%. We believe banks with resilient earnings outlook and strong deposit franchises with lower vulnerability to earnings outlook are best positioned. We upgrade HDFC Bank from ADD to BUY, Yes Bank from REDUCE to ADD, and retain BUY on Axis Bank and SBI. We downgrade PNB to ADD, and BOB and UNBK to REDUCE. Sharp increase in interest rate likely to be a headwind: Deposit and lending rates have risen very rapidly since August 2010. It is not uncharacteristic for rates to increase as rapidly as they havebut we believe there would be an upward bias to rates in CY11 as well, owing to macro vulnerabilities. These include a wide current account deficit (CAD), dependence on volatile sources to fund this deficit, and persistent higher inflationary pressures. In our view, further increases in interest rates are likely to dampen outlook for banks earnings growth. Moderation in FY12ii earnings growth likely: We believe deceleration in the rate of capital formation rate and sharp increases in interest rates would likely moderate FY12ii loan growth to 18%. Moderate loan and fee income growth, coupled with NIM contraction, would likely slow down drive revenue growth. We believe asset quality outlook would remain less sanguine; expectations of significantly lower credit costs are not likely to materialise. As such, we forecast earnings growth of 13% for FY12ii. We upgrade HDFCB to BUY from ADD; retain BUY on Axis and SBI: Stock prices have fallen by up to 30% from their peaks and are now trading at mid-cycle P/B, in our view. Moderation in FY12ii earnings would likely depress valuations further. We believe banks with strong deposit franchises and lower vulnerability to earnings outlook are best positioned.
Sampath Kumar | sampath.kumar@iiflcap.com +91 22 4646 4665

Figure1:Summaryofrecommendation,targetpriceandearningschanges Recommendation Targetprice FY12iiEPS YYYY DD MMM Old New Old New Old New %chg GovernmentBanks ADD REDUCE 1,170 770 127.9 94.3 (26.3) BoB REDUCE REDUCE 540 391 65.1 36.3 (44.2) BoI BUY ADD 1,600 1,150 187.8 154.1 (17.9) PNB BUY BUY 3,945 3,200 244.6 207.4 (15.2) SBI ADD REDUCE 390 310 59.5 43.7 (26.6) UnionBank PrivateBanks BUY BUY 1,810 1,550 111.1 98.1 (11.7) AxisBank ADD BUY 2,860 2,620 118.7 112.4 (5.3) HDFCBank REDUCE REDUCE 938 925 53.4 47.8 (10.3) ICICIBank REDUCE ADD 340 300 28.7 22.9 (20.2) YESBank
Source:Bloomberg,IIFLResearch

Figure2: Valuationsummary Rating Target MktCap CMP(Rs) price(Rs) (US$m) 770 391 1,150 3,200 310 1,550 2,620 925 827 417 1,119 2,501 312 1,202 2,050 1,009 6,664 4,835 7,778 34,999 3,468 10,732 20,680 24,802 FY12ii P/B 1.6 1.4 1.5 1.5 1.3 2.3 3.3 2.0 P/E 8.8 11.5 7.3 9.2 7.1 12.3 18.2 21.2 RoE(%) 17.9 11.6 21.4 17.0 17.6 19.8 19.4 9.7

GovernmentBanks BoB REDUCE BoI REDUCE PNB ADD SBI BUY UnionBank REDUCE PrivateBanks AxisBank BUY HDFCBank BUY ICICIBank REDUCE

Source:Bloomberg,IIFLResearch;*CoverageonCentralBankofIndia(CBOIIN)isbeingdropped withthisnote.Ourlastrecommendationandearningsnolongerrepresentourviewonthestock.

Prabodh Agrawal | prabodh@iiflcap.com +65 6511 6161

Srinivasan R | srinivasan.r@iiflcap.com +91 22 4646 4652

India - Banking

Headwind from moderation in growth and rising interest rates

Moderation in FY12ii GDP growth likely Indias FY12ii economic growth rate is likely to moderate after a strong rebound witnessed in FY11. Many headwinds, including wider CAD, worsening outlook for inflation and rising interest rates are likely to have a negative impact on the evolving growth outlook for FY12ii. A rebound in growth during FY11 was led by strong growth in private consumption and an improvement in the investment cycle. Figure3: GDPgrowthlikelytomoderateonslowerinvestmentcycle
12.0 10.0 8.0 6.0 4.0 2.0 0.0 FY06 FY07 FY08 FY09 FY10 FY11ii FY12ii
Source:RBI,IIFLResearch

Figure4: Highcommoditypricesarelikelytoaccelerateinflationfurther
12.0 10.0 8.0 6.0 4.0 2.0 0.0 (2.0) Jan06 Se p06 M ay07 Jan08 Se p08 M ay09 Jan10 Se p10 (% ) W PIinflationYoY

(%) 9.5 9.7 9.2 6.7 7.4 8.9 7.6

Source:Bloomberg,IIFLResearch

With higher interest rates, we believe investment cycle would moderate, leading to our lower growth expectations for FY12ii GDP. We expect private consumption to sustain the growth momentum. Upward bias to deposit and lending rates likely to remain Figure5: IncreasesindepositandlendingratessinceJuly2010
250 200 150 100 50 0 A XSB H FCB D
Source:IIFLResearch

(bps)

PLR

D positrate e

While the tailwind of strong rural economic activity and private consumption continue to drive robust growth expectations for FY12, high inflation and volatile capital flows are beginning to emerge as key risks. Market expectations about levels of inflation would likely remain elevated over the medium term, driven by higher commodity prices, including those of food and oil, and volatility in exchange rate. We believe monetary policy bias will shift to inflation management; market expectations of growth would likely moderate, owing to higher policy rates.

SBIN

BOB

BOI

ICICIBC PN B

U BK N

YES

sampath.ku mar@iiflcap. c om

India - Banking Deposit and lending rates have risen by 150-225bps and 75-150bps, respectively, since August 2010. A sharp decline in liquidity followed by an uptick in loan demand has driven rates higher much more quickly than anticipated. Figure6:BanksnetborrowingsfromRBIthroughrepowindow
3.0 2.0 1.0 0.0 (1.0) (2.0) (3.0) Apr10 Aug10 Fe b10 Jun10 Se p10 O ct10 N ov10 M r10 a M y10 a D c10 e Ja n10 Jul10 (4.0) (% ) N tre rse poo/s% e ve re ofbankingsyste de m posits

It is not unusual to see deposit and lending rates rising sharply when liquidity conditions turn adverse. The sharp increase in deposit rates shows banks recognition that liquidity is moving from excess to deficit zone for the foreseeable future. The increase in lending rates is a signal of return of pricing power to banks, consistent with change in liquidity conditions. Banks seldom experience NIM contraction during rising interest rates, save for asset-liability mismatches and strength of deposit franchise (mainly CASA deposit ratio). Figure8: Lendingratestendtolagdepositratechangeswhenincreasingaswellas decreasingSBIPLRvs1yeartermdepositrates
16.0 14.0 12.0 10.0 8.0 6.0 4.0 Jan99 Jan01 Jan03 Jan05 Jan07 Jan09 Jan11 (%) SBIPLR SBI1yrTD

Source:RBI,IIFLResearch

Figure7: Loangrowthhasseenanaccelerationingrowthrateinrecentmonths
40 (%) 30

Source:Bloomberg,Company,IIFLResearch

20

10

We believe interest rates will retain an upward bias through CY11, driven by wider CAD and persistent higher inflationary pressures. CAD has risen sharply since FY09; at FY11ii 3.5% of GDP, it will be a historical high. Dependence on volatile capital flows has been on the rise to finance CAD of late. This raises concerns about sustainability of such financing means over longer time horizons. In the absence of adequate means to finance CAD from capital account, the RBI might have to resort to dipping into the official reserves to meet the financing gap. In our view, wider CAD would likely pressure liquidity conditions and hence interest rates.

0 Dec-01

Mar-03

Jun-04

Sep-05 Loan grow th

Dec-06

Mar-08

Jun-09

Sep-10

Deposit grow th

Source:RBI

sampath.ku mar@iiflcap. c om

India - Banking Figure9: Currentaccountdeficitisnowatahistoricalhigh

5.0 4.0 3.0 2.0 1.0 0.0 (1.0) (2.0) (3.0) FY95 FY97 FY99 FY01 FY03
Source:RBI,IIFLResearch

2.9 2.2 1.0 1.7 1.2 1.4 1.0 1.0 0.6 1.2 1.0 1.3 0.3

3.5

3.8

Loan growth likely to decelerate to 18% in FY12ii In recent periods, project loans have become a significant driver of loan growth. Thus, a moderation in investment cycle would likely lead to slower pace of expansion of loans in FY12ii. Figure11:InfrastructureloansemergedasasignificantcontributortogrowthinFY11
S ervices (27% )

(0.7) (1.3) (2.3) FY05 FY07 FY09 FY11ii

Infrastructure (36% )

R etail (17% )

While the increase in deposit and lending rates suggests buoyancy in demand for loans, they are likely to peak much sooner than loan growth, gaining significant momentum. In earlier cycles, interest rates peaked much after loan growth, gaining significant traction. Figure10:Inearliercycles,peakingofrateshastypicallylaggedpeakingofgrowthcycle
35 30 25 20 15 10 D c01 e D c02 e D c03 e D c04 e D c05 e D c06 e D c07 e D c08 e D c09 e D c10 e 5 (% ) Loangrow th SBIPLR(RH S) (% ) 16 14 12 10 8

M anufacturing (19% )

Source:RBI,IIFLResearch

Figure12:keepinginlinewiththetrendseeninFY10
S ervices (18% ) R etail (5% )

Infrastructure (25% )

O thers (18% )

M anufacturing (33% )

Source:RBI,Bloomberg,IIFLResearch

Source:RBI,IIFLResearch

sampath.ku mar@iiflcap. c om

India - Banking We believe the slack in demand from infrastructure segment will be picked by retail loans but would not be significant enough to offset the deceleration in the pace of growth from infrastructure. Figure13:Segmentwiseloangrowthforthesector
M ar09 50 40 30 20 10 0 Infrastructure
Source:RBI,IIFLResearch

M ar10

N ov10

(% )

M anufacturing

Re tail

Se rvice s

Figure14:Weforecastloangrowthwilldecelerateto18%inFY12ii
30.0

(% ) 28

20.0

22 18 17

22 18

10.0

0.0 FY07
Source:RBI,IIFLResearch

FY08

FY09

FY10

FY11ii

FY12ii

sampath.ku mar@iiflcap. c om

India - Banking

We downgrade FY12ii earnings growth by 17%

Banks earnings are more sensitive to NIM and credit cost trends, and not so much to changes in loan growth expectation. A slowdown in the pace of loan growth itself would lead to pressure on NIM, on account of a potential increase in competition intensity. However, NIM expectations for FY12ii are likely to be affected by more intense competition for deposits and banks inability to pass on higher funding cost through lending rate increases fully, as they reach their peak levels. We forecast earnings for banks in our coverage universe will grow by 13%. This is a significant downward revision from our earlier forecast of 28% for FY12ii. Slower revenue growth due to NIM contraction and moderate improvement in credit costs as opposed to our earlier expectation of a significant improvement are the key factors behind our downward revision in earnings forecast. Figure15:Weexpectearningsgrowthforcoverageuniversetomoderateto13%in FY12ii
50 45 40 35 30 25 20 15 10 5 0 (%) 47

deposit funding; and 3) diminishing pricing power owing to moderation in loan growth. The interest gap is determined by level of CASA (current and savings deposit account) ratio, proportion of loans that can be re-priced with changes in benchmark lending rates, and asset allocation. A negative gap will imply that more deposits are repriced compared to ratesensitive assets. Our estimate shows a negative gap of anywhere between 1% and 36% for banks in our coverage universe. The gap is driven by level of CASA deposit ratio and asset allocation. Figure16: HDFCBankleastvulnerable,whileYesBankismostvulnerabletomargin pressure
Rate nsistive se asse ts 100 80 60 40 20 (% ) Rate nsistive se liabilitie s GP A

32 21 17 10 13

0 (20) (40)
Source:Company,IIFLResearch

H FCB D

PN B

SBIN

A XSB ICICIBC U BK N

BOI

BOB

YES

FY07
Source:RBI,IIFLResearch

FY08

FY09

FY10

FY11ii

FY12ii

The other key variable that would likely affect NIM adversely is the dependence on bulk/wholesale deposits. The definition of bulk/wholesale deposits varies very widely (minimum deposit size of Rs1mRs10m) across banks. These deposits tend to re-price up at a quicker pace and at a much higher rate than other retail deposits, owing to their better bargaining power.

FY12ii revenue growth rate likely to decelerate significantly, owing to NIM contraction We forecast NIM of banks in our coverage universe will decline by 20bps in FY12ii, driven by: 1) interest rate gap; 2) dependence on wholesale sampath.ku mar@iiflcap. c om 6

India - Banking Figure17:SBINhastheleastandYesthemostdependenceonbulkdeposits

80 70 60 50 40 30 20 10 0 SBIN U BK N BOI H FCB D PN B BOB ICICIBC A XSB YES
Source:Company,IIFLResearch

Figure18:DifferencebetweenassumedandderivedNIMcontraction(FY12ii)
74

(% )

Bulkde posits%

80 70 60

NIMcontractionbasedongapanalysis (bp)

ForecastNIMcontraction

40 27 20 10 11 20 20

44

50 40 30 20 10 0 HDFCB SBIN UNBK AXSB BOI ICICIBC BOB PNB YES

Source:Company,IIFLResearch

The gap arising from lower CASA deposit ratio and higher dependence on bulk/wholesale deposits are structural disadvantages, in our view. The adverse impact on NIM arising from the above can only be negated through better asset allocation. However, opportunities for such efficiency improvements are insignificant through lending to segments where pricing power of individual banks could be significant, but often result in higher risk profile of loans. Rising deposit rates would likely depress CASA deposit ratio and raise dependence on bulk/wholesale funded deposits. This would likely pressure NIM further, in addition to the adverse effect arising from negative gap and lower CASA deposit ratio. We forecast NIM will compress by 10bps (HDFCB) to 33bps (YES). The gap between deposit and lending rate increases suggests that NIM contraction could be even sharper. However, all assets and liabilities do not re-price uniformly. We have assumed a moderation in the extent of NIM contraction based on past experience, when interest rate reached its peak in FY08-FY09.

Figure19:ForecastedNIMdeclinecomparedtoearlierestimate FY12ii(old) FY12ii(new) AXSB 3.3 3.2 HDFCB 4.6 4.5 ICICIBC 2.5 2.3 YES 2.7 2.4 BOB 2.8 2.5 BOI 2.6 2.4 PNB 3.9 3.6 SBIN 3.0 2.8 UNBK 2.9 2.7
Source:Company,IIFLResearch

Change(bps) 14 10 17 33 30 24 24 20 23

sampath.ku mar@iiflcap. c om

India - Banking Significant improvement in asset quality unlikely during FY12ii We believe banks are unlikely to show significant improvement in asset quality trends in FY12ii, given the high level of residual risks in their balance sheetrestructured loans of state-owned banks still constitute 3%-6.5% of loans as at end-2QFY11, and there are headwinds to debt servicing capacity of non-financial companies from rising interest rates. Figure20:NPAlevelofbanksunlikelytoimprovesignificantlyinFY12ii
12.0 (% ) 10.0 8.0 6.0 4.0 2.0 0.0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Source:Company,IIFLResearch

Figure22:..and3065%ofthebanksnetworth
70 60 50 40 32 42 Re structure dasse ts% ofne orth tw 55 66 67

N + structure ofadvance PA re d% s

G Pgrow (% D th )

12.0 10.0 8.0 6.0 4.0 2.0 0.0

30 20 10 0 BOB SBIN BOI U BK N PN B

Source:Company,IIFLResearch

Figure23:EBITDAmarginofnonfinancialcompaniescouldcomeunderpressuredueto risingcommodityprices
18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1QFY08 3QFY08 1QFY09 3QFY09 1QFY10 3QFY10 1QFY11
Source:CMIE,IIFLResearch

(%)

EBIDTAmargin(exrealestate/IT)

Figure21:Asof2QFY11restructuredassetscomprised36.5%ofassetsforstateowned banks
25.0 20.0 15.0 10.0 5.0 0.0 BOB
Source:Company,IIFLResearch

Re structure dasse ts%

% Slippage from structure re dbook

Note: No of companies covered - 378

SBIN

BOI

U BK N

PN B

sampath.ku mar@iiflcap. c om

India - Banking Figure24:Risinginterestrateswouldexertpressureondebtservicingcapacity

3.0 2.5 2.0 1.5 1.0 0.5 0.0 1QFY08 3QFY08 1QFY09 3QFY09 1QFY10 3QFY10 1QFY11
Source:CMIE,IIFLResearch
Note: No of companies covered - 378

Figure26:LoanstoMicroFinanceInstitutionsislikelytobecomedistressedasset
16 14 12 10 8 6 4 2 0 BOB SBI BOI PN B ICICIBC H FCB D A XSB YES
Source:Company,IIFLResearch

(%)

Interest/salesratio(exIT)

(% )

M xposure ne orth(2Q FIe % tw FY11)

14.4

4.5 2.6 0.9 1.1

4.6

5.1

5.7

Figure27:Highexposuretocommercialrealestateisalingeringconcern Figure25:InterestcoverageratiounlikelytoimprovesignificantlyinFY12ii
12.0 10.0 8.0 6.0 4.0 2.0 0.0 1QFY08 3QFY08 1QFY09 3QFY09 1QFY10 3QFY10 1QFY11
Source:CMIE,IIFLResearch
Note: No of companies covered - 378

7 6 5 4 3 2 1 0

(% )

(%)

CRE% oftotale xposure (asofFY10)

6.4

Interestcoverageratio(ex

4.0 3.3 2.2 1.1 1.6 2.5 2.6

4.4

SBIN

U BK N

BOB

ICICIBC

A XSB

BOI

YES

H FCB D

PN B

Source:Company,IIFLResearch

High and sustained growth of the non-financial sector would enable banks to reduce their stressed asset portfolio quickly. Moderation in growth rates and rising commodity prices are likely to exert pressure on such improvements in the profitability of these companies. Rising

sampath.ku mar@iiflcap. c om

India - Banking interest rate would likely exert pressure on overall debt-servicing capacity of these companies further. We believe banks would require a longer time horizon to reduce the stressed assets portfolio. In addition to the above, loans given to MFI are likely to turn distressed. High exposure to commercial real estate sector would likely continue to exert pressure on new NPA accrual rate and credit cost for banks. As such, we believe expectations of significant improvement in credit costs is unlikely for banks in FY12ii. Figure28:Weforecast3040%slippagesintoNPAfromrestructuredassets
45 35 26 25 16 15 5 SBIN PNB FY11ii
Source:Company,IIFLResearch

Figure29:Hencesharpdeclineinslippagesunlikely
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 SBI PN B BOB BOI U BK N FY12ii ICICIBC H FCB D A XSB (% ) N w PA ofope e N % ningloans

(%) 35 30 25 20 15 25 30 25 35

40 35 30

FY11ii
Source:Company,IIFLResearch

FY13ii

22

Figure30:Creditcoststooshouldwitnessaslowandgradualdecline
1.4 1.2 (% ) LLP% ofave rage loans

BoB FY12ii

BoI FY13ii

UNBK

1.0 0.8 0.6 0.4 0.2 0.0 SBI PN B BOB FY11ii BOI U BK N FY12ii ICICIBC H FCB D FY13ii A XSB

Source:Company,IIFLResearch

sampath.ku mar@iiflcap. c om

10

India - Banking Figure31:FY12EPSconsensusestimatesforbankshaveseen17%upgradesinlast6 months

(%) 10 8 6 4 2 0 (2) BOI

1m

3m

6m

Figure33:Wearenow040%belowconsensusFY12EPSestimatesforourcoverage universe;ForHDFCBweare2%ahead FY11 FY12 FY13 BOI (19) (43) (41) BOB (3) (25) (28) UnionBank (15) (22) (23) ICICIBank (1) (17) (23) Yes 6 (15) (20) PNB (9) (13) (16) SBI 2 (8) (9) AxisBank 4 0 (1) HDFCBank 1 2 4
Source:Bloomberg,IIFLResearch

BOB

AXSB

HDFCB ICICIBC

PNB

UNBK

SBIN

YES

Figure32:andconsensusnowforecastsa2233%growthinFY12EPS
36 32 28 24 20 16 12 8 4 0 (%)

AXSB

BOB

PNB

UNBK

HDFCB

BOI

SBIN

Source:Company,IIFLResearch

ICICIBC

YES

sampath.ku mar@iiflcap. c om

11

India - Banking

Repositioning based on earnings growth outlook and risks

Bank stock prices have fallen by 1126% during the last three months. From the peak, the fall has been sharp. Valuations of banks have moderated from their peaks and now trade at their mid-cycle multiples, in our view. Figure34:3mpriceperformanceofbanksunderIIFLcoverageuniverse
0 (4) (8) (12) (16) (20) (24) AXSB PNB BOB Bankex HDFCB YES UNBK SBIN BOI ICICIBC Sensex (28)

Figure35:EPSgrowthandFY12iiP/EX
FY1012iiEPSCAGR 35 30 25 20 15 10 5 0 UNBK BOI BOB PNB ICICIBC SBIN AXSB YES HDFCB
Source:Company,IIFLResearch

P/E(RHS) 25 20 15 10 5 0

Figure36:ROEandFY12iiP/BX
ROE 24 20 16 12 8 4 0 ICICIBC BOI SBIN UNBK BOB YES HDFCB AXSB PNB
Source:Company,IIFLResearch

P/B(RHS) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

Source:Company,IIFLResearch

We believe earnings growth outlook and potentials risk to this outlook would drive stock price performance over the next 12 months. As discussed elsewhere in this note, earnings growth outlook for FY12ii is likely to be driven by NIM contraction and higher credit costs vis--vis current expectations. As a corollary to the above, we believe banks that sampath.ku mar@iiflcap. c om 12

India - Banking have strong deposit franchises and are less leveraged to improvement in credit quality outlook would likely outperform their peers. In our view, HDFCB, Axis and SBI are best-positioned on the above metrics, and we retain these banks as our best picks. We believe HDFCB would sustain strong earnings growth momentum, on: a) strong retail lending franchise continuing to drive asset growth robustly over the medium term; b) well-matched asset-liability profile and hence no significant concern about NIM contraction; and c) stable asset quality outlook. We believe Axis Banks share price underperformed significantly owing to concerns about significant NIM contraction arising from its high dependence on wholesale deposits. In our view, concerns about significant contraction of NIM is unlikely, given a well-matched balance sheet profile. We believe earnings growth for FY12ii would likely be lower than the 30%+ CAGR delivered in the past. However, this does not alter the long-term growth outlook based on continued market share gains driven by an expanding franchise. A strong deposit franchise and improving asset quality, albeit at a moderate pace, would place SBI in a better position vis--vis its peers. We believe SBI would likely deliver stronger revenue growth vis--vis current expectations, as its NIM contraction would be more modest, while credit costs would continue to show an improvement in FY12ii, as pressure on increase loan loss coverage ratio ease substantially. We upgrade Yes Bank to Add from Reduce. While concerns about NIM contraction are yet to play out, we believe the sharp fall in its share price (32% from its peak) reflects potential concerns. We believe earnings growth would likely slow significantly in FY12ii. However, with the stock trading at FY12ii P/B of 2x, we believe value is beginning to emerge. We downgrade PNB from BUY to ADD, on concerns about NIM contraction and lingering asset quality issueshigh exposure to commercial real estate and large level of restructured assets would remain as an overhang to growth expectations in our view. We downgrade BOB and UNBK from ADD to REDUCE. NIM contraction would likely be more pronounced for these banks, causing significant change to consensus earnings growth outlook of these banks.

sampath.ku mar@iiflcap. c om

13

India - Banking

Key to our recommendation structure BUY - Absolute - Stock expected to give a positive return of over 20% over a 1-year horizon. SELL - Absolute - Stock expected to fall by more than 10% over a 1-year horizon. In addition, Add and Reduce recommendations are based on expected returns relative to a hurdle rate. Investment horizon for Add and Reduce recommendations is up to a year. We assume the current hurdle rate at 10%, this being the average return on a debt instrument available for investment. Add - Stock expected to give a return of 0-10% over the hurdle rate, ie a positive return of 10%+. Reduce - Stock expected to return less than the hurdle rate, ie return of less than 10%.

Published in 2011. India Infoline Ltd 2011. This report is published by IIFLs Institutional Equities Research desk. IIFL has other business units with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information of the clients of IIFL, a division of India Infoline, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. India Infoline or any persons connected with it do not accept any liability arising from the use of this document. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. India Infoline or any of its connected persons including its directors or subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained, views and opinions expressed in this publication. India Infoline and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any other transaction as a Market Maker, Investment Advisor, etc. to the issuer company or its connected persons. India Infoline generally prohibits its analysts from having financial interest in the securities of any of the companies that the analysts cover. In addition, the company prohibits its employees from conducting F&O transactions or holding any shares for a period of less than 30 days.

sampath.ku mar@iiflcap. c om

14