5th January 2011

Anagram’s
New Year Picks
2011

1 5th January 2011

 Growth Momentum to Continue

2010 turned out to be a fabulous year for the Indian Capital Markets and to a very large extent this was possible
due to the massive funds flows coming in from Foreign Institutional Investors which pumped in a record $28bn
during 2010, which resulted in sharp liquidity driving market valuations higher and keeping market indices
moving up sharply. On the other hand the domestic Mutual Fund industry witnessed a record outflow of Rs28238
crs in 2010, despite many mutual fund schemes outperforming the broad markets.

On a annualized basis, compared to last year the BSE Sensex was up by 17% at 20509 levels. The NSE NIFTY
also was up by 18% finally settling down at 6134.50 level.

Sectorially stocks from the Banking, Autos,(CVs, Passenger Cars, Two Wheelers, Tractors and Utility Vehicle
Segments) Auto Components, select Pharmaceuticals stocks and large cap and mid sized IT Services players
gave excellent stock returns, however stocks from the Infrastructure, Construction, Telecoms, and Real Estate
verticals underperformed the broad markets.

The year 2010 will also be remembered for the large PSU IPO’s like Coal India, Manganese Ore India Limited and
several PSU Banks which offered the retail investor an opportunity to make excellent stock returns from such
IPO’s making it a win win situation for both the government and small retail investors thereby mproving the
market sentiment from the small retail investors.

Going ahead in 2011, we believe that the PSU divestment will continue to gather momentum as several large
PSU IPO’s are planned in the first quarter of 2011 and this will definitely be an interesting investment theme
going ahead provided IPO valuations are right and there is adequate upside profit opportunity for the incoming
retail investors.

So, how does the year 2011 look forward and how is this going to be different from last year?

Our view on the Markets in 2011 – Cautiously Optimistic

Broadly on the positive side, corporate earnings by way of advance tax going by the Q3 numbers, are going to
be positive. Second, from all that we hear and we see, the allocation of foreign capital flows towards India will
continue to be very positive, and particularly on the back of quantitative easing 2, We think it is only going to
increase and certainly not decrease.

On the negative side, there are two things. we believe that this whole government impasse is not a good thing
because everything stops and there are no reforms that can happen if the impasse continues. Second, issue is
of about governance issues which has been a big dampener and it certainly doesn’t exude confidence in our
markets. Third is input prices and crude prices going up is not very good.

India still remains among the few growth markets globally and steady corporate earnings growth also augers
well. So, net-net, outlook for 2011 is going to be positive. We don’t think it’s going to be runaway rally, but also
we also do not expect markets to show a major down side in the near to medium term. We expect markets to
witness consolidation in the H1 of 2011 and thereafter move up gradually on strong FII flows driving the markets
upwards.

Markets need a strong political message from the ruling Congress Govt –
2010 will also be remembered as a year of political scams wherein the 2G Telecom scandal and the Common
Wealth Games Scam clearly exposed the governments inability to protect public interests at large. While corruption
has always been a bane for India, in the last 6 months the number of such scandals and the scale of corruption
by political names alleged to be involved have all shocked the nation.

We believe that the congress government at the centre has to provide fast track solutions to such scams and
should use this opportunity to clean the system and send a strong political message to all that its means to do
clean business. If done quickly and correctly we believe that this would significantly re-rate our markets.

Contd....
2 5 th
January 2011
 Growth Momentum to Continue

Events to watch out for –

Euro Zone issues and China Tightening
US Recovery in 2011
Rising Crude Oil Prices
Higher Interest rates and rising inflation which could impact earnings growth negatively
Going ahead the Union Budget for this year and government finances

On the Index a return of 10-15% would be a reasonable estimate over the next one year. For FY12, a 15% to
17% earnings growth looks easily manageable and we expect that PEs should be sustained at an average level
of around 16x. Overall we expect the Sensex and Nifty to a close the year at around 22000-23000 levels and
6800-7000 levels. We believe that investors adopting a stock specific approach would reap good dividends rather
than following a index based investing approach in 2011.

Sectors where we remain Positive: Autos, Capital Goods, Power Equipments, Construction, Infra, Metals,
Fertilizer and Agri. Related, Pharma, IT and Banks.

Sectors where we remain Negative: Real Estate, Telecom and Cement.

In terms of the macro economy, 8.9% GDP for three consecutive quarters running is what we are coming from,
but there are building in pressures of inflation and a lot of people are raising the red flag over that the global
commodity prices are not helping at all, nor are food prices. Hence although the growth momentum will be
maintained, GDP growth is not going to be as strong as what we saw this year.

We have two three reasons. One is that base effects are going to start hitting us just like they were helping us
this year. Second is interest rates are moving up and inflation is the key theme, so we are starting to see interest
rates move up and that at some point will start hurting. Third is that investment demand has slowed down a bit,
projects are not coming on as fast as one has been expecting, there has been variety of reasons which are
tending to slow this down. However it is not like India is going to slowdown dramatically, but it’s not going to be
as fast as what we saw this year.

Oil prices are going up which from India’s point of view is probably one of the toughest things to watch out for.
So, we will have growth which again is not going to fall off dramatically, but we are not going to see a repeat of
earnings that we have seen in FY11. So, on the profit margin front, is not good for India in 2011 as it was in 2010.

Burgeoning Price Levels – Pressure on Central Bank

After remaining in double digits for five successive months, year-on-year headline WPI inflation declined to 8.8%
in August 2010 and further to 7.5% in November 2010. Consumer price inflation for industrial workers and rural/
agricultural labourers softened to single digit rates from August 2010, after remaining in double-digits for over
a year. In addition, inflation for non-food primary articles such as raw cotton, raw rubber and minerals rose
sharply during the year.

Though inflation has moderated, inflationary pressures persist both from domestic demand and higher global
commodity prices. The pace of decline in food price inflation has been slower than expected due largely to
structural factors. There is a risk that rising international commodity prices will spill over into domestic inflation.
Going forward, rising domestic input costs for the manufacturing sector combined with aggregate demand pressures
could weigh on domestic inflation, increasing the risk to RBI’s projection of 5.5% by Mar 11.

Tax Collections in line with Expectations

The government’s kitty swelled by 18% to Rs 296121 crore from direct taxes till the mid of Dec month in the
current fiscal, driven by robust corporate tax payments, including advance tax.

During the nine-month period this year, corporate tax grew by 21.3% and personal income tax rose by 16.2%,
as compared to the corresponding period last year. Revenues from indirect taxes also jumped up 42.3% to
Rs.207756 crore in the first eight months of the current fiscal, led by 67 % higher collection from custom duties.
Contd....

3 5 th
January 2011
 Growth Momentum to Continue

The government has budgeted Rs 430000 crore from direct taxes and Rs 313000 crore from indirect taxes for
the current fiscal. But it needs a higher revenue growth than budgeted, having committed an additional expenditure
of more than Rs 75,000 crore through two supplementary demands for grants, wiping out the windfall gain of Rs
1,00,000 crore from auction of 3 G.

The governments subsidy bill is also expected to cross the budget estimates, following the spike in global
commodity prices. The fertilizer ministry has projected a revised demand of Rs 82245 crore as against the
budgeted Rs 52837 crore, citing hardening international prices of key inputs and imported fertilizers. The petroleum
ministry could also seek extra funds to compensate oil companies for higher losses incurred in selling fuel at
below cost as global crude prices have risen to over $90 a barrel. However with economic growth showing
impressive resilience, the government is confident of reaching its tax collection targets, both in the direct and
indirect tax segments.

Current A/C Deficit at 2.9% of GDP

India’s current account deficit has widened further during the second quarter of the fiscal year at $15.8 billion as
against $ 9.2 billion of the same period of previous year, primarily on account of higher imports and lower net
invisibles, whereas for the first half of the year it doubled to $ 27.9 billion as compared to $ 13.3 billion of
H1FY10. This is largely on account of economic recovery and larger payments overseas for certain services such
as travel, business and financial services and investment income.

With the imports rising at a greater pace than exports, trade deficit expanded to $ 35.4 billion for the Q2FY11 as
against $29.6 billion of Q2 FY10. For the period of Apr-Nov 10, it stood at $81.7 billion as compared to $68.4
billion of the same period of previous year with 26.5% YoY growth of exports and 11.2% rise in imports for the
month of November. With this, the current account deficit stood at 2.9 % of GDP of last fiscal and the continuation
of the same trend may take it to higher than 3%.

Outlook on Commodities –

Gold -
Gold price has rallied more than +27% so far this year, marking the strongest rise since 1979 when price more
than doubled. There are 2 main reasons driving the metal higher: Sovereign crisis in the European periphery and
QE by the Fed. These 2 factors will continue to support gold next year. In 2Q10, gold made a record high of 1266
as Greece was facing insolvency and the euro was threatened to be disintegrated. At that time, gold was trading
in sync with US dollar, signaling extreme risk aversion. In early November and early December, gold also surged
to all-time highs of 1424 and 1432 respectively amid resurfacing of sovereign concerns in the 16-nation region.

Despite Gold’s 27% increase in 2010, it remains 35% below its inflation adjusted high of January 1980 which was
$2,300/oz. Although we have concerns that the current rally appears to be a momentum driven bubble, it may
well continue through 2011.

As long as the US Federal Reserve is engaged in efforts to stimulate the US economy with rock bottom interest
rates and quantitative easing programmes, gold will find favour among investors. Eurozone debt default is
another cause of concern for wary investors, while Chinese investment demand is also growing strongly but
quietly in the background. Gold will rise probably in 2011, too, to break new records and target $1600 at COMEX.
We are still far away from euphoria. Although gold has attracted some first time investors prompted by fear and
searching for a safe haven for their capital, gold is far away from being a crowded trade.

Crude Oil –
Crude oil has underperformed the commodities space in the most recent rally, despite the fact that the benchmark
U.S. crude oil price averaged 15% higher than the beginning-of-year consensus of $71 per barrel; and around
5% higher compared to the previous Energy Information Administration’s outlook for $78.67 per barrel. The
price of Crude oil at $91 stands at a historic juncture. The demand picture continues to be mixed. Despite the
moderation in the Chinese economy, crude oil imports are still higher than in recent years. In contrast, U.S. oil

Contd....

4 5th January 2011

 Growth Momentum to Continue

demand is well below historical averages. Crude oil inventories in the U.S. are still running above historical
averages, which have capped oil prices. But broad U.S. dollar weakness and gradually improving risk appetite
should support oil.

On the negative side are the renewed concerns on the euro zone peripheral debt situation, interest rate hikes in
Asia, and some lingering risk aversion, as well as increase in supply from OPEC (Iraq, Kuwait and Saudi spare
capacity) and non–OPEC (gas liquids, Brazil) sources.

Also, as and when there is a decline in inventories to below the five-year average, the liquefied natural gas story
will start playing out. Going ahead the prices of crude oil are likely to average around $86 per barrel in 2011.

Investment Strategy –
We continue to believe that the India long term story continues to remain robust despite temporary global and
local hiccups. Here it would be interesting to know that the Sensex which was around 3972 level at the beginning
of the decade closed 2010 at 20510, a gain of 416% clearly signifying the fact that investors who remained
invested benefited significantly whis is more important than timing investments in the stock markets.

On the global front, economic conditions continue to be challenging, with the US struggling with unemployment,
high deficits and huge debt. The European markets have also continued to struggle with bailout packages announced
in 2010 and indications are that recovery here will take some more time. The Chinese economy also continues to
chug along with robust growth but the challenge here is to slow down the economy as inflation concerns are
growing.

We hence believe that the domestic economic environment will be challenging in 2011 and expect the markets to
stay in a consolidation mode in the H1 wherein the markets are likely witness the impact of high inflation, higher
crude prices, tight monetary policy and political uncertainty given the recent spate of events. In the H2, we
expect markets to be driven by strong macro economy numbers and steady growth seen in corporate earnings.
Investors should use market corrections to accumulate quality stocks on market declines.

We continue to remain bullish on sectors like Autos, Capital Goods, Construction, Power Equipment Pharma and
Banks . Infrastructure stocks have not done well in the last 6-8 months and with increased government spending
they should also attract investor attention in the months to come.

In the large caps stocks we like TCS, HCL Technologies, BHEL, L&T, BGR Energy, Tata Motors, M&M, Bajaj Auto
and Ashok Leyland.

In the mid cap segments we like JB Chemical & Pharma, Diamond Power and Infra, Supreme Infra, C&C
Construction, Balkrishna Industries and Glenmark Pharma which we believe offer good quality businesses at
reasonable valuations from a 12 month perspective.

In conclusion we wish all our customers.....

a Happy & Prosperous new year

and
Profitable year ahead in 2011
Best Wishes

Anagram Research Team

5 5th January 2011
 Fundamental
Picks

6 5th January 2011

 C & C Construction

C & C Construction is a Gurgaon based infrastructure developer CMP : 209

providing engineering, procurement and construction services in

TARGET PRICE : 325 BUY
UPSIDE : 55%
India and Afghanistan. While historically the company has focused
KEY DATA
on projects in roads and highways, it has lately diversified into
Sector Construction
power transmission, water & sanitation and commercial buildings. Market Cap (INR bn) 6.04
In India the company mainly works for various state and central Market Cap (USD mn) 134.30
O/S Shares (mn) 2.33
authorities like NHAI, PWD Punjab, AAI etc.
Free Float (mn) 0.85
52-wk HI/LO (INR) Rs 203 - Rs 286
Highest Operating Margins in the Industry Avg 12m Vol ('000) 15.30
Bloomberg CCON IN
The company has specialized bidding and executing projects in adverse
Reuters CCCL.BO
terrains like Bihar and Afghanistan in order to secure better margins. It
Sources:- Company, Anagram research
has consistently reported operating margins of around 20% for many
Returns (%)
years as compared to industry margins around 10%-12%. 1m 3m 6m 12m
Absolute 2.76 9.29 5.2 16.02
Relative 3.246 -3.23 -10.67 -11.97
Foray into BOT and other High Growth Segments Sources:- Company, Anagram research

The company moved into asset ownership by bagging its first BOT road SHAREHOLDING PATTERN (%)
project in 2007. The company further strengthened its BOT projects by
bagging Mohali Inter State Bus Terminus Project (ISBT) in 2009 which
also has commercial real estate element attached to it. The company
has recently bagged three new road BOT projects including 1 in L1 stage.
The company now plans to diversify into other high growth segments
like transmission towers, water & sanitation and commercial buildings.

Sources:- Company, Anagram research

Attractive Valuations
Despite of expectations of strong revenue growth for the next 2-3 years PRICE PERFORMANCE

and high margins, the company currently trades at 6.5 times and 5 times
FY11 and FY12 expected earnings. We continue to believe that the stock
at current market price provides a good long term investment opportunity.
Our 1 year forward price target for the stock stands at Rs 325 which
includes Rs 292 contribution from the EPC business (8 times FY11E EPS),
Rs 19.5 per share from Kurali Kiratpur BOT project and Rs 13 per share
Source: Capitaline
from Mokama Munger BOT project.

Y/E March 2009 2010 2011E 2012E 2013E

Revenue 750.1 1168.4 1728.0 2228.8 2750.6
YoY% 40.7 55.8 47.9 29.0 23.4
EBIDTA 152.7 218.5 316.2 403.4 489.6
EBIDTA (%) 20.4 18.7 18.3 18.1 17.8
PAT 41.1 69.1 99.8 128.5 167.5
YoY% 0.5 68.1 44.5 28.7 30.4
Fully DEPS 22.5 29.6 40.0 51.5 67.2
ROE (%) 12.5 15.6 17.2 18.3 19.6
RoCE (%) 17.7 16.5 17.5 18.0 19.3
P/E 11.5 8.7 6.5 5.0 3.9
EV/EBIDTA 7.2 5.6 4.7 3.9 3.2
Sources:- Company, Anagram research

7 5th January 2011

 Supreme Infrastructure (India) Ltd

We initiate coverage on Supreme Infrastructure (India) Ltd (SIIL) CMP : 248

BUY
TARGET PRICE : 343
with FY12 end target price of Rs 343 per share i.e. 38% upside
UPSIDE : 38%
from the current market price. Our SOTP based target price
KEY DATA
incorporates Rs 319 per share value of the core EPC business
Sector Construction
where it enjoys higher than industry operating margins of around Market Cap (INR bn) 3.84
17%, Rs 20.4 per share from its Manor Wada Bhiwandi road BOT Market Cap (USD mn) 83.48
O/S Shares (mn) 13.88
project which is expected to be benefitted from the commercial
Free Float (mn) 5.40
/ industrial belt along the highway and Rs 3.8 per share value 52-wk HI/LO (INR) 320 - 107
from its Kasheli Bridge BOT project where it is sharing 10% of Avg 6m Vol ('000) 58.62
Bloomberg SPII IN
the total revenue.
Reuters SIIL.BO
Sources:- Company, Anagram research
Solid Top-line Growth Expected Owing to Strong Order Book
Supreme Infra has registered phenomenal top line growth over the past
Returns (%)
3 years -90% CAGR between FY07-FY10 - on the back of a solid 82% 1m 3m 6m 12m
Absolute -11.0 -2.1 37.2 87.7
CAGR in the Order Book over the same period. The current order book
Relative -13.0 -13.6 22.3 72.4
of the company at Rs 2343 Cr is 4.4 times its FY10 sales providing Sources:- Company, Anagram research

strong revenue visibility. This coupled with impressive execution track

record of the company, makes us believe that the top line will grow at
35% CAGR over FY10E-FY13E.
SHAREHOLDING PATTERN (%)

Benefiting From Backward Linkages of Key Construction Inputs

The company owns and operates a number of crushers, Asphalt, RMC
and Wet Mix plants for captive consumption. Due to the ready availability
of key raw materials, the company has been able to shorten the project
cycle owing to assured and un-interrupted supply. The in house production
differentiates SIIL from other construction players and results in better
than average industry margins of around 18%.

Looking out for New verticals for Diversification Sources:- Company, Anagram research

In order to benefit from the bigger Infrastructure scenario prevailing in

the country, Supreme Infra has recently forayed into Power, Sewerage
and Irrigation related work while continuing to firm up its presence further
in roads and buildings. We believe that SIIL is well placed to capitalize
PRICE PERFORMANCE
on planned Investment in Infrastructure in the country.

Increasing BOT Projects to Provide Steady Revenue Stream

From mere being an EPC player the company has forayed into BOT space
and has already bagged 3 BOT projects and is also L1 in one more
project. Apart from providing a steady revenue stream from a different
business vertical (toll), the BOT projects also contribute significantly to
the EPC order book of the company. Source: Capitaline

8 5th January 2011

Valuation
We are bullish on SIIL due to its high margin profile, growth prospects and
We are bullish on SIIL due to its
relatively lower valuation. We believe that Infrastructure industry is to high margin profile, growth
witness many folds investment over the next few years and SIIL is well prospects and relatively lower
positioned to benefit from this as it already has exposure to most of the valuation.

Infrastructure verticals.

Our SOTP based FY12 end target price for the stock is Rs 343 implying 38%
upside. We have valued EPC business of SIIL at Rs 319 based on DCF and
the two BOT projects at Rs 24 based on NAV. At the target value of Rs 319,
the EPC business will trade at 9.4 times and 7.1 times FY11E and FY12E
earnings respectively.

Y/E March (Rs Crs.) 2010 2011E 2012E 2013E

Revenue 533.3 758.6 1047.1 1304.5
YoY% 39.5 42.3 38.0 24.6
EBIDTA 94.7 139.7 183.8 220.5
EBIDTA (%) 17.8 18.4 17.5 16.9
PAT 39.2 56.8 75.0 89.4
YoY% 45.2 45.0 31.9 19.2
Fully DEPS 28.2 33.9 44.8 53.4
ROE (%) 28.9 28.7 27.2 25.4
RoCE (%) 18.7 19.2 19.1 18.3
P/E 9.2 7.6 5.8 4.9
EV/EBIDTA 4.5 3.6 2.8 2.3
Sources:- Company, Anagram research

9 5th January 2011

 Diamond Power Infrastructure

Diamond power infra is the only EPC player with major captive CMP : 208
TARGET PRICE : 297
BUY
facilities (80% of the project cost) which gives the company an
UPSIDE : 43%
advantage (higher margins & lesser volatility, lower cost of carry)
over other EPC player who outsources 60 to 70% of the project
KEY DATA
work. With adequate liquidity in place, and experience in T&D Sector Elect. Equip
over years DPIL will be able to monetise on $100 bn spend in 52 week H/L (Rs) 264.2/113.4
T&D sector. Moreover company has not only targeted to increase Market Cap (Rs Cr) 807

top-line but has made constant efforts to improve and sustain Avg. daily vol. 6m 177043

margins through backward integration (Conductors, EPC and Face Value (Rs) 10
BSE Code 522163
cables).
NSE Code DIAPOWER
BLOOMBERG DIPI IN
While long-term looks promising, in medium term PGCIL pending
REUTERS DIAC.BO
order finalisation, strong execution and earning surprise could Sources:- Company, Anagram research

act as catalyst. We initiate coverage on the stock with "BUY"

rating with target price of Rs 297 ,a potential upside of 43%. Returns (%)
1mnth 3 mnth 6mnth 12mnth
Absolute -8 14 27 68
Only EPC player with Integrated Model Relative -10 1 8 35
Sources:- Company, Anagram research
Diamond power infra is the only EPC player with major captive facilities
(80% of the project cost) which gives the company an advantage over
other EPC player who outsources 60 to 70% of the project work. We
believe this will not only accelerate the margins but help company to bid SHAREHOLDING PATTERN (%)
competitively and reduce carrying cost of inventory. Company
commenced EPC business in 2006 and now has healthy order book of Rs
806 cr (2.4x FY10 sales) and L1 bids of another Rs 600 cr. DPIL along
with Skoda has bid for 8 projects. Order wins in 440 kv class would be
an upside to our estimate due to higher margins.

Cash conservation for growth - Equity Infusion & relaxed debt

Sources:- Company, Anagram research
terms have eased liquidity situation
Due to equity infusion (Rs 132 cr @ Rs 204/share) and easing liquidity
situation Crisil has upgraded rating on DPIL by two notches from BBB+
to A- with a positive outlook, which has resulted in lower interest rate PRICE PERFORMANCE
(by 275 bps) on a Rs 130 cr term loan from ICICI and the debt repayment
has been deferred till 2014. Even the short term working capital, which
was around 13%, is now expected to be at 11%. This will help company
to conserve its cash for its growth for the next three years.

Higher voltage + In-house manufacturing = Higher Margins

The company was present in low voltage products like LT cables and Source: Capitaline

distribution transformers. Expansion into new product and niche segment

like EHV cables (132 kv to 550 kv), HT cables, Power transformers will
enable company to increase margins. As company starts bidding for
T&D projects we believe benefits from in-house manufacturing will kick- Analyst: Sahil Shah
in significantly, which will lead to margins expansion by 100 bps in FY13. sahil.shah@anagram.co.in

Contd....

10 5th January 2011

Expansion will accelerate topline while de-risking the product
portfolio
Capacity expansion and foray into transmission project will enable
company to achieve robust growth over coming years. While demand in
high voltage segment remains good, revenue visibility in near term also
remains across the segment. We expect stronger execution on EPC side
in H2 FY11 as compared to H1 FY11.

Valuation
We expect Sales and EPS to grow by 42% CAGR over 2010-13 led by
capacity expansion, entry into new segments, margin expansion and
lower interest cost. At the current market price of Rs 197 the stock
trades at 6.5/4.6x its FY11E/FY12E EPS of Rs 30/42 and 5.1/3.7x its
FY11E/FY12E EBITDA. At our target price of Rs 297 the stock would
trade at P/E of 7 and EV/EBITDA of 5.

(Rs crores) 2009 2010 2011 E 2012 E 2013 E

Net Sales 698 848 1,451 2,092 2,489
EBITDA 90 115 211 325 409
EBITDA Margin 12.9% 13.6% 14.6% 15.6% 16.4%
PAT 56 60 110 177 233
PAT mgn(%) 8.1% 7.1% 7.6% 8.5% 9.4%
EPS (Rs) 26.7 21.5 29.5 47.6 62.6
P/E(x) 8.7 10.8 7.9 4.9 3.7
RoE (%) 30.8% 19.8% 24.1% 23.3% 25.5%
RoCE (%) 26.2% 18.1% 18.4% 17.6% 20.1%
EV/EBITDA(x) 7.9 8.5 5.8 3.9 3.0
Sources:- Company, Anagram research

11 5th January 2011

 Glenmark Pharmaceuticals Ltd

Strong Core business growth to support earning momentum

Glenmark over the last few quarters has seen a revival in the financials
CMP : 365
BUY
TARGET PRICE : 473
driven by the strong growth in its core business with healthy growth UPSIDE : 29%
coming in from across all the geographic segments of the company. Our
conservative estimate sees a CAGR of 19% over the next 3 years in its
KEY DATA
base business driven by the sustained high growth in the domestic
formulation segment and turnaround of the US operations owing to the Sector Pharmaceutical

flurry of ANDA approvals (14 approvals from Apr-Dec 2010) and niche Market Cap (INR Bn) 96.3
product launches. Further glenmark is expected to record a CAGR of Market Cap (USD mn) 2,155.4
28% over FY10-13E in the other markets where it is present considering O/S Shares (mn) 269.7
the company’s significant investments in these markets and expected Free Float (mn) 139.2
high growth in the Latin American market and other Semi-Regulated 52-wk HI/LO (INR) 408/115
markets.
Avg 6m Vol ('000) 177.4
Bloomberg GNP IN
Several Niche Generic opportunities to start contributing from
FY12 Reuters GLEN.BO
Sources:- Company, Anagram research
The company has already launched Tarka (at-risk) in the US and is
expected to enjoy an extended exclusivity from the drug, along with this Returns (%)
the company would launch Malarone (as per the settlement with GSK) 1mnth 3 mnth 6mnth 12mnth
and here too the company is expected to enjoy extended exclusivity as it Absolute 2.8 21.5 33.7 31.9
is still the only filer for the drug. Further the company is awaiting approval Relative (0.2) 20.9 16.0 14.2
for its NDA of Oxycodone filed by its partner LVT, when approved the Sources:- Company, Anagram research

drug would offer a market opportunity of $ 16mn which the company

expect to expand by around 25-30% post the approval and USFDA driving SHAREHOLDING PATTERN (%)
the other players out of the market until they obtain an ANDA approval
for themselves.

Research activities back on track

The company’s in-licensed opportunity of Crofelmer has finished Phase 3
trials and the management expects to launch the same in FY12, glenmark
expects peak revenues from this noval drug to the tune of $80 mn from
the exclusive distribution & marketing rights it has across 140 countries,
Sources:- Company, Anagram research
further it is the only supplier for its API globally. Along with this the
company has again proved its worth of its research capabilities by entering PRICE PERFORMANCE
into another out-licensing deal with Sanofi Aventis valued at $325 mn for
its GRC15300 molecule to treat chronic pain. Further the company has a
good pipeline of novel drugs creating possibilities for closing more such
out-licensing deals in the future.

Valuation
The stock is currently trading at attractive valuations of 15.3x and 12.4x
its FY12E and FY13E earnings respectively. We further continue to believe
that the company is trading at a discount to its peers. We value the Source: Capitaline
company’s base business at 14x its FY13E EPS of Rs. 29.4 considering
strong traction in the base business, while we value the research pipeline Analyst: Vrijesh Kasera
(Crofelmer & GRC15300) at Rs. 62, which gives us a 15 month price vrijesh.kasera@anagram.co.in
target of Rs. 473/share.

(Rs. Crs) 2009 2010 2011E 2012E 2013E

Revenue 2,116.0 2,500.6 2,981.8 3,555.9 4,198.5
Growth (%) 5% 18% 19% 19% 18%
EBITDA (%) 22% 25% 28% 29% 29%
FDEPS 7.7 12.3 18.3 23.8 29.4
Growth (%) -70% 59% 49% 30% 24%
RoE (%) 12% 16% 19% 21% 21%
RoCE (%) 17% 14% 18% 20% 21%
P/E 46.2 29.1 19.5 15.0 12.2
EV/EBITDA 25.6 18.4 13.2 10.5 8.5
Sources:- Company, Anagram research

12 5th January 2011

 J B Chemicals & Pharmaceuticals Ltd

Ready to Storm the Domestic Market

J B Chem as a part of its future strategy to accelerate growth in the
CMP : 140
BUY
TARGET PRICE : 181
domestic market, expects increased sales through key brands focus and
strengthening its presence in the rural market, it also plans to increase UPSIDE : 29%
its field force from 450 to around 800 by the end of this fiscal and to
2000 by end of next financial year. With these initiatives taken by the KEY DATA
company it is expected to clock a CAGR of 19% over FY10-13E, above Sector Pharmaceutical
the industry growth rate of 13-15% and strengthen its position in the Market Cap (INR Bn) 12.2
domestic market. Market Cap (USD mn) 273.9
O/S Shares (mn) 84.4
Russian Market Continues to Add Value
J B Chem has 126 product registration application made in Russia, Ukraine Free Float (mn) 37.5
& CIS countries, while 128 products received registration in these markets 52-wk HI/LO (INR) 133/46
in FY10. About 130 more product registration application is planned for Avg 6m Vol ('000) 190.0
submission during this fiscal. Further the company plans to launch 2-3 Bloomberg JBCP IN
products in Russia every year to enable it to clock a CAGR of 14% in the Reuters JBCH.BO
market over FY10-13E.
Sources:- Company, Anagram research

Row Market to See Huge Upside Returns (%)

J B Chem launched 14 products across the market in FY10, while 68 1m 3m 6m 12m
product registration applications were made across the RoW market, Absolute 16.9 37.1 51.2 133.5
while 9 products received registrations in these markets. About 105 Relative 14.0 36.6 33.5 115.7
more product registration application is planned for submission during Sources:- Company, Anagram research
this fiscal. In addition, the company is currently marketing 3 products in
the US, during the current year 2 more ANDA’s will be commercialized, SHAREHOLDING PATTERN (%)
while the company plans to file 4 ANDA’s by next year. With adequate
capacities in place, the RoW business of JB Chemicals is expected to
grow at a CAGR of 29% over FY10-13E.

Contract Manufacturing in Focus

J B Chem has entered into new contracts with British, Australian and
South African companies for supply of Lozenges, the company expects
to start the supply of the same this fiscal. The company is aggressively
exploring opportunities for new site transfers and CRAMS projects, though
the company remains conservative on the growth prospects for CRAMS.
We believe any such deals would add to the company’s future growth
prospects.
Sources:- Company, Anagram research
Time to Cash in on Investments Made
The company made significant investments during FY07 for expansion PRICE PERFORMANCE
of capacities, setting up a new unit at Panoli and acquisition of people.
Now with the investment phase over, JB Chemicals is set to reap the
benefits of the same through penetration in the existing markets through
new product launches and entry into new geographies.

Valuation
The stock is currently trading at attractive valuations of 7.1x and 6.1x
its FY12E and FY13E earnings respectively. Also, JB Chemicals is trading
at a discount to the average of its peers at all valuation parameter.
Though considering the lower diversification risks associated with JB
Source: Capitaline
Chemicals we conservatively give a discount of 30% to the average FY13E
P/E of its peer group and value the company at 7.9x its FY13E earnings Analyst: Vrijesh Kasera
which gives us a 15 month price target of Rs. 181. vrijesh.kasera@anagram.co.in

(Rs. Mn) 2009 2010 2011E 2012E 2013E

Revenue 717.1 741.0 878.8 1,027.6 1,157.8
Growth (%) 28% 3% 19% 17% 13%
EBITDA (%) 8% 21% 21% 22% 23%
FDEPS 3.0 14.1 16.3 19.7 22.9
Growth (%) -43% 362% 15% 21% 16%
RoE (%) 10% 6% 23% 22% 22%
RoCE (%) 8% 24% 24% 25% 24%
P/E 47.6 10.3 8.9 7.3 6.3
EV/EBITDA 23.9 8.4 6.4 5.1 4.0
Sources:- Company, Anagram research

13 5th January 2011

 IL&FS Investment Managers Ltd

First Mover Advantage CMP : 41

The company is reaping the benefits of first mover advantage in the
TARGET PRICE: 65
BUY
space of infrastructure focused fund that was introduced in 1996.
Recognizing the latent potential and investment needs of the real estate UPSIDE : 57%
sector, it took initiative in bringing private equity in real estate in 2005.
KEY DATA
The company is the first to structure participation of Foreign Institutions
in the PE framework. Sector Finance
Market Cap (INRbn) 8.4
Excellent Management Panel Market Cap (USDm) 188.5
With a talent pool of 52 professionals, IIML has exhibited its deal sourcing
capabilities driven by considerable experience of its team members. Due O/S Shares (m) 203
to its deep local knowledge and relationships, the Team is able to create Free Float shares (m) 102.31
and structure proprietary investment opportunities with companies that
52 Wk Hi/Lo (INR) 54.7/ 38.2
the Team considers to possess the best potential for growth.
Ave 12m Vol ('000) 157
Continued Source of Revenue Bloomberg ILFS IN
With a diverse kind of business model, the company enables to generate
Reuters ILFS.BO
continued stream of revenue in terms of management fees that is
insensitive to market conditions. A management fee that is a percentage Sources:- Company, Anagram research

of funds under management, usually 1.25-2.00%, provides a stable and Returns (%)
predictable source of revenue akin to an annuity. With a fund raising
1mnth 3 mnth 6mnth 12mnth
plan of the company going ahead, this revenue line is expected to rise
Absolute -3.5 -18.4 -5.9 -8.0
proportionately.
Relative -6.2 -18.5 -23.5 -24.8
Sources:- Company, Anagram research
Carry Profit – Adding further Value
Another source of earning for IIML is in the form of carry profit that is SHAREHOLDING PATTERN (%)
received at the time of expiry of the funds after considering the
repayments to investors and hurdle rates. IIML is expected to get
incessant flow of carry profit from 2012 onwards. Further with the
augmentation of AUM, this stream is likely to generate a continued source
of income in the long term.

Saffron merger will Provide a Momentum

IIML successfully completed the merger of the Mumbai-based private
equity real estate firm Saffron Assets Advisors Pvt. Ltd. The deal also
involves the merger of Mauritius units of Saffron and IIML. The deal
Sources:- Company, Anagram research
brought another two funds under management of IIML of US $ 400 ml
i.e. Euronext-listed Yatra Capital Ltd of Euro 220 ml and Saffron India PRICE PERFORMANCE
Real Estate Fund I of US $ 103 ml.The cost of acquisition was equivalent
to 8.75% of total combined AUM that worked out at US $ 35 ml for
which the company paid US $ 15 ml from its internal accruals while debt
of US $ 25 ml was raised via redeemable debentures.

Valuation
On a MktCap/AUM valuation basis IIML stock is trading at 0.08x of its
AUM of $ 2.8 billion as on March 2010. The unlocking value in terms of
carry profit will start to materialize from FY2012 onwards. We have
derived present value of carry profit at Rs 10 per share, considering IRR
and hurdle rate of each fund. Adding this value to Rs 55 at MktCap/AUM Source: Capitaline

of 0.07x of FY12E, the target price is arrived at Rs 65. Hence we Analyst: Krinal Shah
recommend BUY rating on this stock with a medium to long term
krinal.shah@anagram.co.in
perspective. We have not considered any upside in our Valuation from
Analyst : Punit Chande
the Saffron Fund Merger of which details are likely to come in Q3FY11.
punit.chande@anagram.co.in

Y/E March (Rs cr) FY08 FY09 FY10 FY11E FY12E

Operating Income 105.1 158.2 176.0 190.0 215.0
% Change 50.5 11.2 8.0 13.2
Gross Profit 56.8 106.4 113.3 119.3 134.9
% Change 87.4 6.5 5.3 13.1
Net Profit 31.9 62.3 74.2 77.9 88.9
% Change 95.2 18.9 5.1 14.1
EPS (Rs) 12.0 15.7 3.9 3.8 4.4
BVPS (Rs) 5.1 4.5 6.5 8.5 10.8
P/E (x) 4.1 3.1 12.4 12.7 11.2
P/BV (x) 9.6 10.9 7.5 5.7 4.5
Mkt Cap/AUM 0.15 0.08 0.08 0.07 0.06
Sources:- Company, Anagram research

14 5th January 2011

 Balkrishna Industries Ltd.

Balkrishna Ind has presence in niche Off-the highway (OHT) Tyre CMP : 128
market and majorly exports farm, construction and mining tyres. TARGET PRICE: 169 BUY
Leveraging on the structural benefit the company is expanding UPSIDE : 32%
its capacity by 90% by 2013 and it has sufficient headroom to
KEY DATA
increase prices and maintain margins which will have minimal
Sector
risk on cash flows and capex plans. Company has delivered
superior performance in past with 30% earnings CAGR over past Marketcap(INR bn) 1247

5 years and average ROE of 27%. Marketcap(USDm) 277

O/S Share(m) 9.7
The recent stock correction (-17%) we believe factors in the 52-wk-HI/LO 100.7-161.6
margin pressure (QoQ) going to be witnessed in H2FY11, (rubber Avg. daily vol. 2 week (lakhs) 44512
hedged @USD3500 against current price of USD 4500). While BSE Code 502355
price hikes in coming months (in line with global players) and NSE Code BALKRISIND
volume pick-up from Q2FY12 (13% capacity addition through Bloomberg BIL IN
debottlenecking) is expected. We believe at P/E of 6.6 and EV/
Reuters -
sales of 0.7 the stock is attractively priced and initiate coverage Sources:- Company, Anagram research
with BUY with target price of Rs 169, potential upside of 32%.

Structurally well placed to double global market share

BIL has presence in niche Off-the highway (OHT) Tyre market which is SHAREHOLDING PATTERN (%)
currently pegged at USD 11.5 bn and has historically grown at 3-4%,
we expect OHT industry to be USD 13.6 bn in 2014. We believe the
company will be able to penetrate into the OHT market and double its
market share due to competitive pricing and quality due to avaibility of
cheap technically skilled manpower and significant capacity addition at
Bhuj. OHT business is highly labor intensive and low volume for most of
the other tyre maker’s to enter this segment offering lesser competition
from local players to Balkrishna. Threat of Indian tyre and Chinese
companies moving into farm tyre market in US and Europe is less likely. Sources:- Company, Anagram research
Also competitive position will provide resilience to de-growth in developed
economies as witnessed in 2009.

Sufficient headroom to increase prices

BIL provides quality products which are at 30% discount to global OHT
PRICE PERFORMANCE
manufacturers. Given significant price differential, together with global
peers having already announced price hikes in OHT segment we don’t
foresee any risk in terms of price differential getting narrowed or risk
emerging from lower than expected EBITDA margins delaying the capex
plans. Company has done forward contract for rubber at USD 3500/
tonne (against current prevailing price of USD 4580/tonne) which will
take care for rest of H2 FY11 rubber requirement and company will be
insulated from the prevailing high rubber price. Company is planning to
take price hike of 8-10% in January 2011.
Source: Capitaline
Excellent R&D with 1900 SKUs
BKT has established its brand image through quality and after sales
service and the brand “BKT” enjoys good reputation in the domestic as
well as international market. The key reason BKT tyres are globally
competitive is its engineering talent. BIL develops over 150 new tyre
sizes every year, coupled with a low turn-around time of 8 to 10 weeks
for new product development. Radial OTR & Agri-Radial Tyre Technology
has been developed in-house. The company is expanding market share Analyst: Sahil Shah
by increasing penetration of existing distributors and adding new sahil.shah@anagram.co.in
distributors. (200 distributors).

Contd...

15 5 th
January 2011
Valuation
We expect 26% CAGR in sales and 11% CAGR in earnings (due to base
effect -exceptional EBITDA margins in FY10) over 2010-2014. BIL has
historically traded at a premium to Michelin, Titan and Apollo. We owe this
to higher growth and ability to pass-on higher raw material cost. Currently
the stock is trading significantly below hist avg (EV/TTM sales) compared to
its peers. Our target price of Rs 169 would imply 8.6/7.1x to its FY12E/
FY13E EPS of Rs 19.6/23.7 and 0.9/0.8x its FY12E/FY13E sales.

(Rs crores) 2008 2009 2010 2011 E 2012 E

Net Sales 1,120 1,367 1,527 2,066 2,388
Growth 30% 22% 12% 35% 16%
EBITDA Margin 20.1% 17.8% 25.2% 16.7% 16.8%
PAT 112 74 217 167 187
Growth 34% -33% 191% -23% 12%
EPS 11.6 7.7 22.4 17.3 19.4
P/E 11.2 16.9 5.8 7.5 6.7
ROE 29.2% 16.6% 37.4% 22.1% 20.4%
ROCE 15.1% 16.1% 20.6% 15.8% 15.2%
EV/EBITDA 8.3 7.7 4.9 5.4 4.7
Sources:- Company, Anagram research

16 5th January 2011

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For Further Details

- Avinash Gorakshakar - Head Research
Tel.: -91-22-42198100
Email: avinash.gorakshakar@anagram.co.in

RATING INTERPRETATION :

BUY Expected to appreciate more than 20% over a 12-month period

Accumulate Expected to appreciate up to 20% over a 12-month period
Neutral Expected to remain in a narrow range
SELL Expected to depreciate more than 10% over a 12-month period

Anagram Capital Limited/ Anagram Stock Broking Limited

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Regd. Office: Anagram House, H.L. Commerce College – Stadium Road,
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17 5th January 2011