EF Research Desk…..

1. DIWALI PICKS 2013 EF Research Desk…..

2. EF Research wishes all the investors a very happy Diwali…….. We hope that the new Samvat, 2070 turns out to be a very prosperous year for all of us and keeps the market momentum going…….

3. Muhurat Trading The festival of lights “Deepavali” will mark the beginning of the trading new year- SAMVAT 2070, with the auspicious Muhurat trading session scheduled to be conducted on the 3rd of November-2013 from 6:15 – 7:30 PM.

4. The Year in retrospect…… • The Samvat 2069 turned out to be a good year in terms of returns despite a lot of domestic and overseas headwinds. For the Year, our markets have given a return of close to 11 percent, making it one of the better performing markets around the globe. Although volatility was the key feature of the markets during the period, yet, concentrating on fundamentally strong stocks and long-term holding has been a rewarding exercise. • Foreign investors continued to buy equities, exuding confidence in the India-story. Overseas investors have been net buyers in the Indian markets in nine out of the past twelve months. • The main headwinds that induced volatility in the markets was the widening fiscal and current account deficits. The twin deficit resulted in a sharp depreciation in the value of the domestic currency vis-à-vis other major global currencies, triggering large volatility in the markets. • Equally disturbing was the inflation trajectory, that refused to mellow down despite a lot of strict measures taken by the Central Bank as supply constraints and costlier import took their toll on the price level of all commodities. • Globally, things have been challenging as well. Although the larger part of the year saw the US Federal reserve continuing their bond-buying program in order to support the economic recovery and vowing to continue it in the future as well, yet, in the last few months the Fed open Market committee has been increasingly voicing their wish to cut back on the monetary stimulus as the economy seems to be on the verge of coming out of the transitionary period to embark on the path of sustainable recovery.

5. The Year ahead…… • Market movement next year would be dependent on a whole host of domestic as well as global macro factors apart from the general trajectory of Corporate profitability and interest rate Cycle. • While withdrawal of fiscal stimulus would be happening in the near future and the markets might give a knee-jerk reaction, we believe that the withdrawal would be a slow and gradual process and would not hamper market performance going forward. • Back Home, the key to market performance would lie in the revival in the corporate profitability. We believe that the worst in terms of financial performance from India Inc is over and H2FY14 would be much better than H1FY14. • Another key determinant of market trajectory from here on would be the RBI’s future course of action in the form of policy initiatives. The RBI has time and again showed that reigning in the inflationary forces remains its top priority, even at the cost of growth. The inflation, both at the wholesale and the retail level, has come down from its highs but is still a cause of concern. Going forward, we expect the positive effects of good monsoon to trickle in and calm the inflationary pressure, enabling the apex bank to be more affirmative about cutting rates in the near future. Interest rate Cycle is expected to reverse towards the end of the ongoing fiscal and would be a key positive for the equity markets.

6. The Growth in the Indian economy, that has been dwindling, is also expected to show steady improvement over the coming twelve months. The government has been trying to push in reforms to kick-start the economic engine. The last session of the parliament has been a meaningful one when compared to the previous few sessions and the government has been trying to push reforms in the infrastructure, retail and the banking sector. We expect the government to continue with its reform drive although some populist and anti-market decisions cant be completely ruled out as we near the elections in the near future. • The outcome of the election would also be keenly watched by the markets as a strong and reformist government is very much the need of the hour. Policy logjam has plagued the performance of the economy more than anything in the recent past and markets would want a stable and determined government in power. • To sum-up, the bull case scenario seems much stronger going forward. We expect the markets to perform well on the back of improved Corporate earnings, expected down turn in the interest rate cycle and a moderate inflation, aiding economic recovery. Global growth is also expected to pick-up and overseas cues should remain more or less positive going forward. The fear of QE pull-out has been in the system for a while now and the market seems to have digested the news now. The year gone-by has demonstrated that our market remains a stock pickers market and quality investments have been aptly rewarded. Transitional phases in market Cycles are neither easy, nor a one way traffic and hence markets would exhibit volatility at times. However, we take this opportunity to express the view that the worst seems to be over behind us and we should see markets doing reasonably well in Samvat 2070.

7. Amid all the apprehensions & negative environment Indices are at almost their peaks, we believe that there is still a long way to go and Indian equities are likely to outperform not only other global markets but also any other asset class. We also expect inflation to moderate followed by policy actions from RBI & the Finance Ministry which will boost overall sentiment and liquidity in the corporate world. The biggest event to watch out though would be the outcome of Election, any negative surprise on that front would be a dampener in the short term. We present 10 investment ideas which we believe can give substantial return in the next one year. During the last one year, since the Diwali 2012,markets have been very volatile with the Nifty giving returns of 10.78%, compared to a return of 16.75% given by our 10 stock recommendationsgiven last Diwali. We hope to continue to create wealth by focusing on fundamentally strong stocks and continue with our mantra of – “Give us your worries…Takehome the returns”.

8. TOP 5 LARGE-CAP PICKS • Bharat Heavy Electricals Ltd. • Cairn India Ltd. • HCL technologies Ltd. • ICICI Bank Ltd. • Tata Motors Ltd.

9. Bharat Heavy Electricals Ltd. • Bharat Heavy Electricals Ltd. (BHEL) is the largest engineering and manufacturing enterprise in India in the energy-related/infrastructure sector. The Company is engaged in the design, engineering, manufacture, construction, testing, commissioning and servicing of a wide range of products and services for the core sectors of the economy. • BHEL has started to focus on cutting down costs to improve its margins. Its Tiruchi unit, which produces boilers for thermal power plants, has come up with a plan to make a much larger use of rail and sea for logistic purpose and consume half the time and a third of the costs, it presently incurs. Also, BHEL is looking to increase its vendor base in China in order to competitively source specialized inputs. • Despite challenging macro environment, especially slack demand environment in the power sector, BHEL has been able to maintain a very healthy balance-sheet. The Debt equity ratio of the company as on March-2013 stood at 0.09, which is one of the best in the sector. Also, the latest disclosed cash balance of the company stands at Rs.7845.05 CR, translating into Rs.32/share. • In Q1Fy14, the company reported net sales of Rs.6353 Cr as against Rs.8326 Cr, last year. The net profit for the quarter stood at Rs.465 Cr as compared to Rs.921 Cr, last year. Although the problems of the power sector that resulted in muted performance by the company are still alive, yet, we feel that the second half order flows would improve significantly and BHEL with its niche positioning will be able to improve its financial performance in H2FY14. Also, the likely reversal of interest rate cycle post moderation in inflation would boost the demand scenario in the sector and help the company continue to perform well in FY15. • The stock is currently trading at an attractive valuation of 4.92XFY15E EPS. We recommend a “Buy” on the stock with a target of 172.00, valuing it at 6XFY15E EPS.

10. Cairn India Ltd. • Cairn India Ltd. (CIL) is one of the leading private sector upstream oil companies in India having interest in 10 blocks located along the east and west coast of India and one block in Sri Lanka. As part of its business activities, the Company also holds interests in its subsidiary companies, which have been granted rights to explore and develop oil exploration blocks. • The Government has cleared the integrated development plan policy (IDP), which will quicken the approval process & reduce the time between discovery and production. With the plan to deploy five exploratory rigs, IDP policy in place & approvals for various fields in final stages, the outlook to achieve production of 3,00,000 bopd remains intact. • The gross production for Rajasthan stood at 1,75,478 boepd in Q2FY14, with Mangala, Aishwariya. Saraswati & Rageshwari producing 1,51,893 boepd and Bhagyam producing 23,585 boepd. The management has given a guidance for gross production for all blocks (Rajasthan, Cambay & Ravva) at 2,25,000 boepd for FY14. • The management has maintained its capex guidance of $3bn over the next 3 years. Of this, about 80% ($2.4bn) is ear marked for the Rajasthan fields (25% exploration, 40% production sustenance, 15% additional production) while 20% is planned for exploration and development in all the other fields. • In Q2FY14, the company reported consolidated net sales of Rs.4650 Cr as compared to Rs.4443 Cr reported last year, up 5%. Consolidated net profit for the period under review stood at Rs.3385 Cr as compared to Rs.2322 Cr last year, up 46%. • The Company has declared an interim dividend of Rs.6 per share for FY14. • The stock is currently trading at an attractive valuation of 3.33XFY15E EPS. We recommend a “Buy” on the stock with a target of 380.00, valuing it at 4XFY15E EPS.

11. HCL Technologies Ltd. • HCL Tech is India's fifth largest IT services company, catering to more than 540 clients. The company's service offerings include enterprise application services (EAS), custom applications, engineering and research and development (ERD) and infrastructure management services. • The Infrastructure management Services of the company has been doing very well. Over the last eight quarters, the IMS Segment has grown at a compounded growth rate of 7% and in Q1FY14 ( the company maintains June-May as its financial year); the segment reported a strong QoQ growth of 9%. The Management has indicated that the IMS segment is doing well globally and would continue to be the top performing segment for the company, going forward. • During the quarter ended Sep-30,2013, the company had signed 9 large deals with a cumulative deal value of $1 Bn. This is in line with the continuing trend of announcing $1 bn plus deals in each quarter for the past four quarters. Strong deal-pipeline gives strong revenue growth visibility for the company, going forward. • The management’s relentless focus on cost has resulted in improvement in EBTIDA margin by 304 bps QoQ to 26.3%; inspite adverse impact of partial wage hike by 50 bps in Q1 FY14. • In Q1FY14, the company reported consolidated net sales of Rs.7961 Cr as compared to Rs. 6069 Cr reported last year, an up-tick of 31%. Consolidated net profit for the quarter under review stood at Rs.1416 Cr as compared to Rs.864 Cr last year, up 64% YoY. • The Company has been a consistent dividend payer over the years with increasing dividend pay-outs. It has already announced an interim dividend of Rs.6 per share in FY14. • HCL’s latest cash Balance stands at Rs.3577.11 Cr, translating into cash per share of Rs.51. • The stock is currently trading at an attractive valuation of 17.85XFY15E EPS. We recommend a “Buy” on the stock with a target of 1350.00, valuing it at 22XFY15E EPS.

12. ICICI Bank Ltd. • ICICI Bank is India’s largest private sector Bank offering a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. • Aided by a robust performance in retail disbursements, which increased 20% YoY, total advances of the Bank soared 16% from last year and currently stands at 317786 Cr as compared to Rs.275076 Cr . The outstanding mortgages and auto loan portfolios for the Bank have grown by 23% and 27% respectively on a year-on-year basis at September 30, 2013.Total Deposits increased to Rs.309046 Cr as compared to Rs.281438 Cr, last year. • Asset quality improved as Gross NPA decreased by 15 bps q-o-q (46 bps y-o-y) to 3.08% whereas Net NPA increased marginally by 3 bps q-o-q (7 bps y-o-y) to 0.85%. However, PCR (Provision Coverage Ratio) was down by 230 bps q-o-q (560 bps y-o-y) and stood at 73.10% in Q2FY14. • The Bank reported Net Interest Income of Rs.4044 Cr in Q2Fy14 as compared to Rs.3371 Cr in Q2FY13, up 20% YoY. Net profit for the period under consideration stood at 2352 Cr as against Rs.1956 Cr last year, up 20% YoY. Nat Interest margin increased to 3.31% in Q2-2014 compared to 3.00% in Q2-2013. • The CASA ratio of the Bank improved from 40.70 % in Q2Fy13 to 43.30 % in Q2FY14. CASA deposits grew 17% YoY and currently stand at Rs.133908 Cr. • Consistent and increasing dividend pay-out by the Bank is expected to continue in the future, enhancing share-holder’s value. • The stock is currently trading at an attractive valuation of 9.13XFY15E EPS. We recommend a “Buy” on the stock with a target of 1350.00, valuing it at 11XFY15E EPS.

13. Tata Motors Ltd. • Tata Motors ltd (TML) is one of India’s largest Automobile manufacturers with leadership position in commercial vehicles and among the top players in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. • Tata Motors has been on a product launch spree with an expected 25-30 product launches, upgrades and variants roll-out to be done in H2Fy14. Some of the already launched products include upgraded version of Tata Sumo Gold, new Tata Xenon for Australian market, Tata ARIA along with Tata Prima KL3TXF 6X4 Tractor and the Tata Ultra 812 Truck in South Africa, CNG Version of Nano, etc. New product launches along with active promotions would help the company achieve steady volume growth in the next few quarters. • US, UK & China markets have been doing quite well for JLR (UK subsidiary of Tata motors). In September, sales in the US were up 40 per cent; while those for the UK were up 36 per cent on a year on Year basis. In the US, the company outperformed its bigger rivals Audi and Mercedes, which grew 15-21 per cent. Sales also rose in China, one of its star performers, recording a growth of 43 per cent year-on-year in volumes. We believe that JLR sales will further get boost on robust demand scenario in key markets, new product launches from JLR and investments to the tune of 100 million GBP in R&D activities. • In Q1FY14, the company reported a modest up-tick in revenues and a slide in profitability. However, with new product launches, improving demand scenario going forward and strong performance by JLR would help it perform well. In-fact it is expected to out-perform all the major auto players both in terms of volume pick up and profitability. • The stock is currently trading at an attractive valuation of 11.47XFY15E EPS. We recommend a “Buy” on the stock with a target of 465.00, valuing it at 14XFY15E EPS.

14. TOP 5 MID-CAP PICKS • Ceat Ltd. • Dishman Pharmaceuticals & Chemicals Ltd. • PTC India Ltd. • Radico Khaitan Ltd. • Syndicate Bank Ltd.

15. Ceat Ltd. • Ceat Ltd. (CL) is one of the leading tyre companies in the domestic markets that specializes in making world class tyres for two-wheelers, Cars & SUVs, Firm Vehicles & Trailers, LCVs & Trucks, etc. Apart from tyres, the company also market tubes and flaps. Besides being a dominant player in the domestic market, the company exports its products to 110 countries globally. • Despite sluggish Auto demand, the robust replacement market is keeping the volume growth momentum going for the company. In-fact in both Q1 & Q2 of FY14, volume growth has been in double digits for the company. • Over the past several quarters, the company has increased its focus on the more profitable passenger car business, such as utility vehicle redials. The Management expects the growth momentum to continue and has guided for a strong growth of around 20% for the segment during FY14. • Backed by softening rubber prices, robust growth in non-truck business and pick-up in realizations in the overseas markets, the operating margins of the company is expected to show further improvement during the remaining two quarters of FY14. • In order to cater to the growing demand of tyres in the domestic replacement market as well as to cater to new OEMs, the company has decided to invest around Rs.650 Cr to enhance the existing capacity of the radial tyre unit at Halol by 120 tonne per day (TPD). • In Q2FY14, the company reported consolidated net sales of Rs.1319 Cr as compared to Rs.1213 Cr, last year. The Consolidated net profit for the period jumped almost four-fold and stood at Rs.76.55 Cr as compared to Rs.17.85 Cr (adjusting for exceptional items). • The stock is currently trading at an attractive valuation of 2.21XFY15E EPS. We recommend a “Buy” on the stock with a target of 250.00, valuing it at 3XFY15E EPS.

16. Dishman Pharmaceuticals & Chemicals Ltd. • Dishman Pharmaceuticals & Chemicals Ltd. (DPCL) is a mid-sized Pharma company having presence mainly in the CRAMS segment. The products and services offered span customers’ needs from chemical development to commercial manufacture and supply of APIs. • AstraZeneca has placed fresh orders for Brilinta intermediates. The supplies are expected to commence from Q4FY14 onwards. The expected revenue from this product for FY15 is $10mn. This is a high margin product as it is under patent and DPCL would benefit from it. • The company’s HiPo facility for anticancer products is undergoing expansion and the capacity will double after this expansion in Q3FY14. The products manufactured at this facility have EBIDTA margin of 40-45%. This will help the company report better margins in future. • The management expects the company to be debt free in the next 2-3 years as it plans to generate sufficient cash from the expected sale of DPCL’s SEZ land and facility in China. The balance debt would be met from profits, which is expected to pick-up as the company doesn’t have much incremental Capex for FY14E & FY15E. • In Q1FY14, the company reported consolidated net sales of Rs.306.24 Cr as compared to Rs.315.28 Cr. The consolidated net profit came in at Rs.29.24 Cr as against Rs.38.72 Cr, last year. The main drag-down factor was the sharp escalation in interest costs and sluggish revenue growth. The management has indicated that to improve capacity utilization and use facilities as multi-purpose blocks to ramp up revenues, the company is shifting its focus from large Pharma companies to mid-sized players. Along with this, the company’s efforts to bring down the debt will enhance the future financial performance of the company. • The stock is currently trading at an attractive valuation of 4.60XFY15E EPS. We recommend a “Buy” on the stock with a target of 90.00, valuing it at 6XFY15E EPS.

17. PTC India Ltd. • PTC India Ltd. (PTC), is one of the leading providers of power trading solutions in the country having an estimated market share of around 41-percent. The company is also the co-promoter of 1st National Power Exchange in the country besides having a subsidiary to support financial services like providing equity and debt support to projects in the energy value chain. • Considering the fact that India’s per-capita consumption of power is well below the world average and the mismatch between supply and demand remains a serious concern, the future prospect of power traders looks good. The development of energy exchanges, materialization of Long Term Power Purchase Agreements (LTPPA) should accentuate the growth prospects of players like PTC. • In order to mitigate the long-term risks of the tolling business, the company has re-negotiated its tolling arrangement. As per the revised agreement, the raw-material & generation risk would be borne by the developers, while the company would be entitled to get 2% trading margin for realizations below Rs.4.6/unit, while above which it would get a 30% profit sharing on the balance amount. The management’s decision to do away with the tolling business and converting the same into a modified short-long term trading arrangement will provide a cushion against volatile fuel prices and merchant rates. • One of PTC’s major creditors, UPPCL has recently paid Rs.778 Cr to the company towards past dues against sale of Power. With both the major creditors, TNEEB & UPPCL opting for the SEB re-structuring, we expect the reco0very process to quicken up, going forward. • In Q1Fy14, the company reported net sales of Rs.2770 Cr vs Rs.1987 Cr, last year. Net profit for the quarter came in at Rs.29 Cr vs Rs.23 Cr, last year. • The stock is currently trading at an attractive valuation of 5.60XFY15E EPS. We recommend a “Buy” on the stock with a target of 70.00, valuing it at 7XFY15E EPS.

18. Radico Khaitan Ltd. • Radico Khaitan Ltd. (RKL) is one of the oldest and largest liquor manufacturers in India having many well-established brands in its portfolio, including millionaire brands like 8 PM Whisky, Magic Moments Vodka, Contessa Rum and Old Admiral Brandy. • Favorable Demographics, rising disposable income, changing social attitude towards drinking are some of the key factors driving demand for premium liquor in the country. The IMFL (Indian made foreign liquor) market is expected to grow at a CAGR of 12-15% over the next few years and RKL, which is increasingly focusing on premiumization of its portfolio, is expected to be a key beneficiary of this trend. • With Close to 20% volume growth in its premium products in the past few quarters, the company is planning to launch more products in this segment to drive revenue growth. RKL has decided to introduce two more premium brands in the brown spirits' segment in the next two years. • RKL will spin-off its IMFL business, which contributes over 70% of total business of the company, into a separate subsidiary. The Company is also in talks with some Japanese player to sell a strategic stake in the company. Hiving-off the IMFL business to segregate from the bulk-liquor business and a strategic stake sell would act as potential value un-locker for the company. • In Q1FY14, the company reported net sales of rs.349 Cr, up 20% on YoY basis. The net profit for the period under consideration stood at Rs.23 Cr, up 7% on YoY basis. With growing contribution from premium brands enabling margins expansion and expected reversal in the interest rate cycle in the next few quarters, resulting in down-tick in interest costs, the bottom-line of the company is expected to grow in tandem with the top-line. • The stock is currently trading at an attractive valuation of 17.86XFY15E EPS. We recommend a “Buy” on the stock with a target of 180.00, valuing it at 22XFY15E EPS.

19. Syndicate Bank Ltd. (SBL) is one of the oldest Public sector Banks in India, with the Government of India’s stake currently standing at 66.17% and having the eighth-largest branch network and tenth-largest asset book among Indian banks. • During Q2Fy14, the Bank opened 43 branches taking the cumulative new branch tally in H1FY14 at 113. As on 30th Sep-2013, total number of branches stood at 3047. • The Bank has been able to consistently grow its business over the years. At the end of Q2Fy14, the total business of the Bank stood at Rs.346156 Cr, up 22% on YoY basis. While the deposits grew 22% YoY and stood at Rs.190820 Cr, the advances grew 21% at Rs.155366 Cr. • In Q2Fy13, SBL registered NII of Rs.1411 Cr as compared to RS.1391 Cr, last year.Net Profit for the period under consideration stood at Rs.470 Cr as compared to Rs.463 Cr, last year. • Domestic CASA deposits grew from RS.46510 Cr in Q2Fy13 to Rs.53720 Cr in Q2FY14, registering a growth of 16% YoY. The CASA-ratio currently stands at 32.41% as compared to 32.39%, last year. • Despite economic down-turn, the bank has been able to maintain a reasonable asset quality. Currently the gross & the net NPA ratios stand at 2.88% and 1.66% as against 2.47% and 0.92%, last year. • Cost to Income ratio of the Bank improved to 46.99% in the Second quarter ending September-2013 as compared to 47.62% in the same period, last year. • The Bank has been a consistently well dividend payer over the years. For FY14, SBL has given an interim dividend of Rs.6.70 per share, translating into a dividend Yield of 8.96%. • The stock is currently trading at 1.63XFY15E EPS & 0.34XP/ABV. We recommend a “Buy” on the stock with a target of 100.00, valuing it at 2XFY15E EPS & 0.41XP/ABV. Syndicate Bank Ltd.

20. Financial Highlights……..

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