Monthly Communiqué – Portfolio Management Service
May 2009
April 2009 has been one of the best months in almost a decade with the Sensex and the Nifty having posted a gain of 17.5%
and 12.5% respectively, taking markets to a six month high. Infact markets have risen 51% in last 33 days, which is one of the
best in the history of Indian capital markets. FII's have bought very aggressively in the month of April with over Rs 7400 crs of
net purchases taking their calendar YTD figures to just under $60 million negative. This is heartening news, indicating that risk
appetite is slowly returning back to our markets.
Coming to results for the fourth quarter, 1085 companies have declared their results. Sales have grown by 5%, EBITDA by
10.8% and net profit declined by 4.1%. However, the results are better than estimates but a caveat still remains that it might
be early days as the better ones report their earnings early.
Sectorally, Banking, FMCG, Auto and Cement have reported stellar performance. Both the PSU and private sector banks have
reported very good set of numbers. As you know, we maintain overweight stance on banking and financial services sector in
all our strategies. Marico, GlaxoSmithKline Consumer, Nestle and Dabur in the FMCG space have all reported decent increase
in volumes and margins this quarter. Gujarat Ambuja, Ultratech Cement and ACC have reported increase in volumes and
margins, better than what was estimated .Hero Honda reported a good set of numbers - sales, margins and net profits were
all on expected lines, however the dividend declared was a disappointment.
Amongst the sectors which disappointed was Information Technology. The guidance given out by the leading companies in
this space including Infosys indicated de-growth going forward.
Real Estate, Metals and Pharmaceutical were the sectors which posted worse than expected results. DLF reported 93% drop in
profits while Sterlite Industries reported muted numbers due to lower realizations. Ranbaxy's numbers were a disaster while
Glaxo Pharma numbers were in line adjusting for exceptional income.
There have been some moderation in apprehension over the stress tests of US Banks. However a new challenge awaits the
world economy-the H1N1 virus or the swine flu. There is no vaccine available for this virus yet and the disease has the potential
to blow into a pandemic. The world markets wait with bated breath to know the outcome of this disease
Going forward, election results would be the key for the markets . Derivatives data points to at least a 10% swing either way
post elections . While a UPA or an NDA combination would be viewed positively, any combination other than this would be
viewed negatively. Monsoon predictions by the met department have been normal while exports data for the month of
March '09 have been dismal with a 33% y-o-y drop. The current month may see big volatility in our markets.
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Value PMS
Strategy Objective
The Strategy aims to deliver superior wealth
creation by way of long term compounding
effect, with investments in good businesses
run by great business managers.
Investment Strategy
• Value based stock selection
• Investment Approach : Buy & Hold
• Investments with Long term perspective
• Maximize post tax return due to Low Churn
• Capital preservation consciousness
Other Details
Portfolio Manager : Mr. Raamdeo Agarwal
Benchmark: S&P CNX Nifty
Investment Horizon: 3+Years
Portfolio Managers Commentary
During the month there was no transaction in the Value Strategy.
Brief snapshot of results declared by some of the major companies invested in the strategy are:
Hero Honda
•
In the domestic market, hero Honda has grown at 11% in FY09 vs industry growth of 1.2% resulting into 530bps gain in market share to 60%-
its highest ever.The company posted excellent results in current quarter with EBITDA margin of 15.8%, EBITDA of Rs5.4b and PAT of Rs4b.
Higher volumes, increasing contribution from Haridwar, and RM cost savings were key drivers of robust operating performance. Volume grew
13% to 997,855 units during this quarter. The company is on track to achieve a sales of ~4mn during the current financial year. Operating
margins is expected to be sustained due to increased contribution from haridwar plant coupled with savings on raw material cost.
Bosch reported disappointing set of numbers during Q1CY09. The companys revenue dropped by 17% from Rs.1213cr to Rs.1006cr while
operating margins fell from 19.9% to 10.2% for the comparable period. Resultantly, net profit has witnessed steep erosion from Rs.162cr to
Rs.49cr. The above results need to be seen in-line with steep production cuts undertaken by the company to adjust production as per
market condition.
Bharti's 4QFY09 earnings grew 20.9% YoY and 3.7% QoQ to Rs22.4b (est Rs22.6b). EBITDA grew 23.1% YoY and 1.4% QoQ to Rs40b.
Consolidated revenue growth remained soft at 2% QoQ, mainly dragged down by the enterprise business.
Mobile Average Revenue Per User (ARPU) declined 14.6% YoY and 5.9% QoQ to Rs305/sub/month; in-line with estimates. While Minutes Of
Usage (MOU) (485min, down 4% QoQ) was lower than estimate, the impact was offset by relatively stable Revenue Per Minute (RPM)
performance (Rs0.63, down 2% QoQ).The company also announced its maiden dividend of Rs2/sh and a stock split to Rs 5 face value (vs Rs10).
We expect EPS for FY10 to be Rs 54. The stock trades at an FY10 EV/EBITDA of 8.3x and PE of 13.8x. Bharti remains best placed given low capex
intensity, unlevered balance sheet, and scale advantage.
Bosch
•
Bharti
•
Value Performance vs Benchmark
Performance Snapshot
40.00
30.00
20.00
12.05
.75
11
23.02
17.33
28.81
25.28
21.32
16.23
22.52
13.93
21.1
3
Value PMS
Nifty
As on 30th April, 2009
32.95
10.00
1.59
0.00
-1.94
-0.79
-7.73
-10.00
-20.00
-30.00
-40.00
1 Month
3 Months
6 Months
1 Year
-27.40
-33.1
4
2 Year
3 Year
4 Year
5 Year
PMS Inception Date : 18th Feb 2003.
Since
Inception retuns are of the first client.
Since
Inception
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Bulls Eye PMS
Strategy Objective
The Strategy aims to deliver returns in the
short to medium term by investing in funda-
mentally sound stocks coupled with active
profit booking.
Investment Strategy
• Active management
• Multi Cap Strategy
• Market Timing
• Regular Profit Booking
Other Details
Portfolio Manager : Mr. Sachin Abhyankar
Benchmark: BSE 200
Investment Horizon: 1Year
Portfolio Managers Commentary
During the month, we exited Real Estate Sector by booking profits in DLF, HDIL & Indiabulls Real Estate. We also reduced the weight age in BFSI
space by booking profits in SBI, Reliance Capital & BOB. We also booked profits in Prism Cement, JSW Steel, Glaxo consumer, bharti and exited
infosys at loss (mainly due to disappointing guidance).
We bought LIC Housing Finance, CEAT, IRB infrastructure and increased our exposure to pharma sector by introducing Piramal Healthcare and
Dishman pharma.
Piramal Healthcare
•
•
Net sales were up 10.2% to Rs8.5b, while EBITDA margins were at 21.6%. Reported PAT declined by 5% to Rs1.15b. PAT has grown by 14% for
4QFY09 impacted mainly by a 40% decline in UK CRAMS operations.
Despite the short-term adverse impact of inventory reductions, the macro environment for CRAMS business remains favorable given India’s
inherent cost advantages and chemistry skills. We believe that PHL will be a key beneficiary of increased outsourcing from India, given the
strong MNC relations which the company enjoys. PHL’s CRAMS business is gaining increased traction with more products being added to its
portfolio as well as improving profitability.
Management has guided for 16-17% top-line growth, EBITDA Margins at 21-22% and EPS of Rs23.5- 24.0 for FY10E. We estimate EPS of
Rs23.7 for FY10E (up 38%) leading to 19% earnings CAGR over FY08-11E and 30%+ RoE in FY10E. The stock trades at 9.8x FY10E.
Sales declined 3.79% to Rs621.74 crore in the quarter ended March 2009 as against Rs646.23 crore during the previous quarter ended March
2008. However net profit showed a marked improvement qoq from a loss of Rs22crs to a profit of Rs45crs in the quarter ended March 2009.
This improvement was mainly due to lower raw material prices and ban on Chinese tyre imports. Operating Profit margins has improved to
9.18%. We expect the financial performance to improve further in 1QFY10 when the full impact of lower raw material price will be seen.
•
AT
C E AT
•
Bulls Eye PMS vs Benchmark
Performance Snapshot
Bulls Eye PMS
40.00
30.00
20.00
10.00
0.00
-10.00
-20.00
-30.00
-40.00
-50.00
1 Month
3 Months
6 Months
1 Year
2 Years
3 Years
Since Inception
-23.14
-38.18
-10.21
-3.71
-3.96
16.08
14.42
0.12
26.45
23.33
33.84
25.03
13.17
9.45
As on 30th April, 2009
BSE 200
PMS Inception Date : 15th Dec. 2003.
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Next Trillion Dollar Opportunity PMS
Strategy Objective
The Strategy aims to deliver superior returns
by investing in focused themes which are
part of the next Trillion Dollar GDP growth
opportunity.
Investment Strategy
• Stocks with High Growth Story
• Stocks with Reasonable Valuation
• Concentration on Emerging Themes
• Buy & Hold Strategy
Other Details
Portfolio Manager : Mr. Sachin Abhyankar
Benchmark: CNX MIDCAP
Investment Horizon: 2 – 3 Years
Portfolio Managers Commentary
During the month, we bought MRF (favorable outlook due to change in government policy leading to higher domestic demand) and Marico
(Marico has emerged as a dominant player in the Hair Care and Edible Oil segment. It has also made inroads into international markets. Entry
into skin care clinics reaffirms the management's focus on wellness) in the strategy.
Brief snapshot of results declared by some of the major companies invested in the strategy are:
Bank of Baroda
•
•
•
BoB's PAT grew 172% at Rs7.5b (vs estimate of Rs4.5b). Positive surprise came from 1) NII growth of 43% YoY 2) Strong growth in fees (ex
forex) (up 43% YoY and 13% QoQ) 3) Lower than expected provision of Rs2.1b. Net Interest Margins remained stable at 2.9% for FY09.
We like management's focus on (a) core deposits growth, (b) margin stability, (c) fees growth, and (d) NPA management. The management is
targeting a RoA of 1% and RoE of 17% with NIMs at ~3% and fee income growth of 25%+ .
We expect BoB to report EPS of Rs56 in FY10 and Rs65 in FY11. ABV would be Rs342 in FY10 and Rs374 in FY11. The stock trades at 0.9x FY10
ABV and 5.6x FY10 EPS.
GSK has posted fifth consecutive quarter of double digit volume growth. 20% volume growth in 1QCY09 was contributed by domestic volume
growth (13.5%), higher exports (4%), and new launches/pipeline filling (2.5%). Horlicks volumes were up 21% YoY, Boost volumes grew 8%
YoY and the biscuits portfolio grew 27% YoY.
We estimate margin expansion of 110bp in CY09 and 90bp in CY10 mainly due to cost efficiencies. We estimate PAT CAGR of 25% over CY08-
10 v/s 21% over the last three years. Acceleration in growth rate and success of new launches could result in stock re-rating. We expect an EPS
of Rs59 for CY09 and Rs70.7 for CY10. The stock is trading at 13.6x CY09E and 11.3x CY10E earnings.
Net sales grew 16% to Rs12.7b led by strong growth of 19% in domestic revenues. EBITDA grew by 24% YoY to Rs3b as margins expanded
164bp led. Other income grew by 65% YoY at Rs103m due to increase in export incentives and higher interest income.
PBT at Rs2.9b was up 26% YoY. Reported PAT (including provision for contingency of Rs105m) grew by 23.2% YoY to Rs1.97b.
We believe the long term story in Nestle is intact with expected increase in penetration and ability to innovate and launch new products due
to technology backup of the parent. The stock trades at 24x CY09 EPS of Rs70.4 and 20x CY10E EPS of Rs85.3.
GSK Consumer
•
•
Nestle
•
•
•
NTDOP Performance vs Benchmark
Performance Snapshot
40.00
30.00
20.00
10.00
0.00
-10.00
-20.00
-30.00
-40.00
-50.00
1 Month
3 Months
6 Months
-44.93
1 Year
-28.51
-32.00
-44.28
Since Inception
19.95
14.06
24.58
15.92
14.03
Next Trillion Dollar Opportunity PMS
30.48
CNX MIDCAP
As on 30th April, 2009
PMS Inception Date : 11th Dec. 2007.
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Focused PMS – Series I
Strategy Objective
The Strategy will aim to invest in fundamen-
tally sound companies that can benefit from
a rerating. To increase the prospects for out
performance, the portfolio will exhibit a pref-
erence for companies that may have been
overlooked or are out of favour.
Investment Strategy
• Bottom-up stock selection approach
• Stocks with re-rating horizon of two years
• Preference for out of favour stocks
• Concentrated Portfolio Structure of 5-7 stocks
• Exit Stocks when rerating target achieved
Other Details
Portfolio Manager : Mr. Sachin Abhyankar
Benchmark: BSE 200
Investment Horizon: 2 Years
Portfolio Managers Commentary
During the month there was no transaction in the Focus - I Strategy
Brief snapshot of results declared by some of the major companies invested in the strategy are:
3i Infotech
•
Revenue for the year was Rs. 2,304.70 crores, representing a YoY growth of 88.4%. PBIDT grew by 66% to Rs. 453.48 crores. PAT stood at Rs.
292.38 crores, including exceptional items of Rs. 25.96 crores (net) and Rs. 266.42 crores excluding exceptional items, recording a growth of
45.4% over the previous year
During the quarter, the Company bought back FCCBs of the face value of USD 25.13 million at a price of USD 12.25 million and Euro 4 million
at a price of Euro 1.9 million. This transaction has lead to reduction in the debt by Rs 150 crores.
FY08 EPS increased to Rs 19.02 and stock trades at 2.3x on FY08 EPS
Canara Bank is one of the very few banks to report a QoQ increase in interest on advances, NII and margins during 4QFY09. Improvement in
margins (33bp YoY), robust loan growth (up 29%) and trading profits led to PAT growth of 55% (vs est of 18% YoY). FY09 margins improved
36bp YoY to 2.78% and improved 3bp from 9MFY09 levels.
GNPA declined 14% QoQ and Net NPA declined 9% QoQ. Dabhol continues to be classified as NPA for the bank. CASA ratio stood at 31% and
savings growth was impressive at 19%. The bank has restructured ~Rs20b (~1.5% of the loan book) of loans under RBI restructuring package.
We expect Canara to report EPS of Rs46 in FY10 and Rs50 in FY11. ABV will be Rs224 and Rs234 in FY10 and FY11. Stock trades at 0.8x FY10
ABV and 4.2x FY10 EPS
•
•
•
Canara Bank
•
•
Focus series-I PMS vs Benchmark
Performance Snapshot
50.00
40.00
30.00
20.00
10.00
0.00
-10.00
-20.00
-30.00
-40.00
-50.00
1 Month
3 Months
6 Months
1 Year
Since Inception
-30.57
-38.18
-16.81
-12.43
21.85
14.42
18.60
23.33
Focused PMS Series 1
BSE 200
As on 30th April, 2009
37.18
25.03
PMS Inception Date : April 2008.
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Focused StrategySeries II I
PMS – – Series
Strategy Objective
The strategy will aim to invest in fundamen-
tally sound companies with a view to capi-
talize on the difference in price between
market value of the company and intrinsic
value of the business.
Investment Strategy
• Undervalued Stock Selection
• Bottom Up Stock Selection Approach
• Concentrated Portfolio Structure of 5-7 stocks
• Exit Stocks when profit target achieved
Other Details
Portfolio Manager : Mr. Manish Sonthalia
Benchmark: BSE 200
Investment Horizon: 2 Years
Portfolio Managers Commentary
During the month, we booked profits in DLF, M&M, TCS and Reliance Industries and bought Dishman pharma and BPCL.
Brief snapshot of results declared by some of the major companies invested in the strategy are:
ICICI Bank
•
ICICI Bank 4QFY09 PAT of Rs7.4b was higher than estimate of Rs6.97b due to strong core operating performance, marked by 1) higher than
expected growth in NII led by 20bp QoQ improvement in margins 2) 9% QoQ growth in CASA deposits; CASA ratio improved to 29% 3) Opex
declined 23% YoY and 4% QoQ. NPAs continued to build at quarterly rate of Rs12.5b. Other highlights of the quarter are 1) Loan book grew
3% QoQ however; declined 3% YoY to Rs2183b, 2) Deposits grew 4% QoQ but declined 10% YoY to Rs2183b and 3) Fee income was flat QoQ.
Management's strategy of improving core deposits (and sacrificing loan growth) and building up branch network (to add 580 branches and
increase to 2000 in CY09) would correct the ALM mismatches in the balance sheet over longer term (and in turn improve core profitability).
We expect ICICI Bank to report EPS of Rs35 in FY10 and Rs43 in FY11. BV would be Rs 466 in FY10 and Rs496 in FY11. It is trading at 12x FY10E
EPS and 0.9x FY10E BV.
NII grew by 5% YoY and declined 19% QoQ to Rs4.6b. NIM declined QoQ from 2.33% in 9MFY09 to 2.2% in FY09. CASA growth was 7% YoY
and CASA ratio declined to 24%.
Other income more than doubled YoY to Rs3.4b due to strong trading profits of Rs1.6b and impressive fee income growth of 51% YoY. Asset
quality improved QoQ - Gross NPA and Net NPAs in absolute terms declined 3% and 11% QoQ. Slippage was contained at 0.9% in FY09.
We expect the bank to report EPS of Rs35 in FY10 and Rs37 in FY11. ABV will be Rs262 and Rs280 in FY10 and FY11. The bank has declared
a dividend of Rs7.3 per share, translating in a yield of 5.7%. We expect RoE to remain at 12-13%. The stock trades at P/E of 3.7x and P/ABV of
0.5x of FY10.
•
•
Oriental Bank of Commerce
•
•
•
Focus series-II PMS vs Benchmark
Performance Snapshot
35.00
30.85
30.00
Focused PMS Series 2
BSE 200
As on 30th April, 2009
25.00
19.49
20.00
14.42
12.19
15.00
10.00
5.00
0.00
1 Mont h
Since Incept ion
PMS Inception Date : 22nd Feb. 2009.
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Optima Strategy – Series I
FocusedPMS
Strategy Objective
The strategy aims to deliver superior returns
over a long period by investing in companies
with growth potential & which are available
at reasonable market price.
Investment Strategy
• Growth At Reasonable Price (GARP)
• Investment Horizon of 2 years +
• Active Portfolio Rebalancing
• Market Timing
• Situation base multi Cap approach
Other Details
Portfolio Manager : Mr. Sachin Abhyankar
Benchmark: BSE 200
Investment Horizon: 2 Years
Portfolio Managers Commentary
During the month we booked profits in Bank of Baroda, HDFC Bank, JSW Steel, GSK Consumer, BHEL, Bharti Airtel, LIC Housing Finance, SBI &
Prism Cement.
We introduced CEAT, IRB Infrastructure, Axis Bank and Marico in the Strategy.
Brief snapshot of results declared by some of the major companies invested in the strategy are:
LIC Housing Finance
•
Profits grew 33%YoY in 4QFY09 to Rs1.58b led by 26% YoY loan book growth and significant improvement in margins. Margin expansion
could partly be attributable to increasing exposure to builder segment (26% of incremental loan book in 4QFY09) apart from the benefit of
downwards re-pricing of wholesale funding. Asset quality has improved with net NPAs at 0.2% and provision coverage of 81%.
Yield on funds decreased from 11.7% in 9MFY09 to 11.2% in FY09 (10.5% in FY08) while cost of funds decreased to 9.2% from 9.7% in
9MFY09 and 8.9% in FY08. Spreads improved to 2.1%
It has declared dividend of Rs13/share, translating into a dividend yield of ~4%. We expect EPS of Rs70 and BV of Rs315 in FY10 and Rs80 and
Rs374 in FY11 respectively. RoA and RoE would remain at ~1.8% and 23%+ respectively over FY10-11. Stock trades at 1x FY10 BV and 4.4x
FY10 EPS.
Axis Bank posted PAT of Rs5.8b for 4QFY09, higher than our estimate of Rs4.5b, driven by higher treasury gains and lower operating expenses.
NII grew 25% YoY. Loans grew 37% YoY (8% QoQ) to Rs816b while deposits grew 34% YoY (11% QoQ) to Rs1.2t. Reported NIM increased
25bp QoQ to 3.37%, as cost of funds declined 27bp QoQ to 6.6% and CASA ratio improved to 43%.
Asset quality robust, with GNPA at 0.96% and NNPA at 0.35%. The bank restructured loans of Rs10b in FY09; its outstanding restructured loan
book stands at Rs16.3b (~2% of the loan book).
•
•
Axis Bank
•
•
Optima PMS vs Benchmark
Performance Snapshot
Optima PMS
30.00
25.00
20.00
15.56
15.00
10.00
5.00
0.00
1 Month
3 Months
Since Inception
14.42
24.23
23.33
20.71
BSE 200
26.85
As on 30th April, 2009
PMS Inception Date : 30th Dec. 2008.
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Monthly Communiqué – Portfolio Management Service
REGISTERED OFFICE:
MOTILAL OSWAL SECURITIES LTD.
PALM SPRING CENTRE, 2ND FLOOR, LINK ROAD, MALAD ( WEST), MUMBAI - 400 064
SEBI CERTIFICATE OF REGISTRATION AS PORTFOLIO MANAGER INP 000000670
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670