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Merill Lynch Investor Conference – Takeaway

February 13, 2008

DSP Merill Lynch a while ago concluded Investors conference in Mumbai. Key takeaway from the conference is as below.

Asian Paints: Volume growth of 15% plus appears sustainable. Mix upgrade is supporting margin expansion in decoratives. Increasing focus on industrials to de-risk portfolio. Forecast FY08 EPS to grow 38.5% to Rs41.3. Valuations appear reasonable at P/E of 23xFY09E and 19xFY10E for a business with strong brand name, structural growth drivers and high ROE.

Axis Bank:Non-banking initiatives underway with PE (infrastructure) fund, AMC with offshore advisory focus and also wealth management focus for Indian diaspora besides expanding international presence. Axis bank is increasingly focusing on deriving its income from non-fund based sources (from 20% in FY04 to 34% in 9MFY08). This has so far been largely driven by retail banking and corporate banking, which over a period of time is also expected to be complemented by SME banking.

Biocon:Recently announced Axicorp acquisition in Germany for EUR30mn (includes US$15mn cash) is largely to gain access to distribution reach in German markets. Likely oral insulin out licensing deal in FY09. Biocon currently trades at 17.1x FY08E EPS and 13.1x FY09E EPS. Maintain Buy with a PO of Rs600 (upside potential of 50%+).

Dabur: New products would be a key focus area for FY09. A good hit rate should help accelerate topline growth in FY09. Distribution synergies from integration of foods should help offset higher gestation costs for new products. Dabur is on track to grow 20% in FY09. Excluding retail gestation costs, EPS growth should be stronger at 25% and the stock is trading at 20xFY09E, implying effective PEG of <1x.>DLF: DLF should trade 1.3x NAV due to ability of DLF to identify and purchase advantageously located land, strong probability of land accretions in Maharashtra with Nakheel and in Gurgaon for the SEZ and value creation in hospitality joint ventures. We maintain Buy with a PO of Rs1,160/share (based on 30% premium to our NAV of Rs890/share) implying an upside potential of 46%. DalalStreet .Biz Opinion: We do not think that DLF should command any premium and maintain a target price of Rs 900-950.

HDFC Bank: As the bank leverages from the investments made in the retail banking infrastructure over the last few years, the contribution of retail in bank’s bottom line is likely to increase. Expect HDFC Standard Life’s total premium income (APE including renewal premium) to grow at 40% CAGR over next five years to an estimated Rs225bn in 2013 (Rs43bn in FY08E). ML values HDFC Standard Life’s Life insurance business at US$4.3bn in FY10E, on basis of a 23x multiple to its estimated NBAP of US$190mn (Rs7.6bn) for FY10E. Accordingly we arrive at a value of US$3.2bn for HDFC’s 74% stake in the company, which translates into Rs457/share of HDFC.

DalalStreet .Biz Opinion: HDFC Bank is an excellent company to own. But the valuations at Rs 1,500 appear rich for a new investor to enter the stock. If you are holding, ride the boom. We do not recommend investors to enter the stock at Rs 1,500+ levels as the Sum of the Parts Valuation theory is over-optimistic.

Reliance Communication: highlighted that its cost per minute on GSM will be much lower than other operators due to shared use of a large part of its existing CDMA network. RCom is seriously working towards providing “converged” services. In addition to its wireless capex, the Co is spending aggressively on its non-wireless businesses. PO of Rs810/sh for Reliance Communication factors 1) ~Rs725/sh for RCom’s core telecom biz supported by DCF & implying an EV/EBITDA of ~11x FY10E; 2) ~Rs70/sh for external tenants on RCom’s tower subsidiary (RTIL) & 3) ~Rs15/sh towards land for which RCom has received SEZ approval.

DalalStreet .Biz Opinion: Don’t factor the SEZ in RCom and hence we set a PO of Rs 795

Tata Steel: Acquisition synergies plus production cost improvements at Corus, should help offset higher raw material costs. Tata’s stock price is already discounting Corus’s lack of raw material integration, but it is ignoring the potential upsides from synergy benefits and continuous cost improvements at Corus. We believe valuation at P/E of 7xFY09E offers an attractive risk reward opportunity.

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