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UTV Software
CMP 540/-
· A Company, promoted by Rohinton screwala, is jointly owned by Walt Disney also, both having 3 directors on board. Though Walt Disney owns 50.4% stake right now, its voting rights are only 32%. Ronnie owns 19.6% stake in company, but has option to buy back 19% stake from Walt Disney in next two years at around Rs.900/- or so. [which can increase Ronnie’s stake to 38% and reduces Walt Disney’s stake to 32%].
· Company is in to high growth entertainment business, with latest entertainment offerings. Apart from segments like – TV Broadcasting, TV Content development, Movie Production, etc; company is also in to a very niche and high margin business of developing – Console Games for - PS3 & Xbox platforms. This is a very big market globally [bigger then Movies] and offers high growth potential. They are also in to Mobile & Online gaming development, which ahs high growth potential.
· TV content & Movies businesses are already profitable; while TV Broadcasting business has now turned profitable and will improve further with overall improving scene on advertising rates & subscription revenue potential. The profitability of company is rising fast in current year with all segments contributing to bottom line. Most exciting future is in Gaming business, where company has three console based games ready to be launched. For this global distribution tie ups are being worked out. Each of these IP owned games can fetch significant revenues and profits. First to be launched game could be – El Shaddai, may be in next 6-8 weeks.
Recommendation
We expect the company to perform exceedingly well in current and coming years, based on significant improvements seen in all segments of the business. Overall outlook for entertainment business is extremely positive, looking to rising spending by new generation on this account. We expect company to report consolidated EPS of Rs 32/- in FY 11 & Rs 52/- in FY 12. We set a target of Rs 640/- for next 3 months & Rs 1040 for 12 months. BUY.
Background
UTV is mainly into 3 business – Television, Movies and Gaming & new media.
1)
In TV broadcasting & Content ‐ they have portfolio of channelslike UTV Bindaas, UTV Movies, World Movies, bindaas Movies UTV action etc. in TV content side they offer TV content to channels like ‐ Sony, Star Plus, Imagine Me‐Marathi and Sun Network. They produce popular program like Boggie Woggie, Prajakta and other regional language programs. 2) In movies segment they have produced many popular movies like ‐ Rang de Basanti, Rajneeti, Peepli Live, Jodha Akbar, Udaan and soon to be luanched new films are ‐ Guzarish,Saath Khoon Maaf etc etc. In this segment too, they de‐risk the business and recover most of the production cost by pre‐sale of music, home videos, satellite TV rights etc. They also generate significant revenues from old movie content library,where in investments has already been written off completely.3) On gaming side they are into developing console based games as well as online & mobile games. They have developed 3 big console games IPs, in their development facilities in ‐Japan, UK and USA. Out of these three games, first to be launched [based on deal with global distributor] is ‘ EL Shaddai’, while othwer two games [Mytheon & may be launched after somegap. ‘EL Shaddai’ may be launched in next 6‐8 weeks and is expected to generate significant revenue [if clicks well]. Cost of such one big IP games is around $ 25mn and to de risk,the company is looking for a tie up, which can guarantee its cost and minimum returns and revenues over the thresh hold could be shared. They are also exploiting the possibility of distributing through –independent distributors or even withSony (PS3) and Microsoft (Xbox) also. Apart from the big console games IPs, they also produce online & mobile gameswhich can generate good revenue. The launch of 3G in India will open up the large potential for mobile gaming business.
Risks and concerns
The movie and Gaming business are unpredictable and can flop also, leading to poor performance.
TV Broadcast and content business is highly competitive and yieldspoor margins.
Recommendation
We expect the company to perform exceedingly well in currentand coming years, based on significant improvements seen in all segments of the business. Overall outlook for entertainment business is extremely positive, looking to rising spending by newgeneration on this account. We expect company to reportconsolidated EPS of Rs 32/‐ in FY 11 & Rs 52/‐ in FY 12. We set a target of Rs 640/‐ for next 3 months & Rs 1040 for 12 months. BUY.
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