BUY United Spirits:: ICICI Securities

Please Share::


Change in guard to bolster growth……
• Net revenue for Q4FY14 stood at | 1943.3 crore, posting growth of
~4% YoY against | 1871.4 crore in Q4FY13. Volume for FY14 stood
at 120.7 million cases vs. 123.7 million cases in FY13. Sales for the
company’s Prestige & above segment grew 15% YoY to 33 million
cases vs. 28.7 million cases in FY13
• EBITDA for the quarter stood at | 116.6 crore registering de-growth
of 46% YoY. The decline in EBITDA was on account of a contraction
in the EBITDA margin by ~548 bps YoY to 6.1%
• United Spirits (USL) reported a net loss of | 5380.1 crore in Q4FY14
vs. profit of | 56 crore in Q4FY13. The loss of ~| 4321.6 crore was
due to discontinuing of operations of Whyte & Mackay along with
provisions for doubtful debts/advances to the tune of | 1012.8 crore
Clean-up of balance sheet major step by Diageo
Diageo accounted for provisions to the tune of | 1123.2 crore to
encompass doubtful receivables and advances made to the holding
company UBHL. Further, with the sale of W&M, Diageo accounted for
impairment in goodwill to the extent of | 3235.7 crore resulting into loss
on account of discontinued operations to the tune of | 3047.8 crore.
Premiumisation to take centre stage with Diageo in firm seat
Diageo through its indirect wholly-owned subsidiary Relay BV acquired
14,532,775 equity shares of | 10 each at a price of | 1440 by way of
preferential allotment on November 9, 2012. Further, it acquired 58,668
shares through an open offer (phase 1) and 21,767,749 shares from UBHL,
Kingfisher Finvest, SWEW, Palmer group and UB Sports Management
taking the total number of shares to 36,359,192 or 25.02% as on July 4,
2013. Next, Relay BV acquired nearly 3.76% by way of market purchases
on November 28, 2013 and finally acquired 37,785,214 shares constituting
26% through the second round of open offer to take the total share to
54.78%. Diageo, now with a firm grip over USL can drive the
premiumisation programme and churn USL’s product portfolio towards
value by culling unprofitable products. Further, we believe there will be a
higher adherence to international laws and better corporate governance
on part of USL.
Gearing up to drive into next growth phase; opportune time to join
With Diageo at the helm, we believe USL will go through a significant
transformation and shift from volume to value growth at a more rapid
pace. Also, its strategy of premiumisation and de-leveraging of the
balance sheet remains firmly in place. Consequently, we have segregated
DCF into three phases to capture the transformation and subsequent
accrued benefits of transition. We arrive at a fair price of | 2950 for USL
and maintain BUY recommendation on the stock.


�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

BUY Sonata Software:: ICICI Securities

Please Share::

Sonata Software (SONSOF)
Sonata Software (SSL), an IT services and products company,
restructured its operations in 2012 to focus on the services business,
select verticals (travel, retail) and complex products (cloud). This led to
an improved financial performance (| 78 crore PAT in FY14 vs. | 3
crore loss in FY12), healthy balance sheet metric & attractive dividend
payout (50%). Encouraging growth outlook coupled with reasonable
valuations (~8x FY16E) make SSL an attractive investment story.
Highlights:
• Restructured and reinvented: SSL restructured itself in FY12,
leading to a change of guard and appointment of Srikar Reddy, an
SSL veteran, as CEO. The new management not only revamped
the sales function including appointment of new sales heads for
North America and UK but added senior professionals across
verticals and geographies from companies such as Accenture,
Infosys and MphasiS. The restructuring seems to have paid off as
IT services rupee revenues grew at 31% CAGR in FY12-14 while
EBITDA margins improved 640 bps to 17.5% from 11.1% in FY12.
• Aims at three stage EBITDA target for products business: Though
products revenue growth could be modest and lumpy given the
reseller nature of the business, SSL has set EBITDA targets for its
sales team. Further, a shift to cloud licence vs. on premise earlier
could help alleviate margin concerns as resellers are incentivised
with higher margins by large software vendors as they themselves
are endorsing the cloud strategy.
• Client mining focus continues to yield results: Post restructuring,
SSL renewed its go-to market strategy and emphasised on 1)
strengthening sales infrastructure, 2) hiring account managers, 3)
mining strategic accounts and 4) large deal wins: seven in its core
verticals (travel, retail, CPG) in the last 18 months. The strategy
seems to have paid off as top 10 account revenues grew at 26%
CAGR during FY12-14.
• We expect SSL to report revenue, EPS CAGR of 9%, 46% during
FY14-16E (average 9.8% EBITDA margin), respectively, vs. flat
growth reported during FY09-14 (7.9%), led by client mining, large
deal wins and improving operating metric (realisation rates,
utilisation). We value Sonata at | 150-170, i.e. 10.5-12x FY16E EPS
(2.4x Mcap/sales FY16E services business) of | 14.3, given
improving fundamentals, healthy cash balance (| 250 crore) and
high dividend payout (~50%).



�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

Initial Public Offering: Shemaroo : Kotak Sec Link

Please Share::


Competitive Strengths of company
 Shemaroo, an established brand name;
 Vast, diverse and growing Content Library;
 Diversified distribution platforms;
 De-risked business model;
 Experienced directors and management team.


Business Strategies
 Scaling up Content Library driven by return on investment;
 Enhancing monetization of Content Library through existing and emerging media platforms;
 Enhancing revenue predictability through strategically packaged sales;
 Optimizing content monetization across its life-cycle; and
 Creating a sustainable competitive advantage through marketing strategy and moving up the value
chain.
 Strong relationships in the industry


Risk Factors*:
Internal:
 Pending criminal proceedings against the company
 Group Company, Directors, Subsidiaries and Promoters are party to certain Legal proceedings.
External:
 Illegal use and exploitation of the content and/or intellectual property rights and inadequate judicial
systems and remedies, can diminish the demand of company’s products and adversely impact the
brand goodwill.
*For detailed risk factors, please read the Red Herring Prospectus.


The objectives of the issue are to:
 Fund working capital requirements; and
 Fund expenditure for general corporate purposes



�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

Outlook – Fixed Income

Please Share::

Outlook – Fixed Income

Gross Domestic Product (GDP) growth at 2-year high

The recent optimism witnessed in the Indian economy was evidenced in the Gross Domestic Product (GDP) reading; wherein the GDP growth rose to 5.7% year-on-year (YoY) in Q1 financial year 2014-2015 (FY14) from 4.6% YoY in Q4 – financial year 2013-2014 (FY13), higher than market expectations of 5.5%. Non-agricultural GDP growth rebounded to a nine-quarter high of 6.0% YoY in Q1, led by both the industrial and services sectors. Non-agricultural GDP growth rebounded sharply to a nine-quarter high (6.0% YoY in Q1 from 4.3% YoY in Q4 – FY13) led by a pickup in both the industrial (4.0% vs -0.5%) and services sectors (6.6% vs 5.8%) with recovery evident in output growth in the manufacturing, electricity and utilities, construction and community and personal services sectors. Agricultural growth moderated, but remained at a healthy pace (3.8% YoY in Q1 from 6.3% in Q4-FY13).

The Consumer Price Index (CPI) inches up owing to vegetable prices

The Consumer Price Index (CPI) rose to 7.96% YoY in July 2014 as against market expectations of 7.4%. The increase in price data was primarily on account of rise in vegetable prices. Although the vegetable prices would continue to contribute to elevated inflation readings; we expect overall moderation in coming month’s data owing to disinflationary trends in the CPI data ex of vegetables. Moreover, improved rainfall in the recent months would also contribute to moderation in the CPI which is expected to head lower in Q3 FY14 owing to positive base effects.

The Wholesale Price Index (WPI) came in lower at 5.19% for July 2014 as against 5.43% in June 2014 aided by decline in fuel prices. It may be noted that the weight of food and vegetable is lower in WPI index as against CPI index leading to contrarian movements in the inflation readings.

Index of Industrial Production (IIP) moderates but in positive territory

Industrial production slowed to 3.4% YoY in June 2014 as against market expectation of 5.6%. The slowdown was owing to contraction in consumer goods. Recent Purchasing Managers Index (PMI) data has remained healthy denoting an upward momentum in growth prospects.

India’s Current Account Deficit (CAD) widened to 1.7% of GDP for Q1-FY14 sequentially from 0.3% in Q4-FY13. However, it improved on yearly basis. Net capital inflows surged from 1.8% of GDP to 4.2% resulting in surplus in balance of payments.

The Reserve Bank of India (RBI) announced a liquidity framework which could reduce the volatility in the overnight rates. It may be noted that the overnight rates were subject to higher volatility in recent times owing to surging government cash balance. These measures would limit the volatility in overnight rates allowing for overnight rates to be closer to repo and term repo cut offs.

Going Forward

The RBI’s policy stance remains firmly anchored on keeping theeconomy on a disinflationary glide path of taking the CPI inflation to 8% by January 2015 and below 6% by January 2016.Monsoons in the near-term and its impact on food prices, and geo-political tensions and changes in US monetary policy remain key risk factors.The short term yields are likely to remain well anchored around the RBI operating overnight rate (Repo rate). There can be some pressure in the near-term on account of increase in certificate of deposit issuance by banks on rollover of maturities.The longer end of the G-sec yield curve is expected to see some easing due to subdued net supply of G-sec. We holding on to

long duration given the government’s commitment to maintain fiscal discipline and set targets.

The corporate bond yield curve is likely to steepen goingforward. The short term corporate bond yields are likely to benefit from stable overnight rates as well as increased demand from rollover of fixed maturity plans (FMPs). The long term yields are likely to see spreads between Government Securities (Gsec) and corporate bonds increase further, with a resumption in supply from the traditional issuers as well as new supply from banks (which have been incentivised to issue seven year maturity infrastructure bonds in the recent Union Budget).

We would increase duration on further market weakness primarily through G-sec position given our expectation of spreads to widen in Corporate bonds. We expect a rate cut cycle to begin in 2015 as inflation trends ease and supply side bottlenecks reduce due to government initiatives/policies.

 Recommended NFO

JPMorgan India Corporate Debt Opportunities Fund

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

Subscribe to Shemaroo Entertainment IPO: Hem Securities

Please Share::

Subscribe to Shemaroo Entertainment IPO: Hem Securities

Hem Securities' report on Shemaroo Entertainment IPO The Company is bringing the issue at price band of Rs 155-170 per share which will turn into p/e multiple of 15-17 at post issue FY’14 eps of Rs 10.13. Company with its presence in various distribution platforms such as television, home entertainment, digital New Media and other media have a diverse Content Library, which is growing continuously with the addition of new releases as well as through catalogue acquisitions. Also, Co’s recent initiatives as an official channel partner for Google Inc.’s You Tube is infusing optimism in growth prospects of company. Hence we recommend subscribe the issue, says the research firm. Company was founded on October 29, 1962, in Mumbai, as a book circulating library. It is an established integrated media content house in India with activities across content acquisition, value addition to content and content distribution. In 1979, company set up India's first video rental business and thereafter in 1987, company forayed into distribution of content through the home video segment in the video home system (“VHS”) format. O ver the years, company has successfully adapted to changing content consumption patterns by expanding into content aggregation and distribution for broadcasting on television platforms. Company is continuing the expansion into New Media platforms.

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��