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UTV Software Communications Ltd
Lights, camera, action - movies direct growth
UTV Software Communications Ltd (UTV) is a diversified media and
entertainment company covering three verticals – film production and
distribution, television, and emerging segments such as gaming and
interactive. We maintain our fundamental grade of ‘3/5’, indicating that its
fundamentals are ‘good’ relative to other listed equity securities in India.
Movies – following a de-risked strategy
UTV operates through a de-risked model by following a ‘studio’ approach and
also preselling television and music rights comprising ~50-60% of the cost of
production. These and a strong slate of movie releases over the past three
years have resulted in a revenue CAGR of 64% over FY07-FY10 and an
improvement in EBIT margin to ~42% in H1FY11 from 5% in FY07. We expect
UTV will continue to perform well and expect movies will be the most profitable
segment.
Television – broadcasting to improve profitability
Strong advertising revenues not only helped the broadcasting division to grow
but also to break even at the EBIT level in a record time of two-three years.
We expect advertising revenue growth and improvement in EBIT margins in
this division to continue. Additionally, higher revenue contribution from
broadcasting will almost double the television segment’s y-o-y EBIT margin to
13% in FY12.
Gaming – expected to ignite
Post the delay in the release of AAA console games, UTV signed minimum
guarantee deals worth US$ 10 mn for merchandising and motion picture
rights; it is expected to sign more minimum guarantee deals. While we expect
this will push the gaming segment’s revenue to Rs 5.2 bn in FY12 (Rs 1 bn in
FY10), we continue to expect revenues from the other two console games to
spill over to FY13 from FY12. In FY12, we now expect the segment to report
revenues lower than Rs 6.4 bn estimated earlier.
Overall revenues to log a CAGR 50% despite low gaming revenues
Even after factoring in lower revenues from the gaming business, we expect
UTV’s revenues to grow at a two-year CAGR of 50% to Rs 15 bn in 2012. We
now expect PAT of Rs 2.3 bn in FY12 against Rs 2.1 bn expected earlier. RoE is
expected to improve to 22.3% in FY12 from 3% in FY10.
Valuations – the current price is ‘aligned’ with fair value
CRISIL Equities continues to value UTV on the sum-of-the-parts basis with fair
value of Rs 570 per share, higher than the Rs 545 per share which was
expected earlier, due to higher profitability in the movies segment.
Consequently, we maintain a valuation grade of ‘3/5’.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UTV Software Communications Ltd
Lights, camera, action - movies direct growth
UTV Software Communications Ltd (UTV) is a diversified media and
entertainment company covering three verticals – film production and
distribution, television, and emerging segments such as gaming and
interactive. We maintain our fundamental grade of ‘3/5’, indicating that its
fundamentals are ‘good’ relative to other listed equity securities in India.
Movies – following a de-risked strategy
UTV operates through a de-risked model by following a ‘studio’ approach and
also preselling television and music rights comprising ~50-60% of the cost of
production. These and a strong slate of movie releases over the past three
years have resulted in a revenue CAGR of 64% over FY07-FY10 and an
improvement in EBIT margin to ~42% in H1FY11 from 5% in FY07. We expect
UTV will continue to perform well and expect movies will be the most profitable
segment.
Television – broadcasting to improve profitability
Strong advertising revenues not only helped the broadcasting division to grow
but also to break even at the EBIT level in a record time of two-three years.
We expect advertising revenue growth and improvement in EBIT margins in
this division to continue. Additionally, higher revenue contribution from
broadcasting will almost double the television segment’s y-o-y EBIT margin to
13% in FY12.
Gaming – expected to ignite
Post the delay in the release of AAA console games, UTV signed minimum
guarantee deals worth US$ 10 mn for merchandising and motion picture
rights; it is expected to sign more minimum guarantee deals. While we expect
this will push the gaming segment’s revenue to Rs 5.2 bn in FY12 (Rs 1 bn in
FY10), we continue to expect revenues from the other two console games to
spill over to FY13 from FY12. In FY12, we now expect the segment to report
revenues lower than Rs 6.4 bn estimated earlier.
Overall revenues to log a CAGR 50% despite low gaming revenues
Even after factoring in lower revenues from the gaming business, we expect
UTV’s revenues to grow at a two-year CAGR of 50% to Rs 15 bn in 2012. We
now expect PAT of Rs 2.3 bn in FY12 against Rs 2.1 bn expected earlier. RoE is
expected to improve to 22.3% in FY12 from 3% in FY10.
Valuations – the current price is ‘aligned’ with fair value
CRISIL Equities continues to value UTV on the sum-of-the-parts basis with fair
value of Rs 570 per share, higher than the Rs 545 per share which was
expected earlier, due to higher profitability in the movies segment.
Consequently, we maintain a valuation grade of ‘3/5’.
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